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G.R. No. 155001 May 5, 2003


DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B. REUNILLA, MANUEL ANTONIO
B. BOE, MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY V. DOMALAON, CONRADO G.
DIMAANO, LOLITA R. HIZON, REMEDIOS P. ADOLFO, BIENVENIDO C. HILARIO, MIASCOR
WORKERS UNION - NATIONAL LABOR UNION (MWU-NLU), and PHILIPPINE AIRLINES EMPLOYEES
ASSOCIATION (PALEA), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT
AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS and SECRETARY
LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation and
Communications, respondents,
MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS AVIATION SYSTEMS
CORPORATION, MACROASIA-EUREST SERVICES, INC., MACROASIA-MENZIES AIRPORT
SERVICES CORPORATION, MIASCOR CATERING SERVICES CORPORATION, MIASCOR AIRCRAFT
MAINTENANCE CORPORATION, and MIASCOR LOGISTICS CORPORATION, petitioners-in-
intervention,
x---------------------------------------------------------x
G.R. No. 155547 May 5, 2003
SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G. JARAULA, petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT
AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, DEPARTMENT OF
PUBLIC WORKS AND HIGHWAYS, SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of
the Department of Transportation and Communications, and SECRETARY SIMEON A.
DATUMANONG, in his capacity as Head of the Department of Public Works and
Highways, respondents,
JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON VILLARAMA,
PROSPERO C. NOGRALES, PROSPERO A. PICHAY, JR., HARLIN CAST ABAYON, and BENASING O.
MACARANBON, respondents-intervenors,
x---------------------------------------------------------x
G.R. No. 155661 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 SCHLOBOM, ANGELITO
SANTOS, MA. LUISA M. PALCON and SAMAHANG MANGGAGAWA SA PALIPARAN NG PILIPINAS
(SMPP), petitioners,
vs.
PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT
AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, SECRETARY
LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation and
Communications, respondents.
PUNO, J.:
Petitioners and petitioners-in-intervention filed the instant petitions for prohibition under Rule 65 of
the Revised Rules of Court seeking to prohibit the Manila International Airport Authority (MIAA) and the
Department of Transportation and Communications (DOTC) and its Secretary from implementing the
following agreements executed by the Philippine Government through the DOTC and the MIAA and the
Philippine International Air Terminals Co., Inc. (PIATCO): (1) the Concession Agreement signed on July 12,
1997, (2) the Amended and Restated Concession Agreement dated November 26, 1999, (3) the First
Supplement to the Amended and Restated Concession Agreement dated August 27, 1999, (4) the Second
Supplement to the Amended and Restated Concession Agreement dated September 4, 2000, and (5) the
Third Supplement to the Amended and Restated Concession Agreement dated June 22, 2001 (collectively,
the PIATCO Contracts).
The facts are as follows:
In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to conduct a
comprehensive study of the Ninoy Aquino International Airport (NAIA) and determine whether the
present airport can cope with the traffic development up to the year 2010. The study consisted of
two parts: first, traffic forecasts, capacity of existing facilities, NAIA future requirements, proposed
master plans and development plans; and second, presentation of the preliminary design of the
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 Gotianun, Henry
Sy, Sr., Lucio Tan, George Ty and Alfonso Yuchengco met with then President Fidel V. Ramos to
explore the possibility of investing in the construction and operation of a new international airport
terminal. To signify their commitment to pursue the project, they formed the Asia's Emerging Dragon
Corp. (AEDC) which was registered with the Securities and Exchange Commission (SEC) on
September 15, 1993.
On October 5, 1994, AEDC submitted an unsolicited proposal to the Government through the
DOTC/MIAA for the development of NAIA International Passenger Terminal III (NAIA IPT III) under a
build-operate-and-transfer arrangement pursuant to RA 6957 as amended by RA 7718 (BOT Law). 1
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 NAIA IPT III project.
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, however, was forwarded by the
DOTC to NEDA on December 13, 1995. On January 5, 1996, the NEDA Investment Coordinating Council
(NEDA ICC) Technical Board favorably endorsed the project to the ICC Cabinet Committee which
approved the 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.
On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily newspapers of an
invitation for competitive or comparative proposals on AEDC's 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 5:00 p.m. of September 20, 1996. The first envelope should contain the
Prequalification Documents, the second envelope the Technical Proposal, and the third envelope the
Financial Proposal of the proponent.
On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the availment of the Bid Documents
and the submission of the comparative bid proposals. Interested firms were permitted to obtain the Request
for Proposal Documents beginning June 28, 1996, upon submission of a written application and payment of
a non-refundable fee of P50,000.00 (US$2,000).
The Bid Documents issued by the PBAC provided among others that the proponent must have
adequate capability to sustain the financing requirement for the detailed engineering, design, construction,
operation, and maintenance phases of the project. The proponent would be evaluated based on its ability
to provide a minimum amount of equity to the project, and its capacity to secure external financing for the
project.
On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders to a pre-bid conference
on July 29, 1996.
On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid Documents. The
following amendments were made on the Bid Documents:
a. Aside from the fixed Annual Guaranteed Payment, the proponent shall include in its financial
proposal an additional percentage of gross revenue share of the Government, as follows:
i. First 5 years 5.0%
ii. Next 10 years 7.5%

iii. Next 10 years 10.0%

b. The amount of the fixed Annual Guaranteed Payment shall be subject of the price challenge.
Proponent may offer an Annual Guaranteed Payment which need not be of equal amount, but
payment of which shall start upon site possession.
c. The project proponent must have adequate capability to sustain the financing requirement for the
detailed engineering, design, construction, and/or operation and maintenance phases of the project
as the case may be. For purposes of pre-qualification, this capability shall be measured in terms of:
i. Proof of the availability of the project proponent and/or the consortium to provide the
minimum amount of equity for the project; and
ii. a letter testimonial from reputable banks attesting that the project proponent and/or the
members of the consortium are banking with them, that the project proponent and/or the
members are of good financial standing, and have adequate resources.
d. The basis for the prequalification shall be the proponent's compliance with the minimum technical
and financial requirements provided in the Bid Documents and the IRR of the BOT Law. The
minimum amount of equity shall be 30% of the Project Cost.
e. Amendments to the draft Concession Agreement shall be issued from time to time. Said
amendments shall only cover items that would not materially affect the preparation of the
proponent's proposal.
On August 29, 1996, the Second Pre-Bid Conference was held where certain clarifications were
made. Upon the request of prospective bidder People's Air Cargo & Warehousing Co., Inc (Paircargo), the
PBAC warranted that based on Sec. 11.6, Rule 11 of the Implementing Rules and Regulations of the BOT
Law, only the proposed Annual Guaranteed Payment submitted by the challengers would be revealed to
AEDC, and that the challengers' technical and financial proposals would remain confidential. The PBAC
also clarified that the list of revenue sources contained in Annex 4.2a of the Bid Documents was merely
indicative and that other revenue sources may be included by the proponent, subject to approval by
DOTC/MIAA. Furthermore, the PBAC clarified that only those fees and charges 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 the outcome of PBAC's query on the matter with the
Department of Justice.
In September 1996, the PBAC issued Bid Bulletin No. 5, entitled "Answers to the Queries of
PAIRCARGO as Per Letter Dated September 3 and 10, 1996." Paircargo's queries and the PBAC's
responses were as follows:
1. It is difficult for Paircargo and Associates to meet the required minimum equity requirement as
prescribed in Section 8.3.4 of the Bid Documents considering that the capitalization of each
member company is so structured to meet the requirements 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 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 to the Joint Venture instead of increasing each corporation's current authorized capital
stock just for prequalification purposes.
In prequalification, the agency is interested in one's financial capability at the time of
prequalification, not future or potential capability.
A commitment to put up equity once awarded the project is not enough to establish that "present"
financial capability. However, total financial capability of all member companies of the Consortium,
to be established by submitting the respective companies' audited financial statements, shall be
acceptable.
2. At present, Paircargo is negotiating with banks and other institutions for the extension of a
Performance Security to the joint venture in the event that the 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 requirements. Therefore, Paircargo is requesting that they'd (sic) be
furnished copy of the approved negotiated agreement between the PBAC and the AEDC at the
soonest possible time.
A copy of the draft Concession Agreement is included in the Bid Documents. Any material changes
would be made known to prospective challengers through bid bulletins. However, a final version will
be issued before the award of contract.
The PBAC also stated that it would require AEDC to sign Supplement C of the Bid Documents
(Acceptance of Criteria and Waiver of Rights to Enjoin Project) and to submit the same with the required
Bid Security.
On September 20, 1996, the consortium composed of People's Air Cargo and Warehousing Co., Inc.
(Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank)
(collectively, Paircargo Consortium) submitted their competitive proposal to the PBAC. On September 23,
1996, the PBAC opened the first envelope containing the prequalification documents of the Paircargo
Consortium. On the following day, September 24, 1996, the PBAC prequalified the Paircargo Consortium.
On September 26, 1996, AEDC informed the PBAC in writing of its reservations as regards the
Paircargo Consortium, which include:
a. The lack of corporate approvals and financial capability of PAIRCARGO;
b. The lack of corporate approvals and financial capability of PAGS;
c. The prohibition imposed by RA 337, as amended (the General Banking Act) on the amount that
Security Bank could legally invest in the project;
d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for prequalification
purposes; and
e. The appointment of Lufthansa as the facility operator, in view of the Philippine requirement in the
operation of a public utility.
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 the DOTC approved the finding of the PBAC.
The PBAC then proceeded with the opening of the second envelope of the Paircargo Consortium
which contained its Technical Proposal.
On October 3, 1996, AEDC reiterated its objections, particularly with respect to Paircargo's financial
capability, in view of the restrictions imposed by Section 21-B of the General Banking Act and Sections
1380 and 1381 of the Manual Regulations for Banks and Other Financial Intermediaries. On October 7,
1996, AEDC again 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 issues they raised were
addressed.
On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and the Paircargo
Consortium containing their respective financial proposals. Both proponents offered to build the NAIA
Passenger Terminal III for at least $350 million at no cost to the government and to pay the government:
5% share in gross revenues for the first five years of operation, 7.5% share in gross revenues for the next
ten years of operation, and 10% share in gross revenues for the last ten years of operation, in accordance
with the Bid Documents. However, in addition to the foregoing, AEDC offered to pay the government a total
of P135 million as guaranteed payment for 27 years while Paircargo Consortium offered to pay the
government a total of P17.75 billion for the same period.
Thus, the PBAC formally informed AEDC that it had accepted the price proposal submitted by the
Paircargo Consortium, and gave AEDC 30 working days or until November 28, 1996 within which to match
the said bid, otherwise, the project would be awarded to Paircargo.
As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary Amado
Lagdameo, on December 11, 1996, issued a notice to Paircargo Consortium regarding AEDC's failure to
match the proposal.
On February 27, 1997, Paircargo Consortium incorporated into Philippine International Airport
Terminals Co., Inc. (PIATCO).
AEDC subsequently protested the alleged undue preference given to PIATCO and reiterated its
objections as regards the prequalification of PIATCO.
On April 11, 1997, the DOTC submitted the concession agreement for the second-pass approval of
the NEDA-ICC.
On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a Petition for 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 and Pantaleon D. Alvarez, in his capacity as Chairman of the
PBAC Technical Committee.
On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate the approval, on a no-
objection basis, of the BOT agreement between the DOTC and PIATCO. As the ad referendum gathered
only four (4) of the required six (6) signatures, the NEDA merely noted the agreement.
On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO.
On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO,
through its President, Henry T. Go, signed the "Concession Agreement for the Build-Operate-and-Transfer
Arrangement of the Ninoy Aquino International Airport Passenger Terminal III" (1997 Concession
Agreement). The Government granted PIATCO the franchise to operate and maintain the said terminal
during the concession period and to collect the fees, rentals and other charges in accordance with the rates
or schedules stipulated in the 1997 Concession Agreement. The Agreement provided that the concession
period shall be for twenty-five (25) years commencing from the in-service date, and may be renewed at the
option of the Government for a period not exceeding twenty-five (25) years. At the end of the concession
period, PIATCO shall transfer the development facility to MIAA.
On November 26, 1998, the Government and PIATCO signed an Amended and Restated
Concession Agreement (ARCA). Among the provisions of the 1997 Concession Agreement that were
amended by the ARCA were: Sec. 1.11 pertaining 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 the Concessionaire; Sec. 4.04 concerning the assignment by Concessionaire of its interest in the
Development Facility; Sec. 5.08 (c) dealing with the proceeds of Concessionaire's insurance; Sec. 5.10
with respect to the temporary take-over of operations by GRP; Sec. 5.16 pertaining to the taxes, duties and
other imposts that 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 termination of the
contract; and Sec. 10.02 providing for the venue of the arbitration proceedings in case a dispute or
controversy arises between the parties to the agreement.
Subsequently, the Government and PIATCO signed three Supplements to the ARCA. The First
Supplement was signed on August 27, 1999; the Second Supplement on September 4, 2000; and the Third
Supplement on June 22, 2001 (collectively, Supplements).
The First Supplement to the ARCA amended Sec. 1.36 of the ARCA defining "Revenues" or "Gross
Revenues"; Sec. 2.05 (d) of the ARCA referring to the obligation of MIAA to provide sufficient funds for the
upkeep, maintenance, repair and/or replacement of all airport facilities and equipment which are owned or
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 Supplement also provided a stipulation as regards
the construction of a surface road 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 regarding
the improvement of Sales Road; and the changes in the timetable. It also amended Sec. 6.01 (c) of the
ARCA pertaining to the Disposition of Terminal Fees; Sec. 6.02 of the ARCA by inserting an introductory
paragraph; and Sec. 6.02 (a) (iii) of the ARCA referring to the Payments of Percentage Share in Gross
Revenues.
The Second Supplement to the ARCA contained provisions concerning the clearing, removal,
demolition or disposal of subterranean structures uncovered or discovered at the site of the construction of
the terminal by the Concessionaire. It defined the scope of works; it provided for the procedure for the
demolition of the said structures and the consideration for the same which the GRP shall pay PIATCO; it
provided for time extensions, incremental and consequential costs and losses consequent to the existence
of such structures; and it provided for some additional obligations on the part of PIATCO as regards the
said structures.
Finally, the Third Supplement provided for the obligations of the Concessionaire as regards the
construction of the surface road connecting Terminals II and III.
Meanwhile, the MIAA which is charged with the maintenance and operation of the NAIA Terminals I
and II, had existing concession contracts with various service providers to offer international airline airport
services, such as in-flight catering, passenger handling, ramp and ground support, aircraft maintenance
and provisions, cargo handling and warehousing, and other services, to several international airlines at the
NAIA. Some of these service providers are the Miascor Group, DNATA-Wings Aviation Systems Corp., and
the MacroAsia Group. Miascor, DNATA and MacroAsia, together with Philippine Airlines (PAL), are the
dominant players in the industry with an aggregate market share of 70%.
On September 17, 2002, the workers of the international airline service providers, claiming that they
stand to lose their employment upon the implementation of the questioned agreements, filed before this
Court a petition for prohibition to enjoin the enforcement of said agreements. 2
On October 15, 2002, the service providers, joining the cause of the petitioning workers, filed a
motion for intervention and a petition-in-intervention.
On October 24, 2002, Congressmen Salacnib Baterina, Clavel Martinez and Constantino Jaraula
filed a similar petition with this Court.3
On November 6, 2002, several employees of the MIAA likewise filed a petition assailing the legality of
the various agreements.4
On December 11, 2002. another group of Congressmen, Hon. Jacinto V. Paras, Rafael P. Nantes,
Eduardo C. Zialcita, Willie B. Villarama, Prospero C. Nograles, Prospero A. Pichay, Jr., Harlin Cast Abayon
and Benasing O. Macaranbon, moved to intervene in the case as Respondents-Intervenors. They filed their
Comment-In-Intervention defending the validity of the assailed agreements and praying for the dismissal of
the petitions.
During the pendency of the case before this Court, President Gloria Macapagal Arroyo, on November
29, 2002, in her speech at the 2002 Golden Shell Export Awards at Malacaang Palace, stated that she will
not "honor (PIATCO) contracts which the Executive Branch's legal offices have concluded (as) null and
void."5
Respondent PIATCO filed its Comments to the present petitions on November 7 and 27, 2002. The
Office of the Solicitor General and the Office of the Government Corporate Counsel filed their respective
Comments in behalf of the public respondents.
On December 10, 2002, the Court heard the case on oral argument. After the oral argument, the
Court then resolved in open court to require the parties to file simultaneously their respective Memoranda
in amplification of the issues heard in the oral arguments within 30 days and to explore the possibility of
arbitration or mediation as provided in the challenged contracts.
In their consolidated Memorandum, the Office of the Solicitor General and the Office of the
Government Corporate Counsel prayed that the present petitions be given due course and that judgment
be rendered declaring the 1997 Concession Agreement, the ARCA and the Supplements thereto void for
being contrary to the Constitution, the BOT Law and its Implementing Rules and Regulations.
On March 6, 2003, respondent PIATCO informed the Court that on March 4, 2003 PIATCO
commenced arbitration proceedings before the International Chamber of Commerce, International Court of
Arbitration (ICC) by filing a Request for Arbitration with the Secretariat of the ICC against the Government
of the Republic of the Philippines acting through the DOTC and MIAA.
In the present cases, the Court is again faced with the task of resolving complicated issues made
difficult by their intersecting legal and economic implications. The Court is aware of the far reaching fall out
effects of the ruling which it makes today. For more than a century and whenever the exigencies of the
times demand it, this Court has never shirked from its solemn duty to dispense justice and resolve "actual
controversies involving rights which are legally demandable and enforceable, and to determine whether or
not there has been grave abuse of discretion amounting to lack or excess of jurisdiction." 6 To be sure, this
Court will not begin to do otherwise today.
We shall first dispose of the procedural issues raised by respondent PIATCO which they allege will
bar the resolution of the instant controversy.
Petitioners' Legal Standing to File
the present Petitions
a. G.R. Nos. 155001 and 155661
In G.R. No. 155001 individual petitioners are employees of various service providers 7 having
separate concession contracts with MIAA and continuing service agreements with various international
airlines to provide in-flight catering, passenger handling, ramp and ground support, aircraft maintenance
and provisions, cargo handling and warehousing and other services. Also included as petitioners are labor
unions MIASCOR Workers Union-National Labor Union and Philippine Airlines Employees Association.
These petitioners filed the instant action for prohibition as taxpayers and as parties whose rights and
interests stand to be violated by the implementation of the PIATCO Contracts.
Petitioners-Intervenors in the same case are all corporations organized and existing under Philippine
laws engaged in the business of providing in-flight catering, passenger handling, ramp and ground support,
aircraft maintenance and provisions, cargo handling and warehousing and other services to several
international airlines at the Ninoy Aquino International Airport. Petitioners-Intervenors allege that as tax-
paying international airline and airport-related service operators, each one of them stands to be irreparably
injured by the implementation of the PIATCO Contracts. Each of the petitioners-intervenors have separate
and subsisting concession agreements with MIAA and with various international airlines which they allege
are being interfered with and violated by respondent PIATCO.
