DOJ Opinion No. 066, s. 2003

DOJ OPINION NO. 066 , s. 2003 August 25, 2003 Secretary Jose Isidro N. Camacho Department of Finance Manila Sir : This refers to your request for opinion on certain issues concerning the Agreement dated May 22, 2003 entered into by the National Power Corporation (NPC) and CBK Power Company Limited (CBK) and concurred in by the Power Sector Assets and Liabilities Management Corporation (PSALM) in respect of the Build-Rehabilitate-Operate-Transfer Agreement (BROT Agreement) involving the Caliraya-Botocan-Kalayaan hydroelectric complex. It appears that on November 6, 1998, the NPC executed a BROT Agreement with Industrias Metallurgicas Pescarmona S.A. (IMPSA) for the CBK Power Plant Complex. The BROT Agreement was amended and supplemented by the Accession Undertaking, dated February 18, 1999, among IMPSA, NPC and CBK Power Corporation (CPC), whereby CPC acceded to the rights and obligations of IMPSA under the BROT Agreement. On July 12, 1999, then Secretary Edgardo B. Espiritu of the Department of Finance issued a Government Undertaking (GU), confirming that "the obligations of NPC under the Agreement 1 carry the full faith and credit of the Republic of the Philippines and that the Republic of the Philippines will see to it that NPC shall be able to discharge at all times such obligations as they fall due." The BROT Agreement was further amended and supplemented by a Supplemental Agreement dated September 14, 1999 among NPC, IMPSA and CPC and by the letter agreement dated December 14, 1999 among such parties. On June 28, 2000, then Secretary Artemio G. Tuquero of the Department of Justice issued a legal opinion, confirming that "the obligations expressed to be assumed by the Republic of the Philippines in the Government Undertaking are, under the laws of the Republic of the Philippines, enforceable against it in accordance with the terms thereof." It also appears that the BROT Agreement was further supplemented by a Second Accession Undertaking dated September 20, 2000 among the NPC, IMPSA and CPC with CBK joining as a party to the BROT Agreement. On December 18, 2000, then Secretary Jose T. Pardo of the Department of Finance executed a (Government) Acknowledgment and Consent Agreement (GACA), whereby the Government consented to the accession by CBK to the BROT Agreement and confirmed that "on the Accession Date, CBK shall have, and shall be entitled to assume and exercise all the rights and benefits of IMPSA and CPC under the Government Undertaking" and consented to the "transfer and assignment by CBK of its interests under the Government Undertaking to the Collateral Agents." The Government also acknowledged and agreed for the benefit of the Senior Lenders that "the Collateral Agents and any permitted assignees and designees thereof shall be entitled to exercise any and all rights of CBK under the Government Undertaking dated July 12, 1999 in accordance with the terms thereof." On February 1, 2001, the Department of Justice issued a legal opinion dated January 24, 2001, indicating that the "obligations expressed to be assumed by the Republic of the Philippines in the GACA are, under the laws of the Republic of the Philippines, enforceable against it in accordance with the terms thereof" and that "the Republic of the Philippines has validly and effectively consented to the transfer and assignment to the Lenders of all of CBK's rights under the Government Undertaking." You state that because of (1) the findings of the Inter-Agency Committee on Independent Power Producers review of certain policy issues affecting the BROT Agreement; (2) the issues raised against the CBK Project at the hearings conducted by the Philippine Senate; and (3) the implementation of the Ten-Point Program of President Macapagal-Arroyo to reduce the electricity rates and stranded contract costs, the parties entered into an Agreement on May 22, 2003. You also state that under the Agreement, CBK shall make the following concessions: (a) waiver of its right to collect the last four (4) installments due on the Security Deposits (Article 2.1); (b) waiver of claims for Capital Recovery Fees and O&M fees for any period prior to December 8, 2003 notwithstanding that the completion date for each Unit of Kalayaan II may occur earlier than December 8, 2003 (Article 2.2); (c) waiver of its right to nominate in excess of the Guarantee Net Contracted Capacity (GNCC) for a period of 30 months for each unit (Article 2.3); and (d) availability of capacity from a unit in excess of its GNCC up to its Net Contracted Capacity (NCC), without costs to NPC, during the relevant 30-month period referred to in the Settlement Agreement (Article 2.4). You further state that Section 5.1(a)(iv) of the Agreement provides as one of the conditions precedent for the effectivity thereof the issuance of a "'letter of confirmation by the Secretary of Finance, addressed to NPC and PSALM, that (x) the execution and performance of th(e) Agreement will have no effect on the obligations of the Republic of the Philippines under the agreement entered into by it with the Contractor and its lenders in support of