DOJ Opinion No. 042, s. 2002

DOJ OPINION NO. 042 , s. 2002 June 15, 2002 Atty. Armando L. Suratos Chairman and Deputy Governor, Resource Management Sector and Security Plant Complex Inter-Agency Committee for Review of Foreign Loan Documents Bangko Sentral ng Pilipinas Manila Sir : This refers to your request for legal opinion on the following issues relevant to the interpretation of Republic Act No. 9136 ( Electric Power Industry Reform Act of 2001 ) (EPIRA) and its Implementing Rules and Regulations (IRR), viz : 1. Whether or not the National Power Corporation (NPC) still has the legal personality to issue new bonds or other forms of indebtedness and under what circumstances; 2. Under what authority will the Republic of the Philippines (ROP) guarantee the new NPC loan; 3. Will there be an automatic transfer of the covering ROP guarantee for existing NPC liabilities which will be transferred to the Power Sector Assets and Liabilities Management Corporation (PSALM Corp.); 4. In what form and under what circumstances can PSALM Corp. obtain new loans under the law; and 5. What will be the legal basis for the ROP guarantee covering assumed liabilities as well as new loans to be obtained by PSALM Corp. You inform us that the Bangko Sentral ng Pilipinas has been receiving various borrowing proposals from the ROP, NPC and the PSALM Corp. which would involve domestic/foreign issue of NPC bonds to be guaranteed by the ROP. Hence, this query. We shall answer the issues raised in seriatim . I. Whether or not the NPC still has the legal personality to issue new bonds or other forms of indebtedness and under what circumstances. Section 3 (k) of R.A. No. 6395 ( An Act Revising the Charter of the National Power Corporation ), as amended, reads: SEC. 3. Powers and General Functions of the Corporation . The powers, functions, rights and activities of the corporation shall be the following: xxx xxx xxx (k) When essential to the proper administration of its corporate affairs or necessary for the proper transaction of its business or to carry out the purposes for which it was organized, to contract indebtedness and issue bonds subject to approval of the President upon recommendation of the Secretary of Finance; xxx xxx xxx On the other hand, Sections 8, 10(e), 47 (f) (j), 49, 50, 51 (j) and 70 of R.A. No. 9136 and Section 4, Rule 23 of its IRR read: SEC. 8. Creation of the National Transmission Company . There is hereby created a National Transmission Corporation, hereinafter referred to as TRANSCO, which shall assume the electrical transmission function of the National Power Corporation (NPC), and have the powers and functions hereinafter granted. . . . SEC. 10. Corporate Powers of the TRANSCO . As a corporate entity, TRANSCO shall have the following corporate powers: xxx xxx xxx (e) To borrow funds from any source, whether private or public, foreign or domestic, and issue bonds and other evidence of indebtedness: . . . SEC. 47. NPC Privatization . Except for the assets of SPUG , the generation assets, real estate, and other disposable assets as well as IPP contracts of NPC shall be privatized in accordance with this Act. Within six (6) months from the effectivity of this Act, the PSALM Corp. shall submit a plan for the endorsement by the Joint Congressional Power Commission and the approval of the President of the Philippines, on the total privatization of the generation assets, real estate, other disposable assets as well as existing IPP contracts of NPC and thereafter, implement the same in accordance with the following guidelines, except as provided for in Paragraph (f) herein: xxx xxx xxx (f) The Agus and the Pulangui complexes in Mindanao shall be excluded from among the generation companies that will be initially privatized. Their ownership shall be transferred to the PSALM Corp. and both shall continue to be operated by the NPC . . . . The privatization of Agus and Pulangui complexes shall be left to the discretion of PSALM Corp. in consultation with Congress; xxx xxx xxx (j) NPC may generate and sell electricity only from the undisposed generating assets and IPP contracts of PSALM Corp. and shall not incur any new obligations to purchase power through bilateral contracts with generation companies or other suppliers. SEC. 49. Creation of Power Sector Assets and Liabilities Management Corporation . There is hereby created a government-owned and -controlled corporation to be known as the "Power Sector Assets and Liabilities Management Corporation", hereinafter referred to as the " PSALM Corp .", which shall take ownership of all existing NPC generation assets, liabilities, IPP contracts, real estate and all other disposable