In G.R. No. 155661, petitioners constitute employees of MIAA and Samahang Manggagawa sa
Paliparan ng Pilipinas - a legitimate labor union and accredited as the sole and exclusive bargaining agent
of all the employees in MIAA. Petitioners anchor their petition for prohibition on the nullity of the contracts
entered into by the Government and PIATCO regarding the build-operate-and-transfer of the NAIA IPT III.
They filed the petition as taxpayers and persons who have a legitimate interest to protect in the
implementation of the PIATCO Contracts.
Petitioners in both cases raise the argument that the PIATCO Contracts contain stipulations which
directly contravene numerous provisions of the Constitution, specific provisions of the BOT Law and its
Implementing Rules and Regulations, and public policy. Petitioners contend that the DOTC and the MIAA,
by entering into said contracts, have committed grave abuse of discretion amounting to lack or excess of
jurisdiction which can be remedied only by a writ of prohibition, there being no plain, speedy or adequate
remedy in the ordinary course of law.
In particular, petitioners assail the provisions in the 1997 Concession Agreement and the ARCA
which grant PIATCO the exclusive right to operate a commercial international passenger terminal within the
Island of Luzon, except those international airports already existing at the time of the execution of the
agreement. The contracts further provide that upon the commencement of operations at the NAIA IPT III,
the Government shall cause the closure of Ninoy Aquino International Airport Passenger Terminals I and II
as international passenger terminals. With respect to existing concession agreements between MIAA and
international airport service providers regarding certain services or operations, the 1997 Concession
Agreement and the ARCA uniformly provide that such services or operations will not be carried over to the
NAIA IPT III and PIATCO is under no obligation to permit such carry over except through a separate
agreement duly entered into with PIATCO.8
With respect to the petitioning service providers and their employees, upon the commencement of
operations of the NAIA IPT III, they allege that they will be effectively barred from providing international
airline airport services at the NAIA Terminals I and II as all international airlines and passengers will be
diverted to the NAIA IPT III. The petitioning service providers will thus be compelled to contract with
PIATCO alone for such services, with no assurance that subsisting contracts with MIAA and other
international airlines will be respected. Petitioning service providers 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
stipulated period, and thereafter, renewed so as to allow each of the petitioning service providers to recoup
their investments and obtain a reasonable return thereon.
Petitioning employees of various service providers at the NAIA Terminals I and II and of MIAA on the
other hand allege that with the closure of the NAIA Terminals I and II as international passenger terminals
under the PIATCO Contracts, they stand to lose employment.
The question on legal standing is whether such parties have "alleged such a personal stake in the
outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of
issues upon which the court so largely depends for illumination of difficult constitutional
questions."9 Accordingly, it has been held that the interest of a person assailing the constitutionality of a
statute must be direct and personal. He must be able to show, not only that the law or any government act
is invalid, but also that he sustained or is in imminent danger of sustaining some direct injury as a result of
its enforcement, and not merely that he suffers thereby in some indefinite way. It must appear that the
person complaining has been or is about to be denied some right or privilege to which he is lawfully entitled
or that he is about to be subjected to some burdens or penalties by reason of the statute or act complained
of.10
We hold that petitioners have the requisite standing. In the above-mentioned cases, petitioners have
a direct and substantial interest to protect by reason of the implementation of the PIATCO Contracts. They
stand to lose their source of livelihood, a property right which is zealously protected by the Constitution.
Moreover, subsisting concession agreements between MIAA and petitioners-intervenors and service
contracts between international airlines and petitioners-intervenors stand to be nullified or terminated by the
operation of the NAIA IPT III under the PIATCO Contracts. The financial prejudice brought about by the
PIATCO Contracts on petitioners and petitioners-intervenors in these cases are legitimate interests
sufficient to confer on them the requisite standing to file the instant petitions.
b. G.R. No. 155547
In G.R. No. 155547, petitioners filed the petition for prohibition as members of the House of
Representatives, citizens and taxpayers. They allege that as members of the House of Representatives,
they are especially interested in the PIATCO Contracts, because the contracts compel the Government
and/or the House of Representatives to appropriate funds necessary to comply with the provisions
therein.11 They cite provisions of the PIATCO Contracts which require disbursement of unappropriated
amounts in compliance with the contractual obligations of the Government. They allege that the
Government obligations in the PIATCO Contracts which compel government expenditure without
appropriation is a curtailment of their prerogatives as legislators, contrary to the mandate of the
Constitution that "[n]o money shall be paid out of the treasury except in pursuance of an appropriation
made by law."12
Standing is a peculiar concept in constitutional law because in some cases, suits are not brought by
parties who have been personally injured by the operation of a law or any other government act but by
concerned citizens, taxpayers or voters who actually sue in the public interest. Although we are not
unmindful of the cases of Imus Electric Co. v. Municipality of Imus13 and Gonzales v.
Raquiza14 wherein this Court held that appropriation must be made only on amounts immediately
demandable, public interest demands that we take a more liberal view in determining whether the
petitioners suing as legislators, taxpayers and citizens have locus standi to file the instant petition.
In Kilosbayan, Inc. v. Guingona,15 this Court held "[i]n line with the liberal policy of this Court on locus
standi, ordinary taxpayers, members of Congress, and even association of planters, and non-profit civic
organizations were allowed to initiate and prosecute actions before this Court to question the
constitutionality or validity of laws, acts, decisions, rulings, or orders of various government agencies or
instrumentalities."16 Further, "insofar as taxpayers' suits are concerned . . . (this Court) is not devoid of
discretion as to whether or not it should be entertained." 17 As such ". . . even if, strictly speaking, they [the
petitioners] are not covered by the definition, it is still within the wide discretion of the Court to waive the
requirement and so remove the impediment to its addressing and resolving the serious constitutional
questions raised."18 In view of the serious legal questions involved and their impact on public interest, we
resolve to grant standing to the petitioners.
Other Procedural Matters
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 resolve. Moreover, PIATCO alleges that
submission of this controversy to this Court at the first instance is a violation of the rule on hierarchy of
courts. They contend that trial courts have concurrent jurisdiction with this Court with respect to a special
civil action for prohibition and hence, following the rule on hierarchy of courts, resort must first be had
before the trial courts.
After a thorough study and careful evaluation of the issues involved, this Court is of the view that the
crux of the instant controversy involves significant legal questions. The facts necessary to resolve these
legal questions are well established and, hence, need not be determined by a trial court.
The rule on hierarchy of courts will not also prevent this Court from assuming jurisdiction over the
cases at bar. The said rule may be relaxed when the redress desired cannot be obtained in the appropriate
courts or where exceptional and compelling circumstances justify availment of a remedy within and calling
for the exercise of this Court's primary jurisdiction.19
It is easy to discern that exceptional circumstances exist in the cases at bar that call for the
relaxation of the rule. Both petitioners and respondents agree that these cases are of transcendental
importance as they involve the construction and operation of the country's premier international airport.
Moreover, the crucial issues 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 Implementing Rules and
Regulations. Thus, considering the nature of the controversy before the Court, procedural bars may be
lowered to give way for the speedy disposition of the instant cases.
Legal Effect of the Commencement
of Arbitration Proceedings by
PIATCO
There is one more procedural obstacle which must be overcome. The Court is aware that arbitration
proceedings pursuant to Section 10.02 of the ARCA have been filed at the instance of respondent PIATCO.
Again, we hold that the arbitration step taken by PIATCO will not oust this Court of its jurisdiction over the
cases at bar.
In Del Monte Corporation-USA v. Court of Appeals,20 even after finding that the arbitration clause in
the Distributorship Agreement in question is valid and the dispute between the parties is arbitrable, this
Court affirmed the trial court's decision denying petitioner's Motion to Suspend Proceedings pursuant to the
arbitration clause under the contract. In so ruling, this Court held that as contracts produce legal effect
between the parties, their assigns and heirs, only the parties to the Distributorship Agreement are bound by
its terms, including the arbitration clause stipulated therein. This Court ruled that arbitration proceedings
could be called for but only with respect to the parties to the contract in question. Considering that there
are parties to the case who are neither parties to the Distributorship Agreement nor heirs or assigns of the
parties thereto, this Court, citing its previous ruling in Salas, Jr. v. Laperal Realty Corporation, 21 held that to
tolerate the splitting of proceedings by allowing arbitration as to some of the parties on the one hand and
trial for the others on the other hand would, in effect, result in multiplicity of suits, duplicitous procedure
and unnecessary delay.22 Thus, we ruled that the interest of justice would best be served if the trial court
hears and adjudicates the case in a single and complete proceeding.
It is established that petitioners in the present cases who have presented legitimate interests in the
resolution of the controversy are not parties to the PIATCO Contracts. Accordingly, they cannot be bound
by the arbitration clause provided for in the ARCA and hence, cannot be compelled to submit to arbitration
proceedings. A speedy and decisive resolution of all the critical issues in the present controversy,
including those raised by petitioners, cannot be made before an arbitral tribunal. The object of
arbitration is precisely to allow an expeditious determination of a dispute. This objective would not be met if
this Court were to allow the parties to settle the cases by arbitration as there are certain issues involving
non-parties to the PIATCO Contracts which the arbitral tribunal will not be equipped to resolve.
Now, to the merits of the instant controversy.
I
Is PIATCO a qualified bidder?
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 Paircargo Consortium failed to meet
the financial capability required under the BOT Law and the Bid Documents. They allege that in computing
the ability of the Paircargo Consortium to meet the minimum equity requirements for the project, the entire
net worth of Security Bank, a member of the consortium, should not be considered.
PIATCO relies, on the other hand, on the strength of the Memorandum dated October 14, 1996
issued by the DOTC Undersecretary Primitivo C. Cal stating that the Paircargo Consortium is found to have
a combined net worth of P3,900,000,000.00, sufficient to meet the equity requirements of the project. The
said Memorandum was in response to a letter from Mr. Antonio Henson of AEDC to President Fidel V.
Ramos questioning the financial capability of the Paircargo Consortium on the ground that it does not have
the financial resources to put up the required minimum equity of P2,700,000,000.00. This contention is
based on the restriction under R.A. No. 337, as amended or the General Banking Act that a commercial
bank cannot invest in any single enterprise in an amount more than 15% of its net worth. In the said
Memorandum, Undersecretary Cal opined:
The Bid Documents, as clarified through Bid Bulletin Nos. 3 and 5, require that financial capability
will be evaluated based on total financial capability of all the member companies of the [Paircargo]
Consortium. In this connection, the Challenger was found to have a combined net worth of
P3,926,421,242.00 that could support a project costing approximately P13 Billion.
It is not a requirement that the net worth must be "unrestricted." To impose that as a requirement
now will be nothing less than unfair.
The financial statement or the net worth is not the sole basis in establishing financial capability. As
stated in Bid Bulletin No. 3, financial capability may also be established by testimonial letters issued
by reputable banks. The Challenger has complied with this requirement.
To recap, net worth reflected in the Financial Statement should not be taken as the amount of the
money to be used to answer the required thirty percent (30%) equity of the challenger but rather to
be used in establishing if there is 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 contract (Section 12.1 IRR of the BOT Law) but not for pre-qualification (Section 5.4 of the same
document).23
Under the BOT Law, in case of a build-operate-and-transfer arrangement, the contract shall be
awarded to the bidder "who, having satisfied the minimum financial, technical, organizational
and legal standards" required by the law, has submitted the lowest bid and most favorable terms
of the project.24 Further, the 1994 Implementing Rules and Regulations of the BOT Law provide:
Section 5.4 Pre-qualification Requirements.
xxx xxx xxx
c. Financial Capability: The project proponent must have adequate capability to 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 purposes of pre-qualification, 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 amount of equity to the project, and (ii) a letter
testimonial from reputable banks attesting that the project proponent and/or members of the
consortium are banking with them, that they are in good financial standing, and that they
have adequate resources. The government agency/LGU concerned shall determine on a project-
to-project basis and before pre-qualification, the minimum amount of equity needed. (emphasis
supplied)
Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated August 16, 1996 amending
the financial capability requirements for pre-qualification of the project proponent as follows:
6. Basis of Pre-qualification
The basis for the pre-qualification shall be on the compliance of the proponent to the minimum
technical and financial requirements provided in the Bid Documents and in the IRR of the BOT Law,
R.A. No. 6957, as amended by R.A. 7718.
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 percent (20%) specified in
Section 3.6.4 of the Bid Documents. This is to correlate with the required debt-to-equity ratio of
70:30 in Section 2.01a of the draft concession agreement. The debt portion of the project financing
should not exceed 70% of the actual project cost.
Accordingly, based on the above provisions of law, the Paircargo Consortium or any 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 30% of the project cost through (i) proof of the ability
to provide a minimum amount of equity to the project, and (ii) a letter testimonial from reputable banks
attesting that the project proponent or members of the consortium are banking with them, that they are in
good financial standing, and that they have adequate resources.
As the minimum project cost was estimated to be US$350,000,000.00 or roughly
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 amount of at least P2,755,095,000.00.
Paircargo's Audited Financial Statements as of 1993 and 1994 indicated that it had a net worth of
P2,783,592.00 and P3,123,515.00 respectively. 26 PAGS' Audited Financial Statements as of 1995 indicate
that it has approximately P26,735,700.00 to invest as its equity for the project. 27 Security Bank's Audited
Financial Statements as of 1995 show that it has a net worth equivalent to its capital funds in the amount of
P3,523,504,377.00.28
We agree with public respondents that with respect to Security Bank, the entire amount of its net
worth could not be invested in a single undertaking or enterprise, whether allied or non-allied in accordance
with the provisions of R.A. No. 337, as amended or the General Banking Act:
Sec. 21-B. The provisions in this or in any other Act to the contrary notwithstanding, the Monetary
Board, whenever it shall deem appropriate and necessary to further national development
objectives or support national priority projects, may authorize a commercial bank, a bank
authorized to provide commercial banking services, as well as a government-owned and
controlled bank, to operate under an expanded commercial banking authority and by virtue
thereof exercise, in addition to powers authorized for commercial banks, the powers of an
Investment House as provided in Presidential Decree No. 129, invest in the equity of a non-
allied undertaking, or own a majority or all of the equity in a financial intermediary other than a
commercial bank or a bank authorized to provide commercial banking services: Provided, That (a)
the total investment in equities shall not exceed fifty percent (50%) of the net worth of the bank; (b)
the equity investment in any one enterprise whether allied or non-allied shall not exceed
fifteen percent (15%) of the net worth of the bank; (c) the equity investment of the bank, or of its
wholly or majority-owned subsidiary, in a single non-allied undertaking shall not exceed thirty-five
percent (35%) of the total equity in the enterprise nor shall it exceed thirty-five percent (35%) of the
voting stock in that enterprise; and (d) the equity investment in other banks shall be deducted from
the investing bank's net worth for purposes of computing the prescribed ratio of net worth to risk
assets.
xxx xxx xxx
Further, the 1993 Manual of Regulations for Banks provides:
SECTION X383. Other Limitations and Restrictions. The following limitations and restrictions
shall also apply regarding equity investments of banks.
a. In any single enterprise. The equity investments of banks in any single enterprise shall not
exceed at any time fifteen percent (15%) of the net worth of the investing bank as defined in Sec.
X106 and Subsec. X121.5.
Thus, the maximum amount that Security Bank could validly invest in the Paircargo Consortium is
only P528,525,656.55, representing 15% of its entire net worth. The total net worth therefore of the
Paircargo Consortium, after considering the maximum amounts that may be validly invested by each of its
members is P558,384,871.55 or only 6.08% of the project cost, 29 an amount substantially less than the
prescribed minimum equity investment required for the project in the amount of P2,755,095,000.00 or 30%
of the project cost.
The purpose of pre-qualification in any public bidding is to determine, at the earliest opportunity, the
ability of the bidder to undertake the project. Thus, with respect to the bidder's financial capacity at the pre-
qualification stage, the law requires the government agency to examine and determine the ability of the
bidder to fund the entire cost of the project by considering the maximum amounts that each bidder
may invest in the project at the time of pre-qualification.
The PBAC has determined that any prospective bidder for the construction, operation and
maintenance of the NAIA IPT III project should prove that it has the ability to provide equity in the minimum
amount of 30% of the project cost, in accordance with the 70:30 debt-to-equity ratio prescribed in the Bid
Documents. Thus, in the case of Paircargo Consortium, the PBAC should determine the maximum
amounts that each member of the consortium may commit for the construction, operation and
maintenance of the NAIA IPT III project at the time of pre-qualification. With respect to Security Bank,
the maximum amount which may be invested by it would only be 15% of its net worth in view of the
restrictions imposed by the General Banking Act. Disregarding the investment ceilings provided by
applicable law would not result in a proper evaluation of whether or not a bidder is pre-qualified to
undertake the project as for all intents and purposes, such ceiling or legal restriction determines the true
maximum amount which a bidder may invest in the project.
Further, the determination of whether or not a bidder is pre-qualified to undertake the project requires
an evaluation of the financial capacity of the said bidder at the 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 ability of the bidder to undertake the project on the basis of documents submitted. This would
open doors to abuse and defeat the very purpose of a public bidding. This is especially true in the case at
bar which involves the investment of billions of pesos by the project proponent. The relevant government
authority is duty-bound to 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 financial
capability would not secure the viability and integrity of the project. A restrictive and conservative
application of the rules and procedures of public bidding is necessary not only to protect the impartiality and
regularity of the proceedings but also to ensure the financial and technical reliability of the project. It has
been held that:
The basic rule in public bidding is that bids should be evaluated based on the required documents
submitted before and not after the opening of bids. Otherwise, the foundation of a fair and
competitive public bidding would be defeated. Strict observance of the rules, regulations, and
guidelines of the bidding process is the only safeguard to a fair, honest and competitive
public bidding.30
Thus, if the maximum amount of equity that a bidder may invest in the project at the time the bids
are submittedfalls short of the minimum amounts required to be put up by the bidder, said bidder should
be properly disqualified. Considering that at the pre-qualification stage, the maximum amounts which the
Paircargo Consortium may invest in the project fell short of the minimum amounts prescribed by the PBAC,
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 void.
While it would be proper at this juncture to end the resolution of the instant controversy, as the legal
effects of the disqualification of respondent PIATCO's predecessor would come into play and necessarily
result in the nullity of all the subsequent contracts entered by it in pursuance of the project, the Court feels
that it is necessary to discuss in full the pressing issues of the present controversy for a complete
resolution thereof.
II
Is the 1997 Concession Agreement valid?
Petitioners and public respondents contend that the 1997 Concession Agreement is invalid as it
contains provisions that substantially depart from the draft Concession Agreement included in the Bid
Documents. They maintain that a substantial departure from the draft Concession Agreement is a violation
of public policy and renders the 1997 Concession Agreement null and void.
