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VILLARAMA, PROSPERO C. NOGRALES, PROSPERO A. PICHAY, JR.

, HARLIN CAST
ABAYON, and BENASING O. MACARANBON, respondents-intervenors,
x---------------------------------------------------------x

EN BANC G.R. No. 155661 May 5, 2003

G.R. No. 155001 May 5, 2003 CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA, MA. TERESA V.
GAERLAN, LEONARDO DE LA ROSA, DINA C. DE LEON, VIRGIE CATAMIN RONALD
DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B. REUNILLA, SCHLOBOM, ANGELITO SANTOS, MA. LUISA M. PALCON and SAMAHANG
MANUEL ANTONIO B. BOÑE, MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY V. MANGGAGAWA SA PALIPARAN NG PILIPINAS (SMPP), petitioners,
DOMALAON, CONRADO G. DIMAANO, LOLITA R. HIZON, REMEDIOS P. ADOLFO, vs.
BIENVENIDO C. HILARIO, MIASCOR WORKERS UNION - NATIONAL LABOR UNION PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL
(MWU-NLU), and PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND
(PALEA), petitioners, COMMUNICATIONS, SECRETARY LEANDRO M. MENDOZA, in his capacity as Head
vs. of the Department of Transportation and Communications, respondents.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL
AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND PUNO, J.:
COMMUNICATIONS and SECRETARY LEANDRO M. MENDOZA, in his capacity as Petitioners and petitioners-in-intervention filed the instant petitions for prohibition
Head of the Department of Transportation and Communications, respondents, under Rule 65 of the Revised Rules of Court seeking to prohibit the Manila
MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS AVIATION SYSTEMS International Airport Authority (MIAA) and the Department of Transportation and
CORPORATION, MACROASIA-EUREST SERVICES, INC., MACROASIA-MENZIES Communications (DOTC) and its Secretary from implementing the following
AIRPORT SERVICES CORPORATION, MIASCOR CATERING SERVICES CORPORATION, agreements executed by the Philippine Government through the DOTC and the
MIASCOR AIRCRAFT MAINTENANCE CORPORATION, and MIASCOR LOGISTICS MIAA and the Philippine International Air Terminals Co., Inc. (PIATCO): (1) the
CORPORATION, petitioners-in-intervention, Concession Agreement signed on July 12, 1997, (2) the Amended and Restated
x---------------------------------------------------------x Concession Agreement dated November 26, 1999, (3) the First Supplement to the
Amended and Restated Concession Agreement dated August 27, 1999, (4) the
G.R. No. 155547 May 5, 2003 Second Supplement to the Amended and Restated Concession Agreement dated
SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G. September 4, 2000, and (5) the Third Supplement to the Amended and Restated
JARAULA, petitioners, Concession Agreement dated June 22, 2001 (collectively, the PIATCO Contracts).
vs. The facts are as follows:
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL
AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to
COMMUNICATIONS, DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, conduct a comprehensive study of the Ninoy Aquino International Airport (NAIA)
SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department of and determine whether the present airport can cope with the traffic development
Transportation and Communications, and SECRETARY SIMEON A. DATUMANONG, up to the year 2010. The study consisted of two parts: first, traffic forecasts, capacity
in his capacity as Head of the Department of Public Works and of existing facilities, NAIA future requirements, proposed master plans and
Highways, respondents, development plans; and second, presentation of the preliminary design of the
JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON passenger terminal building. The ADP submitted a Draft Final Report to the DOTC in
December 1989.
Some time in 1993, six business leaders consisting of John Gokongwei, Andrew engineering, design, construction, operation, and maintenance phases of the
Gotianun, Henry Sy, Sr., Lucio Tan, George Ty and Alfonso Yuchengco met with then project. The proponent would be evaluated based on its ability to provide a
President Fidel V. Ramos to explore the possibility of investing in the construction minimum amount of equity to the project, and its capacity to secure external
and operation of a new international airport terminal. To signify their commitment financing for the project.
to pursue the project, they formed the Asia's Emerging Dragon Corp. (AEDC) which
On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders to a pre-bid
was registered with the Securities and Exchange Commission (SEC) on September 15,
conference on July 29, 1996.
1993.
On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid
On October 5, 1994, AEDC submitted an unsolicited proposal to the Government
Documents. The following amendments were made on the Bid Documents:
through the DOTC/MIAA for the development of NAIA International Passenger
Terminal III (NAIA IPT III) under a build-operate-and-transfer arrangement pursuant a. Aside from the fixed Annual Guaranteed Payment, the proponent shall include in
to RA 6957 as amended by RA 7718 (BOT Law).1 its financial proposal an additional percentage of gross revenue share of the
Government, as follows:
On December 2, 1994, the DOTC issued Dept. Order No. 94-832 constituting the
Prequalification Bids and Awards Committee (PBAC) for the implementation of the i. First 5 years 5.0%
NAIA IPT III project.
ii. Next 10 years 7.5%
On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of AEDC
to the National Economic and Development Authority (NEDA). A revised proposal, iii. Next 10 years10.0%
however, was forwarded by the DOTC to NEDA on December 13, 1995. On January 5, b. The amount of the fixed Annual Guaranteed Payment shall be subject of the price
1996, the NEDA Investment Coordinating Council (NEDA ICC) – Technical Board challenge. Proponent may offer an Annual Guaranteed Payment which need not be
favorably endorsed the project to the ICC – Cabinet Committee which approved the of equal amount, but payment of which shall start upon site possession.
same, subject to certain conditions, on January 19, 1996. On February 13, 1996, the
NEDA passed Board Resolution No. 2 which approved the NAIA IPT III project. c. The project proponent must have adequate capability to sustain the financing
requirement for the detailed engineering, design, construction, and/or operation
On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily and maintenance phases of the project as the case may be. For purposes of pre-
newspapers of an invitation for competitive or comparative proposals on AEDC's qualification, this capability shall be measured in terms of:
unsolicited proposal, in accordance with Sec. 4-A of RA 6957, as amended. The
alternative bidders were required to submit three (3) sealed envelopes on or before i. Proof of the availability of the project proponent and/or the consortium to provide
5:00 p.m. of September 20, 1996. The first envelope should contain the the minimum amount of equity for the project; and
Prequalification Documents, the second envelope the Technical Proposal, and the
ii. a letter testimonial from reputable banks attesting that the project proponent
third envelope the Financial Proposal of the proponent.
and/or the members of the consortium are banking with them, that the project
On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the availment of the proponent and/or the members are of good financial standing, and have adequate
Bid Documents and the submission of the comparative bid proposals. Interested resources.
firms were permitted to obtain the Request for Proposal Documents beginning June
d. The basis for the prequalification shall be the proponent's compliance with the
28, 1996, upon submission of a written application and payment of a non-refundable
minimum technical and financial requirements provided in the Bid Documents and
fee of P50,000.00 (US$2,000).
the IRR of the BOT Law. The minimum amount of equity shall be 30% of the Project
The Bid Documents issued by the PBAC provided among others that the proponent Cost.
must have adequate capability to sustain the financing requirement for the detailed
e. Amendments to the draft Concession Agreement shall be issued from time to 2. At present, Paircargo is negotiating with banks and other institutions for the
time. Said amendments shall only cover items that would not materially affect the extension of a Performance Security to the joint venture in the event that the
preparation of the proponent's proposal. Concessions Agreement (sic) is awarded to them. However, Paircargo is being
required to submit a copy of the draft concession as one of the documentary
On August 29, 1996, the Second Pre-Bid Conference was held where certain
requirements. Therefore, Paircargo is requesting that they'd (sic) be furnished copy of
clarifications were made. Upon the request of prospective bidder People's Air Cargo
the approved negotiated agreement between the PBAC and the AEDC at the soonest
& Warehousing Co., Inc (Paircargo), the PBAC warranted that based on Sec. 11.6,
possible time.
Rule 11 of the Implementing Rules and Regulations of the BOT Law, only the
proposed Annual Guaranteed Payment submitted by the challengers would be A copy of the draft Concession Agreement is included in the Bid Documents. Any
revealed to AEDC, and that the challengers' technical and financial proposals would material changes would be made known to prospective challengers through bid
remain confidential. The PBAC also clarified that the list of revenue sources bulletins. However, a final version will be issued before the award of contract.
contained in Annex 4.2a of the Bid Documents was merely indicative and that other
The PBAC also stated that it would require AEDC to sign Supplement C of the Bid
revenue sources may be included by the proponent, subject to approval by
Documents (Acceptance of Criteria and Waiver of Rights to Enjoin Project) and to
DOTC/MIAA. Furthermore, the PBAC clarified that only those fees and charges
submit the same with the required Bid Security.
denominated as Public Utility Fees would be subject to regulation, and those charges
which would be actually deemed Public Utility Fees could still be revised, depending On September 20, 1996, the consortium composed of People's Air Cargo and
on the outcome of PBAC's query on the matter with the Department of Justice. Warehousing Co., Inc. (Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and
Security Bank Corp. (Security Bank) (collectively, Paircargo Consortium) submitted
In September 1996, the PBAC issued Bid Bulletin No. 5, entitled "Answers to the
their competitive proposal to the PBAC. On September 23, 1996, the PBAC opened
Queries of PAIRCARGO as Per Letter Dated September 3 and 10, 1996." Paircargo's
the first envelope containing the prequalification documents of the Paircargo
queries and the PBAC's responses were as follows:
Consortium. On the following day, September 24, 1996, the PBAC prequalified the
1. It is difficult for Paircargo and Associates to meet the required minimum equity Paircargo Consortium.
requirement as prescribed in Section 8.3.4 of the Bid Documents considering that the
On September 26, 1996, AEDC informed the PBAC in writing of its reservations as
capitalization of each member company is so structured to meet the requirements
regards the Paircargo Consortium, which include:
and needs of their current respective business undertaking/activities. In order to
comply with this equity requirement, Paircargo is requesting PBAC to just allow each a. The lack of corporate approvals and financial capability of PAIRCARGO;
member of (sic) corporation of the Joint Venture to just execute an agreement that
embodies a commitment to infuse the required capital in case the project is awarded b. The lack of corporate approvals and financial capability of PAGS;
to the Joint Venture instead of increasing each corporation's current authorized c. The prohibition imposed by RA 337, as amended (the General Banking Act) on the
capital stock just for prequalification purposes. amount that Security Bank could legally invest in the project;
In prequalification, the agency is interested in one's financial capability at the time of d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for
prequalification, not future or potential capability. prequalification purposes; and
A commitment to put up equity once awarded the project is not enough to establish e. The appointment of Lufthansa as the facility operator, in view of the Philippine
that "present" financial capability. However, total financial capability of all member requirement in the operation of a public utility.
companies of the Consortium, to be established by submitting the respective
companies' audited financial statements, shall be acceptable. The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered
the issues raised by the latter, and that based on the documents submitted by
Paircargo and the established prequalification criteria, the PBAC had found that the
challenger, Paircargo, had prequalified to undertake the project. The Secretary of On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a Petition for
the DOTC approved the finding of the PBAC. Declaration of Nullity of the Proceedings, Mandamus and Injunction against the
Secretary of the DOTC, the Chairman of the PBAC, the voting members of the PBAC
The PBAC then proceeded with the opening of the second envelope of the Paircargo
and Pantaleon D. Alvarez, in his capacity as Chairman of the PBAC Technical
Consortium which contained its Technical Proposal.
Committee.
On October 3, 1996, AEDC reiterated its objections, particularly with respect to
On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate the
Paircargo's financial capability, in view of the restrictions imposed by Section 21-B of
approval, on a no-objection basis, of the BOT agreement between the DOTC and
the General Banking Act and Sections 1380 and 1381 of the Manual Regulations for
PIATCO. As the ad referendum gathered only four (4) of the required six (6)
Banks and Other Financial Intermediaries. On October 7, 1996, AEDC again
signatures, the NEDA merely noted the agreement.
manifested its objections and requested that it be furnished with excerpts of the
PBAC meeting and the accompanying technical evaluation report where each of the On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO.
issues they raised were addressed.
On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile,
On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and and PIATCO, through its President, Henry T. Go, signed the "Concession Agreement
the Paircargo Consortium containing their respective financial proposals. Both for the Build-Operate-and-Transfer Arrangement of the Ninoy Aquino International
proponents offered to build the NAIA Passenger Terminal III for at least $350 million Airport Passenger Terminal III" (1997 Concession Agreement). The Government
at no cost to the government and to pay the government: 5% share in gross granted PIATCO the franchise to operate and maintain the said terminal during the
revenues for the first five years of operation, 7.5% share in gross revenues for the concession period and to collect the fees, rentals and other charges in accordance
next ten years of operation, and 10% share in gross revenues for the last ten years of with the rates or schedules stipulated in the 1997 Concession Agreement. The
operation, in accordance with the Bid Documents. However, in addition to the Agreement provided that the concession period shall be for twenty-five (25) years
foregoing, AEDC offered to pay the government a total of P135 million as commencing from the in-service date, and may be renewed at the option of the
guaranteed payment for 27 years while Paircargo Consortium offered to pay the Government for a period not exceeding twenty-five (25) years. At the end of the
government a total of P17.75 billion for the same period. concession period, PIATCO shall transfer the development facility to MIAA.
Thus, the PBAC formally informed AEDC that it had accepted the price proposal On November 26, 1998, the Government and PIATCO signed an Amended and
submitted by the Paircargo Consortium, and gave AEDC 30 working days or until Restated Concession Agreement (ARCA). Among the provisions of the 1997
November 28, 1996 within which to match the said bid, otherwise, the project would Concession Agreement that were amended by the ARCA were: Sec. 1.11 pertaining
be awarded to Paircargo. to the definition of "certificate of completion"; Sec. 2.05 pertaining to the Special
Obligations of GRP; Sec. 3.02 (a) dealing with the exclusivity of the franchise given to
As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary
the Concessionaire; Sec. 4.04 concerning the assignment by Concessionaire of its
Amado Lagdameo, on December 11, 1996, issued a notice to Paircargo Consortium
interest in the Development Facility; Sec. 5.08 (c) dealing with the proceeds of
regarding AEDC's failure to match the proposal.
Concessionaire's insurance; Sec. 5.10 with respect to the temporary take-over of
On February 27, 1997, Paircargo Consortium incorporated into Philippine operations by GRP; Sec. 5.16 pertaining to the taxes, duties and other imposts that
International Airport Terminals Co., Inc. (PIATCO). may be levied on the Concessionaire; Sec. 6.03 as regards the periodic adjustment of
public utility fees and charges; the entire Article VIII concerning the provisions on the
AEDC subsequently protested the alleged undue preference given to PIATCO and termination of the contract; and Sec. 10.02 providing for the venue of the arbitration
reiterated its objections as regards the prequalification of PIATCO. proceedings in case a dispute or controversy arises between the parties to the
On April 11, 1997, the DOTC submitted the concession agreement for the second- agreement.
pass approval of the NEDA-ICC.
Subsequently, the Government and PIATCO signed three Supplements to the ARCA. On September 17, 2002, the workers of the international airline service providers,
The First Supplement was signed on August 27, 1999; the Second Supplement on claiming that they stand to lose their employment upon the implementation of the
September 4, 2000; and the Third Supplement on June 22, 2001 (collectively, questioned agreements, filed before this Court a petition for prohibition to enjoin
Supplements). the enforcement of said agreements.2
The First Supplement to the ARCA amended Sec. 1.36 of the ARCA defining On October 15, 2002, the service providers, joining the cause of the petitioning
"Revenues" or "Gross Revenues"; Sec. 2.05 (d) of the ARCA referring to the workers, filed a motion for intervention and a petition-in-intervention.
obligation of MIAA to provide sufficient funds for the upkeep, maintenance, repair
On October 24, 2002, Congressmen Salacnib Baterina, Clavel Martinez and
and/or replacement of all airport facilities and equipment which are owned or
Constantino Jaraula filed a similar petition with this Court. 3
operated by MIAA; and further providing additional special obligations on the part of
GRP aside from those already enumerated in Sec. 2.05 of the ARCA. The First On November 6, 2002, several employees of the MIAA likewise filed a petition
Supplement also provided a stipulation as regards the construction of a surface road assailing the legality of the various agreements.4
to connect NAIA Terminal II and Terminal III in lieu of the proposed access tunnel
crossing Runway 13/31; the swapping of obligations between GRP and PIATCO On December 11, 2002. another group of Congressmen, Hon. Jacinto V. Paras, Rafael
regarding the improvement of Sales Road; and the changes in the timetable. It also P. Nantes, Eduardo C. Zialcita, Willie B. Villarama, Prospero C. Nograles, Prospero A.
amended Sec. 6.01 (c) of the ARCA pertaining to the Disposition of Terminal Fees; Pichay, Jr., Harlin Cast Abayon and Benasing O. Macaranbon, moved to intervene in
Sec. 6.02 of the ARCA by inserting an introductory paragraph; and Sec. 6.02 (a) (iii) of the case as Respondents-Intervenors. They filed their Comment-In-Intervention
the ARCA referring to the Payments of Percentage Share in Gross Revenues. defending the validity of the assailed agreements and praying for the dismissal of
the petitions.
The Second Supplement to the ARCA contained provisions concerning the clearing,
removal, demolition or disposal of subterranean structures uncovered or discovered During the pendency of the case before this Court, President Gloria Macapagal
at the site of the construction of the terminal by the Concessionaire. It defined the Arroyo, on November 29, 2002, in her speech at the 2002 Golden Shell Export
scope of works; it provided for the procedure for the demolition of the said Awards at Malacañang Palace, stated that she will not "honor (PIATCO) contracts
structures and the consideration for the same which the GRP shall pay PIATCO; it which the Executive Branch's legal offices have concluded (as) null and void."5
provided for time extensions, incremental and consequential costs and losses Respondent PIATCO filed its Comments to the present petitions on November 7 and
consequent to the existence of such structures; and it provided for some additional 27, 2002. The Office of the Solicitor General and the Office of the Government
obligations on the part of PIATCO as regards the said structures. Corporate Counsel filed their respective Comments in behalf of the public
Finally, the Third Supplement provided for the obligations of the Concessionaire as respondents.
regards the construction of the surface road connecting Terminals II and III. On December 10, 2002, the Court heard the case on oral argument. After the oral
Meanwhile, the MIAA which is charged with the maintenance and operation of the argument, the Court then resolved in open court to require the parties to file
NAIA Terminals I and II, had existing concession contracts with various service simultaneously their respective Memoranda in amplification of the issues heard in
providers to offer international airline airport services, such as in-flight catering, the oral arguments within 30 days and to explore the possibility of arbitration or
passenger handling, ramp and ground support, aircraft maintenance and provisions, mediation as provided in the challenged contracts.
cargo handling and warehousing, and other services, to several international airlines In their consolidated Memorandum, the Office of the Solicitor General and the
at the NAIA. Some of these service providers are the Miascor Group, DNATA-Wings Office of the Government Corporate Counsel prayed that the present petitions be
Aviation Systems Corp., and the MacroAsia Group. Miascor, DNATA and MacroAsia, given due course and that judgment be rendered declaring the 1997 Concession
together with Philippine Airlines (PAL), are the dominant players in the industry with Agreement, the ARCA and the Supplements thereto void for being contrary to the
an aggregate market share of 70%. Constitution, the BOT Law and its Implementing Rules and Regulations.
On March 6, 2003, respondent PIATCO informed the Court that on March 4, 2003 agreements with MIAA and with various international airlines which they allege are
PIATCO commenced arbitration proceedings before the International Chamber of being interfered with and violated by respondent PIATCO.
Commerce, International Court of Arbitration (ICC) by filing a Request for Arbitration
In G.R. No. 155661, petitioners constitute employees of MIAA and Samahang
with the Secretariat of the ICC against the Government of the Republic of the
Manggagawa sa Paliparan ng Pilipinas - a legitimate labor union and accredited as
Philippines acting through the DOTC and MIAA.
the sole and exclusive bargaining agent of all the employees in MIAA. Petitioners
In the present cases, the Court is again faced with the task of resolving complicated anchor their petition for prohibition on the nullity of the contracts entered into by
issues made difficult by their intersecting legal and economic implications. The Court the Government and PIATCO regarding the build-operate-and-transfer of the NAIA
is aware of the far reaching fall out effects of the ruling which it makes today. For IPT III. They filed the petition as taxpayers and persons who have a legitimate
more than a century and whenever the exigencies of the times demand it, this Court interest to protect in the implementation of the PIATCO Contracts.
has never shirked from its solemn duty to dispense justice and resolve "actual
Petitioners in both cases raise the argument that the PIATCO Contracts contain
controversies involving rights which are legally demandable and enforceable, and to
stipulations which directly contravene numerous provisions of the Constitution,
determine whether or not there has been grave abuse of discretion amounting to
specific provisions of the BOT Law and its Implementing Rules and Regulations, and
lack or excess of jurisdiction."6 To be sure, this Court will not begin to do otherwise
public policy. Petitioners contend that the DOTC and the MIAA, by entering into said
today.
contracts, have committed grave abuse of discretion amounting to lack or excess of
We shall first dispose of the procedural issues raised by respondent PIATCO which jurisdiction which can be remedied only by a writ of prohibition, there being no
they allege will bar the resolution of the instant controversy. plain, speedy or adequate remedy in the ordinary course of law.
Petitioners' Legal Standing to File the present Petitions In particular, petitioners assail the provisions in the 1997 Concession Agreement and
the ARCA which grant PIATCO the exclusive right to operate a commercial
a. G.R. Nos. 155001 and 155661
international passenger terminal within the Island of Luzon, except those
In G.R. No. 155001 individual petitioners are employees of various service international airports already existing at the time of the execution of the agreement.
providers7 having separate concession contracts with MIAA and continuing service The contracts further provide that upon the commencement of operations at the
agreements with various international airlines to provide in-flight catering, NAIA IPT III, the Government shall cause the closure of Ninoy Aquino International
passenger handling, ramp and ground support, aircraft maintenance and provisions, Airport Passenger Terminals I and II as international passenger terminals. With
cargo handling and warehousing and other services. Also included as petitioners are respect to existing concession agreements between MIAA and international airport
labor unions MIASCOR Workers Union-National Labor Union and Philippine Airlines service providers regarding certain services or operations, the 1997 Concession
Employees Association. These petitioners filed the instant action for prohibition as Agreement and the ARCA uniformly provide that such services or operations will not
taxpayers and as parties whose rights and interests stand to be violated by the be carried over to the NAIA IPT III and PIATCO is under no obligation to permit such
implementation of the PIATCO Contracts. carry over except through a separate agreement duly entered into with PIATCO.8

