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Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 155001
May 5, 2003
DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B. REUNILLA, MANUEL ANTONIO B. BOE,
MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY V. DOMALAON, CONRADO G. DIMAANO, LOLITA R. HIZON,
REMEDIOS P. ADOLFO, BIENVENIDO C. HILARIO, MIASCOR WORKERS UNION - NATIONAL LABOR UNION (MWU-NLU),
and PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION (PALEA),petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY,
DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS and SECRETARY LEANDRO M. MENDOZA, in his
capacity as Head of the Department of Transportation and Communications, respondents,
MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS AVIATION SYSTEMS CORPORATION, MACROASIAEUREST SERVICES, INC., MACROASIA-MENZIES AIRPORT SERVICES CORPORATION, MIASCOR CATERING
SERVICES CORPORATION, MIASCOR AIRCRAFT MAINTENANCE CORPORATION, and MIASCOR LOGISTICS
CORPORATION, petitioners-in-intervention,
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G.R. No. 155547 May 5, 2003
SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G. JARAULA, petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY,
DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS,
SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation and
Communications, and SECRETARY SIMEON A. DATUMANONG, in his capacity as Head of the Department of Public
Works and Highways, respondents,
JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON VILLARAMA, PROSPERO C.
NOGRALES, PROSPERO A. PICHAY, JR., HARLIN CAST ABAYON, and BENASING O. MACARANBON,respondentsintervenors,
x---------------------------------------------------------x
G.R. No. 155661 May 5, 2003
CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA, MA. TERESA V. GAERLAN, LEONARDO DE LA
ROSA, DINA C. DE LEON, VIRGIE CATAMIN RONALD SCHLOBOM, ANGELITO SANTOS, MA. LUISA M. PALCON and
SAMAHANG MANGGAGAWA SA PALIPARAN NG PILIPINAS (SMPP), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY,
DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, SECRETARY LEANDRO M. MENDOZA, in his capacity
as Head of the Department of Transportation and Communications, respondents.
PUNO, J.:
Petitioners and petitioners-in-intervention filed the instant petitions for prohibition under Rule 65 of the Revised Rules of Court
seeking to prohibit the Manila International Airport Authority (MIAA) and the Department of Transportation and Communications
(DOTC) and its Secretary from implementing the following agreements executed by the Philippine Government through the
DOTC and the MIAA and the Philippine International Air Terminals Co., Inc. (PIATCO): (1) the Concession Agreement signed on
July 12, 1997, (2) the Amended and Restated Concession Agreement dated November 26, 1999, (3) the First Supplement to the
Amended and Restated Concession Agreement dated August 27, 1999, (4) the Second Supplement to the Amended and
Restated Concession Agreement dated September 4, 2000, and (5) the Third Supplement to the Amended and Restated
Concession Agreement dated June 22, 2001 (collectively, the PIATCO Contracts).
The facts are as follows:
In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to conduct a comprehensive study of the Ninoy
Aquino International Airport (NAIA) and determine whether the present airport can cope with the traffic development up to the
year 2010. The study consisted of two parts: first, traffic forecasts, capacity of existing facilities, NAIA future requirements,
proposed master plans and development plans; and second, presentation of the preliminary design of the passenger terminal
building. The ADP submitted a Draft Final Report to the DOTC in December 1989.
Sometime in 1993, six business leaders consisting of John Gokongwei, Andrew Gotianun, Henry Sy, Sr., Lucio Tan, George Ty
and Alfonso Yuchengco met with then President Fidel V. Ramos to explore the possibility of investing in the construction and
operation of a new international airport terminal. To signify their commitment to pursue the project, they formed the Asia's

Emerging Dragon Corp. (AEDC) which was registered with the Securities and Exchange Commission (SEC) on September 15,
1993.
On October 5, 1994, AEDC submitted an unsolicited proposal to the Government through the DOTC/MIAA for the development
of NAIA International Passenger Terminal III (NAIA IPT III) under a build-operate-and-transfer arrangement pursuant to RA 6957
as amended by RA 7718 (BOT Law).1
On December 2, 1994, the DOTC issued Dept. Order No. 94-832 constituting the Prequalification Bids and Awards Committee
(PBAC) for the implementation of the NAIA IPT III project.
On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of AEDC to the National Economic and
Development Authority (NEDA). A revised proposal, however, was forwarded by the DOTC to NEDA on December 13, 1995. On
January 5, 1996, the NEDA Investment Coordinating Council (NEDA ICC) Technical Board favorably endorsed the project to
the ICC Cabinet Committee which approved the same, subject to certain conditions, on January 19, 1996. On February 13,
1996, the NEDA passed Board Resolution No. 2 which approved the NAIA IPT III project.
On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily newspapers of an invitation for competitive or
comparative proposals on AEDC's unsolicited proposal, in accordance with Sec. 4-A of RA 6957, as amended. The alternative
bidders were required to submit three (3) sealed envelopes on or before 5:00 p.m. of September 20, 1996. The first envelope
should contain the Prequalification Documents, the second envelope the Technical Proposal, and the third envelope the
Financial Proposal of the proponent.
On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the availment of the Bid Documents and the submission of the
comparative bid proposals. Interested firms were permitted to obtain the Request for Proposal Documents beginning June 28,
1996, upon submission of a written application and payment of a non-refundable fee of P50,000.00 (US$2,000).
The Bid Documents issued by the PBAC provided among others that the proponent must have adequate capability to sustain the
financing requirement for the detailed engineering, design, construction, operation, and maintenance phases of the project. The
proponent would be evaluated based on its ability to provide a minimum amount of equity to the project, and its capacity to
secure external financing for the project.
On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders to a pre-bid conference on July 29, 1996.
On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid Documents. The following amendments were
made on the Bid Documents:
a. Aside from the fixed Annual Guaranteed Payment, the proponent shall include in its financial proposal an additional
percentage of gross revenue share of the Government, as follows:
i. First 5 years
5.0%
ii. Next 10 years

7.5%

iii. Next 10 years


10.0%
b. The amount of the fixed Annual Guaranteed Payment shall be subject of the price challenge. Proponent may offer an Annual
Guaranteed Payment which need not be of equal amount, but payment of which shall start upon site possession.
c. The project proponent must have adequate capability to sustain the financing requirement for the detailed engineering, design,
construction, and/or operation and maintenance phases of the project as the case may be. For purposes of pre-qualification, this
capability shall be measured in terms of:
i. Proof of the availability of the project proponent and/or the consortium to provide the minimum amount of equity for the project;
and
ii. a letter testimonial from reputable banks attesting that the project proponent and/or the members of the consortium are
banking with them, that the project proponent and/or the members are of good financial standing, and have adequate resources.
d. The basis for the prequalification shall be the proponent's compliance with the minimum technical and financial requirements
provided in the Bid Documents and the IRR of the BOT Law. The minimum amount of equity shall be 30% of the Project Cost.
e. Amendments to the draft Concession Agreement shall be issued from time to time. Said amendments shall only cover items
that would not materially affect the preparation of the proponent's proposal.
On August 29, 1996, the Second Pre-Bid Conference was held where certain clarifications were made. Upon the request of
prospective bidder People's Air Cargo & Warehousing Co., Inc (Paircargo), the PBAC warranted that based on Sec. 11.6, Rule
11 of the Implementing Rules and Regulations of the BOT Law, only the proposed Annual Guaranteed Payment submitted by the
challengers would be revealed to AEDC, and that the challengers' technical and financial proposals would remain confidential.
The PBAC also clarified that the list of revenue sources contained in Annex 4.2a of the Bid Documents was merely indicative and
that other revenue sources may be included by the proponent, subject to approval by DOTC/MIAA. Furthermore, the PBAC
clarified that only those fees and charges denominated as Public Utility Fees would be subject to regulation, and those charges
which would be actually deemed Public Utility Fees could still be revised, depending on the outcome of PBAC's query on the
matter with the Department of Justice.

In September 1996, the PBAC issued Bid Bulletin No. 5, entitled "Answers to the Queries of PAIRCARGO as Per Letter Dated
September 3 and 10, 1996." Paircargo's queries and the PBAC's responses were as follows:
1. It is difficult for Paircargo and Associates to meet the required minimum equity requirement as prescribed in Section 8.3.4 of
the Bid Documents considering that the capitalization of each member company is so structured to meet the requirements and
needs of their current respective business undertaking/activities. In order to comply with this equity requirement, Paircargo is
requesting PBAC to just allow each member of (sic) corporation of the Joint Venture to just execute an agreement that embodies
a commitment to infuse the required capital in case the project is awarded to the Joint Venture instead of increasing each
corporation's current authorized capital stock just for prequalification purposes.
In prequalification, the agency is interested in one's financial capability at the time of prequalification, not future or potential
capability.
A commitment to put up equity once awarded the project is not enough to establish that "present" financial capability. However,
total financial capability of all member companies of the Consortium, to be established by submitting the respective companies'
audited financial statements, shall be acceptable.
2. At present, Paircargo is negotiating with banks and other institutions for the extension of a Performance Security to the joint
venture in the event that the Concessions Agreement (sic) is awarded to them. However, Paircargo is being required to submit a
copy of the draft concession as one of the documentary requirements. Therefore, Paircargo is requesting that they'd (sic) be
furnished copy of the approved negotiated agreement between the PBAC and the AEDC at the soonest possible time.
A copy of the draft Concession Agreement is included in the Bid Documents. Any material changes would be made known to
prospective challengers through bid bulletins. However, a final version will be issued before the award of contract.
The PBAC also stated that it would require AEDC to sign Supplement C of the Bid Documents (Acceptance of Criteria and
Waiver of Rights to Enjoin Project) and to submit the same with the required Bid Security.
On September 20, 1996, the consortium composed of People's Air Cargo and Warehousing Co., Inc. (Paircargo), Phil. Air and
Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank) (collectively, Paircargo Consortium) submitted their
competitive proposal to the PBAC. On September 23, 1996, the PBAC opened the first envelope containing the prequalification
documents of the Paircargo Consortium. On the following day, September 24, 1996, the PBAC prequalified the Paircargo
Consortium.
On September 26, 1996, AEDC informed the PBAC in writing of its reservations as regards the Paircargo Consortium, which
include:
a. The lack of corporate approvals and financial capability of PAIRCARGO;
b. The lack of corporate approvals and financial capability of PAGS;
c. The prohibition imposed by RA 337, as amended (the General Banking Act) on the amount that Security Bank could
legally invest in the project;
d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for prequalification purposes; and
e. The appointment of Lufthansa as the facility operator, in view of the Philippine requirement in the operation of a
public utility.
The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered the issues raised by the latter, and that
based on the documents submitted by Paircargo and the established prequalification criteria, the PBAC had found that the
challenger, Paircargo, had prequalified to undertake the project. The Secretary of the DOTC approved the finding of the PBAC.
The PBAC then proceeded with the opening of the second envelope of the Paircargo Consortium which contained its Technical
Proposal.
On October 3, 1996, AEDC reiterated its objections, particularly with respect to Paircargo's financial capability, in view of the
restrictions imposed by Section 21-B of the General Banking Act and Sections 1380 and 1381 of the Manual Regulations for
Banks and Other Financial Intermediaries. On October 7, 1996, AEDC again manifested its objections and requested that it be
furnished with excerpts of the PBAC meeting and the accompanying technical evaluation report where each of the issues they
raised were addressed.
On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and the Paircargo Consortium containing their
respective financial proposals. Both proponents offered to build the NAIA Passenger Terminal III for at least $350 million at no
cost to the government and to pay the government: 5% share in gross revenues for the first five years of operation, 7.5% share
in gross revenues for the next ten years of operation, and 10% share in gross revenues for the last ten years of operation, in
accordance with the Bid Documents. However, in addition to the foregoing, AEDC offered to pay the government a total of P135
million as guaranteed payment for 27 years while Paircargo Consortium offered to pay the government a total of P17.75 billion
for the same period.
Thus, the PBAC formally informed AEDC that it had accepted the price proposal submitted by the Paircargo Consortium, and
gave AEDC 30 working days or until November 28, 1996 within which to match the said bid, otherwise, the project would be
awarded to Paircargo.

As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary Amado Lagdameo, on December 11,
1996, issued a notice to Paircargo Consortium regarding AEDC's failure to match the proposal.
On February 27, 1997, Paircargo Consortium incorporated into Philippine International Airport Terminals Co., Inc. (PIATCO).
AEDC subsequently protested the alleged undue preference given to PIATCO and reiterated its objections as regards the
prequalification of PIATCO.
On April 11, 1997, the DOTC submitted the concession agreement for the second-pass approval of the NEDA-ICC.
On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a Petition for Declaration of Nullity of the Proceedings,
Mandamus and Injunction against the Secretary of the DOTC, the Chairman of the PBAC, the voting members of the PBAC and
Pantaleon D. Alvarez, in his capacity as Chairman of the PBAC Technical Committee.
On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate the approval, on a no-objection basis, of the BOT
agreement between the DOTC and PIATCO. As the ad referendum gathered only four (4) of the required six (6) signatures, the
NEDA merely noted the agreement.
On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO.
On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO, through its President, Henry T.
Go, signed the "Concession Agreement for the Build-Operate-and-Transfer Arrangement of the Ninoy Aquino International Airport
Passenger Terminal III" (1997 Concession Agreement). The Government granted PIATCO the franchise to operate and maintain
the said terminal during the concession period and to collect the fees, rentals and other charges in accordance with the rates or
schedules stipulated in the 1997 Concession Agreement. The Agreement provided that the concession period shall be for twentyfive (25) years commencing from the in-service date, and may be renewed at the option of the Government for a period not
exceeding twenty-five (25) years. At the end of the concession period, PIATCO shall transfer the development facility to MIAA.
On November 26, 1998, the Government and PIATCO signed an Amended and Restated Concession Agreement (ARCA).
Among the provisions of the 1997 Concession Agreement that were amended by the ARCA were: Sec. 1.11 pertaining to the
definition of "certificate of completion"; Sec. 2.05 pertaining to the Special Obligations of GRP; Sec. 3.02 (a) dealing with the
exclusivity of the franchise given to the Concessionaire; Sec. 4.04 concerning the assignment by Concessionaire of its interest in
the Development Facility; Sec. 5.08 (c) dealing with the proceeds of Concessionaire's insurance; Sec. 5.10 with respect to the
temporary take-over of operations by GRP; Sec. 5.16 pertaining to the taxes, duties and other imposts that may be levied on the
Concessionaire; Sec. 6.03 as regards the periodic adjustment of public utility fees and charges; the entire Article VIII concerning
the provisions on the termination of the contract; and Sec. 10.02 providing for the venue of the arbitration proceedings in case a
dispute or controversy arises between the parties to the agreement.
Subsequently, the Government and PIATCO signed three Supplements to the ARCA. The First Supplement was signed on
August 27, 1999; the Second Supplement on September 4, 2000; and the Third Supplement on June 22, 2001 (collectively,
Supplements).
The First Supplement to the ARCA amended Sec. 1.36 of the ARCA defining "Revenues" or "Gross Revenues"; Sec. 2.05 (d) of
the ARCA referring to the obligation of MIAA to provide sufficient funds for the upkeep, maintenance, repair and/or replacement
of all airport facilities and equipment which are owned or operated by MIAA; and further providing additional special obligations
on the part of GRP aside from those already enumerated in Sec. 2.05 of the ARCA. The First Supplement also provided a
stipulation as regards the construction of a surface road to connect NAIA Terminal II and Terminal III in lieu of the proposed
access tunnel crossing Runway 13/31; the swapping of obligations between GRP and PIATCO regarding the improvement of
Sales Road; and the changes in the timetable. It also amended Sec. 6.01 (c) of the ARCA pertaining to the Disposition of
Terminal Fees; Sec. 6.02 of the ARCA by inserting an introductory paragraph; and Sec. 6.02 (a) (iii) of the ARCA referring to the
Payments of Percentage Share in Gross Revenues.
The Second Supplement to the ARCA contained provisions concerning the clearing, removal, demolition or disposal of
subterranean structures uncovered or discovered at the site of the construction of the terminal by the Concessionaire. It defined
the scope of works; it provided for the procedure for the demolition of the said structures and the consideration for the same
which the GRP shall pay PIATCO; it provided for time extensions, incremental and consequential costs and losses consequent to
the existence of such structures; and it provided for some additional obligations on the part of PIATCO as regards the said
structures.
Finally, the Third Supplement provided for the obligations of the Concessionaire as regards the construction of the surface road
connecting Terminals II and III.
Meanwhile, the MIAA which is charged with the maintenance and operation of the NAIA Terminals I and II, had existing
concession contracts with various service providers to offer international airline airport services, such as in-flight catering,
passenger handling, ramp and ground support, aircraft maintenance and provisions, cargo handling and warehousing, and other
services, to several international airlines at the NAIA. Some of these service providers are the Miascor Group, DNATA-Wings
Aviation Systems Corp., and the MacroAsia Group. Miascor, DNATA and MacroAsia, together with Philippine Airlines (PAL), are
the dominant players in the industry with an aggregate market share of 70%.

On September 17, 2002, the workers of the international airline service providers, claiming that they stand to lose their
employment upon the implementation of the questioned agreements, filed before this Court a petition for prohibition to enjoin the
enforcement of said agreements.2
On October 15, 2002, the service providers, joining the cause of the petitioning workers, filed a motion for intervention and a
petition-in-intervention.
On October 24, 2002, Congressmen Salacnib Baterina, Clavel Martinez and Constantino Jaraula filed a similar petition with this
Court.3
On November 6, 2002, several employees of the MIAA likewise filed a petition assailing the legality of the various agreements. 4
On December 11, 2002. another group of Congressmen, Hon. Jacinto V. Paras, Rafael P. Nantes, Eduardo C. Zialcita, Willie B.
Villarama, Prospero C. Nograles, Prospero A. Pichay, Jr., Harlin Cast Abayon and Benasing O. Macaranbon, moved to intervene
in the case as Respondents-Intervenors. They filed their Comment-In-Intervention defending the validity of the assailed
agreements and praying for the dismissal of the petitions.
During the pendency of the case before this Court, President Gloria Macapagal Arroyo, on November 29, 2002, in her speech at
the 2002 Golden Shell Export Awards at Malacaang Palace, stated that she will not "honor (PIATCO) contracts which the
Executive Branch's legal offices have concluded (as) null and void." 5
Respondent PIATCO filed its Comments to the present petitions on November 7 and 27, 2002. The Office of the Solicitor General
and the Office of the Government Corporate Counsel filed their respective Comments in behalf of the public respondents.
On December 10, 2002, the Court heard the case on oral argument. After the oral argument, the Court then resolved in open
court to require the parties to file simultaneously their respective Memoranda in amplification of the issues heard in the oral
arguments within 30 days and to explore the possibility of arbitration or mediation as provided in the challenged contracts.
In their consolidated Memorandum, the Office of the Solicitor General and the Office of the Government Corporate Counsel
prayed that the present petitions be given due course and that judgment be rendered declaring the 1997 Concession Agreement,
the ARCA and the Supplements thereto void for being contrary to the Constitution, the BOT Law and its Implementing Rules and
Regulations.
On March 6, 2003, respondent PIATCO informed the Court that on March 4, 2003 PIATCO commenced arbitration proceedings
before the International Chamber of Commerce, International Court of Arbitration (ICC) by filing a Request for Arbitration with the
Secretariat of the ICC against the Government of the Republic of the Philippines acting through the DOTC and MIAA.
In the present cases, the Court is again faced with the task of resolving complicated issues made difficult by their intersecting
legal and economic implications. The Court is aware of the far reaching fall out effects of the ruling which it makes today. For
more than a century and whenever the exigencies of the times demand it, this Court has never shirked from its solemn duty to
dispense justice and resolve "actual controversies involving rights which are legally demandable and enforceable, and to
determine whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction." 6 To be sure, this
Court will not begin to do otherwise today.
We shall first dispose of the procedural issues raised by respondent PIATCO which they allege will bar the resolution of the
instant controversy.
Petitioners' Legal Standing to File the present Petitions
a. G.R. Nos. 155001 and 155661
In G.R. No. 155001 individual petitioners are employees of various service providers 7 having separate concession contracts with
MIAA and continuing service agreements with various international airlines to provide in-flight catering, passenger handling, ramp
and ground support, aircraft maintenance and provisions, cargo handling and warehousing and other services. Also included as
petitioners are labor unions MIASCOR Workers Union-National Labor Union and Philippine Airlines Employees Association.
These petitioners filed the instant action for prohibition as taxpayers and as parties whose rights and interests stand to be
violated by the implementation of the PIATCO Contracts.
Petitioners-Intervenors in the same case are all corporations organized and existing under Philippine laws engaged in the
business of providing in-flight catering, passenger handling, ramp and ground support, aircraft maintenance and provisions,
cargo handling and warehousing and other services to several international airlines at the Ninoy Aquino International Airport.
Petitioners-Intervenors allege that as tax-paying international airline and airport-related service operators, each one of them
stands to be irreparably injured by the implementation of the PIATCO Contracts. Each of the petitioners-intervenors have
separate and subsisting concession agreements with MIAA and with various international airlines which they allege are being
interfered with and violated by respondent PIATCO.
In G.R. No. 155661, petitioners constitute employees of MIAA and Samahang Manggagawa sa Paliparan ng Pilipinas - a
legitimate labor union and accredited as the sole and exclusive bargaining agent of all the employees in MIAA. Petitioners
anchor their petition for prohibition on the nullity of the contracts entered into by the Government and PIATCO regarding the
build-operate-and-transfer of the NAIA IPT III. They filed the petition as taxpayers and persons who have a legitimate interest to
protect in the implementation of the PIATCO Contracts.

