DOJ Opinion No. 037, s. 2002

DOJ OPINION NO. 037 , s. 2002 May 21, 2002 Chairman Felicito C. Payumo Subic Bay Metropolitan Authority Building 229, Waterfront Road Subic Bay Freeport Zone Subic, Zambales Sir : This refers to your request for clarification/re-examination of this Department's Opinion No. 6, s. 2002 which was issued in reply to your earlier request for a "legal opinion regarding foreign ownership of shipyards". In Opinion No. 6, s. 2002, this Department declined to render the opinion requested on the ground that it would call for the interpretation of the Memorandum of Agreement (MOA) between the Subic Bay Metropolitan Authority (SBMA) and Halliburton International Incorporated (HII),which is not a proper function of this Department. However, pertinent provisions of laws and applicable jurisprudence were quoted therein for SBMA's guidance, all to the effect that a shipyard is a public utility which can be operated only by a corporation with at least 60% Filipino ownership. SBMA would like this Department to give the matter a second serious look claiming that "a shipyard has never been subject to any limitation imposed under the Omnibus Investments Code of 1987 and that if it did impose a limitation, it would not be applicable within the Subic Bay Freeport Zone". The existing law that classifies "shipyard" as a public utility is Section 13 (b) of the Public Service Act (C.A. No. 146). This is the clear pronouncement of the Supreme Court in the case of J.G. Summit Holdings, Inc. vs. Court of Appeals (345 SCRA 143), as it ruled thus: "Petitioner's main contention is that PHILSECO, as a shipyard, is a public utility and, hence, could be operated only by a corporation at least 60% of whose capital is owned by Filipino citizens, in accordance with Article XII, Section 10 of the Constitution. Petitioner asserts that a shipyard is a public utility pursuant to Section 13 (b) of Commonwealth Act No. 146. Respondents, on the other hand, contend that shipyards are no longer public utilities by express provision of Presidential Decree No. 666, which provided incentives to the shipbuilding and ship repair industry. Indeed, P.D. No. 666 dated March 5, 1975 explicitly stated that a 'shipyard' was not a 'public utility'. Section 1 thereof provides as follows: 'd) Registration required but not as Public Utility . The business of constructing and repairing vessels or parts thereof shall not be considered a public utility and no Certificate of Public Convenience shall be required therefor. However, no shipyard, graving dock, marine railway or marine repair shop and no person or enterprise shall engage in the construction and/or repair of any vessel, or any phase or part thereof, without a valid Certificate of Registration and license for this purpose from the Maritime Industry Authority, except those owned or operated by the Armed Forces of the Philippines or by foreign governments pursuant to a treaty or agreement.' (Emphasis supplied.) However, Section 1 of P.D. No. 666 was expressly repealed by Section 20 of Batas Pambansa Blg. 391, the Investment Incentive Policy Act of 1983. Subsequently, Executive Order No. 226, the Omnibus Investments Code of 1987, was issued and Section 85 thereof expressly repealed B.P. Blg. 391. The express repeal of B.P. Blg. 391 by E.O. No. 226 did not revive Section 1 of P.D. No. 666, declassifying the shipbuilding and ship repair industry as a public utility, as said executive order did not provide otherwise. When a law which expressly repeals a prior law is itself repealed, the law first repealed shall not be thereby revived unless expressly so provided. Consequently, when the APT drafted the ASBR sometime in 1993, P.D. No. 666 no longer existed in our statute books. While it is true that the repeal of a statute does not operate to impair rights that have become vested or accrued while the statute was in force, there are no vested rights of the parties that should be protected in the case at bar. The reason is simple: said decree was already inexistent when the ASBR was issued. A shipyard such as PHILSECO being a public utility as provided by law, the following provision of Article XII of the Constitution applies: 'SECTION 1. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is owned by such citizens, ...'" In JG Summit , the Supreme Court took note of the passage of laws subsequent to C.A. No. 146 pertinent to shipyards. These laws are: (1) P.D. No. 666; (2) B.P. Blg. 391; and (3) E.O. No. 266. Section 1 (d) of P.D. No. 666 (entitled "Providing for Incentives to the Shipbuilding and Ship Repair Industry") provides: "d) Registration required but not as Public Utility . The business of constructing and repairing vessels or parts thereof shall not be considered a public utility and no Certificate of Public Convenience shall be required therefor. ..." (Emphasis supplied) It should be noted that P.D. No. 666 which declassified shipyard as a public utility, did not expressly repeal Section 13(b) of C.A. No. 146 insofar as it classified shipyard as a public utility. If at all, there was only an implied partial repeal of Section 13(b) of C.A. No. 146 insofar as it covered shipyards. There is an implied repeal if the two provisions (Sec. 1, P.D. No. 666 and Sec. 13(b), C.A. No. 146 in this case) are irreconcilably inconsistent with each other. Subsequently, Section 1 of P.D. No. 666 was expressly repealed by Section 20 of B.P. Blg. 391 (entitled "Investment Incentive Policy Act of 1983"). Section 20 provides: "SEC. 20. The following are hereby repealed: xxx xxx xxx (2) Section 1, P.D. 666 (Shipbuilding and Ship Repair Industry); xxx xxx xxx" Later, Section 20 of B.P. Blg. 391 was also expressly repealed by Article 85 of E.O. No. 226 (Omnibus Investments Code). However, E.O. No. 266 did not revive Section 1 of P.D. No. 666. Article 85 provides: "ART. 85 Repealing Clause. The following provisions of law are hereby repealed: xxx xxx xxx (2) Batas Pambansa 391 (1983) xxx xxx xxx" The Supreme Court in J.G. Summit ruled that although Section 1 of P.D. No. 666 explicitly stated that a "shipyard" was not a "public utility", said Section 1 of P.D. No. 666 was expressly repealed by Section 20 of B.P. Blg. 391 and while Section 20 of B.P. Blg. 391 was later expressly repealed by Article 85 of E.O No. 266, the repealing law (E.O. No. 226) did not expressly revive P.D. No. 666. Hence, P.D. No. 666, which declassified the shipbuilding and ship repair industry as a public utility, remains to be a repealed law. Since P.D. No. 666 was not revived, Section 13(b) of C.A. No. 146, which expressly categorizes "shipyard" as a public utility, continues to be the governing law . In the light of the ruling of the Supreme Court in J.G. Summit to the effect that "shipyard" is a public utility pursuant to Section 13(b) of C.A. No. 146, the operation and management of a shipyard facility can be undertaken only by a corporation with at least 60% Filipino ownership pursuant to Section 1, Article XII of the 1987 Constitution. The fact that the shipyard facility will be located in the Freeport Zone and may cater only to servicing foreign clients is immaterial because a freeport zone is still part of Philippine territory and therefore subject to the application of Philippine laws. The remedy we see under the present state of the law is to push for amendatory legislation to declassify "shipyard" as a public utility, similar to what was done by Section 1 (d) of P.D. No. 666. In the meantime, SBMA may consider forming a joint venture corporation with HII as its joint venture partner under a 60% (SBMA) and 40% (HII) equity arrangement. The joint venture corporation being now a qualified corporation, can own and operate the shipyard facility. In the alternative, SBMA may enter into a joint venture agreement or partnership with HII under a similar capital or equity participation. Another option which SBMA may pursue is a Build-Lease-Transfer (BLT) arrangement under the BOT law similar to that adopted by DOTC for EDSA LRT III. In the case of Tatad vs. Garcia (243 SCRA 436), the Supreme Court held that a wholly-owned foreign company may own the facilities used to serve the public although it may not operate the same. As the Court said, the right to operate a public utility may exist independently and separately from the ownership of the facilities thereof. One can own said facilities without operating them as a public utility, or conversely, one may operate a public utility without owning the facilities used to serve the public. Under the BLT arrangement between DOTC and the foreign consortium in that case, DOTC would lease and operate the facilities from the foreign contractor which would build and own the rail tracks, rolling stocks, power plant, etc. needed to operate the LRT III. Similarly, HII may build and own the ship repair facility while SBMA may lease and operate the same. aTcSID Please be guided accordingly. Very truly yours, (SGD.) HERNANDO B. PEREZ Secretary