Petitioners-Intervenors in the same case are all corporations organized and existing With respect to the petitioning service providers and their employees, upon the
under Philippine laws engaged in the business of providing in-flight catering, commencement of operations of the NAIA IPT III, they allege that they will be
passenger handling, ramp and ground support, aircraft maintenance and provisions, effectively barred from providing international airline airport services at the NAIA
cargo handling and warehousing and other services to several international airlines Terminals I and II as all international airlines and passengers will be diverted to the
at the Ninoy Aquino International Airport. Petitioners-Intervenors allege that as tax- NAIA IPT III. The petitioning service providers will thus be compelled to contract with
paying international airline and airport-related service operators, each one of them PIATCO alone for such services, with no assurance that subsisting contracts with
stands to be irreparably injured by the implementation of the PIATCO Contracts. MIAA and other international airlines will be respected. Petitioning service providers
Each of the petitioners-intervenors have separate and subsisting concession stress that despite the very competitive market, the substantial capital investments
required and the high rate of fees, they entered into their respective contracts with
the MIAA with the understanding that the said contracts will be in force for the Representatives to appropriate funds necessary to comply with the provisions
stipulated period, and thereafter, renewed so as to allow each of the petitioning therein.11 They cite provisions of the PIATCO Contracts which require disbursement
service providers to recoup their investments and obtain a reasonable return of unappropriated amounts in compliance with the contractual obligations of the
thereon. Government. They allege that the Government obligations in the PIATCO Contracts
which compel government expenditure without appropriation is a curtailment of
Petitioning employees of various service providers at the NAIA Terminals I and II and
their prerogatives as legislators, contrary to the mandate of the Constitution that
of MIAA on the other hand allege that with the closure of the NAIA Terminals I and II
"[n]o money shall be paid out of the treasury except in pursuance of an
as international passenger terminals under the PIATCO Contracts, they stand to lose
appropriation made by law."12
employment.
Standing is a peculiar concept in constitutional law because in some cases, suits are
The question on legal standing is whether such parties have "alleged such a personal
not brought by parties who have been personally injured by the operation of a law
stake in the outcome of the controversy as to assure that concrete adverseness
or any other government act but by concerned citizens, taxpayers or voters who
which sharpens the presentation of issues upon which the court so largely depends
actually sue in the public interest. Although we are not unmindful of the cases
for illumination of difficult constitutional questions." 9 Accordingly, it has been held
of Imus Electric Co. v. Municipality of Imus13 and Gonzales v. Raquiza14 wherein this
that the interest of a person assailing the constitutionality of a statute must be
Court held that appropriation must be made only on amounts immediately
direct and personal. He must be able to show, not only that the law or any
demandable, public interest demands that we take a more liberal view in
government act is invalid, but also that he sustained or is in imminent danger of
determining whether the petitioners suing as legislators, taxpayers and citizens
sustaining some direct injury as a result of its enforcement, and not merely that he
have locus standi to file the instant petition. In Kilosbayan, Inc. v. Guingona,15 this
suffers thereby in some indefinite way. It must appear that the person complaining
Court held "[i]n line with the liberal policy of this Court on locus standi, ordinary
has been or is about to be denied some right or privilege to which he is lawfully
taxpayers, members of Congress, and even association of planters, and non-profit
entitled or that he is about to be subjected to some burdens or penalties by reason
civic organizations were allowed to initiate and prosecute actions before this Court
of the statute or act complained of.10
to question the constitutionality or validity of laws, acts, decisions, rulings, or orders
We hold that petitioners have the requisite standing. In the above-mentioned cases, of various government agencies or instrumentalities."16 Further, "insofar as
petitioners have a direct and substantial interest to protect by reason of the taxpayers' suits are concerned . . . (this Court) is not devoid of discretion as to
implementation of the PIATCO Contracts. They stand to lose their source of whether or not it should be entertained." 17 As such ". . . even if, strictly speaking,
livelihood, a property right which is zealously protected by the Constitution. they [the petitioners] are not covered by the definition, it is still within the wide
Moreover, subsisting concession agreements between MIAA and petitioners- discretion of the Court to waive the requirement and so remove the impediment to
intervenors and service contracts between international airlines and petitioners- its addressing and resolving the serious constitutional questions raised." 18 In view of
intervenors stand to be nullified or terminated by the operation of the NAIA IPT III the serious legal questions involved and their impact on public interest, we resolve
under the PIATCO Contracts. The financial prejudice brought about by the PIATCO to grant standing to the petitioners.
Contracts on petitioners and petitioners-intervenors in these cases are legitimate
Other Procedural Matters
interests sufficient to confer on them the requisite standing to file the instant
petitions. Respondent PIATCO further alleges that this Court is without jurisdiction to review
the instant cases as factual issues are involved which this Court is ill-equipped to
b. G.R. No. 155547
resolve. Moreover, PIATCO alleges that submission of this controversy to this Court
In G.R. No. 155547, petitioners filed the petition for prohibition as members of the at the first instance is a violation of the rule on hierarchy of courts. They contend
House of Representatives, citizens and taxpayers. They allege that as members of that trial courts have concurrent jurisdiction with this Court with respect to a special
the House of Representatives, they are especially interested in the PIATCO civil action for prohibition and hence, following the rule on hierarchy of courts,
Contracts, because the contracts compel the Government and/or the House of resort must first be had before the trial courts.
After a thorough study and careful evaluation of the issues involved, this Court is of on the one hand and trial for the others on the other hand would, in effect, result
the view that the crux of the instant controversy involves significant legal questions. in multiplicity of suits, duplicitous procedure and unnecessary delay.22 Thus, we
The facts necessary to resolve these legal questions are well established and, hence, ruled that the interest of justice would best be served if the trial court hears and
need not be determined by a trial court. adjudicates the case in a single and complete proceeding.
The rule on hierarchy of courts will not also prevent this Court from assuming It is established that petitioners in the present cases who have presented legitimate
jurisdiction over the cases at bar. The said rule may be relaxed when the redress interests in the resolution of the controversy are not parties to the PIATCO
desired cannot be obtained in the appropriate courts or where exceptional and Contracts. Accordingly, they cannot be bound by the arbitration clause provided for
compelling circumstances justify availment of a remedy within and calling for the in the ARCA and hence, cannot be compelled to submit to arbitration proceedings. A
exercise of this Court's primary jurisdiction.19 speedy and decisive resolution of all the critical issues in the present controversy,
including those raised by petitioners, cannot be made before an arbitral
It is easy to discern that exceptional circumstances exist in the cases at bar that call
tribunal. The object of arbitration is precisely to allow an expeditious determination
for the relaxation of the rule. Both petitioners and respondents agree that these
of a dispute. This objective would not be met if this Court were to allow the parties
cases are of transcendental importance as they involve the construction and
to settle the cases by arbitration as there are certain issues involving non-parties to
operation of the country's premier international airport. Moreover, the crucial issues
the PIATCO Contracts which the arbitral tribunal will not be equipped to resolve.
submitted for resolution are of first impression and they entail the proper legal
interpretation of key provisions of the Constitution, the BOT Law and its Now, to the merits of the instant controversy.
Implementing Rules and Regulations. Thus, considering the nature of the
I
controversy before the Court, procedural bars may be lowered to give way for the
speedy disposition of the instant cases. Is PIATCO a qualified bidder?
Legal Effect of the Commencement of Arbitration Proceedings by PIATCO Public respondents argue that the Paircargo Consortium, PIATCO's predecessor, was
not a duly pre-qualified bidder on the unsolicited proposal submitted by AEDC as the
There is one more procedural obstacle which must be overcome. The Court is aware
Paircargo Consortium failed to meet the financial capability required under the BOT
that arbitration proceedings pursuant to Section 10.02 of the ARCA have been filed
Law and the Bid Documents. They allege that in computing the ability of the
at the instance of respondent PIATCO. Again, we hold that the arbitration step taken
Paircargo Consortium to meet the minimum equity requirements for the project,
by PIATCO will not oust this Court of its jurisdiction over the cases at bar.
the entire net worth of Security Bank, a member of the consortium, should not be
In Del Monte Corporation-USA v. Court of Appeals,20 even after finding that the considered.
arbitration clause in the Distributorship Agreement in question is valid and the
PIATCO relies, on the other hand, on the strength of the Memorandum dated
dispute between the parties is arbitrable, this Court affirmed the trial court's
October 14, 1996 issued by the DOTC Undersecretary Primitivo C. Cal stating that
decision denying petitioner's Motion to Suspend Proceedings pursuant to the
the Paircargo Consortium is found to have a combined net worth of
arbitration clause under the contract. In so ruling, this Court held that as contracts
P3,900,000,000.00, sufficient to meet the equity requirements of the project. The
produce legal effect between the parties, their assigns and heirs, only the parties to
said Memorandum was in response to a letter from Mr. Antonio Henson of AEDC to
the Distributorship Agreement are bound by its terms, including the arbitration
President Fidel V. Ramos questioning the financial capability of the Paircargo
clause stipulated therein. This Court ruled that arbitration proceedings could be
Consortium on the ground that it does not have the financial resources to put up the
called for but only with respect to the parties to the contract in question.
required minimum equity of P2,700,000,000.00. This contention is based on the
Considering that there are parties to the case who are neither parties to the
restriction under R.A. No. 337, as amended or the General Banking Act that a
Distributorship Agreement nor heirs or assigns of the parties thereto, this Court,
commercial bank cannot invest in any single enterprise in an amount more than 15%
citing its previous ruling in Salas, Jr. v. Laperal Realty Corporation,21 held that to
of its net worth. In the said Memorandum, Undersecretary Cal opined:
tolerate the splitting of proceedings by allowing arbitration as to some of the parties
The Bid Documents, as clarified through Bid Bulletin Nos. 3 and 5, require that determine on a project-to-project basis and before pre-qualification, the minimum
financial capability will be evaluated based on total financial capability of all the amount of equity needed. (emphasis supplied)
member companies of the [Paircargo] Consortium. In this connection, the Challenger
Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated August 16,
was found to have a combined net worth of P3,926,421,242.00 that could support a
1996 amending the financial capability requirements for pre-qualification of the
project costing approximately P13 Billion.
project proponent as follows:
It is not a requirement that the net worth must be "unrestricted." To impose that as
6. Basis of Pre-qualification
a requirement now will be nothing less than unfair.
The basis for the pre-qualification shall be on the compliance of the proponent to
The financial statement or the net worth is not the sole basis in establishing financial
the minimum technical and financial requirements provided in the Bid Documents
capability. As stated in Bid Bulletin No. 3, financial capability may also be established
and in the IRR of the BOT Law, R.A. No. 6957, as amended by R.A. 7718.
by testimonial letters issued by reputable banks. The Challenger has complied with
this requirement. The minimum amount of equity to which the proponent's financial capability will be
based shall be thirty percent (30%) of the project cost instead of the twenty
To recap, net worth reflected in the Financial Statement should not be taken as the
percent (20%) specified in Section 3.6.4 of the Bid Documents. This is to correlate
amount of the money to be used to answer the required thirty percent (30%) equity
with the required debt-to-equity ratio of 70:30 in Section 2.01a of the draft
of the challenger but rather to be used in establishing if there is enough basis to
concession agreement. The debt portion of the project financing should not exceed
believe that the challenger can comply with the required 30% equity. In fact, proof
70% of the actual project cost.
of sufficient equity is required as one of the conditions for award of contract
(Section 12.1 IRR of the BOT Law) but not for pre-qualification (Section 5.4 of the Accordingly, based on the above provisions of law, the Paircargo Consortium or any
same document).23 challenger to the unsolicited proposal of AEDC has to show that it possesses the
requisite financial capability to undertake the project in the minimum amount of
Under the BOT Law, in case of a build-operate-and-transfer arrangement, the
30% of the project cost through (i) proof of the ability to provide a minimum
contract shall be awarded to the bidder "who, having satisfied the minimum
amount of equity to the project, and (ii) a letter testimonial from reputable banks
financial, technical, organizational and legal standards" required by the law, has
attesting that the project proponent or members of the consortium are banking with
submitted the lowest bid and most favorable terms of the project. 24 Further, the
them, that they are in good financial standing, and that they have adequate
1994 Implementing Rules and Regulations of the BOT Law provide:
resources.
Section 5.4 Pre-qualification Requirements.
As the minimum project cost was estimated to be US$350,000,000.00 or roughly
xxx xxx xxx P9,183,650,000.00,25 the Paircargo Consortium had to show to the satisfaction of the
PBAC that it had the ability to provide the minimum equity for the project in the
c. Financial Capability: The project proponent must have adequate capability to
amount of at least P2,755,095,000.00.
sustain the financing requirements for the detailed engineering design, construction
and/or operation and maintenance phases of the project, as the case may be. For Paircargo's Audited Financial Statements as of 1993 and 1994 indicated that it had a
purposes of pre-qualification, this capability shall be measured in terms of (i) proof net worth of P2,783,592.00 and P3,123,515.00 respectively.26 PAGS' Audited
of the ability of the project proponent and/or the consortium to provide a Financial Statements as of 1995 indicate that it has approximately P26,735,700.00 to
minimum amount of equity to the project, and (ii) a letter testimonial from invest as its equity for the project.27 Security Bank's Audited Financial Statements as
reputable banks attesting that the project proponent and/or members of the of 1995 show that it has a net worth equivalent to its capital funds in the amount of
consortium are banking with them, that they are in good financial standing, and P3,523,504,377.00.28
that they have adequate resources. The government agency/LGU concerned shall
We agree with public respondents that with respect to Security Bank, the entire than the prescribed minimum equity investment required for the project in the
amount of its net worth could not be invested in a single undertaking or enterprise, amount of P2,755,095,000.00 or 30% of the project cost.
whether allied or non-allied in accordance with the provisions of R.A. No. 337, as
The purpose of pre-qualification in any public bidding is to determine, at the earliest
amended or the General Banking Act:
opportunity, the ability of the bidder to undertake the project. Thus, with respect to
Sec. 21-B. The provisions in this or in any other Act to the contrary notwithstanding, the bidder's financial capacity at the pre-qualification stage, the law requires the
the Monetary Board, whenever it shall deem appropriate and necessary to further government agency to examine and determine the ability of the bidder to fund the
national development objectives or support national priority projects, may entire cost of the project by considering the maximum amounts that each bidder
authorize a commercial bank, a bank authorized to provide commercial banking may invest in the project at the time of pre-qualification.
services, as well as a government-owned and controlled bank, to operate under an
The PBAC has determined that any prospective bidder for the construction,
expanded commercial banking authority and by virtue thereof exercise, in addition
operation and maintenance of the NAIA IPT III project should prove that it has the
to powers authorized for commercial banks, the powers of an Investment House as
ability to provide equity in the minimum amount of 30% of the project cost, in
provided in Presidential Decree No. 129, invest in the equity of a non-allied
accordance with the 70:30 debt-to-equity ratio prescribed in the Bid Documents.
undertaking, or own a majority or all of the equity in a financial intermediary other
Thus, in the case of Paircargo Consortium, the PBAC should determine the maximum
than a commercial bank or a bank authorized to provide commercial banking
amounts that each member of the consortium may commit for the construction,
services: Provided, That (a) the total investment in equities shall not exceed fifty
operation and maintenance of the NAIA IPT III project at the time of pre-
percent (50%) of the net worth of the bank; (b) the equity investment in any one
qualification. With respect to Security Bank, the maximum amount which may be
enterprise whether allied or non-allied shall not exceed fifteen percent (15%) of
invested by it would only be 15% of its net worth in view of the restrictions imposed
the net worth of the bank; (c) the equity investment of the bank, or of its wholly or
by the General Banking Act. Disregarding the investment ceilings provided by
majority-owned subsidiary, in a single non-allied undertaking shall not exceed thirty-
applicable law would not result in a proper evaluation of whether or not a bidder is
five percent (35%) of the total equity in the enterprise nor shall it exceed thirty-five
pre-qualified to undertake the project as for all intents and purposes, such ceiling or
percent (35%) of the voting stock in that enterprise; and (d) the equity investment in
legal restriction determines the true maximum amount which a bidder may invest in
other banks shall be deducted from the investing bank's net worth for purposes of
the project.
computing the prescribed ratio of net worth to risk assets.
Further, the determination of whether or not a bidder is pre-qualified to undertake
xxx xxx xxx
the project requires an evaluation of the financial capacity of the said bidder at the
Further, the 1993 Manual of Regulations for Banks provides: time the bid is submitted based on the required documents presented by the
bidder. The PBAC should not be allowed to speculate on the future financial
SECTION X383. Other Limitations and Restrictions. — The following limitations and
ability of the bidder to undertake the project on the basis of documents submitted.
restrictions shall also apply regarding equity investments of banks.
This would open doors to abuse and defeat the very purpose of a public bidding. This
a. In any single enterprise. — The equity investments of banks in any single is especially true in the case at bar which involves the investment of billions of pesos
enterprise shall not exceed at any time fifteen percent (15%) of the net worth of the by the project proponent. The relevant government authority is duty-bound to
investing bank as defined in Sec. X106 and Subsec. X121.5. ensure that the awardee of the contract possesses the minimum required financial
capability to complete the project. To allow the PBAC to estimate the bidder's future
Thus, the maximum amount that Security Bank could validly invest in the Paircargo financial capability would not secure the viability and integrity of the project. A
Consortium is only P528,525,656.55, representing 15% of its entire net worth. The restrictive and conservative application of the rules and procedures of public bidding
total net worth therefore of the Paircargo Consortium, after considering is necessary not only to protect the impartiality and regularity of the proceedings
the maximum amounts that may be validly invested by each of its members but also to ensure the financial and technical reliability of the project. It has been
is P558,384,871.55 or only 6.08% of the project cost,29 an amount substantially less held that:
The basic rule in public bidding is that bids should be evaluated based on the Amendments to the Draft Concessions Agreement shall be issued from time to time.
required documents submitted before and not after the opening of bids. Otherwise, Said amendments shall only cover items that would not materially affect the
the foundation of a fair and competitive public bidding would be defeated. Strict preparation of the proponent's proposal.
observance of the rules, regulations, and guidelines of the bidding process is the
By its very nature, public bidding aims to protect the public interest by giving the
only safeguard to a fair, honest and competitive public bidding. 30
public the best possible advantages through open competition. Thus:
Thus, if the maximum amount of equity that a bidder may invest in the project at
Competition must be legitimate, fair and honest. In the field of government contract
the time the bids are submittedfalls short of the minimum amounts required to be
law, competition requires, not only `bidding upon a common standard, a common
put up by the bidder, said bidder should be properly disqualified. Considering that at
basis, upon the same thing, the same subject matter, the same undertaking,' but
the pre-qualification stage, the maximum amounts which the Paircargo Consortium
also that it be legitimate, fair and honest; and not designed to injure or defraud
may invest in the project fell short of the minimum amounts prescribed by the PBAC,
the government.31
we hold that Paircargo Consortium was not a qualified bidder. Thus the award of the
contract by the PBAC to the Paircargo Consortium, a disqualified bidder, is null and An essential element of a publicly bidded contract is that all bidders must be on
void. equal footing. Not simply in terms of application of the procedural rules and
regulations imposed by the relevant government agency, but more importantly, on
While it would be proper at this juncture to end the resolution of the instant
the contract bidded upon. Each bidder must be able to bid on the same thing. The
controversy, as the legal effects of the disqualification of respondent PIATCO's
rationale is obvious. If the winning bidder is allowed to later include or modify
predecessor would come into play and necessarily result in the nullity of all the
certain provisions in the contract awarded such that the contract is altered in any
subsequent contracts entered by it in pursuance of the project, the Court feels that
material respect, then the essence of fair competition in the public bidding is
it is necessary to discuss in full the pressing issues of the present controversy for a
destroyed. A public bidding would indeed be a farce if after the contract is awarded,
complete resolution thereof.
the winning bidder may modify the contract and include provisions which are
II favorable to it that were not previously made available to the other bidders. Thus:
Is the 1997 Concession Agreement valid? It is inherent in public biddings that there shall be a fair competition among the
bidders. The specifications in such biddings provide the common ground or basis for
Petitioners and public respondents contend that the 1997 Concession Agreement is
the bidders. The specifications should, accordingly, operate equally or
invalid as it contains provisions that substantially depart from the draft Concession
indiscriminately upon all bidders.32
Agreement included in the Bid Documents. They maintain that a substantial
departure from the draft Concession Agreement is a violation of public policy and The same rule was restated by Chief Justice Stuart of the Supreme Court of
renders the 1997 Concession Agreement null and void. Minnesota:
PIATCO maintains, however, that the Concession Agreement attached to the Bid The law is well settled that where, as in this case, municipal authorities can only let a
Documents is intended to be a draft, i.e., subject to change, alteration or contract for public work to the lowest responsible bidder, the proposals and
modification, and that this intention was clear to all participants, including AEDC, specifications therefore must be so framed as to permit free and full competition.
and DOTC/MIAA. It argued further that said intention is expressed in Part C (6) of Bid Nor can they enter into a contract with the best bidder containing substantial
Bulletin No. 3 issued by the PBAC which states: provisions beneficial to him, not included or contemplated in the terms and
specifications upon which the bids were invited.33
6. Amendments to the Draft Concessions Agreement
In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support its argument that
the draft concession agreement is subject to amendment, the pertinent portion of
which was quoted above, the PBAC also clarified that "[s]aid amendments shall only
cover items that would not materially affect the preparation of the proponent's The fees that may be imposed and collected by PIATCO under the draft Concession
proposal." Agreement and the 1997 Concession Agreement may be classified into three distinct
categories: (1) fees which are subject to periodic adjustment of once every two years
While we concede that a winning bidder is not precluded from modifying or
in accordance with a prescribed parametric formula and adjustments are made
amending certain provisions of the contract bidded upon, such changes must not
effective only upon written approval by MIAA; (2) fees other than those included in
constitute substantial or material amendments that would alter the basic
the first category which maybe adjusted by PIATCO whenever it deems necessary
parameters of the contract and would constitute a denial to the other bidders of
without need for consent of DOTC/MIAA; and (3) new fees and charges that may be
the opportunity to bid on the same terms. Hence, the determination of whether or
imposed by PIATCO which have not been previously imposed or collected at the
not a modification or amendment of a contract bidded out constitutes a substantial
Ninoy Aquino International Airport Passenger Terminal I, pursuant to Administrative
amendment rests on whether the contract, when taken as a whole, would contain
Order No. 1, Series of 1993, as amended. The glaring distinctions between the draft
substantially different terms and conditions that would have the effect of altering
Concession Agreement and the 1997 Concession Agreement lie in the types of fees
the technical and/or financial proposals previously submitted by other bidders. The
included in each category and the extent of the supervision and regulation which
alterations and modifications in the contract executed between the government and
MIAA is allowed to exercise in relation thereto.
the winning bidder must be such as to render such executed contract to be an
entirely different contract from the one that was bidded upon. For fees under the first category, i.e., those which are subject to periodic adjustment
in accordance with a prescribed parametric formula and effective only upon written
In the case of Caltex (Philippines), Inc. v. Delgado Brothers, Inc.,34 this Court quoted
approval by MIAA, the draft Concession Agreementincludes the following:36
with approval the ruling of the trial court that an amendment to a contract awarded
through public bidding, when such subsequent amendment was made without a (1) aircraft parking fees;
new public bidding, is null and void:
(2) aircraft tacking fees;
The Court agrees with the contention of counsel for the plaintiffs that the due
(3) groundhandling fees;
execution of a contract after public bidding is a limitation upon the right of the
contracting parties to alter or amend it without another public bidding, for (4) rentals and airline offices;
otherwise what would a public bidding be good for if after the execution of a
contract after public bidding, the contracting parties may alter or amend the (5) check-in counter rentals; and
contract, or even cancel it, at their will?Public biddings are held for the protection (6) porterage fees.
of the public, and to give the public the best possible advantages by means of open
competition between the bidders. He who bids or offers the best terms is awarded Under the 1997 Concession Agreement, fees which are subject to adjustment and
the contract subject of the bid, and it is obvious that such protection and best effective upon MIAA approval are classified as "Public Utility Revenues" and
possible advantages to the public will disappear if the parties to a contract executed include:37
after public bidding may alter or amend it without another previous public bidding. 35
(1) aircraft parking fees;
Hence, the question that comes to fore is this: is the 1997 Concession Agreement
(2) aircraft tacking fees;
the same agreement that was offered for public bidding, i.e., the draft Concession
Agreement attached to the Bid Documents? A close comparison of the draft (3) check-in counter fees; and
Concession Agreement attached to the Bid Documents and the 1997 Concession
(4) Terminal Fees.
Agreement reveals that the documents differ in at least two material respects:
The implication of the reduced number of fees that are subject to MIAA approval is
a. Modification on the Public Utility Revenues and Non-Public Utility Revenues
best appreciated in relation to fees included in the second category identified
that may be collected by PIATCO
above. Under the 1997 Concession Agreement, fees which PIATCO may adjust said fees have become exorbitant resulting in the unreasonable deprivation of End
whenever it deems necessary without need for consent of DOTC/MIAA are "Non- Users of such services.40
Public Utility Revenues" and is defined as "all other income not classified as Public
Thus, under the 1997 Concession Agreement, with respect to (1) vehicular parking
Utility Revenues derived from operations of the Terminal and the Terminal
fee, (2) porterage fee and (3) greeter/well wisher fee, all that MIAA can do is to
Complex."38 Thus, under the 1997 Concession Agreement, ground handling fees,
require PIATCO to explain and justify the fees set by PIATCO. In the draft
rentals from airline offices and porterage fees are no longer subject to MIAA
Concession Agreement, vehicular parking fee is subject to MIAA regulation and
regulation.
approval under the second paragraph of Section 6.03 thereof while porterage fee is
Further, under Section 6.03 of the draft Concession Agreement, MIAA reserves the covered by the first paragraph of the same provision. There is an obvious relaxation
right to regulate (1) lobby and vehicular parking fees and (2) other new fees and of the extent of control and regulation by MIAA with respect to the particular fees
charges that may be imposed by PIATCO. Such regulation may be made by periodic that may be charged by PIATCO.
adjustment and is effective only upon written approval of MIAA. The full text of said
Moreover, with respect to the third category of fees that may be imposed and
provision is quoted below:
collected by PIATCO, i.e., new fees and charges that may be imposed by PIATCO
Section 6.03. Periodic Adjustment in Fees and Charges. Adjustments in the aircraft which have not been previously imposed or collected at the Ninoy Aquino
parking fees, aircraft tacking fees, groundhandling fees, rentals and airline offices, International Airport Passenger Terminal I, under Section 6.03 of the draft
check-in-counter rentals and porterage fees shall be allowed only once every two Concession Agreement MIAA has reserved the right to regulate the same under the
years and in accordance with the Parametric Formula attached hereto as Annex F. same conditions that MIAA may regulate fees under the first category, i.e., periodic
Provided that adjustments shall be made effective only after the written express adjustment of once every two years in accordance with a prescribed parametric
approval of the MIAA. Provided, further, that such approval of the MIAA, shall be formula and effective only upon written approval by MIAA. However, under
contingent only on the conformity of the adjustments with the above said the 1997 Concession Agreement, adjustment of fees under the third category is not
parametric formula. The first adjustment shall be made prior to the In-Service Date subject to MIAA regulation.
of the Terminal.
With respect to terminal fees that may be charged by PIATCO, 41 as shown earlier,
The MIAA reserves the right to regulate under the foregoing terms and conditions this was included within the category of "Public Utility Revenues" under the 1997
the lobby and vehicular parking fees and other new fees and charges as Concession Agreement. This classification is significant because under the 1997
contemplated in paragraph 2 of Section 6.01 if in its judgment the users of the Concession Agreement, "Public Utility Revenues" are subject to an "Interim
airport shall be deprived of a free option for the services they cover. 39 Adjustment" of fees upon the occurrence of certain extraordinary events specified in
the agreement.42 However, under the draft Concession Agreement, terminal fees
On the other hand, the equivalent provision under the 1997 Concession
are not included in the types of fees that may be subject to "Interim Adjustment."43
Agreement reads:
Finally, under the 1997 Concession Agreement, "Public Utility Revenues," except
Section 6.03 Periodic Adjustment in Fees and Charges.
terminal fees, are denominated in US Dollars44 while payments to the Government
xxx xxx xxx are in Philippine Pesos. In the draft Concession Agreement,no such stipulation was
included. By stipulating that "Public Utility Revenues" will be paid to PIATCO in US
(c) Concessionaire shall at all times be judicious in fixing fees and charges Dollars while payments by PIATCO to the Government are in Philippine currency
constituting Non-Public Utility Revenues in order to ensure that End Users are not under the 1997 Concession Agreement, PIATCO is able to enjoy the benefits of
unreasonably deprived of services. While the vehicular parking fee, porterage fee depreciations of the Philippine Peso, while being effectively insulated from the
and greeter/well wisher fee constitute Non-Public Utility Revenues of detrimental effects of exchange rate fluctuations.
Concessionaire, GRP may intervene and require Concessionaire to explain and
justify the fee it may set from time to time, if in the reasonable opinion of GRP the
When taken as a whole, the changes under the 1997 Concession Agreement with to be substituted as concessionaire and operator of the Development Facility in
respect to reduction in the types of fees that are subject to MIAA regulation and the accordance with the terms and conditions hereof, or designate a qualified operator
relaxation of such regulation with respect to other fees are significant amendments acceptable to GRP to operate the Development Facility, likewise under the terms
that substantially distinguish the draft Concession Agreement from the 1997 and conditions of this Agreement; Provided that if at the end of the 180-day period
Concession Agreement. The 1997 Concession Agreement, in this respect, clearly GRP shall not have served the Unpaid Creditors and Concessionaire written notice of
gives PIATCO more favorable terms than what was available to other bidders at its choice, GRP shall be deemed to have elected to take over the Development
the time the contract was bidded out. It is not very difficult to see that the changes Facility with the concomitant assumption of Attendant Liabilities.
in the 1997 Concession Agreement translate to direct and concrete financial
(c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as
advantages for PIATCO which were not available at the time the contract was
concessionaire, the latter shall form and organize a concession company qualified to
offered for bidding. It cannot be denied that under the 1997 Concession Agreement
take over the operation of the Development Facility. If the concession company
only "Public Utility Revenues" are subject to MIAA regulation. Adjustments of all
should elect to designate an operator for the Development Facility, the concession
other fees imposed and collected by PIATCO are entirely within its control.
company shall in good faith identify and designate a qualified operator acceptable to
Moreover, with respect to terminal fees, under the 1997 Concession Agreement, the
GRP within one hundred eighty (180) days from receipt of GRP's written notice. If
same is further subject to "Interim Adjustments" not previously stipulated in the
the concession company, acting in good faith and with due diligence, is unable to
draft Concession Agreement. Finally, the change in the currency stipulated for
designate a qualified operator within the aforesaid period, then GRP shall at the end
"Public Utility Revenues" under the 1997 Concession Agreement, except terminal
of the 180-day period take over the Development Facility and assume Attendant
fees, gives PIATCO an added benefit which was not available at the time of bidding.
Liabilities.
b. Assumption by the Government of the liabilities of PIATCO in the event of the
The term "Attendant Liabilities" under the 1997 Concession Agreement is defined
latter's default thereof
as:
Under the draft Concession Agreement, default by PIATCO of any of its obligations
Attendant Liabilities refer to all amounts recorded and from time to time
to creditors who have provided, loaned or advanced funds for the NAIA IPT III
outstanding in the books of the Concessionaire as owing to Unpaid Creditors who
project does not result in the assumption by the Government of these liabilities. In
have provided, loaned or advanced funds actually used for the Project, including all
fact, nowhere in the said contract does default of PIATCO's loans figure in the
interests, penalties, associated fees, charges, surcharges, indemnities,
agreement. Such default does not directly result in any concomitant right or
reimbursements and other related expenses, and further including amounts owed
obligation in favor of the Government.
by Concessionaire to its suppliers, contractors and sub-contractors.
However, the 1997 Concession Agreement provides:
Under the above quoted portions of Section 4.04 in relation to the definition of
Section 4.04 Assignment. "Attendant Liabilities," default by PIATCO of its loans used to finance the NAIA IPT
III project triggers the occurrence of certain events that leads to the assumption by
xxx xxx xxx
the Government of the liability for the loans. Only in one instance may the
(b) In the event Concessionaire should default in the payment of an Attendant Government escape the assumption of PIATCO's liabilities, i.e., when the
Liability, and the default has resulted in the acceleration of the payment due date of Government so elects and allows a qualified operator to take over as
the Attendant Liability prior to its stated date of maturity, the Unpaid Creditors and Concessionaire. However, this circumstance is dependent on the existence and
Concessionaire shall immediately inform GRP in writing of such default. GRP shall, availability of a qualified operator who is willing to take over the rights and
within one hundred eighty (180) Days from receipt of the joint written notice of the obligations of PIATCO under the contract, a circumstance that is not entirely within
Unpaid Creditors and Concessionaire, either (i) take over the Development Facility the control of the Government.
and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified,
Without going into the validity of this provision at this juncture, suffice it to state Public bidding is a standard practice for procuring government contracts for public
that Section 4.04 of the 1997 Concession Agreement may be considered a form of service and for furnishing supplies and other materials. It aims to secure for the
security for the loans PIATCO has obtained to finance the project, an option that was government the lowest possible price under the most favorable terms and
not made available in the draft Concession Agreement. Section 4.04 is an important conditions, to curtail favoritism in the award of government contracts and avoid
amendment to the 1997 Concession Agreement because it grants PIATCO a financial suspicion of anomalies and it places all bidders in equal footing. 47 Any government
advantage or benefit which was not previously made available during the bidding action which permits any substantial variance between the conditions under which
process. This financial advantage is a significant modification that translates to the bids are invited and the contract executed after the award thereof is a grave
better terms and conditions for PIATCO. abuse of discretion amounting to lack or excess of jurisdiction which warrants
proper judicial action.
PIATCO, however, argues that the parties to the bidding procedure acknowledge
that the draft Concession Agreement is subject to amendment because the Bid In view of the above discussion, the fact that the foregoing substantial amendments
Documents permit financing or borrowing. They claim that it was the lenders who were made on the 1997 Concession Agreement renders the same null and void for
proposed the amendments to the draft Concession Agreement which resulted in the being contrary to public policy. These amendments convert the 1997 Concession
1997 Concession Agreement. Agreement to an entirely different agreement from the contract bidded out or the
draft Concession Agreement. It is not difficult to see that the amendments on (1) the
We agree that it is not inconsistent with the rationale and purpose of the BOT Law to
types of fees or charges that are subject to MIAA regulation or control and the
allow the project proponent or the winning bidder to obtain financing for the
extent thereof and (2) the assumption by the Government, under certain conditions,
project, especially in this case which involves the construction, operation and
of the liabilities of PIATCO directly translates concrete financial advantages to
maintenance of the NAIA IPT III. Expectedly, compliance by the project proponent of
PIATCO that were previously not available during the bidding process. These
its undertakings therein would involve a substantial amount of investment. It is
amendments cannot be taken as merely supplements to or implementing provisions
therefore inevitable for the awardee of the contract to seek alternate sources of
of those already existing in the draft Concession Agreement. The amendments
funds to support the project. Be that as it may, this Court maintains that
discussed above present new terms and conditions which provide financial benefit
amendments to the contract bidded upon should always conform to the general
to PIATCO which may have altered the technical and financial parameters of other
policy on public bidding if such procedure is to be faithful to its real nature and
bidders had they known that such terms were available.
purpose. By its very nature and characteristic, competitive public bidding aims to
protect the public interest by giving the public the best possible advantages through III
open competition.45 It has been held that the three principles in public bidding are
Direct Government Guarantee
(1) the offer to the public; (2) opportunity for competition; and (3) a basis for the
exact comparison of bids. A regulation of the matter which excludes any of these Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the 1997 Concession
factors destroys the distinctive character of the system and thwarts the purpose of Agreement provides:
its adoption.46 These are the basic parameters which every awardee of a contract
bidded out must conform to, requirements of financing and borrowing Section 4.04 Assignment
notwithstanding. Thus, upon a concrete showing that, as in this case, the contract xxx xxx xxx
signed by the government and the contract-awardee is an entirely different contract
from the contract bidded, courts should not hesitate to strike down said contract in (b) In the event Concessionaire should default in the payment of an Attendant
its entirety for violation of public policy on public bidding. A strict adherence on the Liability, and the default resulted in the acceleration of the payment due date of the
principles, rules and regulations on public bidding must be sustained if only to Attendant Liability prior to its stated date of maturity, the Unpaid Creditors and
preserve the integrity and the faith of the general public on the procedure. Concessionaire shall immediately inform GRP in writing of such default. GRP shall
within one hundred eighty (180) days from receipt of the joint written notice of the
Unpaid Creditors and Concessionaire, either (i) take over the Development Facility
and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified designate a qualified operator within the prescribed period. 51 In effect, whatever
to be substituted as concessionaire and operator of the Development facility in option the Government chooses to take in the event of PIATCO's failure to fulfill its
accordance with the terms and conditions hereof, or designate a qualified operator loan obligations, the Government is still at a risk of assuming PIATCO's outstanding
acceptable to GRP to operate the Development Facility, likewise under the terms loans. This is due to the fact that the Government would only be free from assuming
and conditions of this Agreement; Provided, that if at the end of the 180-day period PIATCO's debts if the unpaid creditors would be able to designate a qualified
GRP shall not have served the Unpaid Creditors and Concessionaire written notice of operator within the period provided for in the contract. Thus, the Government's
its choice, GRP shall be deemed to have elected to take over the Development assumption of liability is virtually out of its control. The Government under the
Facility with the concomitant assumption of Attendant Liabilities. circumstances provided for in the 1997 Concession Agreement is at the mercy of the
existence, availability and willingness of a qualified operator. The above contractual
(c) If GRP, by written notice, allow the Unpaid Creditors to be substituted as
provisions constitute a direct government guarantee which is prohibited by law.
concessionaire, the latter shall form and organize a concession company qualified to
takeover the operation of the Development Facility. If the concession company One of the main impetus for the enactment of the BOT Law is the lack of
should elect to designate an operator for the Development Facility, the concession government funds to construct the infrastructure and development projects
company shall in good faith identify and designate a qualified operator acceptable to necessary for economic growth and development. This is why private sector
GRP within one hundred eighty (180) days from receipt of GRP's written notice. If resources are being tapped in order to finance these projects. The BOT law allows
the concession company, acting in good faith and with due diligence, is unable to the private sector to participate, and is in fact encouraged to do so by way of
designate a qualified operator within the aforesaid period, then GRP shall at the end incentives, such as minimizing the unstable flow of returns,52 provided that the
of the 180-day period take over the Development Facility and assume Attendant government would not have to unnecessarily expend scarcely available funds for the
Liabilities. project itself. As such, direct guarantee, subsidy and equity by the government in
these projects are strictly prohibited.53 This is but logical for if the government
….
would in the end still be at a risk of paying the debts incurred by the private entity
Section 1.06. Attendant Liabilities in the BOT projects, then the purpose of the law is subverted.

