Title
Osmena III vs. Power Sector Assets and Liabilities Management Corp.
Case
G.R. No. 212686
Decision Date
Sep 28, 2015
PSALM's privatization of NPPC contested over SPC's "right to top" provision; SC ruled it void, annulled agreements, upheld public bidding requirements for transparency and fairness.

Case Summary (G.R. No. 212686)

Petitioner’s Relief Sought

Petitioner sought injunctive relief to enjoin PSALM from implementing SPC’s exercise of the right to top over NPPC, a declaration that the right-to-top stipulation in the LBGT-LLA is void as contrary to public policy, and annulment of any acts effectuating SPC’s acquisition of NPPC.

Applicable Law and Constitutional Basis

Because the decision date is after 1990, the 1987 Philippine Constitution governs the judicial review. The case invokes Article VIII (judicial power) as well as statutory frameworks cited in the decision, notably R.A. No. 9136 (Electric Power Industry Reform Act of 2001, EPIRA) and procurement principles embodied in R.A. No. 9184 and the implementing rules and regulations of EPIRA requiring open, transparent public bidding for government asset disposition.

Key Dates and Transaction Milestones

  • October 16, 2009: Privatization of the 55-MW Naga LBGT by negotiated sale; SPC acquired the LBGT via Asset Purchase Agreement and entered LBGT-LLA (term expiring January 29, 2020).
  • December 27, 2013: PSALM approved 3rd Round of Bidding for the 153.1-MW NPPC.
  • March 31, 2014: TPVI declared highest bidder for NPPC.
  • April 30, 2014: Notice of Award to TPVI, subject to SPC’s LBGT-LLA right-to-top.
  • May 7, 2014: SPC notified PSALM it would exercise right to top, asserting a 25‑year lease term for the land.
  • May 21, 2014: OGCC Opinion initially upholding PSALM’s position that SPC may exercise right to top as sourced from LBGT-LLA; subsequent DOJ/OGCC review led to differing legal conclusions.
  • June 16, 2014: Petition filed with the Supreme Court.
  • July 25–28, 2014: PSALM Board declared SPC as winning bidder; Notice of Award and Certificate of Effectivity issued to SPC.
  • September 25, 2014: PSALM turned over properties to SPC.
  • September 28, 2015: Supreme Court decision rendered.

Antecedent Facts and Contractual Provisions

NPPC comprised three plants with aggregate capacity 153.10 MW; LBGT is a separate 55 MW facility located within the same compound. SPC acquired the LBGT in 2009 and the LBGT-LLA contained Section 3.02 granting SPC the right to “top the price of the winning bidder” for sale or lease of any property in the vicinity not part of the leased premises, requiring SPC to exceed the winning bid by 5% and to exercise and pay within 30 days of notice. PSALM disclosed the existence of SPC’s right to top in the 3rd Round bidding procedures for NPPC; only SPC and TPVI submitted bids. TPVI’s winning financial bid for NPPC was PHP 1,088,800,000.00; SPC later sought to exercise its right to top with a deposit paying PHP 1,143,240,000.00 (5% above the winning bid).

Procedural History

After SPC indicated it would exercise the right to top, petitioner filed for a TRO and preliminary injunction and later supplemental pleadings seeking early resolution. Respondents filed comments and motions; PSALM proceeded to declare SPC the winning bidder and executed NPPC-APA and NPPC‑LLA with SPC, delivering the properties to SPC before the Supreme Court decision.

Petitioner’s Principal Arguments

Petitioner asserted the LBGT-LLA right to top is an option-like stipulation unsupported by separate consideration, constituting a gratuitous concession that improperly restricts competition and contravenes public bidding requirements under EPIRA and procurement law. Petitioner contended SPC lacked a vested interest in NPPC to justify a preferential right, pointed to SPC’s alleged contractual breaches and poor performance history, and argued the right to top was intended to preserve SPC’s dominance and impede competition.

Respondents’ Principal Arguments

SPC challenged petitioner’s standing, argued procedural defects (timeliness, improper remedy), and maintained the right to top is valid, disclosed in bidding documents and previously upheld by DOJ. PSALM argued it acted in good faith based on DOJ and OGCC opinions and that similar rights were present in other PSALM lease agreements. TPVI argued petitioner had standing as a citizen, taxpayer, senator, and chairman of the Joint Congressional Power Committee; TPVI further contended SPC failed to timely and properly exercise the right to top and that the clause violated public bidding principles.

Issues Framed by the Court

The Court identified four principal issues: (1) whether certiorari is the proper and timely remedy; (2) whether petitioner has legal standing; (3) whether right-to-top provisions in PSALM land lease agreements violate public policy on competitive bidding; and (4) whether PSALM gravely abused its discretion in allowing SPC to exercise the right to top under the LBGT-LLA.

Court’s Holding — Overview

The Supreme Court granted the petition. It held certiorari proper (given the Court’s duty under the Constitution to correct grave abuse of discretion), found petitioner had standing based on the public‑interest doctrine, declared SPC’s right to top under the LBGT-LLA void for lack of a legitimate interest in the object of the right, and annulled and set aside the NPPC-APA and NPPC-LLA executed in favor of SPC. No costs were awarded.

Reasoning — Propriety of Certiorari and Standard for Grave Abuse

The Court emphasized its constitutional duty to determine grave abuse of discretion and noted EPIRA’s mandate that PSALM privatize NPC assets in an open, transparent manner to optimize value. The Court treated any PSALM act violating EPIRA or related rules as potentially constituting grave abuse of discretion warranting judicial relief.

Reasoning — Legal Standing

Although petitioner sued in multiple capacities (Senator, committee chair), the Court applied the relaxed standing doctrine for matters of paramount public interest. Because privatization of power plants under EPIRA affects reliability and affordability of electricity and the public interest in competitive disposition of public assets, the Court concluded petitioner had sufficient standing as a citizen to invoke the Court’s jurisdiction.

Reasoning — Nature of Right to Top and Distinction from Option

The Court analyzed the contractual nature of rights at issue, distinguishing a right of first refusal/right to top from an option contract. It reiterated prior jurisprudence that a right of first refusal is not an option; where such rights are part of a lease, consideration for the lease can encompass the right. Nonetheless, when public assets are involved courts must scrutinize such stipulations against public bidding policy.

Reasoning — Precedent and Applicability of Narrow Exception

The Court reviewed controlling precedents (e.g., JG Summit; Pozzolanic; LTFRB v. Stronghold) establishing that right-to-top or right-of-first-refusal clauses in government contracts are presumptively invalid because they undermine public bidding, but may be sustained in a narrow instance where the beneficiary has a subsisting interest in the object of the right (e.g., tenant over the land occupied, shareholder in corporate shares) and the government benefits from the stipulation.

Reasoning — Application to SPC and LPBT-LLA

Applying those principles, the Court concluded SPC’s right to top was void because SPC lacked an existing or vested interest in the NPPC (the obj

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