Title
IDEALS, Inc. vs. PSALM Corp.
Case
G.R. No. 192088
Decision Date
Oct 9, 2012
PSALM's sale of Angat Hydro-Electric Power Plant to K-Water nullified by Supreme Court for violating transparency, co-ownership rules, and constitutional limits on natural resource utilization, prioritizing public interest and water security.
foreign corporation
bidding process
sale
A

Case Summary (G.R. No. 192088)

Factual Background

PSALM is a government-owned and controlled corporation created under R.A. No. 9136 to manage the orderly sale, disposition and privatization of National Power Corporation (NPC) generation assets. The subject asset was the Angat Hydro-Electric Power Plant (AHEPP), part of the Angat Complex that includes the Angat Dam and Reservoir and a watershed area used for power generation, irrigation, domestic water supply and flood control. The AHEPP comprised four main units and five auxiliary units with an installed capacity of 246 MW; the public bidding offered four main units and three auxiliary units aggregating 218 MW, excluding two auxiliary units owned by MWSS. PSALM published an Invitation to Bid in January 2010. The bidding package described the sale as on an “AS IS, WHERE IS” basis, required the buyer to enter an operations and maintenance agreement for non-power components, and contemplated a Water Protocol among stakeholders. After pre-bid conferences PSALM received bids from six qualified firms, of which K-Water submitted the highest offer of US$440,880,000; PSALM’s Board approved the issuance of a Notice of Award to K-Water on May 5, 2010.

Procedural History

On May 19, 2010 petitioners filed a petition for certiorari and prohibition with prayer for injunctions to permanently enjoin the sale and award to K-Water. This Court issued a Status Quo Ante Order on May 24, 2010 and directed respondents to file comments. Respondent PSALM and multiple other respondents filed comments and pleadings opposing relief. K-Water submitted a manifestation in lieu of comment. The matter was argued in the Supreme Court and resulted in the En Banc decision of October 9, 2012.

The Parties’ Contentions

Petitioners alleged that PSALM gravely abused its discretion by conducting a bidding process that violated the people’s right to information and transparency standards; by failing to disclose essential terms and participants as required by precedent such as Chavez v. Public Estates Authority; by refusing to furnish requested documents; and by neglecting to offer the undivided interest to co-owners MWSS and NIA. Petitioners further contended that awarding the AHEPP to K-Water, a foreign corporation, offended Art. XII, Sec. 2, 1987 Constitution and the Water Code because water resources and their appropriation are reserved to Filipino citizens or corporations at least sixty percent Filipino-owned, and that the privatization threatened the people’s right to water as a matter of public interest. Respondents, chiefly PSALM, countered that the bidding was conducted openly and transparently pursuant to EPIRA and applicable rules; that certain disclosures were appropriately withheld for confidentiality and to preserve competitive bidding; that the sale concerned the generation asset only and not the Angat Dam; that separate water permits exist for NPC, MWSS and NIA; and that previous Department of Justice opinions held that the utilization of dam water by a power plant does not constitute appropriation of water from its natural source so as to trigger the nationality prohibition.

Issues Presented

The Court distilled the controversy into principal issues: the petitioners’ legal standing; whether the petition had become moot by issuance of the Notice of Award; whether PSALM violated the people’s right to information; whether MWSS and NIA are co-owners of the Angat Complex and whether PSALM could sell the AHEPP without their consent; whether sale and award to K-Water violated Art. XII, Sec. 2, 1987 Constitution and the Water Code; and whether PSALM failed to comply with Sec. 47(e) of EPIRA in prescribing safeguards for multi-purpose hydro facilities.

Mootness and Locus Standi

The Court held that the petition was not moot despite the Notice of Award, because petitioners sought permanent relief against the privatization itself and supervening events cannot preclude judicial review where constitutional questions of grave import are presented. The Court found that petitioners had standing. It applied the established liberal doctrine permitting citizens and taxpayers to assert public rights and the specific rule that a citizen may litigate claims anchored on the people’s right to information; it also invoked the doctrine allowing relaxed standing where issues of transcendent public importance are raised.