Attendant Liabilities refer to all amounts recorded and from time to time Section 2(n) of the BOT Law defines direct guarantee as follows:
outstanding in the books of the Concessionaire as owing to Unpaid Creditors who
(n) Direct government guarantee — An agreement whereby the government or any
have provided, loaned or advanced funds actually used for the Project, including all
of its agencies or local government units assume responsibility for the repayment of
interests, penalties, associated fees, charges, surcharges, indemnities,
debt directly incurred by the project proponent in implementing the project in case
reimbursements and other related expenses, and further including amounts owed
of a loan default.
by Concessionaire to its suppliers, contractors and sub-contractors.48
Clearly by providing that the Government "assumes" the attendant liabilities, which
It is clear from the above-quoted provisions that Government, in the event that
consists of PIATCO's unpaid debts, the 1997 Concession Agreement provided for a
PIATCO defaults in its loan obligations, is obligated to pay "all amounts recorded
direct government guarantee for the debts incurred by PIATCO in the
and from time to time outstanding from the books" of PIATCO which the latter owes
implementation of the NAIA IPT III project. It is of no moment that the relevant
to its creditors.49 These amounts include "all interests, penalties, associated fees,
sections are subsumed under the title of "assignment". The provisions providing for
charges, surcharges, indemnities, reimbursements and other related
direct government guarantee which is prohibited by law is clear from the terms
expenses."50 This obligation of the Government to pay PIATCO's creditors upon
thereof.
PIATCO's default would arise if the Government opts to take over NAIA IPT III. It
should be noted, however, that even if the Government chooses the second option, The fact that the ARCA superseded the 1997 Concession Agreement did not cure this
which is to allow PIATCO's unpaid creditors operate NAIA IPT III, the Government is fatal defect. Article IV, Section 4.04(c), in relation to Article I, Section 1.06, of the
still at a risk of being liable to PIATCO's creditors should the latter be unable to ARCA provides:
Section 4.04 Security xxx xxx xxx
xxx xxx xxx Section 1.06. Attendant Liabilities
(c) GRP agrees with Concessionaire (PIATCO) that it shall negotiate in good faith Attendant Liabilities refer to all amounts in each case supported by verifiable
and enter into direct agreement with the Senior Lenders, or with an agent of such evidence from time to time owed or which may become owing by Concessionaire
Senior Lenders (which agreement shall be subject to the approval of the Bangko [PIATCO] to Senior Lenders or any other persons or entities who have provided,
Sentral ng Pilipinas), in such form as may be reasonably acceptable to both GRP and loaned, or advanced funds or provided financial facilities to Concessionaire
Senior Lenders, with regard, inter alia, to the following parameters: [PIATCO] for the Project [NAIA Terminal 3], including, without limitation, all
principal, interest, associated fees, charges, reimbursements, and other related
xxx xxx xxx
expenses (including the fees, charges and expenses of any agents or trustees of such
(iv) If the Concessionaire [PIATCO] is in default under a payment obligation owed to persons or entities), whether payable at maturity, by acceleration or otherwise, and
the Senior Lenders, and as a result thereof the Senior Lenders have become entitled further including amounts owed by Concessionaire [PIATCO] to its professional
to accelerate the Senior Loans, the Senior Lenders shall have the right to notify GRP consultants and advisers, suppliers, contractors and sub-contractors.54
of the same, and without prejudice to any other rights of the Senior Lenders or any
It is clear from the foregoing contractual provisions that in the event that PIATCO
Senior Lenders' agent may have (including without limitation under security
fails to fulfill its loan obligations to its Senior Lenders, the Government is obligated
interests granted in favor of the Senior Lenders), to either in good faith identify and
to directly negotiate and enter into an agreement relating to NAIA IPT III with the
designate a nominee which is qualified under sub-clause (viii)(y) below to operate
Senior Lenders, should the latter fail to appoint a qualified nominee or transferee
the Development Facility [NAIA Terminal 3] or transfer the Concessionaire's
who will take the place of PIATCO. If the Senior Lenders and the Government are
[PIATCO] rights and obligations under this Agreement to a transferee which is
unable to enter into an agreement after the prescribed period, the Government
qualified under sub-clause (viii) below;
must then pay PIATCO, upon transfer of NAIA IPT III to the Government, termination
xxx xxx xxx payment equal to the appraised value of the project or the value of the attendant
liabilities whichever is greater. Attendant liabilities as defined in the ARCA includes
(vi) if the Senior Lenders, acting in good faith and using reasonable efforts, are all amounts owed or thereafter may be owed by PIATCO not only to the Senior
unable to designate a nominee or effect a transfer in terms and conditions Lenders with whom PIATCO has defaulted in its loan obligations but to all other
satisfactory to the Senior Lenders within one hundred eighty (180) days after giving persons who may have loaned, advanced funds or provided any other type of
GRP notice as referred to respectively in (iv) or (v) above, then GRP and the Senior financial facilities to PIATCO for NAIA IPT III. The amount of PIATCO's debt that the
Lenders shall endeavor in good faith to enter into any other arrangement relating to Government would have to pay as a result of PIATCO's default in its loan obligations
the Development Facility [NAIA Terminal 3] (other than a turnover of the -- in case no qualified nominee or transferee is appointed by the Senior Lenders and
Development Facility [NAIA Terminal 3] to GRP) within the following one hundred no other agreement relating to NAIA IPT III has been reached between the
eighty (180) days. If no agreement relating to the Development Facility [NAIA Government and the Senior Lenders -- includes, but is not limited to, "all principal,
Terminal 3] is arrived at by GRP and the Senior Lenders within the said 180-day interest, associated fees, charges, reimbursements, and other related expenses . . .
period, then at the end thereof the Development Facility [NAIA Terminal 3] shall be whether payable at maturity, by acceleration or otherwise."55
transferred by the Concessionaire [PIATCO] to GRP or its designee and GRP shall
make a termination payment to Concessionaire [PIATCO] equal to the Appraised It is clear from the foregoing that the ARCA provides for a direct guarantee by the
Value (as hereinafter defined) of the Development Facility [NAIA Terminal 3] or government to pay PIATCO's loans not only to its Senior Lenders but all other
the sum of the Attendant Liabilities, if greater. Notwithstanding Section 8.01(c) entities who provided PIATCO funds or services upon PIATCO's default in its loan
hereof, this Agreement shall be deemed terminated upon the transfer of the obligation with its Senior Lenders. The fact that the Government's obligation to pay
Development Facility [NAIA Terminal 3] to GRP pursuant hereto; PIATCO's lenders for the latter's obligation would only arise after the Senior Lenders
fail to appoint a qualified nominee or transferee does not detract from the fact that,
should the conditions as stated in the contract occur, the ARCA still obligates the guarantee, subsidy or equity will "necessarily disqualify a proposal from being
Government to pay any and all amounts owed by PIATCO to its lenders in connection treated and accepted as an unsolicited proposal." 57 The BOT Law clearly and strictly
with NAIA IPT III. Worse, the conditions that would make the Government liable for prohibits direct government guarantee, subsidy and equity in unsolicited proposals
PIATCO's debts is triggered by PIATCO's own default of its loan obligations to its that the mere inclusion of a provision to that effect is fatal and is sufficient to deny
Senior Lenders to which loan contracts the Government was never a party to. The the proposal. It stands to reason therefore that if a proposal can be denied by
Government was not even given an option as to what course of action it should take reason of the existence of direct government guarantee, then its inclusion in the
in case PIATCO defaulted in the payment of its senior loans. The Government, upon contract executed after the said proposal has been accepted is likewise sufficient to
PIATCO's default, would be merely notified by the Senior Lenders of the same and it invalidate the contract itself. A prohibited provision, the inclusion of which would
is the Senior Lenders who are authorized to appoint a qualified nominee or result in the denial of a proposal cannot, and should not, be allowed to later on be
transferee. Should the Senior Lenders fail to make such an appointment, the inserted in the contract resulting from the said proposal. The basic rules of justice
Government is then automatically obligated to "directly deal and negotiate" with the and fair play alone militate against such an occurrence and must not, therefore, be
Senior Lenders regarding NAIA IPT III. The only way the Government would not be countenanced particularly in this instance where the government is exposed to the
liable for PIATCO's debt is for a qualified nominee or transferee to be appointed in risk of shouldering hundreds of million of dollars in debt.
place of PIATCO to continue the construction, operation and maintenance of NAIA
This Court has long and consistently adhered to the legal maxim that those that
IPT III. This "pre-condition", however, will not take the contract out of the ambit of a
cannot be done directly cannot be done indirectly. 58 To declare the PIATCO
direct guarantee by the government as the existence, availability and willingness of a
contracts valid despite the clear statutory prohibition against a direct government
qualified nominee or transferee is totally out of the government's control. As
guarantee would not only make a mockery of what the BOT Law seeks to prevent -
such the Government is virtually at the mercy of PIATCO (that it would not default
- which is to expose the government to the risk of incurring a monetary obligation
on its loan obligations to its Senior Lenders), the Senior Lenders (that they would
resulting from a contract of loan between the project proponent and its lenders
appoint a qualified nominee or transferee or agree to some other arrangement with
and to which the Government is not a party to -- but would also render the BOT
the Government) and the existence of a qualified nominee or transferee who is able
Law useless for what it seeks to achieve –- to make use of the resources of the
and willing to take the place of PIATCO in NAIA IPT III.
private sector in the "financing, operation and maintenance of infrastructure and
The proscription against government guarantee in any form is one of the policy development projects"59which are necessary for national growth and development
considerations behind the BOT Law. Clearly, in the present case, the ARCA obligates but which the government, unfortunately, could ill-afford to finance at this point in
the Government to pay for all loans, advances and obligations arising out of financial time.
facilities extended to PIATCO for the implementation of the NAIA IPT III project
IV
should PIATCO default in its loan obligations to its Senior Lenders and the latter fails
to appoint a qualified nominee or transferee. This in effect would make the Temporary takeover of business affected with public interest
Government liable for PIATCO's loans should the conditions as set forth in the ARCA
arise. This is a form of direct government guarantee. Article XII, Section 17 of the 1987 Constitution provides:

The BOT Law and its implementing rules provide that in order for an unsolicited Section 17. In times of national emergency, when the public interest so requires, the
proposal for a BOT project may be accepted, the following conditions must first be State may, during the emergency and under reasonable terms prescribed by it,
met: (1) the project involves a new concept in technology and/or is not part of the temporarily take over or direct the operation of any privately owned public utility or
list of priority projects, (2) no direct government guarantee, subsidy or equity is business affected with public interest.
required, and (3) the government agency or local government unit has invited by The above provision pertains to the right of the State in times of national
publication other interested parties to a public bidding and conducted the emergency, and in the exercise of its police power, to temporarily take over the
same.56 The failure to meet any of the above conditions will result in the denial of operation of any business affected with public interest. In the 1986 Constitutional
the proposal. It is further provided that the presence of direct government
Commission, the term "national emergency" was defined to include threat from PIATCO cannot, by mere contractual stipulation, contravene the Constitutional
external aggression, calamities or national disasters, but not strikes "unless it is of provision on temporary government takeover and obligate the government to pay
such proportion that would paralyze government service."60 The duration of the "reasonable cost for the use of the Terminal and/or Terminal Complex." 63 Article
emergency itself is the determining factor as to how long the temporary takeover by XII, section 17 of the 1987 Constitution envisions a situation wherein the exigencies
the government would last.61 The temporary takeover by the government extends of the times necessitate the government to "temporarily take over or direct the
only to the operation of the business and not to the ownership thereof. As such operation of any privately owned public utility or business affected with public
the government is not required to compensate the private entity-owner of the said interest." It is the welfare and interest of the public which is the paramount
business as there is no transfer of ownership, whether permanent or temporary. consideration in determining whether or not to temporarily take over a particular
The private entity-owner affected by the temporary takeover cannot, likewise, claim business. Clearly, the State in effecting the temporary takeover is exercising its
just compensation for the use of the said business and its properties as the police power. Police power is the "most essential, insistent, and illimitable of
temporary takeover by the government is in exercise of its police power and not of powers."64 Its exercise therefore must not be unreasonably hampered nor its
its power of eminent domain. exercise be a source of obligation by the government in the absence of damage due
to arbitrariness of its exercise.65 Thus, requiring the government to pay reasonable
Article V, Section 5.10 (c) of the 1997 Concession Agreement provides:
compensation for the reasonable use of the property pursuant to the operation of
Section 5.10 Temporary Take-over of operations by GRP. the business contravenes the Constitution.