PIATCO maintains, however, that the Concession Agreement attached to the Bid Documents is
intended to be a draft, i.e., subject to change, alteration or modification, and that this intention was clear to
all participants, including AEDC, and DOTC/MIAA. It argued further that said intention is expressed in Part
C (6) of Bid Bulletin No. 3 issued by the PBAC which states:
6. Amendments to the Draft Concessions Agreement
Amendments to the Draft Concessions Agreement shall be issued from time to time. Said
amendments shall only cover items that would not materially affect the preparation of the
proponent's proposal.
By its very nature, public bidding aims to protect the public interest by giving the public the best
possible advantages through open competition. Thus:
Competition must be legitimate, fair and honest. In the field of government contract law, competition
requires, not only `bidding upon a common standard, a common basis, upon the same thing, the
same subject matter, the same undertaking,' but also that it be legitimate, fair and honest; and
not designed to injure or defraud the government.31
An essential element of a publicly bidded contract is that all bidders must be on equal footing. Not
simply in terms of application of the procedural rules and regulations imposed by the relevant government
agency, but more importantly, on the contract bidded upon. Each bidder must be able to bid on the same
thing. The rationale is obvious. If the winning bidder is allowed to later include or modify certain provisions
in the contract awarded such that the contract is altered in any material respect, then the essence of fair
competition in the public bidding is destroyed. A public bidding would indeed be a farce if after the contract
is awarded, the winning bidder may modify the contract and include provisions which are favorable to it that
were not previously made available to the other bidders. Thus:
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 the bidders. The
specifications should, accordingly, operate equally or indiscriminately upon all bidders. 32
The same rule was restated by Chief Justice Stuart of the Supreme Court of Minnesota:
The law is well settled that where, as in this case, municipal authorities can only let a contract for
public work to the lowest responsible bidder, the proposals and specifications therefore must be so
framed as to permit free and full competition. Nor can they enter into a contract with the best
bidder containing substantial provisions beneficial to him, not included or contemplated in
the terms and specifications upon which the bids were invited.33
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 proposal."
While we concede that a winning bidder is not precluded from modifying or amending certain
provisions of the contract bidded upon, such changes must not constitute substantial or material
amendments that would alter the basic parameters of the contract and would constitute a denial to
the other bidders of the opportunity to bid on the same terms. Hence, the determination of whether or
not a modification or amendment of a contract bidded out constitutes a substantial amendment rests on
whether the contract, when taken as a whole, would contain substantially different terms and conditions
that would have the effect of altering the technical and/or financial proposals previously submitted by other
bidders. The alterations and modifications in the contract executed between the government and 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.
In the case of Caltex (Philippines), Inc. v. Delgado Brothers, Inc.,34 this Court quoted 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 new public bidding, is null and void:
The Court agrees with the contention of counsel for the plaintiffs that the due 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 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 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 competition between
the bidders. He who bids or offers the best terms is awarded the contract subject of the bid, and it is
obvious that such protection and best possible advantages to the public will disappear if the parties
to a contract executed after public bidding may alter or amend it without another previous public
bidding.35
Hence, the question that comes to fore is this: is the 1997 Concession Agreement 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 Concession Agreement attached to the Bid Documents and
the 1997 Concession Agreement reveals that the documents differ in at least two material respects:
a. Modification on the Public
Utility Revenues and Non-Public
Utility Revenues that may be
collected by PIATCO
The fees that may be imposed and collected by PIATCO under the draft Concession 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 in accordance with a prescribed parametric formula and
adjustments are made effective only upon written approval by MIAA; (2) fees other than those included in
the first category which maybe adjusted by PIATCO whenever it deems necessary without need for
consent of DOTC/MIAA; and (3) new fees and charges that may be imposed by PIATCO which have not
been previously imposed or collected at the Ninoy Aquino International Airport Passenger Terminal I,
pursuant to Administrative Order No. 1, Series of 1993, as amended. The glaring distinctions between the
draft Concession Agreement and the 1997 Concession Agreement lie in the types of fees included in each
category and the extent of the supervision and regulation which MIAA is allowed to exercise in relation
thereto.
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 approval by MIAA, the draft
Concession Agreementincludes the following:36
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) groundhandling fees;
(4) rentals and airline offices;
(5) check-in counter rentals; and
(6) porterage fees.
Under the 1997 Concession Agreement, fees which are subject to adjustment and effective upon
MIAA approval are classified as "Public Utility Revenues" and include: 37
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) check-in counter fees; and
(4) Terminal Fees.
The implication of the reduced number of fees that are subject to MIAA approval is best appreciated
in relation to fees included in the second category identified above. Under the 1997 Concession
Agreement, fees which PIATCO may adjust whenever it deems necessary without need for consent of
DOTC/MIAA are "Non-Public Utility Revenues" and is defined as "all other income not classified as Public
Utility Revenues derived from operations of the Terminal and the Terminal Complex." 38 Thus, under the
1997 Concession Agreement, ground handling fees, rentals from airline offices and porterage fees are no
longer subject to MIAA regulation.
Further, under Section 6.03 of the draft Concession Agreement, MIAA reserves the right to regulate
(1) lobby and vehicular parking fees and (2) other new fees and charges that may be imposed by PIATCO.
Such regulation may be made by periodic adjustment and is effective only upon written approval of MIAA.
The full text of said provision is quoted below:
Section 6.03. Periodic Adjustment in Fees and Charges. Adjustments in the aircraft parking fees,
aircraft tacking fees, groundhandling fees, rentals and airline offices, check-in-counter rentals and
porterage fees shall be allowed only once every two years and in accordance with the Parametric
Formula attached hereto as Annex F. Provided that adjustments shall be made effective only after
the written express approval of the MIAA. Provided, further, that such approval of the MIAA, shall
be contingent only on the conformity of the adjustments with the above said parametric formula.
The first adjustment shall be made prior to the In-Service Date of the Terminal.
The MIAA reserves the right to regulate under the foregoing terms and conditions the lobby
and vehicular parking fees and other new fees and charges as contemplated in paragraph 2
of Section 6.01 if in its judgment the users of the airport shall be deprived of a free option for
the services they cover.39
On the other hand, the equivalent provision under the 1997 Concession Agreement reads:
Section 6.03 Periodic Adjustment in Fees and Charges.
xxx xxx xxx
(c) Concessionaire shall at all times be judicious in fixing fees and charges constituting Non-Public
Utility Revenues in order to ensure that End Users are not unreasonably deprived of
services. While the vehicular parking fee, porterage fee and greeter/well wisher fee constitute
Non-Public Utility Revenues of 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 said fees have become exorbitant resulting in the unreasonable deprivation of
End Users of such services.40
Thus, under the 1997 Concession Agreement, with respect to (1) vehicular parking fee, (2)
porterage fee and (3) greeter/well wisher fee, all that MIAA can do is to require PIATCO to explain and
justify the fees set by PIATCO. In the draft Concession Agreement, vehicular parking fee is subject to
MIAA regulation and approval under the second paragraph of Section 6.03 thereof while porterage fee is
covered by the first paragraph of the same provision. There is an obvious relaxation of the extent of control
and regulation by MIAA with respect to the particular fees that may be charged by PIATCO.
Moreover, with respect to the third category of fees that may be imposed and collected by PIATCO,
i.e., new fees and charges that may be imposed by PIATCO which have not been previously imposed or
collected at the Ninoy Aquino International Airport Passenger Terminal I, under Section 6.03 of the draft
Concession Agreement MIAA has reserved the right to regulate the same under the same conditions that
MIAA may regulate fees under the first category, i.e., periodic adjustment of once every two years in
accordance with a prescribed parametric formula and effective only upon written approval by MIAA.
However, under the 1997 Concession Agreement, adjustment of fees under the third category is not
subject to MIAA regulation.
With respect to terminal fees that may be charged by PIATCO, 41 as shown earlier, this was included
within the category of "Public Utility Revenues" under the 1997 Concession Agreement. This classification
is significant because under the 1997 Concession Agreement, "Public Utility Revenues" are subject to an
"Interim Adjustment" of fees upon the occurrence of certain extraordinary events specified in the
agreement.42 However, under the draft Concession Agreement, terminal fees are not included in the
types of fees that may be subject to "Interim Adjustment." 43
Finally, under the 1997 Concession Agreement, "Public Utility Revenues," except terminal fees, are
denominated in US Dollars44 while payments to the Government 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 Dollars while payments by PIATCO to the Government are in Philippine currency
under the 1997 Concession Agreement, PIATCO is able to enjoy the benefits of depreciations of the
Philippine Peso, while being effectively insulated from the detrimental effects of exchange rate fluctuations.
When taken as a whole, the changes under the 1997 Concession Agreement with respect to
reduction in the types of fees that are subject to MIAA regulation and the relaxation of such regulation with
respect to other fees are significant amendments that substantially distinguish the draft Concession
Agreement from the 1997 Concession Agreement. The 1997 Concession Agreement, in this respect,
clearly gives PIATCO more favorable terms than what was available to other bidders at the time the
contract was bidded out. It is not very difficult to see that the changes in the 1997 Concession Agreement
translate to direct and concrete financial advantages for PIATCO which were not available at the time
the contract was offered for bidding. It cannot be denied that under the 1997 Concession Agreement only
"Public Utility Revenues" are subject to MIAA regulation. Adjustments of all other fees imposed and
collected by PIATCO are entirely within its control. Moreover, with respect to terminal fees, under the 1997
Concession Agreement, the same is further subject to "Interim Adjustments" not previously stipulated in the
draft Concession Agreement. Finally, the change in the currency stipulated for "Public Utility Revenues"
under the 1997 Concession Agreement, except terminal fees, gives PIATCO an added benefit which was
not available at the time of bidding.
b. Assumption by the
Government of the liabilities of
PIATCO in the event of the latter's
default thereof
Under the draft Concession Agreement, default by PIATCO of any of its obligations to creditors
who have provided, loaned or advanced funds for the NAIA IPT III project does not result in the assumption
by the Government of these liabilities. In fact, nowhere in the said contract does default of PIATCO's loans
figure in the agreement. Such default does not directly result in any concomitant right or obligation in favor
of the Government.
However, the 1997 Concession Agreement provides:
Section 4.04 Assignment.
xxx xxx xxx
(b) In the event Concessionaire should default in the payment of an Attendant Liability, and the
default has resulted in the acceleration of the payment due date of the Attendant Liability prior to its
stated date of maturity, the Unpaid Creditors and 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, to be
substituted as concessionaire and operator of the Development Facility in accordance with the
terms and conditions hereof, or designate a qualified operator acceptable to GRP to operate the
Development Facility, likewise under the terms and conditions of this Agreement; Provided that if at
the end of the 180-day period GRP shall not have served the Unpaid Creditors and Concessionaire
written notice of its choice, GRP shall be deemed to have elected to take over the Development
Facility with the concomitant assumption of Attendant Liabilities.
(c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as concessionaire,
the latter shall form and organize a concession company qualified to take over the operation of the
Development Facility. If the concession company should elect to designate an operator for the
Development Facility, the concession company shall in good faith identify and designate a qualified
operator acceptable to GRP within one hundred eighty (180) days from receipt of GRP's written
notice. If the concession company, acting in good faith and with due diligence, is unable to
designate a qualified operator within the aforesaid period, then GRP shall at the end of the 180-day
period take over the Development Facility and assume Attendant Liabilities.
The term "Attendant Liabilities" under the 1997 Concession Agreement is defined as:
Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of
the Concessionaire as owing to Unpaid Creditors who have provided, loaned or advanced
funds actually used for the Project, including all interests, penalties, associated fees, charges,
surcharges, indemnities, reimbursements and other related expenses, and further including
amounts owed by Concessionaire to its suppliers, contractors and sub-contractors.
Under the above quoted portions of Section 4.04 in relation to the definition of "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 the Government of the liability for the
loans. Only in one instance may the Government escape the assumption of PIATCO's liabilities, i.e., when
the Government so elects and allows a qualified operator to take over as Concessionaire. However, this
circumstance is dependent on the existence and availability of a qualified operator who is willing to
take over the rights and obligations of PIATCO under the contract, a circumstance that is not
entirely within the control of the Government.
Without going into the validity of this provision at this juncture, suffice it to state that Section 4.04 of
the 1997 Concession Agreement may be considered a form of security for the loans PIATCO has obtained
to finance the project, an option that was not made available in the draft Concession Agreement. Section
4.04 is an important amendment to the 1997 Concession Agreement because it grants PIATCO a financial
advantage or benefit which was not previously made available during the bidding process. This
financial advantage is a significant modification that translates to better terms and conditions for PIATCO.
PIATCO, however, argues that the parties to the bidding procedure acknowledge that the draft
Concession Agreement is subject to amendment because the Bid Documents permit financing or
borrowing. They claim that it was the lenders who proposed the amendments to the draft Concession
Agreement which resulted in the 1997 Concession Agreement.
We agree that it is not inconsistent with the rationale and purpose of the BOT Law to allow the project
proponent or the winning bidder to obtain financing for the project, especially in this case which involves the
construction, operation and maintenance of the NAIA IPT III. Expectedly, compliance by the project
proponent of its undertakings therein would involve a substantial amount of investment. It is therefore
inevitable for the awardee of the contract to seek alternate sources of funds to support the project. Be that
as it may, this Court maintains that amendments to the contract bidded upon should always conform to the
general policy on public bidding if such procedure is to be faithful to its real nature and 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 open competition. 45 It has been held that the three principles in
public bidding are (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 factors destroys the distinctive
character of the system and thwarts the purpose of its adoption. 46 These are the basic parameters which
every awardee of a contract bidded out must conform to, requirements of financing and borrowing
notwithstanding. Thus, upon a concrete showing that, as in this case, the contract 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 its entirety for violation of public policy on public bidding.
A strict adherence on the principles, rules and regulations on public bidding must be sustained if only to
preserve the integrity and the faith of the general public on the procedure.
Public bidding is a standard practice for procuring government contracts for public service and for
furnishing supplies and other materials. It aims to secure for the government the lowest possible price
under the most favorable terms and conditions, to curtail favoritism in the award of government contracts
and avoid suspicion of anomalies and it places all bidders in equal footing. 47 Any government action
which permits any substantial variance between the conditions under which the bids are invited
and the contract executed after the award thereof is a grave abuse of discretion amounting to lack
or excess of jurisdiction which warrants proper judicial action.
In view of the above discussion, the fact that the foregoing substantial amendments were made on
the 1997 Concession Agreement renders the same null and void for being contrary to public policy.
These amendments convert the 1997 Concession 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 types of fees or charges that are subject to MIAA regulation or control and the extent thereof and (2) the
assumption by the Government, under certain conditions, of the liabilities of PIATCO directly translates
concrete financial advantages to PIATCO that were previously not available during the bidding
process. These amendments cannot be taken as merely supplements to or implementing provisions of
those already existing in the draft Concession Agreement. The amendments discussed above present new
terms and conditions which provide financial benefit to PIATCO which may have altered the technical and
financial parameters of other bidders had they known that such terms were available.
III
Direct Government Guarantee
Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the 1997 Concession Agreement
provides:
Section 4.04 Assignment
xxx xxx xxx
(b) In the event Concessionaire should default in the payment of an Attendant Liability, and the
default resulted in the acceleration of the payment due date of the Attendant Liability prior to its
stated date of maturity, the Unpaid Creditors and 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 to be
substituted as concessionaire and operator of the Development facility in accordance with the terms
and conditions hereof, or designate a qualified operator acceptable to GRP to operate the
Development Facility, likewise under the terms and conditions of this Agreement; Provided, that if at
the end of the 180-day period GRP shall not have served the Unpaid Creditors and Concessionaire
written notice of its choice, GRP shall be deemed to have elected to take over the Development
Facility with the concomitant assumption of Attendant Liabilities.
(c) If GRP, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the
latter shall form and organize a concession company qualified to takeover the operation of the
Development Facility. If the concession company should elect to designate an operator for the
Development Facility, the concession company shall in good faith identify and designate a qualified
operator acceptable to GRP within one hundred eighty (180) days from receipt of GRP's written
notice. If the concession company, acting in good faith and with due diligence, is unable to
designate a qualified operator within the aforesaid period, then GRP shall at the end of the 180-day
period take over the Development Facility and assume Attendant Liabilities.
.
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the
books of the Concessionaire as owing to Unpaid Creditors who have provided, loaned or
advanced funds actually used for the Project, including all interests, penalties, associated fees,
charges, surcharges, indemnities, reimbursements and other related expenses, and further
including amounts owed by Concessionaire to its suppliers, contractors and sub-contractors. 48
It is clear from the above-quoted provisions that Government, in the event that PIATCO defaults in
its loan obligations, is obligated to pay "all amounts recorded and from time to time outstanding from
the books" of PIATCO which the latter owes to its creditors. 49 These amounts include "all interests,
penalties, associated fees, charges, surcharges, indemnities, reimbursements and other related
expenses."50 This obligation of the Government to pay PIATCO's creditors upon 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, which is to allow PIATCO's unpaid creditors operate NAIA IPT III,
the Government is still at a risk of being liable to PIATCO's creditors should the latter be unable to
designate a qualified operator within the prescribed period. 51 In effect, whatever option the Government
chooses to take in the event of PIATCO's failure to fulfill its loan obligations, the Government is still
at a risk of assuming PIATCO's outstanding loans. This is due to the fact that the Government would
only be free from assuming PIATCO's debts if the unpaid creditors would be able to designate a qualified
operator within the period provided for in the contract. Thus, the Government's assumption of liability is
virtually out of its control. The Government under the 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 provisions constitute a direct government guarantee which is prohibited by law.
One of the main impetus for the enactment of the BOT Law is the lack of government funds to
construct the infrastructure and development projects necessary for economic growth and development.
This is why private sector resources are being tapped in order to finance these projects. The BOT law
allows the private sector to participate, and is in fact encouraged to do so by way of incentives, such as
minimizing the unstable flow of returns, 52 provided that the government would not have to unnecessarily
expend scarcely available funds for the 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 in the BOT projects, then
the purpose of the law is subverted.
Section 2(n) of the BOT Law defines direct guarantee as follows:
(n) Direct government guarantee An agreement whereby the government or any of its agencies
or local government units assume responsibility for the repayment of debt directly incurred by
the project proponent in implementing the project in case of a loan default.
Clearly by providing that the Government "assumes" the attendant liabilities, which consists of
PIATCO's unpaid debts, the 1997 Concession Agreement provided for a direct government guarantee for
the debts incurred by PIATCO in the implementation of the NAIA IPT III project. It is of no moment that the
relevant sections are subsumed under the title of "assignment". The provisions providing for direct
government guarantee which is prohibited by law is clear from the terms thereof.
The fact that the ARCA superseded the 1997 Concession Agreement did not cure this fatal defect.
