CASE DIGEST: Republic vs. Provincial Government of Palawan

 

Republic v. Provincial Government of Palawan, G.R. Nos. 170867 & 185941, December 4, 2018

FACTS:

On December 11, 1990, the Republic of the Philippines entered into Service Contract No. 38 with Shell Philippines Exploration B.V. and Occidental Philippines, Incorporated, as Contractor, for the exclusive conduct of petroleum operations in the area known as “Camago-Malampaya” located offshore northwest of Palawan. Exploration of the area led to the drilling of the Camago-Malampaya natural gas reservoir about 80 km from the main island of Palawan and 30 km from the platform.

Service Contract No. 38 provides for a production sharing scheme whereby the National Government was entitled to receive an amount equal to 60% of the net proceeds from the sale of petroleum (including natural gas) produced from petroleum operations while SPEX/OXY, as service contractor, was entitled to receive an amount equal to 40% of the net proceeds.

On February 17, 1998, President Fidel V. Ramos issued A.O. No. 381 which, in part, stated that the Province of Palawan was expected to receive about US$2.1 Billion from the estimated US$8.1 Billion total government share from the Camago-Malampaya natural gas project for the 20-year contract period.

On June 10, 1998, DoE Secretary Francisco L. Viray wrote Palawan Governor Salvador P. Socrates, requesting for the deferment of payment of 50% of Palawan's share in the project for the first seven years of operations, estimated at US$222.89 Million, which it would use to pay for the National Power Corporation's Take-or-Pay Quantity (TOPQ) obligations under the latter's Gas Sale and Purchase Agreements with SPEX/OXY.

On May 7, 2003, the Provincial Government of Palawan filed a petition for declaratory relief before the RTC against DoE Secretary Vicente S. Perez, Jr., DoF Secretary Jose Isidro N. Camacho and DBM Secretary Emilia T. Boncodin (Department Secretaries. It sought judicial determination of its rights under A.O. No. 381 (1998), R.A. No. 7611 or the Strategic Environmental Plan for Palawan Act, Section 290 of R.A. No. 7160 or the Local Government Code of 1991, and Provincial Ordinance No. 474 (series of 2000). It asked the RTC to declare that the Camago-Malampaya natural gas reservoir is part of the territorial jurisdiction of the Province of Palawan and that the Provincial Government of Palawan was entitled to receive 40% of the National Government's share in the proceeds of the Camago-Malampaya natural gas project.

Commenting on the petition, the Republic maintained that Palawan was not entitled to the 40% share because the Camago-Malampaya reservoir is outside its territorial jurisdiction. It postulated that Palawan's territorial jurisdiction is limited to its land area and to the municipal waters within 15 km from its coastline. It denied being estopped by the acts of government officials who earlier acknowledged Palawan's share in the proceeds of the project.

On December 16, 2005, the RTC decided Civil Case No. 3779 in favor of the Province of Palawan.

The RTC held that it was "unthinkable" to limit Palawan's territorial jurisdiction to its landmass and municipal waters considering that the Local Government Code empowered them to protect the environment, and R.A. No. 7611 adopted a comprehensive framework for the sustainable development of Palawan compatible with protecting and enhancing the natural resources and endangered environment of the province.

Applying the principles of decentralization and devolution of powers to LGUs as recognized in the 1987 Constitution, the RTC explained that the State's resources must be shared with the LGUs if they were expected to deliver basic services to their constituents and to discharge their functions as agents of the State in enforcing laws, preserving the integrity of the national territory and protecting the environment.

The RTC rejected the Department Secretaries' reliance on the cases of Tan v. COMELEC and Laguna Lake Development Authority v. CA in arguing that territorial jurisdiction refers only to landmass. The RTC held that the cases were inapplicable as Tan was an election controversy involving the creation of a new province while LLDA merely highlighted the primacy of the said agency's Charter over the Local Government Code. The 1950 case of Municipality of Paoay v. Manaois, where a municipality was declared as holding only a usufruct, not exclusive. ownership, over the municipal waters, was also held to be inapplicable since it was rendered before the principle of local autonomy was instituted in the 1987 Constitution and the Local Government Code.

The RTC further declared that the Regalian Doctrine could not be used by the Department Secretaries as a shield to defeat the Constitutional provision giving LGUs an equitable share in the proceeds of the utilization and development of national wealth within their respective areas. The doctrine, said the RTC, is subject to this Constitutional limitation and the 40% LGU share set by the Local Government Code.

Finally, the RTC noted that from 1992 to 1998, Palawan received a total of P116,343,197.76 from collections derived from the West Linapacan Oil Fields, and that former President Fidel V. Ramos issued A.O. No. 381 acknowledging Palawan's claim and share in the proceeds of the Camago-­Malampaya project. The RTC, thus, held that by its previous actions and issuances, the National Government legally acknowledged Palawan's claim to the proceeds of the Camago-Malampaya project and it was "too late in the day for it to take a 180 degree turn."

On December 1, 2007, President Gloria Macapagal-Arroyo issued E.O. No. 683 which authorized the release of funds to the implementing agencies pursuant to the PIA, without prejudice to any ongoing discussion or the final judicial resolution of Palawan’s claim of territorial jurisdiction over the Camago-Malampaya area.

