DOJ Opinion No. 074, s. 1998

DOJ OPINION NO. 074 , s. 1998 June 16, 1998 Mr. Carlos L. Agustin General Manager Philippine Ports Authority Marsman Bldg., South Harbor Port Area, Manila Sir : This has reference to your request for advice/opinion on whether or not port service operators, port facility operators and port development project proponents are covered by the Constitutional and statutory limitations on foreign ownership of public utilities. LLphil You state that the Philippine Ports Authority (PPA) is a government agency duly authorized to operate government ports and to provide the necessary services thereat, whether on its own, by contract or otherwise, pursuant to Section 6 of Presidential Decree No. 857, as amended, which provides, thus "SEC. 6. Corporate Powers and Duties . a) The corporate duties of the Authority shall be: xxx xxx xxx (ii) To supervise, control, regulate, construct, maintain, operate and provide such facilities or services as are necessary in the ports vested in, or belonging to the Authority . xxx xxx xxx (v) To provide services (whether on its own, by contract, or otherwise) within the Port Districts and the approaches thereof, including but not limited to berthing, towing, mooring, moving, slipping, or docking any vessel: loading or discharging any vessel: sorting, weighing, measuring, storing, warehousing, or otherwise handling goods. xxx xxx xxx" (Emphasis supplied) and that as a matter of policy, PPA does not directly undertake the various port services mentioned above but contract out such services to private individuals. You also state that PPA has received many inquiries from both local and foreign corporations concerning port development projects under the BOT law (R. A. No. 6957, as amended); and that under Section 2(b) of said law, in case of an infrastructure or a development facility whose operation requires a public utility franchise, the proponent must be a Filipino, or, if a corporation, must be registered with the Securities and Exchange Commission and owned up to at least 60% of its capital by Filipinos. You mention that under the Constitution (Sec. 11, Art. XII), a franchise to operate a public utility shall be granted only to citizens of the Philippines or to corporations or associations at least 60% of whose capital is owned by citizens of the Philippines. Based on these premises, we assume that you wish to know whether the nationality requirement prescribed for public utility operators applies 1. to PPA's private service contractors or port facility operators rendering port services in the various ports owned or administered by PPA; and 2. to project proponents interested in the port development projects of PPA. We shall discuss these issues in seriatim . I Pertinent to the case of PPA's private service contractors or port facility operators contracted by PPA to render port services, you mention that it is actually PPA, as the legally mandated administrator of the port, which is the public utility, and not its contractors or operators, implying that the nationality requirement need not apply to said contractors and operators of PPA. We believe that the nationality requirement applies to PPA's private service contractors or port facility operators. A public utility is defined as "business or service which is engaged in regularly supplying the public with some commodity or service of public consequence . . . " (see Glenbrook Development Co . v . Brea 253 Cal App 267, 61 Cal Rptr 189 .) This definition reveals that it is not the number of people served or the size of the territory serviced that determines whether a particular entity is a public utility but the character of the service itself, i.e., it must have a public consequence. Accordingly, it has been ruled that "the use and equipment of the utility service may be local and limited in the territory served, and the fact that the service is limited to a particular district or a part of a town does not prevent the organization or business from being a public utility" (see Van Dyke v. Geary, 244 US 39, 61 L . Ed 973 , 37 S Ct 483) . The criterion to be used, as held in one case, in the determination of a public utility is whether it holds himself or itself out to serve all who wish to avail themselves of the service, notwithstanding that only one or two people actually receive the same (see Garkane Power Co . v . Public Service Co . , 98 Utah 466, 100 P2d 571, B2 ALR 1490 ). Port service contractors and port facility operators, in the execution of their respective contracts and undertakings with the PPA, aid the latter in the fulfillment of its mandate under its Charter, i.e., "to provide services (whether on its own, by contract, or otherwise) within the Port Districts and the approaches thereof, including but not limited to berthing, towing, mooring, moving, slipping, or docking any vessel; loading or discharging any vessel; sorting, weighing, measuring, storing, warehousing and other handling of goods." This being the case, it could be concluded, without any trace of hesitation, that these contractors and operators are public utilities, tested under the criteria laid down above. They, therefore, fall under the ambit of Section 11, Article XII of the 1987 Constitution, cited above. While it is true, as you point out, that under Section 13 of the Public Service Act (C.A. No. 186, as amended), the