Article IV, Section 4.04(c), in relation to Article I, Section 1.06, of the ARCA provides:
Section 4.04 Security
xxx xxx xxx
(c) GRP agrees with Concessionaire (PIATCO) that it shall negotiate in good faith and enter
into direct agreement with the Senior Lenders, or with an agent of such Senior Lenders (which
agreement shall be subject to the approval of the Bangko Sentral ng Pilipinas), in such form as may
be reasonably acceptable to both GRP and Senior Lenders, with regard, inter alia, to the following
parameters:
xxx xxx xxx
(iv) If the Concessionaire [PIATCO] is in default under a payment obligation owed to
the Senior Lenders, and as a result thereof the Senior Lenders have become entitled to
accelerate the Senior Loans, the Senior Lenders shall have the right to notify GRP of the
same, and without prejudice to any other rights of the Senior Lenders or any Senior
Lenders' agent may have (including without limitation under security interests granted in
favor of the Senior Lenders), to either in good faith identify and designate a nominee which
is qualified under sub-clause (viii)(y) below to operate the Development Facility [NAIA
Terminal 3] or transfer the Concessionaire's [PIATCO] rights and obligations under this
Agreement to a transferee which is qualified under sub-clause (viii) below;
xxx xxx xxx
(vi) if the Senior Lenders, acting in good faith and using reasonable efforts, are unable to
designate a nominee or effect a transfer in terms and conditions satisfactory to the Senior
Lenders within one hundred eighty (180) days after giving GRP notice as referred to
respectively in (iv) or (v) above, then GRP and the Senior Lenders shall endeavor in good
faith to enter into any other arrangement relating to the Development Facility [NAIA Terminal
3] (other than a turnover of the Development Facility [NAIA Terminal 3] to GRP) within the
following one hundred eighty (180) days. If no agreement relating to the Development
Facility [NAIA Terminal 3] is arrived at by GRP and the Senior Lenders within the said 180-
day period, then at the end thereof the Development Facility [NAIA Terminal 3] shall be
transferred by the Concessionaire [PIATCO] to GRP or its designee and GRP shall
make a termination payment to Concessionaire [PIATCO] equal to the Appraised
Value (as hereinafter defined) of the Development Facility [NAIA Terminal 3] or the
sum of the Attendant Liabilities, if greater. Notwithstanding Section 8.01(c) hereof, this
Agreement shall be deemed terminated upon the transfer of the Development Facility [NAIA
Terminal 3] to GRP pursuant hereto;
xxx xxx xxx
Section 1.06. Attendant Liabilities
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 [PIATCO] to Senior Lenders or
any other persons or entities who have provided, loaned, or advanced funds or provided
financial facilities to Concessionaire [PIATCO] for the Project [NAIA Terminal 3], including,
without limitation, all principal, interest, associated fees, charges, reimbursements, and
other related expenses (including the fees, charges and expenses of any agents or trustees of
such persons or entities), whether payable at maturity, by acceleration or otherwise, and further
including amounts owed by Concessionaire [PIATCO] to its professional consultants and advisers,
suppliers, contractors and sub-contractors.54
It is clear from the foregoing contractual provisions that in the event that PIATCO fails to fulfill its loan
obligations to its Senior Lenders, the Government is obligated to directly negotiate and enter into an
agreement relating to NAIA IPT III with the Senior Lenders, should the latter fail to appoint a qualified
nominee or transferee who will take the place of PIATCO. If the Senior Lenders and the Government are
unable to enter into an agreement after the prescribed period, the Government must then pay PIATCO,
upon transfer of NAIA IPT III to the Government, termination 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 all amounts owed or thereafter may be owed by PIATCO not only to the Senior Lenders
with whom PIATCO has defaulted in its loan obligations but to all other persons who may have loaned,
advanced funds or provided any other type of financial facilities to PIATCO for NAIA IPT III. The amount of
PIATCO's debt that the Government would have to pay as a result of PIATCO's default in its loan
obligations -- in case no qualified nominee or transferee is appointed by the Senior Lenders and no other
agreement relating to NAIA IPT III has been reached between the Government and the Senior Lenders --
includes, but is not limited to, "all principal, interest, associated fees, charges, reimbursements, and other
related expenses . . . whether payable at maturity, by acceleration or otherwise." 55
It is clear from the foregoing that the ARCA provides for a direct guarantee by the government
to pay PIATCO's loans not only to its Senior Lenders but all other entities who provided PIATCO
funds or services upon PIATCO's default in its loan obligation with its Senior Lenders. The fact that
the Government's obligation to pay 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 Government to pay any and all
amounts owed by PIATCO to its lenders in connection with NAIA IPT III. Worse, the conditions that would
make the Government liable for PIATCO's debts is triggered by PIATCO's own default of its loan obligations
to its Senior Lenders to which loan contracts the Government was never a party to. The Government was
not even given an option as to what course of action it should take in case PIATCO defaulted in the
payment of its senior loans. The Government, upon PIATCO's default, would be merely notified by the
Senior Lenders of the same and it is the Senior Lenders who are authorized to appoint a qualified nominee
or transferee. Should the Senior Lenders fail to make such an appointment, the Government is then
automatically obligated to "directly deal and negotiate" with the Senior Lenders regarding NAIA IPT III. The
only way the Government would not be liable for PIATCO's debt is for a qualified nominee or transferee to
be appointed in place of PIATCO to continue the construction, operation and maintenance of NAIA IPT III.
This "pre-condition", however, will not take the contract out of the ambit of a direct guarantee by the
government as the existence, availability and willingness of a qualified nominee or transferee is totally out
of the government's control. As such the Government is virtually at the mercy of PIATCO (that it would
not default on its loan obligations to its Senior Lenders), the Senior Lenders (that they would appoint a
qualified nominee or transferee or agree to some other arrangement with the Government) and the
existence of a qualified nominee or transferee who is able and willing to take the place of PIATCO in NAIA
IPT III.
The proscription against government guarantee in any form is one of the policy
considerations behind the BOT Law. Clearly, in the present case, the ARCA obligates the Government to
pay for all loans, advances and obligations arising out of financial facilities extended to PIATCO for the
implementation of the NAIA IPT III project 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
Government liable for PIATCO's loans should the conditions as set forth in the ARCA arise. This is a form
of direct government guarantee.
The BOT Law and its implementing rules provide that in order for an unsolicited proposal for a BOT
project may be accepted, the following conditions must first be met: (1) the project involves a new concept
in technology and/or is not part of the list of priority projects, (2) no direct government guarantee,
subsidy or equity is required, and (3) the government agency or local government unit has invited by
publication other interested parties to a public bidding and conducted the same. 56 The failure to meet any
of the above conditions will result in the denial of the proposal. It is further provided that the presence of
direct government guarantee, subsidy or equity will "necessarily disqualify a proposal from being treated
and accepted as an unsolicited proposal."57 The BOT Law clearly and strictly prohibits direct government
guarantee, subsidy and equity in unsolicited proposals that the mere inclusion of a provision to that effect is
fatal and is sufficient to deny the proposal. It stands to reason therefore that if a proposal can be denied by
reason of the existence of direct government guarantee, then its inclusion in the contract executed after the
said proposal has been accepted is likewise sufficient to invalidate the contract itself. A prohibited provision,
the inclusion of which would result in the denial of a proposal cannot, and should not, be allowed to later on
be inserted in the contract resulting from the said proposal. The basic rules of justice and fair play alone
militate against such an occurrence and must not, therefore, be countenanced particularly in this instance
where the government is exposed to the risk of shouldering hundreds of million of dollars in debt.
This Court has long and consistently adhered to the legal maxim that those that cannot be done
directly cannot be done indirectly. 58 To declare the PIATCO contracts valid despite the clear statutory
prohibition against a direct government guarantee would not only make a mockery of what the BOT
Law seeks to prevent -- which is to expose the government to the risk of incurring a monetary
obligation resulting from a contract of loan between the project proponent and its lenders and to
which the Government is not a party to -- but would also render the BOT Law useless for what it
seeks to achieve - to make use of the resources of the private sector in the "financing, operation
and maintenance of infrastructure and development projects" 59which are necessary for national
growth and development but which the government, unfortunately, could ill-afford to finance at this
point in time.
IV
Temporary takeover of business affected with public interest
Article XII, Section 17 of the 1987 Constitution provides:
Section 17. In times of national emergency, when the public interest so requires, the State may,
during the emergency and under reasonable terms prescribed by it, temporarily take over or direct
the operation of any privately owned public utility or business affected with public interest.
The above provision pertains to the right of the State in times of national emergency, and in the
exercise of its police power, to temporarily take over the operation of any business affected with public
interest. In the 1986 Constitutional Commission, the term "national emergency" was defined to include
threat from external aggression, calamities or national disasters, but not strikes "unless it is of such
proportion that would paralyze government service." 60 The duration of the emergency itself is the
determining factor as to how long the temporary takeover by the government would last. 61 The temporary
takeover by the government extends only to the operation of the business and not to the ownership thereof.
As such the government is not required to compensate the private entity-owner of the said business
as there is no transfer of ownership, whether permanent or temporary. The private entity-owner affected
by the temporary takeover cannot, likewise, claim just compensation for the use of the said business and
its properties as the temporary takeover by the government is in exercise of its police power and not of its
power of eminent domain.
Article V, Section 5.10 (c) of the 1997 Concession Agreement provides:
Section 5.10 Temporary Take-over of operations by GRP.
.
(c) In the event the development Facility or any part thereof and/or the operations of
Concessionaire or any part thereof, become the subject matter of or be included in any notice,
notification, or declaration concerning or relating to acquisition, seizure or appropriation by GRP in
times of war or national emergency, GRP shall, by written notice to Concessionaire, immediately
take over the operations of the Terminal and/or the Terminal Complex. During such take over by
GRP, the Concession Period shall be suspended; provided, that upon termination of war, hostilities
or national emergency, the operations shall be returned to Concessionaire, at which time, the
Concession period shall commence to run again. Concessionaire shall be entitled to reasonable
compensation for the duration of the temporary take over by GRP, which compensation shall
take into account the reasonable cost for the use of the Terminal and/or Terminal Complex,
(which is in the amount at least equal to the debt service requirements of Concessionaire, if
the temporary take over should occur at the time when Concessionaire is still servicing debts owed
to project lenders), any loss or damage to the Development Facility, and other consequential
damages. If the parties cannot agree on the reasonable compensation of Concessionaire, or on the
liability of GRP as aforesaid, the matter shall be resolved in accordance with Section 10.01
[Arbitration]. Any amount determined to be payable by GRP to Concessionaire shall be offset from
the amount next payable by Concessionaire to GRP.62
PIATCO cannot, by mere contractual stipulation, contravene the Constitutional provision on
temporary government takeover and obligate the government to pay "reasonable cost for the use of
the Terminal and/or Terminal Complex." 63 Article XII, section 17 of the 1987 Constitution envisions a
situation wherein the exigencies of the times necessitate the government to "temporarily take over or direct
the operation of any privately owned public utility or business affected with public interest." It is the welfare
and interest of the public which is the paramount consideration in determining whether or not to temporarily
take over a particular business. Clearly, the State in effecting the temporary takeover is exercising its police
power. Police power is the "most essential, insistent, and illimitable of powers." 64 Its exercise therefore
must not be unreasonably hampered nor its 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 compensation for the reasonable use of the property pursuant to the operation of the business
contravenes the Constitution.
V
Regulation of Monopolies
A monopoly is "a privilege or peculiar advantage vested in one or more persons or companies,
consisting in the exclusive right (or power) to carry on a particular business or trade, manufacture a
particular article, or control the sale of a particular commodity." 66 The 1987 Constitution strictly regulates
monopolies, whether private or public, and even provides for their prohibition if public interest so requires.
Article XII, Section 19 of the 1987 Constitution states:
Sec. 19. The state shall regulate or prohibit monopolies when the public interest so requires. No
combinations in restraint of trade or unfair competition shall be allowed.
Clearly, monopolies are not per se prohibited by the Constitution but may be permitted to exist to aid
the government in carrying on an enterprise or to aid in the performance of various services and
functions in the interest of the public.67 Nonetheless, a determination must first be made as to whether
public interest requires a monopoly. As monopolies are subject to abuses that can inflict severe prejudice to
the public, they are subject to a higher level of State regulation than an ordinary business undertaking.
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 already existing international airports in Luzon such as those
located in the Subic Bay 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 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 domestic passenger terminals or in any other manner
as it may deem appropriate except those activities that would compete with NAIA IPT III in the latter's
operation as an international passenger terminal. 70 The right granted to PIATCO to exclusively operate
NAIA IPT III would be for a period of twenty-five (25) years from the In-Service Date 71 and renewable for
another twenty-five (25) years at the option of the government. 72 Both the 1997 Concession Agreement
and the ARCA further provide that, in view of the exclusive right granted to PIATCO, the concession
contracts of the service providers currently servicing Terminals 1 and 2 would no longer be
renewed and those concession contracts whose expiration are subsequent to the In-Service Date
would cease to be effective on the said date.73
The operation of an international passenger airport terminal is no doubt an undertaking imbued with
public interest. In entering into a BuildOperate-and-Transfer contract for the construction, operation and
maintenance of NAIA IPT III, the government has determined that public interest would be served better if
private sector resources were used in its construction and an exclusive right to operate be granted to the
private entity undertaking the said project, in this case PIATCO. Nonetheless, the privilege given to
PIATCO is subject to reasonable regulation and supervision by the Government through the MIAA, which is
the government agency authorized to operate the NAIA complex, as well as DOTC, the department to
which MIAA is attached.74
This is in accord with the Constitutional mandate that a monopoly which is not prohibited must be
regulated.75 While it is the declared policy of the BOT Law to encourage private sector participation by
"providing a climate of minimum government regulations," 76 the same does not mean that Government
must completely surrender its sovereign power to protect public interest in the operation of a public utility as
a monopoly. The operation of said public utility can not be done in an arbitrary manner to the detriment of
the public which it seeks to serve. The right granted to the public utility may be exclusive but the exercise of
the right cannot run riot. Thus, while PIATCO may be authorized to exclusively operate NAIA IPT III as an
international passenger terminal, the Government, through the MIAA, has the right and the duty to ensure
that it is done in accord with public interest. PIATCO's right to operate NAIA IPT III cannot also violate the
rights of third parties.
Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide:
3.01 Concession Period
xxx xxx xxx
(e) GRP confirms that certain concession agreements relative to certain services and
operations currently being undertaken at the Ninoy Aquino International Airport passenger Terminal
I have a validity period extending beyond the In-Service Date. GRP through
DOTC/MIAA, confirms that these services and operations shall not be carried over to the
Terminal and the Concessionaire is under no legal obligation to permit such carry-over except
through a separate agreement duly entered into with Concessionaire. In the event Concessionaire
becomes involved in any litigation initiated by any such concessionaire or operator, GRP
undertakes and hereby holds Concessionaire free and harmless on full indemnity basis from and
against any loss and/or any liability resulting from any such litigation, including the cost of litigation
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 Concessionaire is bound to
pay GRP under this Agreement.
During the oral arguments on December 10, 2002, the counsel for the petitioners-in-intervention for
G.R. No. 155001 stated that there are two service providers whose contracts are still existing and
whose validity extends beyond the In-Service Date. One contract remains valid until 2008 and the
other until 2010.77
We hold that while the service providers presently operating at NAIA Terminal 1 do not have an
absolute right for the renewal or the extension of their respective contracts, those contracts whose duration
extends beyond NAIA IPT III's In-Service-Date should not be unduly prejudiced. These contracts must be
respected not just by the parties thereto but also by third parties. PIATCO cannot, by law and certainly not
by contract, render a valid and binding contract nugatory. PIATCO, by the mere expedient of claiming an
exclusive right to operate, cannot require the Government to break its contractual obligations to the service
providers. In contrast to the arrastre and stevedoring service providers in the case of Anglo-Fil Trading
Corporation v. Lazaro78 whose contracts consist of temporary hold-over permits, the affected service
providers in the cases at bar, have a valid and binding contract with the Government, through MIAA, whose
period of effectivity, as well as the other terms and conditions thereof, cannot be violated.
In fine, the efficient functioning of NAIA IPT III is imbued with public interest. The provisions of the
1997 Concession Agreement and the ARCA did not strip government, thru the MIAA, of its right to
supervise the operation of the whole NAIA complex, including NAIA IPT III. As the primary government
agency tasked with the job,79 it is MIAA's responsibility to ensure that whoever by contract is given the right
to operate NAIA IPT III will do so within the bounds of the law and with due regard to the rights of third
parties and above all, the interest of the public.
VI
CONCLUSION
In sum, this Court rules that in view of the absence of the requisite financial capacity of the Paircargo
Consortium, predecessor of respondent PIATCO, the award by the PBAC of the contract for the
construction, operation and maintenance of the NAIA IPT III is null and void. Further, considering that the
1997 Concession Agreement contains material and substantial amendments, which amendments had the
effect of converting the 1997 Concession Agreement into an entirely different agreement from the contract
bidded upon, the 1997 Concession Agreement is similarly null and 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 relation to Section 1.06 of the ARCA, which constitute a direct
government guarantee expressly prohibited by, among others, the BOT Law and its Implementing Rules
and Regulations are also null and void. The Supplements, being accessory contracts to the ARCA, are
likewise null and void.
WHEREFORE, the 1997 Concession Agreement, the Amended and Restated Concession
Agreement and the Supplements thereto are set aside for being null and void.
SO ORDERED.
Davide, Jr., C.J., Bellosillo, Ynares-Santiago, Sandoval-Gutierrez, Austria-Martinez, Corona, and
Carpio-Morales, JJ., concur.
Vitug, J., see separate (dissenting) opinion.
Panganiban, J., please see separate opinion.
Quisumbing, J., no jurisdiction, please see separate opinion of J. Vitug in which he concurs.
Carpio, J., no part.
Callejo, Sr., J., also concur in the separate opinion of J. Panganiban.
Azcuna, J., joins the separate opinion of J. Vitug.

SEPARATE OPINIONS
VITUG, J.:
This Court is bereft of jurisdiction to hear the petitions at bar. The Constitution provides that the
Supreme Court shall exercise original jurisdiction over, among other actual controversies, petitions
for certiorari, prohibition, mandamus, quo warranto, and habeas corpus.1 The cases in question, although
denominated to be petitions for prohibition, actually pray for the nullification of the PIATCO contracts and to
restrain respondents from implementing said agreements for being illegal and unconstitutional.
Section 2, Rule 65 of the Rules of Court states:
"When the proceedings of any tribunal, corporation, board, officer or person, whether exercising
judicial, quasi-judicial or ministerial functions, are without or in excess of its or his jurisdiction, or
with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal or
any other plain, speedy and adequate remedy in the ordinary course of law, a person aggrieved
thereby may file a verified petition in the proper court, alleging the facts with certainty and praying
that judgment be rendered commanding the respondent to desist from further proceedings in the
action or matter specified therein, or otherwise granting such incidental reliefs as law and justice
may require."
