La Bugal B’ laan Tribal, Inc. vs.

Secretary of DENR
G.R. No. 127882, January 27, 2004

Facts: The Petition for Prohibition and Mandamus before the Court challenges the constitutionality of the
following: (i) Republic Act No. [RA] 7942 (The Philippine Mining Act of 1995); (ii) its Implementing Rules
and Regulations; and (iii) the Financial and Technical Assistance Agreement (FTAA) dated March 30,
1995, executed by the government with Western Mining Corporation (Philippines), Inc. (WMCP).

Initially, the Court declared the unconstitutionality of certain provisions of RA 7942, DAO 96-40, as well
as of the entire FTAA executed between the government and WMCP, mainly on the finding that FTAAs
are service contracts prohibited by the 1987 Constitution.

Issue: What is the proper interpretation of the phrase Agreements Involving Either Technical or
Financial Assistance contained in paragraph 4 of Section 2 of Article XII of the Constitution.

Ruling: The agreements involving either technical or financial assistance  referred to in paragraph 4 are
in fact service contracts, but such new service contracts are between foreign corporations acting as
contractors on the one hand, and on the other hand government as principal or "owner" (of the works),
whereby the foreign contractor provides the capital, technology and technical know-how, and managerial
expertise in the creation and operation of the large-scale mining/extractive enterprise, and government
through its agencies (DENR, MGB) actively exercises full control and supervision over the entire
enterprise.

Such service contracts may be entered into only with respect to minerals, petroleum and other mineral
oils. The grant of such service contracts is subject to several safeguards, among them: (1) that the
service contract be crafted in accordance with a general law setting standard or uniform terms, conditions
and requirements; (2) the President be the signatory for the government; and (3) the President report
the executed agreement to Congress within thirty days.

All mineral resources are owned by the State. Their exploration, development and utilization (EDU) must
always be subject to the full control and supervision of the State. More specifically, given the inadequacy
of Filipino capital and technology in large-scale  EDU activities, the State may secure the help of foreign
companies in all relevant matters -- especially financial and technical assistance -- provided that, at all
times, the State maintains its right of full control. The foreign assistor or contractor assumes all financial,
technical and entrepreneurial risks in the EDU activities; hence, it may be given reasonable management,
operational, marketing, audit and other prerogatives to protect its investments and to enable the
business to succeed.