services specifically enumerated therein as constituting "public service" do not include "port services", however, it should be noted that Section 13 defines "public service" by enumerating the persons, properties and activities that are intended to be covered by the term, and the enumeration is preceded by the word "includes". Said provision reads: "SEC. 13. xxx xxx xxx (b) The term "public service" includes every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, transaction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed routed and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries, and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and power, petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar public services; Provided, however, That a person engaged in agriculture, not otherwise a public service, who owns a motor vehicle and uses it personally and/or enters into a special contract whereby said motor is offered for hire or compensation to a third party or third parties engaged in agriculture, not itself or themselves a public service, for operation by the latter for a limited time and for a specific purpose directly connected with the cultivation of his or their farm, the transportation, processing, and marketing or agricultural products of such third party or their parties shall not be considered as operating a public service for the purposes of this Act. xxx xxx xxx" (Emphasis Supplied) The word "includes" is a term that is ordinarily a word of enlargement and not of limitation (see People v . Western Air Lines , 268 P . 2d 723 , 733 , 42 C . 2d 621 ). It should not be understood as a restrictive word that encloses the word within what has been specifically mentioned, for it may have a sense of addition and may merely specify particularly that which belongs to the genus (see Patterson v . City of Peoria , 47 N . E . 2d 867 , 318 III . App . 245 ). It may ordinarily imply that something else has been given beyond the general language which precedes it, to add to the general clause or species which does not materially belong to it. It is frequently used as the equivalent of "also" (see State v . Montello Salt Co . , 98 P . 549, 551, 34 Utah 458 ). Furthermore, it is significant to point out that the enumeration in Section 13, supra , mentions "every person that . . . may own , operate , manage or control . . . a wharf or dock . . . and other similar public services . . . " (emphasis ours). In Opinion No. 78, s. 1995, we had the occasion to pass upon the scope of the term "public service" as defined in Section 13 in ruling that the NAIA Terminal III is a "public service" or "public utility" within the contemplation of the Public Service Act and the BOT law and as such, its construction and operation can be undertaken only by Filipinos or by corporations owned by Filipinos up to at least 60% of its capital. The relevant portion of said opinion reads: "Wharf" is defined in Section 3 (o) of P.D. No. 857 as '. . . a continuous structure built parallel to along the margin of the sea or alongside riverbanks, canals, or waterways where vessels may lie alongside to receive or discharge cargo, embark or disembark passengers, or lie at rest.' On the other hand, 'dock' as defined in Section 3(i) 'includes locks, cuts, entrances, graving docks, inclined planes, slipways, quays, and other works and things appertaining to any dock'. In the case of Albano vs. Reyes (175 SCRA 264), the Supreme Court noted that the Manila International Container Port (MICP) could be considered a public utility, or a public service on the theory that it is a 'wharf' or a 'dock' as contemplated under the Public Service Act. Since the NAIA Terminal III is intended to serve as facility for passenger handling and other services related to the movement of passengers, baggages and goods, as well as the care, convenience and security of passengers, visitors and other airport users, it is believed that the NAIA Terminal III is a public service similar to a 'wharf' or 'dock', and, therefore, it is deemed to be a 'public utility' or 'public service' within the contemplation of the Public Service Act and of R.A. No. 6957, as amended. This is consistent with the ruling that an airport, with its beacons, land fields, runways and hangars is analogous to a harbor with its lights, wharves and docks (Coleman v. City of Oakland, 295 p. 59; Depart v. St. Louis, 321 Mo. 514)." Indeed, "apart from statutes which define the public utilities that are within the purview of such statutes, it could be difficult to construct a definition of a public utility which would fit every conceivable case. As its name implies, however, the term 'public utility' implies a public use and service to the public. (Am. Jur. 2d V. 64, p. 549)". (see footnote 1, p. 270, Albano vs. Reyes, 175 SCRA 264.) LLphil Clearly, PPA's private service contractors and port facility operators are engaged in the rendition of public services at the ports and, as such, are themselves deemed to be public utility contractors or operators subject to the nationality requirement under the Constitution. We hasten to add, however, that PPA's private service contractors and port facility operators need not secure a legislative franchise for the purpose of engaging in such activities. As held in the case of Albano vs. Reyes, supra , franchise issued by Congress are not required