Petitioners in both cases raise the argument that the PIATCO Contracts contain stipulations which directly contravene numerous
provisions of the Constitution, specific provisions of the BOT Law and its Implementing Rules and Regulations, and public policy.
Petitioners contend that the DOTC and the MIAA, by entering into said contracts, have committed grave abuse of discretion
amounting to lack or excess of jurisdiction which can be remedied only by a writ of prohibition, there being no plain, speedy or
adequate remedy in the ordinary course of law.
In particular, petitioners assail the provisions in the 1997 Concession Agreement and the ARCA which grant PIATCO the
exclusive right to operate a commercial international passenger terminal within the Island of Luzon, except those international
airports already existing at the time of the execution of the agreement. The contracts further provide that upon the
commencement of operations at the NAIA IPT III, the Government shall cause the closure of Ninoy Aquino International Airport
Passenger Terminals I and II as international passenger terminals. With respect to existing concession agreements between
MIAA and international airport service providers regarding certain services or operations, the 1997 Concession Agreement and
the ARCA uniformly provide that such services or operations will not be carried over to the NAIA IPT III and PIATCO is under no
obligation to permit such carry over except through a separate agreement duly entered into with PIATCO. 8
With respect to the petitioning service providers and their employees, upon the commencement of operations of the NAIA IPT III,
they allege that they will be effectively barred from providing international airline airport services at the NAIA Terminals I and II as
all international airlines and passengers will be diverted to the NAIA IPT III. The petitioning service providers will thus be
compelled to contract with PIATCO alone for such services, with no assurance that subsisting contracts with MIAA and other
international airlines will be respected. Petitioning service providers stress that despite the very competitive market, the
substantial capital investments required and the high rate of fees, they entered into their respective contracts with the MIAA with
the understanding that the said contracts will be in force for the stipulated period, and thereafter, renewed so as to allow each of
the petitioning service providers to recoup their investments and obtain a reasonable return thereon.
Petitioning employees of various service providers at the NAIA Terminals I and II and of MIAA on the other hand allege that with
the closure of the NAIA Terminals I and II as international passenger terminals under the PIATCO Contracts, they stand to lose
employment.
The question on legal 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." 9 Accordingly, it has been held that the interest of a person assailing the
constitutionality of a statute must be direct and personal. He must be able to show, not only that the law or any government act is
invalid, but also that he sustained or is in imminent danger of sustaining some direct injury as a result of its enforcement, and not
merely that he suffers thereby in some indefinite way. It must appear that the person complaining has been or is about to be
denied some right or privilege to which he is lawfully entitled or that he is about to be subjected to some burdens or penalties by
reason of the statute or act complained of.10
We hold that petitioners have the requisite standing. In the above-mentioned cases, petitioners have a direct and substantial
interest to protect by reason of the implementation of the PIATCO Contracts. They stand to lose their source of livelihood, a
property right which is zealously protected by the Constitution. Moreover, subsisting concession agreements between MIAA and
petitioners-intervenors and service contracts between international airlines and petitioners-intervenors stand to be nullified or
terminated by the operation of the NAIA IPT III under the PIATCO Contracts. The financial prejudice brought about by the
PIATCO Contracts on petitioners and petitioners-intervenors in these cases are legitimate interests sufficient to confer on them
the requisite standing to file the instant petitions.
b. G.R. No. 155547
In G.R. No. 155547, petitioners filed the petition for prohibition as members of the House of Representatives, citizens and
taxpayers. They allege that as members of the House of Representatives, they are especially interested in the PIATCO
Contracts, because the contracts compel the Government and/or the House of Representatives to appropriate funds necessary
to comply with the provisions therein. 11 They cite provisions of the PIATCO Contracts which require disbursement of
unappropriated amounts in compliance with the contractual obligations of the Government. They allege that the Government
obligations in the PIATCO Contracts which compel government expenditure without appropriation is a curtailment of their
prerogatives as legislators, contrary to the mandate of the Constitution that "[n]o money shall be paid out of the treasury except
in pursuance of an appropriation made by law."12
Standing is a peculiar concept in constitutional law because in some cases, suits are not brought by parties who have been
personally injured by the operation of a law or any other government act but by concerned citizens, taxpayers or voters who
actually sue in the public interest. Although we are not unmindful of the cases of Imus Electric Co. v. Municipality of
Imus13 and Gonzales v. Raquiza14 wherein this Court held that appropriation must be made only on amounts immediately
demandable, public interest demands that we take a more liberal view in determining whether the petitioners suing as
legislators, taxpayers and citizens have locus standi to file the instant petition. In Kilosbayan, Inc. v. Guingona ,15 this
Court held "[i]n line with the liberal policy of this Court on locus standi, ordinary taxpayers, members of Congress, and even
association of planters, and non-profit civic organizations were allowed to initiate and prosecute actions before this Court to

question the constitutionality or validity of laws, acts, decisions, rulings, or orders of various government agencies or
instrumentalities."16 Further, "insofar as taxpayers' suits are concerned . . . (this Court) is not devoid of discretion as to whether
or not it should be entertained." 17 As such ". . . even if, strictly speaking, they [the petitioners] are not covered by the definition, it
is still within the wide discretion of the Court to waive the requirement and so remove the impediment to its addressing and
resolving the serious constitutional questions raised." 18 In view of the serious legal questions involved and their impact on public
interest, we resolve to grant standing to the petitioners.
Other Procedural Matters
Respondent PIATCO further alleges that this Court is without jurisdiction to review the instant cases as factual issues are
involved which this Court is ill-equipped to resolve. Moreover, PIATCO alleges that submission of this controversy to this Court at
the first instance is a violation of the rule on hierarchy of courts. They contend that trial courts have concurrent jurisdiction with
this Court with respect to a special civil action for prohibition and hence, following the rule on hierarchy of courts, resort must first
be had before the trial courts.
After a thorough study and careful evaluation of the issues involved, this Court is of the view that the crux of the instant
controversy involves significant legal questions. The facts necessary to resolve these legal questions are well established and,
hence, need not be determined by a trial court.
The rule on hierarchy of courts will not also prevent this Court from assuming jurisdiction over the cases at bar. The said rule
may be relaxed when the redress desired cannot be obtained in the appropriate courts or where exceptional and compelling
circumstances justify availment of a remedy within and calling for the exercise of this Court's primary jurisdiction. 19
It is easy to discern that exceptional circumstances exist in the cases at bar that call for the relaxation of the rule. Both
petitioners and respondents agree that these cases are of transcendental importance as they involve the construction and
operation of the country's premier international airport. Moreover, the crucial issues submitted for resolution are of first
impression and they entail the proper legal interpretation of key provisions of the Constitution, the BOT Law and its Implementing
Rules and Regulations. Thus, considering the nature of the controversy before the Court, procedural bars may be lowered to
give way for the speedy disposition of the instant cases.
Legal Effect of the Commencement of Arbitration Proceedings by PIATCO
There is one more procedural obstacle which must be overcome. The Court is aware that arbitration proceedings pursuant to
Section 10.02 of the ARCA have been filed at the instance of respondent PIATCO. Again, we hold that the arbitration step taken
by PIATCO will not oust this Court of its jurisdiction over the cases at bar.
In Del Monte Corporation-USA v. Court of Appeals, 20 even after finding that the arbitration clause in the Distributorship Agreement
in question is valid and the dispute between the parties is arbitrable, this Court affirmed the trial court's decision denying
petitioner's Motion to Suspend Proceedings pursuant to the arbitration clause under the contract. In so ruling, this Court held that
as contracts produce legal effect between the parties, their assigns and heirs, only the parties to the Distributorship Agreement
are bound by its terms, including the arbitration clause stipulated therein. This Court ruled that arbitration proceedings could be
called for but only with respect to the parties to the contract in question. Considering that there are parties to the case who are
neither parties to the Distributorship Agreement nor heirs or assigns of the parties thereto, this Court, citing its previous ruling in
Salas, Jr. v. Laperal Realty Corporation, 21 held that to tolerate the splitting of proceedings by allowing arbitration as to some of
the parties on the one hand and trial for the others on the other hand would, in effect, result in multiplicity of suits, duplicitous
procedure and unnecessary delay.22 Thus, we ruled that the interest of justice would best be served if the trial court hears and
adjudicates the case in a single and complete proceeding.
It is established that petitioners in the present cases who have presented legitimate interests in the resolution of the
controversy are not parties to the PIATCO Contracts. Accordingly, they cannot be bound by the arbitration clause provided for
in the ARCA and hence, cannot be compelled to submit to arbitration proceedings. A speedy and decisive resolution of all the
critical issues in the present controversy, including those raised by petitioners, cannot be made before an arbitral
tribunal. The object of arbitration is precisely to allow an expeditious determination of a dispute. This objective would not be met
if this Court were to allow the parties to settle the cases by arbitration as there are certain issues involving non-parties to the
PIATCO Contracts which the arbitral tribunal will not be equipped to resolve.
Now, to the merits of the instant controversy.
I
Is PIATCO a qualified bidder?
Public respondents argue that the Paircargo Consortium, PIATCO's predecessor, was not a duly pre-qualified bidder on the
unsolicited proposal submitted by AEDC as the Paircargo Consortium failed to meet the financial capability required under the
BOT Law and the Bid Documents. They allege that in computing the ability of the Paircargo Consortium to meet the minimum
equity requirements for the project, the entire net worth of Security Bank, a member of the consortium, should not be
considered.
PIATCO relies, on the other hand, on the strength of the Memorandum dated October 14, 1996 issued by the DOTC
Undersecretary Primitivo C. Cal stating that the Paircargo Consortium is found to have a combined net worth of

P3,900,000,000.00, sufficient to meet the equity requirements of the project. The said Memorandum was in response to a letter
from Mr. Antonio Henson of AEDC to President Fidel V. Ramos questioning the financial capability of the Paircargo Consortium
on the ground that it does not have the financial resources to put up the required minimum equity of P2,700,000,000.00. This
contention is based on the restriction under R.A. No. 337, as amended or the General Banking Act that a commercial bank
cannot invest in any single enterprise in an amount more than 15% of its net worth. In the said Memorandum, Undersecretary
Cal opined:
The Bid Documents, as clarified through Bid Bulletin Nos. 3 and 5, require that financial capability will be evaluated
based on total financial capability of all the member companies of the [Paircargo] Consortium. In this connection, the
Challenger was found to have a combined net worth of P3,926,421,242.00 that could support a project costing
approximately P13 Billion.
It is not a requirement that the net worth must be "unrestricted." To impose that as a requirement now will be nothing
less than unfair.
The financial statement or the net worth is not the sole basis in establishing financial capability. As stated in Bid Bulletin
No. 3, financial capability may also be established by testimonial letters issued by reputable banks. The Challenger has
complied with this requirement.
To recap, net worth reflected in the Financial Statement should not be taken as the amount of the money to be used to
answer the required thirty percent (30%) equity of the challenger but rather to be used in establishing if there is enough
basis to believe that the challenger can comply with the required 30% equity. In fact, proof of sufficient equity is
required as one of the conditions for award of contract (Section 12.1 IRR of the BOT Law) but not for pre-qualification
(Section 5.4 of the same document).23
Under the BOT Law, in case of a build-operate-and-transfer arrangement, the contract shall be awarded to the bidder
"who, having satisfied the minimum financial, technical, organizational and legal standards" required by the law,
has submitted the lowest bid and most favorable terms of the project. 24Further, the 1994 Implementing Rules and
Regulations of the BOT Law provide:
Section 5.4 Pre-qualification Requirements.
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c. Financial Capability: The project proponent must have adequate capability to sustain the financing requirements for
the detailed engineering design, construction and/or operation and maintenance phases of the project, as the case
may be. For purposes of pre-qualification, this capability shall be measured in terms of (i) proof of the ability of the
project proponent and/or the consortium to provide a minimum amount of equity to the project, and (ii) a letter
testimonial from reputable banks attesting that the project proponent and/or members of the consortium are
banking with them, that they are in good financial standing, and that they have adequate resources . The
government agency/LGU concerned shall determine on a project-to-project basis and before pre-qualification, the
minimum amount of equity needed. (emphasis supplied)
Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated August 16, 1996 amending the financial capability
requirements for pre-qualification of the project proponent as follows:
6. Basis of Pre-qualification
The basis for the pre-qualification shall be on the compliance of the proponent to the minimum technical and financial
requirements provided in the Bid Documents and in the IRR of the BOT Law, R.A. No. 6957, as amended by R.A.
7718.
The minimum amount of equity to which the proponent's financial capability will be based shall be thirty percent (30%)
of the project cost instead of the twenty percent (20%) specified in Section 3.6.4 of the Bid Documents. This is
to correlate with the required debt-to-equity ratio of 70:30 in Section 2.01a of the draft concession agreement. The debt
portion of the project financing should not exceed 70% of the actual project cost.
Accordingly, based on the above provisions of law, the Paircargo Consortium or any challenger to the unsolicited proposal of
AEDC has to show that it possesses the requisite financial capability to undertake the project in the minimum amount of
30% of the project cost through (i) proof of the ability to provide a minimum amount of equity to the project, and (ii) a letter
testimonial from reputable banks attesting that the project proponent or members of the consortium are banking with them, that
they are in good financial standing, and that they have adequate resources.
As the minimum project cost was estimated to be US$350,000,000.00 or roughly P9,183,650,000.00, 25 the Paircargo Consortium
had to show to the satisfaction of the PBAC that it had the ability to provide the minimum equity for the project in the amount of at
least P2,755,095,000.00.
Paircargo's Audited Financial Statements as of 1993 and 1994 indicated that it had a net worth of P2,783,592.00 and
P3,123,515.00 respectively.26 PAGS' Audited Financial Statements as of 1995 indicate that it has approximately P26,735,700.00
to invest as its equity for the project.27 Security Bank's Audited Financial Statements as of 1995 show that it has a net worth
equivalent to its capital funds in the amount of P3,523,504,377.00. 28

We agree with public respondents that with respect to Security Bank, the entire amount of its net worth could not be invested in
a single undertaking or enterprise, whether allied or non-allied in accordance with the provisions of R.A. No. 337, as amended or
the General Banking Act:
Sec. 21-B. The provisions in this or in any other Act to the contrary notwithstanding, the Monetary Board, whenever it
shall deem appropriate and necessary to further national development objectives or support national priority
projects, may authorize a commercial bank, a bank authorized to provide commercial banking services, as well
as a government-owned and controlled bank, to operate under an expanded commercial banking authority and
by virtue thereof exercise, in addition to powers authorized for commercial banks, the powers of an
Investment House as provided in Presidential Decree No. 129, invest in the equity of a non-allied
undertaking, or own a majority or all of the equity in a financial intermediary other than a commercial bank or a bank
authorized to provide commercial banking services: Provided, That (a) the total investment in equities shall not
exceed fifty percent (50%) of the net worth of the bank; (b) the equity investment in any one enterprise whether
allied or non-allied shall not exceed fifteen percent (15%) of the net worth of the bank; (c) the equity investment
of the bank, or of its wholly or majority-owned subsidiary, in a single non-allied undertaking shall not exceed thirty-five
percent (35%) of the total equity in the enterprise nor shall it exceed thirty-five percent (35%) of the voting stock in that
enterprise; and (d) the equity investment in other banks shall be deducted from the investing bank's net worth for
purposes of computing the prescribed ratio of net worth to risk assets.
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Further, the 1993 Manual of Regulations for Banks provides:
SECTION X383. Other Limitations and Restrictions. The following limitations and restrictions shall also apply
regarding equity investments of banks.
a. In any single enterprise. The equity investments of banks in any single enterprise shall not exceed at any time
fifteen percent (15%) of the net worth of the investing bank as defined in Sec. X106 and Subsec. X121.5.
Thus, the maximum amount that Security Bank could validly invest in the Paircargo Consortium is only P528,525,656.55,
representing 15% of its entire net worth. The total net worth therefore of the Paircargo Consortium, after considering
the maximum amounts that may be validly invested by each of its members isP558,384,871.55 or only 6.08% of the project
cost,29 an amount substantially less than the prescribed minimum equity investment required for the project in the amount of
P2,755,095,000.00 or 30% of the project cost.
The purpose of pre-qualification in any public bidding is to determine, at the earliest opportunity, the ability of the bidder to
undertake the project. Thus, with respect to the bidder's financial capacity at the pre-qualification stage, the law requires the
government agency to examine and determine the ability of the bidder to fund the entire cost of the project by considering the
maximum amounts that each bidder may invest in the project at the time of pre-qualification.
The PBAC has determined that any prospective bidder for the construction, operation and maintenance of the NAIA IPT III
project should prove that it has the ability to provide equity in the minimum amount of 30% of the project cost, in accordance with
the 70:30 debt-to-equity ratio prescribed in the Bid Documents. Thus, in the case of Paircargo Consortium, the PBAC should
determine the maximum amounts that each member of the consortium may commit for the construction, operation and
maintenance of the NAIA IPT III project at the time of pre-qualification. With respect to Security Bank, the maximum
amount which may be invested by it would only be 15% of its net worth in view of the restrictions imposed by the General
Banking Act. Disregarding the investment ceilings provided by applicable law would not result in a proper evaluation of whether
or not a bidder is pre-qualified to undertake the project as for all intents and purposes, such ceiling or legal restriction determines
the true maximum amount which a bidder may invest in the project.
Further, the determination of whether or not a bidder is pre-qualified to undertake the project requires an evaluation of the
financial capacity of the said bidder at the time the bid is submitted based on the required documents presented by the bidder.
The PBAC should not be allowed to speculate on the future financial abilityof the bidder to undertake the project on the basis
of documents submitted. This would open doors to abuse and defeat the very purpose of a public bidding. This is especially true
in the case at bar which involves the investment of billions of pesos by the project proponent. The relevant government authority
is duty-bound to ensure that the awardee of the contract possesses the minimum required financial capability to complete the
project. To allow the PBAC to estimate the bidder's future financial capability would not secure the viability and integrity of the
project. A restrictive and conservative application of the rules and procedures of public bidding is necessary not only to protect
the impartiality and regularity of the proceedings but also to ensure the financial and technical reliability of the project. It has been
held that:
The basic rule in public bidding is that bids should be evaluated based on the required documents submitted before
and not after the opening of bids. Otherwise, the foundation of a fair and competitive public bidding would be
defeated. Strict observance of the rules, regulations, and guidelines of the bidding process is the only
safeguard to a fair, honest and competitive public bidding. 30

Thus, if the maximum amount of equity that a bidder may invest in the project at the time the bids are submitted falls short of
the minimum amounts required to be put up by the bidder, said bidder should be properly disqualified. Considering that at the
pre-qualification stage, the maximum amounts which the Paircargo Consortium may invest in the project fell short of the
minimum amounts prescribed by the PBAC, we hold that Paircargo Consortium was not a qualified bidder. Thus the award of the
contract by the PBAC to the Paircargo Consortium, a disqualified bidder, is null and void.
While it would be proper at this juncture to end the resolution of the instant controversy, as the legal effects of the disqualification
of respondent PIATCO's predecessor would come into play and necessarily result in the nullity of all the subsequent contracts
entered by it in pursuance of the project, the Court feels that it is necessary to discuss in full the pressing issues of the present
controversy for a complete resolution thereof.
II
Is the 1997 Concession Agreement valid?
Petitioners and public respondents contend that the 1997 Concession Agreement is invalid as it contains provisions that
substantially depart from the draft Concession Agreement included in the Bid Documents. They maintain that a substantial
departure from the draft Concession Agreement is a violation of public policy and renders the 1997 Concession Agreement null
and void.
PIATCO maintains, however, that the Concession Agreement attached to the Bid Documents is intended to be a draft, i.e.,
subject to change, alteration or modification, and that this intention was clear to all participants, including AEDC, and
DOTC/MIAA. It argued further that said intention is expressed in Part C (6) of Bid Bulletin No. 3 issued by the PBAC which
states:
6. Amendments to the Draft Concessions Agreement
Amendments to the Draft Concessions Agreement shall be issued from time to time. Said amendments shall only cover
items that would not materially affect the preparation of the proponent's proposal.
By its very nature, public bidding aims to protect the public interest by giving the public the best possible advantages through
open competition. Thus:
Competition must be legitimate, fair and honest. In the field of government contract law, competition requires, not only
`bidding upon a common standard, a common basis, upon the same thing, the same subject matter, the same
undertaking,' but also that it be legitimate, fair and honest; and not designed to injure or defraud the
government.31
An essential element of a publicly bidded contract is that all bidders must be on equal footing. Not simply in terms of application
of the procedural rules and regulations imposed by the relevant government agency, but more importantly, on the contract bidded
upon. Each bidder must be able to bid on the same thing. The rationale is obvious. If the winning bidder is allowed to later
include or modify certain provisions in the contract awarded such that the contract is altered in any material respect, then the
essence of fair competition in the public bidding is destroyed. A public bidding would indeed be a farce if after the contract is
awarded, the winning bidder may modify the contract and include provisions which are favorable to it that were not previously
made available to the other bidders. Thus:
It is inherent in public biddings that there shall be a fair competition among the bidders. The specifications in such
biddings provide the common ground or basis for the bidders. The specifications should, accordingly, operate equally
or indiscriminately upon all bidders.32
The same rule was restated by Chief Justice Stuart of the Supreme Court of Minnesota:
The law is well settled that where, as in this case, municipal authorities can only let a contract for public work to the
lowest responsible bidder, the proposals and specifications therefore must be so framed as to permit free and full
competition. Nor can they enter into a contract with the best bidder containing substantial provisions beneficial
to him, not included or contemplated in the terms and specifications upon which the bids were invited. 33
In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support its argument that the draft concession agreement is subject to
amendment, the pertinent portion of which was quoted above, the PBAC also clarified that"[s]aid amendments shall only
cover items that would not materially affect the preparation of the proponent's proposal."
While we concede that a winning bidder is not precluded from modifying or amending certain provisions of the contract bidded
upon, such changes must not constitute substantial or material amendments that would alter the basic parameters of the
contract and would constitute a denial to the other bidders of the opportunity to bid on the same terms. Hence, the
determination of whether or not a modification or amendment of a contract bidded out constitutes a substantial amendment rests
on whether the contract, when taken as a whole, would contain substantially different terms and conditions that would have the
effect of altering the technical and/or financial proposals previously submitted by other bidders. The alterations and modifications
in the contract executed between the government and the winning bidder must be such as to render such executed contract to
be an entirely different contract from the one that was bidded upon.

