DOJ Opinion No. 027, s. 2003

DOJ OPINION NO. 027 , s. 2003 April 23, 2003 Administrator Francisco G. Silva National Electrification Administration NIA Road, Government Center Diliman, Quezon City Sir : Reference is made to your request for comment/opinion on "whether NEA is still bound to comply with Proclamation No. 50 insofar as the disposition of its foreclosed real estate properties are ( sic ) concerned." It appears that the instant request for opinion stemmed from the responses of the Department of Finance (DOF) and the Commission on Audit (COA) to your separate letters requesting clarification on the same issue. In its letter dated September 11, 2002, and in reply to your letter seeking clarification on whether there are existing government memoranda, circulars or issuances pertaining to the disposal of Foreclosed Real Estate Properties, DOF, through Undersecretary Nieves Osorio, said that there are several existing legal issuances that govern the disposition of government assets, which include foreclosed real estate properties of government-owned or controlled corporations (GOCCs), among which are the following: a. Proclamation No. 50 dated December 15, 1986; 1 b. Amendments to Proclamation No. 50, namely Republic Act (RA) No. 7181 [1991] 2 ; R.A. No. 7661 [1993] 3 ; R.A. No. 7886 [1995] 4 and R.A. No. 8758 [1999] 5 ; c. Commission on Audit Circular 89-296 dated January 27, 1989 6 ; d. Administrative Order No. 5, s. 1998 7 ; e. Executive Order No. 12, s. of 1998 8 ; and f. Executive Order No. 323 dated December 6, 2000 9 . In that same letter, NEA was advised that it should first and foremost be guided by the privatization policy and guidelines of the Government which are all embodied in the laws and issuances mentioned above. Attention was likewise invited to the provision of Proclamation No. 50 which provides that "the sale or disposition of GOCC assets shall be done upon recommendation of the Committee on Privatization (COP) (the powers and functions of which are now assumed by the Privatization Council [PC]) and approved by the President, provided that, in every case, the disposition shall be approved by the COP/PC with respect to the price and buyer only (Sec. 5[1], Proclamation No. 50)". On the other hand, in reply to your request for information on the existence of a specific COA regulation and/or set of guidelines pertaining to NEA's plan to dispose of its foreclosed real estate properties, COA, acting through Director Jaime P. Naranjo, Corporate Government Sector, Cluster III Public Utilities, informed NEA of COA Circular No. 89-296 dated January 27, 1989 which prescribes the guidelines on the disposal of properties and other assets of national government agencies and instrumentalities, local government units and government-owned or controlled corporations. COA, however, noted, that the said issuance does not apply to the disposal of foreclosed real estate properties acquired by government corporations in the regular course of business. COA further recommended that in the absence of a COA guideline on the matter, NEA may adopt its own internal guidelines similar to those being used by Government Financial Institutions (GFIs) in the disposal of their foreclosed properties but subject to post evaluation by COA to determine whether the price consideration serves the best interest of the government. In view of the abovementioned foregoing positions of DOF and COA, you are now in a quandary as to which one your agency will adopt in the disposal of foreclosed real properties inasmuch as under your charter, Presidential Decree No. 269, as amended by Presidential Decree No. 1645, "the disposal of foreclosed real estate property is within the ambit of NEA in the exercise of its Enforcement Powers and Remedies over electric cooperatives and other borrowers . . . (and) the disposal by NEA through foreclosure proceedings are provided for in the various loan/mortgage contracts executed by NEA with its debtors." While the DOF and COA have already expressed or articulated their respective positions on the subject matter, however, neither DOF nor COA has categorically resolved the issue presented herein. This, we believe, was what prompted you to elevate the issue squarely before us. The following laws and issuances pertinently provide, to wit: Proclamation 50, s . 1986 "Sec. 5. Powers and functions . The Committee [the Committee on Privatization] shall have the following powers and functions: (1) To identify to the President of the Philippines , and arrange for transfer to the National Government and/or to the Trust and the subsequent divestment to the private sector of such non-performing assets as may be identified by the Committee, and approved by the President , for transfer from the government banks for disposal by the Trust or the government banks, and (b) such government corporations, whether parent or subsidiary, and/or such of their assets, as may have been recommended by the Committee for disposition, and approved by the President. . . .. " (Emphasis ours) xxx xxx xxx "Sec. 9. Creation . There is hereby created a public trust to be known as the Asset Privatization Trust, hereinafter referred to as the Trust, which shall, for the benefit of the National Government, take title to and possession of, conserve, provisionally manage and dispose of assets as defined in Section 2 herein which have been identified for privatization or disposition and transferred to the Trust for the purpose, pursuant to Section 23 of this Proclamation ." (Emphasis ours) xxx xxx xxx "Sec. 23. Mechanics of Transfer of Assets . As soon as practicable, but not later than six months from the date of the issuance of this Proclamation, the President, acting through the Committee on Privatization, shall identify such assets of government institutions as appropriate for privatization and divestment in an appropriate instrument describing such assets or identifying the loan or other transactions giving rise to the receivables, obligations and other property constituting assets to be transferred . (Emphasis ours) Committee on Privatization Guidelines for Privatization of Government Corporations "I. INTRODUCTION '1. It is the declared policy of the government, pursuant to Proclamation No. 50, to give primacy to the private sector in undertaking economic activities under a climate of fair competition. Accordingly, the government shall undertake a systematic, orderly and time-bound program that seeks to transfer to private ownership assets and activities which have been identified as no longer necessary or appropriate under government ownership or control ." (Emphasis ours) Committee on Privatization Guidelines and Regulations To Implement R . A . No . 