The rule is explicit. A petition for prohibition may be filed against a tribunal, corporation, board, officer
or person, exercising judicial, quasi-judicial or ministerial functions. What the petitions seek from
respondents do not involve judicial, quasi-judicial or ministerial functions. In prohibition, only legal issues
affecting the 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 would be difficult, if
not anomalous, to decide the jurisdictional issue on the basis of the contradictory factual submissions made
by the parties.3 As the Court has so often exhorted, it is not a trier of facts.
The petitions, in effect, are in the nature of actions for declaratory relief under Rule 63 of the Rules of
Court. The Rules provide that any person interested under a contract may, before breach or violation
thereof, bring an action in the appropriate Regional Trial Court to determine any question of construction or
validity arising, and for a declaration of his rights or duties thereunder. 4 The Supreme Court assumes no
jurisdiction over petitions for declaratory relief which are cognizable by regional trial courts. 5
As I have so expressed in Tolentino vs. Secretary of Finance,6 reiterated in Santiago 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. Pervasive and limitless, such as it may seem to be under the 1987
Constitution, 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 every affair of government. What
significance can still then remain of the time-honored and widely acclaimed principle of separation of
powers if, at every turn, the Court allows itself to pass upon at will the disposition of a co-equal,
independent and coordinate branch in our system of government. I dread to think of the so varied
uncertainties that such an undue interference can lead to.
Accordingly, I vote for the dismissal of the petition.
Quisumbing, and Azcuna, JJ., concur.

PANGANIBAN, J.:
The five contracts for the construction and the operation of Ninoy Aquino International Airport (NAIA)
Terminal III, the subject of the consolidated Petitions before the Court, are replete with outright violations of
law, public policy and the Constitution. The only proper thing to do is declare them all null and void ab initio
and let the chips fall where they may. Fiat iustitia ruat coelum.
The facts leading to this controversy are already well presented in the ponencia. I shall not burden
the readers with a retelling thereof. Instead, I will cut to the chase and directly address the two sets of gut
issues:
1. The first issue is procedural: Does the Supreme Court have original jurisdiction to hear and decide
the Petitions? Corollarily, do petitioners have locus standi and should this Court decide the cases without
any mandatory referral to arbitration?
2. The second one is substantive in character: Did the subject contracts violate the Constitution, the
laws, and public policy to such an extent as to render all of them void and inexistent?
My answer to all the above questions is a firm "Yes."
The Procedural Issue:
Jurisdiction, Standing and Arbitration
Definitely and surely, the issues involved in these Petitions are clearly of transcendental importance
and of national interest. The subject contracts pertain to 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 country's economic development and serve to project a positive image of our country abroad. The five
build-operate-&-transfer (BOT) contracts, while entailing the investment of billions of pesos in capital and
the availment of several hundred millions of dollars in loans, contain provisions that tend to establish a
monopoly, require the disbursements of public funds sans appropriations, and provide government
guarantees in violation of statutory prohibitions, as well as other provisions equally offensive to law, public
policy and the Constitution. Public interest will inevitably be affected thereby.
Thus, objections to these Petitions, grounded upon (a) the hierarchy of courts, (b) the need for
arbitration prior to court action, and (c) the alleged lack of sufficient 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 its constitutional duty of determining whether the other agencies of government
have acted within the limits of the Constitution and the laws, or if they have gravely abused the discretion
entrusted to them.1
Hierarchy of Courts
The Court has, in the past, held that questions relating to gargantuan government contracts ought to
be settled without delay.2 This holding applies with greater force to the instant cases. Respondent Piatco is
partly correct in averring that petitioners can obtain relief from the regional trial courts via an action to annul
the contracts.
Nevertheless, the unavoidable consequence of having to await the rendition and the finality of any
such judgment would be a prolonged state of uncertainty that would be prejudicial to the nation, the parties
and the general public. And, in light of the feared loss of jobs of the petitioning workers, consequent to the
inevitable 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 patently urgent, and therefore, direct
resort to this Court through the special civil action of prohibition is thus justified. 3
Contrary to Piatco's argument that the resolution of the issues raised in the Petitions will require
delving into factual questions,4 I submit that their disposition ultimately 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 the parties. In any event, the Petitions raise some novel questions involving the
application of the amended BOT Law, which this Court has seen fit to tackle.
Arbitration
Should the dispute be referred to arbitration prior to judicial recourse? Respondent Piatco claims that
Section 10.02 of the Amended and Restated Concession Agreement (ARCA) provides for arbitration under
the auspices of the International Chamber of Commerce to settle any dispute or controversy or claim
arising in connection with the Concession Agreement, its amendments and supplements. The government
disagrees, however, insisting that there can be no arbitration based on Section 10.02 of the ARCA, since all
the Piatco contracts are void ab initio. Therefore, all contractual provisions, including Section 10.02 of the
ARCA, are likewise void, inexistent and inoperative. To support its stand, the government cites Chavez v.
Presidential Commission on Good Government:6"The void agreement will not be rendered operative by the
parties' alleged performance (partial or full) of their respective prestations. A contract that violates the
Constitution and the law is null and void ab initio and vests no rights and creates no obligations. It
produces no legal effect at all."
As will be discussed at length later, the Piatco contracts are indeed void in their entirety; thus, a
resort to the aforesaid provision on arbitration is unavailing. Besides, petitioners and petitioners-in-
intervention have pointed out that, even granting arguendo that the arbitration clause remained a valid
provision, it still cannot bind them inasmuch as they are not parties to the Piatco contracts. And in the final
analysis, it is unarguable that the arbitration process provided for under Section 10.02 of the ARCA, to be
undertaken by a panel of three (3) arbitrators appointed in accordance with the Rules of Arbitration of the
International Chamber of Commerce, will not be able to address, determine and definitively resolve the
constitutional and legal questions that have been raised in the Petitions before us.
Locus Standi
Given this Court's previous decisions in cases of similar import, no one will seriously doubt that,
being taxpayers and members of the House of Representatives, 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, taxpayer and member of the House of Representatives, was sufficiently clothed
with standing to bring the suit questioning the validity of the assailed contract. The Court cited the fact that
public interest was involved, in view of the important role of the Manila International Container Terminal
(MICT) in the country's economic development and the magnitude of the financial consideration. This,
notwithstanding the fact that expenditure of public funds was not required under the assailed contract.
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 contracts create obligations on the
part of government (through the DOTC and the MIAA) to disburse public funds without prior congressional
appropriations.
Petitioners thus correctly assert that the injury to them has a twofold aspect: (1) they are adversely
affected as taxpayers on account of the illegal disbursement of public funds; and (2) they are
prejudiced qua legislators, since the contractual provisions requiring the government to incur expenditures
without appropriations also operate as limitations upon the exclusive power and prerogative of Congress
over the public purse. As members of the House of Representatives, they are actually deprived of
discretion insofar as the inclusion of those items of expenditure in the budget is concerned. To prevent such
encroachment upon the legislative privilege and obviate injury to the institution of which they are members,
petitioners-legislators have locus standi to bring suit.
Messrs. Agan et al. and Lopez et al., are likewise taxpayers and thus possessed of standing to
challenge the illegal disbursement of public funds. Messrs. Agan et al., in particular, are employees (or
representatives of employees) of various service providers that have (1) existing concession agreements
with the MIAA to provide airport services necessary to the operation of the NAIA and (2) service
agreements to furnish essential support services to the international airlines operating at the NAIA.
On the other hand, Messrs. Lopez et al. are employees of the MIAA. These petitioners (Messrs.
Agan et al. and Messrs. Lopez et al.) are confronted with the prospect of being laid off from their jobs and
losing their means of livelihood when their employer-companies are forced to shut down or otherwise
retrench and cut back on manpower. Such development would result from the imminent implementation of
certain provisions in the contracts that tend toward the creation of a monopoly in favor of Piatco, its
subsidiaries and related companies.
Petitioners-in-intervention are service providers in the business of furnishing airport-related services
to international airlines and passengers in the NAIA and are therefore competitors of Piatco as far as that
line of business is concerned. On account of provisions in the Piatco contracts, petitioners-in-intervention
have to enter into a written contract with Piatco so as not to be shut out of NAIA Terminal III and barred
from doing business there. Since there is no provision to ensure or safeguard free and fair competition,
they are literally at its mercy. They claim injury on account of their deprivation of property (business) and of
the liberty to contract, without due process of law.
And even if petitioners and petitioners-in-intervention were not sufficiently clothed with legal standing,
I have at the outset already established that, given its impact on 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
transcendental importance, the Court may relax the standing requirements and allow a suit to prosper even
when there is no direct injury to the party claiming the right of judicial review."9
The Substantive Issue:
Violations of the Constitution and the Laws
From the Outset, the Bidding Process Was Flawed and Tainted
After studying the documents submitted and arguments advanced by the parties, I have no doubt
that, right at the outset, Piatco was not qualified to participate in the bidding process for the Terminal III
project, but was nevertheless permitted to do so. It even won the bidding and was helped along by what
appears to be a series of collusive and corrosive acts.
The build-operate-and-transfer (BOT) project for the NAIA Passenger Terminal III comes under the
category of an "unsolicited proposal," which is the subject of Section 4-A of the BOT Law. 10 The unsolicited
proposal was originally submitted by the Asia's Emerging Dragon Corporation (AEDC) to the Department of
Transportation and Communications (DOTC) and the Manila International Airport Authority (MIAA), which
reviewed and approved the proposal.
The draft of the concession agreement as negotiated between AEDC and DOTC/MIAA was endorsed
to the National Economic Development Authority (NEDA-ICC), which in turn reviewed it on the basis of its
scope, economic viability, financial indicators and risks; and thereafter approved it for bidding.
The DOTC/MIAA then prepared the Bid Documents, incorporating therein the negotiated Draft
Concession Agreement, and published invitations for public bidding, i.e., for the submission of comparative
or competitive proposals. Piatco's predecessor-in-interest, the Paircargo Consortium, was the only
company that submitted a competitive bid or price challenge.
At this point, I must emphasize that the law requires the award of a BOT project to the bidder that
has satisfied the minimum requirements; and met the technical, financial, organizational and legal
standards provided in the BOT Law. Section 5 of this statute states:
"Sec. 5. Public bidding of projects. - . . .
"In the case of a build-operate-and-transfer arrangement, the contract shall be awarded to the
bidder who, having satisfied the minimum financial, technical, organizational and legal
standards required by this Act, has submitted the lowest bid and most favorable terms for the
project, based on the present value of its proposed tolls, fees, rentals and charges over a fixed term
for the facility to be constructed, rehabilitated, operated and maintained according to the prescribed
minimum design and performance standards, plans and specifications. . . ." (Emphasis supplied.)
The same provision requires that the price challenge via public bidding "must be conducted under a
two-envelope/two-stage system: the first envelope to contain the technical proposal and the second
envelope to contain the financial proposal." Moreover, the 1994 Implementing Rules and Regulations (IRR)
provide that only those bidders that have passed the prequalification stage are permitted to have their two
envelopes reviewed.
In other words, prospective bidders must prequalify by submitting their prequalification documents for
evaluation; and only the pre-qualified bidders would be entitled to have their bids opened, evaluated and
appreciated. On the other hand, disqualified bidders are to be informed of the reason for their
disqualification. This procedure was confirmed and reiterated in the Bid Documents, which I quote thus:
"Prequalified proponents will be considered eligible to move to second stage technical proposal evaluation.
The second and third envelopes of pre-disqualified proponents will be returned."11
Aside from complying with the legal and technical requirements (track record or experience of the
firm and its key personnel), a project proponent desiring to 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 minimum amount of equity required for the project and to procure the loans or financing needed
for it. Section 5.4(c) of the 1994 IRR provides:
"Sec. 5.4. Prequalification Requirements. - To pre-qualify, a project proponent must comply with the
following requirements:
xxx xxx xxx
"c. Financial Capability. The project proponent must have adequate capability to 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 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 amount of equity to the project, and (ii) a letter testimonial from
reputable banks attesting that the project proponent and/or members of the consortium are banking
with them, that they are in good financial standing, and that they have adequate resources. The
government Agency/LGU concerned shall determine on a project-to-project basis, and before
prequalification, the minimum amount of equity needed. . . . ." (Italics supplied)
Since the minimum amount of equity for the project was set at 30 percent 12 of the 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 then of P26.239 to US$1.00 (as quoted by the Bangko Sentral ng
Pilipinas), the peso equivalent of the minimum equity was P2,755,095,000.
However, the combined equity or net worth of the Paircargo consortium stood at only
P558,384,871.55.13 This amount was only slightly over 6 percent of the minimum project cost and very
much short of the required minimum equity, which was equivalent to 30 percent of the project cost. Such
deficiency should have immediately caused the disqualification of the Paircargo consortium. This matter
was brought to the attention of the Prequalification and Bidding Committee (PBAC).
Notwithstanding the glaring deficiency, DOTC Undersecretary Primitivo C. Cal, concurrent chair of
the PBAC, declared in a Memorandum dated 14 October 1996 that "the Challenger (Paircargo consortium)
was found to have a combined net worth of P3,926,421,242.00 that could support a project costing
approximately P13 billion." To justify his conclusion, he asserted: "It is not a requirement that the networth
must be `unrestricted'. To impose this as a requirement now will be nothing less than unfair."
He further opined, "(T)he networth reflected in the Financial Statement should not be taken as the
amount of money to be used to answer the required thirty (30%) percent equity of the challenger but rather
to be used in establishing if there is 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
contract (Sec. 12.1 of IRR of the BOT Law) but not for prequalification (Sec. 5.4 of same document)."
On the basis of the foregoing dubious declaration, the Paircargo consortium was deemed
prequalified and thus permitted to proceed to the other stages of the bidding process.
By virtue of the prequalified status conferred upon the Paircargo, Undersecretary Cal's findings in
effect relieved the consortium of the need to comply with the financial capability requirement imposed by
the BOT Law and IRR. This position is unmistakably and squarely at odds with the Supreme Court's
consistent doctrine emphasizing the strict application of pertinent rules, regulations and guidelines for the
public bidding process, in order to place each bidder - actual or potential - on the 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 invited and those under which proposals are submitted and approved.
Republic v. Capulong,14 teaches that if one bidder is relieved from having to conform to the
conditions that impose some duty upon it, that bidder is not contracting in 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 for the precise comparison of bids. 15 Thus, each bidder must
bid under the same conditions; and be subject to the same guidelines, requirements and limitations. The
desired result is to be able to determine the best offer or lowest bid, all things being equal.
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 prequalified or allowed to participate further in the
bidding. The Prequalification and Bidding Committee (PBAC) should therefore not have opened the two
envelopes of the consortium containing its technical and financial proposals; required AEDC to match the
consortium's bid; 16 or awarded the Concession Agreement to the consortium's successor-in-interest,
Piatco.
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 concession to Paircargo's successor Piatco
was void, and the Concession Agreement executed with the latter was likewise void ab initio. For this
reason, Piatco cannot and should not be allowed to benefit from that Agreement. 17
AEDC Was Deprived of the Right to Match PIATCO's Price Challenge
In DOTC PBAC Bid Bulletin No. 4 (par. 3), Undersecretary Cal declared that, for purposes of
matching the price challenge of Piatco, AEDC as originator of the unsolicited proposal would be permitted
access only to the schedule of proposed Annual Guaranteed Payments submitted by Piatco, and not to the
latter's financial 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 provides that proprietary
information is to be respected, protected and treated with utmost confidentiality, and is therefore not to form
part of the bidding/tender and related documents.
This pronouncement, I believe, was a grievous misapplication of the mentioned provision. The
"proprietary information" referred to in Section 11.6 of the IRR pertains only to the proprietary information of
the originator of an unsolicited 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 the BOT Law
as amended, a proposal qualifies as an "unsolicited proposal" when it pertains to a project that involves " a
new concept or technology", and/or a project that is not on the government's list of priority projects.
To be considered as utilizing a new concept or technology, a project must involve the possession of
exclusive rights (worldwide or regional) over a process; or possession of intellectual property rights over a
design, methodology or engineering concept. 18 Patently, the intent of the BOT Law is to encourage
individuals and groups to come up with creative innovations, fresh ideas and new technology. Hence, the
significance and necessity of protecting proprietary information in connection with unsolicited proposals.
And to make the encouragement real, the law also extends to 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, through the mechanism of matching a price challenge.
A competing bid is never just any figure conjured from out of the blue; it is arrived at after studying
economic, financial, technical and other, factors; it is likewise based on certain assumptions as to the
nature of the business, the market potentials, the probable demand for the product or service, the future
behavior of cost items, political and other risks, and so on. It is thus self-evident that in order to be able to
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 this instance, the financial and technical proposals of Piatco would have provided AEDC with the
necessary information to enable it to make a reasonably informed matching bid. To put it more simply, a
bidder unable to access the competitor's assumptions will never figure out how the competing bid came
about; requiring him to "counter-propose" is like having him shoot at a target in the dark while blindfolded.
By withholding from AEDC the challenger's financial and technical proposals containing the critical
information it needed, Undersecretary Cal actually and effectively deprived AEDC of the ability to match the
price challenge. One could say 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.
At the end of the day, the bottom line is that the validity and the propriety of the award to Piatco had
been irreparably impaired.
Delayed Issuance of the Notice of Award Violated the BOT Law and the IRR
Section 9.5 of the IRR requires that the Notice of Award must indicate the time frame within which the
winner of the bidding (and therefore the prospective awardee) shall submit the prescribed performance
security, proof of commitment of 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 responsible for
the obligations of the project proponent under the contract.
The purpose of having a definite and firm timetable for the submission of the aforementioned
requirements is not only to prevent delays in the project implementation, but also to expose and weed out
unqualified proponents, who might have unceremoniously slipped through the earlier prequalification
process, by compelling them to put their money where their mouths are, so to speak.
Nevertheless, this provision can be easily circumvented by merely postponing the 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 manipulation of the post-bidding process, the IRR not only set out the
precise sequence of events occurring between the completion of the evaluation of the technical bids and
the issuance of the Notice of Award, but also specified the timetables for each such event. Definite
allowable extensions of time were provided for, as were the consequences of a failure to meet a particular
deadline.
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 Committee must come to a decision whether or
not to award the contract and, within 7 days therefrom, the Notice of Award must be approved by the head
of agency or local government unit (LGU) concerned, and its issuance must follow within another 7 days
thereafter.
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 made, the draft contract shall be
submitted to the ICC for clearance on a no-objection basis. If the draft contract includes government
undertakings already previously approved, then the submission shall be for information only.
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 act on the contract within the specified time frame
signifies that the agency or LGU may proceed with the award. The head of agency or LGU shall approve
the Notice of Award within seven days of the clearance by the ICC on a no-objection basis, and the Notice
itself has to be issued within seven days thereafter.
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 throughout the process, to the end that the project
be prosecuted and implemented without delay. This regulated scenario was likewise intended to
discourage collusion and substantially reduce the opportunity for agents of government to abuse their
discretion in the course of the award process.