In the case of Caltex (Philippines), Inc. v. Delgado Brothers, Inc.,34 this Court quoted with approval the ruling of the trial court
that an amendment to a contract awarded through public bidding, when such subsequent amendment was made without a new
public bidding, is null and void:
The Court agrees with the contention of counsel for the plaintiffs that the due execution of a contract after public
bidding is a limitation upon the right of the contracting parties to alter or amend it without another public bidding, for
otherwise what would a public bidding be good for if after the execution of a contract after public bidding, the
contracting parties may alter or amend the contract, or even cancel it, at their will? Public biddings are held for
the protection of the public, and to give the public the best possible advantages by means of open competition between
the bidders. He who bids or offers the best terms is awarded the contract subject of the bid, and it is obvious that such
protection and best possible advantages to the public will disappear if the parties to a contract executed after public
bidding may alter or amend it without another previous public bidding. 35
Hence, the question that comes to fore is this: is the 1997 Concession Agreement the same agreement that was offered for
public bidding, i.e., the draft Concession Agreement attached to the Bid Documents? A close comparison of the draft Concession
Agreement attached to the Bid Documents and the 1997 Concession Agreement reveals that the documents differ in at least two
material respects:
a. Modification on the Public
Utility Revenues and Non-Public
Utility Revenues that may be
collected by PIATCO
The fees that may be imposed and collected by PIATCO under the draft Concession Agreement and the 1997 Concession
Agreement may be classified into three distinct categories: (1) fees which are subject to periodic adjustment of once every two
years in accordance with a prescribed parametric formula and adjustments are made effective only upon written approval by
MIAA; (2) fees other than those included in the first category which maybe adjusted by PIATCO whenever it deems necessary
without need for consent of DOTC/MIAA; and (3) new fees and charges that may be imposed by PIATCO which have not been
previously imposed or collected at the Ninoy Aquino International Airport Passenger Terminal I, pursuant to Administrative Order
No. 1, Series of 1993, as amended. The glaring distinctions between the draft Concession Agreement and the 1997 Concession
Agreement lie in the types of fees included in each category and the extent of the supervision and regulation which MIAA is
allowed to exercise in relation thereto.
For fees under the first category, i.e., those which are subject to periodic adjustment in accordance with a prescribed parametric
formula and effective only upon written approval by MIAA, the draft Concession Agreement includes the following:36
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) groundhandling fees;
(4) rentals and airline offices;
(5) check-in counter rentals; and
(6) porterage fees.
Under the 1997 Concession Agreement, fees which are subject to adjustment and effective upon MIAA approval are classified
as "Public Utility Revenues" and include:37
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) check-in counter fees; and
(4) Terminal Fees.
The implication of the reduced number of fees that are subject to MIAA approval is best appreciated in relation to fees included in
the second category identified above. Under the 1997 Concession Agreement, fees which PIATCO may adjust whenever it
deems necessary without need for consent of DOTC/MIAA are "Non-Public Utility Revenues" and is defined as "all other income
not classified as Public Utility Revenues derived from operations of the Terminal and the Terminal Complex." 38 Thus, under the
1997 Concession Agreement, ground handling fees, rentals from airline offices and porterage fees are no longer subject to MIAA
regulation.
Further, under Section 6.03 of the draft Concession Agreement, MIAA reserves the right to regulate (1) lobby and vehicular
parking fees and (2) other new fees and charges that may be imposed by PIATCO. Such regulation may be made by periodic
adjustment and is effective only upon written approval of MIAA. The full text of said provision is quoted below:
Section 6.03. Periodic Adjustment in Fees and Charges. Adjustments in the aircraft parking fees, aircraft tacking fees,
groundhandling fees, rentals and airline offices, check-in-counter rentals and porterage fees shall be allowed only once
every two years and in accordance with the Parametric Formula attached hereto as Annex F. Provided that
adjustments shall be made effective only after the written express approval of the MIAA. Provided, further, that such

approval of the MIAA, shall be contingent only on the conformity of the adjustments with the above said parametric
formula. The first adjustment shall be made prior to the In-Service Date of the Terminal.
The MIAA reserves the right to regulate under the foregoing terms and conditions the lobby and vehicular
parking fees and other new fees and charges as contemplated in paragraph 2 of Section 6.01 if in its judgment
the users of the airport shall be deprived of a free option for the services they cover. 39
On the other hand, the equivalent provision under the 1997 Concession Agreement reads:
Section 6.03 Periodic Adjustment in Fees and Charges.
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(c) Concessionaire shall at all times be judicious in fixing fees and charges constituting Non-Public Utility Revenues in
order to ensure that End Users are not unreasonably deprived of services. While the vehicular parking fee,
porterage fee and greeter/well wisher fee constitute Non-Public Utility Revenues of Concessionaire, GRP may
intervene and require Concessionaire to explain and justify the fee it may set from time to time, if in the
reasonable opinion of GRP the said fees have become exorbitant resulting in the unreasonable deprivation of End
Users of such services.40
Thus, under the 1997 Concession Agreement, with respect to (1) vehicular parking fee, (2) porterage fee and (3) greeter/well
wisher fee, all that MIAA can do is to require PIATCO to explain and justify the fees set by PIATCO. In the draft Concession
Agreement, vehicular parking fee is subject to MIAA regulation and approval under the second paragraph of Section 6.03
thereof while porterage fee is covered by the first paragraph of the same provision. There is an obvious relaxation of the extent of
control and regulation by MIAA with respect to the particular fees that may be charged by PIATCO.
Moreover, with respect to the third category of fees that may be imposed and collected by PIATCO, i.e., new fees and charges
that may be imposed by PIATCO which have not been previously imposed or collected at the Ninoy Aquino International Airport
Passenger Terminal I, under Section 6.03 of the draft Concession Agreement MIAA has reserved the right to regulate the same
under the same conditions that MIAA may regulate fees under the first category, i.e., periodic adjustment of once every two years
in accordance with a prescribed parametric formula and effective only upon written approval by MIAA. However, under the 1997
Concession Agreement, adjustment of fees under the third category is not subject to MIAA regulation.
With respect to terminal fees that may be charged by PIATCO, 41 as shown earlier, this was included within the category of "Public
Utility Revenues" under the 1997 Concession Agreement. This classification is significant because under the 1997 Concession
Agreement, "Public Utility Revenues" are subject to an "Interim Adjustment" of fees upon the occurrence of certain extraordinary
events specified in the agreement. 42 However, under the draft Concession Agreement, terminal fees are not included in the
types of fees that may be subject to "Interim Adjustment." 43
Finally, under the 1997 Concession Agreement, "Public Utility Revenues," except terminal fees, are denominated in US
Dollars44 while payments to the Government are in Philippine Pesos. In the draft Concession Agreement, no such stipulation
was included. By stipulating that "Public Utility Revenues" will be paid to PIATCO in US Dollars while payments by PIATCO to the
Government are in Philippine currency under the 1997 Concession Agreement, PIATCO is able to enjoy the benefits of
depreciations of the Philippine Peso, while being effectively insulated from the detrimental effects of exchange rate fluctuations.
When taken as a whole, the changes under the 1997 Concession Agreement with respect to reduction in the types of fees that
are subject to MIAA regulation and the relaxation of such regulation with respect to other fees are significant amendments that
substantially distinguish the draft Concession Agreement from the 1997 Concession Agreement. The 1997 Concession
Agreement, in this respect, clearly gives PIATCO more favorable terms than what was available to other bidders at the
time the contract was bidded out. It is not very difficult to see that the changes in the 1997 Concession Agreement translate
to direct and concrete financial advantages for PIATCO which were not available at the time the contract was offered for
bidding. It cannot be denied that under the 1997 Concession Agreement only "Public Utility Revenues" are subject to MIAA
regulation. Adjustments of all other fees imposed and collected by PIATCO are entirely within its control. Moreover, with respect
to terminal fees, under the 1997 Concession Agreement, the same is further subject to "Interim Adjustments" not previously
stipulated in the draft Concession Agreement. Finally, the change in the currency stipulated for "Public Utility Revenues" under
the 1997 Concession Agreement, except terminal fees, gives PIATCO an added benefit which was not available at the time of
bidding.
b. Assumption by the
Government of the liabilities of
PIATCO in the event of the latter's
default thereof
Under the draft Concession Agreement, default by PIATCO of any of its obligations to creditors who have provided, loaned or
advanced funds for the NAIA IPT III project does not result in the assumption by the Government of these liabilities. In fact,
nowhere in the said contract does default of PIATCO's loans figure in the agreement. Such default does not directly result in any
concomitant right or obligation in favor of the Government.
However, the 1997 Concession Agreement provides:

Section 4.04 Assignment.


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(b) In the event Concessionaire should default in the payment of an Attendant Liability, and the default has resulted in
the acceleration of the payment due date of the Attendant Liability prior to its stated date of maturity, the Unpaid
Creditors and Concessionaire shall immediately inform GRP in writing of such default. GRP shall, within one hundred
eighty (180) Days from receipt of the joint written notice of the Unpaid Creditors and Concessionaire, either (i) take
over the Development Facility and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified, to be
substituted as concessionaire and operator of the Development Facility in accordance with the terms and conditions
hereof, or designate a qualified operator acceptable to GRP to operate the Development Facility, likewise under the
terms and conditions of this Agreement; Provided that if at the end of the 180-day period GRP shall not have served
the Unpaid Creditors and Concessionaire written notice of its choice, GRP shall be deemed to have elected to take
over the Development Facility with the concomitant assumption of Attendant Liabilities.
(c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the latter shall
form and organize a concession company qualified to take over the operation of the Development Facility. If the
concession company should elect to designate an operator for the Development Facility, the concession company shall
in good faith identify and designate a qualified operator acceptable to GRP within one hundred eighty (180) days from
receipt of GRP's written notice. If the concession company, acting in good faith and with due diligence, is unable to
designate a qualified operator within the aforesaid period, then GRP shall at the end of the 180-day period take over
the Development Facility and assume Attendant Liabilities.
The term "Attendant Liabilities" under the 1997 Concession Agreement is defined as:
Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of the
Concessionaire as owing to Unpaid Creditors who have provided, loaned or advanced funds actually used for
the Project, including all interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements and
other related expenses, and further including amounts owed by Concessionaire to its suppliers, contractors and subcontractors.
Under the above quoted portions of Section 4.04 in relation to the definition of "Attendant Liabilities," default by PIATCO of its
loans used to finance the NAIA IPT III project triggers the occurrence of certain events that leads to the assumption by
the Government of the liability for the loans. Only in one instance may the Government escape the assumption of PIATCO's
liabilities, i.e., when the Government so elects and allows a qualified operator to take over as Concessionaire. However, this
circumstance is dependent on the existence and availability of a qualified operator who is willing to take over the rights
and obligations of PIATCO under the contract, a circumstance that is not entirely within the control of the Government.
Without going into the validity of this provision at this juncture, suffice it to state that Section 4.04 of the 1997 Concession
Agreement may be considered a form of security for the loans PIATCO has obtained to finance the project, an option that was
not made available in the draft Concession Agreement. Section 4.04 is an important amendment to the 1997 Concession
Agreement because it grants PIATCO a financial advantage or benefit which was not previously made available during the
bidding process. This financial advantage is a significant modification that translates to better terms and conditions for PIATCO.
PIATCO, however, argues that the parties to the bidding procedure acknowledge that the draft Concession Agreement is subject
to amendment because the Bid Documents permit financing or borrowing. They claim that it was the lenders who proposed the
amendments to the draft Concession Agreement which resulted in the 1997 Concession Agreement.
We agree that it is not inconsistent with the rationale and purpose of the BOT Law to allow the project proponent or the winning
bidder to obtain financing for the project, especially in this case which involves the construction, operation and maintenance of
the NAIA IPT III. Expectedly, compliance by the project proponent of its undertakings therein would involve a substantial amount
of investment. It is therefore inevitable for the awardee of the contract to seek alternate sources of funds to support the project.
Be that as it may, this Court maintains that amendments to the contract bidded upon should always conform to the general policy
on public bidding if such procedure is to be faithful to its real nature and purpose. By its very nature and characteristic,
competitive public bidding aims to protect the public interest by giving the public the best possible advantages through open
competition.45 It has been held that the three principles in public bidding are (1) the offer to the public; (2) opportunity for
competition; and (3) a basis for the exact comparison of bids. A regulation of the matter which excludes any of these factors
destroys the distinctive character of the system and thwarts the purpose of its adoption. 46 These are the basic parameters which
every awardee of a contract bidded out must conform to, requirements of financing and borrowing notwithstanding. Thus, upon a
concrete showing that, as in this case, the contract signed by the government and the contract-awardee is an entirely different
contract from the contract bidded, courts should not hesitate to strike down said contract in its entirety for violation of public
policy on public bidding. A strict adherence on the principles, rules and regulations on public bidding must be sustained if only to
preserve the integrity and the faith of the general public on the procedure.
Public bidding is a standard practice for procuring government contracts for public service and for furnishing supplies and other
materials. It aims to secure for the government the lowest possible price under the most favorable terms and conditions, to curtail

favoritism in the award of government contracts and avoid suspicion of anomalies and it places all bidders in equal footing. 47 Any
government action which permits any substantial variance between the conditions under which the bids are invited and
the contract executed after the award thereof is a grave abuse of discretion amounting to lack or excess of jurisdiction
which warrants proper judicial action.
In view of the above discussion, the fact that the foregoing substantial amendments were made on the 1997 Concession
Agreement renders the same null and void for being contrary to public policy. These amendments convert the 1997
Concession Agreement to an entirely different agreement from the contract bidded out or the draft Concession Agreement. It is
not difficult to see that the amendments on (1) the types of fees or charges that are subject to MIAA regulation or control and the
extent thereof and (2) the assumption by the Government, under certain conditions, of the liabilities of PIATCO directly
translates concrete financial advantages to PIATCO that were previously not available during the bidding process.
These amendments cannot be taken as merely supplements to or implementing provisions of those already existing in the draft
Concession Agreement. The amendments discussed above present new terms and conditions which provide financial benefit to
PIATCO which may have altered the technical and financial parameters of other bidders had they known that such terms were
available.
III
Direct Government Guarantee
Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the 1997 Concession Agreement provides:
Section 4.04 Assignment
xxx
xxx
xxx
(b) In the event Concessionaire should default in the payment of an Attendant Liability, and the default resulted in
the acceleration of the payment due date of the Attendant Liability prior to its stated date of maturity, the Unpaid
Creditors and Concessionaire shall immediately inform GRP in writing of such default. GRP shall within one hundred
eighty (180) days from receipt of the joint written notice of the Unpaid Creditors and Concessionaire, either (i) take over
the Development Facility and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified to be
substituted as concessionaire and operator of the Development facility in accordance with the terms and conditions
hereof, or designate a qualified operator acceptable to GRP to operate the Development Facility, likewise under the
terms and conditions of this Agreement; Provided, that if at the end of the 180-day period GRP shall not have served
the Unpaid Creditors and Concessionaire written notice of its choice, GRP shall be deemed to have elected to take
over the Development Facility with the concomitant assumption of Attendant Liabilities.
(c) If GRP, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the latter shall form and
organize a concession company qualified to takeover the operation of the Development Facility. If the concession
company should elect to designate an operator for the Development Facility, the concession company shall in good
faith identify and designate a qualified operator acceptable to GRP within one hundred eighty (180) days from receipt
of GRP's written notice. If the concession company, acting in good faith and with due diligence, is unable to designate
a qualified operator within the aforesaid period, then GRP shall at the end of the 180-day period take over the
Development Facility and assume Attendant Liabilities.
.
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of the
Concessionaire as owing to Unpaid Creditors who have provided, loaned or advanced funds actually used for the
Project, including all interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements and other
related expenses, and further including amounts owed by Concessionaire to its suppliers, contractors and subcontractors.48
It is clear from the above-quoted provisions that Government, in the event that PIATCO defaults in its loan obligations, is
obligated to pay "all amounts recorded and from time to time outstanding from the books" of PIATCO which the latter owes to its
creditors.49 These amounts include "all interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements
and other related expenses."50 This obligation of the Government to pay PIATCO's creditors upon PIATCO's default would arise if
the Government opts to take over NAIA IPT III. It should be noted, however, that even if the Government chooses the second
option, which is to allow PIATCO's unpaid creditors operate NAIA IPT III, the Government is still at a risk of being liable to
PIATCO's creditors should the latter be unable to designate a qualified operator within the prescribed period. 51 In effect,whatever
option the Government chooses to take in the event of PIATCO's failure to fulfill its loan obligations, the Government is
still at a risk of assuming PIATCO's outstanding loans. This is due to the fact that the Government would only be free from
assuming PIATCO's debts if the unpaid creditors would be able to designate a qualified operator within the period provided for in
the contract. Thus, the Government's assumption of liability is virtually out of its control. The Government under the
circumstances provided for in the 1997 Concession Agreement is at the mercy of the existence, availability and willingness of a
qualified operator. The above contractual provisions constitute a direct government guarantee which is prohibited by law.

