Case Summary (G.R. No. 262581)
Key Dates
• December 11, 1990 – Service Contract No. 38 executed for Camago-Malampaya gas development
• February 17, 1998 – AO 381 promising LGU shares under the LGC
• October 16, 2001 – Natural Gas Project inaugurated
• May 7, 2003 – Palawan filed Petition for Declaratory Relief in RTC Special Civil Action No. 3779
• December 16, 2005 – RTC ruled in Palawan’s favor
• February 16, 2006 – Republic’s petition for review filed, docketed G.R. No. 170 867
• June 23, 2009 – Consolidation of G.R. Nos. 170 867 and 185 941
• December 4, 2018 – En Banc Decision denying Palawan’s equitable share
• August 30, 2021 – Publication of the decision
Applicable Law
• 1987 Constitution, Article X, Section 7 – LGUs entitled to equitable share of wealth within their “respective areas”
• Local Government Code (RA 7160), Section 290 – LGUs receive 40% of national revenues from resource development within their “territorial jurisdiction”
• PD 1596 (1978) – Creation of the Municipality of Kalayaan, including seabed, subsoil, continental margin, airspace
• UN Convention on the Law of the Sea, Art. 76 – Defines continental shelf of coastal States
• RA 7611 (1992) – Strategic Environmental Plan for Palawan, defining Palawan territory by coordinates
• Executive Orders 381 (1998) and 683 (2007) – Interim and provisional implementation agreements granting Palawan portions of Malampaya revenues
Factual Background
Under SC 38 the national government retained 60% of net gas proceeds, with contractors to receive 40%. President Ramos’s AO 381 anticipated Palawan would receive US $2.1 billion from the government’s share over the 20-year contract. Subsequent letters and agreements deferred or partially released Palawan’s claimed share pending judicial resolution. Palawan filed for declaratory relief (RTC Special Civil Action No. 3779) to affirm its right to a 40% share under Article X, Section 7 of the Constitution, Section 290 of the LGC, and related issuances.
Procedural History
• RTC (2005) – Held Palawan entitled to 40% of Malampaya proceeds because the reservoirs lay within its territorial jurisdiction.
• Supreme Court G.R. No. 170 867 (2006) – Republic challenged the RTC ruling.
• Provisional Implementation Agreements and EO 683 (2007) – Released half of the disputed share without prejudice to final adjudication.
• Court of Appeals (2008) – Dismissed Arigo et al.’s challenge to EO 683 as premature.
• Supreme Court consolidation (2009) and oral arguments (2009).
• En Banc Decision (2018) – Granted Republic’s petition (G.R. 170 867); denied Arigo et al. (G.R. 185 941); held Palawan lacks territorial jurisdiction over the gas reservoirs.
Issue
Whether the Province of Palawan is entitled to a 40% equitable share of Camago-Malampaya natural gas proceeds under Article X, Section 7 of the 1987 Constitution and Section 290 of the LGC, by virtue of territorial jurisdiction over the project area.
Analysis
- “Territorial jurisdiction” for LGU shares is defined by law and jurisprudence as the LGU’s legally delimited territory (“metes and bounds”), not extended offshore absent express statutory grant.
- LGC Sections 290, 292, and 294 tie LGU shares to resources “within their territorial jurisdiction,” construed as territory (land and, where law so provides, municipal waters).
- Contiguity and land‐area requirements in LGC creation provisions exclude non-contiguous islands when they are expressly described by metes and bounds.
- PD 1596 expressly extends the Municipality of Kalayaan’s—and thus Palawan’s—jurisdiction to seabed, subsoil, and continental margin within specified coordinates. Malampaya lies outside those bounds.
- Maps and the DFA-CMOA amicus brief confirm the reservoirs fall beyond (a) municipal waters (15 km limit), (b) PD 1596 coordinates, (c) archipelagic baselines under RA 9522, and (d) Treaty of Paris limits.
- RA 7611’s general coordinate definition of “Palawan” cannot alter statutory boundaries establi
Case Syllabus (G.R. No. 262581)
Background
- In December 1990, the DOE entered into Service Contract No. 38 with Shell Philippines Exploration B.V. and Occidental Philippines for the Camago-Malampaya natural gas project off Palawan.
- The 20-year contract provided a 60–40 production-sharing scheme: 60% of net proceeds to the national government; 40% to service contractors.
- A consortium later replaced the original contractors.
- AO 381 (1998) directed that a portion of the national government’s 60% share be distributed to affected LGUs under the Local Government Code.
Service Contract and Administrative Order
- AO 381 estimated US$8.1 billion in government revenues over 20 years; Palawan’s share was projected at US$2.1 billion.
- Energy Secretary Viray requested deferral of half of Palawan’s share over seven years to meet National Power Corporation obligations.
- Finance Secretary Camacho sought DOJ opinion on Palawan’s entitlement, contending LGU territorial jurisdiction ends at 15 km from the coastline.
Interim and Provisional Implementation Agreements
- On February 9, 2005, Energy, Budget, and Finance Secretaries and the Palawan Governor signed an Interim Agreement:
• Half of the 40% “Palawan Share” would be released for development projects.
• P600 million was released subject to final court outcome and to be deducted from future releases. - On July 25, 2007, a Provisional Implementation Agreement and Executive Order 683 (December 1, 2007) allowed release of 50% of the disputed share without prejudice to the pending G.R. No. 170867.
Procedural History
- February 2003: Palawan filed a Petition for Declaratory Relief (RTC Special Civil Action No. 3779), claiming territorial jurisdiction over Camago-Malampaya and entitlement under AO 381, RA 7611, LGC § 290, and a provincial ordinance.
- February 2005: RTC granted Palawan a 40% share of proceeds commencing October 16, 2001.
- February 2006: Republic filed G.R. No. 170867 before the Supreme Court.
- May 2007: Taxpayers (Arigo, et al.) filed a petition in the Court of Appeals against EO 683 and the Provisional Implementation Agreement; later elevated as G.R. No. 185941.
- June 23, 2009: Supreme Court consolidated G.R. Nos. 170867 and 185941.
Consolidation and Oral Arguments
- The cases were elevated en banc and consolidated to address conflicting challenges to Palawan’s claimed share.
- Oral arguments held on September 1 and November 24, 2009, with DFA-CMOA Secretary General Bensurto appearing as amicus curiae.
- Key debate centered on whether any law extended LGU jurisdiction to the continental shelf where Camago-Malampaya lies.
Central Issue
- Whether Article X, Section 7 of the 1987 Const