…. V

(c) In the event the development Facility or any part thereof and/or the operations Regulation of Monopolies
of Concessionaire or any part thereof, become the subject matter of or be included
A monopoly is "a privilege or peculiar advantage vested in one or more persons or
in any notice, notification, or declaration concerning or relating to acquisition,
companies, consisting in the exclusive right (or power) to carry on a particular
seizure or appropriation by GRP in times of war or national emergency, GRP shall, by
business or trade, manufacture a particular article, or control the sale of a particular
written notice to Concessionaire, immediately take over the operations of the
commodity."66 The 1987 Constitution strictly regulates monopolies, whether
Terminal and/or the Terminal Complex. During such take over by GRP, the
private or public, and even provides for their prohibition if public interest so
Concession Period shall be suspended; provided, that upon termination of war,
requires. Article XII, Section 19 of the 1987 Constitution states:
hostilities or national emergency, the operations shall be returned to
Concessionaire, at which time, the Concession period shall commence to run Sec. 19. The state shall regulate or prohibit monopolies when the public interest so
again. Concessionaire shall be entitled to reasonable compensation for the requires. No combinations in restraint of trade or unfair competition shall be
duration of the temporary take over by GRP, which compensation shall take into allowed.
account the reasonable cost for the use of the Terminal and/or Terminal Complex,
Clearly, monopolies are not per se prohibited by the Constitution but may be
(which is in the amount at least equal to the debt service requirements of
permitted to exist to aid the government in carrying on an enterprise or to aid in the
Concessionaire, if the temporary take over should occur at the time when
performance of various services and functions in the interest of the
Concessionaire is still servicing debts owed to project lenders), any loss or damage to
public.67 Nonetheless, a determination must first be made as to whether public
the Development Facility, and other consequential damages. If the parties cannot
interest requires a monopoly. As monopolies are subject to abuses that can inflict
agree on the reasonable compensation of Concessionaire, or on the liability of GRP
severe prejudice to the public, they are subject to a higher level of State regulation
as aforesaid, the matter shall be resolved in accordance with Section 10.01
than an ordinary business undertaking.
[Arbitration]. Any amount determined to be payable by GRP to Concessionaire shall
be offset from the amount next payable by Concessionaire to GRP. 62 In the cases at bar, PIATCO, under the 1997 Concession Agreement and the ARCA, is
granted the "exclusive rightto operate a commercial international passenger
terminal within the Island of Luzon" at the NAIA IPT III.68 This is with the exception of Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide:
already existing international airports in Luzon such as those located in the Subic Bay
3.01 Concession Period
Freeport Special Economic Zone ("SBFSEZ"), Clark Special Economic Zone ("CSEZ")
and in Laoag City.69 As such, upon commencement of PIATCO's operation of NAIA IPT xxx xxx xxx
III, Terminals 1 and 2 of NAIA would cease to function as international passenger
terminals. This, however, does not prevent MIAA to use Terminals 1 and 2 as (e) GRP confirms that certain concession agreements relative to certain services
domestic passenger terminals or in any other manner as it may deem appropriate and operations currently being undertaken at the Ninoy Aquino International Airport
except those activities that would compete with NAIA IPT III in the latter's operation passenger Terminal I have a validity period extending beyond the In-Service Date.
as an international passenger terminal. 70 The right granted to PIATCO to exclusively GRP through DOTC/MIAA, confirms that these services and operations shall not be
operate NAIA IPT III would be for a period of twenty-five (25) years from the In- carried over to the Terminal and the Concessionaire is under no legal obligation to
Service Date71 and renewable for another twenty-five (25) years at the option of the permit such carry-over except through a separate agreement duly entered into with
government.72 Both the 1997 Concession Agreement and the ARCA further provide Concessionaire. In the event Concessionaire becomes involved in any litigation
that, in view of the exclusive right granted to PIATCO, the concession contracts of initiated by any such concessionaire or operator, GRP undertakes and hereby holds
the service providers currently servicing Terminals 1 and 2 would no longer be Concessionaire free and harmless on full indemnity basis from and against any loss
renewed and those concession contracts whose expiration are subsequent to the and/or any liability resulting from any such litigation, including the cost of litigation
In-Service Date would cease to be effective on the said date. 73 and the reasonable fees paid or payable to Concessionaire's counsel of choice, all
such amounts shall be fully deductible by way of an offset from any amount which
The operation of an international passenger airport terminal is no doubt an the Concessionaire is bound to pay GRP under this Agreement.
undertaking imbued with public interest. In entering into a Build–Operate-and-
Transfer contract for the construction, operation and maintenance of NAIA IPT III, During the oral arguments on December 10, 2002, the counsel for the petitioners-in-
the government has determined that public interest would be served better if intervention for G.R. No. 155001 stated that there are two service providers whose
private sector resources were used in its construction and an exclusive right to contracts are still existing and whose validity extends beyond the In-Service Date.
operate be granted to the private entity undertaking the said project, in this case One contract remains valid until 2008 and the other until 2010.77
PIATCO. Nonetheless, the privilege given to PIATCO is subject to reasonable We hold that while the service providers presently operating at NAIA Terminal 1 do
regulation and supervision by the Government through the MIAA, which is the not have an absolute right for the renewal or the extension of their respective
government agency authorized to operate the NAIA complex, as well as DOTC, the contracts, those contracts whose duration extends beyond NAIA IPT III's In-Service-
department to which MIAA is attached.74 Date should not be unduly prejudiced. These contracts must be respected not just by
This is in accord with the Constitutional mandate that a monopoly which is not the parties thereto but also by third parties. PIATCO cannot, by law and certainly not
prohibited must be regulated.75 While it is the declared policy of the BOT Law to by contract, render a valid and binding contract nugatory. PIATCO, by the mere
encourage private sector participation by "providing a climate of minimum expedient of claiming an exclusive right to operate, cannot require the Government
government regulations,"76 the same does not mean that Government must to break its contractual obligations to the service providers. In contrast to the
completely surrender its sovereign power to protect public interest in the operation arrastre and stevedoring service providers in the case of Anglo-Fil Trading
of a public utility as a monopoly. The operation of said public utility can not be done Corporation v. Lazaro78 whose contracts consist of temporary hold-over permits, the
in an arbitrary manner to the detriment of the public which it seeks to serve. The affected service providers in the cases at bar, have a valid and binding contract with
right granted to the public utility may be exclusive but the exercise of the right the Government, through MIAA, whose period of effectivity, as well as the other
cannot run riot. Thus, while PIATCO may be authorized to exclusively operate NAIA terms and conditions thereof, cannot be violated.
IPT III as an international passenger terminal, the Government, through the MIAA, In fine, the efficient functioning of NAIA IPT III is imbued with public interest. The
has the right and the duty to ensure that it is done in accord with public interest. provisions of the 1997 Concession Agreement and the ARCA did not strip
PIATCO's right to operate NAIA IPT III cannot also violate the rights of third parties.
government, thru the MIAA, of its right to supervise the operation of the whole NAIA other actual controversies, petitions for certiorari, prohibition, mandamus, quo
complex, including NAIA IPT III. As the primary government agency tasked with the warranto, and habeas corpus.1 The cases in question, although denominated to be
job,79 it is MIAA's responsibility to ensure that whoever by contract is given the right petitions for prohibition, actually pray for the nullification of the PIATCO contracts
to operate NAIA IPT III will do so within the bounds of the law and with due regard and to restrain respondents from implementing said agreements for being illegal
to the rights of third parties and above all, the interest of the public. and unconstitutional.
VI Section 2, Rule 65 of the Rules of Court states:
CONCLUSION "When the proceedings of any tribunal, corporation, board, officer or person,
whether exercising judicial, quasi-judicial or ministerial functions, are without or in
In sum, this Court rules that in view of the absence of the requisite financial capacity
excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack
of the Paircargo Consortium, predecessor of respondent PIATCO, the award by the
or excess of jurisdiction, and there is no appeal or any other plain, speedy and
PBAC of the contract for the construction, operation and maintenance of the NAIA
adequate remedy in the ordinary course of law, a person aggrieved thereby may file
IPT III is null and void. Further, considering that the 1997 Concession Agreement
a verified petition in the proper court, alleging the facts with certainty and praying
contains material and substantial amendments, which amendments had the effect
that judgment be rendered commanding the respondent to desist from further
of converting the 1997 Concession Agreement into an entirely different agreement
proceedings in the action or matter specified therein, or otherwise granting such
from the contract bidded upon, the 1997 Concession Agreement is similarly null and
incidental reliefs as law and justice may require."
void for being contrary to public policy. The provisions under Sections 4.04(b) and (c)
in relation to Section 1.06 of the 1997 Concession Agreement and Section 4.04(c) in The rule is explicit. A petition for prohibition may be filed against a tribunal,
relation to Section 1.06 of the ARCA, which constitute a direct government corporation, board, officer or person, exercising judicial, quasi-judicial or ministerial
guarantee expressly prohibited by, among others, the BOT Law and its Implementing functions. What the petitions seek from respondents do not involve judicial, quasi-
Rules and Regulations are also null and void. The Supplements, being accessory judicial or ministerial functions. In prohibition, only legal issues affecting the
contracts to the ARCA, are likewise null and void. jurisdiction of the tribunal, board or officer involved may be resolved on the basis
of undisputed facts.2 The parties allege, respectively, contentious evidentiary facts. It
WHEREFORE, the 1997 Concession Agreement, the Amended and Restated
would be difficult, if not anomalous, to decide the jurisdictional issue on the basis of
Concession Agreement and the Supplements thereto are set aside for being null and
the contradictory factual submissions made by the parties. 3 As the Court has so
void.
often exhorted, it is not a trier of facts.
SO ORDERED.
The petitions, in effect, are in the nature of actions for declaratory relief under Rule
Davide, Jr., C.J., Bellosillo, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Corona, and Carpio-Morales, 63 of the Rules of Court. The Rules provide that any person interested under a
JJ., concur.
Vitug, J., see separate (dissenting) opinion.
contract may, before breach or violation thereof, bring an action in the appropriate
Panganiban, J., please see separate opinion. Regional Trial Court to determine any question of construction or validity arising,
Quisumbing, J., no jurisdiction, please see separate opinion of J. Vitug in which he concurs.
Carpio, J., no part.
and for a declaration of his rights or duties thereunder. 4 The Supreme Court assumes
Callejo, Sr., J., also concur in the separate opinion of J. Panganiban. no jurisdiction over petitions for declaratory relief which are cognizable by regional
Azcuna, J., joins the separate opinion of J. Vitug. trial courts.5
SEPARATE OPINIONS As I have so expressed in Tolentino vs. Secretary of Finance,6 reiterated in Santiago
VITUG, J.: vs. Guingona, Jr.7 , the Supreme Court should not be thought of as having been
tasked with the awesome responsibility of overseeing the entire bureaucracy.
This Court is bereft of jurisdiction to hear the petitions at bar. The Constitution Pervasive and limitless, such as it may seem to be under the 1987 Constitution,
provides that the Supreme Court shall exercise original jurisdiction over, among judicial power still succumbs to the paramount doctrine of separation of powers.
The Court may not at good liberty intrude, in the guise of sovereign imprimatur, into require the disbursements of public funds sans appropriations, and provide
every affair of government. What significance can still then remain of the time- government guarantees in violation of statutory prohibitions, as well as other
honored and widely acclaimed principle of separation of powers if, at every turn, the provisions equally offensive to law, public policy and the Constitution. Public interest
Court allows itself to pass upon at will the disposition of a co-equal, independent will inevitably be affected thereby.
and coordinate branch in our system of government. I dread to think of the so varied
Thus, objections to these Petitions, grounded upon (a) the hierarchy of courts, (b)
uncertainties that such an undue interference can lead to.
the need for arbitration prior to court action, and (c) the alleged lack of sufficient
Accordingly, I vote for the dismissal of the petition. personality, standing or interest, being in the main procedural matters, must now be
set aside, as they have been in past cases. This Court must be permitted to perform
Quisumbing, and Azcuna, JJ., concur.
its constitutional duty of determining whether the other agencies of government
PANGANIBAN, J.: have acted within the limits of the Constitution and the laws, or if they have gravely
abused the discretion entrusted to them.1
The five contracts for the construction and the operation of Ninoy Aquino
International Airport (NAIA) Terminal III, the subject of the consolidated Petitions Hierarchy of Courts
before the Court, are replete with outright violations of law, public policy and the
The Court has, in the past, held that questions relating to gargantuan government
Constitution. The only proper thing to do is declare them all null and void ab initio
contracts ought to be settled without delay.2 This holding applies with greater force
and let the chips fall where they may. Fiat iustitia ruat coelum.
to the instant cases. Respondent Piatco is partly correct in averring that petitioners
The facts leading to this controversy are already well presented in the ponencia. I can obtain relief from the regional trial courts via an action to annul the contracts.
shall not burden the readers with a retelling thereof. Instead, I will cut to the chase
Nevertheless, the unavoidable consequence of having to await the rendition and the
and directly address the two sets of gut issues:
finality of any such judgment would be a prolonged state of uncertainty that would
1. The first issue is procedural: Does the Supreme Court have original jurisdiction to be prejudicial to the nation, the parties and the general public. And, in light of the
hear and decide the Petitions? Corollarily, do petitioners have locus standi and feared loss of jobs of the petitioning workers, consequent to the inevitable
should this Court decide the cases without any mandatory referral to arbitration? pretermination of contracts of the petitioning service providers that will follow upon
the heels of the impending opening of NAIA Terminal III, the need for relief is
2. The second one is substantive in character: Did the subject contracts violate the patently urgent, and therefore, direct resort to this Court through the special civil
Constitution, the laws, and public policy to such an extent as to render all of them action of prohibition is thus justified.3
void and inexistent?
Contrary to Piatco's argument that the resolution of the issues raised in the Petitions
My answer to all the above questions is a firm "Yes." will require delving into factual questions,4 I submit that their disposition ultimately
The Procedural Issue: Jurisdiction, Standing and Arbitration turns on questions of law.5 Further, many of the significant and relevant factual
questions can be easily addressed by an examination of the documents submitted by
Definitely and surely, the issues involved in these Petitions are clearly of the parties. In any event, the Petitions raise some novel questions involving the
transcendental importance and of national interest. The subject contracts pertain to application of the amended BOT Law, which this Court has seen fit to tackle.
the construction and the operation of the country's premiere international airport
terminal - an ultramodern world-class public utility that will play a major role in the Arbitration
country's economic development and serve to project a positive image of our Should the dispute be referred to arbitration prior to judicial recourse? Respondent
country abroad. The five build-operate-&-transfer (BOT) contracts, while entailing Piatco claims that Section 10.02 of the Amended and Restated Concession
the investment of billions of pesos in capital and the availment of several hundred Agreement (ARCA) provides for arbitration under the auspices of the International
millions of dollars in loans, contain provisions that tend to establish a monopoly, Chamber of Commerce to settle any dispute or controversy or claim arising in
connection with the Concession Agreement, its amendments and supplements. The Petitioners thus correctly assert that the injury to them has a twofold aspect: (1)
government disagrees, however, insisting that there can be no arbitration based on they are adversely affected as taxpayers on account of the illegal disbursement of
Section 10.02 of the ARCA, since all the Piatco contracts are void ab initio. Therefore, public funds; and (2) they are prejudiced qua legislators, since the contractual
all contractual provisions, including Section 10.02 of the ARCA, are likewise void, provisions requiring the government to incur expenditures without appropriations
inexistent and inoperative. To support its stand, the government cites Chavez v. also operate as limitations upon the exclusive power and prerogative of Congress
Presidential Commission on Good Government:6"The void agreement will not be over the public purse. As members of the House of Representatives, they are
rendered operative by the parties' alleged performance (partial or full) of their actually deprived of discretion insofar as the inclusion of those items of expenditure
respective prestations. A contract that violates the Constitution and the law is null in the budget is concerned. To prevent such encroachment upon the legislative
and void ab initio and vests no rights and creates no obligations. It produces no legal privilege and obviate injury to the institution of which they are members,
effect at all." petitioners-legislators have locus standi to bring suit.
As will be discussed at length later, the Piatco contracts are indeed void in their Messrs. Agan et al. and Lopez et al., are likewise taxpayers and thus possessed of
entirety; thus, a resort to the aforesaid provision on arbitration is unavailing. standing to challenge the illegal disbursement of public funds. Messrs. Agan et al., in
Besides, petitioners and petitioners-in-intervention have pointed out that, even particular, are employees (or representatives of employees) of various service
granting arguendo that the arbitration clause remained a valid provision, it still providers that have (1) existing concession agreements with the MIAA to provide
cannot bind them inasmuch as they are not parties to the Piatco contracts. And in airport services necessary to the operation of the NAIA and (2) service agreements
the final analysis, it is unarguable that the arbitration process provided for under to furnish essential support services to the international airlines operating at the
Section 10.02 of the ARCA, to be undertaken by a panel of three (3) arbitrators NAIA.
appointed in accordance with the Rules of Arbitration of the International Chamber
On the other hand, Messrs. Lopez et al. are employees of the MIAA. These
of Commerce, will not be able to address, determine and definitively resolve the
petitioners (Messrs. Agan et al. and Messrs. Lopez et al.) are confronted with the
constitutional and legal questions that have been raised in the Petitions before us.
prospect of being laid off from their jobs and losing their means of livelihood when
Locus Standi their employer-companies are forced to shut down or otherwise retrench and cut
back on manpower. Such development would result from the imminent
Given this Court's previous decisions in cases of similar import, no one will seriously
implementation of certain provisions in the contracts that tend toward the creation
doubt that, being taxpayers and members of the House of Representatives,
of a monopoly in favor of Piatco, its subsidiaries and related companies.
Petitioners Baterina et al. have locus standi to bring the Petition in GR No. 155547.
In Albano v. Reyes,7 this Court held that the petitioner therein, suing as a citizen, Petitioners-in-intervention are service providers in the business of furnishing airport-
taxpayer and member of the House of Representatives, was sufficiently clothed with related services to international airlines and passengers in the NAIA and are
standing to bring the suit questioning the validity of the assailed contract. The Court therefore competitors of Piatco as far as that line of business is concerned. On
cited the fact that public interest was involved, in view of the important role of the account of provisions in the Piatco contracts, petitioners-in-intervention have to
Manila International Container Terminal (MICT) in the country's economic enter into a written contract with Piatco so as not to be shut out of NAIA Terminal III
development and the magnitude of the financial consideration. This, and barred from doing business there. Since there is no provision to ensure or
notwithstanding the fact that expenditure of public funds was not required under safeguard free and fair competition, they are literally at its mercy. They claim injury
the assailed contract. on account of their deprivation of property (business) and of the liberty to contract,
without due process of law.
In the cases presently under consideration, petitioners' personal and substantial
interest in the controversy is shown by the fact that certain provisions in the Piatco And even if petitioners and petitioners-in-intervention were not sufficiently clothed
contracts create obligations on the part of government (through the DOTC and the with legal standing, I have at the outset already established that, given its impact on
MIAA) to disburse public funds without prior congressional appropriations. the public and on national interest, this controversy is laden with transcendental
importance and constitutional significance. Hence, I do not hesitate to adopt the
same position as was enunciated in Kilosbayan v. Guingona Jr.8 that "in cases of bid and most favorable terms for the project, based on the present value of its
transcendental importance, the Court may relax the standing requirements and proposed tolls, fees, rentals and charges over a fixed term for the facility to be
allow a suit to prosper even when there is no direct injury to the party claiming the constructed, rehabilitated, operated and maintained according to the prescribed
right of judicial review."9 minimum design and performance standards, plans and specifications. . . ."
(Emphasis supplied.)
The Substantive Issue: Violations of the Constitution and the Laws
The same provision requires that the price challenge via public bidding "must be
From the Outset, the Bidding Process Was Flawed and Tainted
conducted under a two-envelope/two-stage system: the first envelope to contain the
After studying the documents submitted and arguments advanced by the parties, I technical proposal and the second envelope to contain the financial proposal."
have no doubt that, right at the outset, Piatco was not qualified to participate in the Moreover, the 1994 Implementing Rules and Regulations (IRR) provide that only
bidding process for the Terminal III project, but was nevertheless permitted to do so. those bidders that have passed the prequalification stage are permitted to have
It even won the bidding and was helped along by what appears to be a series of their two envelopes reviewed.
collusive and corrosive acts.
In other words, prospective bidders must prequalify by submitting their
The build-operate-and-transfer (BOT) project for the NAIA Passenger Terminal III prequalification documents for evaluation; and only the pre-qualified bidders would
comes under the category of an "unsolicited proposal," which is the subject of be entitled to have their bids opened, evaluated and appreciated. On the other
Section 4-A of the BOT Law.10 The unsolicited proposal was originally submitted by hand, disqualified bidders are to be informed of the reason for their disqualification.
the Asia's Emerging Dragon Corporation (AEDC) to the Department of Transportation This procedure was confirmed and reiterated in the Bid Documents, which I quote
and Communications (DOTC) and the Manila International Airport Authority (MIAA), thus: "Prequalified proponents will be considered eligible to move to second stage
which reviewed and approved the proposal. technical proposal evaluation. The second and third envelopes of pre-disqualified
proponents will be returned."11
The draft of the concession agreement as negotiated between AEDC and
DOTC/MIAA was endorsed to the National Economic Development Authority (NEDA- Aside from complying with the legal and technical requirements (track record or
ICC), which in turn reviewed it on the basis of its scope, economic viability, financial experience of the firm and its key personnel), a project proponent desiring to
indicators and risks; and thereafter approved it for bidding. prequalify must also demonstrate its financial capacity to undertake the project. To
establish such capability, a proponent must prove that it is able to raise the
The DOTC/MIAA then prepared the Bid Documents, incorporating therein the minimum amount of equity required for the project and to procure the loans or
negotiated Draft Concession Agreement, and published invitations for public financing needed for it. Section 5.4(c) of the 1994 IRR provides:
bidding, i.e., for the submission of comparative or competitive proposals. Piatco's
predecessor-in-interest, the Paircargo Consortium, was the only company that "Sec. 5.4. Prequalification Requirements. - To pre-qualify, a project proponent must
submitted a competitive bid or price challenge. comply with the following requirements:

