[20] Agan v.

Piatco ● Sept 17, 2002 - various petitions were filed before the SC to annul the 1997
G.R. No. 155001 | January 21, 2004 | Puno, J. Concession Agreement, the ARCA, and the supplemental agreements to
prohibit the public respondents from implementing them
SUMMARY PIATCO entered into a BOT agreement with the national government, ● In a decision dated May 5, 2003, this Court granted the said petitions and
through the DOTC and MIAA, for the NAIA Passenger Terminal III. Upon petition to declared the 1997 Concession Agreement, the ARCA and the Supplements
the Court, the agreements were struck down for being void. This case is a motion for null and void.
reconsideration. The Court affirmed its previous ruling and held that the concessions ● Respondents now seek the reversal of this decision
agreements were invalid. [Relevant issue: the agreements were invalid for requiring
the government to compensate PIATCO in the event that the state would exercise its ISSUE/HELD
police power of taking over a business affected with public interest in times of a W/N the agreements entered between PIATCO and the government are valid - NO
national emergency]
PIATCO failed to meet prequalification requirements
DOCTRINE Public interest on the occasion of a national emergency is the primary ● Paircargo Consortium, at the time of pre-qualification, failed to show that it
consideration when the government decides to temporarily take over or direct the had the ability to provide 30% of the project cost and necessarily, its
operation of a public utility or a business affected with public interest. It is the State financial capability for the project cannot pass muster.
that prescribes such reasonable terms which will guide the implementation of the
temporary takeover as dictated by the exigencies of the time. This power of the state Concessions Agreement invalid due to modifications
cannot be negated by any party nor should its exercise be a source of obligation for
the state. An agreement that obligates the government, in its exercise of police Principles in public bidding
power, to compensate any party is offensive to the Constitution. Police power can not ● Bids are submitted in accord with the prescribed terms, conditions and
be diminished, let alone defeated by any contract for its paramount consideration is parameters laid down by government and pursuant to the requirements of
public welfare and interest. the project bidded upon. In light of these parameters, bidders formulate
competing proposals which are evaluated to determine the bid most
FACTS favorable to the government. Once the contract based on the bid most
● Oct 5, 1994 - Asia’s Emerging Dragon Corp. (AEDC) submitted an favorable to the government is awarded, all that is left to be done by the
unsolicited proposal to the PH Govt through the DOTC and Manila parties is to execute the necessary agreements and implement them.
International Airport Authority for the construction and development of the ● There can be no substantial or material change to the parameters of
NAIA IPT III under a BOT arrangement under the BOT law. the project, including the essential terms and conditions of the contract
○ DOTC/MIAA invited the public for submission of competitive and bidded upon, after the contract award. If there were changes and the
comparative proposals contracts ended up unfavorable to the government, the public bidding
○ Paircargo Consortium submitted their competitive proposal to the becomes a mockery and the modified contracts must be struck down.
Prequalification Bids and Awards Committee (PBAC)
○ After finding that Paircargo submitted a superior bid, and after Modification on Fees and Charges to be collected by PIATCO and how they are
failure by AEDC to match the said bid, the DOTC issued the notice regulated
of award to Paircargo ● The removal of ground handling fees, airline office rentals and porterage
○ Paircargo later on organized to become PIATCO fees from the category of "Public Utility Revenues" under the draft
● DOTC Sec. Enrile and PIATCO signed the 1997 BOT Concession Concession Agreement and its reclassification to "Non-Public Utility
Agreement for the NAIA Passenger Terminal III Revenues" under the 1997 Concession Agreement is significant and has far
● Nov 1997 - the previous Concession Agreement was superseded by the reaching consequences.
Amended and Restated Concession Agreement (ARCA) containing certain ● Power of regulation over fees charged is also no longer lodged with MIAA
revisions and modifications from the original contract. A series of but was granted to PIATCO
supplemental agreements was also entered into by the Government and ●
PIATCO. ● Also, under the draft Concession Agreement, PIATCO may impose fees and
charges other than those fees and charges previously imposed or collected
at the Ninoy Aquino International Airport Passenger Terminal I, subject to
 the written approval of MIAA and that MIAA reserves the right to regulate ● Reading the provisions would reveal that the ARCA made the Government
these new fees and charges if in its judgment the users of the airport shall liable to pay "all amounts ... from time to time owed or which may become
be deprived of a free option for the services they cover. owing by Concessionaire [PIATCO] to Senior Lenders or any other persons
○ In contrast, under the 1997 Concession Agreement, the MIAA or entities who have provided, loaned, or advanced funds or provided
merely retained the right to approve any imposition of new fees and financial facilities to PIATCO for the project"
charges which were not previously collected at the Ninoy Aquino ● The counterpart provision in the 1997 Concession Agreement specifying the
International Airport Passenger Terminal I. attendant liabilities that the Government would be obligated to pay should
○ The agreement did not contain an equivalent provision allowing PIATCO default in its loan obligations is equally onerous to the Government
MIAA to reserve the right to regulate the adjustments of these new as those contained in the ARCA.
fees and charges. ○ According to the 1997 Concession Agreement, in the event the
Government is forced to prematurely take over NAIA IPT III as a
Assumption by the Government of the liabilities of PIATCO in the event of the result of respondent PIATCO’s default in the payment of its loan
latter’s default obligations to its Senior Lenders, it would be liable to pay the
● The 1997 Agreement shows that it spells out in limpid language the "attendant liabilities"
obligation of the government in case of default by PIATCO on its loans. ● These provisions reject respondents’ contention that what the
● There can be no blinking from the fact that in case of PIATCO’s default, the Government is obligated to pay, in the event that respondent PIATCO
government will assume PIATCO’s Attendant Liabilities as defined in the defaults in the payment of its loans, is merely termination payment or
1997 Concession Agreement. just compensation for its takeover of NAIA IPT III.
● This obligation is not found in the draft Concession Agreement and the ○ It is clear from the provisions of the agreement that what the
change runs roughshod to the spirit and policy of the BOT Law which was Government would pay is the sum total of all the debts, including all
crafted precisely to prevent government from incurring financial risk. interest, fees and charges, that respondent PIATCO incurred in
pursuance of the NAIA IPT III Project.
