DOJ Opinion No. 086, s. 1980

DOJ OPINION NO. 086 , s. 1980 June 3, 1980 The Director Bureau of Mines & Geo-Sciences Manila Sir : This has reference to the draft of the "Project Agreement" (Natural Resources Exploration Project) proposed to be entered into between the Government of the Republic of the Philippines and the United Nations Revolving Fund for Natural Resources Exploration (Fund), a trust fund established by the United Nations General Assembly for the purpose of extending and intensifying the activities of the United Nations System in the field of natural resources exploration in developing countries. llcd Pursuant to the draft of the "Project Agreement" the Government shall grant the Fund the exclusive right to explore for minerals in an Exploration Area covering 317 sq. kms. located in Eastern Samar during an exploration period of five years from the Effective Date (Sec. 2.01, Art. II; Sec. 1.01 [7], Art. I) principally to evaluate known targets of massive sulphides of copper-zinc-lead, possibly carrying recoverable amounts of gold and silver (Annex C, Work Plan). Among the salient points of the Agreement are the following: the Fund shall expend an amount of not less than the equivalent of $624,000 in carrying out the Minimum Work specified in the work plan over a period of approximately eighteen months to finance the services of the national and international staff as well as the provision of necessary supplies, equipment and contract services (Sec. 3.02, Art. III; Annex C, Work Plan); the Fund shall be paid a "Replenishment Contribution" which shall be equal to 2% of the value of the "Reported Mineral Produced" for a period of 15 years after the date on which commercial production of the "Reported Mineral" shall have begun (Sec. 4.02 & 4.03, Art. IV); and the "Replenishment Contribution" shall be paid in a currency acceptable to the Fund within 90 days after the end of each calendar quarter (Sec. 4.04, Art. IV). In accordance with the provision of Section 11.01, Article XI of the said Agreement, you inquire whether this Office may render an opinion "confirming that said agreement has been duly authorized or ratified by and executed and delivered on behalf of the Government and is legally binding upon the Government in accordance with its terms." Pursuant to Section 9, Article XIV, of the 1973 Constitution (Sec. 1, Art. XII of the 1935 Constitution), "the disposition, exploration, development, exploitation or utilization of any of the natural resources of the Philippines shall be limited to citizens of the Philippines, or to corporations or associations at least sixty per centum of the capital of which is owned by such citizens, . . ." The same section provides that the National Assembly may in the national interest, allow such citizens corporations or associations to enter into service contracts for financial, technical, management and other forms of assistance with any foreign person or entity for the exploration, development, exploitation or utilization of any of the natural resources. The Mineral Resources Development Decree 1974 (P.D. No. 463, as amended) authorizes exploration and exploitation of Mineral reservations by the Bureau of Mines or proper government agency, through service contracts with a qualified domestic or foreign party, subject to the approval of the President (Sec. 8), The decree likewise authorizes holders to mining lease contracts to enter into service contracts with foreign entities for the exploration, development and exploitation of his claims, with the approval of the Minister of Natural Resources upon recommendation of the Director of Mines (Sec. 44). There is no question that the Fund may qualify as a service contractor under P.D. No. 463, The draft agreement is basically a contract to render financial and technical assistance for the exploration of mineral resources with a specific work-plan and minimum expenditure commitment as well as a repayment scheme, called a replenishment contribution, based on the value of the reported mineral produced for a period of fifteen years. It may accordingly be deemed a service contract for purposes of complying with the constitutional restrictions. However, the draft agreement contains certain stipulation that go beyond the salient features of a service contract as contemplated in said decree (See Sec. 4), e.g.; (1) the Government shall apply the provisions of the U.N. Convention on Privileges and Immunities not only to the Fund and any United Nations Organ or specialized agency acting on behalf of the Fund in carrying out the Project, but also to all persons, firms or organizations and their staff acting on behalf of the Fund in carrying out the Project (Sec. 5.01, 5.02 & 5.03, Art. V); (2) the Government shall exempt from, or bear the cost of, any taxes, duties or levies imposed by law or any political subdivision on any person, firm or organization and their staff referred to in Section 5.03, Article V in respect to payments made to them in connection with the carrying out of the Project (Sec. 5.03 [d], Article V), and any taxes, fees or charges that might otherwise be payable under Philippine law on the payment of any "Replenishment Contribution" to the Fund (Sec. 6.02, (b), (II), (VI),(VII), Art. VI); (3) the Government agrees to allow access to the exploration area and target area or areas, whether of public or private ownership; (4) the Government agrees to bear all risks arising from the project, and shall be responsible for indemnifying third parties for claims filed against the Fund, or against any person, firm or organization (including their officials or staff) acting in behalf of the Fund in carrying out the Project (Sec. 6.03, Art. VI), and, (5) the Government shall take measures to exempt the Fund and any persons, firms or organizations (including their officials or staff), from any laws and regulations in effect in its territory which may interfere with the carrying out of the Project, or with the Payment of the Replenishment Contribution (sec. 6.02, Article VI). In connection with the stipulation that the Government shall apply the provisions of the U.N. convention on Privileges and Immunities to the Fund, any United Nations Organ and any Specialized Agency acting on behalf of the Fund in carrying out the Projects, as well as to the officials, property, funds and assets of the Fund, such U.N. Organ and such Specialized Agency, and to all persons or entities and their staff acting in behalf of the Fund, it is noted that said Convention on Privileges and Immunities of the United Nations accord certain privileges and immunities only to: (1) representatives (which include, among others, advisers and technical experts) of members of the principal and subsidiary organs of the United Nations; (2) officials of the United Nations, and (3) experts performing missions for the United Nations. Since the proposed Agreement would give rise to rights and obligations which may be inconsistent with existing law and/or not recognized in any convention/agreement to which the Philippines is a party, e.g. (1) accord the privileges and immunities of U.N. officials, representatives of members and experts on U.N. missions, to persons and entities not covered by the Convention, e.g. contractors and sub-contractors of the Fund (Sec. 5.03[a]); (2) grant tax exemptions (and not merely assume payment of the tax) (Sec. 6.02 (b) [vii]); (3) confer exemption from existing laws and regulations (Sec. 6.02[a]); and (4) grant other facilities like exemption from costs of visas, licenses and permits, the most favorable rate of exchange, etc. (See Sec. 6.02 [b]), the project Agreement cannot be treated as a mere service contract pursuant to the Mineral Resources Development Decree. In the absence of enabling legislation, the contract should be embodied in an international agreement, which will provide the legal basis for the grant of the rights and privileges created thereunder. In this connection, it has been intimated that the "Project Agreement" may be executed as an international agreement pursuant to the provisions of Section 15, Article XIV of the New Constitution which provides that any provision of paragraph one, Section fourteen, Article Eight and of this Article notwithstanding, the Prime Minister may enter into international treaties or agreements as the national welfare and interest may require." This particular constitutional provision, it will be noted, would authorized a virtual exception to the nationality and other requirements contained in Article XIV regarding the National Economy and the Patrimony of the Nation, and to the provision regarding concurrence of the National Assembly in the making of treaties. However, the exercise of such extraordinary power involves a serious policy question that should be left to the President/Prime Minister to decide, upon the appropriate recommendation of the agencies concerned as to whether it is in the national interest to enter into the Agreement in question. Please be advised accordingly. Very truly yours, (SGD.) RICARDO C. PUNO Minister of Justice