At this point, I must emphasize that the law requires the award of a BOT project to xxx xxx xxx
the bidder that has satisfied the minimum requirements; and met the technical,
"c. Financial Capability. The project proponent must have adequate capability to
financial, organizational and legal standards provided in the BOT Law. Section 5 of
sustain the financing requirements for the detailed engineering design, construction,
this statute states:
and/or operation and maintenance phases of the project, as the case may be. For
"Sec. 5. Public bidding of projects. - . . . purposes of prequalification, this capability shall be measured in terms of: (i) proof
of the ability of the project proponent and/or the consortium to provide a minimum
"In the case of a build-operate-and-transfer arrangement, the contract shall be amount of equity to the project, and (ii) a letter testimonial from reputable banks
awarded to the bidder who, having satisfied the minimum financial, technical, attesting that the project proponent and/or members of the consortium are banking
organizational and legal standards required by this Act, has submitted the lowest
with them, that they are in good financial standing, and that they have adequate unmistakably and squarely at odds with the Supreme Court's consistent doctrine
resources. The government Agency/LGU concerned shall determine on a project-to- emphasizing the strict application of pertinent rules, regulations and guidelines for
project basis, and before prequalification, the minimum amount of equity needed. . . the public bidding process, in order to place each bidder - actual or potential - on the
. ." (Italics supplied) same footing. Thus, it is unarguably irregular and contrary to the very concept of
public bidding to permit a variance between the conditions under which bids are
Since the minimum amount of equity for the project was set at 30 percent12 of the
invited and those under which proposals are submitted and approved.
minimum project cost of US$350 million, the minimum amount of equity required of
any proponent stood at US$105 million. Converted to pesos at the exchange rate Republic v. Capulong,14 teaches that if one bidder is relieved from having to conform
then of P26.239 to US$1.00 (as quoted by the Bangko Sentral ng Pilipinas), the peso to the conditions that impose some duty upon it, that bidder is not contracting in
equivalent of the minimum equity was P2,755,095,000. fair competition with those bidders that propose to be bound by all conditions. The
essence of public bidding is, after all, an opportunity for fair competition and a basis
However, the combined equity or net worth of the Paircargo consortium stood at
for the precise comparison of bids.15 Thus, each bidder must bid under the same
only P558,384,871.55.13 This amount was only slightly over 6 percent of the
conditions; and be subject to the same guidelines, requirements and limitations. The
minimum project cost and very much short of the required minimum equity, which
desired result is to be able to determine the best offer or lowest bid, all things being
was equivalent to 30 percent of the project cost. Such deficiency should have
equal.
immediately caused the disqualification of the Paircargo consortium. This matter
was brought to the attention of the Prequalification and Bidding Committee (PBAC). Inasmuch as the Paircargo consortium did not possess the minimum equity
equivalent to 30 percent of the minimum project cost, it should not have been
Notwithstanding the glaring deficiency, DOTC Undersecretary Primitivo C. Cal,
prequalified or allowed to participate further in the bidding. The Prequalification and
concurrent chair of the PBAC, declared in a Memorandum dated 14 October 1996
Bidding Committee (PBAC) should therefore not have opened the two envelopes of
that "the Challenger (Paircargo consortium) was found to have a combined net worth
the consortium containing its technical and financial proposals; required AEDC to
of P3,926,421,242.00 that could support a project costing approximately P13 billion."
match the consortium's bid; 16 or awarded the Concession Agreement to the
To justify his conclusion, he asserted: "It is not a requirement that the networth must
consortium's successor-in-interest, Piatco.
be `unrestricted'. To impose this as a requirement now will be nothing less than
unfair." As there was effectively no public bidding to speak of, the entire bidding process
having been flawed and tainted from the very outset, therefore, the award of the
He further opined, "(T)he networth reflected in the Financial Statement should not
concession to Paircargo's successor Piatco was void, and the Concession Agreement
be taken as the amount of money to be used to answer the required thirty (30%)
executed with the latter was likewise void ab initio. For this reason, Piatco cannot
percent equity of the challenger but rather to be used in establishing if there is
and should not be allowed to benefit from that Agreement. 17
enough basis to believe that the challenger can comply with the required 30% equity.
In fact, proof of sufficient equity is required as one of the conditions for award of AEDC Was Deprived of the Right to Match PIATCO's Price Challenge
contract (Sec. 12.1 of IRR of the BOT Law) but not for prequalification (Sec. 5.4 of
In DOTC PBAC Bid Bulletin No. 4 (par. 3), Undersecretary Cal declared that, for
same document)."
purposes of matching the price challenge of Piatco, AEDC as originator of the
On the basis of the foregoing dubious declaration, the Paircargo consortium was unsolicited proposal would be permitted access only to the schedule of proposed
deemed prequalified and thus permitted to proceed to the other stages of the Annual Guaranteed Payments submitted by Piatco, and not to the latter's financial
bidding process. and technical proposals that constituted the basis for the price challenge in the first
place. This was supposedly in keeping with Section 11.6 of the 1994 IRR, which
By virtue of the prequalified status conferred upon the Paircargo, Undersecretary
provides that proprietary information is to be respected, protected and treated with
Cal's findings in effect relieved the consortium of the need to comply with the
utmost confidentiality, and is therefore not to form part of the bidding/tender and
financial capability requirement imposed by the BOT Law and IRR. This position is
related documents.
This pronouncement, I believe, was a grievous misapplication of the mentioned At the end of the day, the bottom line is that the validity and the propriety of the
provision. The "proprietary information" referred to in Section 11.6 of the IRR award to Piatco had been irreparably impaired.
pertains only to the proprietary information of the originator of an unsolicited
Delayed Issuance of the Notice of Award Violated the BOT Law and the IRR
proposal, and not to those belonging to a challenger. The reason for the protection
accorded proprietary information at all is the fact that, according to Section 4-A of Section 9.5 of the IRR requires that the Notice of Award must indicate the time
the BOT Law as amended, a proposal qualifies as an "unsolicited proposal" when it frame within which the winner of the bidding (and therefore the prospective
pertains to a project that involves "a new concept or technology", and/or a project awardee) shall submit the prescribed performance security, proof of commitment of
that is not on the government's list of priority projects. equity contributions, and indications of sources of financing (loans); and, in the case
of joint ventures, an agreement showing that the members are jointly and severally
To be considered as utilizing a new concept or technology, a project must involve
responsible for the obligations of the project proponent under the contract.
the possession of exclusive rights (worldwide or regional) over a process; or
possession of intellectual property rights over a design, methodology or engineering The purpose of having a definite and firm timetable for the submission of the
concept.18 Patently, the intent of the BOT Law is to encourage individuals and groups aforementioned requirements is not only to prevent delays in the project
to come up with creative innovations, fresh ideas and new technology. Hence, the implementation, but also to expose and weed out unqualified proponents, who
significance and necessity of protecting proprietary information in connection with might have unceremoniously slipped through the earlier prequalification process, by
unsolicited proposals. And to make the encouragement real, the law also extends to compelling them to put their money where their mouths are, so to speak.
such individuals and groups what amounts to a "right of first refusal" to undertake
the project they conceptualized, involving the use of new technology or concepts, Nevertheless, this provision can be easily circumvented by merely postponing the
through the mechanism of matching a price challenge. actual issuance of the Notice of Award, in order to give the favored proponent
sufficient time to comply with the requirements. Hence, to avert or minimize the
A competing bid is never just any figure conjured from out of the blue; it is arrived at manipulation of the post-bidding process, the IRR not only set out the precise
after studying economic, financial, technical and other, factors; it is likewise based sequence of events occurring between the completion of the evaluation of the
on certain assumptions as to the nature of the business, the market potentials, the technical bids and the issuance of the Notice of Award, but also specified the
probable demand for the product or service, the future behavior of cost items, timetables for each such event. Definite allowable extensions of time were provided
political and other risks, and so on. It is thus self-evident that in order to be able to for, as were the consequences of a failure to meet a particular deadline.
intelligently match a bid or price challenge, a bidder must be given access to the
assumptions and the calculations that went into crafting the competing bid. In particular, Section 9.1 of the 1994 IRR prescribed that within 30 calendar days
from the time the second-stage evaluation shall have been completed, the
In this instance, the financial and technical proposals of Piatco would have provided Committee must come to a decision whether or not to award the contract and,
AEDC with the necessary information to enable it to make a reasonably informed within 7 days therefrom, the Notice of Award must be approved by the head of
matching bid. To put it more simply, a bidder unable to access the competitor's agency or local government unit (LGU) concerned, and its issuance must follow
assumptions will never figure out how the competing bid came about; requiring him within another 7 days thereafter.
to "counter-propose" is like having him shoot at a target in the dark while
blindfolded. Section 9.2 of the IRR set the procedure applicable to projects involving substantial
government undertakings as follows: Within 7 days after the decision to award is
By withholding from AEDC the challenger's financial and technical proposals made, the draft contract shall be submitted to the ICC for clearance on a no-
containing the critical information it needed, Undersecretary Cal actually and objection basis. If the draft contract includes government undertakings already
effectively deprived AEDC of the ability to match the price challenge. One could say previously approved, then the submission shall be for information only.
that AEDC did not have the benefit of a "level playing field." It seems to me, though,
that AEDC was actually shut out of the game altogether. However, should there be additional or new provisions different from the original
government undertakings, the draft shall have to be reviewed and approved. The
ICC has 15 working days to act thereon, and unless otherwise specified, its failure to This chronology of events bespeaks an unmistakable disregard, if not disdain, by the
act on the contract within the specified time frame signifies that the agency or LGU persons in charge of the award process for the time limitations prescribed by the
may proceed with the award. The head of agency or LGU shall approve the Notice of IRR. Their attitude flies in the face of this Court's solemn pronouncement in Republic
Award within seven days of the clearance by the ICC on a no-objection basis, and the v. Capulong,20 that "strict observance of the rules, regulations and guidelines of the
Notice itself has to be issued within seven days thereafter. bidding process is the only safeguard to a fair, honest and competitive public
bidding."
The highly regulated time-frames within which the agents of government were to
act evinced the intent to impose upon them the duty to act expeditiously From the foregoing, the only conclusion that can possibly be drawn is that the BOT
throughout the process, to the end that the project be prosecuted and implemented law and its IRR were repeatedly violated with unmitigated impunity - and by agents
without delay. This regulated scenario was likewise intended to discourage collusion of government, no less! On account of such violation, the award of the contract to
and substantially reduce the opportunity for agents of government to abuse their Piatco, which undoubtedly gained time and benefited from the delays, must be
discretion in the course of the award process. deemed null and void from the beginning.
Despite the clear timetables set out in the IRR, several lengthy and still-unexplained Further Amendments Resulted in a Substantially Different Contract, Awarded
delays occurred in the award process, as can be observed from the presentation Without Public Bidding
made by the counsel for public respondents,19 quoted hereinbelow:
But the violations and desecrations did not stop there. After the PBAC made its
"11 Dec. 1996 - The Paircargo Joint Venture was informed by the PBAC that AEDC decision on December 11, 1996 to award the contract to Piatco, the latter
failed to match and that negotiations preparatory to Notice of Award should be negotiated changes to the Contract bidded out and ended up with what amounts to
commenced. This was the decision to award that should have commenced the a substantially new contract without any public bidding. This Contract was
running of the 7-day period to approve the Notice of Award, as per Section 9.1 of subsequently further amended four more times through negotiation and without
the IRR, or to submit the draft contract to the ICC for approval conformably with any bidding. Thus, the contract actually executed between Piatco and DOTC/MIAA
Section 9.2. on July 12, 1997 (the Concession Agreement or "CA") differed from the contract
bidded out (the draft concession agreement or "DCA") in the following very
"01 April 1997 - The PBAC resolved that a copy of the final draft of the Concession
significant respects:
Agreement be submitted to the NEDA for clearance on a no-objection basis. This
resolution came more than 3 months too late as it should have been made on the 1. The CA inserted stipulations creating a monopoly in favor of Piatco in the business
20th of December 1996 at the latest. of providing airport-related services for international airlines and passengers. 21
"16 April 1997 - The PBAC resolved that the period of signing the Concession 2. The CA provided that government is to answer for Piatco's unpaid loans and debts
Agreement be extended by 15 days. (lumped under the term Attendant Liabilities) in the event Piatco fails to pay its
senior lenders.22
"18 April 1997 - NEDA approved the Concession Agreement. Again this is more than
3 months too late as the NEDA's decision should have been released on the 16th of 3. The CA provided that in case of termination of the contract due to the fault of
January 1997 or fifteen days after it should have been submitted to it for review. government, government shall pay all expenses that Piatco incurred for the project
plus the appraised value of the Terminal.23
"09 July 1997 - The Notice of Award was issued to PIATCO. Following the provisions
of the IRR, the Notice of Award should have been issued fourteen days after NEDA's 4. The CA imposed new and special obligations on government, including delivery of
approval, or the 28th of January 1997. In any case, even if it were to be assumed clean possession of the site for the terminal; acquisition of additional land at the
that the release of NEDA's approval on the 18th of April was timely, the Notice of government's expense for construction of road networks required by Piatco's
Award should have been issued on the 9th of May 1997. In both cases, therefore, approved plans and specifications; and assistance to Piatco in securing site utilities,
the release of the Notice of Award occurred in a decidedly less than timely fashion." as well as all necessary permits, licenses and authorizations.24
5. Where Section 3.02 of the DCA requires government to refrain from competing creditors to assign the Project to another entity acceptable to DOTC/MIAA; (c) pay
with the contractor with respect to the operation of NAIA Terminal III, Section the contractor rent for the facilities and equipment the DOTC may utilize; or (d)
3.02(b) of the CA excludes and prohibits everyone, including government, from purchase the terminal at a price established by independent appraisers. Depending
directly or indirectly competing with Piatco, with respect to the operation of, as well on the option selected, government may take immediate possession and control of
as operations in, NAIA Terminal III. Operations in is sufficiently broad to encompass the terminal and its operations. Government will be obligated to compensate the
all retail and other commercial business enterprises operating within Terminal III, contractor for the "equivalent or proportionate contract costs actually disbursed,"
inclusive of the businesses of providing various airport-related services to but only where government is the one in breach of the contract. But under Section
international airlines, within the scope of the prohibition. 8.06(a) of the CA, whether on account of Piatco's breach of contract or its inability to
pay its creditors, government is obliged to either (a) take over Terminal III and
6. Under Section 6.01 of the DCA, the following fees are subject to the written
assume all of Piatco's debts or (b) permit the qualified unpaid creditors to be
approval of MIAA: lease/rental charges, concession privilege fees for passenger
substituted in place of Piatco or to designate a new operator. And in the event of
services, food services, transportation utility concessions, groundhandling, catering
government's breach of contract, Piatco may compel it to purchase the terminal at
and miscellaneous concession fees, porterage fees, greeter/well-wisher fees, carpark
fair market value, per Section 8.06(b) of the CA.
fees, advertising fees, VIP facilities fees and others. Moreover, adjustments to the
groundhandling fees, rentals and porterage fees are permitted only once every two 10. Under the DCA, any delay by Piatco in the payment of the amounts due the
years and in accordance with a parametric formula, per DCA Section 6.03. However, government constitutes breach of contract. However, under the CA, such delay does
the CA as executed with Piatco provides in Section 6.06 that all the aforesaid fees, not necessarily constitute breach of contract, since Piatco is permitted to suspend
rentals and charges may be adjusted without MIAA's approval or intervention. payments to the government in order to first satisfy the claims of its secured
Neither are the adjustments to these fees and charges subject to or limited by any creditors, per Section 8.04(d) of the CA.
parametric formula.25
It goes without saying that the amendment of the Contract bidded out (the DCA or
7. Section 1.29 of the DCA provides that the terminal fees, aircraft tacking fees, draft concession agreement) - in such substantial manner, without any public
aircraft parking fees, check-in counter fees and other fees are to be quoted and paid bidding, and after the bidding process had been concluded on December 11, 1996 -
in Philippine pesos. But per Section 1.33 of the CA, all the aforesaid fees save the is violative of public policy on public biddings, as well as the spirit and intent of the
terminal fee are denominated in US Dollars. BOT Law. The whole point of going through the public bidding exercise was
completely lost. Its very rationale was totally subverted by permitting Piatco to
8. Under Section 8.07 of the DCA, the term attendant liabilities refers to liabilities
amend the contract for which public bidding had already been concluded.
pertinent to NAIA Terminal III, such as payment of lease rentals and performance of
Competitive bidding aims to obtain the best deal possible by fostering transparency
other obligations under the Land Lease Agreement; the obligations under the Tenant
and preventing favoritism, collusion and fraud in the awarding of contracts. That is
Agreements; and payment of all taxes, fees, charges and assessments of whatever
the reason why procedural rules pertaining to public bidding demand strict
kind that may be imposed on NAIA Terminal III or parts thereof. But in Section 1.06
observance.26
of the CA, Attendant Liabilities refers to unpaid debts of Piatco: "All amounts
recorded and from time to time outstanding in the books of (Piatco) as owing to In a relatively early case, Caltex v. Delgado Brothers,27 this Court made it clear that
Unpaid Creditors who have provided, loaned or advanced funds actually used for the substantive amendments to a contract for which a public bidding has already been
Project, including all interests, penalties, associated fees, charges, surcharges, finished should only be awarded after another public bidding:
indemnities, reimbursements and other related expenses, and further including
"The due execution of a contract after public bidding is a limitation upon the right of
amounts owed by [Piatco] to its suppliers, contractors and subcontractors."
the contracting parties to alter or amend it without another public bidding, for
9. Per Sections 8.04 and 8.06 of the DCA, government may, on account of the otherwise what would a public bidding be good for if after the execution of a
contractors breach, rescind the contract and select one of four options: (a) take over contract after public bidding, the contracting parties may alter or amend the
the terminal and assume all its attendant liabilities; (b) allow the contractor's contract, or even cancel it, at their will? Public biddings are held for the protection of
the public, and to give the public the best possible advantages by means of open Section 4-A of the BOT Law specifically refers to a "lower price proposal" by a
competition between the bidders. He who bids or offers the best terms is awarded competing bidder; and to the right of the original proponent "to match the price" of
the contract subject of the bid, and it is obvious that such protection and best the challenger. Thus, only the price proposals are in play. The terms, conditions and
possible advantages to the public will disappear if the parties to a contract executed stipulations in the contract for which public bidding has been concluded are
after public bidding may alter or amend it without another previous public understood to remain intact and not be subject to further negotiation. Otherwise,
bidding."28 the very essence of public bidding will be destroyed - there will be no basis for an
exact comparison between bids.
The aforementioned case dealt with the unauthorized amendment of a contract
executed after public bidding; in the situation before us, the amendments were Moreover, Piatco misinterpreted the meaning behind PBAC Bid Bulletin No. 3. The
made also after the bidding, but prior to execution. Be that as it may, the same phrase amendments . . . from time to time refers only to those amendments to the
rationale underlying Caltex applies to the present situation with equal force. Allowing draft concession agreement issued by the PBAC prior to the submission of the price
the winning bidder to renegotiate the contract for which the bidding process has challenge; it certainly does not include or permit amendments negotiated for and
ended is tantamount to permitting it to put in anything it wants. Here, the winning introduced after the bidding process, has been terminated.
bidder (Piatco) did not even bother to wait until after actual execution of the
Piatco's Concession Agreement Was Further Amended, (ARCA) Again Without
contract before rushing to amend it. Perhaps it believed that if the changes were
Public Bidding
made to a contract already won through bidding (DCA) instead of waiting until it is
executed, the amendments would not be noticed or discovered by the public. Not satisfied with the Concession Agreement, Piatco - once more without bothering
with public bidding - negotiated with government for still more substantial changes.
In a later case, Mata v. San Diego,29 this Court reiterated its ruling as follows:
The result was the Amended and Restated Concession Agreement (ARCA) executed
"It is true that modification of government contracts, after the same had been on November 26, 1998. The following changes were introduced:
awarded after a public bidding, is not allowed because such modification serves to
1. The definition of Attendant Liabilities was further amended with the result that
nullify the effects of the bidding and whatever advantages the Government had
the unpaid loans of Piatco, for which government may be required to answer, are no
secured thereby and may also result in manifest injustice to the other bidders. This
longer limited to only those loans recorded in Piatco's books or loans whose
prohibition, however, refers to a change in vital and essential particulars of the
proceeds were actually used in the Terminal III project. 30
agreement which results in a substantially new contract."
2. Although the contract may be terminated due to breach by Piatco, it will not be
Piatco's counter-argument may be summed up thus: There was nothing in the 1994
liable to pay the government any Liquidated Damages if a new operator is
IRR that prohibited further negotiations and eventual amendments to the DCA even
designated to take over the operation of the terminal. 31
after the bidding had been concluded. In fact, PBAC Bid Bulletin No. 3
states: "[A]mendments to the Draft Concession Agreement shall be issued from time 3. The Liquidated Damages which government becomes liable for in case of its
to time. Said amendments will only cover items that would not materially affect the breach of contract were substantially increased.32
preparation of the proponent's proposal."
4. Government's right to appoint a comptroller for Piatco in case the latter
I submit that accepting such warped argument will result in perverting the policy encounters liquidity problems was deleted.33
underlying public bidding. The BOT Law cannot be said to allow the negotiation of
contractual stipulations resulting in a substantially new contract after the bidding 5. Government is made liable for Incremental and Consequential Costs and Losses in
process and price challenge had been concluded. In fact, the BOT Law, in recognition case it fails to comply or cause any third party under its direct or indirect control to
of the time, money and effort invested in an unsolicited proposal, accords its comply with the special obligations imposed on government.34
originator the privilege of matching the challenger's bid.
6. The insurance policies obtained by Piatco covering the terminal are now required 16. The Certificate of Completion simply deleted the successful performance-testing
to be assigned to the Senior Lenders as security for the loans; previously, their of the terminal facility in accordance with defined performance standards as a pre-
proceeds were to be used to repair and rehabilitate the facility in case of damage.35 condition for government's acceptance of the terminal facility.44
7. Government bound itself to set the initial rate of the terminal fee, to be charged In sum, the foregoing revisions and amendments as embodied in the ARCA
when Terminal III begins operations, at an amount higher than US$20. 36 constitute very material alterations of the terms and conditions of the CA, and give
further manifestly undue advantage to Piatco at the expense of government. Piatco
8. Government waived its defense of the illegality of the contract and even agreed to
claims that the changes to the CA were necessitated by the demands of its foreign
be liable to pay damages to Piatco in the event the contract was declared illegal. 37
lenders. However, no proof whatsoever has been adduced to buttress this claim.
9. Even though government may be entitled to terminate the ARCA on account of
In any event, it is quite patent that the sum total of the aforementioned changes
breach by Piatco, government is still liable to pay Piatco the appraised value of
resulted in drastically weakening the position of government to a degree that seems
Terminal III or the Attendant Liabilities, if the termination occurs before the In-
quite excessive, even from the standpoint of a businessperson who regularly
Service Date.38 This condition contravenes the BOT Law provision on termination
transacts with banks and foreign lenders, is familiar with their mind-set, and
compensation.
understands what motivates them. On the other hand, whatever it was that
10. Government is obligated to take the administrative action required for Piatco's impelled government officials concerned to accede to those grossly disadvantageous
imposition, collection and application of all Public Utility Revenues. 39 No such changes, I can only hazard a guess.
obligation existed previously.
There is no question in my mind that the ARCA was unauthorized and illegal for lack
11. Government is now also obligated to perform and cause other persons and of public bidding and for being patently disadvantageous to government.
entities under its direct or indirect control to perform all acts necessary to perfect
The Three Supplements Imposed New Obligations on Government, Also Without
the security interests to be created in favor of Piatco's Senior Lenders. 40 No such
Prior Public Bidding
obligation existed previously.
After Piatco had managed to breach the protective rampart of public bidding, it
12. DOTC/MIAA's right of intervention in instances where Piatco's Non-Public Utility
recklessly went on a rampage of further assaults on the ARCA.
Revenues become exorbitant or excessive has been removed.41
The First Supplement Is as Void as the ARCA
13. The illegality and unenforceability of the ARCA or any of its material provisions
was made an event of default on the part of government only, thus constituting a In the First Supplement ("FS") executed on August 27, 1999, the following changes
ground for Piatco to terminate the ARCA.42 were made to the ARCA:
14. Amounts due from and payable by government under the contract were made 1. The amounts payable by Piatco to government were reduced by allowing
payable on demand - net of taxes, levies, imposts, duties, charges or fees of any kind additional exceptions to the Gross Revenues in which government is supposed to
except as required by law.43 participate.45
15. The Parametric Formula in the contract, which is utilized to compute for 2. Made part of the properties which government is obliged to construct and/or
adjustments/increases to the public utility revenues (i.e., aircraft parking and tacking maintain and keep in good repair are (a) the access road connecting Terminals II and
fees, check-in counter fee and terminal fee), was revised to permit Piatco to input its III - the construction of this access road is the obligation of Piatco, in lieu of its
more costly short-term borrowing rates instead of the longer-terms rates in the obligation to construct an Access Tunnel connecting Terminals II and III; and (b) the
computations for adjustments, with the end result that the changes will redound to taxilane and taxiway - these are likewise part of Piatco's obligations, since they are
its greater financial benefit. part and parcel of the project as described in Clause 1.3 of the Bid Documents . 46
3. The MIAA is obligated to provide funding for the maintenance and repair of the I must emphasize that the First Supplement is void in two respects. First, it is merely
airports and facilities owned or operated by it and by third persons under its control. an amendment to the ARCA, upon which it is wholly dependent; therefore, since the
It will also be liable to Piatco for the latter's losses, expenses and damages as well as ARCA is void, inexistent and not capable of being ratified or amended, it follows that
liability to third persons, in case MIAA fails to perform such obligations. In addition, the FS too is void, inexistent and inoperative. Second, even assuming arguendo that
MIAA will also be liable for the incremental and consequential costs of the remedial the ARCA is somehow remotely valid, nonetheless the FS, in imposing significant
work done by Piatco on account of the former's default. 47 new obligations upon government, altered the fundamental terms and stipulations
of the ARCA, thus necessitating a public bidding all over again. That the FS was
4. The FS also imposed on government ten (10) "Additional Special Obligations,"
entered into sans public bidding renders it utterly void and inoperative.
including the following:
The Second Supplement Is Similarly Void and Inexistent
(a) Working for the removal of the general aviation traffic from the NAIA airport
complex48 The Second Supplement ("SS") was executed between the government and Piatco
on September 4, 2000. It calls for Piatco, acting not as concessionaire of NAIA
(b) Providing through MIAA the land required by Piatco for the taxilane and one
Terminal III but as a public works contractor, to undertake - in the government's
taxiway at no cost to Piatco49
stead - the clearing, removal, demolition and disposal of improvements,
(c) Implementing the government's existing storm drainage master plan50 subterranean obstructions and waste materials at the project site. 57

(d) Coordinating with DPWH the financing, the implementation and the completion The scope of the works, the procedures involved, and the obligations of the
of the following works before the In-Service Date: three left-turning overpasses contractor are provided for in Parts II and III of the SS. Section 4.1 sets out the
(EDSA to Tramo St., Tramo to Andrews Ave., and Manlunas Road to Sales compensation to be paid, listing specific rates per cubic meter of materials for each
Ave.);51 and a road upgrade and improvement program involving widening, repair phase of the work - excavation, leveling, removal and disposal, backfilling and
and resurfacing of Sales Road, Andrews Avenue and Manlunas Road; improvement dewatering. The amounts collectible by Piatco are to be offset against the Annual
of Nichols Interchange; and removal of squatters along Andrews Avenue. 52 Guaranteed Payments it must pay government.

