DOJ Opinion No. 057, s. 2001

DOJ OPINION NO. 057 , s. 2001 October 15, 2001 Secretary Jose Isidro N. Camacho Department of Finance Manila Sir : This refers to your request for legal opinion on the following issues relevant to the implementation of Section 49 of Republic Act No. 9136 ( Electric Power Industry Reform Act of 2001 ), in relation to Section 3, R.A. No. 4860, as amended, viz : 1. Whether or not the mandatory transfer of all National Power Corporation (NPC) liabilities (and assets) is a relevant "change in law", as the phrase is commonly understood in international contracts, that constitutes an NPC Event of Default, thereby requiring creditors' consent; 2. Assuming that NPC creditors consent, whether or not the transfer of liabilities will extinguish the original guarantee extended by the National Government (NG) to NPC; 3. Assuming that the original NG guarantee is extinguished, whether or not the NG may guarantee the obligations transferred to the Power Sector Assets and Liabilities Management (PSALM) Corp. with the latter as principal obligor; and 4. Whether or not the NG guarantee of PSALM Corp.'s transferred liabilities and future obligations must form part of the ceiling prescribed by R.A. No. 4860, as amended. It is stated in your query that under Section 8(b) of R.A. No. 6395 ( An Act Revising the Charter of the National Power Corporation) , as amended, all foreign loans of the NPC are automatically guaranteed by the NG, which guarantees are not considered as part of the $7.5 billion guarantee ceiling under RA. No. 4860 ( An Act Authorizing the President of the Philippines to Obtain Such Foreign Loans and Credits, or to Incur Such Foreign Indebtedness 'as may be Necessary to Finance Approved Economic Development Purposes or Projects, and to Guarantee, in Behalf of the Republic of the Philippines, Foreign Loans Obtained or Bonds Issued by Corporations Owned or Controlled by the Government of the Philippines for Economic Development Purposes Including Those Incurred for Purposes of Re-Lending to the Private Sector', Appropriating the Necessary Funds Therefor, and for Other Purposes), as amended, the general law on government guarantees. It is also stated in your query that while PSALM Corp. is, under Section 51(j) of R.A. No. 9136, authorized to incur liabilities "through the guarantees of the National Government", the said R.A. does not have an express provision to the effect that the same NG guarantee given to the NPC liabilities subsists notwithstanding the transfer of the said NPC liabilities to PSALM Corp. Thus, with the approval of R.A. No. 9136, there is considerable apprehension on the part of the NPC creditors that the transfer of obligations from one debtor (NPC) to another (PSALM Corp.) will extinguish the existing NG guarantee and leave them completely unsecured. Section 8(b) of R.A. No. 6395, as amended, reads: 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, which shall be over and above the amount which the President of the Philippines is authorized to guarantee under Republic Act Numbered Sixty-One Hundred Forty-Two, as amended , 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. (emphasis supplied) On June 8, 2001, Congress passed into law R.A. No. 9136, Sections 49 and 51(j) of which, read: 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. 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 , . . . utilizing its assets as collateral and/or through the guarantee of the National Government . . .; xxx xxx xxx (Emphasis supplied) The views of the Department of Finance (DOF) on the above-stated issues are as follows: 1. The statutory transfer of liabilities from the NPC to PSALM Corp. is a change in law and, therefore, the Government has to secure the consent of the NPC creditors to avert a declaration of an NPC Event of Default. A single declaration of default will result in cross-defaults detrimental to both the NPC and the NG. 2. To maintain that the original NG Guarantee will be extinguished by reason of the novation of the debtor, i.e., from the NPC to PSALM Corp., or by the application of the ceiling prescribed in R.A. No. 4860, as amended, will result in a complete removal of remedies available to NPC creditors insofar as the unsatisfied portion of their loans is concerned. Hence, a clear violation of the constitutional proscription against the impairment of the obligation of contracts. 