On February 7, 2008, a petition for certiorari questioning the constitutionality of E.O. No. 683 was filed before the CA by Arigo, et al., as citizens and taxpayers, against Executive Secretary Eduardo R. Ermita, DoE Secretary Angelo T. Reyes, DoF Secretary Margarito B. Teves, DBM

Secretary Rolando D. Andaya, Jr., Palawan Governor Reyes, Representative Antonio C. Alvarez of the First District of Palawan, Representative Abraham Mitra and Rafael E. Del Pilar, President and Chief Executive Officer, PNOC-EC. Docketed as C.A.-G.R. S.P. No. 102247, the petition also asked the CA to: (1) prohibit respondents therein from disbursing funds allocated under E.O. No. 683; (2) direct the National Government to release the 40% allocation of the Province of Palawan from the proceeds of the Camago-Malampaya project pursuant to the sharing formula under the Constitution and the Local Government Code; and (3) prohibit the parties to the PIA from implementing the same for being violative of the Constitution and the Local Government Code.

The CA denied the petition in due course and was dismissed. The CA also held that apart from its procedural defect, the petition was also prematurely filed considering that it was anchored on the same essential facts and circumstances and raised the same issues in G.R. No. 170867. The CA likewise noted that the interim undertaking between the parties to the PIA was contingent on the final adjudication of G.R. No. 170867. Taking judicial notice of ongoing efforts of both legislative and executive departments to arrive at a common position in redefining the country’s baseline in the light of UNCLOS, the CA further explained that ruling on the case may be tantamount to a collateral adjudication of the archipelagic baseline which involved a policy issue.

On February 23, 2009, Arigo, et al. filed a petition for review on certiorario arguing that the case was ripe for decision. They assert anew their constitutional challenge to E.O. No. 638, claiming that it was in violation of the mandated equitable sharing of resources between the National Government and LGUs.

The Republic argued that an LGU’s territorial jurisdiction refers only to its land area and that the area referred to under Section 7, Article X of the 1987 Constitution, which grants LGUs a share in the proceeds of the utilization and development of national wealth within their respective areas, refers to the territorial boundaries of the LGU as defined in its charter and not to its exercise of jurisdiction.

The Republic also argues that assuming an LGU's territory includes the waters around its land area, the same should refer only to the municipal waters as defined under Section 131(r) of the Local Government Code and Section 4.58 of R.A. No. 8550, otherwise known as the Philippine Fisheries Code of 1998. In defining "municipal waters," Section 131(r) of the Local Government Code only includes marine waters within 15 kms from the coastline. Section 4.58 of R.A. No. 8550 gives a similar definition of "municipal waters.

ISSUE:

Whether the national wealth, in this case the Camago-Malampaya reservoir, is within the Province of Palawan's "area" for it to be entitled to 40% of the government's share under Service Contract No. 38.

RULING:

Territorial jurisdiction refers to territorial boundaries as defined in the LGU's charter

The Local Government Code does not define the term "territorial jurisdiction." Provisions therein, however, indicate that territorial jurisdiction refers to the LGU's territorial boundaries.

Under the Local Government Code, a "province" is composed of a cluster of municipalities, or municipalities and component cities. A "municipality," in turn, is described as a group of barangays, while a "city" is referred to as consisting of more urbanized and developed barangays.

In the creation of municipalities, cities and barangays, the Local Government Code uniformly requires that the territorial jurisdiction of these government units be properly identified by metes and bounds.

That "territorial jurisdiction" refers to the LGU's territorial boundaries is a construction reflective of the discussion of the framers of the 1987 Constitution who referred to the local government as the "locality" that is "hosting" the national resources and a "place where God chose to locate His bounty." It is also consistent with the language ultimately used by the Constitutional Commission when they referred to the national wealth as those found within (the LGU's) respective areas. By definition, "area" refers to a particular extent of space or surface or a geographic region.

Therefore, a local government's territorial jurisdiction cannot extend beyond the boundaries set by its organic law.

The Court cannot subscribe to the argument posited by the Province of Palawan that the national wealth, the proceeds from which the State is mandated to share with the LGUs, shall be wherever the local government exercises any degree of jurisdiction.

An LGU's territorial jurisdiction is not necessarily co-extensive with its exercise or assertion of powers. To hold otherwise may result in condoning acts that are clearly ultra vires. It may lead to, in the words of the Republic, LGUs "rushing to exercise its powers and functions in areas rich in natural resources (even if outside its boundaries) with the intention of seeking a share in the proceeds of its exploration" - a situation that "would sow conflict not only among the local government units and the national government but worse, between and among local government units."

There is likewise merit in the Republic's assertion that Palawan's interpretation of what constitutes an LGU's territorial jurisdiction may produce absurd consequences. Indeed, there are natural resources, such as forests and mountains, which can be found within the LGU's territorial boundaries, but are, strictly speaking, under national jurisdiction, specifically that of the Department of Environment and Natural Resources. To equate territorial jurisdiction to areas where the LGU exercises jurisdiction means that these natural resources will have to be excluded from the sharing scheme although they are geographically within the LGU's territorial limits. The consequential incongruity of this scenario finds no support either in the language or in the context of the equitable sharing provisions of the 1987 Constitution and the Local Government Code.

In fine, an LGU cannot claim territorial jurisdiction over an area simply because its government has exercised a certain degree of authority over it. Territorial jurisdiction is defined, not by the local government, but by the law that creates it; it is delimited, not by the extent of the LGU's exercise of authority, but by physical boundaries as fixed in its charter.

Unless clearly expanded by Congress, the LGU's territorial jurisdiction refers only to its land area.