Separability Clause in the Agreement cannot be applied for being in violation of ● For sure, respondent PIATCO will not receive any amount less than
public policy sufficient to cover its debts, regardless of whether or not the value of NAIA
● The contracts at bar which made a mockery of the bidding process cannot IPT III, at the time of its turn over to the Government, may actually be less
be upheld and must be annulled in their entirety for violating law and public than the amount of PIATCO’s debts.
policy. ○ The scheme is a form of direct government guarantee for it is
● As demonstrated, the contracts were substantially amended after their undeniable that it leaves the government no option but to pay the
award to the successful bidder on terms more beneficial to PIATCO and "attendant liabilities" in the event that the Senior Lenders are
prejudicial to public interest. unable or unwilling to appoint a qualified nominee or transferee as
● If this flawed process would be allowed, public bidding will cease to be a result of PIATCO’s default in the payment of its Senior Loans.
competitive and worse, government would not be favored with the best bid.
Bidders will no longer bid on the basis of the prescribed terms and Court notes that indirect government guarantee may be allowed under the BOT
conditions in the bid documents but will formulate their bid in anticipation of Law as amended
the execution of a future contract containing new and better terms and ● The idea is to allow for reasonable government undertakings, such as to
conditions that were not previously available at the time of the bidding. authorize the project proponent to undertake related ventures within the
● Such a public bidding will not inure to the public good. The resulting project area, in order to encourage private sector participation in
contracts cannot be given half a life but must be struck down as totally development projects.
lawless. ● In allowing indirect government guarantee, the law seeks to encourage both
the government and the private sector to formulate reasonable and
The Agreement contains direct government guarantee provisions innovative government undertakings in pursuance of BOT projects.
● The agreement shows the amounts that the Government has to pay in the ● In no way, however, can the government be made liable for the debts of
event respondent PIATCO defaults in its loan payments to its Senior the project proponent as this would be tantamount to a direct
Lenders and no qualified transferee or nominee is chosen by the Senior government guarantee which is prohibited by the law.
Lenders or is willing to take over from respondent PIATCO.
 ○ Such liability would defeat the very purpose of the BOT Law which The Agreement allows for the existence of monopoly by PIATCO
is to encourage the use of private sector resources in the ● Section 19, Article XII of the 1987 Constitution mandates that the State
construction, maintenance and/or operation of development prohibit or regulate monopolies when public interest so requires. Monopolies
projects with no, or at least minimal, capital outlay on the part of the are not per se prohibited. Given its susceptibility to abuse
government. ○ However, the State has the bounden duty to regulate monopolies to
protect public interest. Such regulation may be called for, especially
Court notes that the structures for the NAIA IPT III facility are almost complete in sensitive areas such as the operation of the country’s premier
and funds have been spent by PIATCO in their construction international airport, considering the public interest at stake.
● For the government to take over the said facility, it has to compensate ● The agreements provide that PIATCO would be the only international
respondent PIATCO as builder of the said structures. passenger airport operating in the Island of Luzon, with the exception of
● The compensation must be just and in accordance with law and equity for those already operating in special economic zones.
the government can not unjustly enrich itself at the expense of PIATCO and ○ Undeniably, the contracts would create a monopoly in the operation
its investors. of an international commercial passenger airport at the NAIA in
favor of PIATCO.
[RELEVANT] Temporary takeover of business affected with public interest in
times of national emergency RULING: WHEREFORE, the motions for reconsideration filed by the respondent
PIATCO, respondent Congressmen and the respondents-in-intervention are DENIED
● Section 17, Article XII of the 1987 Constitution grants the State in times of with finality. SO ORDERED.
national emergency the right to temporarily take over the operation of any
business affected with public interest.
○ This right is an exercise of police power which is one of the inherent
powers of the State.
● It is also settled that public interest on the occasion of a national emergency
is the primary consideration when the government decides to temporarily
take over or direct the operation of a public utility or a business affected with
public interest.
● The nature and extent of the emergency is the measure of the duration of
the takeover as well as the terms thereof.
● It is the State that prescribes such reasonable terms which will guide the
implementation of the temporary takeover as dictated by the exigencies of
the time.
○ This power of the state cannot be negated by any party nor should
its exercise be a source of obligation for the state
● ARCA provides that PIATCO "shall be entitled to reasonable compensation
for the duration of the temporary takeover by GRP, which compensation
shall take into account the reasonable cost for the use of the Terminal and/or
Terminal Complex."
● It clearly obligates the government in the exercise of its police power to
compensate respondent PIATCO and this obligation is offensive to the
Constitution.
● Police power can not be diminished, let alone defeated by any contract for
its paramount consideration is public welfare and interest.
● PIATCO is wrong for citing the case of Heirs of Suguitan v. City of
Mandaluyong since the case involves eminent domain and not police power