One of the main impetus for the enactment of the BOT Law is the lack of government funds to construct the infrastructure and
development projects necessary for economic growth and development. This is why private sector resources are being tapped in
order to finance these projects. The BOT law allows the private sector to participate, and is in fact encouraged to do so by way of
incentives, such as minimizing the unstable flow of returns, 52 provided that the government would not have to unnecessarily
expend scarcely available funds for the project itself. As such, direct guarantee, subsidy and equity by the government in these
projects are strictly prohibited.53 This is but logical for if the government would in the end still be at a risk of paying the
debts incurred by the private entity in the BOT projects, then the purpose of the law is subverted.
Section 2(n) of the BOT Law defines direct guarantee as follows:
(n) Direct government guarantee An agreement whereby the government or any of its agencies or local government
units assume responsibility for the repayment of debt directly incurred by the project proponent in implementing
the project in case of a loan default.
Clearly by providing that the Government "assumes" the attendant liabilities, which consists of PIATCO's unpaid debts, the 1997
Concession Agreement provided for a direct government guarantee for the debts incurred by PIATCO in the implementation of
the NAIA IPT III project. It is of no moment that the relevant sections are subsumed under the title of "assignment". The
provisions providing for direct government guarantee which is prohibited by law is clear from the terms thereof.
The fact that the ARCA superseded the 1997 Concession Agreement did not cure this fatal defect. Article IV, Section 4.04(c), in
relation to Article I, Section 1.06, of the ARCA provides:
Section 4.04 Security
xxx
xxx
xxx
(c) GRP agrees with Concessionaire (PIATCO) that it shall negotiate in good faith and enter into direct agreement
with the Senior Lenders, or with an agent of such Senior Lenders (which agreement shall be subject to the approval
of the Bangko Sentral ng Pilipinas), in such form as may be reasonably acceptable to both GRP and Senior Lenders,
with regard, inter alia, to the following parameters:
xxx
xxx
xxx
(iv) If the Concessionaire [PIATCO] is in default under a payment obligation owed to the Senior
Lenders, and as a result thereof the Senior Lenders have become entitled to accelerate the Senior Loans,
the Senior Lenders shall have the right to notify GRP of the same, and without prejudice to any other rights of
the Senior Lenders or any Senior Lenders' agent may have (including without limitation under security
interests granted in favor of the Senior Lenders), to either in good faith identify and designate a nominee
which is qualified under sub-clause (viii)(y) below to operate the Development Facility [NAIA Terminal 3] or
transfer the Concessionaire's [PIATCO] rights and obligations under this Agreement to a transferee which is
qualified under sub-clause (viii) below;
xxx
xxx
xxx
(vi) if the Senior Lenders, acting in good faith and using reasonable efforts, are unable to designate a
nominee or effect a transfer in terms and conditions satisfactory to the Senior Lenders within one hundred
eighty (180) days after giving GRP notice as referred to respectively in (iv) or (v) above, then GRP and the
Senior Lenders shall endeavor in good faith to enter into any other arrangement relating to the Development
Facility [NAIA Terminal 3] (other than a turnover of the Development Facility [NAIA Terminal 3] to GRP) within
the following one hundred eighty (180) days. If no agreement relating to the Development Facility [NAIA
Terminal 3] is arrived at by GRP and the Senior Lenders within the said 180-day period, then at the end
thereof the Development Facility [NAIA Terminal 3] shall be transferred by the Concessionaire
[PIATCO] to GRP or its designee and GRP shall make a termination payment to Concessionaire
[PIATCO] equal to the Appraised Value (as hereinafter defined) of the Development Facility [NAIA
Terminal 3] or the sum of the Attendant Liabilities, if greater. Notwithstanding Section 8.01(c) hereof, this
Agreement shall be deemed terminated upon the transfer of the Development Facility [NAIA Terminal 3] to
GRP pursuant hereto;
xxx
xxx
xxx
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts in each case supported by verifiable evidence from time to time owed or
which may become owing by Concessionaire [PIATCO] to Senior Lenders or any other persons or entities
who have provided, loaned, or advanced funds or provided financial facilities to Concessionaire [PIATCO] for the
Project [NAIA Terminal 3], including, without limitation, all principal, interest, associated fees, charges,
reimbursements, and other related expenses(including the fees, charges and expenses of any agents or trustees of
such persons or entities), whether payable at maturity, by acceleration or otherwise, and further including amounts
owed by Concessionaire [PIATCO] to its professional consultants and advisers, suppliers, contractors and subcontractors.54

It is clear from the foregoing contractual provisions that in the event that PIATCO fails to fulfill its loan obligations to its Senior
Lenders, the Government is obligated to directly negotiate and enter into an agreement relating to NAIA IPT III with the Senior
Lenders, should the latter fail to appoint a qualified nominee or transferee who will take the place of PIATCO. If the Senior
Lenders and the Government are unable to enter into an agreement after the prescribed period, the Government must then pay
PIATCO, upon transfer of NAIA IPT III to the Government, termination payment equal to the appraised value of the project or the
value of the attendant liabilities whichever is greater. Attendant liabilities as defined in the ARCA includes all amounts owed
or thereafter may be owed by PIATCO not only to the Senior Lenders with whom PIATCO has defaulted in its loan obligations but
to all other persons who may have loaned, advanced funds or provided any other type of financial facilities to PIATCO for NAIA
IPT III. The amount of PIATCO's debt that the Government would have to pay as a result of PIATCO's default in its loan
obligations -- in case no qualified nominee or transferee is appointed by the Senior Lenders and no other agreement relating to
NAIA IPT III has been reached between the Government and the Senior Lenders -- includes, but is not limited to, "all principal,
interest, associated fees, charges, reimbursements, and other related expenses . . . whether payable at maturity, by acceleration
or otherwise."55
It is clear from the foregoing that the ARCA provides for a direct guarantee by the government to pay PIATCO's loans
not only to its Senior Lenders but all other entities who provided PIATCO funds or services upon PIATCO's default in its
loan obligation with its Senior Lenders. The fact that the Government's obligation to pay PIATCO's lenders for the latter's
obligation would only arise after the Senior Lenders fail to appoint a qualified nominee or transferee does not detract from the
fact that, should the conditions as stated in the contract occur, the ARCA still obligates the Government to pay any and all
amounts owed by PIATCO to its lenders in connection with NAIA IPT III. Worse, the conditions that would make the Government
liable for PIATCO's debts is triggered by PIATCO's own default of its loan obligations to its Senior Lenders to which loan
contracts the Government was never a party to. The Government was not even given an option as to what course of action it
should take in case PIATCO defaulted in the payment of its senior loans. The Government, upon PIATCO's default, would be
merely notified by the Senior Lenders of the same and it is the Senior Lenders who are authorized to appoint a qualified nominee
or transferee. Should the Senior Lenders fail to make such an appointment, the Government is then automatically obligated to
"directly deal and negotiate" with the Senior Lenders regarding NAIA IPT III. The only way the Government would not be liable for
PIATCO's debt is for a qualified nominee or transferee to be appointed in place of PIATCO to continue the construction,
operation and maintenance of NAIA IPT III. This "pre-condition", however, will not take the contract out of the ambit of a direct
guarantee by the government as the existence, availability and willingness of a qualified nominee or transferee is totally out of
the government's control. As such the Government is virtually at the mercy of PIATCO (that it would not default on its loan
obligations to its Senior Lenders), the Senior Lenders (that they would appoint a qualified nominee or transferee or agree to
some other arrangement with the Government) and the existence of a qualified nominee or transferee who is able and willing to
take the place of PIATCO in NAIA IPT III.
The proscription against government guarantee in any form is one of the policy considerations behind the BOT
Law. Clearly, in the present case, the ARCA obligates the Government to pay for all loans, advances and obligations arising out
of financial facilities extended to PIATCO for the implementation of the NAIA IPT III project should PIATCO default in its loan
obligations to its Senior Lenders and the latter fails to appoint a qualified nominee or transferee. This in effect would make the
Government liable for PIATCO's loans should the conditions as set forth in the ARCA arise. This is a form of direct government
guarantee.
The BOT Law and its implementing rules provide that in order for an unsolicited proposal for a BOT project may be accepted, the
following conditions must first be met: (1) the project involves a new concept in technology and/or is not part of the list of priority
projects, (2) no direct government guarantee, subsidy or equity is required,and (3) the government agency or local
government unit has invited by publication other interested parties to a public bidding and conducted the same. 56 The failure to
meet any of the above conditions will result in the denial of the proposal. It is further provided that the presence of direct
government guarantee, subsidy or equity will "necessarily disqualify a proposal from being treated and accepted as an
unsolicited proposal."57 The BOT Law clearly and strictly prohibits direct government guarantee, subsidy and equity in unsolicited
proposals that the mere inclusion of a provision to that effect is fatal and is sufficient to deny the proposal. It stands to reason
therefore that if a proposal can be denied by reason of the existence of direct government guarantee, then its inclusion in the
contract executed after the said proposal has been accepted is likewise sufficient to invalidate the contract itself. A prohibited
provision, the inclusion of which would result in the denial of a proposal cannot, and should not, be allowed to later on be
inserted in the contract resulting from the said proposal. The basic rules of justice and fair play alone militate against such an
occurrence and must not, therefore, be countenanced particularly in this instance where the government is exposed to the risk of
shouldering hundreds of million of dollars in debt.
This Court has long and consistently adhered to the legal maxim that those that cannot be done directly cannot be done
indirectly.58 To declare the PIATCO contracts valid despite the clear statutory prohibition against a direct government
guarantee would not only make a mockery of what the BOT Law seeks to prevent -- which is to expose the government
to the risk of incurring a monetary obligation resulting from a contract of loan between the project proponent and its

lenders and to which the Government is not a party to -- but would also render the BOT Law useless for what it seeks to
achieve - to make use of the resources of the private sector in the "financing, operation and maintenance of
infrastructure and development projects"59 which are necessary for national growth and development but which the
government, unfortunately, could ill-afford to finance at this point in time.
IV
Temporary takeover of business affected with public interest
Article XII, Section 17 of the 1987 Constitution provides:
Section 17. In times of national emergency, when the public interest so requires, the State may, during the emergency
and under reasonable terms prescribed by it, temporarily take over or direct the operation of any privately owned public
utility or business affected with public interest.
The above provision pertains to the right of the State in times of national emergency, and in the exercise of its police power, to
temporarily take over the operation of any business affected with public interest. In the 1986 Constitutional Commission, the term
"national emergency" was defined to include threat from external aggression, calamities or national disasters, but not strikes
"unless it is of such proportion that would paralyze government service." 60 The duration of the emergency itself is the determining
factor as to how long the temporary takeover by the government would last. 61 The temporary takeover by the government
extends only to the operation of the business and not to the ownership thereof. As such the government is not required to
compensate the private entity-owner of the said business as there is no transfer of ownership, whether permanent or
temporary. The private entity-owner affected by the temporary takeover cannot, likewise, claim just compensation for the use of
the said business and its properties as the temporary takeover by the government is in exercise of its police power and not of its
power of eminent domain.
Article V, Section 5.10 (c) of the 1997 Concession Agreement provides:
Section 5.10 Temporary Take-over of operations by GRP.
.
(c) In the event the development Facility or any part thereof and/or the operations of Concessionaire or any part
thereof, become the subject matter of or be included in any notice, notification, or declaration concerning or relating to
acquisition, seizure or appropriation by GRP in times of war or national emergency, GRP shall, by written notice to
Concessionaire, immediately take over the operations of the Terminal and/or the Terminal Complex. During such take
over by GRP, the Concession Period shall be suspended; provided, that upon termination of war, hostilities or national
emergency, the operations shall be returned to Concessionaire, at which time, the Concession period shall commence
to run again. Concessionaire shall be entitled to reasonable compensation for the duration of the temporary
take over by GRP, which compensation shall take into account the reasonable cost for the use of the Terminal
and/or Terminal Complex, (which is in the amount at least equal to the debt service requirements of
Concessionaire, if the temporary take over should occur at the time when Concessionaire is still servicing debts owed
to project lenders), any loss or damage to the Development Facility, and other consequential damages. If the parties
cannot agree on the reasonable compensation of Concessionaire, or on the liability of GRP as aforesaid, the matter
shall be resolved in accordance with Section 10.01 [Arbitration]. Any amount determined to be payable by GRP to
Concessionaire shall be offset from the amount next payable by Concessionaire to GRP. 62
PIATCO cannot, by mere contractual stipulation, contravene the Constitutional provision on temporary government
takeover and obligate the government to pay "reasonable cost for the use of the Terminal and/or Terminal
Complex."63 Article XII, section 17 of the 1987 Constitution envisions a situation wherein the exigencies of the times necessitate
the government to "temporarily take over or direct the operation of any privately owned public utility or business affected with
public interest." It is the welfare and interest of the public which is the paramount consideration in determining whether or not to
temporarily take over a particular business. Clearly, the State in effecting the temporary takeover is exercising its police power.
Police power is the "most essential, insistent, and illimitable of powers." 64 Its exercise therefore must not be unreasonably
hampered nor its exercise be a source of obligation by the government in the absence of damage due to arbitrariness of its
exercise.65 Thus, requiring the government to pay reasonable compensation for the reasonable use of the property pursuant to
the operation of the business contravenes the Constitution.
V
Regulation of Monopolies
A monopoly is "a privilege or peculiar advantage vested in one or more persons or companies, consisting in the exclusive right
(or power) to carry on a particular business or trade, manufacture a particular article, or control the sale of a particular
commodity."66 The 1987 Constitution strictly regulates monopolies, whether private or public, and even provides for their
prohibition if public interest so requires. Article XII, Section 19 of the 1987 Constitution states:
Sec. 19. The state shall regulate or prohibit monopolies when the public interest so requires. No combinations in
restraint of trade or unfair competition shall be allowed.

Clearly, monopolies are not per se prohibited by the Constitution but may be permitted to exist to aid the government in carrying
on an enterprise or to aid in the performance of various services and functions in the interest of the public.67 Nonetheless, a
determination must first be made as to whether public interest requires a monopoly. As monopolies are subject to abuses that
can inflict severe prejudice to the public, they are subject to a higher level of State regulation than an ordinary business
undertaking.
In the cases at bar, PIATCO, under the 1997 Concession Agreement and the ARCA, is granted the " exclusive right to operate a
commercial international passenger terminal within the Island of Luzon" at the NAIA IPT III. 68This is with the exception of already
existing international airports in Luzon such as those located in the Subic Bay Freeport Special Economic Zone ("SBFSEZ"),
Clark Special Economic Zone ("CSEZ") and in Laoag City. 69 As such, upon commencement of PIATCO's operation of NAIA IPT
III, Terminals 1 and 2 of NAIA would cease to function as international passenger terminals. This, however, does not prevent
MIAA to use Terminals 1 and 2 as domestic passenger terminals or in any other manner as it may deem appropriate except
those activities that would compete with NAIA IPT III in the latter's operation as an international passenger terminal. 70 The right
granted to PIATCO to exclusively operate NAIA IPT III would be for a period of twenty-five (25) years from the In-Service
Date71 and renewable for another twenty-five (25) years at the option of the government. 72 Both the 1997 Concession
Agreement and the ARCA further provide that, in view of the exclusive right granted to PIATCO, the concession
contracts of the service providers currently servicing Terminals 1 and 2 would no longer be renewed and those
concession contracts whose expiration are subsequent to the In-Service Date would cease to be effective on the said
date.73
The operation of an international passenger airport terminal is no doubt an undertaking imbued with public interest. In entering
into a BuildOperate-and-Transfer contract for the construction, operation and maintenance of NAIA IPT III, the government has
determined that public interest would be served better if private sector resources were used in its construction and an exclusive
right to operate be granted to the private entity undertaking the said project, in this case PIATCO. Nonetheless, the privilege
given to PIATCO is subject to reasonable regulation and supervision by the Government through the MIAA, which is the
government agency authorized to operate the NAIA complex, as well as DOTC, the department to which MIAA is attached. 74
This is in accord with the Constitutional mandate that a monopoly which is not prohibited must be regulated. 75While it is the
declared policy of the BOT Law to encourage private sector participation by "providing a climate of minimum government
regulations,"76 the same does not mean that Government must completely surrender its sovereign power to protect public interest
in the operation of a public utility as a monopoly. The operation of said public utility can not be done in an arbitrary manner to the
detriment of the public which it seeks to serve. The right granted to the public utility may be exclusive but the exercise of the right
cannot run riot. Thus, while PIATCO may be authorized to exclusively operate NAIA IPT III as an international passenger
terminal, the Government, through the MIAA, has the right and the duty to ensure that it is done in accord with public interest.
PIATCO's right to operate NAIA IPT III cannot also violate the rights of third parties.
Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide:
3.01 Concession Period
xxx
xxx
xxx
(e) GRP confirms that certain concession agreements relative to certain services and operations currently being
undertaken at the Ninoy Aquino International Airport passenger Terminal I have a validity period extending beyond
the In-Service Date. GRP through DOTC/MIAA, confirms that these services and operations shall not be carried
over to the Terminal and the Concessionaire is under no legal obligation to permit such carry-over except through
a separate agreement duly entered into with Concessionaire. In the event Concessionaire becomes involved in any
litigation initiated by any such concessionaire or operator, GRP undertakes and hereby holds Concessionaire free and
harmless on full indemnity basis from and against any loss and/or any liability resulting from any such litigation,
including the cost of litigation and the reasonable fees paid or payable to Concessionaire's counsel of choice, all such
amounts shall be fully deductible by way of an offset from any amount which the Concessionaire is bound to pay GRP
under this Agreement.
During the oral arguments on December 10, 2002, the counsel for the petitioners-in-intervention for G.R. No. 155001
stated that there are two service providers whose contracts are still existing and whose validity extends beyond the InService Date. One contract remains valid until 2008 and the other until 2010. 77
We hold that while the service providers presently operating at NAIA Terminal 1 do not have an absolute right for the renewal or
the extension of their respective contracts, those contracts whose duration extends beyond NAIA IPT III's In-Service-Date should
not be unduly prejudiced. These contracts must be respected not just by the parties thereto but also by third parties. PIATCO
cannot, by law and certainly not by contract, render a valid and binding contract nugatory. PIATCO, by the mere expedient of
claiming an exclusive right to operate, cannot require the Government to break its contractual obligations to the service
providers. In contrast to the arrastre and stevedoring service providers in the case of Anglo-Fil Trading Corporation v.
Lazaro78 whose contracts consist of temporary hold-over permits, the affected service providers in the cases at bar, have a valid

and binding contract with the Government, through MIAA, whose period of effectivity, as well as the other terms and conditions
thereof, cannot be violated.
In fine, the efficient functioning of NAIA IPT III is imbued with public interest. The provisions of the 1997 Concession Agreement
and the ARCA did not strip government, thru the MIAA, of its right to supervise the operation of the whole NAIA complex,
including NAIA IPT III. As the primary government agency tasked with the job, 79 it is MIAA's responsibility to ensure that whoever
by contract is given the right to operate NAIA IPT III will do so within the bounds of the law and with due regard to the rights of
third parties and above all, the interest of the public.
VI
CONCLUSION
In sum, this Court rules that in view of the absence of the requisite financial capacity of the Paircargo Consortium, predecessor of
respondent PIATCO, the award by the PBAC of the contract for the construction, operation and maintenance of the NAIA IPT III
is null and void. Further, considering that the 1997 Concession Agreement contains material and substantial amendments, which
amendments had the effect of converting the 1997 Concession Agreement into an entirely different agreement from the contract
bidded upon, the 1997 Concession Agreement is similarly null and void for being contrary to public policy. The provisions under
Sections 4.04(b) and (c) in relation to Section 1.06 of the 1997 Concession Agreement and Section 4.04(c) in relation to Section
1.06 of the ARCA, which constitute a direct government guarantee expressly prohibited by, among others, the BOT Law and its
Implementing Rules and Regulations are also null and void. The Supplements, being accessory contracts to the ARCA, are
likewise null and void.
WHEREFORE, the 1997 Concession Agreement, the Amended and Restated Concession Agreement and the Supplements
thereto are set aside for being null and void.
SO ORDERED.
Davide, Jr., C.J., Bellosillo, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Corona, and Carpio-Morales, JJ., concur.
Vitug,
J., see
separate
(dissenting)
opinion.
Panganiban,
J., please
see
separate
opinion.
Quisumbing, J., no jurisdiction, please see separate opinion of J. Vitug in which he concurs.
Carpio,
J., no
part.
Callejo,
Sr.,
J., also
concur
in
the
separate
opinion
of
J.
Panganiban.
Azcuna, J., joins the separate opinion of J. Vitug.
SEPARATE OPINIONS
VITUG, J.:
This Court is bereft of jurisdiction to hear the petitions at bar. The Constitution provides that the Supreme Court shall exercise
original jurisdiction over, among other actual controversies, petitions for certiorari, prohibition, mandamus, quo warranto, and
habeas corpus.1 The cases in question, although denominated to be petitions for prohibition, actually pray for the nullification of
the PIATCO contracts and to restrain respondents from implementing said agreements for being illegal and unconstitutional.
Section 2, Rule 65 of the Rules of Court states:
"When the proceedings of any tribunal, corporation, board, officer or person, whether exercising judicial, quasi-judicial
or ministerial functions, are without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to
lack or excess of jurisdiction, 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 respondent to desist from further proceedings in the
action or matter specified therein, or otherwise granting such incidental reliefs as law and justice may require."
The rule is explicit. A petition for prohibition may be filed against a tribunal, corporation, board, officer or person,
exercising judicial, quasi-judicial or ministerial functions. What the petitions seek from respondents do not involve judicial, quasijudicial or ministerial functions. In prohibition, only legal issues affecting the jurisdiction of the tribunal, board or officer involved
may be resolved on the basis of undisputed facts.2 The parties allege, respectively, contentious evidentiary facts. It would be
difficult, if not anomalous, to decide the jurisdictional issue on the basis of the contradictory factual submissions made by the
parties.3 As the Court has so often exhorted, it is not a trier of facts.
The petitions, in effect, are in the nature of actions for declaratory relief under Rule 63 of the Rules of Court. The Rules provide
that any person interested under a contract may, before breach or violation thereof, bring an action in the appropriate Regional
Trial Court to determine any question of construction or validity arising, and for a declaration of his rights or duties
thereunder.4 The Supreme Court assumes no jurisdiction over petitions for declaratory relief which are cognizable by regional
trial courts.5
As I have so expressed in Tolentino vs. Secretary of Finance,6 reiterated in Santiago vs. Guingona, Jr.7 , the Supreme Court
should not be thought of as having been tasked with the awesome responsibility of overseeing the entire bureaucracy. Pervasive

