DOJ Opinion No. 140, s. 1998

DOJ OPINION NO. 140 , s. 1998 November 16, 1998 Hon. Gonzalo T. Santos, Jr. Chief Executive Trustee Asset Privatization Trust North Davao Mining Corporation Building 104 Gamboa Street Legaspi Village, Makati City Sir : The opinion of this Department is requested on whether, pursuant to Section 4 of R.A. No. 7718 (Amended BOT Law), there is a need for the Asset Privatization Trust (APT) to secure the clearance/approval of the Investment Coordinating Committee (ICC) of the National Economic and Development Authority (NEDA) in connection with the proposed development of the Moonwalk Properties, which are transferred assets of the Philippine National Bank under Proclamation No. 50. It is stated that APT is a government agency established pursuant to Proclamation No. 50, dated December 8, 1986; that its mandate is to take title to and possession of, conserve, provisionally manage and dispose of, for the benefit of the National Government (NG), assets which have been identified for privatization or disposition and transferred to it for said purpose; that in connection with the exercise of its mandate, Executive Order No. 298, dated January 30, 1996, was issued which authorized APT to adopt alternative and/or intermediate modes of privatization of the said assets; that among the assets transferred by the government financial institutions, i.e., the Philippine National Bank (PNB) in this case, to the NG/APT is the Moonwalk Properties which consist of 44 parcels of land with an aggregate area of 158 hectares located in the Municipalities of Bacoor and Dasmarias, Cavite. llcd It is further stated that pursuant to the authority provided by Executive Order No. 298, APT is seeking a strategic partner which will develop these non-performing assets into a complete community consisting of residential and commercial areas with certain portions reserved for institutional facilities; that APT intends to enter into a contractual relationship with the strategic partner similar to that of a joint venture and/or property development agreements where APT's equity will be the Moonwalk Properties while the strategic partner will assume the financing development and marketing of the project; that APT, however, is at a quandary as to whether this disposition scheme on the said Moonwalk Properties is covered by Republic Act No. 7718 which requires in Section 4 thereof the prior approval/clearance of the ICC of the NEDA considering that the various contractual arrangements/schemes provided and defined in the subject law might not find application to the said proposed disposition scheme since the subject law contemplates a transfer of the facility back to the government agency concerned whereas the proposed Moonwalk Properties development project merely contemplates a sharing of revenues by the APT. It appears that opinion is being requested on the above matter pursuant to Section 21 of Proclamation No. 50 which designates the Secretary of Justice as the ex-officio legal adviser of the APT. At this juncture, it is well to note the mandate of APT under Proclamation No. 50 vis-a-vis assets transferred to the NG by the government financial institutions (GFIs). The pertinent provisions of said Proclamation read: "SECTION 9. Creation . There is hereby created a public trust to be known as the Asset Privatization Trust, hereinafter referred to as the Trust, which shall, for the benefit of the National Government, take title to and possession of, conserve , provisionally manage and dispose of assets as defined in Section 2 herein which have been identified for privatization or disposition and transferred to the Trust for the purpose, pursuant to Section 23 of this Proclamation. "SECTION 10. Purpose and Objectives , Domicile , Terms of Existence . The principal purpose of the Trust shall be to effect or cause to be effected , directly or through other external agencies , the disposition within the shortest possible period of assets transferred to the Trust for the purpose . The Trust in its divestment program should seek in the soonest time possible, to restore existing physical facilities involved into viable and productive operations under private sector management and ownership, and thus to contribute towards national economic recovery. Within the context of this major purpose , the Trust is expected to generate maximum cash recovery for the National Government . cdlex xxx xxx xxx." "SECTION 12. Powers . The Trust shall, in the discharge of its responsibilities, have the following powers: (1) To formulate and , after approval by the Committee , implement a program for the disposition of assets transferred to it under this Proclamation , such program to be completed within a period of five years from the date of the issuance of this Proclamation. xxx xxx xxx (3) To take title to and possession of and to take such steps as may be necessary to conserve assets transferred to it by the