7181 as amended by R . A . No . 7661 "SECTION 2 . COVERAGE ' These guidelines and regulations shall cover any divestment or disposal, whether total or partial, of transferred assets or Government Owned and/or Controlled Corporations (GOCCs) approved by the President of the Philippines for privatization pursuant to Proclamation No . 50 . These shall also cover disposition of all assets and properties recovered by the Presidential Commission on Good Government (PCGG) and Government Idle Properties." (Emphasis ours) Rules and Regulations to implement Executive Order No . 12 " Section 4 . Applicable Privatization Guidelines xxx xxx xxx 'Likewise, Government banks not in the privatization list may pursue sale of assets directly if this is in line with their normal course of business" . (Italics ours) Commission on Audit Circular No . 89-296 "III. DEFINITION AND SCOPE These audit guidelines shall be observed and adhered to in the divestment or disposal of property and other assets of all government entities/instrumentalities, whether national, local or corporate, including the subsidiaries thereof but shall not apply to the disposal of merchandise or inventory held for sale in the regular course of business nor to the disposal by government financial institutions of foreclosed assets or collaterals acquired in the regular course of business and not transferred to the National Government under Proclamation No . 50 . . ." (Emphasis ours) After a careful review of the above-quoted provisions and as can be gleaned therefrom, it can be safely concluded that the assets of a government agency or entity, including GOCCs, may be covered by the operation of Proclamation No. 50 under the following circumstances: 1. The non-performing assets and activities which have been considered as no longer necessary or appropriate under government ownership or control must have been identified by the Committee on Privatization; and 2. The identified assets must have been approved for privatization by the President. However, it is also clear from the aforequoted provisions that those merchandise or inventory held for sale in the regular course of business or the disposal by government financial institutions of foreclosed assets or collaterals acquired in the regular course of business and not transferred to the Government pursuant to Proclamation No. 50, shall not be covered by the privatization scheme therein provided. The question, therefore, that needs to be determined is whether or not NEA, as a GOCC, or the assets of NEA acquired through foreclosure in accordance with its charter, have been identified for privatization by the Committee on Privatization and approved by the President. The answer to this question is not determinable from your letter-request, and NEA should be in the best position to provide the answer. In any case, if the answer is in the affirmative, there is no question that NEA's dispositions of its foreclosed assets are covered by Proclamation No. 50 and should be in accordance therewith. If not, then such dispositions will be considered a disposition of assets in the regular course of business and, therefore, outside of the coverage of Proclamation No. 50. It bears emphasis that under its charter, NEA is empowered to make contracts of every name and nature and to execute all instruments necessary or convenient for the carrying on of its business 10 ; and to make loans to public service entities, with preference to cooperatives, for the construction or acquisition, operation and maintenance of generation, transmission and distribution facilities and all related properties, equipment, machinery, fixtures, and materials for the purpose of supplying area coverage service, and thereafter to make loans for the restoration, improvement or enlargement of such facilities 11 . In the enforcement of the said loan, NEA may foreclose any mortgage or deed of trust or other security held by NEA on the properties of the borrower; and may, within a period of five years after acquiring such properties in foreclosure proceedings, sell the same for such consideration as it determines to be reasonable and upon such terms and conditions as it determines most conducive to the achievement of the purposes of Presidential Decree No. 1645 12 . Assuming that NEA is not among those identified and approved to be covered by the privatization scheme, COA Circular No. 89-296, supra , expressly provides that the audit guidelines prescribed therein "shall not apply . . . to the disposal by government financial institutions of its foreclosed assets or collaterals acquired in the regular course of business and not transferred to the National Government under Proclamation No. 50". As you state, you were advised by Director Naranjo of COA in his letter dated September 9, 2002 that COA Circular No. 89-296 "is not applicable to the disposal of foreclosed real estate properties acquired by government corporations in the regular course of business". The interpretation by an agency of its own rules carries great weight and takes precedence over the interpretation of another agency ( Eslao vs. COA , 236 SCRA 161). ICTHDE Please be guided accordingly. Very truly yours, (SGD.) SIMEON A. DATUMANONG Secretary Footnotes 1. Proclaiming and Launching a Program for the Expeditious Disposition and Privatization of Certain Government Corporations and/or the Assets Thereof, and Creating the Committee on Privatization and the Asset Privatization Trust. 2. "An Act Extending the Life of the Committee on Privatization (COP) and the Asset Privatization Trust (APT)". 3. "An Act Amending R.A. No. 7181". 4. "An Act Extending the Life of the Committee on Privatization (COP) and the Asset Privatization Trust (APT)". 5. "An Act Extending the Life of the Committee on Privatization (COP) and the Asset Privatization Trust (APT)". 6. "Audit Guidelines on the Divestment or Disposal of Property and Other Assets of National Government Agencies and Instrumentalities, Local Government Units, and GOCCs and their Subsidiaries". 7. "Constituting the Ad-Hoc Committee on the Utilization and Disposition of Real Properties of the Philippine Government Located Locally and Abroad". 8. "Revitalizing the Privatization Program of the Government". 9. "Constituting an Inter-Agency Privatization Council (PC) and Creating a Privatization and Management Office (PMO) under the Department of Finance for the Continuing Privatization of Government Assets and Corporations". 10. Section 4 (e), Chapter II, Presidential Decree No. 269. 11. Section 4, (f), supra . 12. See Section 5, P.D. No. 1645.