and limitless, such as it may seem to be under the 1987 Constitution, judicial power still succumbs to the paramount doctrine of
separation of powers. The Court may not at good liberty intrude, in the guise of sovereign imprimatur, into every affair of
government. What significance can still then remain of the time-honored and widely acclaimed principle of separation of powers
if, at every turn, the Court allows itself to pass upon at will the disposition of a co-equal, independent and coordinate branch in
our system of government. I dread to think of the so varied uncertainties that such an undue interference can lead to.
Accordingly, I vote for the dismissal of the petition.
Quisumbing, and Azcuna, JJ., concur.
PANGANIBAN, J.:
The five contracts for the construction and the operation of Ninoy Aquino International Airport (NAIA) Terminal III, the subject of
the consolidated Petitions before the Court, are replete with outright violations of law, public policy and the Constitution. The only
proper thing to do is declare them all null and void ab initio and let the chips fall where they may. Fiat iustitia ruat coelum.
The facts leading to this controversy are already well presented in the ponencia. I shall not burden the readers with a retelling
thereof. Instead, I will cut to the chase and directly address the two sets of gut issues:
1. The first issue is procedural: Does the Supreme Court have original jurisdiction to hear and decide the Petitions? Corollarily,
do petitioners have locus standi and should this Court decide the cases without any mandatory referral to arbitration?
2. The second one is substantive in character: Did the subject contracts violate the Constitution, the laws, and public policy to
such an extent as to render all of them void and inexistent?
My answer to all the above questions is a firm "Yes."
The
Procedural
Issue:
Jurisdiction, Standing and Arbitration
Definitely and surely, the issues involved in these Petitions are clearly of transcendental importance and of national interest. The
subject contracts pertain to the construction and the operation of the country's premiere international airport terminal - an
ultramodern world-class public utility that will play a major role in the country's economic development and serve to project a
positive image of our country abroad. The five build-operate-&-transfer (BOT) contracts, while entailing the investment of billions
of pesos in capital and the availment of several hundred millions of dollars in loans, contain provisions that tend to establish a
monopoly, require the disbursements of public funds sans appropriations, and provide government guarantees in violation of
statutory prohibitions, as well as other provisions equally offensive to law, public policy and the Constitution. Public interest will
inevitably be affected thereby.
Thus, objections to these Petitions, grounded upon (a) the hierarchy of courts, (b) the need for arbitration prior to court action,
and (c) the alleged lack of sufficient personality, standing or interest, being in the main procedural matters, must now be set
aside, as they have been in past cases. This Court must be permitted to perform its constitutional duty of determining whether
the other agencies of government have acted within the limits of the Constitution and the laws, or if they have gravely abused the
discretion entrusted to them.1
Hierarchy of Courts
The Court has, in the past, held that questions relating to gargantuan government contracts ought to be settled without
delay.2 This holding applies with greater force to the instant cases. Respondent Piatco is partly correct in averring that petitioners
can obtain relief from the regional trial courts via an action to annul the contracts.
Nevertheless, the unavoidable consequence of having to await the rendition and the finality of any such judgment would be a
prolonged state of uncertainty that would be prejudicial to the nation, the parties and the general public. And, in light of the feared
loss of jobs of the petitioning workers, consequent to the inevitable pretermination of contracts of the petitioning service providers
that will follow upon the heels of the impending opening of NAIA Terminal III, the need for relief is patently urgent, and therefore,
direct resort to this Court through the special civil action of prohibition is thus justified. 3
Contrary to Piatco's argument that the resolution of the issues raised in the Petitions will require delving into factual questions, 4 I
submit that their disposition ultimately turns on questions of law. 5 Further, many of the significant and relevant factual questions
can be easily addressed by an examination of the documents submitted by the parties. In any event, the Petitions raise some
novel questions involving the application of the amended BOT Law, which this Court has seen fit to tackle.
Arbitration
Should the dispute be referred to arbitration prior to judicial recourse? Respondent Piatco claims that Section 10.02 of the
Amended and Restated Concession Agreement (ARCA) provides for arbitration under the auspices of the International Chamber
of Commerce to settle any dispute or controversy or claim arising in connection with the Concession Agreement, its amendments
and supplements. The government disagrees, however, insisting that there can be no arbitration based on Section 10.02 of the
ARCA, since all the Piatco contracts are void ab initio. Therefore, all contractual provisions, including Section 10.02 of the ARCA,
are likewise void, inexistent and inoperative. To support its stand, the government cites Chavez v. Presidential Commission on
Good Government:6"The void agreement will not be rendered operative by the parties' alleged performance (partial or full) of

their respective prestations. A contract that violates the Constitution and the law is null and void ab initio and vests no rights and
creates no obligations. It produces no legal effect at all."
As will be discussed at length later, the Piatco contracts are indeed void in their entirety; thus, a resort to the aforesaid provision
on arbitration is unavailing. Besides, petitioners and petitioners-in-intervention have pointed out that, even granting arguendo that
the arbitration clause remained a valid provision, it still cannot bind them inasmuch as they are not parties to the Piatco
contracts. And in the final analysis, it is unarguable that the arbitration process provided for under Section 10.02 of the ARCA, to
be undertaken by a panel of three (3) arbitrators appointed in accordance with the Rules of Arbitration of the International
Chamber of Commerce, will not be able to address, determine and definitively resolve the constitutional and legal questions that
have been raised in the Petitions before us.
Locus Standi
Given this Court's previous decisions in cases of similar import, no one will seriously doubt that, being taxpayers and members of
the House of Representatives, Petitioners Baterina et al. have locus standi to bring the Petition in GR No. 155547. In Albano v.
Reyes,7 this Court held that the petitioner therein, suing as a citizen, taxpayer and member of the House of Representatives, was
sufficiently clothed with standing to bring the suit questioning the validity of the assailed contract. The Court cited the fact that
public interest was involved, in view of the important role of the Manila International Container Terminal (MICT) in the country's
economic development and the magnitude of the financial consideration. This, notwithstanding the fact that expenditure of public
funds was not required under the assailed contract.
In the cases presently under consideration, petitioners' personal and substantial interest in the controversy is shown by the fact
that certain provisions in the Piatco contracts create obligations on the part of government (through the DOTC and the MIAA) to
disburse public funds without prior congressional appropriations.
Petitioners thus correctly assert that the injury to them has a twofold aspect: (1) they are adversely affected as taxpayers on
account of the illegal disbursement of public funds; and (2) they are prejudiced qua legislators, since the contractual provisions
requiring the government to incur expenditures without appropriations also operate as limitations upon the exclusive power and
prerogative of Congress over the public purse. As members of the House of Representatives, they are actually deprived of
discretion insofar as the inclusion of those items of expenditure in the budget is concerned. To prevent such encroachment upon
the legislative privilege and obviate injury to the institution of which they are members, petitioners-legislators have locus standi to
bring suit.
Messrs. Agan et al. and Lopez et al., are likewise taxpayers and thus possessed of standing to challenge the illegal
disbursement of public funds. Messrs. Agan et al., in particular, are employees (or representatives of employees) of various
service providers that have (1) existing concession agreements with the MIAA to provide airport services necessary to the
operation of the NAIA and (2) service agreements to furnish essential support services to the international airlines operating at
the NAIA.
On the other hand, Messrs. Lopez et al. are employees of the MIAA. These petitioners (Messrs. Agan et al. and Messrs. Lopez
et al.) are confronted with the prospect of being laid off from their jobs and losing their means of livelihood when their employercompanies are forced to shut down or otherwise retrench and cut back on manpower. Such development would result from the
imminent implementation of certain provisions in the contracts that tend toward the creation of a monopoly in favor of Piatco, its
subsidiaries and related companies.
Petitioners-in-intervention are service providers in the business of furnishing airport-related services to international airlines and
passengers in the NAIA and are therefore competitors of Piatco as far as that line of business is concerned. On account of
provisions in the Piatco contracts, petitioners-in-intervention have to enter into a written contract with Piatco so as not to be shut
out of NAIA Terminal III and barred from doing business there. Since there is no provision to ensure or safeguard free and fair
competition, they are literally at its mercy. They claim injury on account of their deprivation of property (business) and of the
liberty to contract, without due process of law.
And even if petitioners and petitioners-in-intervention were not sufficiently clothed with legal standing, I have at the outset already
established that, given its impact on the public and on national interest, this controversy is laden with transcendental importance
and constitutional significance. Hence, I do not hesitate to adopt the same position as was enunciated in Kilosbayan v. Guingona
Jr.8 that "in cases of transcendental importance, the Court may relax the standing requirements and allow a suit to prosper even
when there is no direct injury to the party claiming the right of judicial review."9
The
Substantive
Issue:
Violations of the Constitution and the Laws
From the Outset, the Bidding Process Was Flawed and Tainted
After studying the documents submitted and arguments advanced by the parties, I have no doubt that, right at the outset, Piatco
was not qualified to participate in the bidding process for the Terminal III project, but was nevertheless permitted to do so. It even
won the bidding and was helped along by what appears to be a series of collusive and corrosive acts.
The build-operate-and-transfer (BOT) project for the NAIA Passenger Terminal III comes under the category of an "unsolicited
proposal," which is the subject of Section 4-A of the BOT Law. 10 The unsolicited proposal was originally submitted by the Asia's

Emerging Dragon Corporation (AEDC) to the Department of Transportation and Communications (DOTC) and the Manila
International Airport Authority (MIAA), which reviewed and approved the proposal.
The draft of the concession agreement as negotiated between AEDC and DOTC/MIAA was endorsed to the National Economic
Development Authority (NEDA-ICC), which in turn reviewed it on the basis of its scope, economic viability, financial indicators
and risks; and thereafter approved it for bidding.
The DOTC/MIAA then prepared the Bid Documents, incorporating therein the negotiated Draft Concession Agreement, and
published invitations for public bidding, i.e., for the submission of comparative or competitive proposals. Piatco's predecessor-ininterest, the Paircargo Consortium, was the only company that submitted a competitive bid or price challenge.
At this point, I must emphasize that the law requires the award of a BOT project to the bidder that has satisfied the minimum
requirements; and met the technical, financial, organizational and legal standards provided in the BOT Law. Section 5 of this
statute states:
"Sec. 5. Public bidding of projects. - . . .
"In the case of a build-operate-and-transfer arrangement, the contract shall be awarded to the bidder who, having
satisfied the minimum financial, technical, organizational and legal standards required by this Act, has
submitted the lowest bid and most favorable terms for the project, based on the present value of its proposed tolls,
fees, rentals and charges over a fixed term for the facility to be constructed, rehabilitated, operated and maintained
according to the prescribed minimum design and performance standards, plans and specifications. . . ." (Emphasis
supplied.)
The same provision requires that the price challenge via public bidding "must be conducted under a two-envelope/two-stage
system: the first envelope to contain the technical proposal and the second envelope to contain the financial proposal."
Moreover, the 1994 Implementing Rules and Regulations (IRR) provide that only those bidders that have passed the
prequalification stage are permitted to have their two envelopes reviewed.
In other words, prospective bidders must prequalify by submitting their prequalification documents for evaluation; and only the
pre-qualified bidders would be entitled to have their bids opened, evaluated and appreciated. On the other hand, disqualified
bidders are to be informed of the reason for their disqualification. This procedure was confirmed and reiterated in the Bid
Documents, which I quote thus: "Prequalified proponents will be considered eligible to move to second stage technical proposal
evaluation. The second and third envelopes of pre-disqualified proponents will be returned."11
Aside from complying with the legal and technical requirements (track record or experience of the firm and its key personnel), a
project proponent desiring to prequalify must also demonstrate its financial capacity to undertake the project. To establish such
capability, a proponent must prove that it is able to raise the minimum amount of equity required for the project and to procure
the loans or financing needed for it. Section 5.4(c) of the 1994 IRR provides:
"Sec. 5.4. Prequalification Requirements. - To pre-qualify, a project proponent must comply with the following
requirements:
xxx
xxx
xxx
"c. Financial Capability. The project proponent must have adequate capability to sustain the financing requirements for
the detailed engineering design, construction, and/or operation and maintenance phases of the project, as the case
may be. For purposes of prequalification, this capability shall be measured in terms of: (i) proof of the ability of the
project proponent and/or the consortium to provide a minimum amount of equity to the project, and (ii) a letter
testimonial from reputable banks attesting that the project proponent and/or members of the consortium are banking
with them, that they are in good financial standing, and that they have adequate resources. The government
Agency/LGU concerned shall determine on a project-to-project basis, and before prequalification, the minimum amount
of equity needed. . . . ." (Italics supplied)
Since the minimum amount of equity for the project was set at 30 percent 12 of the minimum project cost of US$350 million, the
minimum amount of equity required of any proponent stood at US$105 million. Converted to pesos at the exchange rate then of
P26.239 to US$1.00 (as quoted by the Bangko Sentral ng Pilipinas), the peso equivalent of the minimum equity was
P2,755,095,000.
However, the combined equity or net worth of the Paircargo consortium stood at only P558,384,871.55. 13 This amount was only
slightly over 6 percent of the minimum project cost and very much short of the required minimum equity, which was equivalent to
30 percent of the project cost. Such deficiency should have immediately caused the disqualification of the Paircargo consortium.
This matter was brought to the attention of the Prequalification and Bidding Committee (PBAC).
Notwithstanding the glaring deficiency, DOTC Undersecretary Primitivo C. Cal, concurrent chair of the PBAC, declared in a
Memorandum dated 14 October 1996 that "the Challenger (Paircargo consortium) was found to have a combined net worth of
P3,926,421,242.00 that could support a project costing approximately P13 billion." To justify his conclusion, he asserted: "It is not
a requirement that the networth must be `unrestricted'. To impose this as a requirement now will be nothing less than unfair."
He further opined, "(T)he networth reflected in the Financial Statement should not be taken as the amount of money to be used
to answer the required thirty (30%) percent equity of the challenger but rather to be used in establishing if there is enough basis

to believe that the challenger can comply with the required 30% equity. In fact, proof of sufficient equity is required as one of the
conditions for award of contract (Sec. 12.1 of IRR of the BOT Law) but not for prequalification (Sec. 5.4 of same document)."
On the basis of the foregoing dubious declaration, the Paircargo consortium was deemed prequalified and thus permitted to
proceed to the other stages of the bidding process.
By virtue of the prequalified status conferred upon the Paircargo, Undersecretary Cal's findings in effect relieved the consortium
of the need to comply with the financial capability requirement imposed by the BOT Law and IRR. This position is unmistakably
and squarely at odds with the Supreme Court's consistent doctrine emphasizing the strict application of pertinent rules,
regulations and guidelines for the public bidding process, in order to place each bidder - actual or potential - on the same footing.
Thus, it is unarguably irregular and contrary to the very concept of public bidding to permit a variance between the conditions
under which bids are invited and those under which proposals are submitted and approved.
Republic v. Capulong,14 teaches that if one bidder is relieved from having to conform to the conditions that impose some duty
upon it, that bidder is not contracting in fair competition with those bidders that propose to be bound by all conditions. The
essence of public bidding is, after all, an opportunity for fair competition and a basis for the precise comparison of bids. 15 Thus,
each bidder must bid under the same conditions; and be subject to the same guidelines, requirements and limitations. The
desired result is to be able to determine the best offer or lowest bid,all things being equal.
Inasmuch as the Paircargo consortium did not possess the minimum equity equivalent to 30 percent of the minimum project cost,
it should not have been prequalified or allowed to participate further in the bidding. The Prequalification and Bidding Committee
(PBAC) should therefore not have opened the two envelopes of the consortium containing its technical and financial proposals;
required AEDC to match the consortium's bid; 16 or awarded the Concession Agreement to the consortium's successor-ininterest, Piatco.
As there was effectively no public bidding to speak of, the entire bidding process having been flawed and tainted from the very
outset, therefore, the award of the concession to Paircargo's successor Piatco was void, and the Concession Agreement
executed with the latter was likewise void ab initio. For this reason, Piatco cannot and should not be allowed to benefit from that
Agreement.17
AEDC Was Deprived of the Right to Match PIATCO's Price Challenge
In DOTC PBAC Bid Bulletin No. 4 (par. 3), Undersecretary Cal declared that, for purposes of matching the price challenge of
Piatco, AEDC as originator of the unsolicited proposal would be permitted access only to the schedule of proposed Annual
Guaranteed Payments submitted by Piatco, and not to the latter's financial and technical proposals that constituted the basis for
the price challenge in the first place. This was supposedly in keeping with Section 11.6 of the 1994 IRR, which provides that
proprietary information is to be respected, protected and treated with utmost confidentiality, and is therefore not to form part of
the bidding/tender and related documents.
This pronouncement, I believe, was a grievous misapplication of the mentioned provision. The "proprietary information" referred
to in Section 11.6 of the IRR pertains only to the proprietary information of the originator of an unsolicited proposal, and not to
those belonging to a challenger. The reason for the protection accorded proprietary information at all is the fact that, according to
Section 4-A of the BOT Law as amended, a proposal qualifies as an "unsolicited proposal" when it pertains to a project that
involves "a new concept or technology", and/or a project that is not on the government's list of priority projects.
To be considered as utilizing a new concept or technology, a project must involve the possession of exclusive rights (worldwide
or regional) over a process; or possession of intellectual property rights over a design, methodology or engineering
concept.18 Patently, the intent of the BOT Law is to encourage individuals and groups to come up with creative innovations, fresh
ideas and new technology. Hence, the significance and necessity of protecting proprietary information in connection with
unsolicited proposals. And to make the encouragement real, the law also extends to such individuals and groups what amounts
to a "right of first refusal" to undertake the project they conceptualized, involving the use of new technology or concepts, through
the mechanism of matching a price challenge.
A competing bid is never just any figure conjured from out of the blue; it is arrived at after studying economic, financial, technical
and other, factors; it is likewise based on certain assumptions as to the nature of the business, the market potentials, the
probable demand for the product or service, the future behavior of cost items, political and other risks, and so on. It is thus selfevident that in order to be able to intelligently match a bid or price challenge, a bidder must be given access to the assumptions
and the calculations that went into crafting the competing bid.
In this instance, the financial and technical proposals of Piatco would have provided AEDC with the necessary information to
enable it to make a reasonably informed matching bid. To put it more simply, a bidder unable to access the competitor's
assumptions will never figure out how the competing bid came about; requiring him to "counter-propose" is like having him shoot
at a target in the dark while blindfolded.
By withholding from AEDC the challenger's financial and technical proposals containing the critical information it needed,
Undersecretary Cal actually and effectively deprived AEDC of the ability to match the price challenge. One could say that AEDC
did not have the benefit of a "level playing field." It seems to me, though, that AEDC wasactually shut out of the game altogether.
At the end of the day, the bottom line is that the validity and the propriety of the award to Piatco had been irreparably impaired.

Delayed Issuance of the Notice of Award Violated the BOT Law and the IRR
Section 9.5 of the IRR requires that the Notice of Award must indicate the time frame within which the winner of the bidding (and
therefore the prospective awardee) shall submit the prescribed performance security, proof of commitment of equity
contributions, and indications of sources of financing (loans); and, in the case of joint ventures, an agreement showing that the
members are jointly and severally responsible for the obligations of the project proponent under the contract.
The purpose of having a definite and firm timetable for the submission of the aforementioned requirements is not only to prevent
delays in the project implementation, but also to expose and weed out unqualified proponents, who might have unceremoniously
slipped through the earlier prequalification process, by compelling them to put their money where their mouths are, so to speak.
Nevertheless, this provision can be easily circumvented by merely postponing the actual issuance of the Notice of Award, in
order to give the favored proponent sufficient time to comply with the requirements. Hence, to avert or minimize the manipulation
of the post-bidding process, the IRR not only set out the precise sequence of events occurring between the completion of the
evaluation of the technical bids and the issuance of the Notice of Award, but also specified the timetables for each such event.
Definite allowable extensions of time were provided for, as were the consequences of a failure to meet a particular deadline.
In particular, Section 9.1 of the 1994 IRR prescribed that within 30 calendar days from the time the second-stage evaluation shall
have been completed, the Committee must come to a decision whether or not to award the contract and, within 7 days
therefrom, the Notice of Award must be approved by the head of agency or local government unit (LGU) concerned, and its
issuance must follow within another 7 days thereafter.
Section 9.2 of the IRR set the procedure applicable to projects involving substantial government undertakings as follows: Within
7 days after the decision to award is made, the draft contract shall be submitted to the ICC for clearance on a no-objection basis.
If the draft contract includes government undertakings already previously approved, then the submission shall be for information
only.
However, should there be additional or new provisions different from the original government undertakings, the draft shall have to
be reviewed and approved. The ICC has 15 working days to act thereon, and unless otherwise specified, its failure to act on the
contract within the specified time frame signifies that the agency or LGU may proceed with the award. The head of agency or
LGU shall approve the Notice of Award within seven days of the clearance by the ICC on a no-objection basis, and the Notice
itself has to be issued within seven days thereafter.
The highly regulated time-frames within which the agents of government were to act evinced the intent to impose upon them the
duty to act expeditiously throughout the process, to the end that the project be prosecuted and implemented without delay. This
regulated scenario was likewise intended to discourage collusion and substantially reduce the opportunity for agents of
government to abuse their discretion in the course of the award process.
Despite the clear timetables set out in the IRR, several lengthy and still-unexplained delays occurred in the award process, as
can be observed from the presentation made by the counsel for public respondents, 19 quoted hereinbelow:
"11 Dec. 1996 - The Paircargo Joint Venture was informed by the PBAC that AEDC failed to match and that
negotiations preparatory to Notice of Award should be commenced. This was the decision to award that should have
commenced the running of the 7-day period to approve the Notice of Award, as per Section 9.1 of the IRR, or to submit
the draft contract to the ICC for approval conformably with Section 9.2.
"01 April 1997 - The PBAC resolved that a copy of the final draft of the Concession Agreement be submitted to the
NEDA for clearance on a no-objection basis. This resolution came more than 3 months too late as it should have been
made on the 20th of December 1996 at the latest.
"16 April 1997 - The PBAC resolved that the period of signing the Concession Agreement be extended by 15 days.
"18 April 1997 - NEDA approved the Concession Agreement. Again this is more than 3 months too late as the NEDA's
decision should have been released on the 16th of January 1997 or fifteen days after it should have been submitted to
it for review.
"09 July 1997 - The Notice of Award was issued to PIATCO. Following the provisions of the IRR, the Notice of Award
should have been issued fourteen days after NEDA's approval, or the 28th of January 1997. In any case, even if it
were to be assumed that the release of NEDA's approval on the 18th of April was timely, the Notice of Award should
have been issued on the 9th of May 1997. In both cases, therefore, the release of the Notice of Award occurred in a
decidedly less than timely fashion."
This chronology of events bespeaks an unmistakable disregard, if not disdain, by the persons in charge of the award process for
the time limitations prescribed by the IRR. Their attitude flies in the face of this Court's solemn pronouncement in Republic v.
Capulong,20 that "strict observance of the rules, regulations and guidelines of the bidding process is the only safeguard to a fair,
honest and competitive public bidding."
From the foregoing, the only conclusion that can possibly be drawn is that the BOT law and its IRR were repeatedly violated with
unmitigated impunity - and by agents of government, no less! On account of such violation, the award of the contract to Piatco,
which undoubtedly gained time and benefited from the delays, must be deemed null and void from the beginning.
Further Amendments Resulted in a Substantially Different Contract, Awarded Without Public Bidding