before each and every public utility may operate. The license or authority to operate the public utility given by the administrative agency duly empowered to grant the same will suffice to authorize the operation of such public utility. Significantly, in the Albano case, the Supreme Court held that "the contract between the PPA and ICTSI, coupled with the President's written approval, constitute the necessary authorization for ICTSI's operation and management of the MICP" on the theory that the PPA has been empowered by the lawmaker to undertake by itself the operation of the MICP or, at its option, to authorize another, by contract or other means, to manage and operate the same. In the same vein, the individual contracts between PPA and its various private port service contractors/operators constitute the authorization for the rendition by the said private port service contractors/operators of public services at the port which the PPA is mandated, under its Charter, to undertake by itself or by contract or otherwise (see Sec. 6, [v], P.D. 857, supra ). II In regard to port development project proponents under the BOT law, the nationality requirement applies to them only in cases where the scheme involved is the so-called "build-operate-and-transfer" scheme. The applicable provision in Section 2(b) of R.A. No. 6957, as amended by R. A. No. 7718, which provides: "SEC. 2. Definition of Terms . xxx xxx xxx (b) Build-operate-and-transfer xxx xxx xxx Provided, That, in case of an infrastructure or development facility whose operation requires a public utility franchise, the proponent must be a Filipino or, if a corporation, must be duly registered with the Securities and Exchange Commission and owned up to at least sixty percent (60%) by Filipinos. xxx xxx xxx" (Emphasis supplied) In a previous opinion, this Department had the occasion to state that the nationality requirement is prescribed by the Act for both the project proponent and the facilities operator, or the facilities operator only, as the case may be, in projects requiring a public utility franchise ( Op. No. 30, s. 1995 ). A subsequent Supreme court decision elucidated upon this point. It was held in Tatad vs. Garcia, Jr . ( 243 SCRA 436 [ 1995) that: "The BOT scheme is expressly defined as one where the contractor undertakes the construction and financing of an infrastructure facility, and operates and maintains the same. The contractor operates the facility for a fixed period during which it may recover its expenses and investment in the project plus a reasonable rate of return thereon. After the expiration of the agreed term, the contractor transfers the ownership and operation of the project to the government. xxx xxx xxx Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility must comply with the citizenship requirement of the Constitution on the operation of a public utility . . . " (Emphasis supplied.) In so ruling, the Supreme Court noted the dichotomy between ownership and operation of a public utility. It said: "In law, there is a clear distinction between "operation" of a public utility and the ownership of the facilities and equipment used to served the public. xxx xxx xxx "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. The devotion of property to serve the public may be done by the owner or by the person in control thereof who may not necessarily be the owner thereof. xxx xxx xxx Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility ( Providence and W . R . Co . v . United States , 46 F . 2d 149 , 152 [ 1930 ]: Chippewa Power Co . v . Railroad Commission of Wisconsin , 205 N . W . 900 , 903 , 188 Wis . 246 [ 1925 ]: Ellis v . Interstate Commerce Commission , III , 35 S . Ct . 645 , 646 , 237 U . S . 434 , 59 L . Ed . 1036 [ 1914 ]). Neither are owners of tank, refrigerator, wine, poultry and beer cars who supply cars under contract to railroad companies considered as public utilities ( Crystal Car Line v . State Tax Commission , 174 p . 2d 984 , 987 [ 1946]) ." (Tatad vs . Garcia , 234 SCRA 453 , 455 , 456 [1995]). The rationale of the above-quoted decision of the Supreme Court, it seems, is anchored on the salient feature of a BOT transaction which involves the operation of facilities for the benefit of the public. While the facilities per se are not considered public utility, a franchise is necessary for the operation of these facilities because what constitutes but their use to serve the public (see Iloilo Ice and Cold Storage Co. v. Public Service Board, 44 Phil. 551, 557-558 [1923], created in Tatad vs. Garcia, supra ). In fine, the mere act of building an infrastructure project which has a public consequence does not convert the project into a public utility and, therefore, the private contractor does not need a public utility franchise for that purpose. This is the rule notwithstanding that the actual operation of the facilities may require the same. It is the operation of the facilities which is the operative act that would bring the private contractor within the ambit of the constitutional requirement of Filipino nationality. In the absence of any operation, a franchise would be unnecessary and, therefore, the private contractor does not have to comply with the nationality requirement imposed under the Constitution. Please be guided accordingly. LLphil Very truly yours, (SGD.) SILVESTRE H. BELLO III Secretary