Despite the clear timetables set out in the IRR, several lengthy and still-unexplained delays occurred
in the award process, as can be observed from the presentation made by the counsel for public
respondents,19 quoted hereinbelow:
"11 Dec. 1996 - The Paircargo Joint Venture was informed by the PBAC that AEDC failed to match
and that negotiations preparatory to Notice of Award should be commenced. This was the decision
to award that should have commenced the running of the 7-day period to approve the Notice of
Award, as per Section 9.1 of the IRR, or to submit the draft contract to the ICC for approval
conformably with Section 9.2.
"01 April 1997 - The PBAC resolved that a copy of the final draft of the Concession 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 20th of December 1996 at the latest.
"16 April 1997 - The PBAC resolved that the period of signing the Concession Agreement be
extended by 15 days.
"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 January 1997 or fifteen days
after it should have been submitted to it for review.
"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 approval, or the 28th of
January 1997. In any case, even if it were to be assumed that the release of NEDA's approval on
the 18th of April was timely, the Notice of Award should have been issued on the 9th of May 1997.
In both cases, therefore, the release of the Notice of Award occurred in a decidedly less than timely
fashion."
This chronology of events bespeaks an unmistakable disregard, if not disdain, by the persons in
charge of the award process for the time limitations prescribed by the IRR. Their attitude flies in the face of
this Court's solemn pronouncement in Republic v. Capulong,20 that "strict observance of the rules,
regulations and guidelines of the bidding process is the only safeguard to a fair, honest and competitive
public bidding."
From the foregoing, the only conclusion that can possibly be drawn is that the BOT law and its IRR
were repeatedly violated with unmitigated impunity - and by agents of government, no less! On account of
such violation, the award of the contract to Piatco, which undoubtedly gained time and benefited from the
delays, must be deemed null and void from the beginning.
Further Amendments Resulted in a Substantially Different Contract, Awarded Without Public
Bidding
But the violations and desecrations did not stop there. After the PBAC made its decision on
December 11, 1996 to award the contract to Piatco, the latter negotiated changes to the Contract bidded
out and ended up with what amounts to a substantially new contract without any public bidding. This
Contract was subsequently further amended four more times through negotiation and without any bidding.
Thus, the contract actually executed between Piatco and DOTC/MIAA 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 significant respects:
1. The CA inserted stipulations creating a monopoly in favor of Piatco in the business of providing
airport-related services for international airlines and passengers.21
2. The CA provided that government is to answer for Piatco's unpaid loans and debts (lumped
under the term Attendant Liabilities) in the event Piatco fails to pay its senior lenders.22
3. The CA provided that in case of termination of the contract due to the fault of government,
government shall pay all expenses that Piatco incurred for the project plus the appraised value of
the Terminal.23
4. The CA imposed new and special obligations on government, including delivery of clean
possession of the site for the terminal; acquisition of additional land at the government's expense
for construction of road networks required by Piatco's approved plans and specifications; and
assistance to Piatco in securing site utilities, as well as all necessary permits, licenses and
authorizations.24
5. Where Section 3.02 of the DCA requires government to refrain from competing with the
contractor with respect to the operation of NAIA Terminal III, Section 3.02(b) of the CA excludes and
prohibits everyone, including government, from directly or indirectly competing with Piatco, with
respect to the operation of, as well as operations in, NAIA Terminal III. Operations in is sufficiently
broad to encompass all retail and other commercial business enterprises operating within Terminal
III, inclusive of the businesses of providing various airport-related services to international airlines,
within the scope of the prohibition.
6. Under Section 6.01 of the DCA, the following fees are subject to the written approval of MIAA:
lease/rental charges, concession privilege fees for passenger services, food services,
transportation utility concessions, groundhandling, catering and miscellaneous concession fees,
porterage fees, greeter/well-wisher fees, carpark fees, advertising fees, VIP facilities fees and
others. Moreover, adjustments to the groundhandling fees, rentals and porterage fees are permitted
only once every two years and in accordance with a parametric formula, per DCA Section 6.03.
However, the CA as executed with Piatco provides in Section 6.06 that all the aforesaid fees,
rentals and charges may be adjusted without MIAA's approval or intervention. Neither are the
adjustments to these fees and charges subject to or limited by any parametric formula. 25
7. Section 1.29 of the DCA provides that the terminal fees, aircraft tacking fees, aircraft parking
fees, check-in counter fees and other fees are to be quoted and paid in Philippine pesos. But per
Section 1.33 of the CA, all the aforesaid fees save the terminal fee are denominated in US Dollars.
8. Under Section 8.07 of the DCA, the term attendant liabilities refers to liabilities pertinent to NAIA
Terminal III, such as payment of lease rentals and performance of other obligations under the Land
Lease Agreement; the obligations under the Tenant Agreements; and payment of all taxes, fees,
charges and assessments of whatever kind that may be imposed on NAIA Terminal III or parts
thereof. But in Section 1.06 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 Unpaid
Creditors who have provided, loaned or advanced funds actually used for the Project, including all
interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements and other
related expenses, and further including amounts owed by [Piatco] to its suppliers, contractors and
subcontractors."
9. Per Sections 8.04 and 8.06 of the DCA, government may, on account of the contractors breach,
rescind the contract and select one of four options: (a) take over the terminal and assume all its
attendant liabilities; (b) allow the contractor's creditors to assign the Project to another entity
acceptable to DOTC/MIAA; (c) pay the contractor rent for the facilities and equipment the DOTC
may utilize; or (d) purchase the terminal at a price established by independent appraisers.
Depending on the option selected, government may take immediate possession and control of the
terminal and its operations. Government will be obligated to compensate the contractor for the
"equivalent or proportionate contract costs actually disbursed," but only where government is the
one in breach of the contract. But under Section 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 assume all of Piatco's debts or (b) permit the qualified unpaid creditors to be
substituted in place of Piatco or to designate a new operator. And in the event of government's
breach of contract, Piatco may compel it to purchase the terminal at fair market value, per Section
8.06(b) of the CA.
10. Under the DCA, any delay by Piatco in the payment of the amounts due the government
constitutes breach of contract. However, under the CA, such delay does not necessarily constitute
breach of contract, since Piatco is permitted to suspend payments to the government in order to
first satisfy the claims of its secured creditors, per Section 8.04(d) of the CA.
It goes without saying that the amendment of the Contract bidded out (the DCA or draft concession
agreement) - in such substantial manner, without any public bidding, and after the bidding process had
been concluded on December 11, 1996 - is violative of public policy on public biddings, as well as the spirit
and intent of the 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 amend the contract for which public
bidding had already been concluded. Competitive bidding aims to obtain the best deal possible by fostering
transparency and preventing favoritism, collusion and fraud in the awarding of contracts. That is the reason
why procedural rules pertaining to public bidding demand strict observance. 26
In a relatively early case, Caltex v. Delgado Brothers,27 this Court made it clear that substantive
amendments to a contract for which a public bidding has already been finished should only be awarded
after another public bidding:
"The due 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 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 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 competition
between the bidders. He who bids or offers the best terms is awarded the contract subject of the
bid, and it is obvious that such protection and best possible advantages to the public will disappear
if the parties to a contract executed after public bidding may alter or amend it without another
previous public bidding."28
The aforementioned case dealt with the unauthorized amendment of a contract executed after public
bidding; in the situation before us, the amendments were made also after the bidding, but prior to
execution. Be that as it may, the same rationale underlying Caltex applies to the present situation with
equal force. Allowing the winning bidder to renegotiate the contract for which the bidding process has
ended is tantamount to permitting it to put in anything it wants. Here, the winning bidder (Piatco) did not
even bother to wait until after actual execution of the contract before rushing to amend it. Perhaps it
believed that if the changes were 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.
In a later case, Mata v. San Diego,29 this Court reiterated its ruling as follows:
"It is true that modification of government contracts, after the same had been awarded after a public
bidding, is not allowed because such modification serves to nullify the effects of the bidding and
whatever advantages the Government had secured thereby and may also result in manifest
injustice to the other bidders. This prohibition, however, refers to a change in vital and essential
particulars of the agreement which results in a substantially new contract."
Piatco's counter-argument may be summed up thus: There was nothing in the 1994 IRR that
prohibited further negotiations and eventual amendments to the DCA even 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 to time. Said amendments will only cover items that would not materially affect
the preparation of the proponent's proposal."
I submit that accepting such warped argument will result in perverting the policy 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 process and price challenge had been concluded. In fact, the
BOT Law, in recognition of the time, money and effort invested in an unsolicited proposal, accords its
originator the privilege of matching the challenger's bid.
Section 4-A of the BOT Law specifically refers to a "lower price proposal" by a competing bidder; and
to the right of the original proponent "to match the price" of the challenger. Thus, only the price proposals
are in play. The terms, conditions and stipulations in the contract for which public bidding has been
concluded are understood to remain intact and not be subject to further negotiation. Otherwise, the very
essence of public bidding will be destroyed - there will be no basis for an exact comparison between bids.
Moreover, Piatco misinterpreted the meaning behind PBAC Bid Bulletin No. 3. The
phrase amendments . . . from time to time refers only to those amendments to the draft concession
agreement issued by the PBAC prior to the submission of the price challenge; it certainly does not include
or permit amendments negotiated for and introduced after the bidding process, has been terminated.
Piatco's Concession Agreement Was Further Amended, (ARCA) Again Without Public Bidding
Not satisfied with the Concession Agreement, Piatco - once more without bothering with public
bidding - negotiated with government for still more substantial changes. The result was the Amended and
Restated Concession Agreement (ARCA) executed on November 26, 1998. The following changes were
introduced:
1. The definition of Attendant Liabilities was further amended with the result that the unpaid loans of
Piatco, for which government may be required to answer, are no longer limited to only those loans
recorded in Piatco's books or loans whose proceeds were actually used in the Terminal III project. 30
2. Although the contract may be terminated due to breach by Piatco, it will not be liable to pay the
government any Liquidated Damages if a new operator is designated to take over the operation of
the terminal.31
3. The Liquidated Damages which government becomes liable for in case of its breach of contract
were substantially increased.32
4. Government's right to appoint a comptroller for Piatco in case the latter encounters liquidity
problems was deleted.33
5. Government is made liable for Incremental and Consequential Costs and Losses in case it fails
to comply or cause any third party under its direct or indirect control to comply with the special
obligations imposed on government.34
6. The insurance policies obtained by Piatco covering the terminal are now required to be assigned
to the Senior Lenders as security for the loans; previously, their proceeds were to be used to repair
and rehabilitate the facility in case of damage.35
7. Government bound itself to set the initial rate of the terminal fee, to be charged when Terminal III
begins operations, at an amount higher than US$20. 36
8. Government waived its defense of the illegality of the contract and even agreed to be liable to
pay damages to Piatco in the event the contract was declared illegal. 37
9. Even though government may be entitled to terminate the ARCA on account of breach by Piatco,
government is still liable to pay Piatco the appraised value of Terminal III or the Attendant Liabilities,
if the termination occurs before the In-Service Date. 38 This condition contravenes the BOT Law
provision on termination compensation.
10. Government is obligated to take the administrative action required for Piatco's imposition,
collection and application of all Public Utility Revenues. 39 No such obligation existed previously.
11. Government is now also obligated to perform and cause other persons and entities under its
direct or indirect control to perform all acts necessary to perfect the security interests to be created
in favor of Piatco's Senior Lenders.40 No such obligation existed previously.
12. DOTC/MIAA's right of intervention in instances where Piatco's Non-Public Utility Revenues
become exorbitant or excessive has been removed.41
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 ground for Piatco to terminate
the ARCA.42
14. Amounts due from and payable by government under the contract were made payable on
demand - net of taxes, levies, imposts, duties, charges or fees of any kind except as required by
law.43
15. The Parametric Formula in the contract, which is utilized to compute for adjustments/increases
to the public utility revenues (i.e., aircraft parking and tacking fees, check-in counter fee and
terminal fee), was revised to permit Piatco to input its more costly short-term borrowing rates
instead of the longer-terms rates in the computations for adjustments, with the end result that the
changes will redound to its greater financial benefit.
16. The Certificate of Completion simply deleted the successful performance-testing of the terminal
facility in accordance with defined performance standards as a pre-condition for government's
acceptance of the terminal facility.44
In sum, the foregoing revisions and amendments as embodied in the ARCA 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 claims that the changes to the CA were necessitated by the demands of
its foreign lenders. However, no proof whatsoever has been adduced to buttress this claim.
In any event, it is quite patent that the sum total of the aforementioned changes resulted in drastically
weakening the position of government to a degree that seems quite excessive, even from the standpoint of
a businessperson who regularly transacts with banks and foreign lenders, is familiar with their mind-set,
and understands what motivates them. On the other hand, whatever it was that impelled government
officials concerned to accede to those grossly disadvantageous changes, I can only hazard a guess.
There is no question in my mind that the ARCA was unauthorized and illegal for lack of public bidding
and for being patently disadvantageous to government.
The Three Supplements Imposed New Obligations on Government, Also Without Prior Public
Bidding
After Piatco had managed to breach the protective rampart of public bidding, it recklessly went on a
rampage of further assaults on the ARCA.
The First Supplement Is as Void as the ARCA
In the First Supplement ("FS") executed on August 27, 1999, the following changes were made to the
ARCA:
1. The amounts payable by Piatco to government were reduced by allowing additional exceptions to
the Gross Revenues in which government is supposed to participate. 45
2. Made part of the properties which government is obliged to construct and/or maintain and keep in
good repair are (a) the access road connecting Terminals II and III - the construction of this access
road is the obligation of Piatco, in lieu of its obligation to construct an Access Tunnel connecting
Terminals II and III; and (b) the taxilane and taxiway - these are likewise part of Piatco's obligations,
since they are 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 airports and
facilities owned or operated by it and by third persons under its control. It will also be liable to Piatco
for the latter's losses, expenses and damages as well as liability to third persons, in case MIAA fails
to perform such obligations. In 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. 47
4. The FS also imposed on government ten (10) "Additional Special Obligations," including the
following:
(a) Working for the removal of the general aviation traffic from the NAIA airport complex 48
(b) Providing through MIAA the land required by Piatco for the taxilane and one taxiway at
no cost to Piatco49
(c) Implementing the government's existing storm drainage master plan 50
(d) Coordinating with DPWH the financing, the implementation and the completion of the
following works before the In-Service Date: three left-turning overpasses (EDSA to Tramo
St., Tramo to Andrews Ave., and Manlunas Road to Sales Ave.); 51 and a road upgrade and
improvement program involving widening, repair and resurfacing of Sales Road, Andrews
Avenue and Manlunas Road; improvement of Nichols Interchange; and removal of squatters
along Andrews Avenue.52
(e) Dealing directly with BCDA and the Phil. Air Force in acquiring additional land or right of
way for the road upgrade and improvement program.53
5. Government is required to work for the immediate reversion to MIAA of the Nayong
Pilipino National Park.54
6. Government's share in the terminal fees collected was revised from a flat rate of 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 instead of US dollars. 55 This amendment enables
Piatco to benefit from the further erosion of the peso-dollar exchange rate, while preventing
government from building up its foreign exchange reserves.
7. All payments from Piatco to government are now to be invoiced to MIAA, and payments are to
accrue to the latter's exclusive benefit. 56 This move appears to be in support of the funds MIAA
advanced to DPWH.
I must emphasize that the First Supplement is void in two respects. First, it is merely an amendment
to the ARCA, upon which it is wholly dependent; therefore, since the ARCA is void, inexistent and not
capable of being ratified or amended, it follows that the FS too is void, inexistent and inoperative. Second,
even assuming arguendo that the ARCA is somehow remotely valid, nonetheless the FS, in imposing
significant 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 entered into sans public bidding renders
it utterly void and inoperative.
The Second Supplement Is Similarly Void and Inexistent
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 Terminal III but as a public works contractor,
to undertake - in the government's stead - the clearing, removal, demolition and disposal of improvements,
subterranean obstructions and waste materials at the project site. 57
The scope of the works, the procedures involved, and the obligations of the contractor are provided
for in Parts II and III of the SS. Section 4.1 sets out the compensation to be paid, listing specific rates per
cubic meter of materials for each phase of the work - excavation, leveling, removal and disposal, backfilling
and dewatering. The amounts collectible by Piatco are to be offset against the Annual Guaranteed
Payments it must pay government.
Though denominated as Second Supplement, it was nothing less than an entirely new public works
contract. Yet it, too, did not undergo any public bidding, for which reason it is also void and inoperative.
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 story altogether.
The Third Supplement Is Likewise Void and Inexistent
The Third Supplement ("TS"), executed between the government and Piatco on June 22, 2001,
passed on to the government certain obligations of Piatco as Terminal III concessionaire, with respect to
the surface road connecting Terminals II and III.
By way of background, at the inception of and forming part of the NAIA Terminal III project was the
proposed construction of an access tunnel crossing Runway 13/31, 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.
Therefore, the tunnel was supposed to be part and parcel of the Terminal III project.
However, in Section 5 of the First Supplement, the parties declared that the access tunnel was not
economically viable at that time. In lieu thereof, the parties agreed that a surface access road (now called
the T2-T3 Road) was to be constructed by 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 same project, and therefore part of Piatco's obligation as well. While the access tunnel was estimated
to cost about P800 million, the surface road would have a price tag in the vicinity of about P100 million,
thus producing significant savings for Piatco.
Yet, the Third Supplement, while confirming that Piatco would construct the T2-T3 Road,
nevertheless shifted to government some of the obligations pertaining to the former, as follows:
1. Government is now obliged to remove at its own expense all tenants, squatters, improvements
and/or waste materials on the site where the T2-T3 road is to be constructed. 58 There was no
similar obligation on the part of government insofar as the access tunnel was concerned.
2. Should government fail to carry out its obligation as above described, Piatco may undertake it on
government's behalf, subject to the terms and conditions (including compensation payments)
contained in the Second Supplement.59
3. MIAA will answer for the operation, maintenance and repair of the T2-T3 Road. 60
The TS depends upon and is intended to supplement the ARCA as well as the First Supplement,
both of which are void and inexistent and not capable of being ratified or amended. It follows that the TS is
likewise void, inexistent and inoperative. And even if, hypothetically speaking, both ARCA and FS are valid,
still, the Third Supplement - imposing as it does significant new obligations upon government - would in
effect alter the terms and stipulations of the ARCA in material respects, thus necessitating another public
bidding. Since the TS was not subjected to public bidding, it is consequently utterly void as well. At any
rate, the TS created new monetary obligations on the part of government, for which there were no prior
appropriations. Hence it follows that the same is void ab initio.
In patiently tracing the progress of the Piatco contracts from their inception up to 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 of beginning at the beginning, so to speak, will become
evident when the question of what to do with the five Piatco contracts is discussed later on.
In the meantime, I shall take up specific, provisions or changes in the contracts and highlight the
more prominent objectionable features.