the BROT Agreement and (y) such parties and the providers of political risk and other insurance may rely on such confirmation.'" We note that the second paragraph of both drafts of the letters of confirmation state that "The May 22 Agreement was subject to a request for NEDA-Investment Coordinating Committee (ICC) Clearance dated May 26, 2003, and has been favorably endorsed by the ICC Secretariat which found that it will not result in an increase or change in government undertakings or change in ICC-prescribed parameters, and has been cleared by the ICC-Cabinet Committee on [ insert date ], following the review process for IPP contracts." CacEIS Noting that the Department of Finance is not a signatory in the Agreement, the Department of Finance proposes to issue a Letter of Confirmation either in the form wherein the Secretary of Finance confirms that the execution and performance of the Agreement will have no effect on the obligations of the Republic of the Philippines 2 or in the form wherein the Secretary of Finance simply states that he has no objections to the execution and performance of the Agreement. 3 You now request this Department to render opinion on whether: 1. The execution and performance of the Agreement will have no effect on the obligations of the Republic of the Philippines under the Government Undertaking (GU) on NPC's obligations under the BROT Agreement dated July 12, 1999 and the (Government) Acknowledgment and Consent Agreement (GACA) dated December 18, 2000; 2. The Secretary of Finance has the authority to issue a letter addressed to the NPC and PSALM confirming that the execution and performance of the Agreement will have no effect on the obligations of the Republic of the Philippines under the GU and the GACA pursuant to paragraph 5.1 (a) (iv) of the Agreement; 3. The Letter of Confirmation in either forms mentioned above complies with the requirement of paragraph 5.1 (a) (iv) of the Agreement; and 4. The issuance of the Letter of Confirmation in either forms mentioned above will not result in an increase or change in the obligations expressed to be assumed by the Republic through the Department of Finance in the GU and the GACA. We shall deal on the issues in the order they are presented. 1. The second paragraph of the draft letters of confirmation indicate that "the May 22 Agreement was subject to a request for NEDA-Investment Coordinating Committee (ICC) Clearance dated May 26, 2003, and has been favorably endorsed by the ICC Secretariat which found that it will not result in an increase or change in government undertakings or change in ICC-prescribed parameters, and has been cleared by the ICC-Cabinet Committee on [insert date], following the review process for IPP contracts." 4 We are not in the position to confirm or disprove the findings of the ICC Secretariat because such findings involve financial and technical matters which are beyond our competence to pass upon. The Department of Finance, however, may decide whether to adopt such findings. This flows from its mandate to be primarily responsible "for the sound and efficient management of the financial resources of the Government, its subdivisions, agencies and instrumentalities" and "for the formulation, institutionalization and administration of fiscal policies in coordination with other concerned subdivisions, agencies and instrumentalities of government." 5 Pursuant to settled practice and precedents, the Secretary of Justice has consistently refrained from expressing his views on matters which fall within the official competence of another government office out of respect and deference for the expertise of the office or agency having primary jurisdiction to resolve the matter and for its familiarity with the policy repercussions of the resolution of the question involved. 6 2. We take it that the second issue is raised because the Department of Finance is not a party to the May 22, 2003 Agreement. Considering that it was the Department of Finance, through its Secretary, which issued the GU and the GACA in respect of the NPC's obligations under the BROT Agreement, we do not see any reason why that Department cannot issue the letter required under paragraph 5.1(a)(iv) of the Agreement. 3. In view of DOF's mandate as discussed above, we are of the view that the Secretary of Finance is in the best position to choose which one of the forms of the letters of confirmation (Annexes D and D-1) will suffice for purposes of complying with the requirement under paragraph 5.1(a)(iv) of the Agreement. 4. The resolution of the fourth issue largely depends on the disposition of the first one. It is the Secretary of Finance who is in the best position to decide on the matter. cDHAES Please be guided accordingly. Very truly yours, (SGD.) SIMEON A. DATUMANONG Secretary Footnotes 1. The BROT Agreement as supplemented by the Accession Undertaking and as further supplemented and amended from time to time. 2. Annex D. 3. Annex D-1. 4. Italics ours. 5. Sections 1 and 2, Chapter I, Title II, Book IV of the Administrative Code of 1987. 6. Secretary of Justice Opinions Nos. 17 and 142, series of 1994.