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Th u r s da y, Au g ust 2 2, 2 01 3


Department of Environment and Natural Resources; HORACIO RAMOS, Director, Mines
and Geosciences Bureau (MGB-DENR); RUBEN TORRES, Executive Secretary; and WMC
G.R. No. 127882, 27 January 2004, En Banc (Carpio-Morales, J.)

The constitutional provision allowing the President to enter into FTAA is a exception to
the rule that participation in the nation’s natural resources is reserved exclusively to
Filipinos. Provision must be construed strictly against their enjoyment by non-Filipinos.

FACTS: RA 7942 (The Philippine Mining Act) took effect on April 9, 1995. Before the effectivity
of RA 7942, or on March 30, 1995, the President signed a Financial and Technical Assistance
Agreement (FTAA) with WMCP, a corporation organized under Philippine laws, covering close
to 100,000 hectares of land in South Cotabato, Sultan Kudarat, Davao del Sur and North
Cotabato. On August 15, 1995, the Environment Secretary Victor Ramos issued DENR
Administrative Order 95-23, which was later repealed by DENR Administrative Order 96-40,
adopted on December 20, 1996.

Petitioners prayed that RA 7942, its implementing rules, and the FTAA between the government
and WMCP be declared unconstitutional on ground that they allow fully foreign owned
corporations like WMCP to exploit, explore and develop Philippine mineral resources in
contravention of Article XII Section 2 paragraphs 2 and 4 of the Charter.

In January 2001, WMC - a publicly listed Australian mining and exploration company - sold its
whole stake in WMCP to Sagittarius Mines, 60% of which is owned by Filipinos while 40% of
which is owned by Indophil Resources, an Australian company. DENR approved the transfer
and registration of the FTAA in Sagittarius‘ name but Lepanto Consolidated assailed the same.
The latter case is still pending before the Court of Appeals.

EO 279, issued by former President Aquino on July 25, 1987, authorizes the DENR to accept,
consider and evaluate proposals from foreign owned corporations or foreign investors for
contracts or agreements involving wither technical or financial assistance for large scale
exploration, development and utilization of minerals which upon appropriate recommendation of
the (DENR) Secretary, the President may execute with the foreign proponent. WMCP likewise
contended that the annulment of the FTAA would violate a treaty between the Philippines and
Australia which provides for the protection of Australian investments.

1. Whether or not the Philippine Mining Act is unconstitutional for allowing fully
foreign-owned corporations to exploit the Philippine mineral resources.
2. Whether or not the FTAA between the government and WMCP is a ―service
contract‖ that permits fully foreign owned companies to exploit the Philippine mineral

First Issue: RA 7942 is Unconstitutional

RA 7942 or the Philippine Mining Act of 1995 is unconstitutional for permitting fully foreign
owned corporations to exploit the Philippine natural resources.

Article XII Section 2 of the 1987 Constitution retained the Regalian Doctrine which states that
―All lands of the public domain, waters, minerals, coal, petroleum, and other minerals, coal,
petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are owned by the State.‖ The same section
also states that, ―the exploration and development and utilization of natural resources shall be
under the full control and supervision of the State.

Conspicuously absent in Section 2 is the provision in the 1935 and 1973 Constitution
authorizing the State to grant licenses, concessions, or leases for the exploration, exploitation,
development, or utilization of natural resources. By such omission, the utilization of inalienable
lands of the public domain through license, concession or lease is no longer allowed under the
1987 Constitution.

Under the concession system, the concessionaire makes a direct equity investment for the
purpose of exploiting a particular natural resource within a given area. The concession amounts
to complete control by the concessionaire over the country‘s natural resource, for it is given
exclusive and plenary rights to exploit a particular resource at the point of extraction.

The 1987 Constitution, moreover, has deleted the phrase ―management or other forms of
assistance‖ in the 1973 Charter. The present Constitution now allows only ―technical and
financial assistance.‖ The management and the operation of the mining activities by foreign
contractors, the primary feature of the service contracts was precisely the evil the drafters of the
1987 Constitution sought to avoid.

The constitutional provision allowing the President to enter into FTAAs is an exception to the
rule that participation in the nation‘s natural resources is reserved exclusively to Filipinos.
Accordingly, such provision must be construed strictly against their enjoyment by non-Filipinos.
Therefore, RA 7942 is invalid insofar as the said act authorizes service contracts. Although the
statute employs the phrase ―financial and technical agreements‖ in accordance with the 1987
Constitution, its pertinent provisions actually treat these agreements as service contracts that
grant beneficial ownership to foreign contractors contrary to the fundamental law.

The underlying assumption in the provisions of the law is that the foreign contractor manages
the mineral resources just like the foreign contractor in a service contract. By allowing foreign
contractors to manage or operate all the aspects of the mining operation, RA 7942 has, in
effect, conveyed beneficial ownership over the nation‘s mineral resources to these contractors,
leaving the State with nothing but bare title thereto.

The same provisions, whether by design or inadvertence, permit a circumvention of the

constitutionally ordained 60-40% capitalization requirement for corporations or associations
engaged in the exploitation, development and utilization of Philippine natural resources.

When parts of a statute are so mutually dependent and connected as conditions,

considerations, inducements or compensations for each other as to warrant a belief that the
legislature intended them as a whole, then if some parts are unconstitutional, all provisions that
are thus dependent, conditional or connected, must fail with them.

Under Article XII Section 2 of the 1987 Charter, foreign owned corporations are limited only to
merely technical or financial assistance to the State for large scale exploration, development
and utilization of minerals, petroleum and other mineral oils.

Second Issue: RP Government-WMCP FTAA is a Service Contract

The FTAA between he WMCP and the Philippine government is likewise unconstitutional since
the agreement itself is a service contract.

Section 1.3 of the FTAA grants WMCP a fully foreign owned corporation, the exclusive right to
explore, exploit, utilize and dispose of all minerals and by-products that may be produced from
the contract area.‖ Section 1.2 of the same agreement provides that EMCP shall provide all
financing, technology, management, and personnel necessary for the Mining Operations.

These contractual stipulations and related provisions in the FTAA taken together, grant WMCP
beneficial ownership over natural resources that properly belong to the State and are intended
for the benefit of its citizens. These stipulations are abhorrent to the 1987 Constitution. They are
precisely the vices that the fundamental law seeks to avoid, the evils that it aims to suppress.
Consequently, the contract from which they spring must be struck down.