Government Directly Guarantees Piatco Debts
Certainly the most discussed provision in the parties' arguments is the one creating an unauthorized,
direct government guarantee of Piatco's obligations in favor of the lenders.
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 no direct government
guarantee, subsidy or equity is required. In short, such guarantee is prohibited in unsolicited proposals.
Section 2(n) of the same legislation defines direct government guarantee as "an agreement whereby the
government or any of its agencies or local government units (will) assume responsibility for the repayment
of debt directly incurred by the project proponent in implementing the project in case of a loan default."
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 Section 4.04 of the CA, provides thus:
"(iv) that if Concessionaire is in default under a payment obligation owed to the Senior Lenders, and
as a result thereof the Senior Lenders have become entitled to accelerate the Senior Loans, the
Senior Lenders shall have the right to notify GRP of the same . . .;
(v) . . . the Senior Lenders may after written notification to GRP, transfer the Concessionaire's rights
and obligations to a transferee . . .;
(vi) if the Senior Lenders . . . are unable to . . . effect a transfer . . ., then GRP and the Senior
Lenders shall endeavor . . . to enter into any other arrangement relating to the Development Facility
. . . If no agreement relating to the Development Facility is arrived at by GRP and the Senior
Lenders within the said 180-day period, then at the end thereof the Development Facility shall be
transferred by the Concessionaire to 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 the sum of the Attendant Liabilities, if greater. . . ."
In turn, the term Attendant Liabilities is defined in Section 1.06 of the ARCA as follows:
"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 Senior Lenders or any other persons
or entities who have provided, loaned or advanced funds or provided financial facilities to
Concessionaire for the Project, including, without limitation, all principal, interest, associated fees,
charges, reimbursements, and other related expenses (including the fees, charges and expenses of
any agents or trustees of such persons or entities), whether payable at maturity, by acceleration or
otherwise, and further including amounts owed by Concessionaire to its professional consultants
and advisers, suppliers, contractors and sub-contractors."
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 paid by government is the greater of
either the Appraised Value of Terminal III or the aggregate amount of the moneys owed by Piatco -
whether to the Senior Lenders or to other entities, including its suppliers, contractors and subcontractors. In
effect, therefore, this agreement already constitutes the prohibited assumption by government of
responsibility for repayment of Piatco's debts in case of a loan default. In fine, a direct government
guarantee.
It matters not that there is a roundabout procedure prescribed by Section 4.04(c)(iv), (v) and (vi) that
would require, first, an attempt (albeit unsuccessful) by the Senior Lenders to transfer Piatco's rights to a
transferee of their choice; and, second, an effort (equally unsuccessful) to "enter into any other
arrangement" with the government regarding the Terminal III facility, before government is required to make
good on its guarantee. What is abundantly clear is the fact that, in the devious labyrinthine process detailed
in the aforesaid section, it is entirely within the Senior Lenders' power, prerogative and control - exercisable
via a mere refusal or inability to agree upon "a transferee" or "any other arrangement" regarding the
terminal facility - to push the process forward to the ultimate contractual cul-de-sac, wherein government
will be compelled to abjectly surrender and make good on its guarantee of payment.
Piatco also argues that there is no proviso requiring government to pay the Senior Lenders in the
event of Piatco's default. This is literally true, in the sense that Section 4.04(c)(vi) of ARCA speaks of
government making the termination payment to Piatco, not to the lenders. However, it is almost a certainty
that the Senior Lenders will already have made Piatco sign over to them, ahead of time, its right to receive
such payments from government; and/or they may already have had themselves appointed its attorneys-in-
fact for the purpose of collecting and receiving such payments.
Nevertheless, as petitioners-in-intervention pointed out in their Memorandum, 61 the termination
payment is to be made to Piatco, not to the lenders; and there is no provision anywhere in the contract
documents to prevent it from diverting the proceeds to its own benefit and/or to ensure that it will
necessarily use the same to pay off the Senior Lenders and other creditors, in order to avert the foreclosure
of the mortgage and other liens on the terminal facility. Such deficiency puts the interests of government at
great risk. Indeed, if the unthinkable were to happen, government would be paying several hundreds of
millions of dollars, but the mortgage liens on the facility may still be foreclosed by the Senior Lenders just
the same.
Consequently, the Piatco contracts are also objectionable for grievously failing to adequately protect
government's interests. More accurately, the contracts would consistently weaken and do away with
protection of government interests. As such, they are therefore grossly lopsided in favor of Piatco and/or its
Senior Lenders.
While on this subject, it is well to recall the earlier discussion regarding a particularly noticeable
alteration of the concept of "Attendant Liabilities." In Section 1.06 of the CA defining the term, the Piatco
debts to be assumed/paid by government were qualified by the phrases recorded and from time to time
outstanding in the books of the Concessionaire and actually used for the project. These phrases were
eliminated from the ARCA's definition of Attendant Liabilities.
Since no explanation has been forthcoming from Piatco as to the possible justification for such a
drastic change, the only conclusion, possible is that it intends to have all of its debts covered by the
guarantee, regardless of whether or not they are disclosed in its books. This has particular reference to
those borrowings which were obtained in violation of the loan covenants requiring Piatco to maintain a
minimum 70:30 debt-to-equity ratio, and even if the loan proceeds were not actually used for the project
itself.
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 the greater of either (i) the Appraised Value
of the terminal facility or (ii) the aggregate of the Attendant Liabilities. Given that the Attendant Liabilities
may include practically any Piatco debt under the sun, it is highly conceivable that their sum may greatly
exceed the appraised value of the facility, and government may end up paying very much more than the
real worth of Terminal III. (So why did government have to bother with public bidding anyway?)
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 resources (the private sector) to take on the
burden and the risks of financing the construction, operation and maintenance of relevant infrastructure and
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 merely defeat the purpose and raison d'tre of
a build-operate-and-transfer project to be undertaken by the private sector.
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 banks and other lenders on the other. But
where the proponent or its lenders manage to cajol or coerce the government into extending a guarantee of
payment of the loan obligations, the risks assumed by the lenders are passed right back to government. I
cannot understand why, in the instant case, government cheerfully 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 protection it gives the government.
Contract Termination Provisions in the Piatco Contracts Are Void
The BOT Law as amended provides for contract termination as follows:
"Sec. 7. Contract Termination. - In the event that a project is revoked, cancelled or terminated by
the government through no fault of the project proponent or by mutual agreement, the Government
shall compensate the said project proponent for its actual expenses incurred in the project plus a
reasonable rate of return thereon not exceeding that stated in the contract as of the date of such
revocation, cancellation or termination: Provided, That the interest of the Government in this
instances [sic] shall be duly insured with the Government Service Insurance System or any other
insurance entity duly accredited by the Office of the Insurance Commissioner: Provided, finally,
That the cost of the insurance coverage shall be included in the terms and conditions of the bidding
referred to above.
"In the event that the government defaults on certain major obligations in the contract and such
failure is not remediable or if remediable shall remain unremedied for an unreasonable length of
time, the project proponent/contractor may, by prior notice to the concerned national government
agency or local government unit specifying the turn-over date, terminate the contract. The project
proponent/contractor shall be reasonably compensated by the Government for equivalent or
proportionate contract cost as defined in the contract."
The foregoing statutory provision in effect provides for the following limited instances when
termination compensation may be allowed:
1. Termination by the government through no fault of the project proponent
2. Termination upon the parties' mutual agreement
3. Termination by the proponent due to government's default on certain major contractual
obligations
To emphasize, the law does not permit compensation for the project proponent when contract
termination is due to the proponent's own fault or breach of contract.
This principle was clearly violated in the Piatco Contracts. The ARCA stipulates that government is to
pay termination compensation to Piatco even when termination is initiated by government for the following
causes:
"(i) Failure of Concessionaire to finish the Works in all material respects in accordance with the
Tender Design and the Timetable;
(ii) Commission by Concessionaire of a material breach of this Agreement . . .;
(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 violative of statutory or
constitutional limitations;
(iv) A pattern of continuing or repeated non-compliance, willful violation, or non-performance of
other terms and conditions hereof which is hereby deemed a material breach of this
Agreement . . ."62
As if that were not bad enough, the ARCA also inserted into Section 8.01 the phrase "Subject to
Section 4.04." The effect of this insertion is that in those instances where government may terminate the
contract on account of Piatco's breach, and it is nevertheless required under the ARCA to make termination
compensation to Piatco even though unauthorized by law, such compensation is to be equivalent to
the payment amount guaranteed by government - either a) the Appraised Value of the terminal facility or (b)
the aggregate of the Attendant Liabilities, whichever amount is greater!
Clearly, this condition is not in line with Section 7 of the BOT Law. That provision permits a project
proponent to recover the actual expenses it incurred in the prosecution of the project plus a reasonable rate
of return not in excess of that provided in the contract; or to be compensated for the equivalent or
proportionate contract cost as defined in the contract, in case the government is in default on certain major
contractual obligations.
Furthermore, in those instances where such termination compensation is authorized by the BOT
Law, it is indispensable that the interest of government be duly insured. Section 5.08 the ARCA mandates
insurance coverage for the terminal facility; but all insurance policies are to be assigned, and all proceeds
are payable, to the Senior Lenders. In brief, the interest being secured by such coverage is that of the
Senior Lenders, not that of government. This can hardly be considered compliance with law.
In essence, the ARCA provisions on termination compensation result in another unauthorized
government guarantee, this time in favor of Piatco.
A Prohibited Direct Government Subsidy, Which at the Same Time Is an Assault on the
National Honor
Still another contractual provision offensive to law and public policy is Section 8.01(d) of the ARCA,
which is a "bolder and badder" version of Section 8.04(d) of the CA.
It will be recalled that Section 4-A of the BOT Law as amended prohibits not only direct government
guarantees, but likewise a direct government subsidy for unsolicited proposals. Section 13.2. b. iii. of the
1999 IRR defines a direct government subsidy as encompassing "an agreement whereby the Government .
. . will . . . postpone any payments due from the proponent."
Despite the statutory ban, Section 8.01 (d) of the ARCA provides thus:
"(d) The provisions of Section 8.01(a) notwithstanding, and for the purpose of preventing a
disruption of the operations in the Terminal and/or Terminal Complex, in the event that at any time
Concessionaire is of the reasonable opinion that it shall 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 such circumstances, the Senior Lenders (or the Senior Lenders'
Representative) may ensure that after making provision for administrative expenses and
depreciation, the cash resources of Concessionaire shall first be used and applied to meet all
payment obligations owed to the Senior Lenders. Any excess cash, after meeting such payment
obligations, shall be earmarked for the payment of all sums payable by Concessionaire to GRP
under this Agreement. If by reason of the foregoing GRP should be unable to collect in full all
payments due to GRP under this Agreement, then the unpaid balance shall be payable within a 90-
day grace period counted from the relevant due date, with interest per annum at the rate equal to
the average 91-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 spread of five
(5%) percent over the applicable 91-day Treasury Bill Rate shall be added on the unpaid amount
commencing on the expiry of the grace period up to the day of full payment. When the temporary
illiquidity of Concessionaire shall have been corrected and the cash position of Concessionaire
should indicate its ability to meet its maturing obligations, then the provisions set forth under this
Section 8.01(d) shall cease to apply. The foregoing remedial measures shall be applicable only
while there remains unpaid and outstanding amounts owed to the Senior Lenders." (Emphasis
supplied)
By any manner of interpretation or application, Section 8.01(d) of the ARCA clearly mandates
the indefinitepostponement of payment of all of Piatco's obligations to 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 prohibited by the BOT Law and the IRR. The fact that Piatco will pay interest on
the unpaid amounts owed to government does not change the situation or render the prohibited subsidy
any less unacceptable.
But beyond the clear violations of law, there are larger issues involved in the ARCA. Earlier, I
mentioned that Section 8.01(d) of the ARCA completely eliminated the proviso in Section 8.04(d) of the CA
which gave government the right to appoint a financial controller to manage the cash position of Piatco
during situations of financial distress. Not only has government been deprived of any means of 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 financial controllership over Piatco and to allocate its cash
resources to the payment of all amounts owed to the Senior Lenders before allowing any payment to be
made to government.
In brief, this particular provision of the ARCA has placed in the hands of foreign lenders the power
and the authority to determine how much (if at all) and when the Philippine government (as grantor of the
franchise) may be allowed to receive from Piatco. In that situation, government will be at the mercy of the
foreign lenders. This is a situation completely contrary to the rationale of the BOT Law and to public policy.
The aforesaid provision rouses mixed emotions - shame and disgust at the parties'
(especially the government officials') docile submission and abject servitude and surrender to the
imperious and excessive demands of the foreign lenders, on the one hand; and vehement outrage
at the affront to the sovereignty of the Republic and to the national honor, on the other. It is indeed
time to put an end to such an unbearable, dishonorable situation.
The Piatco Contracts Unarguably Violate Constitutional Injunctions
I will now discuss the manner in which the Piatco Contracts offended the Constitution.
The Exclusive Right Granted to Piatco to Operate a Public Utility Is Prohibited by the Constitution
While Section 2.02 of the ARCA spoke of granting to Piatco "a franchise to operate and maintain the
Terminal Complex," Section 3.02(a) of the same ARCA granted to Piatco, for the entire term of the
concession agreement, "the exclusive right to operate a commercial international passenger terminal
within the Island of Luzon" with the exception of those three terminals already existing 63 at the time of
execution of the ARCA.
Section 11 of Article XII of the Constitution prohibits the grant of a "franchise, certificate, or any other
form of authorization for the operation of a public utility" that is "exclusive in character."
In its Opinion No. 078, Series of 1995, the Department of justice held that "the NAIA Terminal III
which . . . is a 'terminal for public use' is a public utility." Consequently, the constitutional prohibition against
the exclusivity of a franchise applies to the franchise for the operation of NAIA Terminal III as well.
What was granted to Piatco was not merely a franchise, but an "exclusive right" to operate an
international passenger terminal within the "Island of Luzon." What this 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 such a public utility, in the event public interest in Luzon requires it. This
restriction is highly detrimental to government and to the public interest. Former Secretary of Justice
Hernando B. Perez expressed this point well in his Memorandum for the President dated 21 May 2002:
"Section 3.02 on 'Exclusivity'
"This provision gives to PIATCO (the Concessionaire) the exclusive right to operate a commercial
international airport within the Island of Luzon with the exception of those already existing at the
time of the execution of the Agreement, such as the airports at Subic, Clark and Laoag City. In the
case of the Clark International Airport, however, the provision restricts its operation beyond its
design capacity of 850,000 passengers per annum and the operation of new terminal facilities
therein until after 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 years during the
concession period.
"This is an onerous and disadvantageous provision. It effectively grants PIATCO a monopoly in
Luzon and ties the hands of government in the matter of developing new airports which may be
found expedient and necessary in carrying out any future plan for an inter-modal transportation
system in Luzon.
"Additionally, it imposes an unreasonable restriction on the operation of the Clark International
Airport which could adversely affect the operation and development of the Clark Special Economic
Zone to the economic prejudice of the local constituencies that are being benefited by its
operation." (Emphasis supplied)
While it cannot be gainsaid that an enterprise that is a public utility may happen to constitute a
monopoly on account of the very nature of its business and the absence of competition, such a situation
does not however constitute justification to violate the constitutional prohibition and grant an exclusive
franchise or exclusive right to operate a public utility.
Piatco's contention that the Constitution does not actually prohibit monopolies is beside the point. As
correctly argued,64 the existence of a monopoly by a public utility is a situation created by circumstances
that do not encourage competition. 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
monopoly. But making such franchise exclusive is what is expressly proscribed by the Constitution.
Actually, the aforementioned Section 3.02 of the ARCA more than just guaranteed exclusivity; it also
guaranteed that the government will not improve or expand the facilities at Clark - and in fact is required to
put a cap on the latter's operations - until after Terminal III shall have been operated at or beyond its peak
capacity for 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 from year to year, it may take
many years before Terminal III sees three consecutive years' operations at peak capacity. The Diosdado
Macapagal International Airport may thus end up stagnating for a long time. Indeed, in order to ensure
greater profits for Piatco, the economic progress of a region has had to be sacrificed.
The Piatco Contracts Violate the Time Limitation on Franchises
Section 11 of Article XII of the Constitution also provides that "no franchise, certificate or any other
form of authorization for the operation of a public utility 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.
The Piatco Contracts have come up with an innovative way to circumvent the prohibition and obtain
an extension. This fact can be gleaned from Section 8.03(b) of the ARCA, which I quote thus:
"Sec. 8.03. Termination Procedure and Consequences of Termination. -
a) x x x xxx xxx
b) In the event the Agreement is terminated pursuant to Section 8.01 (b) hereof,
Concessionaire shall be entitled to collect the Liquidated Damages specified in Annex 'G'.
The full payment by GRP to Concessionaire of the Liquidated Damages shall be a condition
precedent to the transfer by Concessionaire to GRP of the Development Facility. Prior to the
full payment of the Liquidated Damages, Concessionaire shall to the extent practicable
continue to operate the Terminal and the Terminal Complex and shall be entitled to retain
and withhold all payments to GRP for the purpose of offsetting the same against the
Liquidated Damages. Upon full payment of the Liquidated Damages, Concessionaire shall
immediately transfer the Development Facility to GRP on 'as-is-where-is' basis."
The aforesaid easy payment scheme is less beneficial than it first appears. Although it enables
government to avoid having to make outright payment of an obligation that will likely run into billions of
pesos, this easy payment plan will nevertheless cost government considerable loss of income, which it
would earn if it were to operate Terminal III by itself. Inasmuch as payments to the concessionaire (Piatco)
will be on "installment basis," interest charges on the remaining unpaid balance would undoubtedly cause
the total outstanding balance to swell. Piatco would thus be entitled to remain in the driver's seat and keep
operating the terminal for an indefinite length of time.
The Contracts Create Two Monopolies for Piatco
By way of background, two monopolies were actually created by the Piatco contracts. The first and
more obvious one refers to the business of operating an international passenger terminal in Luzon, the
business end of which involves providing international airlines with parking space for their aircraft, and
airline passengers with the use of departure and arrival areas, check-in counters, information systems,
conveyor systems, security equipment and paraphernalia, immigrations and customs processing areas;
and amenities such as comfort rooms, restaurants and shops.
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 terminal; 66 that NAIA Terminals I and II will no
longer be operated as such;67 and that no one (including the government) will be allowed to compete with
Piatco in the operation of an international passenger terminal in the NAIA Complex. 68 Given that, 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 particular monopolistic situation.
There was however another monopoly within the NAIA created by the subject contracts for Piatco - in
the business of providing international airlines with the following: groundhandling, in-flight catering, cargo
handling, and aircraft repair and maintenance services. These are lines of business activity in which are
engaged many service providers (including the petitioners-in-intervention), who will be adversely affected
upon full implementation of the Piatco Contracts, particularly Sections 3.01(d) 69 and (e)70 of both the
ARCA and the CA.
