Mr. Guillermo E. Aragones

August 22, 1991 Mr. Guillermo E. Aragones Pargum Consolidated Corporation Trailways Building KM 14, South Superhighway, Paraaque Metro Manila S i r : This refers to your letter dated July 18, 1991 requesting opinion whether PARGUM CONSOLIDATED CORPORATION can validly sign a Management and Operating Agreement with CHINA NONFERROUS METAL INDUSTRY'S FOREIGN ENGINEERING and CONSTRUCTION CORPORATION, a foreign corporation organized under the laws of the People's Republic of China, to develop the former's mines, process the ores to be extracted thereon, and export the finished products. Under Commonwealth Act No. 108, as amended by P.D. 715, otherwise known as the Anti-Dummy Law, foreign intervention in the management and operation of nationalized business activities is prohibited. The Law provides, thus: "SECTION 2-A. Any person, corporation, or association which, having in its name or under its control, a right, franchise, privilege, property or business, the exercise or enjoyment of which is expressly reserved by the Constitution or the laws to citizens of the Philippines or of any other specific country, or to corporations or associations at least sixty per centum of the capital of which is owned by such citizens, permits or allows the use, exploitation or enjoyment thereof by a person, corporation or association not possessing the requisites prescribed by the Constitution or the laws of the Philippines; or leases, or in any other way, transfers or conveys said right, franchise, privilege, property or business to a person, corporation or association not otherwise qualified under the Constitution, or the provisions of the existing laws; or in any manner permits or allows any person, not possessing the qualifications required by the Constitution, or existing laws to acquire, use, exploit or enjoy a right, franchise, privilege, property or business, the exercise and enjoyment of which are expressly reserved by the Constitution or existing laws to citizens of the Philippines or of any other specific country, to intervene the management, operation, administration or control thereof ,whether as an officer, employee or laborer therein with or without remuneration except technical personnel whose employment may be specifically authorized by the Secretary of Justice ,and any person who knowingly aids, assists or abets in the planning, consummation or perpetration of any of the acts herein above enumerated shall be punished by imprisonment for not less than five or more than fifteen years and by a fine of not less than the value of the right, franchise or privilege enjoyed or acquired in violation of the provisions hereof but in no case less than five thousand pesos: Provided, however, That the president, managers or persons in-charge of corporations, associations or partnerships violating the provisions of this section shall be criminally liable in lieu thereof: Provided, further, That any person, corporation or association shall, in addition to the penalty imposed herein, forfeit such right, franchise, privilege, and the property or business enjoyed or acquired in violation of the provisions of this Act: And provided, finally, That the election of the aliens as members of the board of directors or governing body of corporations or associations engaging in partially nationalized activities shall be allowed in proportion to their allowable participation or share in the capital of such entities." (Emphasis supplied) Since subject corporation is engaged in mining, a partly nationalized business, the exercise of which is expressly reserved by the Constitution to Filipino citizens or corporations or associations at least 60 per centum of the capital of which is owned by Filipino citizens, it is subject to the foregoing Law, and considering that the proposed Agreement will result in the intervention of a foreign corporation in the management and operation of the activities of a domestic corporation engaged in a partly nationalized activity, the proposed transaction may be violative of the above statutory prohibition. However, it is to be noted that the Law itself provides for an exception in cases of "technical personnel whose employment may be specifically authorized by the Secretary of Justice" .(See underscored phrases in the aforecited provision) Therefore, on the basis of said exception, you may request for an exemption from the Department of Justice if you think that the proposed Agreement is necessary in your operation. Likewise, your attention is invited to the pertinent provisions of Presidential Decree No. 463 which provide: "SECTION 44. ... That a lessee may on his own or through the Government, enter into a service contract with qualified domestic or foreign contractor for the exploration, development and exploitation of his claims and the processing and marketing of the product thereof, subject to the rules and regulations that shall be promulgated by the Director, with the approval of the Secretary, and on the condition that if the service contractor will provide the necessary financial and technical resources, he may be paid from the proceeds of the operation not exceeding forty per centum (40%) thereof. Service contracts shall be approved by the Secretary upon recommendation of the Director." (Emphasis supplied) "SECTION 60. ... Provided, further, That no foreigner shall be employed as mine manager, vice-president for operations or equivalent managerial position, in charge of mining, milling, quarrying or drilling operation without passing the appropriate or pertinent government licensing examination or unless in special cases permitted by the Director for a period not exceeding one (1) year." (Emphasis supplied) Please be advised accordingly. Very truly yours, (SGD.) ROSARIO N. LOPEZ Chairman