Constitutional limitations under Section 2, Article XII (Constitution)

What are the express limitations under Section 2 of Article XII of the 1987 Constitution on the power of the executive to contract with foreign corporations regarding the exploration, development and utilization of our natural resources? (Read more: Dante O. TiƱga's Separate Opinion, G.R. No. 127882, December 01, 2004, 486 Phil. 754)

There are two fundamental restrictions, both of which are asserted in the second paragraph of Section 2. These are that the State retains legal ownership of all natural resources,[1] and that the State shall have full control and supervision over the exploration, development and utilization of natural resources.[2] These key postulates are facially broad and warrant clarification. They also predicate several specific restrictions laid down in the fourth paragraph of Section 2 on the power of the President to enter into agreements with foreign corporations. These specific limitations are as follows:

First, the natural resources that may be subject of the agreement are a limited class, particularly minerals, petroleum, and other mineral oils. Among the natural resources which are excluded from these agreements are lands of the public domain, waters, coal, fisheries, forests or timbers, wildlife, flora and fauna. Most notable of the exclusions are forests and timbers which are in all respects expressly limited to Filipinos.

It is noteworthy that a previous version of the fourth paragraph of Section 2 deliberated upon during the 1987 Constitutional Commission allowed agreements with foreign-owned corporations with respect to all classes of natural resources.[3] However, on the initiative of Commissioner (now Chief Justice) Davide, the provision was amended to limit the scope of such agreements to minerals, petroleum and other mineral oils, which Commissioner Davide recognized as “those particular areas where Filipino capital may not be sufficient.”[4]

The exclusion of timber resources from the scope of financial/technical assistance agreements marks a significant distinction from the service contracts of old. This does not come as a surprise, considering well-reported abuses under the old regime of issuing timber licensing agreements, which numbered in the thousands prior to the 1987 Constitution. On the other hand, no similar extensive collateral damage has been reported for the petroleum and mining industry, capital-intensive industries whose potential for government revenues in billions of pesos has long been sought after by the State.[5] Hence, the variance in treatment from the timber industry and the rest of the natural resources.

Second, these agreements with foreign-owned corporations can only be entered into for only large-scale exploration, development and utilization of minerals, petroleum, and other mineral oils.

Third, it is only the President who may enter into these agreements. This is another pronounced change from the 1973 Constitution, which allowed private persons to enter into service contracts with foreign corporations.

Fourth, these agreements must be in accord with the general terms and conditions provided by law. This proviso by itself, and more so when taken together, as it should, with another provision,[6] entails legislative intervention and affirmance in the exercise of this executive power. While it is the President who enters into these contracts, he/she must act within such terms and conditions as may be prescribed by Congress through legislation. The value of legislative input as a means of influencing policy should not be discounted. Policy initiatives grounded on particular economic ideologies may find enactment through legislation when approved by the necessary majorities in Congress. Legislative work includes consultative processes with persons of diverse interests, assuring that economic decisions need not be made solely from an ivory tower. There is also the possible sanction of repudiation by the voters of legislators who prove insensate to the economic concerns of their constituents.

Fifth, the President is mandated to base the decision of entering into these agreements on “real contributions to the economic growth and general welfare of the country.” In terms of real limitations, this condition has admittedly little effect. The discretion as to whether or not to enter into these agreements is vested solely by the Constitution in the President, and such exercise of discretion, pertaining as it does to the political wisdom of a co-equal branch, generally deserves respect from the courts.

The above conditionalities, particularly the first three, effect the desire of the framers of the 1987 Constitution to limit foreign participation in natural resource-oriented enterprises. They provide a vivid contrast to the 1973 Constitution, which permitted private persons to enter into service contracts for financial, technical, management, or other forms of assistance with any person or entity, including foreigners, and for the exploration or utilization of any of the natural resources.[7] These requisites imposed by the 1987 Constitution, which are significantly more onerous than those laid down in the 1973 Constitution, warrant obeisance by the President and recognition by the Supreme Court.


[1] See Section 2, Article XII, Constitution, which states in part, “All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State.” An offshoot of the long-standing Regalian doctrine recognized in this jurisdiction.

[2] “The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State.” Id.

[3] The so-called “Jamir amendment,” proposed by Commissioner Alberto M.K. Jamir, which read “The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development and utilization of natural resources according to the general terms and conditions provided by law based on real contributions to the long-term growth of the economy.” 3 Record of the Constitutional Commission: Proceedings and Debates (1987), at 351.

[4] Id. at 356.

[5] Indeed, since 1973 when the service contract system for petroleum was implemented, the government has earned over 1.882 Billion Pesos and 10.160 Billion Pesos in revenues from oil and natural gas production, respectively. Based on data provided by the Department of Energy.

[6] Paragraph 5, Sec. 2, Art. XII. It provides: The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution.

[7] See Section 9, Article XIV, 1973 Constitution.