But the violations and desecrations did not stop there. After the PBAC made its decision on December 11, 1996 to award the
contract to Piatco, the latter negotiated changes to the Contract bidded out and ended up with what amounts to a substantially
new contract without any public bidding. This Contract was subsequently further amended four more times through negotiation
and without any bidding. Thus, the contract actually executed between Piatco and DOTC/MIAA on July 12, 1997 (the Concession
Agreement or "CA") differed from the contract bidded out (the draft concession agreement or "DCA") in the following very
significant respects:
1. The CA inserted stipulations creating a monopoly in favor of Piatco in the business of providing airport-related
services for international airlines and passengers.21
2. The CA provided that government is to answer for Piatco's unpaid loans and debts (lumped under the
term Attendant Liabilities) in the event Piatco fails to pay its senior lenders. 22
3. The CA provided that in case of termination of the contract due to the fault of government, government shall pay all
expenses that Piatco incurred for the project plus the appraised value of the Terminal. 23
4. The CA imposed new and special obligations on government, including delivery of clean possession of the site for
the terminal; acquisition of additional land at the government's expense for construction of road networks required by
Piatco's approved plans and specifications; and assistance to Piatco in securing site utilities, as well as all necessary
permits, licenses and authorizations.24
5. Where Section 3.02 of the DCA requires government to refrain from competing with the contractor with respect to
the operation of NAIA Terminal III, Section 3.02(b) of the CA excludes and prohibits everyone, including government,
from directly or indirectly competing with Piatco, with respect to the operation of, as well as operations in, NAIA
Terminal III. Operations in is sufficiently broad to encompass all retail and other commercial business enterprises
operating within Terminal III, inclusive of the businesses of providing various airport-related services to international
airlines, within the scope of the prohibition.
6. Under Section 6.01 of the DCA, the following fees are subject to the written approval of MIAA: lease/rental charges,
concession privilege fees for passenger services, food services, transportation utility concessions, groundhandling,
catering and miscellaneous concession fees, porterage fees, greeter/well-wisher fees, carpark fees, advertising fees,
VIP facilities fees and others. Moreover, adjustments to the groundhandling fees, rentals and porterage fees are
permitted only once every two years and in accordance with a parametric formula, per DCA Section 6.03. However, the
CA as executed with Piatco provides in Section 6.06 that all the aforesaid fees, rentals and charges may be adjusted
without MIAA's approval or intervention. Neither are the adjustments to these fees and charges subject to or limited by
any parametric formula.25
7. Section 1.29 of the DCA provides that the terminal fees, aircraft tacking fees, aircraft parking fees, check-in counter
fees and other fees are to be quoted and paid in Philippine pesos. But per Section 1.33 of the CA, all the aforesaid
fees save the terminal fee are denominated in US Dollars.
8. Under Section 8.07 of the DCA, the term attendant liabilities refers to liabilities pertinent to NAIA Terminal III, such as
payment of lease rentals and performance of other obligations under the Land Lease Agreement; the obligations under
the Tenant Agreements; and payment of all taxes, fees, charges and assessments of whatever kind that may be
imposed on NAIA Terminal III or parts thereof. But in Section 1.06 of the CA , Attendant Liabilities refers to unpaid debts
of Piatco: "All amounts recorded and from time to time outstanding in the books of (Piatco) as owing to Unpaid
Creditors who have provided, loaned or advanced funds actually used for the Project, including all interests, penalties,
associated fees, charges, surcharges, indemnities, reimbursements and other related expenses, and further including
amounts owed by [Piatco] to its suppliers, contractors and subcontractors."
9. Per Sections 8.04 and 8.06 of the DCA, government may, on account of the contractors breach, rescind the contract
and select one of four options: (a) take over the terminal and assume all its attendant liabilities; (b) allow the
contractor's creditors to assign the Project to another entity acceptable to DOTC/MIAA; (c) pay the contractor rent for
the facilities and equipment the DOTC may utilize; or (d) purchase the terminal at a price established by independent
appraisers. Depending on the option selected, government may take immediate possession and control of the terminal
and its operations. Government will be obligated to compensate the contractor for the "equivalent or proportionate
contract costs actually disbursed," but only where government is the one in breach of the contract. But under Section
8.06(a) of the CA, whether on account of Piatco's breach of contract or its inability to pay its creditors, government is
obliged to either (a) take over Terminal III and assume all of Piatco's debts or (b) permit the qualified unpaid creditors to
be substituted in place of Piatco or to designate a new operator. And in the event of government's breach of contract,
Piatco may compel it to purchase the terminal at fair market value, per Section 8.06(b) of the CA.
10. Under the DCA, any delay by Piatco in the payment of the amounts due the government constitutes breach of
contract. However, under the CA, such delay does not necessarily constitute breach of contract, since Piatco is
permitted to suspend payments to the government in order to first satisfy the claims of its secured creditors, per
Section 8.04(d) of the CA.

It goes without saying that the amendment of the Contract bidded out (the DCA or draft concession agreement) - in such
substantial manner, without any public bidding, and after the bidding process had been concluded on December 11, 1996 - is
violative of public policy on public biddings, as well as the spirit and intent of the BOT Law . The whole point of going through the
public bidding exercise was completely lost. Its very rationale was totally subverted by permitting Piatco to amend the contract
for which public bidding had already been concluded. Competitive bidding aims to obtain the best deal possible by fostering
transparency and preventing favoritism, collusion and fraud in the awarding of contracts. That is the reason why procedural rules
pertaining to public bidding demand strict observance. 26
In a relatively early case, Caltex v. Delgado Brothers,27 this Court made it clear that substantive amendments to a contract for
which a public bidding has already been finished should only be awarded after another public bidding:
"The due execution of a contract after public bidding is a limitation upon the right of the contracting parties to alter or
amend it without another public bidding, for otherwise what would a public bidding be good for if after the execution of
a contract after public bidding, the contracting parties may alter or amend the contract, or even cancel it, at their will?
Public biddings are held for the protection of the public, and to give the public the best possible advantages by means
of open competition between the bidders. He who bids or offers the best terms is awarded the contract subject of the
bid, and it is obvious that such protection and best possible advantages to the public will disappear if the parties to a
contract executed after public bidding may alter or amend it without another previous public bidding." 28
The aforementioned case dealt with the unauthorized amendment of a contract executed after public bidding; in the situation
before us, the amendments were made also after the bidding, but prior to execution. Be that as it may, the same rationale
underlying Caltex applies to the present situation with equal force. Allowing the winning bidder to renegotiate the contract for
which the bidding process has ended is tantamount to permitting it to put in anything it wants. Here, the winning bidder (Piatco)
did not even bother to wait until after actual execution of the contract before rushing to amend it. Perhaps it believed that if the
changes were made to a contract already won through bidding (DCA) instead of waiting until it is executed, the amendments
would not be noticed or discovered by the public.
In a later case, Mata v. San Diego,29 this Court reiterated its ruling as follows:
"It is true that modification of government contracts, after the same had been awarded after a public bidding, is not
allowed because such modification serves to nullify the effects of the bidding and whatever advantages the
Government had secured thereby and may also result in manifest injustice to the other bidders. This prohibition,
however, refers to a change in vital and essential particulars of the agreement which results in a substantially new
contract."
Piatco's counter-argument may be summed up thus: There was nothing in the 1994 IRR that prohibited further negotiations and
eventual amendments to the DCA even after the bidding had been concluded. In fact, PBAC Bid Bulletin No. 3
states: "[A]mendments to the Draft Concession Agreement shall be issued from time to time. Said amendments will only cover
items that would not materially affect the preparation of the proponent's proposal."
I submit that accepting such warped argument will result in perverting the policy underlying public bidding. The BOT Law cannot
be said to allow the negotiation of contractual stipulations resulting in a substantially new contract after the bidding process and
price challenge had been concluded. In fact, the BOT Law, in recognition of the time, money and effort invested in an unsolicited
proposal, accords its originator the privilege of matching the challenger's bid.
Section 4-A of the BOT Law specifically refers to a "lower price proposal" by a competing bidder; and to the right of the original
proponent "to match the price" of the challenger. Thus, only the price proposals are in play. Theterms, conditions and
stipulations in the contract for which public bidding has been concluded are understood to remain intact and not be subject to
further negotiation. Otherwise, the very essence of public bidding will be destroyed - there will be no basis for an exact
comparison between bids.
Moreover, Piatco misinterpreted the meaning behind PBAC Bid Bulletin No. 3. The phrase amendments . . . from time to
time refers only to those amendments to the draft concession agreement issued by the PBAC prior to the submission of the price
challenge; it certainly does not include or permit amendments negotiated for and introduced after the bidding process, has been
terminated.
Piatco's Concession Agreement Was Further Amended, (ARCA) Again Without Public Bidding
Not satisfied with the Concession Agreement, Piatco - once more without bothering with public bidding - negotiated with
government for still more substantial changes. The result was the Amended and Restated Concession Agreement (ARCA)
executed on November 26, 1998. The following changes were introduced:
1. The definition of Attendant Liabilities was further amended with the result that the unpaid loans of Piatco, for which
government may be required to answer, are no longer limited to only those loans recorded in Piatco's books or loans
whose proceeds were actually used in the Terminal III project. 30
2. Although the contract may be terminated due to breach by Piatco, it will not be liable to pay the government any
Liquidated Damages if a new operator is designated to take over the operation of the terminal. 31

3. The Liquidated Damages which government becomes liable for in case of its breach of contract were substantially
increased.32
4. Government's right to appoint a comptroller for Piatco in case the latter encounters liquidity problems was deleted. 33
5. Government is made liable for Incremental and Consequential Costs and Losses in case it fails to comply or cause
any third party under its direct or indirect control to comply with the special obligations imposed on government. 34
6. The insurance policies obtained by Piatco covering the terminal are now required to be assigned to the Senior
Lenders as security for the loans; previously, their proceeds were to be used to repair and rehabilitate the facility in
case of damage.35
7. Government bound itself to set the initial rate of the terminal fee, to be charged when Terminal III begins operations,
at an amount higher than US$20.36
8. Government waived its defense of the illegality of the contract and even agreed to be liable to pay damages to
Piatco in the event the contract was declared illegal. 37
9. Even though government may be entitled to terminate the ARCA on account of breach by Piatco, government is still
liable to pay Piatco the appraised value of Terminal III or the Attendant Liabilities, if the termination occurs before the
In-Service Date.38 This condition contravenes the BOT Law provision on termination compensation.
10. Government is obligated to take the administrative action required for Piatco's imposition, collection and application
of all Public Utility Revenues.39 No such obligation existed previously.
11. Government is now also obligated to perform and cause other persons and entities under its direct or indirect
control to perform all acts necessary to perfect the security interests to be created in favor of Piatco's Senior
Lenders.40 No such obligation existed previously.
12. DOTC/MIAA's right of intervention in instances where Piatco's Non-Public Utility Revenues become exorbitant or
excessive has been removed.41
13. The illegality and unenforceability of the ARCA or any of its material provisions was made an event of default on
the part of government only, thus constituting a ground for Piatco to terminate the ARCA. 42
14. Amounts due from and payable by government under the contract were made payable on demand - net of taxes,
levies, imposts, duties, charges or fees of any kind except as required by law. 43
15. The Parametric Formula in the contract, which is utilized to compute for adjustments/increases to the public utility
revenues (i.e., aircraft parking and tacking fees, check-in counter fee and terminal fee), was revised to permit Piatco to
input its more costly short-term borrowing rates instead of the longer-terms rates in the computations for adjustments,
with the end result that the changes will redound to its greater financial benefit.
16. The Certificate of Completion simply deleted the successful performance-testing of the terminal facility in
accordance with defined performance standards as a pre-condition for government's acceptance of the terminal
facility.44
In sum, the foregoing revisions and amendments as embodied in the ARCA constitute very material alterations of the terms and
conditions of the CA, and give further manifestly undue advantage to Piatco at the expense of government. Piatco claims that the
changes to the CA were necessitated by the demands of its foreign lenders. However, no proof whatsoever has been adduced to
buttress this claim.
In any event, it is quite patent that the sum total of the aforementioned changes resulted in drastically weakeningthe position of
government to a degree that seems quite excessive, even from the standpoint of a businessperson who regularly transacts with
banks and foreign lenders, is familiar with their mind-set, and understands what motivates them. On the other hand, whatever it
was that impelled government officials concerned to accede to those grossly disadvantageous changes, I can only hazard a
guess.
There is no question in my mind that the ARCA was unauthorized and illegal for lack of public bidding and for being patently
disadvantageous to government.
The Three Supplements Imposed New Obligations on Government, Also Without Prior Public Bidding
After Piatco had managed to breach the protective rampart of public bidding, it recklessly went on a rampage of further assaults
on the ARCA.
The First Supplement Is as Void as the ARCA
In the First Supplement ("FS") executed on August 27, 1999, the following changes were made to the ARCA:
1. The amounts payable by Piatco to government were reduced by allowing additional exceptions to the Gross
Revenues in which government is supposed to participate. 45
2. Made part of the properties which government is obliged to construct and/or maintain and keep in good repair are (a)
the access road connecting Terminals II and III - the construction of this access road is the obligation of Piatco, in lieu
of its obligation to construct an Access Tunnel connecting Terminals II and III; and (b) the taxilane and taxiway - these
are likewise part of Piatco's obligations, since they are part and parcel of the project as described in Clause 1.3 of the
Bid Documents .46

3. The MIAA is obligated to provide funding for the maintenance and repair of the airports and facilities owned or
operated by it and by third persons under its control. It will also be liable to Piatco for the latter's losses, expenses and
damages as well as liability to third persons, in case MIAA fails to perform such obligations. In addition, MIAA will also
be liable for the incremental and consequential costs of the remedial work done by Piatco on account of the former's
default.47
4. The FS also imposed on government ten (10) "Additional Special Obligations," including the following:
(a) Working for the removal of the general aviation traffic from the NAIA airport complex 48
(b) Providing through MIAA the land required by Piatco for the taxilane and one taxiway at no cost to Piatco 49
(c) Implementing the government's existing storm drainage master plan 50
(d) Coordinating with DPWH the financing, the implementation and the completion of the following works
before the In-Service Date: three left-turning overpasses (EDSA to Tramo St., Tramo to Andrews Ave., and
Manlunas Road to Sales Ave.); 51 and a road upgrade and improvement program involving widening, repair
and resurfacing of Sales Road, Andrews Avenue and Manlunas Road; improvement of Nichols Interchange;
and removal of squatters along Andrews Avenue.52
(e) Dealing directly with BCDA and the Phil. Air Force in acquiring additional land or right of way for the road
upgrade and improvement program.53
5. Government is required to work for the immediate reversion to MIAA of the Nayong Pilipino National Park.54
6. Government's share in the terminal fees collected was revised from a flat rate of P180 to 36 percent thereof;
together with government's percentage share in the gross revenues of Piatco, the amount will be remitted to
government in pesos instead of US dollars. 55 This amendment enables Piatco to benefit from the further erosion of the
peso-dollar exchange rate, while preventing government from building up its foreign exchange reserves.
7. All payments from Piatco to government are now to be invoiced to MIAA, and payments are to accrue to the latter's
exclusive benefit.56 This move appears to be in support of the funds MIAA advanced to DPWH.
I must emphasize that the First Supplement is void in two respects. First, it is merely an amendment to the ARCA, upon which it
is wholly dependent; therefore, since the ARCA is void, inexistent and not capable of being ratified or amended, it follows that the
FS too is void, inexistent and inoperative. Second, even assuming arguendo that the ARCA is somehow remotely valid,
nonetheless the FS, in imposing significant new obligations upon government, altered the fundamental terms and stipulations of
the ARCA, thus necessitating a public bidding all over again. That the FS was entered into sans public bidding renders it utterly
void and inoperative.
The Second Supplement Is Similarly Void and Inexistent
The Second Supplement ("SS") was executed between the government and Piatco on September 4, 2000. It calls for Piatco,
acting not as concessionaire of NAIA Terminal III but as a public works contractor, to undertake - in the government's stead - the
clearing, removal, demolition and disposal of improvements, subterranean obstructions and waste materials at the project site. 57
The scope of the works, the procedures involved, and the obligations of the contractor are provided for in Parts II and III of the
SS. Section 4.1 sets out the compensation to be paid, listing specific rates per cubic meter of materials for each phase of the
work - excavation, leveling, removal and disposal, backfilling and dewatering. The amounts collectible by Piatco are to be offset
against the Annual Guaranteed Payments it must pay government.
Though denominated as Second Supplement, it was nothing less than an entirely new public works contract. Yet it, too, did not
undergo any public bidding, for which reason it is also void and inoperative.
Not surprisingly, Piatco had to subcontract the works to a certain Wintrack Builders, a firm reputedly owned by a former highranking DOTC official. But that is another story altogether.
The Third Supplement Is Likewise Void and Inexistent
The Third Supplement ("TS"), executed between the government and Piatco on June 22, 2001, passed on to the government
certain obligations of Piatco as Terminal III concessionaire, with respect to the surface road connecting Terminals II and III.
By way of background, at the inception of and forming part of the NAIA Terminal III project was the proposed construction of an
access tunnel crossing Runway 13/31, which. would connect Terminal III to Terminal II. The Bid Documents in Section 4.1.2.3[B]
[i] declared that the said access tunnel was subject to further negotiation; but for purposes of the bidding, the proponent should
submit a bid for it as well. Therefore, the tunnel was supposed to be part and parcel of the Terminal III project.
However, in Section 5 of the First Supplement, the parties declared that the access tunnel was not economically viable at that
time. In lieu thereof, the parties agreed that a surface access road (now called the T2-T3 Road) was to be constructed by Piatco
to connect the two terminals. Since it was plainly in substitution of the tunnel, the surface road construction should likewise be
considered part and parcel of the same project, and therefore part of Piatco's obligation as well. While the access tunnel was
estimated to cost about P800 million, the surface road would have a price tag in the vicinity of about P100 million, thus producing
significant savings for Piatco.
Yet, the Third Supplement, while confirming that Piatco would construct the T2-T3 Road, nevertheless shifted to government
some of the obligations pertaining to the former, as follows:

