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FRANCISCO S. TATAD v. JESUS B. GARCIA

FACTS:

The case involves a petition filed by members of the Philippine Senate, acting as senators and taxpayers, to prohibit the implementation of the "Revised and Restated Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" and the "Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement To Build, Lease and Transfer a Light Rail Transit System for EDSA." Respondent Jesus Garcia Jr. is the Secretary of the Department of Transportation and Communications (DOTC), while the private respondent is the EDSA LRT Corporation Ltd., a private corporation organized under Hong Kong laws.

The Department of Transportation and Communications planned to construct the EDSA Light Rail Transit III (EDSA LRT III) in 1989, as a means to alleviate congestion and provide a mass transit system along EDSA. In March 1990, Elijahu Levin of Eli Levin Enterprises, Inc. expressed interest in constructing the EDSA LRT III on a Build-Operate-Transfer (BOT) basis. The BOT Law, which authorizes the financing, construction, operation, and maintenance of infrastructure projects by the private sector, was signed into law on July 9, 1990. DOTC created committees and issued guidelines for the prequalification of contractors. Five groups responded to the invitation, but only the EDSA LRT Consortium met the requirements. Subsequently, negotiations were conducted and an agreement was entered into between DOTC and the EDSA LRT Corporation, Ltd.

The agreements between DOTC and the EDSA LRT Corporation, Ltd. involved the construction of a Light Rail Transit System for the EDSA thoroughfare. Under the agreements, the private respondent would undertake and finance the project, while DOTC would operate the completed portion. DOTC would pay rentals to the private respondent, and after 25 years, ownership of the project would be transferred to DOTC. The agreements were approved by President Fidel V. Ramos on May 6, 1993.

Petitioners filed a petition challenging the constitutionality and validity of the agreements, arguing that they violated the Constitution, were illegal, violated the requirements of the BOT Law, and were disadvantageous to the government. Secretary Garcia and the private respondent filed separate comments, questioning the standing of the petitioners and the appropriateness of the writ of prohibition as a remedy.

ISSUES:

  1. Whether the right to operate a public utility can exist independently and separately from the ownership of the facilities used to serve the public.

  2. Whether the private respondent in this case, who owns the facilities necessary to operate the EDSA LRT III but is not enfranchised to operate a public utility, can be considered a public utility.

  3. Whether the Filipino nationality requirement for public utility corporations applies at the time of formation or at the time of applying for a franchise or authorization.

  4. Whether the BLT scheme is recognized under the BOT Law and its Implementing Rules and Regulations.

  5. Whether the lease agreement is a lease-purchase agreement, thereby transferring ownership at the end of the lease period.

  6. Whether the rental payments are required to be in Philippine currency, considering that the project is a high priority project under the Investment Priorities Plan of the Government.

  7. Whether the negotiated award of the contract for the construction of the EDSA LRT III is valid, despite the allegation of rigging in the prequalification process.

  8. Whether the BLT (Build-lease-and-transfer) scheme and direct negotiation of contracts are contemplated by the BOT (Build-Operate-Transfer) Law.

  9. Whether the agreements entered into by the parties are grossly disadvantageous to the government.

  10. Whether or not the agreements entered into by the Department of Transportation and Communications (DOTC) with various telecommunication companies for the use of government properties are valid.

  11. Whether or not the agreements were entered into in the exercise of DOTC's governmental function.

RULING:

  1. The right to operate a public utility can exist independently and separately from the ownership of the facilities. One can own the facilities without operating them as a public utility, or one can operate a public utility without owning the facilities used to serve the public.

  2. The private respondent in this case, who is the owner of the facilities necessary to operate the EDSA LRT III but is not enfranchised to operate a public utility, cannot be considered a public utility. The private respondent and the Department of Transportation and Communications (DOTC) agreed that the private respondent will deliver possession of the LRT system to DOTC by way of lease for 25 years, during which period DOTC shall operate the system as a common carrier. The private respondent will only provide technical maintenance and repair services to DOTC. The private respondent will not run the light rail vehicles and collect fees from the riding public, and it will have no dealings with the public.

  3. The Filipino nationality requirement for public utility corporations applies when the entity applies for a franchise, certificate, or any other form of authorization for operating as a public utility.

  4. The BLT scheme is a variation of the BT scheme under the BOT Law and is therefore allowed.

  5. The lease agreement is a lease-purchase agreement because the parties stipulated that title to the leased premises shall be transferred to the lessee at the end of the lease period upon the payment of an agreed sum.

  6. The requirement for rental payments in United States currency is valid because the EDSA LRT III project is a high priority project certified by Congress and the National Economic and Development Authority, and it falls under the Investment Priorities Plan of the Government.

  7. The negotiated award of the contract for the construction of the EDSA LRT III is valid because subsequent congressional approval of the list under which the project falls amounts to a ratification of the prior award under the BOT Law. Furthermore, the BOT Law allows the negotiated award of government infrastructure projects in exceptional cases, and there was a lack of qualified bidders or contractors in this case.

  8. The BLT scheme and direct negotiation of contracts are recognized and defined by Republic Act No. 7718. The law authorizes government infrastructure agencies, government-owned and controlled corporations, and local government units to enter into contracts with duly prequalified proponents for the financing, construction, operation, and maintenance of infrastructure or development facilities through various arrangements, including the BLT scheme. The enactment of Republic Act No. 7718 makes valid what was previously invalid or doubtful.

  9. The determination of the terms of the agreements was made by the Department of Transportation and Communications (DOTC) after a painstaking study. The decisions of administrative agencies and officials who have acquired expertise and specialized knowledge in performing their functions should be respected, unless there is a showing of grave abuse of discretion. Government officials are presumed to perform their functions regularly, and strong evidence is needed to rebut this presumption.

  10. The Supreme Court dismissed the petition.

PRINCIPLES:

  • The right to operate a public utility can exist independently of the ownership of the facilities used to serve the public.

  • Mere ownership and lease of the facilities used by a public utility does not make an entity a public utility.

  • The formation of a public utility corporation does not automatically grant it the status of a public utility.

  • The determination of the requisite Filipino nationality for public utility corporations is made at the time of applying for a franchise or authorization.

  • The BOT Law allows for variations within the context of the BOT and BT schemes, as long as they comply with the requirements and objectives of the law.

  • A lease becomes a lease-purchase agreement when the parties stipulate that title to the leased premises shall be transferred to the lessee at the end of the lease period upon the payment of an agreed sum.

  • Projects under the Investment Priorities Plan of the Government are exempt from the Uniform Currency Act, and rental payments can be required in a foreign currency.

  • The BOT Law allows the negotiated award of government infrastructure projects in exceptional cases, where there is a lack of qualified bidders or contractors, or when greater economy and efficiency can be achieved through negotiation.

  • The enactment of a curative statute can validate actions that were previously invalid or doubtful.

  • The decisions of administrative agencies and officials should be accorded respect, absent any showing of grave abuse of discretion.

  • Government officials are presumed to perform their functions with regularity, and strong evidence is required to rebut this presumption.

  • A presumption of regularity exists in favor of government officers performing their functions, and strong evidence is necessary to rebut this presumption.

  • The matter of valuation is an esoteric field that is better left to the experts.

  • When a party enters into a contract with the government, they do so to gain pecuniarily, not out of charity or to lose money.

  • The discretion to award a contract is vested in the government agencies entrusted with that function.