3. R.A. No. 9136 should be interpreted in a manner that will not change the original rights of the lenders of the NPC to their prejudice or, at the very least, will afford them the same credit security. It cannot be said that it was the legislature's intention to get the government "off the hook" through the simple expediency of transferring the guaranteed liabilities of one GOCC to another. Otherwise, this may be perceived by the international financial community as bad faith on the part of government. 4. Assuming arguendo that the original NG guarantee is deemed extinguished by the transfer of the NPC liabilities, Section 51 (j) of R.A. No. 9136 is sufficient legal basis for the NG to guarantee NPC's transferred liabilities. This is because Section 51(j) of R.A. No. 9136 does not distinguish between PSALM Corp.'s transferred and future liabilities. In a sense, transferred liabilities are future liabilities from the standpoint of PSALM Corp. We shall answer the issues raised in seriatim . I. On whether or not the mandatory transfer of NPC liabilities (and assets) to PSALM Corp. is a relevant "change in law" that constitutes an NPC Event of Default thereby requiring creditors' consent. The query involves a question of fact more than of law considering that the answer to the said query hinges on the result of the review and evaluation of the provisions of the individual loan agreements entered into by the NPC as borrower with the NG as guarantor. The request does not present the complete factual situation from which this Department may draw its premises and conclusions. As a matter of policy, the Secretary of Justice does not render opinion on factual issues and questions the resolution of which hinges on factual matters which are not readily discernible from the query ( Secretary of Justice Opn. Nos. 93 and 14, s. 2000; No. 6, s. 1999; and No. 98, s. 1998 ). For example, there are loan agreements which contain provisions to the effect that the obligations of the NG under the guarantees are irrevocable and unconditional and such obligations will not be affected by any event or circumstance affecting the NPC, including, without limitation, as a result of any privatization, restructuring, sale of assets, business combination or similar transaction affecting the NPC. In such a case, it could be said that no creditors' consent is necessary prior to the transfer of the assets and liabilities of the NPC, a government corporation, to the PSALM Corp., another government corporation, pursuant to R.A. No. 9136. II. On whether or not the transfer of NPC's liabilities to PSALM Corp. will extinguish the original guarantee extended by the National Government (NG) to NPC. The NG guarantee extended to NPC's liabilities is not extinguished notwithstanding the transfer of the said liabilities to the PSALM Corp., another GOCC. 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 vs. 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. Such being the case, we no longer find it necessary to dwell on the issue of whether or not the NG may guarantee the obligations transferred to the PSALM Corp. with the latter as principal obligor upon the extinguishment of the original NG guarantee. III. On whether or not the NG guarantee of PSALM Corp.'s transferred liabilities and future obligations must form part of the ceiling prescribed by R.A. No. 4860, as amended. We must distinguished. As expressly provided for in Section 8(b) of R.A. No. 6395, as amended, the NG guarantee on NPC's obligations shall be over and above the amount which the President of the Philippines is authorized to guarantee under R.A. No. 4860, as amended. Considering that this Department, as discussed above, is of the view that the NG guarantee extended to the NPC's obligations contracted under R.A. No. 6395, as amended, the law then prevailing at the time the guarantee agreements were entered into, subsists notwithstanding the transfer of said liabilities to the PSALM Corp., it can be said that said NG guarantee obligations do not form part of the ceiling prescribed in R.A No. 4860, as amended. However, in the absence of a similar provision in R.A. No. 9136 that the NG guarantee on obligations to be incurred by PSALM Corp. shall also be over and above the guarantee ceiling provided for in R.A. No. 4860, 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, following the well-settled rule of statutory construction that when the language of the law is clear and categorical, there is no room for interpretation but only application and obedience to the statutory command. The law can be changed or amended only by Congress and, therefore, the law has to be enforced as written. ( Opn. No. 38, s. 1997, citing cases ) HaIESC Please be guided accordingly. Very truly yours, (SGD.) HERNANDO B. PEREZ Secretary