1. Government is now obliged to remove at its own expense all tenants, squatters, improvements and/or waste
materials on the site where the T2-T3 road is to be constructed. 58 There was no similar obligation on the part of
government insofar as the access tunnel was concerned.
2. Should government fail to carry out its obligation as above described, Piatco may undertake it on government's
behalf, subject to the terms and conditions (including compensation payments) contained in the Second Supplement. 59
3. MIAA will answer for the operation, maintenance and repair of the T2-T3 Road. 60
The TS depends upon and is intended to supplement the ARCA as well as the First Supplement, both of which are void and
inexistent and not capable of being ratified or amended. It follows that the TS is likewise void, inexistent and inoperative. And
even if, hypothetically speaking, both ARCA and FS are valid, still, the Third Supplement - imposing as it does significant new
obligations upon government - would in effect alter the terms and stipulations of the ARCA in material respects, thus
necessitating another public bidding. Since the TS was not subjected to public bidding, it is consequently utterly void as well. At
any rate, the TS created new monetary obligations on the part of government, for which there were no prior appropriations.
Hence it follows that the same is void ab initio.
In patiently tracing the progress of the Piatco contracts from their inception up to the present, I noted that the whole process was
riddled with significant lapses, if not outright irregularity and wholesale violations of law and public policy. The rationale of
beginning at the beginning, so to speak, will become evident when the question of what to do with the five Piatco contracts is
discussed later on.
In the meantime, I shall take up specific, provisions or changes in the contracts and highlight the more prominent objectionable
features.
Government Directly Guarantees Piatco Debts
Certainly the most discussed provision in the parties' arguments is the one creating an unauthorized, direct government
guarantee of Piatco's obligations in favor of the lenders.
Section 4-A of the BOT Law as amended states that unsolicited proposals, such as the NAIA Terminal III Project, may be
accepted by government provided inter alia that no direct government guarantee, subsidy or equity is required. In short, such
guarantee is prohibited in unsolicited proposals. Section 2(n) of the same legislationdefines direct government guarantee as "an
agreement whereby the government or any of its agencies or local government units (will) assume responsibility for the
repayment of debt directly incurred by the project proponent in implementing the project in case of a loan default."
Both the CA and the ARCA have provisions that undeniably create such prohibited government guarantee. Section 4.04 (c)(iv) to
(vi) of the ARCA, which is similar to Section 4.04 of the CA, provides thus:
"(iv) that if Concessionaire is in default under a payment obligation owed to the Senior Lenders, and as a result thereof
the Senior Lenders have become entitled to accelerate the Senior Loans, the Senior Lenders shall have the right to
notify GRP of the same . . .;
(v) . . . the Senior Lenders may after written notification to GRP, transfer the Concessionaire's rights and obligations to
a transferee . . .;
(vi) if the Senior Lenders . . . are unable to . . . effect a transfer . . ., then GRP and the Senior Lenders shall
endeavor . . . to enter into any other arrangement relating to the Development Facility . . . If no agreement relating to
the Development Facility is arrived at by GRP and the Senior Lenders within the said 180-day period, then at the end
thereof the Development Facility shall be transferred by the Concessionaire to GRP or its designee and GRP shall
make a termination payment to Concessionaire equal to the Appraised Value (as hereinafter defined) of the
Development Facility or the sum of the Attendant Liabilities, if greater. . . ."
In turn, the term Attendant Liabilities is defined in Section 1.06 of the ARCA as follows:
"Attendant Liabilities refer to all amounts in each case supported by verifiable evidence from time to time owed or
which may become, owing by Concessionaire to Senior Lenders or any other persons or entities who have provided,
loaned or advanced funds or provided financial facilities to Concessionaire for the Project, including, without limitation,
all principal, interest, associated fees, charges, reimbursements, and other related expenses (including the fees,
charges and expenses of any agents or trustees of such persons or entities), whether payable at maturity, by
acceleration or otherwise, and further including amounts owed by Concessionaire to its professional consultants and
advisers, suppliers, contractors and sub-contractors."
Government's agreement to pay becomes effective in the event of a default by Piatco on any of its loan obligations to the
Senior Lenders, and the amount to be paid by government is the greater of either the Appraised Value of Terminal III or the
aggregate amount of the moneys owed by Piatco - whether to the Senior Lenders or to other entities, including its suppliers,
contractors and subcontractors. In effect, therefore, this agreement already constitutes the prohibited assumption by government
of responsibility for repayment of Piatco's debts in case of a loan default. In fine, a direct government guarantee.
It matters not that there is a roundabout procedure prescribed by Section 4.04(c)(iv), (v) and (vi) that would require, first, an
attempt (albeit unsuccessful) by the Senior Lenders to transfer Piatco's rights to a transferee of their choice; and, second, an
effort (equally unsuccessful) to "enter into any other arrangement" with the government regarding the Terminal III facility, before

government is required to make good on its guarantee. What is abundantly clear is the fact that, in the devious labyrinthine
process detailed in the aforesaid section, it is entirely within the Senior Lenders' power, prerogative and control - exercisable via
a mere refusal or inability to agree upon "a transferee" or "any other arrangement" regarding the terminal facility - to push the
process forward to the ultimate contractual cul-de-sac, wherein government will be compelled to abjectly surrender and make
good on its guarantee of payment.
Piatco also argues that there is no proviso requiring government to pay the Senior Lenders in the event of Piatco's default. This
is literally true, in the sense that Section 4.04(c)(vi) of ARCA speaks of government making the termination payment to Piatco,
not to the lenders. However, it is almost a certainty that the Senior Lenders will already have made Piatco sign over to them,
ahead of time, its right to receive such payments from government; and/or they may already have had themselves appointed its
attorneys-in-fact for the purpose of collecting and receiving such payments.
Nevertheless, as petitioners-in-intervention pointed out in their Memorandum, 61 the termination payment is to be made to Piatco,
not to the lenders; and there is no provision anywhere in the contract documents to prevent it from diverting the proceeds to its
own benefit and/or to ensure that it will necessarily use the same to pay off the Senior Lenders and other creditors, in order to
avert the foreclosure of the mortgage and other liens on the terminal facility. Such deficiency puts the interests of government at
great risk. Indeed, if the unthinkable were to happen, government would be paying several hundreds of millions of dollars, but
the mortgage liens on the facility may still be foreclosed by the Senior Lenders just the same.
Consequently, the Piatco contracts are also objectionable for grievously failing to adequately protect government's interests.
More accurately, the contracts would consistently weaken and do away with protection of government interests. As such, they
are therefore grossly lopsided in favor of Piatco and/or its Senior Lenders.
While on this subject, it is well to recall the earlier discussion regarding a particularly noticeable alteration of the concept of
"Attendant Liabilities." In Section 1.06 of the CA defining the term, the Piatco debts to be assumed/paid by government were
qualified by the phrases recorded and from time to time outstanding in the books of the Concessionaire and actually used for the
project. These phrases were eliminated from the ARCA's definition of Attendant Liabilities.
Since no explanation has been forthcoming from Piatco as to the possible justification for such a drastic change, the only
conclusion, possible is that it intends to have all of its debts covered by the guarantee, regardless of whether or not they are
disclosed in its books. This has particular reference to those borrowings which were obtained in violation of the loan covenants
requiring Piatco to maintain a minimum 70:30 debt-to-equity ratio, and even if the loan proceeds were not actually used for the
project itself.
This point brings us back to the guarantee itself. In Section 4.04(c)(vi) of ARCA, the amount which government has guaranteed
to pay as termination payment is the greater of either (i) the Appraised Value of the terminal facility or (ii) the aggregate of the
Attendant Liabilities. Given that the Attendant Liabilities may include practically any Piatco debt under the sun, it is highly
conceivable that their sum may greatly exceed the appraised value of the facility, and government may end up paying very much
more than the real worth of Terminal III. (So why did government have to bother with public bidding anyway?)
In the final analysis, Section 4.04(c)(iv) to (vi) of the ARCA is diametrically at odds with the spirit and the intent of the BOT Law.
The law meant to mobilize private resources (the private sector) to take on the burden and the risks of financing the construction,
operation and maintenance of relevant infrastructure and development projects for the simple reason that government is not in a
position to do so. By the same token, government guarantee was prohibited, since it would merely defeat the purpose and raison
d'tre of a build-operate-and-transfer project to be undertaken by the private sector.
To the extent that the project proponent is able to obtain loans to fund the project, those risks are shared between the project
proponent on the one hand, and its banks and other lenders on the other. But where the proponent or its lenders manage to cajol
or coerce the government into extending a guarantee of payment of the loan obligations, the risks assumed by the lenders are
passed right back to government. I cannot understand why, in the instant case, government cheerfully assented to re-assuming
the risks of the project when it gave the prohibited guarantee and thus simply negated the very purpose of the BOT Law and the
protection it gives the government.
Contract Termination Provisions in the Piatco Contracts Are Void
The BOT Law as amended provides for contract termination as follows:
"Sec. 7. Contract Termination. - In the event that a project is revoked, cancelled or terminated by the government
through no fault of the project proponent or by mutual agreement, the Government shall compensate the said project
proponent for its actual expenses incurred in the project plus a reasonable rate of return thereon not exceeding that
stated in the contract as of the date of such revocation, cancellation or termination: Provided, That the interest of the
Government in this instances [sic] shall be duly insured with the Government Service Insurance System or any other
insurance entity duly accredited by the Office of the Insurance Commissioner: Provided, finally, That the cost of the
insurance coverage shall be included in the terms and conditions of the bidding referred to above.
"In the event that the government defaults on certain major obligations in the contract and such failure is not
remediable or if remediable shall remain unremedied for an unreasonable length of time, the project
proponent/contractor may, by prior notice to the concerned national government agency or local government unit

specifying the turn-over date, terminate the contract. The project proponent/contractor shall be reasonably
compensated by the Government for equivalent or proportionate contract cost as defined in the contract."
The foregoing statutory provision in effect provides for the following limited instances when termination compensation may be
allowed:
1. Termination by the government through no fault of the project proponent
2. Termination upon the parties' mutual agreement
3. Termination by the proponent due to government's default on certain major contractual obligations
To emphasize, the law does not permit compensation for the project proponent when contract termination is due to the
proponent's own fault or breach of contract.
This principle was clearly violated in the Piatco Contracts. The ARCA stipulates that government is to pay termination
compensation to Piatco even when termination is initiated by government for the following causes:
"(i) Failure of Concessionaire to finish the Works in all material respects in accordance with the Tender Design and the
Timetable;
(ii) Commission by Concessionaire of a material breach of this Agreement . . .;
(iii) . . . a change in control of Concessionaire arising from the sale, assignment, transfer or other disposition of capital
stock which results in an ownership structure violative of statutory or constitutional limitations;
(iv) A pattern of continuing or repeated non-compliance, willful violation, or non-performance of other terms and
conditions hereof which is hereby deemed a material breach of this Agreement . . ." 62
As if that were not bad enough, the ARCA also inserted into Section 8.01 the phrase "Subject to Section 4.04." The effect of this
insertion is that in those instances where government may terminate the contract on account of Piatco's breach, and it is
nevertheless required under the ARCA to make termination compensation to Piatco even though unauthorized by law, such
compensation is to be equivalent to the payment amount guaranteed by government - either a) the Appraised Value of the
terminal facility or (b) the aggregate of the Attendant Liabilities, whichever amount is greater!
Clearly, this condition is not in line with Section 7 of the BOT Law. That provision permits a project proponent to recover the
actual expenses it incurred in the prosecution of the project plus a reasonable rate of return not in excess of that provided in the
contract; or to be compensated for the equivalent or proportionate contract cost as defined in the contract, in case the
government is in default on certain major contractual obligations.
Furthermore, in those instances where such termination compensation is authorized by the BOT Law, it is indispensable that
the interest of government be duly insured. Section 5.08 the ARCA mandates insurance coverage for the terminal facility; but all
insurance policies are to be assigned, and all proceeds are payable, to the Senior Lenders. In brief, the interest being secured by
such coverage is that of the Senior Lenders, not that of government. This can hardly be considered compliance with law.
In essence, the ARCA provisions on termination compensation result in another unauthorized government guarantee, this time in
favor of Piatco.
A Prohibited Direct Government Subsidy, Which at the Same Time Is an Assault on the National Honor
Still another contractual provision offensive to law and public policy is Section 8.01(d) of the ARCA, which is a "bolder and
badder" version of Section 8.04(d) of the CA.
It will be recalled that Section 4-A of the BOT Law as amended prohibits not only direct government guarantees, but likewise
a direct government subsidy for unsolicited proposals. Section 13.2. b. iii. of the 1999 IRR defines adirect government subsidy as
encompassing "an agreement whereby the Government . . . will . . . postpone any payments due from the proponent."
Despite the statutory ban, Section 8.01 (d) of the ARCA provides thus:
"(d) The provisions of Section 8.01(a) notwithstanding, and for the purpose of preventing a disruption of the operations
in the Terminal and/or Terminal Complex, in the event that at any time Concessionaire is of the reasonable opinion that
it shall be unable to meet a payment obligation owed to the Senior Lenders, Concessionaire shall give prompt notice to
GRP, through DOTC/MIAA and to the Senior Lenders. In such circumstances, the Senior Lenders (or the Senior
Lenders' Representative) may ensure that after making provision for administrative expenses and depreciation, the
cash resources of Concessionaire shall first be used and applied to meet all payment obligations owed to the Senior
Lenders. Any excess cash, after meeting such payment obligations, shall be earmarked for the payment of all sums
payable by Concessionaire to GRP under this Agreement. If by reason of the foregoing GRP should be unable to
collect in full all payments due to GRP under this Agreement, then the unpaid balance shall be payable within a 90-day
grace period counted from the relevant due date, with interest per annum at the rate equal to the average 91-day
Treasury Bill Rate as of the auction date immediately preceding the relevant due date. If payment is not effected by
Concessionaire within the grace period, then a spread of five (5%) percent over the applicable 91-day Treasury Bill
Rate shall be added on the unpaid amount commencing on the expiry of the grace period up to the day of full payment.
When the temporary illiquidity of Concessionaire shall have been corrected and the cash position of Concessionaire
should indicate its ability to meet its maturing obligations, then the provisions set forth under this Section 8.01(d) shall

cease to apply. The foregoing remedial measures shall be applicable only while there remains unpaid and outstanding
amounts owed to the Senior Lenders." (Emphasis supplied)
By any manner of interpretation or application, Section 8.01(d) of the ARCA clearly mandates the indefinitepostponement of
payment of all of Piatco's obligations to the government, in order to ensure that Piatco's obligations to the Senior Lenders are
paid in full first. That is nothing more or less than the direct government subsidy prohibited by the BOT Law and the IRR. The fact
that Piatco will pay interest on the unpaid amounts owed to government does not change the situation or render the prohibited
subsidy any less unacceptable.
But beyond the clear violations of law, there are larger issues involved in the ARCA. Earlier, I mentioned that Section 8.01(d) of
the ARCA completely eliminated the proviso in Section 8.04(d) of the CA which gave government the right to appoint a financial
controller to manage the cash position of Piatco during situations of financial distress. Not only has government been deprived of
any means of monitoring and managing the situation; worse, as can be seen from Section 8.01(d) above-quoted, the Senior
Lenders have effectively locked in on the right to exercise financial controllership over Piatco and to allocate its cash resources
to the payment of all amounts owed to the Senior Lenders before allowing any payment to be made to government.
In brief, this particular provision of the ARCA has placed in the hands of foreign lenders the power and the authority to determine
how much (if at all) and when the Philippine government (as grantor of the franchise) may be allowed to receive from Piatco. In
that situation, government will be at the mercy of the foreign lenders. This is a situation completely contrary to the rationale of the
BOT Law and to public policy.
The aforesaid provision rouses mixed emotions - shame and disgust at the parties' (especially the government
officials') docile submission and abject servitude and surrender to the imperious and excessive demands of the foreign
lenders, on the one hand; and vehement outrage at the affront to the sovereignty of the Republic and to the national
honor, on the other. It is indeed time to put an end to such an unbearable, dishonorable situation.
The Piatco Contracts Unarguably Violate Constitutional Injunctions
I will now discuss the manner in which the Piatco Contracts offended the Constitution.
The Exclusive Right Granted to Piatco to Operate a Public Utility Is Prohibited by the Constitution
While Section 2.02 of the ARCA spoke of granting to Piatco "a franchise to operate and maintain the Terminal Complex," Section
3.02(a) of the same ARCA granted to Piatco, for the entire term of the concession agreement, "the exclusive right to operate a
commercial international passenger terminal within the Island of Luzon" with the exception of those three terminals already
existing63 at the time of execution of the ARCA.
Section 11 of Article XII of the Constitution prohibits the grant of a "franchise, certificate, or any other form of authorization for the
operation of a public utility" that is "exclusive in character."
In its Opinion No. 078, Series of 1995, the Department of justice held that "the NAIA Terminal III which . . . is a 'terminal for public
use' is a public utility." Consequently, the constitutional prohibition against the exclusivity of a franchise applies to the franchise
for the operation of NAIA Terminal III as well.
What was granted to Piatco was not merely a franchise, but an "exclusive right" to operate an international passenger terminal
within the "Island of Luzon." What this grant effectively means is that the government is now estopped from exercising its
inherent power to award any other person another franchise or a right to operate such a public utility, in the event public interest
in Luzon requires it. This restriction is highly detrimental to government and to the public interest. Former Secretary of Justice
Hernando B. Perez expressed this point well in his Memorandum for the President dated 21 May 2002:
"Section 3.02 on 'Exclusivity'
"This provision gives to PIATCO (the Concessionaire) the exclusive right to operate a commercial international airport
within the Island of Luzon with the exception of those already existing at the time of the execution of the Agreement,
such as the airports at Subic, Clark and Laoag City. In the case of the Clark International Airport, however, the
provision restricts its operation beyond its design capacity of 850,000 passengers per annum and the operation of new
terminal facilities therein until after the new NAIA Terminal III shall have consistently reached or exceeded its design
capacity of ten (10) million passenger capacity per year for three (3) consecutive years during the concession period.
"This is an onerous and disadvantageous provision. It effectively grants PIATCO a monopoly in Luzon and ties the
hands of government in the matter of developing new airports which may be found expedient and necessary in carrying
out any future plan for an inter-modal transportation system in Luzon.
"Additionally, it imposes an unreasonable restriction on the operation of the Clark International Airport which could
adversely affect the operation and development of the Clark Special Economic Zone to the economic prejudice of the
local constituencies that are being benefited by its operation." (Emphasis supplied)
While it cannot be gainsaid that an enterprise that is a public utility may happen to constitute a monopoly on account of the very
nature of its business and the absence of competition, such a situation does not however constitute justification to violate the
constitutional prohibition and grant an exclusive franchise or exclusive right to operate a public utility.
Piatco's contention that the Constitution does not actually prohibit monopolies is beside the point. As correctly argued, 64 the
existence of a monopoly by a public utility is a situation created by circumstances that do not encourage competition. This

situation is different from the grant of a franchise to operate a public utility, a privilege granted by government. Of course, the
grant of a franchise may result in a monopoly. But making such franchise exclusive is what is expressly proscribed by the
Constitution.
Actually, the aforementioned Section 3.02 of the ARCA more than just guaranteed exclusivity; it also guaranteed that the
government will not improve or expand the facilities at Clark - and in fact is required to put a cap on the latter's operations - until
after Terminal III shall have been operated at or beyond its peak capacity for three consecutive years.65 As counsel for public
respondents pointed out, in the real world where the rate of influx of international passengers can fluctuate substantially from
year to year, it may take many years before Terminal III sees three consecutive years' operations at peak capacity. The Diosdado
Macapagal International Airport may thus end up stagnating for a long time. Indeed, in order to ensure greater profits for Piatco,
the economic progress of a region has had to be sacrificed.
The Piatco Contracts Violate the Time Limitation on Franchises
Section 11 of Article XII of the Constitution also provides that "no franchise, certificate or any other form of authorization for the
operation of a public utility shall be . . . for a longer period than fifty years." After all, a franchise held for an unreasonably long
time would likely give rise to the same evils as a monopoly.
The Piatco Contracts have come up with an innovative way to circumvent the prohibition and obtain an extension. This fact can
be gleaned from Section 8.03(b) of the ARCA, which I quote thus:
"Sec. 8.03. Termination Procedure and Consequences of Termination. a) x x x
xxx
xxx
b) In the event the Agreement is terminated pursuant to Section 8.01 (b) hereof, Concessionaire shall be
entitled to collect the Liquidated Damages specified in Annex 'G'. The full payment by GRP to
Concessionaire of the Liquidated Damages shall be a condition precedent to the transfer by Concessionaire
to GRP of the Development Facility. Prior to the full payment of the Liquidated Damages, Concessionaire
shall to the extent practicable continue to operate the Terminal and the Terminal Complex and shall be
entitled to retain and withhold all payments to GRP for the purpose of offsetting the same against the
Liquidated Damages. Upon full payment of the Liquidated Damages, Concessionaire shall immediately
transfer the Development Facility to GRP on 'as-is-where-is' basis."
The aforesaid easy payment scheme is less beneficial than it first appears. Although it enables government to avoid having to
make outright payment of an obligation that will likely run into billions of pesos, this easy payment plan will nevertheless cost
government considerable loss of income, which it would earn if it were to operate Terminal III by itself. Inasmuch as payments to
the concessionaire (Piatco) will be on "installment basis," interest charges on the remaining unpaid balance would undoubtedly
cause the total outstanding balance to swell. Piatco would thus be entitled to remain in the driver's seat and keep operating the
terminal for an indefinite length of time.
The Contracts Create Two Monopolies for Piatco
By way of background, two monopolies were actually created by the Piatco contracts. The first and more obvious one refers to
the business of operating an international passenger terminal in Luzon, the business end of which involves providing
international airlines with parking space for their aircraft, and airline passengers with the use of departure and arrival areas,
check-in counters, information systems, conveyor systems, security equipment and paraphernalia, immigrations and customs
processing areas; and amenities such as comfort rooms, restaurants and shops.
In furtherance of the first monopoly, the Piatco Contracts stipulate that the NAIA Terminal III will be the only facility to be operated
as an international passenger terminal; 66 that NAIA Terminals I and II will no longer be operated as such; 67 and that no one
(including the government) will be allowed to compete with Piatco in the operation of an international passenger terminal in the
NAIA Complex.68 Given that, at this time, the government and Piatco are the only ones engaged in the business of operating an
international passenger terminal, I am not acutely concerned with this particular monopolistic situation.
There was however another monopoly within the NAIA created by the subject contracts for Piatco - in the business of providing
international airlines with the following: groundhandling, in-flight catering, cargo handling, and aircraft repair and maintenance
services. These are lines of business activity in which are engaged many service providers (including the petitioners-inintervention), who will be adversely affected upon full implementation of the Piatco Contracts, particularly Sections 3.01(d) 69 and
(e)70 of both the ARCA and the CA.
On the one hand, Section 3.02(a) of the ARCA makes Terminal III the only international passenger terminal at the NAIA, and
therefore the only place within the NAIA Complex where the business of providing airport-related services to international airlines
may be conducted. On the other hand, Section 3.01(d) of the ARCA requires government, through the MIAA, not to allow service
providers with expired MIAA contracts to renew or extend their contracts to render airport-related services to airlines. Meanwhile,
Section 3.01(e) of the ARCA requires government, through the DOTC and MIAA, not to allow service providers - those with
subsisting concession agreements for services and operations being conducted at Terminal I - to carry over their concession
agreements, services and operations to Terminal III, unless they first enter into a separate agreement with Piatco.