assets. All outstanding obligations of the NPC arising from loans, issuances of bonds, securities and other instruments of indebtedness shall be transferred to and assumed by the PSALM Corp. within one hundred eighty (180) days from the approval of this Act. SEC. 50. Purpose and Objective, Domicile and Term of Existence . The principal purpose of the PSALM Corp. is to manage the orderly sale, disposition, and privatization of NPC generation assets, real estate and other disposable assets, and IPP contracts with the objective of liquidating all NPC financial obligations and stranded contract costs in an optimal manner. SEC. 51. Powers . The PSALM Corp. shall, in the performance of its functions and for the attainment of its objective, have the following powers: xxx xxx xxx (j) To borrow money and incur such liabilities, including the issuance of bonds, securities or other evidences of indebtedness utilizing its assets as collateral and/or through the guarantee of the National Government: . . . xxx xxx xxx SEC. 70. Missionary Electrification . Notwithstanding the divestment and/or privatization of NPC assets, IPP contracts and spun-off corporations, NPC shall remain as a National Government-owned and -controlled corporation to perform the missionary electrification function through the Small Power Utilities Group (SPUG) and shall be responsible for providing power generation and its associated power delivery systems in areas that are not connected to the transmission system. The missionary electrification function shall be funded from the revenues from sales in missionary areas and from the universal charge to be collected from all electricity end-users as determined by the ERC . Section 4, Rule 23 of the Implementing Rules and Regulations of R.A. No. 9136 Section 4. Privatization Guidelines. xxx xxx xxx (f) The Agus and the Pulangui complexes in Mindanao shall be excluded from among the Generation Companies that will be initially privatized. Their ownership shall be transferred to the PSALM and both shall continue to be operated by the NPC . . . . The privatization of Agus and Pulangui complexes shall be left to the discretion of PSALM Corp. in consultation with Congress. PSALM, out of the earnings in the operation of Agus and Pulangui complexes, shall ensure the availability of adequate funds intended for the upkeep of facilities to include funds for repairs, maintenance and expansion of existing facilities; xxx xxx xxx (emphases supplied) It is well-settled that the intent or meaning of a statute should be ascertained from the statute taken as a whole and not from an isolated part or provision thereof. The legislative meaning is to be extracted from the statute as a whole. Its clauses are not to be segregated, but every part of a statute is to be construed with reference to every other part and every word and phrase in connection with its context. This is so because the law is the best expositor of itself. Optima statuli interpretatix est ipsum statutum . The best interpreter of a statute is the statute itself. ( Statutory Construction by Ruben E. Agpalo, Third Edition, 1995, p. 197, citing cases ) Based on the above-quoted provisions, this Department is of the opinion that with the passage of R.A. No. 9136, and with the effectivity of its Implementing Rules and Regulations on March 22, 2002 (having been published on March 7, 2002), the NPC no longer has the legal personality to issue new bonds or other forms of indebtedness. The EPIRA created a National Transmission Corporation (TransCo), a corporation wholly owned by PSALM Corp., to assume the electrical transmission function of the NPC. It has, among others, the power to borrow funds from any source, whether private or public, foreign or domestic, and to issue bonds and other evidence of indebtedness. What was left to the NPC is the performance of the missionary electrification function through the Small Power Utilities Group (SPUG), which function is, by express provision of law, to be funded from the revenues from sales in missionary areas and from the universal charge to be collected from all electricity end-users as determined by the ERC. Nothing was mentioned that the NPC could fund said function through borrowings. Moreover, R.A. No. 9136 created the Power Sector Assets and Liabilities Management Corporation (PSALM Corp.) to take ownership of all existing NPC generation assets, liabilities, IPP contracts, real estate and all other disposable assets (see Sec. 49, supra ). Pursuant to Section 49, all outstanding obligations of the NPC arising from loans, issuances of bonds, securities and other instruments of indebtedness shall be transferred to and assumed