(e) Dealing directly with BCDA and the Phil. Air Force in acquiring additional land or Though denominated as Second Supplement, it was nothing less than an entirely
right of way for the road upgrade and improvement program. 53 new public works contract. Yet it, too, did not undergo any public bidding, for which
reason it is also void and inoperative.
5. Government is required to work for the immediate reversion to MIAA of
the Nayong Pilipino National Park.54 Not surprisingly, Piatco had to subcontract the works to a certain Wintrack Builders,
a firm reputedly owned by a former high-ranking DOTC official. But that is another
6. Government's share in the terminal fees collected was revised from a flat rate of story altogether.
P180 to 36 percent thereof; together with government's percentage share in the
gross revenues of Piatco, the amount will be remitted to government in pesos The Third Supplement Is Likewise Void and Inexistent
instead of US dollars.55 This amendment enables Piatco to benefit from the further
The Third Supplement ("TS"), executed between the government and Piatco on June
erosion of the peso-dollar exchange rate, while preventing government from
22, 2001, passed on to the government certain obligations of Piatco as Terminal III
building up its foreign exchange reserves.
concessionaire, with respect to the surface road connecting Terminals II and III.
7. All payments from Piatco to government are now to be invoiced to MIAA, and
By way of background, at the inception of and forming part of the NAIA Terminal III
payments are to accrue to the latter's exclusive benefit. 56 This move appears to be in
project was the proposed construction of an access tunnel crossing Runway 13/31,
support of the funds MIAA advanced to DPWH.
which. would connect Terminal III to Terminal II. The Bid Documents in Section
4.1.2.3[B][i] declared that the said access tunnel was subject to further negotiation;
but for purposes of the bidding, the proponent should submit a bid for it as well. of beginning at the beginning, so to speak, will become evident when the question
Therefore, the tunnel was supposed to be part and parcel of the Terminal III project. of what to do with the five Piatco contracts is discussed later on.
However, in Section 5 of the First Supplement, the parties declared that the access In the meantime, I shall take up specific, provisions or changes in the contracts and
tunnel was not economically viable at that time. In lieu thereof, the parties agreed highlight the more prominent objectionable features.
that a surface access road (now called the T2-T3 Road) was to be constructed by
Government Directly Guarantees Piatco Debts
Piatco to connect the two terminals. Since it was plainly in substitution of the tunnel,
the surface road construction should likewise be considered part and parcel of the Certainly the most discussed provision in the parties' arguments is the one creating
same project, and therefore part of Piatco's obligation as well. While the access an unauthorized, direct government guarantee of Piatco's obligations in favor of the
tunnel was estimated to cost about P800 million, the surface road would have a lenders.
price tag in the vicinity of about P100 million, thus producing significant savings for
Piatco. Section 4-A of the BOT Law as amended states that unsolicited proposals, such as the
NAIA Terminal III Project, may be accepted by government provided inter alia that
Yet, the Third Supplement, while confirming that Piatco would construct the T2-T3 no direct government guarantee, subsidy or equity is required. In short, such
Road, nevertheless shifted to government some of the obligations pertaining to the guarantee is prohibited in unsolicited proposals. Section 2(n) of the same
former, as follows: legislation defines direct government guarantee as "an agreement whereby the
government or any of its agencies or local government units (will) assume
1. Government is now obliged to remove at its own expense all tenants, squatters,
responsibility for the repayment of debt directly incurred by the project proponent
improvements and/or waste materials on the site where the T2-T3 road is to be
in implementing the project in case of a loan default."
constructed.58 There was no similar obligation on the part of government insofar as
the access tunnel was concerned. Both the CA and the ARCA have provisions that undeniably create such prohibited
government guarantee. Section 4.04 (c)(iv) to (vi) of the ARCA, which is similar to
2. Should government fail to carry out its obligation as above described, Piatco may
Section 4.04 of the CA, provides thus:
undertake it on government's behalf, subject to the terms and conditions (including
compensation payments) contained in the Second Supplement. 59 "(iv) that if Concessionaire is in default under a payment obligation owed to the
60 Senior Lenders, and as a result thereof the Senior Lenders have become entitled to
3. MIAA will answer for the operation, maintenance and repair of the T2-T3 Road.
accelerate the Senior Loans, the Senior Lenders shall have the right to notify GRP of
The TS depends upon and is intended to supplement the ARCA as well as the First the same . . .;
Supplement, both of which are void and inexistent and not capable of being ratified
(v) . . . the Senior Lenders may after written notification to GRP, transfer the
or amended. It follows that the TS is likewise void, inexistent and inoperative. And
Concessionaire's rights and obligations to a transferee . . .;
even if, hypothetically speaking, both ARCA and FS are valid, still, the Third
Supplement - imposing as it does significant new obligations upon government - (vi) if the Senior Lenders . . . are unable to . . . effect a transfer . . ., then GRP and the
would in effect alter the terms and stipulations of the ARCA in material respects, Senior Lenders shall endeavor . . . to enter into any other arrangement relating to
thus necessitating another public bidding. Since the TS was not subjected to public the Development Facility . . . If no agreement relating to the Development Facility is
bidding, it is consequently utterly void as well. At any rate, the TS created new arrived at by GRP and the Senior Lenders within the said 180-day period, then at the
monetary obligations on the part of government, for which there were no prior end thereof the Development Facility shall be transferred by the Concessionaire to
appropriations. Hence it follows that the same is void ab initio. GRP or its designee and GRP shall make a termination payment to Concessionaire
equal to the Appraised Value (as hereinafter defined) of the Development Facility or
In patiently tracing the progress of the Piatco contracts from their inception up to
the sum of the Attendant Liabilities, if greater. . . ."
the present, I noted that the whole process was riddled with significant lapses, if not
outright irregularity and wholesale violations of law and public policy. The rationale
In turn, the term Attendant Liabilities is defined in Section 1.06 of the ARCA as such payments from government; and/or they may already have had themselves
follows: appointed its attorneys-in-fact for the purpose of collecting and receiving such
payments.
"Attendant Liabilities refer to all amounts in each case supported by verifiable
evidence from time to time owed or which may become, owing by Concessionaire to Nevertheless, as petitioners-in-intervention pointed out in their Memorandum, 61 the
Senior Lenders or any other persons or entities who have provided, loaned or termination payment is to be made to Piatco, not to the lenders; and there is no
advanced funds or provided financial facilities to Concessionaire for the Project, provision anywhere in the contract documents to prevent it from diverting the
including, without limitation, all principal, interest, associated fees, charges, proceeds to its own benefit and/or to ensure that it will necessarily use the same to
reimbursements, and other related expenses (including the fees, charges and pay off the Senior Lenders and other creditors, in order to avert the foreclosure of
expenses of any agents or trustees of such persons or entities), whether payable at the mortgage and other liens on the terminal facility. Such deficiency puts the
maturity, by acceleration or otherwise, and further including amounts owed by interests of government at great risk. Indeed, if the unthinkable were to happen,
Concessionaire to its professional consultants and advisers, suppliers, contractors government would be paying several hundreds of millions of dollars, but the
and sub-contractors." mortgage liens on the facility may still be foreclosed by the Senior Lenders just the
same.
Government's agreement to pay becomes effective in the event of a default by
Piatco on any of its loan obligations to the Senior Lenders, and the amount to be Consequently, the Piatco contracts are also objectionable for grievously failing to
paid by government is the greater of either the Appraised Value of Terminal III or the adequately protect government's interests. More accurately, the contracts would
aggregate amount of the moneys owed by Piatco - whether to the Senior Lenders consistently weaken and do away with protection of government interests. As such,
or to other entities, including its suppliers, contractors and subcontractors. In effect, they are therefore grossly lopsided in favor of Piatco and/or its Senior Lenders.
therefore, this agreement already constitutes the prohibited assumption by
While on this subject, it is well to recall the earlier discussion regarding a particularly
government of responsibility for repayment of Piatco's debts in case of a loan
noticeable alteration of the concept of "Attendant Liabilities." In Section 1.06 of the
default. In fine, a direct government guarantee.
CA defining the term, the Piatco debts to be assumed/paid by government were
It matters not that there is a roundabout procedure prescribed by Section qualified by the phrases recorded and from time to time outstanding in the books of
4.04(c)(iv), (v) and (vi) that would require, first, an attempt (albeit unsuccessful) by the Concessionaire and actually used for the project. These phrases were eliminated
the Senior Lenders to transfer Piatco's rights to a transferee of their choice; and, from the ARCA's definition of Attendant Liabilities.
second, an effort (equally unsuccessful) to "enter into any other arrangement" with
Since no explanation has been forthcoming from Piatco as to the possible
the government regarding the Terminal III facility, before government is required to
justification for such a drastic change, the only conclusion, possible is that it intends
make good on its guarantee. What is abundantly clear is the fact that, in the devious
to have all of its debts covered by the guarantee, regardless of whether or not they
labyrinthine process detailed in the aforesaid section, it is entirely within the Senior
are disclosed in its books. This has particular reference to those borrowings which
Lenders' power, prerogative and control - exercisable via a mere refusal or
were obtained in violation of the loan covenants requiring Piatco to maintain a
inability to agree upon "a transferee" or "any other arrangement" regarding the
minimum 70:30 debt-to-equity ratio, and even if the loan proceeds were not actually
terminal facility - to push the process forward to the ultimate contractual cul-de-sac,
used for the project itself.
wherein government will be compelled to abjectly surrender and make good on its
guarantee of payment. This point brings us back to the guarantee itself. In Section 4.04(c)(vi) of ARCA, the
amount which government has guaranteed to pay as termination payment is
Piatco also argues that there is no proviso requiring government to pay the Senior
the greater of either (i) the Appraised Value of the terminal facility or (ii) the
Lenders in the event of Piatco's default. This is literally true, in the sense that Section
aggregate of the Attendant Liabilities. Given that the Attendant Liabilities may
4.04(c)(vi) of ARCA speaks of government making the termination payment to
include practically any Piatco debt under the sun, it is highly conceivable that their
Piatco, not to the lenders. However, it is almost a certainty that the Senior Lenders
sum may greatly exceed the appraised value of the facility, and government may end
will already have made Piatco sign over to them, ahead of time, its right to receive
up paying very much more than the real worth of Terminal III. (So why did specifying the turn-over date, terminate the contract. The project
government have to bother with public bidding anyway?) proponent/contractor shall be reasonably compensated by the Government for
equivalent or proportionate contract cost as defined in the contract."
In the final analysis, Section 4.04(c)(iv) to (vi) of the ARCA is diametrically at odds
with the spirit and the intent of the BOT Law. The law meant to mobilize private The foregoing statutory provision in effect provides for the following limited
resources (the private sector) to take on the burden and the risks of financing the instances when termination compensation may be allowed:
construction, operation and maintenance of relevant infrastructure and
1. Termination by the government through no fault of the project proponent
development projects for the simple reason that government is not in a position to
do so. By the same token, government guarantee was prohibited, since it would 2. Termination upon the parties' mutual agreement
merely defeat the purpose and raison d'être of a build-operate-and-transfer project
to be undertaken by the private sector. 3. Termination by the proponent due to government's default on certain major
contractual obligations
To the extent that the project proponent is able to obtain loans to fund the project,
those risks are shared between the project proponent on the one hand, and its To emphasize, the law does not permit compensation for the project proponent when
banks and other lenders on the other. But where the proponent or its lenders contract termination is due to the proponent's own fault or breach of contract.
manage to cajol or coerce the government into extending a guarantee of payment of This principle was clearly violated in the Piatco Contracts. The ARCA stipulates that
the loan obligations, the risks assumed by the lenders are passed right back to government is to pay termination compensation to Piatco even when termination is
government. I cannot understand why, in the instant case, government cheerfully initiated by government for the following causes:
assented to re-assuming the risks of the project when it gave the prohibited
guarantee and thus simply negated the very purpose of the BOT Law and the "(i) Failure of Concessionaire to finish the Works in all material respects in
protection it gives the government. accordance with the Tender Design and the Timetable;

Contract Termination Provisions in the Piatco Contracts Are Void (ii) Commission by Concessionaire of a material breach of this Agreement . . .;

The BOT Law as amended provides for contract termination as follows: (iii) . . . a change in control of Concessionaire arising from the sale, assignment,
transfer or other disposition of capital stock which results in an ownership structure
"Sec. 7. Contract Termination. - In the event that a project is revoked, cancelled or violative of statutory or constitutional limitations;
terminated by the government through no fault of the project proponent or by
mutual agreement, the Government shall compensate the said project proponent (iv) A pattern of continuing or repeated non-compliance, willful violation, or non-
for its actual expenses incurred in the project plus a reasonable rate of return performance of other terms and conditions hereof which is hereby deemed a
thereon not exceeding that stated in the contract as of the date of such revocation, material breach of this Agreement . . ."62
cancellation or termination: Provided, That the interest of the Government in this
As if that were not bad enough, the ARCA also inserted into Section 8.01 the phrase
instances [sic] shall be duly insured with the Government Service Insurance System
"Subject to Section 4.04." The effect of this insertion is that in those instances where
or any other insurance entity duly accredited by the Office of the Insurance
government may terminate the contract on account of Piatco's breach, and it is
Commissioner: Provided, finally, That the cost of the insurance coverage shall be
nevertheless required under the ARCA to make termination compensation to Piatco
included in the terms and conditions of the bidding referred to above.
even though unauthorized by law, such compensation is to be equivalent to
"In the event that the government defaults on certain major obligations in the the payment amount guaranteed by government - either a) the Appraised Value of
contract and such failure is not remediable or if remediable shall remain unremedied the terminal facility or (b) the aggregate of the Attendant Liabilities, whichever
for an unreasonable length of time, the project proponent/contractor may, by prior amount is greater!
notice to the concerned national government agency or local government unit
Clearly, this condition is not in line with Section 7 of the BOT Law. That provision obligations, shall be earmarked for the payment of all sums payable by
permits a project proponent to recover the actual expenses it incurred in the Concessionaire to GRP under this Agreement. If by reason of the foregoing GRP
prosecution of the project plus a reasonable rate of return not in excess of that should be unable to collect in full all payments due to GRP under this Agreement,
provided in the contract; or to be compensated for the equivalent or proportionate then the unpaid balance shall be payable within a 90-day grace period counted from
contract cost as defined in the contract, in case the government is in default on the relevant due date, with interest per annum at the rate equal to the average 91-
certain major contractual obligations. day Treasury Bill Rate as of the auction date immediately preceding the relevant due
date. If payment is not effected by Concessionaire within the grace period, then a
Furthermore, in those instances where such termination compensation is
spread of five (5%) percent over the applicable 91-day Treasury Bill Rate shall be
authorized by the BOT Law, it is indispensable that the interest of government
added on the unpaid amount commencing on the expiry of the grace period up to
be duly insured. Section 5.08 the ARCA mandates insurance coverage for the
the day of full payment. When the temporary illiquidity of Concessionaire shall have
terminal facility; but all insurance policies are to be assigned, and all proceeds are
been corrected and the cash position of Concessionaire should indicate its ability to
payable, to the Senior Lenders. In brief, the interest being secured by such coverage
meet its maturing obligations, then the provisions set forth under this Section
is that of the Senior Lenders, not that of government. This can hardly be considered
8.01(d) shall cease to apply. The foregoing remedial measures shall be applicable
compliance with law.
only while there remains unpaid and outstanding amounts owed to the Senior
In essence, the ARCA provisions on termination compensation result in another Lenders." (Emphasis supplied)
unauthorized government guarantee, this time in favor of Piatco.
By any manner of interpretation or application, Section 8.01(d) of the ARCA clearly
A Prohibited Direct Government Subsidy, Which at the Same Time Is an Assault on mandates the indefinitepostponement of payment of all of Piatco's obligations to
the National Honor the government, in order to ensure that Piatco's obligations to the Senior Lenders
are paid in full first. That is nothing more or less than the direct government subsidy
Still another contractual provision offensive to law and public policy is Section prohibited by the BOT Law and the IRR. The fact that Piatco will pay interest on the
8.01(d) of the ARCA, which is a "bolder and badder" version of Section 8.04(d) of the unpaid amounts owed to government does not change the situation or render the
CA. prohibited subsidy any less unacceptable.
It will be recalled that Section 4-A of the BOT Law as amended prohibits not only But beyond the clear violations of law, there are larger issues involved in the ARCA.
direct government guarantees, but likewise a direct government subsidy for Earlier, I mentioned that Section 8.01(d) of the ARCA completely eliminated the
unsolicited proposals. Section 13.2. b. iii. of the 1999 IRR defines a direct proviso in Section 8.04(d) of the CA which gave government the right to appoint a
government subsidy as encompassing "an agreement whereby the Government . . . financial controller to manage the cash position of Piatco during situations of
will . . . postpone any payments due from the proponent." financial distress. Not only has government been deprived of any means of
Despite the statutory ban, Section 8.01 (d) of the ARCA provides thus: monitoring and managing the situation; worse, as can be seen from Section 8.01(d)
above-quoted, the Senior Lenders have effectively locked in on the right to exercise
"(d) The provisions of Section 8.01(a) notwithstanding, and for the purpose of financial controllership over Piatco and to allocate its cash resources to the payment
preventing a disruption of the operations in the Terminal and/or Terminal Complex, of all amounts owed to the Senior Lenders before allowing any payment to be made
in the event that at any time Concessionaire is of the reasonable opinion that it shall to government.
be unable to meet a payment obligation owed to the Senior Lenders, Concessionaire
shall give prompt notice to GRP, through DOTC/MIAA and to the Senior Lenders. In In brief, this particular provision of the ARCA has placed in the hands of foreign
such circumstances, the Senior Lenders (or the Senior Lenders' Representative) may lenders the power and the authority to determine how much (if at all) and when the
ensure that after making provision for administrative expenses and depreciation, the Philippine government (as grantor of the franchise) may be allowed to receive from
cash resources of Concessionaire shall first be used and applied to meet all payment Piatco. In that situation, government will be at the mercy of the foreign lenders. This
obligations owed to the Senior Lenders. Any excess cash, after meeting such payment
is a situation completely contrary to the rationale of the BOT Law and to public "Section 3.02 on 'Exclusivity'
policy.
"This provision gives to PIATCO (the Concessionaire) the exclusive right to operate a
The aforesaid provision rouses mixed emotions - shame and disgust at the parties' commercial international airport within the Island of Luzon with the exception of
(especially the government officials') docile submission and abject servitude and those already existing at the time of the execution of the Agreement, such as the
surrender to the imperious and excessive demands of the foreign lenders, on the airports at Subic, Clark and Laoag City. In the case of the Clark International Airport,
one hand; and vehement outrage at the affront to the sovereignty of the Republic however, the provision restricts its operation beyond its design capacity of 850,000
and to the national honor, on the other. It is indeed time to put an end to such an passengers per annum and the operation of new terminal facilities therein until after
unbearable, dishonorable situation. the new NAIA Terminal III shall have consistently reached or exceeded its design
capacity of ten (10) million passenger capacity per year for three (3) consecutive
The Piatco Contracts Unarguably Violate Constitutional Injunctions
years during the concession period.
I will now discuss the manner in which the Piatco Contracts offended the
"This is an onerous and disadvantageous provision. It effectively grants PIATCO
Constitution.
a monopoly in Luzon and ties the hands of government in the matter of developing
The Exclusive Right Granted to Piatco to Operate a Public Utility Is Prohibited by the new airports which may be found expedient and necessary in carrying out any future
Constitution plan for an inter-modal transportation system in Luzon.

While Section 2.02 of the ARCA spoke of granting to Piatco "a franchise to operate "Additionally, it imposes an unreasonable restriction on the operation of the Clark
and maintain the Terminal Complex," Section 3.02(a) of the same ARCA granted to International Airport which could adversely affect the operation and development of
Piatco, for the entire term of the concession agreement, "the exclusive right to the Clark Special Economic Zone to the economic prejudice of the local
operate a commercial international passenger terminal within the Island of Luzon" constituencies that are being benefited by its operation." (Emphasis supplied)
with the exception of those three terminals already existing 63 at the time of
While it cannot be gainsaid that an enterprise that is a public utility may happen to
execution of the ARCA.
constitute a monopoly on account of the very nature of its business and the absence
Section 11 of Article XII of the Constitution prohibits the grant of a "franchise, of competition, such a situation does not however constitute justification to violate
certificate, or any other form of authorization for the operation of a public utility" the constitutional prohibition and grant an exclusive franchise or exclusive right to
that is "exclusive in character." operate a public utility.