Violation of the Right to Information

The Court reaffirmed the constitutional right to information under Art. III, Sec. 7, 1987 Constitution and the State policy of full public disclosure in Art. II, Sec. 28. Relying on Chavez and subsequent decisions, the Court explained the duty to disclose matters relating to disposition of public property and distinguished mandatory disclosure from the separate right of access to records upon demand. The Court concluded that PSALM had published press releases and held public fora but failed to afford access to non-proprietary documents requested by petitioners; specifically, PSALM’s referral of petitioners’ request for details on the winning bidder to K-Water’s counsel was insufficient. The Court directed PSALM to furnish petitioners copies of all documents and records in its files pertaining to K-Water.

Ownership and Jurisdiction over the Angat Complex

The Court examined the statutory and historical record and reaffirmed that NPC exercises complete jurisdiction and control over the Angat Dam and its watershed by virtue of NPC’s charter, subsequent legislation including R.A. No. 6395, executive proclamations and administrative practice. The Court found that MWSS’s statutory powers concerning waterworks do not translate into ownership of the hydroelectric plant, and that MWSS had sought administrative alternatives including transfer of management; the OGCC had advised that transfer to another government entity was permissible but had clarified that sale through public bidding remained PSALM’s primary option. The Court concluded that the record established NPC’s jurisdiction over the dam and related facilities while recognizing the multiple public functions and stakeholders engaged in the Angat Complex.

EPIRA Mandate and the Obligation to Privatize

The Court construed R.A. No. 9136 and its Sec. 47 directive that NPC’s generation assets be privatized “in an open and transparent manner” and that only specified complexes (Agus and Pulangui and SPUG assets) were excepted. Applying the canon expressio unius est exclusio alterius, the Court held that Congress’ express exception of certain plants demonstrated that PSALM lacked discretion to exclude the AHEPP from privatization. Thus PSALM did not commit grave abuse by commencing the sale process for AHEPP under EPIRA.

Nationality, Water Rights and the Water Code

The Court reviewed Art. XII, Sec. 2, 1987 Constitution and the Water Code (P.D. No. 1067) establishing that all waters belong to the State and that water permits are required and limited to qualified applicants, ordinarily Filipino citizens or juridical persons duly qualified by law. The Court noted the practical allocation: separate water permits had been issued for Angat waters to NPC, MWSS, and NIA. The Court considered prior DOJ opinions which treated the use of impounded dam water by a power plant as not constituting appropriation from a natural source and thus not triggering the nationality limitation, and observed the policy of openness to foreign participation in power generation under EPIRA and historical BOT practice. Nevertheless, the Court held that the constitutional nationality limitation on the appropriation and grant of water rights remains operative and that any provision of a sales agreement effecting transfer of a water permit to a foreign buyer contravenes the Constitution and the Water Code.

Asset Purchase Agreement and Operations & Maintenance Agreement

The Court analyzed the Asset Purchase Agreement (APA) and the Operations & Maintenance Agreement (O&M) executed among PSALM, NPC and K-Water, noting that the APA, as drafted, contained a clause in which NPC purported to consent to transfer of its water permit to the buyer and allowed the buyer to appropriate and use Angat waters for a period. The Court held that while privatization of the generation component and foreign ownership of generation assets are not per se prohibited, provisions effecting the transfer of water rights to a foreign buyer violate the Constitution and the Water Code. The Court therefore recharacterized the IRR provision (Rule 23, Sec. 6(a)) directing transfer of assignable long-term water rights as directory rather than mandatory in all cases, and ordered that NPC remain the holder of Water Permit No. 6512 and authorize K-Water only to utilize the waters for generation subject to NWRB rules and regulations.

Supreme Court Ruling and Disposition

The petition for certiorari and prohibition was partly granted. The Court declared the bidding conducted and the Notice of Award issued by PSALM in favor of K-Water valid and legal. The Court directed PSALM to furnish petitioners with copies of all documents and records in its files pertaining to K-Water. The Court declared Section 6(a), Rule 23, IRR of EPIRA directory and not an absolute condition for privatization in every case. The Court ordered that NPC shall continue to be the holder of Water Permit No. 6512; NPC shall authorize K-Water to utilize the waters in the Angat Dam for hydropower generation subject to the NWRB’s rules and regulations; the APA and O&M Agreements were to be amended accordingly; NPC shall be a co-party with K-Water in the Water Protocol Agreement with MWSS and NIA rather than merely a conforming authority; and the Status Quo Ante Order of May 24, 2010 was lifted.

Legal Basis and Reasoning

The Court’s reasoning proceeded from constitutional text and statutory scheme to reconcile two competing State policies: the constitutional reservation and supervision of natural resources and the legislative policy under EPIRA to

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