Committee , including, without limitation, to oversee the management and operation of corporations or other businesses constituting such assets, and to file suits and institute proceedings on behalf of and in the name of the National Government for the recovery and protection of such assets; (4) Subject to the prior approval of the Committee , to undertake the rehabilitation of such assets in instances where such rehabilitation is necessary to conserve the value of such assets or permit their sale ; xxx xxx xxx (8) To submit periodic reports to the Committee on the status of the disposition program under its responsibility , and such other reports as may be required by the Committee". dctai "SECTION 23. Mechanics of Transfer of Assets . As soon as practicable, but not later than six months from the date of the issuance of this Proclamation, the President, acting through the Committee on Privatization, shall identify such assets of government institutions as appropriate for privatization and divestment in an appropriate instrument describing such assets or identifying the loan or other transactions giving rise to the receivables, obligations and other property constituting assets to be transferred. The Committee shall , from the list of assets deemed appropriate for divestment , identify assets to be transferred to the Trust or to be referred to the government institutions in an appropriate instrument, which upon execution by the Committee shall constitute as the operative act of transfer or referral of the assets described therein, and the Trust or the government institution may thereupon proceed with the divestment in accordance with the provisions of this Proclamation and the guidelines issued by the Committee ." (Emphasis supplied) Pursuant to the aforequoted provisions, the APT is mandated to take title to and possession of, conserve, provisionally manage and dispose of or divest to the private sector assets transferred to it in accordance with Section 23 of Proclamation No. 50, supra . The objective in so empowering the APT is to effect the disposition of the assets within the shortest possible period and at the same time, to maximize the cash recovery for the government. To achieve this objective, the APT is directed to formulate and, after approval by the Committee on Privatization (COP), implement a program of disposition for such assets and to take such interim measures, such as rehabilitation of assets whenever necessary to conserve the value of such assets and permit their sale, also with the approval of the COP. prcd In line with the objective and mandate of the APT under Proclamation No. 50, the President issued on January 30, 1996 Executive Order No. 298 providing for alternative and/or intermediate modes of privatization of assets transferred to the APT, "which by their physical nature, technical obsolescence, legal impediments, or business prospects are considered very difficult to dispose of by final sale" (see 4th Whereas clause, E.O. No. 298). Explicit in E.O. No 298 is the temporary nature of the arrangements or modes of disposition authorized therein, the evident purpose being to enhance the value of hard-to-sell assets for their eventual divestment to private ownership as provided for in Proclamation No. 50. The different modes prescribed in E.O. No. 298 are, therefore, to be viewed as interim actions to be taken by the APT to "rehabilitate" or improve the saleability of an asset, and for undertaking the same, prior approval by the COP shall be necessary pursuant to Proclamation No. 50. In the instant case presented by the APT where a proposed joint venture with a private partner is being contemplated for the development of its Moonwalk Properties which were transferred to APT pursuant to Proclamation No. 50, the query raised is whether such joint venture or other arrangement is subject to the approval of the ICC-NEDA pursuant to R.A. No. 7718 (Amended BOT Law). Our view is that it is premature to resolve this issue in the absence of a showing that such proposed mode of disposition under E.O. No. 298 has been previously submitted to, and approved by, the COP as required under Proclamation No. 50. Suffice it to state that under E.O. No. 298, the exercise by APT of its authority to enter into any of the alternative or intermediate modes of privatization authorized therein "shall be subject to the pertinent laws and regulations". The applicability of R.A. No. 7718 to the proposed mode being contemplated by the APT for the development of the Moonwalk Properties is an issue that the COP will have to resolve when it considers and evaluates the proposal of the APT. It bears mentioning that the NEDA is represented in the COP and the issue of whether the proposed development project is subject to ICC-NEDA approval is very much within the official competence of the COP to resolve. Please be advised accordingly. Very truly yours, (SGD.) JUSTICE SERAFIN R. CUEVAS Secretary