In its Opinion No. 078, Series of 1995, the Department of justice held that "the NAIA Piatco's contention that the Constitution does not actually prohibit monopolies is
Terminal III which . . . is a 'terminal for public use' is a public utility." Consequently, beside the point. As correctly argued,64 the existence of a monopoly by a public
the constitutional prohibition against the exclusivity of a franchise applies to the utility is a situation created by circumstances that do not encourage competition.
franchise for the operation of NAIA Terminal III as well. This situation is different from the grant of a franchise to operate a public utility, a
privilege granted by government. Of course, the grant of a franchise may result in a
What was granted to Piatco was not merely a franchise, but an "exclusive right" to monopoly. But making such franchise exclusive is what is expressly proscribed by the
operate an international passenger terminal within the "Island of Luzon." What this Constitution.
grant effectively means is that the government is now estopped from exercising its
inherent power to award any other person another franchise or a right to operate Actually, the aforementioned Section 3.02 of the ARCA more than just guaranteed
such a public utility, in the event public interest in Luzon requires it. This restriction exclusivity; it also guaranteed that the government will not improve or expand the
is highly detrimental to government and to the public interest. Former Secretary of facilities at Clark - and in fact is required to put a cap on the latter's operations - until
Justice Hernando B. Perez expressed this point well in his Memorandum for the after Terminal III shall have been operated at or beyond its peak capacity for
President dated 21 May 2002: three consecutive years.65 As counsel for public respondents pointed out, in the real
world where the rate of influx of international passengers can fluctuate substantially The Contracts Create Two Monopolies for Piatco
from year to year, it may take many years before Terminal III sees three consecutive
By way of background, two monopolies were actually created by the Piatco
years' operations at peak capacity. The Diosdado Macapagal International Airport
contracts. The first and more obvious one refers to the business of operating an
may thus end up stagnating for a long time. Indeed, in order to ensure greater
international passenger terminal in Luzon, the business end of which involves
profits for Piatco, the economic progress of a region has had to be sacrificed.
providing international airlines with parking space for their aircraft, and airline
The Piatco Contracts Violate the Time Limitation on Franchises passengers with the use of departure and arrival areas, check-in counters,
information systems, conveyor systems, security equipment and paraphernalia,
Section 11 of Article XII of the Constitution also provides that "no franchise,
immigrations and customs processing areas; and amenities such as comfort rooms,
certificate or any other form of authorization for the operation of a public utility
restaurants and shops.
shall be . . . for a longer period than fifty years." After all, a franchise held for an
unreasonably long time would likely give rise to the same evils as a monopoly. In furtherance of the first monopoly, the Piatco Contracts stipulate that the NAIA
Terminal III will be the only facility to be operated as an international passenger
The Piatco Contracts have come up with an innovative way to circumvent the
terminal;66 that NAIA Terminals I and II will no longer be operated as such;67 and that
prohibition and obtain an extension. This fact can be gleaned from Section 8.03(b) of
no one (including the government) will be allowed to compete with Piatco in the
the ARCA, which I quote thus:
operation of an international passenger terminal in the NAIA Complex. 68 Given that,
"Sec. 8.03. Termination Procedure and Consequences of Termination. - at this time, the government and Piatco are the only ones engaged in the business of
operating an international passenger terminal, I am not acutely concerned with this
a) x x x xxx xxx particular monopolistic situation.
b) In the event the Agreement is terminated pursuant to Section 8.01 (b) hereof, There was however another monopoly within the NAIA created by the subject
Concessionaire shall be entitled to collect the Liquidated Damages specified in Annex contracts for Piatco - in the business of providing international airlines with the
'G'. The full payment by GRP to Concessionaire of the Liquidated Damages shall be a following: groundhandling, in-flight catering, cargo handling, and aircraft repair and
condition precedent to the transfer by Concessionaire to GRP of the Development maintenance services. These are lines of business activity in which are engaged many
Facility. Prior to the full payment of the Liquidated Damages, Concessionaire shall to service providers (including the petitioners-in-intervention), who will be adversely
the extent practicable continue to operate the Terminal and the Terminal Complex affected upon full implementation of the Piatco Contracts, particularly Sections
and shall be entitled to retain and withhold all payments to GRP for the purpose of 3.01(d)69 and (e)70 of both the ARCA and the CA.
offsetting the same against the Liquidated Damages. Upon full payment of the
Liquidated Damages, Concessionaire shall immediately transfer the Development On the one hand, Section 3.02(a) of the ARCA makes Terminal III the only
Facility to GRP on 'as-is-where-is' basis." international passenger terminal at the NAIA, and therefore the only place within
the NAIA Complex where the business of providing airport-related services to
The aforesaid easy payment scheme is less beneficial than it first appears. Although international airlines may be conducted. On the other hand, Section 3.01(d) of the
it enables government to avoid having to make outright payment of an obligation ARCA requires government, through the MIAA, not to allow service providers with
that will likely run into billions of pesos, this easy payment plan will nevertheless expired MIAA contracts to renew or extend their contracts to render airport-related
cost government considerable loss of income, which it would earn if it were to services to airlines. Meanwhile, Section 3.01(e) of the ARCA requires government,
operate Terminal III by itself. Inasmuch as payments to the concessionaire (Piatco) through the DOTC and MIAA, not to allow service providers - those with subsisting
will be on "installment basis," interest charges on the remaining unpaid balance concession agreements for services and operations being conducted at Terminal I -
would undoubtedly cause the total outstanding balance to swell. Piatco would thus to carry over their concession agreements, services and operations to Terminal III,
be entitled to remain in the driver's seat and keep operating the terminal for an unless they first enter into a separate agreement with Piatco.
indefinite length of time.
The aforementioned provisions vest in Piatco effective and exclusive control over c. That PAIRCARGO and/or its designated Affiliate shall, during the Concession
which service provider may and may not operate at Terminal III and render the Period, be the only entities authorized to construct and operate a warehouse for all
airport-related services needed by international airlines. It thereby possesses the cargo handling and related services within the Site."
power to exclude competition. By necessary implication, it also has effective control
Precisely, proscribed by our Constitution are the monopoly and the restraint of trade
over the fees and charges that will be imposed and collected by these service
being fostered by the Piatco Contracts through the erection of barriers to the entry
providers.
of other service providers into Terminal III. In Tatad v. Secretary of the Department
This intention is exceedingly clear in the declaration by Piatco that it is "completely of Energy,80 the Court ruled:
within its rights to exclude any party that it has not contracted with from NAIA
". . . [S]ection 19 of Article XII of the Constitution . . . mandates: 'The State shall
Terminal III."71
regulate or prohibit monopolies when the public interest so requires. No
Worse, there is nothing whatsoever in the Piatco Contracts that can serve to restrict, combinations in restraint of trade or unfair competition shall be allowed.'
control or regulate the concessionaire's discretion and power to reject any service
"A monopoly is a privilege or peculiar advantage vested in one or more persons or
provider and/or impose any term or condition it may see fit in any contract it enters
companies, consisting in the exclusive right or power to carry on a particular
into with a service provider. In brief, there is no safeguard whatsoever to ensure free
business or trade, manufacture a particular article, or control the sale or the whole
and fair competition in the service-provider sector.
supply of a particular commodity. It is a form of market structure in which one or
In the meantime, and not surprisingly, Piatco is first in line, ready to exploit the only a few firms dominate the total sales of a product or service. On the other hand,
unique business opportunity. It announced72 that it has accredited three a combination in restraint of trade is an agreement or understanding between two
groundhandlers for Terminal III. Aside from the Philippine Airlines, the other or more persons, in the form of a contract, trust, pool, holding company, or other
accredited entities are the Philippine Airport and Ground Services Globeground, Inc. form of association, for the purpose of unduly restricting competition, monopolizing
("PAGSGlobeground") and the Orbit Air Systems, Inc. ("Orbit"). PAGSGlobeground is trade and commerce in a certain commodity, controlling its production, distribution
a wholly-owned subsidiary of the Philippine Airport and Ground Services, Inc. or and price, or otherwise interfering with freedom of trade without statutory
PAGS,73 while Orbit is a wholly-owned subsidiary of Friendship Holdings, Inc.,74 which authority. Combination in restraint of trade refers to the means while monopoly
is in turn owned 80 percent by PAGS.75 PAGS is a service provider owned 60 percent refers to the end.
by the Cheng Family;76 it is a stockholder of 35 percent of Piatco77 and is the latter's
"x x x xxx xxx
designated contractor-operator for NAIA Terminal III.78
"Section 19, Article XII of our Constitution is anti-trust in history and in spirit. It
Such entry into and domination of the airport-related services sector appear to be
espouses competition. The desirability of competition is the reason for the
very much in line with the following provisions contained in the First Addendum to
prohibition against restraint of trade, the reason for the interdiction of unfair
the Piatco Shareholders Agreement,79 executed on July 6, 1999, which appear to
competition, and the reason for regulation of unmitigated monopolies. Competition
constitute a sort of master plan to create a monopoly and combinations in restraint
is thus the underlying principle of [S]ection 19, Article XII of our Constitution, . . ."81
of trade:
Gokongwei Jr. v. Securities and Exchange Commission 82 elucidates the criteria to be
"11. The Shareholders shall ensure:
employed: "A 'monopoly' embraces any combination the tendency of which is to
a. x x x xxx x x x.; prevent competition in the broad and general sense, or to control prices to the
detriment of the public. In short, it is the concentration of business in the hands of a
b. That (Phil. Airport and Ground Services, Inc.) PAGS and/or its designated Affiliates
few. The material consideration in determining its existence is not that prices are
shall, at all times during the Concession Period, be exclusively authorized by
raised and competition actually excluded, but that power exists to raise prices or
(PIATCO) to engage in the provision of ground-handling, catering and fueling services
exclude competition when desired."83 (Emphasis supplied)
within the Terminal Complex.
The Contracts Encourage Monopolistic Pricing, Too operation of an international passenger terminal in the NAIA.87 The bottom line is
that, as of the In-Service Date, Terminal III will be the only terminal where the
Aside from creating a monopoly, the Piatco contracts also give the concessionaire
business of providing airport-related services to international airlines and passengers
virtually limitless power over the charging of fees, rentals and so forth. What little
may be conducted at all.
"oversight function" the government might be able and minded to exercise is less
than sufficient to protect the public interest, as can be gleaned from the following Consequently, government through the DOTC/MIAA will be compelled to cease
provisions: honoring existing contracts with service providers after the In-Service Date, as they
cannot be allowed to operate in Terminal III.
"Sec. 6.06. Adjustment of Non-Public Utility Fees and Charges
In short, the CA and the ARCA obligate and constrain government to break its
"For fees, rentals and charges constituting Non-Public Utility Revenues,
existing contracts with these service providers.
Concessionaire may make any adjustments it deems appropriate without need for
the consent of GRP or any government agency subject to Sec. 6.03(c)." Notably, government is not in a position to require Piatco to accommodate the
displaced service providers, and it would be unrealistic to think that these service
Section 6.03(c) in turn provides:
providers can perform their service contracts in some other international airport
"(c) Concessionaire shall at all times be judicious in fixing fees and charges outside Luzon. Obviously, then, these displaced service providers are - to borrow a
constituting Non-Public Utility Revenues in order to ensure that End Users are not quaint expression - up the river without a paddle. In plainer terms, they will have lost
unreasonably deprived of services. While the vehicular parking fee, porterage fee their businesses entirely, in the blink of an eye.
and greeter/wellwisher fee constitute Non-Public Utility Revenues of
What we have here is a set of contractual provisions that impair the obligation of
Concessionaire, GRP may require Concessionaire to explain and justify the fee it may
contracts and contravene the constitutional prohibition against deprivation of
set from time to time, if in the reasonable opinion of GRP the said fees have become
property without due process of law.88
exorbitant resulting in the unreasonable deprivation of End Users of such services."
Moreover, since the displaced service providers, being unable to operate, will be
It will be noted that the above-quoted provision has no teeth, so the concessionaire
forced to close shop, their respective employees - among them Messrs. Agan and
can defy the government without fear of any sanction. Moreover, Section 6.06 -
Lopez et al. - have very grave cause for concern, as they will find themselves out of
taken together with Section 6.03(c) of the ARCA - falls short of the standard set by
employment and bereft of their means of livelihood. This situation comprises still
the BOT Law as amended, which expressly requires in Section 2(b) that the project
another violation of the constitution prohibition against deprivation of property
proponent is "allowed to charge facility users appropriate tolls, fees, rentals and
without due process.
charges not exceeding those proposed in its bid or as negotiated and incorporated
in the contract x x x." True, doing business at the NAIA may be viewed more as a privilege than as a right.
Nonetheless, where that privilege has been availed of by the petitioners-in-
The Piatco Contracts Violate Constitutional Prohibitions Against Impairment of
intervention service providers for years on end, a situation arises, similar to that
Contracts and Deprivation of Property Without Due Process
in American Inter-fashion v. GTEB.89 We held therein that a privilege enjoyed for
Earlier, I discussed how Section 3.01(e)84 of both the CA and the ARCA requires seven years "evolved into some form of property right which should not be removed
government, through DOTC/MIAA, not to permit the carry-over to Terminal III of the x x x arbitrarily and without due process." Said pronouncement is particularly
services and operations of certain service providers currently operating at Terminal I relevant and applicable to the situation at bar because the livelihood of the
with subsisting contracts. employees of petitioners-intervenors are at stake.