by the PSALM Corporation within one hundred eighty (180) days from the approval of the law. Following what was stated in this Department's Opinion No. 69, s. 1996 that the provisions of law which are not self-executing take effect only after the issuance of the implementing rules and regulations, the foregoing provision of Section 49 of the EPIRA takes effect upon the issuance and effectivity of its IRR, which is March 22, 2002. Furthermore, while the NPC shall continue to operate the Agus and Pulangui complexes, the ownership of the said complexes under the EPIRA shall be transferred to the PSALM Corp. Being now the owner of said assets, PSALM Corp. should be responsible for sourcing whatever funding may be needed for their operation. Take note that under Section 51(j) of R.A. No. 9136, the PSALM Corp. is authorized "to borrow money and incur such liabilities, including the issuance of bonds, securities or other evidences of indebtedness." No similar power has been given to NPC under the EPIRA. It is even prohibited under Section 47(j) to "incur any new obligations" in connection with the discharge of its limited function of generating and selling electricity from the undisposed generating assets and IPP contracts of PSALM Corp. With the above discussion, we no longer find it necessary to answer your second query. II. Will there be an automatic transfer of the covering ROP guarantee for existing NPC liabilities which will be transferred to the Power Sector Assets and Liabilities Management Corporation (PSALM Corp.). Quoted herein are provisions of laws which you may find relevant to your query: Section 8(b) of R.A. No. 6395, as amended SEC. 8. Authority to Incur Indebtedness and Issue Bonds; Their Conditions, Privileges and Exemptions; Sinking Funds; Guarantee . xxx xxx xxx (b) Foreign Loans . . . . The President of the Philippines , by himself, or through his duly authorized representative, is hereby further authorized to guarantee, absolutely and unconditionally as primary obligor and not as surety merely, in the name and on behalf of the Republic of the Philippines, the payment of the loans, credits, indebtedness and bonds issued up to the amount herein authorized, . . . as well as the performance of all or any of the obligations undertaken by the Corporation in the territory of the Republic of the Philippines pursuant to loan agreements entered into with foreign governments or any international financial institutions or fund sources. Section 49 of R.A. No. 9136 SEC. 49. Creation of Power Sector Assets and Liabilities Management Corporation . There is hereby created a government-owned and -controlled corporation to be known as the "Power Sector Assets and Liabilities Management Corporation", hereinafter referred to as the " PSALM Corp .", which shall take ownership of all existing NPC generation assets, liabilities , IPP contracts, real estate and all other disposable assets. All outstanding obligations of the NPC arising from loans, issuances of bonds, securities and other instruments of indebtedness shall be transferred to and assumed by the PSALM Corp . within one hundred eighty (180) days from the approval of the Act. This Department had the occasion to pass upon a similar issue in its Opinion No. 57, s. 2001, the pertinent portion of which, reads: As provided for in Section 8(b) of R.A. No. 6395, as amended, the NG, through the President of the Philippines, is bound absolutely and unconditionally as primary obligor and not merely as surety to pay NPC's obligations meaning, at the end of the day, the risk of paying NPC's obligations is still inherent with the NG. Having given its sovereign guarantee to NPC's obligations, the NG could not and will not renege on its guarantee obligations notwithstanding the absence of any provision in R.A. No. 9136 as to the status of the NG guarantee in the event of the transfer of NPC's liabilities to PSALM Corp . The reason is that the non-impairment of contract clause under the Constitution, which is deemed incorporated in all laws passed by Congress except those enacted in the exercise of police power ( Pangasinan Transportation Co. vs. Public Service Commission, 70 Phil. 221 ), also applies to the government when it enters into contract with private persons ( Government of the Philippine Islands v. Frank, 13 Phil. 236; Clemons vs. Nolting, 42 Phil. 702 ) Moreover, some foreign loan agreements entered into by the NPC with the NG as guarantor have been so explicit as to include in its provisions that the Guarantor's obligations under the Guarantees are irrevocable and unconditional and will not be affected by any event or circumstance affecting the NPC or any of its