On the one hand, Section 3.02(a) of the ARCA makes Terminal III the only international passenger
terminal at the NAIA, and therefore the only place within the NAIA Complex where the business of
providing airport-related services to international airlines may be conducted. On the other hand, Section
3.01(d) of the ARCA requires government, through the MIAA, not to allow service providers with expired
MIAA contracts to renew or extend their contracts to render airport-related services to airlines. Meanwhile,
Section 3.01(e) of the ARCA requires government, through the DOTC and MIAA, not to allow service
providers - those with subsisting concession agreements for services and operations being conducted at
Terminal I - to carry over their concession agreements, services and operations to Terminal III, unless they
first enter into a separate agreement with Piatco.
The aforementioned provisions vest in Piatco effective and exclusive control over which service
provider may and may not operate at Terminal III and render the airport-related services needed by
international airlines. It thereby possesses the power to exclude competition. By necessary implication, it
also has effective control over the fees and charges that will be imposed and collected by these service
providers.
This intention is exceedingly clear in the declaration by Piatco that it is "completely within its rights to
exclude any party that it has not contracted with from NAIA Terminal III."71
Worse, there is nothing whatsoever in the Piatco Contracts that can serve to restrict, control or
regulate the concessionaire's discretion and power to reject any service provider and/or impose any term or
condition it may see fit in any contract it enters into with a service provider. In brief, there is no safeguard
whatsoever to ensure free and fair competition in the service-provider sector.
In the meantime, and not surprisingly, Piatco is first in line, ready to exploit the unique business
opportunity. It announced72 that it has accredited three groundhandlers for Terminal III. Aside from the
Philippine Airlines, the other accredited entities are the Philippine Airport and Ground Services
Globeground, Inc. ("PAGSGlobeground") and the Orbit Air Systems, Inc. ("Orbit"). PAGSGlobeground is a
wholly-owned subsidiary of the Philippine Airport and Ground Services, Inc. or PAGS, 73 while Orbit is a
wholly-owned subsidiary of Friendship Holdings, Inc., 74 which is in turn owned 80 percent by
PAGS.75 PAGS is a service provider owned 60 percent by the Cheng Family; 76 it is a stockholder of 35
percent of Piatco77 and is the latter's designated contractor-operator for NAIA Terminal III. 78
Such entry into and domination of the airport-related services sector appear to be very much in line
with the following provisions contained in the First Addendum to the Piatco Shareholders
Agreement,79 executed on July 6, 1999, which appear to constitute a sort of master plan to create a
monopoly and combinations in restraint of trade:
"11. The Shareholders shall ensure:
a. x x x xxx x x x.;
b. That (Phil. Airport and Ground Services, Inc.) PAGS and/or its designated Affiliates shall, at all
times during the Concession Period, be exclusively authorized by (PIATCO) to engage in the
provision of ground-handling, catering and fueling services within the Terminal Complex.
c. That PAIRCARGO and/or its designated Affiliate shall, during the Concession Period, be the only
entities authorized to construct and operate a warehouse for all cargo handling and related services
within the Site."
Precisely, proscribed by our Constitution are the monopoly and the restraint of trade being fostered
by the Piatco Contracts through the erection of barriers to the entry of other service providers into Terminal
III. In Tatad v. Secretary of the Department of Energy,80 the Court ruled:
". . . [S]ection 19 of Article XII of the Constitution . . . mandates: 'The State shall regulate or prohibit
monopolies when the public interest so requires. No combinations in restraint of trade or unfair
competition shall be allowed.'
"A monopoly is a privilege or peculiar advantage vested in one or more persons or companies,
consisting in the exclusive right or power to carry on a particular business or trade, manufacture a
particular article, or control the sale or the whole supply of a particular commodity. It is a form of
market structure in which one or only a few firms dominate the total sales of a product or service.
On the other hand, a combination in restraint of trade is an agreement or understanding between
two or more persons, in the form of a contract, trust, pool, holding company, or other form of
association, for the purpose of unduly restricting competition, monopolizing trade and commerce in
a certain commodity, controlling its production, distribution and price, or otherwise interfering with
freedom of trade without statutory authority. Combination in restraint of trade refers to the means
while monopoly refers to the end.
"x x x xxx xxx
"Section 19, Article XII of our Constitution is anti-trust in history and in spirit. It espouses
competition. The desirability of competition is the reason for the prohibition against restraint of
trade, the reason for the interdiction of unfair competition, and the reason for regulation of
unmitigated monopolies. Competition is thus the underlying principle of [S]ection 19, Article XII of
our Constitution, . . ."81
Gokongwei Jr. v. Securities and Exchange Commission 82 elucidates the criteria to be employed: "A
'monopoly' embraces any combination the tendency of which is to 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 few. The material consideration in determining its existence is not that prices are raised
and competition actually excluded, but that power exists to raise prices or exclude competition when
desired."83 (Emphasis supplied)
The Contracts Encourage Monopolistic Pricing, Too
Aside from creating a monopoly, the Piatco contracts also give the concessionaire virtually limitless
power over the charging of fees, rentals and so forth. What little "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 provisions:
"Sec. 6.06. Adjustment of Non-Public Utility Fees and Charges
"For fees, rentals and charges constituting Non-Public Utility Revenues, 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)."
Section 6.03(c) in turn provides:
"(c) Concessionaire shall at all times be judicious in fixing fees and charges constituting Non-Public
Utility Revenues in order to ensure that End Users are not unreasonably deprived of services.
While the vehicular parking fee, porterage fee and greeter/wellwisher fee constitute Non-Public
Utility Revenues of Concessionaire, GRP may require Concessionaire to explain and justify the fee
it may set from time to time, if in the reasonable opinion of GRP the said fees have become
exorbitant resulting in the unreasonable deprivation of End Users of such services."
It will be noted that the above-quoted provision has no teeth, so the concessionaire can defy the
government without fear of any sanction. Moreover, Section 6.06 - taken together with Section 6.03(c) of
the ARCA - falls short of the standard set by the BOT Law as amended, which expressly requires in Section
2(b) that the project proponent is "allowed to charge facility users appropriate tolls, fees, rentals and
charges not exceeding those proposed in its bid or as negotiated and incorporated in the contract x
x x."
The Piatco Contracts Violate Constitutional Prohibitions Against
Impairment of Contracts and Deprivation of Property Without Due Process
Earlier, I discussed how Section 3.01(e)84 of both the CA and the ARCA requires government,
through DOTC/MIAA, not to permit the carry-over to Terminal III of the services and operations of certain
service providers currently operating at Terminal I with subsisting contracts.
By the In-Service Date, Terminal III shall be the only facility to be operated as an international
passenger terminal at the NAIA; 85 thus, Terminals I and II shall no longer operate as such, 86 and no one
shall be allowed to compete with Piatco in the 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
business of providing airport-related services to international airlines and passengers may be conducted at
all.
Consequently, government through the DOTC/MIAA will be compelled to cease honoring existing
contracts with service providers after the In-Service Date, as they cannot be allowed to operate in Terminal
III.
In short, the CA and the ARCA obligate and constrain government to break its existing contracts with
these service providers.
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 providers can perform their service
contracts in some other international airport outside Luzon. Obviously, then, these displaced service
providers are - to borrow a quaint expression - up the river without a paddle. In plainer terms, they will have
lost their businesses entirely, in the blink of an eye.
What we have here is a set of contractual provisions that impair the obligation of contracts and
contravene the constitutional prohibition against deprivation of property without due process of law. 88
Moreover, since the displaced service providers, being unable to operate, will be forced to close
shop, their respective employees - among them Messrs. Agan and Lopez et al. - have very grave cause for
concern, as they will find themselves out of employment and bereft of their means of livelihood. This
situation comprises still another violation of the constitution prohibition against deprivation of property
without due process.
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-intervention service providers for years on
end, a situation arises, similar to that in American Inter-fashion v. GTEB.89 We held therein that a privilege
enjoyed for seven years "evolved into some form of property right which should not be removed x x x
arbitrarily and without due process." Said pronouncement is particularly relevant and applicable to the
situation at bar because the livelihood of the employees of petitioners-intervenors are at stake.
The Piatco Contracts Violate Constitutional Prohibition
Against Deprivation of Liberty Without Due Process
The Piatco Contracts by locking out existing service providers from entry into Terminal III and
restricting entry of future service providers, thereby infringed upon the freedom - guaranteed to and
heretofore enjoyed by international airlines - to contract with local service providers of their choice, and vice
versa.
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 a contract in relation to one's
business.91
By Creating New Financial Obligations for Government,
Supplements to the ARCA Violate the Constitutional
Ban on Disbursement of Public Funds Without Valid Appropriation
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 effect of this constitutional ban is that all
the various agencies of government are constrained to limit their expenditures to the amounts appropriated
by law for each fiscal year; and to carefully count their cash before taking on contractual commitments.
Giving flesh and form to the injunction of the fundamental law, Sections 46 and 47 of Executive Order 292,
otherwise known as the Administrative Code of 1987, provide as follows:
"Sec. 46. Appropriation Before Entering into Contract. - (1) No contract involving the expenditure of
public funds shall be entered into unless there is an appropriation therefor, the unexpended balance
of which, free of other obligations, is sufficient to cover the proposed expenditure; and . .
"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 in stock not exceeding the
estimated consumption for three (3) months, or banking transactions of government-owned or
controlled banks, no contract involving the expenditure of public funds by any government agency
shall be entered into or 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 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 thereof, subject to verification by the auditor
concerned. The certificate signed by the proper accounting official and the auditor who verified it,
shall be attached to and become an integral part of the proposed contract, and the sum so certified
shall not thereafter be available for expenditure for any other purpose until the obligation of the
government agency concerned under the contract is fully extinguished."
Referring to the aforequoted provisions, this Court has held that "(I)t is quite evident from the tenor of
the language of the law that the existence of appropriations and the availability of funds are indispensable
pre-requisites to or conditions sine qua 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
Notwithstanding the constitutional ban, statutory mandates and Jurisprudential precedents, the three
Supplements to the ARCA, which were not approved by NEDA, imposed on government the additional
burden of spending public moneys without prior appropriation.
In the First Supplement ("FS") dated August 27, 1999, the following requirements were imposed on
the government:
To construct, maintain and keep in good repair and operating condition all airport support services,
facilities, equipment and infrastructure owned and/or operated by MIAA, which are not part of the
Project or which are located outside the Site, even though constructed by Concessionaire -
including the access road connecting Terminals II and III and the taxilane, taxiways and runways
To obligate the MIAA to provide funding for the upkeep, maintenance and repair of the airports
and facilities owned or operated by it and by third persons under its control in order to ensure
compliance with international standards; and holding MIAA liable to Piatco for the latter's losses,
expenses and damages as well as for the latter's liability to third persons, in case MIAA fails to
perform such obligations; in 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.
Section 4 of the FS imposed on government ten (10) "Additional Special Obligations," including
the following:
Providing thru MIAA the land required by Piatco for the taxilane and one taxiway, at
no cost to Piatco
Implementing the government's existing storm drainage master plan
Coordinating with DPWH the financing, implementation and completion of the
following works before the In-Service Date: three left-turning overpasses (Edsa to Tramo
St., Tramo to Andrews Ave., and Manlunas Road to Sales Ave.) and a road upgrade and
improvement program involving widening, repair and resurfacing of Sales Road, Andrews
Avenue and Manlunas Road; improvement of Nichols Interchange; and removal of squatters
along Andrews Avenue
Dealing directly with BCDA and the Philippine Air Force in acquiring additional land
or right of way for the road upgrade and improvement program
Requiring government to work for the immediate reversion to MIAA of the Nayong
Pilipino National Park, in order to permit the building of the second west parallel taxiway
Section 5 of the FS also provides that in lieu of the access tunnel, a surface access road (T2-T3)
will be constructed. This provision requires government to expend funds to purchase additional land
from Nayong Pilipino and to clear the same in order to be able to deliver clean possession of the
site to Piatco, as required in Section 5(c) of the FS.
On the other hand, the Third Supplement ("TS") obligates the government to deliver, within 120 days
from date thereof, clean possession of the land on which the T2-T3 Road is to be constructed.
The foregoing contractual stipulations undeniably impose on government the expenditures of public
funds not included in any congressional appropriation or 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 them as stipulations for compliance on a "best-efforts basis" only.
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 must be examined in the context of its
relevance and significance to the Terminal III Project, as well as of any adverse impact that may result if
such obligation is not performed or undertaken on time. In short, the criteria for determining whether the
best-efforts basis will apply is whether the obligations are critical to the success of the Project and,
accordingly, whether failure to perform them (or to perform them on time) could result in a material
breach of the contract.
Viewed in this light, the "Additional Special Obligations" set out in Section 4 of the FS take on a
different aspect. In particular, each of the following may all be deemed to play a major role in the successful
and timely prosecution of the Terminal III Project: the obtention of land required by PIATCO for the taxilane
and taxiway; the implementation of government's existing storm drainage master plan; and coordination
with DPWH for the completion of the three left-turning overpasses before the In-Service Date, as well as
acquisition and delivery of additional land for the construction of the T2-T3 access road.
Conversely, failure to deliver on any of these obligations may conceivably result in substantial
prejudice to the concessionaire, to such an extent as to constitute a 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 and seek payment of Liquidated Damages in accordance with Section
8.02(a) of the ARCA; or the concessionaire may instead require government to pay the Incremental and
Consequential Losses under Section 1.23 of the ARCA. 94The logical conclusion then is that the obligations
in the Supplements are not to be performed on a best-efforts basis only, but are unarguably mandatory in
character.
Regarding MIAA's obligation to coordinate with the DPWH for the complete implementation of the
road upgrading and improvement program for Sales, Andrews and Manlunas Roads (which provide access
to the Terminal III site) prior to the In-Service Date, it is essential to take note of the fact that there was a
pressing need to complete the program before the opening of Terminal III. 95 For that reason, 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 program. MIAA agreed to advance the total amount of
P410.11 million to DPWH for the works, while the latter was committed to do the following:
"2.2.8. Reimburse all advance payments to MIAA including but not limited to 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.
"2.2.9. Perform all acts necessary to include in its CY2004 to CY2006 budget allocation the
repayments for the advances made by MIAA, to ensure that the advances are fully repaid by
CY2006. For this purpose, DPWH shall include the amounts to be appropriated for reimbursement
to MIAA in the "Not Needing Clearance" column of their Agency Budget Matrix (ABM) submitted to
the Department of Budget and Management."
It can be easily inferred, then, that DPWH did not set aside enough funds to be able to complete the
upgrading program for the crucially situated access roads prior to the targeted opening date of Terminal III;
and that, had MIAA not agreed to lend the P410 Million, DPWH would not have been able to complete the
program on time. As a consequence, government would have been in breach of a material obligation.
Hence, this particular undertaking of government may likewise not be construed as being for best-efforts
compliance only.
They also Infringe on the Legislative Prerogative and Power Over the Public Purse
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 maneuvered into) an agreement that would
ensure delivery of upgraded roads for Piatco's benefit, using funds not allocated for that purpose. The
agreement would then be presented to Congress as a done deal. Congress would thus be obliged to
uphold the agreement and support it with the necessary allocations and appropriations for three years, in
order to enable DPWH to deliver on its committed repayments to MIAA. The net result is an infringement
on the legislative power over the public purse and a diminution of Congress' control over expenditures of
public funds - a development that would not have come about, were it not for the Supplements. Very clever
but very illegal!
EPILOGUE
What Do We Do Now?
In the final analysis, there remains but one ultimate question, which I raised during the Oral Argument
on December 10, 2002: What do we do with the Piatco Contracts and Terminal III?96 (Feeding directly
into the resolution of the decisive question is the other nagging issue: Why should we bother with
determining the legality and validity of these contracts, when the Terminal itself has already been built and
is practically complete?)
Prescinding from all the foregoing disquisition, I find that all the Piatco contracts, without exception,
are void ab initio, and therefore inoperative. Even the very process by which the contracts came into being
- the bidding and the award - has been riddled with irregularities galore and blatant violations of law and
public policy, far too many to ignore. There is thus no conceivable way, as proposed by some, of saving
one (the original Concession Agreement) while junking all the rest.
Neither is it possible to argue for the retention of the Draft Concession Agreement (referred to in the
various pleadings as the Contract Bidded Out) as the contract that should be kept in force and effect to
govern the situation, inasmuch as it was never executed by the parties. What Piatco and the government
executed was the Concession Agreement which is entirely different from the Draft Concession Agreement.
Ultimately, though, it would be tantamount to an outrageous, grievous and unforgivable mutilation of
public policy and an insult to ourselves if we opt to keep 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.
Despite all the insidious contraventions of the Constitution, law and public policy Piatco perpetrated,
keeping Piatco on as concessionaire and even rewarding it by allowing it to operate and profit from
Terminal III - instead of imposing upon it the stiffest sanctions permissible under the laws - is
unconscionable.
It is no exaggeration to say that Piatco may not really mind which contract we decide to keep in
place. For all it may care, we can do just as well without one, if we only let it continue and operate the
facility. After all, the real money will come not from building the Terminal, but from actually operating it for
fifty or more years and charging whatever it feels like, without any competition at all. This scenario must not
be allowed to happen.
If the Piatco contracts are junked altogether as I think they should be, should not AEDC automatically
be considered the winning bidder and therefore allowed to operate the facility? My answer is a stone-cold
'No'. AEDC never won the bidding, never signed any contract, and never built any facility. Why should it be
allowed to automatically step in and benefit from the greed of another?
Should government pay at all for reasonable expenses incurred in the construction of the Terminal?
Indeed it should, otherwise it will be unjustly enriching itself at the expense of Piatco and, in particular, its
funders, contractors and investors - both local and foreign. After all, there is no question that the State
needs and will make use of Terminal III, it being part and parcel of the critical infrastructure and
transportation-related programs of government.
In Melchor v. Commission on Audit,97 this Court held that even if the contract therein was void, the
principle of payment by quantum meruit was found applicable, and the contractor was allowed to recover
the reasonable value of the thing or services rendered (regardless of any agreement as to
the supposed value), in order to avoid unjust enrichment on the part of government. The principle
of quantum meruit was likewise applied in Eslao v. Commission on Audit,98 because to deny payment for a
building almost completed and already occupied would be to permit government to unjustly enrich itself at
the expense of the contractor. The same principle was applied in Republic v. Court of Appeals.99
One possible practical solution would be for government - in view of the nullity of 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 principles as build-operate-and-transfer projects. To be imposed,
however, is the condition that the winning bidder must pay the builder of the facility a price fixed by
government based on quantum meruit; on the real, reasonable - not inflated - value of the built facility.
How the payment or series of payments to the builder, funders, investors and contractors will be
staggered and scheduled, will have to be built into the bids, along with the annual guaranteed payments to
government. In this manner, this whole sordid mess could result in something truly beneficial for all,
especially for the Filipino people.
WHEREFORE, I vote to grant the Petitions and to declare the subject contracts NULL and VOID.