By the In-Service Date, Terminal III shall be the only facility to be operated as an The Piatco Contracts Violate Constitutional Prohibition Against Deprivation of
international passenger terminal at the NAIA;85 thus, Terminals I and II shall no Liberty Without Due Process
longer operate as such,86 and no one shall be allowed to compete with Piatco in the
The Piatco Contracts by locking out existing service providers from entry into Referring to the aforequoted provisions, this Court has held that "(I)t is quite evident
Terminal III and restricting entry of future service providers, thereby infringed upon from the tenor of the language of the law that the existence of appropriations and
the freedom - guaranteed to and heretofore enjoyed by international airlines - to the availability of funds are indispensable pre-requisites to or conditions sine qua
contract with local service providers of their choice, and vice versa. non for the execution of government contracts. The obvious intent is to impose such
conditions as a priori requisites to the validity of the proposed contract."93
Both the service providers and their client airlines will be deprived of the right to
liberty, which includes the right to enter into all contracts, 90 and/or the right to make Notwithstanding the constitutional ban, statutory mandates and Jurisprudential
a contract in relation to one's business.91 precedents, the three Supplements to the ARCA, which were not approved by NEDA,
imposed on government the additional burden of spending public moneys without
By Creating New Financial Obligations for Government, Supplements to the ARCA
prior appropriation.
Violate the Constitutional Ban on Disbursement of Public Funds Without Valid
Appropriation In the First Supplement ("FS") dated August 27, 1999, the following requirements
were imposed on the government:
Clearly prohibited by the Constitution is the disbursement of public funds out of the
treasury, except in pursuance of an appropriation made by law.92 The immediate • To construct, maintain and keep in good repair and operating condition all airport
effect of this constitutional ban is that all the various agencies of government are support services, facilities, equipment and infrastructure owned and/or operated by
constrained to limit their expenditures to the amounts appropriated by law for each MIAA, which are not part of the Project or which are located outside the Site, even
fiscal year; and to carefully count their cash before taking on contractual though constructed by Concessionaire - including the access road connecting
commitments. Giving flesh and form to the injunction of the fundamental law, Terminals II and III and the taxilane, taxiways and runways
Sections 46 and 47 of Executive Order 292, otherwise known as the Administrative
• To obligate the MIAA to provide funding for the upkeep, maintenance and repair
Code of 1987, provide as follows:
of the airports and facilities owned or operated by it and by third persons under its
"Sec. 46. Appropriation Before Entering into Contract. - (1) No contract involving the control in order to ensure compliance with international standards; and holding
expenditure of public funds shall be entered into unless there is an appropriation MIAA liable to Piatco for the latter's losses, expenses and damages as well as for the
therefor, the unexpended balance of which, free of other obligations, is sufficient to latter's liability to third persons, in case MIAA fails to perform such obligations; in
cover the proposed expenditure; and . . addition, MIAA will also be liable for the incremental and consequential costs of the
remedial work done by Piatco on account of the former's default.
"Sec. 47. Certificate Showing Appropriation to Meet Contract. - Except in the case of
a contract for personal service, for supplies for current consumption or to be carried • Section 4 of the FS imposed on government ten (10) "Additional Special
in stock not exceeding the estimated consumption for three (3) months, or banking Obligations," including the following:
transactions of government-owned or controlled banks, no contract involving the
o Providing thru MIAA the land required by Piatco for the taxilane and one
expenditure of public funds by any government agency shall be entered into or
taxiway, at no cost to Piatco
authorized unless the proper accounting official of the agency concerned shall have
certified to the officer entering into the obligation that funds have been duly o Implementing the government's existing storm drainage master plan
appropriated for the purpose and that the amount necessary to cover the proposed
contract for the current calendar year is available for expenditure on account o Coordinating with DPWH the financing, implementation and completion of
thereof, subject to verification by the auditor concerned. The certificate signed by the following works before the In-Service Date: three left-turning
the proper accounting official and the auditor who verified it, shall be attached to overpasses (Edsa to Tramo St., Tramo to Andrews Ave., and Manlunas Road
and become an integral part of the proposed contract, and the sum so certified shall to Sales Ave.) and a road upgrade and improvement program involving
not thereafter be available for expenditure for any other purpose until the obligation widening, repair and resurfacing of Sales Road, Andrews Avenue and
of the government agency concerned under the contract is fully extinguished."
Manlunas Road; improvement of Nichols Interchange; and removal of before the In-Service Date, as well as acquisition and delivery of additional land for
squatters along Andrews Avenue the construction of the T2-T3 access road.
o Dealing directly with BCDA and the Philippine Air Force in acquiring Conversely, failure to deliver on any of these obligations may conceivably result in
additional land or right of way for the road upgrade and improvement substantial prejudice to the concessionaire, to such an extent as to constitute a
program material breach of the Piatco Contracts. Whereupon, the concessionaire may
outrightly terminate the Contracts pursuant to Section 8.01(b)(i) and (ii) of the ARCA
o Requiring government to work for the immediate reversion to MIAA of the
and seek payment of Liquidated Damages in accordance with Section 8.02(a) of the
Nayong Pilipino National Park, in order to permit the building of the second
ARCA; or the concessionaire may instead require government to pay the Incremental
west parallel taxiway
and Consequential Losses under Section 1.23 of the ARCA. 94The logical conclusion
• Section 5 of the FS also provides that in lieu of the access tunnel, a surface access then is that the obligations in the Supplements are not to be performed on a best-
road (T2-T3) will be constructed. This provision requires government to expend efforts basis only, but are unarguably mandatory in character.
funds to purchase additional land from Nayong Pilipino and to clear the same in
Regarding MIAA's obligation to coordinate with the DPWH for the complete
order to be able to deliver clean possession of the site to Piatco, as required in
implementation of the road upgrading and improvement program for Sales,
Section 5(c) of the FS.
Andrews and Manlunas Roads (which provide access to the Terminal III site) prior to
On the other hand, the Third Supplement ("TS") obligates the government to deliver, the In-Service Date, it is essential to take note of the fact that there was a pressing
within 120 days from date thereof, clean possession of the land on which the T2-T3 need to complete the program before the opening of Terminal III.95 For that reason,
Road is to be constructed. the MIAA was compelled to enter into a memorandum of agreement with the DPWH
in order to ensure the timely completion of the road widening and improvement
The foregoing contractual stipulations undeniably impose on government the program. MIAA agreed to advance the total amount of P410.11 million to DPWH for
expenditures of public funds not included in any congressional appropriation or the works, while the latter was committed to do the following:
authorized by any other statute. Piatco however attempts to take these stipulations
out of the ambit of Sections 46 and 47 of the Administrative Code by characterizing "2.2.8. Reimburse all advance payments to MIAA including but not limited to
them as stipulations for compliance on a "best-efforts basis" only. interest, fees, plus other costs of money within the periods CY2004 and CY2006 with
payment of no less than One Hundred Million Pesos (PhP100M) every year.
To determine whether the additional obligations under the Supplements may really
be undertaken on a best-efforts basis only, the nature of each of these obligations "2.2.9. Perform all acts necessary to include in its CY2004 to CY2006 budget
must be examined in the context of its relevance and significance to the Terminal III allocation the repayments for the advances made by MIAA, to ensure that the
Project, as well as of any adverse impact that may result if such obligation is not advances are fully repaid by CY2006. For this purpose, DPWH shall include the
performed or undertaken on time. In short, the criteria for determining whether the amounts to be appropriated for reimbursement to MIAA in the "Not Needing
best-efforts basis will apply is whether the obligations are critical to the success of Clearance" column of their Agency Budget Matrix (ABM) submitted to the
the Project and, accordingly, whether failure to perform them (or to perform them Department of Budget and Management."
on time) could result in a material breach of the contract.
It can be easily inferred, then, that DPWH did not set aside enough funds to be able
Viewed in this light, the "Additional Special Obligations" set out in Section 4 of the FS to complete the upgrading program for the crucially situated access roads prior to
take on a different aspect. In particular, each of the following may all be deemed to the targeted opening date of Terminal III; and that, had MIAA not agreed to lend the
play a major role in the successful and timely prosecution of the Terminal III Project: P410 Million, DPWH would not have been able to complete the program on time. As
the obtention of land required by PIATCO for the taxilane and taxiway; the a consequence, government would have been in breach of a material obligation.
implementation of government's existing storm drainage master plan; and Hence, this particular undertaking of government may likewise not be construed as
coordination with DPWH for the completion of the three left-turning overpasses being for best-efforts compliance only.
They also Infringe on the Legislative Prerogative and Power Over the Public Purse in place a contract - any contract - for to do so would assume that we agree to
having Piatco continue as the concessionaire for Terminal III.
But the particularly sad thing about this transaction between MIAA and DPWH is the
fact that both agencies were maneuvered into (or allowed themselves to be Despite all the insidious contraventions of the Constitution, law and public policy
maneuvered into) an agreement that would ensure delivery of upgraded roads for Piatco perpetrated, keeping Piatco on as concessionaire and even rewarding it by
Piatco's benefit, using funds not allocated for that purpose. The agreement would allowing it to operate and profit from Terminal III - instead of imposing upon it the
then be presented to Congress as a done deal. Congress would thus be obliged to stiffest sanctions permissible under the laws - is unconscionable.
uphold the agreement and support it with the necessary allocations and
It is no exaggeration to say that Piatco may not really mind which contract we decide
appropriations for three years, in order to enable DPWH to deliver on its committed
to keep in place. For all it may care, we can do just as well without one, if we only let
repayments to MIAA. The net result is an infringement on the legislative power over
it continue and operate the facility. After all, the real money will come not from
the public purse and a diminution of Congress' control over expenditures of public
building the Terminal, but from actually operating it for fifty or more years and
funds - a development that would not have come about, were it not for the
charging whatever it feels like, without any competition at all. This scenario must not
Supplements. Very clever but very illegal!
be allowed to happen.
EPILOGUE
If the Piatco contracts are junked altogether as I think they should be, should not
What Do We Do Now?
AEDC automatically be considered the winning bidder and therefore allowed to
In the final analysis, there remains but one ultimate question, which I raised during operate the facility? My answer is a stone-cold 'No'. AEDC never won the bidding,
the Oral Argument on December 10, 2002: What do we do with the Piatco never signed any contract, and never built any facility. Why should it be allowed
Contracts and Terminal III?96 (Feeding directly into the resolution of the decisive to automatically step in and benefit from the greed of another?
question is the other nagging issue: Why should we bother with determining the
Should government pay at all for reasonable expenses incurred in the construction
legality and validity of these contracts, when the Terminal itself has already been
of the Terminal? Indeed it should, otherwise it will be unjustly enriching itself at the
built and is practically complete?)
expense of Piatco and, in particular, its funders, contractors and investors - both
Prescinding from all the foregoing disquisition, I find that all the Piatco contracts, local and foreign. After all, there is no question that the State needs and will make
without exception, are void ab initio, and therefore inoperative. Even the very use of Terminal III, it being part and parcel of the critical infrastructure and
process by which the contracts came into being - the bidding and the award - has transportation-related programs of government.
been riddled with irregularities galore and blatant violations of law and public policy,
In Melchor v. Commission on Audit,97 this Court held that even if the contract therein
far too many to ignore. There is thus no conceivable way, as proposed by some, of
was void, the principle of payment by quantum meruit was found applicable, and the
saving one (the original Concession Agreement) while junking all the rest.
contractor was allowed to recover the reasonable value of the thing or services
Neither is it possible to argue for the retention of the Draft Concession Agreement rendered (regardless of any agreement as to the supposed value), in order to avoid
(referred to in the various pleadings as the Contract Bidded Out) as the contract that unjust enrichment on the part of government. The principle of quantum meruit was
should be kept in force and effect to govern the situation, inasmuch as it was never likewise applied in Eslao v. Commission on Audit,98 because to deny payment for a
executed by the parties. What Piatco and the government executed was the building almost completed and already occupied would be to permit government to
Concession Agreement which is entirely different from the Draft Concession unjustly enrich itself at the expense of the contractor. The same principle was
Agreement. applied in Republic v. Court of Appeals.99
Ultimately, though, it would be tantamount to an outrageous, grievous and One possible practical solution would be for government - in view of the nullity of
unforgivable mutilation of public policy and an insult to ourselves if we opt to keep the Piatco contracts and of the fact that Terminal III has already been built and is
almost finished - to bid out the operation of the facility under the same or analogous
15 G. R. No. 113375, May 5, 1994.
principles as build-operate-and-transfer projects. To be imposed, however, is the
16 Id.
condition that the winning bidder must pay the builder of the facility a price fixed by
17 Id. citing Tan vs. Macapagal, 43 SCRA 677, 680 [1972].
government based on quantum meruit; on the real, reasonable - not inflated - value
18Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform, G. R. No. 78742, July 14,
of the built facility. 1989; 175 SCRA 343, 364-365 [1989].
19 Santiago v. Vasquez, G.R. Nos. 99289-90, January 27, 1993; 217 SCRA 633, 652.
How the payment or series of payments to the builder, funders, investors and
20 G.R. No. 136154, February 7, 2001; 351 SCRA 373, 381.
contractors will be staggered and scheduled, will have to be built into the bids, along 21 G.R. No. 135362, December 13, 1999; 320 SCRA 610.
with the annual guaranteed payments to government. In this manner, this whole 22 Del Monte Corporation-USA v. Court of Appeals, G.R. No. 136154, February 7, 2001; 351 SCRA 373, 382.
sordid mess could result in something truly beneficial for all, especially for the 23 Rollo, G.R. No.155001, pp. 2487-2488.
Filipino people. 24 Section 5, R.A. No. 7718.
25At the United States Dollar-Philippine Peso exchange rate of US$1:P26.239 quoted by the Bangko Sentral ng Pilipinas at
WHEREFORE, I vote to grant the Petitions and to declare the subject
that time.
contracts NULL and VOID. 26 Rollo, G.R. No.155001, pp. 2471-2474.
Footnotes 27Id. at 2475-2477. Derived from the figures on the authorized capital stock and the shares of stock that are subscribed
1An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by the Private and paid-up.
Sector. 28 Id. at 2478-2484.
2 G.R. No. 155001. 29Member Maximum Amount of Equity
3 G.R. No. 155547.
4
Security Bank P528,525,656.55
G.R. No. 155661.
5An international airport is any nation's gateway to the world, the first contact of foreigners with the Philippine Republic, PAGS 26,735,700.00
especially those foreigners who have not been in contact with the wonderful exports of the Philippine economy, those
foreigners who have not had the benefit of enjoying Philippine export products. Because for them, when they see your Paircargo 3,123,515.00
products, that is the face of the Philippines they see. But if they are not exposed to your products, then it's the airport
that's the first face of the Philippines they see. Therefore, it's not only a matter of opening yet, but making sure that it is TOTAL P558,384,871.55
a world class airport that operates without any hitches at all and without the slightest risk to travelers. But it's also 30
Republic of the Philippines vs. Hon. Ignacio C. Capulong, G.R. No. 93359, July 12, 1991; 199 SCRA 134, 146-147.
emerging as a test case of my administration's commitment to fight corruption to rid our state from the hold of any Emphasis supplied.
vested interest, the Solicitor General, and the Justice Department have determined that all five agreements covering
31 Danville Maritime, Inc. v. Commission on Audit, G.R. No. 85285, July 28, 1989, 175 SCRA 701, 713. Citations omitted.
the NAIA Terminal 3, most of which were contracted in the previous administration, are null and void. I cannot honor
contracts which the Executive Branch's legal offices have concluded (as) null and void. 32 A. Cobacha & D. Lucenario, Law on Public Bidding and Government Contracts 13 (1960).
I am, therefore, ordering the Department of Justice and the Presidential Anti-Graft Commission to investigate any 33 Diamond v. City of Mankato, et al., 93 N.W. 912.
anomalies and prosecute all those found culpable in connection with the NAIA contract. But despite all of the 34 G.R. No. L-5439, December 29, 1954; 96 Phil 368.
problems involving the PIATCO contracts, I am assuring our people, our travelers, our exporters, my administration
35 Id. at 375.
will open the terminal even if it requires invoking the whole powers of the Presidency under the Constitution and we
will open a safe, secure and smoothly functioning airport, a world class airport, as world class as the exporters we are 36 Section 6.03, draft Concession Agreement.
honoring today. (Speech of President Arroyo, emphasis supplied) 37 Sections 1.33 and 6.03(b), 1997 Concession Agreement.
6 Art. VIII, Sec. 1, Philippine Constitution. 38 Sections 1.27 and 6.06, 1997 Concession Agreement.
7 MIASCOR, MACROASIA-EUREST, MACROASIA OGDEN and Philippine Airlines. 39 Emphasis supplied.
8 Sections 3.01 (a) and 3.02, 1997 Concession Agreement; Sections 3.01 (d) and (e) and 3.02, ARCA. 40 Emphasis supplied.
9 Kilosbayan, Inc. v. Morato, G.R. No. 118910, July 17, 1995, 246 SCRA 540, 562-563, citing Baker v. Carr, 369 U.S. 186, 7 41 Referred to as "Passenger Service Fee" under the draft Concession Agreement.
L. Ed. 633 (1962).
42 Section 6.05 Interim Adjustment
10 Id.; Bayan v. Zamora, G.R. No. 138570, October 10, 2000; 342 SCRA 449, 478.
11
(a) Concessionaire may apply for and, if warranted, may be granted an interim adjustment of the fees and charges
Rollo, G.R. No. 155547, p.12.
constituting Public Utility Revenues upon the occurrence of extraordinary events resulting from any of the following:
12 Article VI, Section 29 (1).
a depreciation since the last adjustment by at least fifteen percent (15%) of the value of the Philippine Peso relative to
13 G.R. No. 39842, March 28, 1934, 59 Phil 823. the US Dollar using the exchange rates published by the Philippine Dealing System as reference;
14 G.R. No. 29627, December 19, 1989; 180 SCRA 254, 260-261.
an increase since the last adjustment by at least fifteen percent (15%) in the Metro Manila Consumer Price Index based 72 Id. at CA, Art. III, Sec. 3.01(a) and (b); ARCA, Art. III, Sec. 3.01 (a) and (b).
on National Census and Statistics Office publications; 73 Id. at CA, Art. III, Sec. 3.01(d) and (e); ARCA, Art. III, Sec. 3.01(d) and (e).
an increase since the last adjustment in MERALCO power rates billing by at least fifteen percent (15%); 74 Executive Order No. 903, as amended, Sec. 4 (b) and (c).
an increase since the last adjustment in the 180-day Treasury Bill interest rates by at least thirty (30%). 75 Art. XII, Sec. 19, Philippine Constitution.
xxx xxx xxx 76 Republic Act No. 7718, Sec. 1.
43 Section 6.05, draft Concession Agreement. 77 Transcript of Oral Arguments, p. 157, December 10, 2002.
44 Section 1.33, 1997 Concession Agreement. 78 G.R. No. L-54958, September 2, 1983; 09 Phil. 400.
45 Supra note 31. 79 Executive Order No. 903, July 21, 1983, provides:
46 Malaga v. Penachos, Jr., G.R No. 86695, September 3, 1992; 213 SCRA 516, 526. Section 5. Functions, Powers, and Duties. — The Authority shall have the following functions, powers and duties:
47 A. Cobacha & D. Lucenario, Law on Public Bidding and Government Contracts 6-7 (1960). xxx
48 Emphasis supplied. (b) To control, supervise, construct, maintain, operate and provide such facilities or services as shall be necessary for the
49 Concession Agreement, Art. 4, Sec. 4.04 (b) and (c), Art. 1, Sec. 1.06, July 12, 1997. efficient functioning of the Airport;
50 Ibid. (c) To promulgate rules and regulations governing the planning, development, maintenance, operation and improvement
51 Id. at Art. 4, Sec. 4.04 (c). of the Airport and to control and/or supervise as may be necessary the construction of any structure or the rendition of
any service within the Airport;
52 Record of the Senate Second Regular Session 1993-1994, vol. III, no. 42, p. 362.
VITUG, J.:
53 Republic Act No. 7718, Secs. 2 and 4-A, Implementing Rules and Regulations, Rule 11, Secs. 11.1 and 11.3.
1 Article VIII, Section 5(1), 1987 Constitution.
54 Emphasis and caption supplied.
2 Matuguina Integrated Products, Inc. vs. CA, 263 SCRA 490; Mafinco Trading Corporation vs. Ople, 70 SCRA 139.
55 Sec. 1.06, ARCA.
3 Mafinco Trading Corporation vs. Ople, supra.
56 Republic Act No. 7718, as amended, Sec. 4-A, May 5, 1994; Implementing Rules and Regulations, Rule 10, Sec. 10.1. 4 Section 1, Rule 63, Rules of Court.
57 Implementing Rules and Regulations, Rule 10, Sec. 10.4.
5 In re: Bermudez, 145 SCRA 160.
58North Negros Sugar Co., Inc. v. Hidalgo, G.R. No. 42334, October 31, 1936; Intestate estate of the deceased Florentino
6 235 SCRA 630, 720.
San Gil. Josefa R. Oppus v. Bonifacio San Gil, G.R. No. 48115, October 12, 1942; San Diego v. Municipality of Naujan, G.R.
No. L-9920, February 29, 1960; Favis vs. Municipality of Sabañgan, G.R. No. L-26522, 27 February 1969; City of Manila vs. 7 298 SCRA 795.
Tarlac Development Corporation, L-24557, L-24469 & L-24481, 31 July 1968; In the matter of the Petition for Declaratory PANGANIBAN, J.:
Judgment on Title to Real Property (Quieting of Title) Pechueco Sons Company v. Provincial Board of Antique, G.R. No. L-
1See Kilosbayan, Inc. v. Guingona Jr., 232 SCRA 110, May 5, 1994; and Basco v. Phil. Amusements and Gaming
27038, January 30, 1970; Fornilda v. The Branch 164, Regional Trial Court IVth Judicial Region, Pasig, G.R. No. L-72306,
October 5, 1988; Laurel v. Civil Service Commission, G.R. No. 71562, October 28, 1991; Davac v. Court of Appeals, G.R. Corporation, 197 SCRA 52, May 14, 1991.
No. 106105, April 21, 1994. 2 COMELEC v. Quijano-Padilla, GR No. 151992, September 18, 2002.
59 Republic Act No. 7718, Sec. 1. 3Vide: ABS-CBN Broadcasting Corp. v. Commission on Elections, 323 SCRA 811, January 28, 2000; likewise, COMELEC v.
60 III Record of the Constitutional Commission, pp. 266-267 (1986). Quijano-Padilla, supra.
4 See Respondent PIATCO's Memorandum, pp. 25-26.
61 Id.
5 See public respondents' Memorandum, p. 24.
62Except for providing for the suspension of all payments due to the Government for the duration of the takeover,
Article V, Section 5.10(b) of the ARCA contains the same provision. Emphasis and caption supplied. 6 307 SCRA 394, 399, May 19, 1999, per Panganiban, J.
63 Id. 7 175 SCRA 264, July 11, 1989.
64Bataan Shipyard and Engineering Co., Inc. v. Presidential Commission on Good Government, G.R. No. 75885, May 27, 8 Supra, Paras, J.
1987 citing Freund, The Police Power (Chicago, 1904). 9 As reiterated in Bayan (Bagong Alyansang Makabayan) v. Zamora, 342 SCRA 449, 480-481, October 10, 2000.
65 Genuino v. Court of Agrarian Relations, G.R. No. L-25035, February 26, 1968. 10 RA No. 6957 as amended by RA No. 7718.
66 Black's Law Dictionary, 4th Ed., p. 1158. 11 Par. 3.6.1 on page 8 of the Bid Documents.
67 36 Am Jur 480 citing Slaughter-House Cases, 16 Wall. (US) 36, 21 L ed 394. 12Initially the minimum equity was set at 20%, per Sec. 3.6.4 of the Bid Documents. However, this was later clarified in
68Concession Agreement ("CA") dated July 12, 1997, Art. III, Sec. 3.02(a); Amended and Restated Concession Agreement Bid Bulletin No. 3(B)(6) to read 30% of Project Cost, to bring the same in line with the draft concession agreement's Art. II
("ARCA") dated November 26, 1998, Art. III, Sec. 3.02(a). Sec. 2.01(a), which specifically set the project's debt-to-equity ratio at 70:30, thereby requiring a minimum equity of 30%
69 Ibid. of project cost.
13The consortium was composed of Paircargo, PAGS and Security Bank. Paircargo's audited financial statements as of
70 Id. at CA, Art. III, Sec. 3.02(b); ARCA, Art. III, Sec. 3.02(b).
1993 and 1994 showed a net worth of P2,783,592 and P3,123,515 respectively. PAGS' audited financial statements as of
71 The day immediately following the day on which the Certificate of Completion is issued or deemed to be issued. 1995 showed a paid-up capital of P5,000,000 and deposits on future subscriptions of P21,735,700, or an aggregate of
P26,735,700 of equity available to invest in the project. Security Bank's audited statements for 1995 showed a net worth 47 Ibid.
of P3,523,504,377. However, the bank's entire net worth was not available for investment in the project since Sec. 21-B 48 §4 of the FS, adding §2.05(h) to ARCA.
of the General Banking Act provides inter alia that a commercial bank's equity investment in any one enterprise, whether
49 §4 of the FS, adding §2.05(i) to ARCA.
allied or non-allied, should not exceed 15% of the net worth of the investing bank. This limitation is reiterated in Sec.
1381.1.a. of the Manual for Banks and Other Financial Intermediaries. Thus, the maximum amount which Security Bank 50 §4 of the FS, adding §2.05(p) to ARCA.
could have legally invested in the project was only P528,525,656.55. And consequently, the maximum amount of equity 51 Per §4 of the FS, adding §2.05(n) to ARCA.
which the consortium could have put up was only P558,384,871.55.
52 Per §4 of the FS, adding §2.05(o) to ARCA.
14 199 SCRA 134, July 12, 1991.
53 Per §4 of the FS, adding §2.05(p) to ARCA.
15 Malaga v. Penachos Jr., 213 SCRA 516, September 3, 1992.
54 Per §4 of the FS, adding §2.05(j) to ARCA.
16Part of the bid process under the BOT Law is the right of the originator of an unsolicited proposal to match a price
55 §8 of the FS, amending §6.01(c) of the ARCA.
challenge. Pursuant to Sec. 4-A, "in the event another proponent submits a lower price proposal, the original proponent
shall have the right to match that price within thirty (30) working days." 56 §9 of the FS, amending §6.02 of the ARCA.
17 Cf. Malaga v. Penachos, Jr., supra. 57 §Sec. 21 of the SS.
18 §11.2, 1994 IRR. 58 Per §3.1 of the TS.
19Public respondents' Memorandum, pp. 86-87; prepared jointly by the solicitor general, the acting government 59 Vide §3.4 of the TS.
corporate counsel, and their respective deputies and assistants. 60 §4.2 of the TS.
20 Supra, note 14, per Medialdea, J. 61 Page 37.
21 §§3.01(d), 3.01(e), 3.02(a), 3.02(b) and 5.15 of the CA. 62 §8.01 (a) of the ARCA.
22 See §1.06 of the CA. 63Namely, the airports at the Subic Bay Freeport Special Economic Zone, the Clark Special Economic Zone, and Laoag
23 §3.02 of the CA. City.
24 §2.05 of the CA. 64 Memorandum, pp. 5-7, of the petitioners-in-intervention.
25The parametric formula referred to in the CA applies only to the following so-called public utility fees: aircraft parking 65§3.02 a): ". . . With regard to CSEZ, GRP shall ensure that, until such time as the Development Facility Capacity shall
and tacking fees, check-in counter fees and terminal fees. have been consistently reached or exceeded for three (3) consecutive years during the Concession Period, (i) Clark
26 Fernandez, A Treatise on Government Contracts under Philippine Law, 2001 ed., p. 70. International Airport shall not be operated beyond its design capacity of Eight Hundred Fifty Thousand (850,000)
27
passengers per annum and (ii) no new terminal facilities shall be operated therein. "Development Facility Capacity"
96 Phil. 368, December 29, 1954.
refers to the ten million (10,000,000) passenger capacity per year of the Development Facility."
28 Id., p. 375, per Paras, CJ. 66 §3.02(a) of the ARCA and §3.02(a) of the CA.
29 63 SCRA 170, 177-178, March 21, 1975, per Antonio, J. 67 §3.02(b) and (c) of the ARCA, and §3.02(b) of the CA.
30 Cf . §1.06 of the ARCA vis-à-vis § 1.06 of the CA. 68§3.02(b) and (c) of the ARCA and §3.02(b) of the CA. Pertinent portions of §3.02(b) of the ARCA are quoted
31 §4.04 and 8.01 of the ARCA vis-à-vis §8.04 of the CA. hereinbelow:
32 As cf. Annex "G" of the ARCA vis-à-vis Annex "G" of the CA. "(b) On the In-Service Date, GRP shall cause the closure of the Ninoy Aquino International Airport Passenger Terminals I
33 Cf . §8.04(d) of the ARCA vis-à-vis §9.01(d) of the CA. and II as international passenger terminals in order to allow Concessionaire, during the entire Concession Period, to
exclusively operate a commercial international passenger terminal within the island of Luzon; provided that the aforesaid
34 Cf . §2.05 of the ARCA vis-à-vis §2.05 of the CA. exclusive right to operate a commercial international passenger terminal shall be without prejudice to the international
35 Cf . §5.08(a) of the ARCA vis-à-vis §5.08(a) of the CA. passenger terminal operations already existing on the date of this Agreement in SBFSEZ, CSEZ and Laoag City (but subject
36 Cf . § 6.03(a)(i) of the ARCA vis-à-vis §6.03(a) of the CA. to the limitation with regard to CSEZ referred to in Section 3.02[a]). Neither shall GRP, DOTC or MIAA use or permit the
use of Terminals I and/or II under any arrangement or scheme, for compensation or otherwise, with any party which
37 Cf . §8.01(b) and §12.09 of the ARCA vis-à-vis §8.04(b) and 12.09 of the CA. would directly or indirectly compete with Concessionaire in the latter's operation of and the operations in the Terminal
38 Cf . §8.03(a)(i) of the ARCA vis-à-vis §8.06(a)(i) of the CA. and Terminal Complex, including without limitation the use of Terminals I and/or II for the handling of international
39 §2.05(g) of the ARCA. traffic; provided that if Terminals I and/or II are operated as domestic passenger terminals, the conduct of any activity
therein which under the ordinary course of operating a domestic passenger terminal is normally undertaken, shall not be
40 §4.04(b) of the ARCA. considered to be in direct or indirect competition with Concessionaire in its operation of the Development Facility."
41 §6.03(c) of the ARCA vis-à-vis §6.03(c) of the CA. 69 Sec. 3.01(d) of the ARCA and the CA reads as follows:
42 Cf . §8.01(b) of the ARCA vis-à-vis § 8.04(b) of the CA. "(d) For the purpose of an orderly transition, MIAA shall not renew any expired concession agreement relative to any
43 §12.14 of the ARCA. service or operation currently being undertaken at the Ninoy Aquino International Airport Passenger Terminal I, or
44 extend any concession agreement which may expire subsequent hereto, except to the extent that the continuation of
Cf. §§1.11(b) and 5.06 of the ARCA vis-à-vis §§1.11(b) and 5.06 of the CA.
existing services and operations shall lapse on or before the In-Service Date. Nothing herein shall be construed to
45 §2 of the FS, amending §1.36 of the ARCA. prohibit MIAA from maintaining arrangements for the uninterrupted provision of essential services at the Ninoy Aquino
46 §3 of the FS, amending §2.05(d) of the ARCA. International Airport Passenger Terminal I until the Terminal shall have commenced operations on the In-Service Date,
and thereafter, from making such arrangements as are necessary for the utilization of NAIA Passenger Terminal I as a 95Memorandum of Agreement between the Manila International Airport Authority and the Department of Public Works
domestic passenger terminal or as a facility other than an international passenger terminal. and Highways, p. 2.
70 Sec. 3.01(e) of the ARCA and the CA reads as follows: 96When I asked this question, Atty. Jose A. Bernas replied that if Piatco is deemed a builder in good faith then it may be
"(e) GRP confirms that certain concession agreements relative to certain services or operations currently being entitled to some form of compensation under the principle barring unjust enrichment. But if it is found to be a builder in
undertaken at the Ninoy Aquino International Airport Passenger Terminal I have a validity period extending beyond the bad faith then it may not be entitled to compensation. (See TSN, December 10, 2002, pp. 58-71.) Faced with the same
In-Service Date. GRP, through DOTC/MIAA, confirms that these services and operations shall not be carried over to the question, Solicitor General Alfredo L. Benipayo responded that the facility will not be torn down but taken over by
Terminal and that Concessionaire is under no legal obligation to permit such carry-over except through a separate government by virtue of police power or eminent domain. (Id., pp. 94-99.) When asked the same question, Atty. Eduardo
agreement duly entered into with Concessionaire. In the event Concessionaire becomes involved in any litigation delos Angeles explained that under the provision on Step in Rights, the senior lenders can designate a qualified operator
initiated by any such concessionaire or operator, GRP undertakes and hereby holds Concessionaire free and harmless on to operate the facility. (Id., pp. 225-226.) This solution, however, assumes that this contractual provision is valid.
a full indemnity basis from and against any loss and/or liability resulting from any such litigation, including the cost of 97 200 SCRA 704, August 16, 1991.
litigation and the reasonable fees paid or payable to Concessionaire's counsel of choice, all such amounts being fully 98 195 SCRA 730, April 8, 1991.
deductible by way of an offset from any amount which Concessionaire is bound to pay GRP under this Agreement."
71 PIATCO Comment, par. 9, on p. 6.
99 299 SCRA 199, November 25, 1998.
72PIATCO letter dated October 14, 2002 addressed to the Board of Airline Representatives, copy attached as Annex "OO-
Service Providers".
73Based on the PAGSGlobeground GIS as of July 2000, attached as Annex "LL-Service Providers" to the Memorandum of
petitioners-in-intervention.
74Based on the Orbit GIS as of August 2000, attached as Annex "MM-Service Providers" to the Memorandum of
petitioners-in-intervention.
75
Based on the Friendship Holdings, Inc. GIS as of December 2001, attached as Annex "NN-Service Providers" to the
Memorandum of petitioners-in-intervention.
76 Per the Articles of Incorporation of PAGS, attached as Annex "Y-Service Providers" to the petition-in-intervention.
77 Per the GIS of Piatco as of May 2000.
78 Per §5.15 of both the CA and the ARCA.
79 Copy of which was presented by Piatco to the Senate Blue Ribbon Committee during committee hearings.
80 281 SCRA 330, November 5, 1997.
81 Id., pp. 355-358, per Puno, J.
82 89 SCRA 336, April 11, 1979.
83 Id., p. 376, per Antonio, J.
84 Please see footnote 70 supra.
85 §3.02(a) of the CA and §3.02(a) of the ARCA.
86 §3.02(b) of the CA and §3.02(b) and (c) of the ARCA.
87 Ibid.
88 §1, Art. III, Constitution.
89 197 SCRA 409, May 23, 1991, per Gutierrez Jr., J.
90 See Rubi v. Provincial Board of Mindoro, 39 Phil. 660, March 7, 1919.
91 Davao Stevedores Mutual Benefit Association v. Compañia Maritima, 90 Phil. 847, February 29, 1952.
92 §29(1), Article VI, 1987 Constitution.
93 Commission on Elections v. Quijano-Padilla, GR No. 151992, September 18, 2002, p. 20, per Sandoval-Gutierrez, J.
94§1.23 of the ARCA defines Incremental and Consequential Costs as "additional costs properly documented and
reasonably incurred by Concessionaire (including without limitation additional overhead costs, cost of any catch-up
program, demobilization, re-mobilization, storage costs, termination penalties, increase in construction costs, additional
interest expense, costs, fees and other expenses and increase in the cost of financing) in excess of a budgeted or
contracted amount, occasioned by, among other things, delay in the prosecution of Works by reason not attributable to
Concessionaire or a deviation from the Tender Design or any suspension or interference with the operation of the
Terminal Complex by reason not attributable to Concessionaire. . . ."

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