1.

General safeguards when entering into service contracts with respect to mineral, petroleum, and
other mineral oils (Resident Marine Mammals of the Protect Seascape Tanon Strait v. Secretary
Angelo Reyes, et. al., G.R. No. 180771, 21 April 2015).

a. The service contract shall be crafted in accordance with a general law that will set
standard or uniform conditions and requirements presumably to attain a certain
uniformity in provisions and avoid the possible insertion of terms disadvantageous to the
country.

b. The President shall be the signatory for the government because, supposedly before an
agreement is presented to the President for signature, it will have been vetted several
times over at different levels to ensure that it conforms to law and can withstand public
scrutiny.
i. Note that the Alter ego doctrine will not apply as substantial compliance for this
safeguard. “As this Court has held in La Bugal, our Constitution requires that the
President himself be the signatory of service agreements with foreign-owned
corporations involving the exploration, development, and utilization of our
minerals, petroleum, and other mineral oils. This power cannot be taken lightly”.
ii. Alter Ego Principle – “All executive and administrative organizations are adjuncts
of the Executive Department, the heads of the various executive departments are
assistants and agents of the Chief Executive, and, except in cases where the Chief
Executive is required by the Constitution or law to act in person or the exigencies
of the situation demand that he act personally.”

c. Within thirty days of the executed agreement, the President shall report it to Congress to
give that branch of government an opportunity to look over the agreement and interpose
timely objections, if any.

2. P.D. No. 87 (Exploration and Development Act of 1972)

a. Service contracts for petroleum exploration and extraction to be obtained through the
Philippine Energy Contracting Round (PECR).
b. Tax provisions pursuant to Service Contract – 38 (Malampaya exploration)
i. Contractor is exempt from all taxes except income tax (SC-38, section 6.2).
ii. Contractor is liable for the payment of income tax (SC-38, section 6.1).
iii. Contractor’s payment of income tax and branch profit remittance tax is paid from
the government share (SC-38, section 6.3).
c. The usual share is for the government to take 60% of the net proceeds while the
contractor retains its share of petroleum as service fee equivalent to 40% of the net
proceeds.