subsidiaries including, without limitation, as a result of any privatization, restructuring, sale of assets, business combination or similar transaction affecting the NPC or any of its Subsidiaries. To say now that the guarantee obligations of the NG are extinguished with the passage of R.A. No. 9136 would deprive the creditors of the NPC of the remedies previously available to them at the time the agreements were executed with the NPC and would thus, run counter to the 1987 Constitution which recognizes that no law impairing the obligation of contracts shall be passed. (emphasis supplied) Following the foregoing discussion, it is believed that the transfer of NPC's liabilities to PSALM Corp. carries with it the automatic transfer of the covering ROP guarantee extended to the said liabilities. III. In what form and under what circumstances can PSALM Corp. obtain new loans under the law. Sections 50, 51(j) and 55(c) of R.A. No. 9136 provide: SEC. 50. Purpose and Objective, Domicile and Term of Existence . The principal purpose of the PSALM Corp. is to manage the orderly sale, disposition, and privatization of NPC generation assets, real estate and other disposable assets, and IPP contracts with the objective of liquidating all NPC financial obligations and stranded contract costs in an optimal manner. xxx xxx xxx The PSALM Corp. shall exist for a period of twenty five (25) years from the effectivity of this Act, unless otherwise provided by law, and all assets held by it, all moneys and properties belonging to it, and all its liabilities outstanding upon the expiration of its term of existence shall revert to and be assumed by the National Government. SEC. 51. Powers . The PSALM Corp. shall, in the performance of its functions and for the attainment of its objective, have the following powers: xxx xxx xxx (j) To borrow money and incur such liabilities, including the issuance of bonds, securities or other evidences of indebtedness utilizing its assets as collateral and/or through the guarantee of the National Government : Provided, however , That all such debts or borrowings shall have been paid off before the end of its corporate life; xxx xxx xxx SEC. 55. Property of the PSALM Corp . The following funds, assets, contributions and other property shall constitute the property of the PSALM Corp.: xxx xxx xxx (c) Proceeds from loans incurred to restructure or refinance NPC's transferred liabilities: Provided, however , That all borrowings shall be fully paid for by the end of the life of the PSALM Corp.; xxx xxx xxx It could be gleaned from the above-quoted provisions that just like the NPC, PSALM Corp. is also empowered to borrow money and incur such liabilities, including the issuance of bonds, securities or other evidences of indebtedness. However, its borrowing power, by express provision of Section 51(j), shall be in furtherance of its objective, i.e. , to manage the orderly sale, disposition, and privatization of NPC generation assets, real estate and other disposable assets, and IPP contracts with the objective of liquidating all NPC financial obligations and stranded contract costs in an optimal manner (see Sec. 50), and subject to the condition that all debts or borrowings incurred by NPC shall have been paid off before the end of its corporate life, which is twenty five (25) years from the effectivity of R.A. No. 9136, unless otherwise provided by law (see also Sec. 55[c]). IV. What will be the legal basis for the ROP guarantee covering assumed liabilities as well as new loans to be obtained by PSALM Corp. As discussed in this Department's Opinion No. 57, s. 2001, above-quoted, the ROP guarantee covering assumed liabilities of the PSALM Corp. finds support mainly in the non-impairment of contract clause of the Constitution, which is deemed incorporated in all laws passed by Congress except those enacted in the exercise of police power. Insofar as the new loans to be obtained by PSALM Corp. are concerned, the legal basis for the ROP guarantee is Section 51[j]), supra , which empowers PSALM Corp. to incur liabilities by "utilizing its assets as collateral and/or through the guarantee of the National Government ." However, in the absence of a provision in R.A. No. 9136 that the NG guarantee on obligations incurred by PSALM Corp. shall be over and above the guarantee ceiling provided for in R.A. No. 4860 ( Foreign Borrowings Act ), as amended, this Department is of the view that the said NG guarantee shall form part of the guarantee ceiling prescribed by R.A. No. 4860, as amended ( Secretary of Justice Opn. No. 57, s. 2001 ). HcSaTI Please be guided accordingly. Very truly yours, (SGD.) HERNANDO B. PEREZ Secretary