The aforementioned provisions vest in Piatco effective and exclusive control over which service provider may and may not
operate at Terminal III and render the airport-related services needed by international airlines. It thereby possesses the power to
exclude competition. By necessary implication, it also has effective control over the fees and charges that will be imposed and
collected by these service providers.
This intention is exceedingly clear in the declaration by Piatco that it is "completely within its rights to exclude any party that it has
not contracted with from NAIA Terminal III."71
Worse, there is nothing whatsoever in the Piatco Contracts that can serve to restrict, control or regulate the concessionaire's
discretion and power to reject any service provider and/or impose any term or condition it may see fit in any contract it enters into
with a service provider. In brief, there is no safeguard whatsoever to ensure free and fair competition in the service-provider
sector.
In the meantime, and not surprisingly, Piatco is first in line, ready to exploit the unique business opportunity. It announced 72 that it
has accredited three groundhandlers for Terminal III. Aside from the Philippine Airlines, the other accredited entities are the
Philippine Airport and Ground Services Globeground, Inc. ("PAGSGlobeground") and the Orbit Air Systems, Inc. ("Orbit").
PAGSGlobeground is a wholly-owned subsidiary of the Philippine Airport and Ground Services, Inc. or PAGS, 73 while Orbit is a
wholly-owned subsidiary of Friendship Holdings, Inc., 74which is in turn owned 80 percent by PAGS. 75 PAGS is a service provider
owned 60 percent by the Cheng Family;76 it is a stockholder of 35 percent of Piatco 77 and is the latter's designated contractoroperator for NAIA Terminal III.78
Such entry into and domination of the airport-related services sector appear to be very much in line with the following provisions
contained in the First Addendum to the Piatco Shareholders Agreement, 79 executed on July 6, 1999, which appear to constitute a
sort of master plan to create a monopoly and combinations in restraint of trade:
"11. The Shareholders shall ensure:
a. x x x
xxx
x x x.;
b. That (Phil. Airport and Ground Services, Inc.) PAGS and/or its designated Affiliates shall, at all times during the
Concession Period, be exclusively authorized by (PIATCO) to engage in the provision of ground-handling, catering and
fueling services within the Terminal Complex.
c. That PAIRCARGO and/or its designated Affiliate shall, during the Concession Period, be the only entities authorized
to construct and operate a warehouse for all cargo handling and related services within the Site."
Precisely, proscribed by our Constitution are the monopoly and the restraint of trade being fostered by the Piatco Contracts
through the erection of barriers to the entry of other service providers into Terminal III. In Tatad v. Secretary of the Department of
Energy,80 the Court ruled:
". . . [S]ection 19 of Article XII of the Constitution . . . mandates: 'The State shall regulate or prohibit monopolies when
the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.'
"A monopoly is a privilege or peculiar advantage vested in one or more persons or companies, consisting in the
exclusive right or power to carry on a particular business or trade, manufacture a particular article, or control the sale or
the whole supply of a particular commodity. It is a form of market structure in which one or only a few firms dominate
the total sales of a product or service. On the other hand, a combination in restraint of trade is an agreement or
understanding between two or more persons, in the form of a contract, trust, pool, holding company, or other form of
association, for the purpose of unduly restricting competition, monopolizing trade and commerce in a certain
commodity, controlling its production, distribution and price, or otherwise interfering with freedom of trade without
statutory authority. Combination in restraint of trade refers to the means while monopoly refers to the end.
"x x x
xxx
xxx
"Section 19, Article XII of our Constitution is anti-trust in history and in spirit. It espouses competition. The desirability of
competition is the reason for the prohibition against restraint of trade, the reason for the interdiction of unfair
competition, and the reason for regulation of unmitigated monopolies. Competition is thus the underlying principle of
[S]ection 19, Article XII of our Constitution, . . ." 81
Gokongwei Jr. v. Securities and Exchange Commission 82 elucidates the criteria to be employed: "A 'monopoly' embraces any
combination the tendency of which is to prevent competition in the broad and general sense, or to control prices to the detriment
of the public. In short, it is the concentration of business in the hands of a few. The material consideration in determining its
existence is not that prices are raised and competition actually excluded, but that power exists to raise prices or exclude
competition when desired."83 (Emphasis supplied)
The Contracts Encourage Monopolistic Pricing, Too
Aside from creating a monopoly, the Piatco contracts also give the concessionaire virtually limitless power over the charging of
fees, rentals and so forth. What little "oversight function" the government might be able and minded to exercise is less than
sufficient to protect the public interest, as can be gleaned from the following provisions:
"Sec. 6.06. Adjustment of Non-Public Utility Fees and Charges

"For fees, rentals and charges constituting Non-Public Utility Revenues, Concessionaire may make any adjustments it
deems appropriate without need for the consent of GRP or any government agency subject to Sec. 6.03(c)."
Section 6.03(c) in turn provides:
"(c) Concessionaire shall at all times be judicious in fixing fees and charges constituting Non-Public Utility Revenues in
order to ensure that End Users are not unreasonably deprived of services. While the vehicular parking fee, porterage
fee and greeter/wellwisher fee constitute Non-Public Utility Revenues of Concessionaire, GRP may require
Concessionaire to explain and justify the fee it may set from time to time, if in the reasonable opinion of GRP the said
fees have become exorbitant resulting in the unreasonable deprivation of End Users of such services."
It will be noted that the above-quoted provision has no teeth, so the concessionaire can defy the government without fear of any
sanction. Moreover, Section 6.06 - taken together with Section 6.03(c) of the ARCA - falls short of the standard set by the BOT
Law as amended, which expressly requires in Section 2(b) that the project proponent is "allowed to charge facility users
appropriate tolls, fees, rentals and charges not exceeding those proposed in its bid or as negotiated and incorporated in
the contract x x x."
The
Piatco
Contracts
Violate
Constitutional
Prohibitions
Against
Impairment of Contracts and Deprivation of Property Without Due Process
Earlier, I discussed how Section 3.01(e)84 of both the CA and the ARCA requires government, through DOTC/MIAA, not to permit
the carry-over to Terminal III of the services and operations of certain service providers currently operating at Terminal I with
subsisting contracts.
By the In-Service Date, Terminal III shall be the only facility to be operated as an international passenger terminal at the
NAIA;85 thus, Terminals I and II shall no longer operate as such, 86 and no one shall be allowed to compete with Piatco in the
operation of an international passenger terminal in the NAIA. 87 The bottom line is that, as of the In-Service Date, Terminal III will
be the only terminal where the business of providing airport-related services to international airlines and passengers may be
conducted at all.
Consequently, government through the DOTC/MIAA will be compelled to cease honoring existing contracts with service providers
after the In-Service Date, as they cannot be allowed to operate in Terminal III.
In short, the CA and the ARCA obligate and constrain government to break its existing contracts with these service providers.
Notably, government is not in a position to require Piatco to accommodate the displaced service providers, and it would be
unrealistic to think that these service providers can perform their service contracts in some other international airport outside
Luzon. Obviously, then, these displaced service providers are - to borrow a quaint expression - up the river without a paddle. In
plainer terms, they will have lost their businesses entirely, in the blink of an eye.
What we have here is a set of contractual provisions that impair the obligation of contracts and contravene the constitutional
prohibition against deprivation of property without due process of law. 88
Moreover, since the displaced service providers, being unable to operate, will be forced to close shop, their respective
employees - among them Messrs. Agan and Lopez et al. - have very grave cause for concern, as they will find themselves out of
employment and bereft of their means of livelihood. This situation comprises still another violation of the constitution prohibition
against deprivation of property without due process.
True, doing business at the NAIA may be viewed more as a privilege than as a right. Nonetheless, where that privilege has been
availed of by the petitioners-in-intervention service providers for years on end, a situation arises, similar to that in American Interfashion v. GTEB.89 We held therein that a privilege enjoyed for seven years "evolved into some form of property right which
should not be removed x x x arbitrarily and without due process." Said pronouncement is particularly relevant and applicable to
the situation at bar because the livelihood of the employees of petitioners-intervenors are at stake.
The
Piatco
Contracts
Violate
Constitutional
Prohibition
Against Deprivation of Liberty Without Due Process
The Piatco Contracts by locking out existing service providers from entry into Terminal III and restricting entry of future service
providers, thereby infringed upon the freedom - guaranteed to and heretofore enjoyed by international airlines - to contract with
local service providers of their choice, and vice versa.
Both the service providers and their client airlines will be deprived of the right to liberty, which includes the right to enter into all
contracts,90 and/or the right to make a contract in relation to one's business. 91
By
Creating
New
Financial
Obligations
for
Government,
Supplements
to
the
ARCA
Violate
the
Constitutional
Ban on Disbursement of Public Funds Without Valid Appropriation
Clearly prohibited by the Constitution is the disbursement of public funds out of the treasury, except in pursuance of an
appropriation made by law.92 The immediate effect of this constitutional ban is that all the various agencies of government are
constrained to limit their expenditures to the amounts appropriated by law for each fiscal year; and to carefully count their cash
before taking on contractual commitments. Giving flesh and form to the injunction of the fundamental law, Sections 46 and 47 of
Executive Order 292, otherwise known as the Administrative Code of 1987, provide as follows:

"Sec. 46. Appropriation Before Entering into Contract. - (1) No contract involving the expenditure of public funds shall
be entered into unless there is an appropriation therefor, the unexpended balance of which, free of other obligations, is
sufficient to cover the proposed expenditure; and . .
"Sec. 47. Certificate Showing Appropriation to Meet Contract. - Except in the case of a contract for personal service, for
supplies for current consumption or to be carried in stock not exceeding the estimated consumption for three (3)
months, or banking transactions of government-owned or controlled banks, no contract involving the expenditure of
public funds by any government agency shall be entered into or authorized unless the proper accounting official of the
agency concerned shall have certified to the officer entering into the obligation that funds have been duly appropriated
for the purpose and that the amount necessary to cover the proposed contract for the current calendar year is available
for expenditure on account thereof, subject to verification by the auditor concerned. The certificate signed by the proper
accounting official and the auditor who verified it, shall be attached to and become an integral part of the proposed
contract, and the sum so certified shall not thereafter be available for expenditure for any other purpose until the
obligation of the government agency concerned under the contract is fully extinguished."
Referring to the aforequoted provisions, this Court has held that "(I)t is quite evident from the tenor of the language of the law
that the existence of appropriations and the availability of funds are indispensable pre-requisites to or conditions sine qua non for
the execution of government contracts. The obvious intent is to impose such conditions as a priori requisites to the validity of the
proposed contract."93
Notwithstanding the constitutional ban, statutory mandates and Jurisprudential precedents, the three Supplements to the ARCA,
which were not approved by NEDA, imposed on government the additional burden of spending public moneys without prior
appropriation.
In the First Supplement ("FS") dated August 27, 1999, the following requirements were imposed on the government:
To construct, maintain and keep in good repair and operating condition all airport support services, facilities,
equipment and infrastructure owned and/or operated by MIAA, which are not part of the Project or which are located
outside the Site, even though constructed by Concessionaire - including the access road connecting Terminals II and III
and the taxilane, taxiways and runways
To obligate the MIAA to provide funding for the upkeep, maintenance and repair of the airports and facilities owned or
operated by it and by third persons under its control in order to ensure compliance with international standards; and
holding MIAA liable to Piatco for the latter's losses, expenses and damages as well as for the latter's liability to third
persons, in case MIAA fails to perform such obligations; in addition, MIAA will also be liable for the incremental and
consequential costs of the remedial work done by Piatco on account of the former's default.
Section 4 of the FS imposed on government ten (10) "Additional Special Obligations," including the following:
o Providing thru MIAA the land required by Piatco for the taxilane and one taxiway, at no cost to Piatco
o Implementing the government's existing storm drainage master plan
o Coordinating with DPWH the financing, implementation and completion of the following works before the InService Date: three left-turning overpasses (Edsa to Tramo St., Tramo to Andrews Ave., and Manlunas Road
to Sales Ave.) and a road upgrade and improvement program involving widening, repair and resurfacing of
Sales Road, Andrews Avenue and Manlunas Road; improvement of Nichols Interchange; and removal of
squatters along Andrews Avenue
o Dealing directly with BCDA and the Philippine Air Force in acquiring additional land or right of way for the
road upgrade and improvement program
o Requiring government to work for the immediate reversion to MIAA of the Nayong Pilipino National Park, in
order to permit the building of the second west parallel taxiway
Section 5 of the FS also provides that in lieu of the access tunnel, a surface access road (T2-T3) will be constructed.
This provision requires government to expend funds to purchase additional land from Nayong Pilipino and to clear the
same in order to be able to deliver clean possession of the site to Piatco, as required in Section 5(c) of the FS.
On the other hand, the Third Supplement ("TS") obligates the government to deliver, within 120 days from date thereof, clean
possession of the land on which the T2-T3 Road is to be constructed.
The foregoing contractual stipulations undeniably impose on government the expenditures of public funds not included in any
congressional appropriation or authorized by any other statute. Piatco however attempts to take these stipulations out of the
ambit of Sections 46 and 47 of the Administrative Code by characterizing them as stipulations for compliance on a "best-efforts
basis" only.
To determine whether the additional obligations under the Supplements may really be undertaken on a best-efforts basis only,
the nature of each of these obligations must be examined in the context of its relevance and significance to the Terminal III
Project, as well as of any adverse impact that may result if such obligation is not performed or undertaken on time. In short, the
criteria for determining whether the best-efforts basis will apply is whether the obligations are critical to the success of the

Project and, accordingly, whether failure to perform them (or to perform them on time) could result in a material breach of the
contract.
Viewed in this light, the "Additional Special Obligations" set out in Section 4 of the FS take on a different aspect. In particular,
each of the following may all be deemed to play a major role in the successful and timely prosecution of the Terminal III Project:
the obtention of land required by PIATCO for the taxilane and taxiway; the implementation of government's existing storm
drainage master plan; and coordination with DPWH for the completion of the three left-turning overpasses before the In-Service
Date, as well as acquisition and delivery of additional land for the construction of the T2-T3 access road.
Conversely, failure to deliver on any of these obligations may conceivably result in substantial prejudice to the concessionaire, to
such an extent as to constitute a material breach of the Piatco Contracts. Whereupon, the concessionaire may outrightly
terminate the Contracts pursuant to Section 8.01(b)(i) and (ii) of the ARCA and seek payment of Liquidated Damages in
accordance with Section 8.02(a) of the ARCA; or the concessionaire may instead require government to pay the Incremental and
Consequential Losses under Section 1.23 of the ARCA. 94The logical conclusion then is that the obligations in the Supplements
are not to be performed on a best-efforts basis only, but are unarguably mandatory in character.
Regarding MIAA's obligation to coordinate with the DPWH for the complete implementation of the road upgrading and
improvement program for Sales, Andrews and Manlunas Roads (which provide access to the Terminal III site) prior to the InService Date, it is essential to take note of the fact that there was a pressing need to complete the program before the opening of
Terminal III.95 For that reason, the MIAA was compelled to enter into a memorandum of agreement with the DPWH in order to
ensure the timely completion of the road widening and improvement program. MIAA agreed to advance the total amount of
P410.11 million to DPWH for the works, while the latter was committed to do the following:
"2.2.8. Reimburse all advance payments to MIAA including but not limited to interest, fees, plus other costs of money
within the periods CY2004 and CY2006 with payment of no less than One Hundred Million Pesos (PhP100M) every
year.
"2.2.9. Perform all acts necessary to include in its CY2004 to CY2006 budget allocation the repayments for the
advances made by MIAA, to ensure that the advances are fully repaid by CY2006. For this purpose, DPWH shall
include the amounts to be appropriated for reimbursement to MIAA in the "Not Needing Clearance" column of their
Agency Budget Matrix (ABM) submitted to the Department of Budget and Management."
It can be easily inferred, then, that DPWH did not set aside enough funds to be able to complete the upgrading program for the
crucially situated access roads prior to the targeted opening date of Terminal III; and that, had MIAA not agreed to lend the P410
Million, DPWH would not have been able to complete the program on time. As a consequence, government would have been in
breach of a material obligation. Hence, this particular undertaking of government may likewise not be construed as being for
best-efforts compliance only.
They also Infringe on the Legislative Prerogative and Power Over the Public Purse
But the particularly sad thing about this transaction between MIAA and DPWH is the fact that both agencies were maneuvered
into (or allowed themselves to be maneuvered into) an agreement that would ensure delivery of upgraded roads for Piatco's
benefit, using funds not allocated for that purpose. The agreement would then be presented to Congress as a done deal.
Congress would thus be obliged to uphold the agreement and support it with the necessary allocations and appropriations for
three years, in order to enable DPWH to deliver on its committed repayments to MIAA. The net result is an infringement on the
legislative power over the public purse and a diminution of Congress' control over expenditures of public funds - a development
that would not have come about, were it not for the Supplements. Very clever but very illegal!
EPILOGUE
What Do We Do Now?
In the final analysis, there remains but one ultimate question, which I raised during the Oral Argument on December 10,
2002: What do we do with the Piatco Contracts and Terminal III?96 (Feeding directly into the resolution of the decisive
question is the other nagging issue: Why should we bother with determining the legality and validity of these contracts, when the
Terminal itself has already been built and is practically complete?)
Prescinding from all the foregoing disquisition, I find that all the Piatco contracts, without exception, are void ab initio, and
therefore inoperative. Even the very process by which the contracts came into being - the bidding and the award - has been
riddled with irregularities galore and blatant violations of law and public policy, far too many to ignore. There is thus no
conceivable way, as proposed by some, of saving one (the original Concession Agreement) while junking all the rest.
Neither is it possible to argue for the retention of the Draft Concession Agreement (referred to in the various pleadings as the
Contract Bidded Out) as the contract that should be kept in force and effect to govern the situation, inasmuch as it was never
executed by the parties. What Piatco and the government executed was the Concession Agreement which is entirely different
from the Draft Concession Agreement.
Ultimately, though, it would be tantamount to an outrageous, grievous and unforgivable mutilation of public policy and an insult to
ourselves if we opt to keep in place a contract - any contract - for to do so would assume that we agree to having Piatco continue
as the concessionaire for Terminal III.

Despite all the insidious contraventions of the Constitution, law and public policy Piatco perpetrated, keeping Piatco on as
concessionaire and even rewarding it by allowing it to operate and profit from Terminal III - instead of imposing upon it the stiffest
sanctions permissible under the laws - is unconscionable.
It is no exaggeration to say that Piatco may not really mind which contract we decide to keep in place. For all it may care, we can
do just as well without one, if we only let it continue and operate the facility. After all, the real money will come not from building
the Terminal, but from actually operating it for fifty or more years and charging whatever it feels like, without any competition at
all. This scenario must not be allowed to happen.
If the Piatco contracts are junked altogether as I think they should be, should not AEDC automatically be considered the winning
bidder and therefore allowed to operate the facility? My answer is a stone-cold 'No'. AEDC never won the bidding, never signed
any contract, and never built any facility. Why should it be allowed toautomatically step in and benefit from the greed of another?
Should government pay at all for reasonable expenses incurred in the construction of the Terminal? Indeed it should, otherwise it
will be unjustly enriching itself at the expense of Piatco and, in particular, its funders, contractors and investors - both local and
foreign. After all, there is no question that the State needs and will make use of Terminal III, it being part and parcel of the critical
infrastructure and transportation-related programs of government.
In Melchor v. Commission on Audit,97 this Court held that even if the contract therein was void, the principle of payment
by quantum meruit was found applicable, and the contractor was allowed to recover the reasonable value of the thing or services
rendered (regardless of any agreement as to the supposed value), in order to avoid unjust enrichment on the part of government.
The principle of quantum meruit was likewise applied in Eslao v. Commission on Audit,98 because to deny payment for a building
almost completed and already occupied would be to permit government to unjustly enrich itself at the expense of the contractor.
The same principle was applied inRepublic v. Court of Appeals.99
One possible practical solution would be for government - in view of the nullity of the Piatco contracts and of the fact that
Terminal III has already been built and is almost finished - to bid out the operation of the facility under the same or analogous
principles as build-operate-and-transfer projects. To be imposed, however, is the condition that the winning bidder must pay the
builder of the facility a price fixed by government based on quantum meruit; on the real, reasonable - not inflated - value of the
built facility.
How the payment or series of payments to the builder, funders, investors and contractors will be staggered and scheduled, will
have to be built into the bids, along with the annual guaranteed payments to government. In this manner, this whole sordid mess
could result in something truly beneficial for all, especially for the Filipino people.
WHEREFORE, I vote to grant the Petitions and to declare the subject contracts NULL and VOID.