Republic of the Philippines, represented by Raphael P.M.

Lotilla,
Secretary, Department of Energy, Margarito B. Teves, Secretary,
Department of Finance, and Romulo L. Neri, Secretary, Deparment
of Budget and Management, Petitioners v. Provincial Government
of Palawan, represented by Governor Abraham Kahlil B. Mitra,
Respondent.
G.R. No. 170867
4 December 2018
Tijam, J.

Facts:

On 11 December 1990, the Republic of the Philippines

(Republic), through the Department of Energy (DoE), entered into
Service Contract No. 38, with Shell Philippines Exploration B.V. and
Occidental Philippines, Incorporated, as Contractor, for the exclusive
conduct of petroleum operations in the area known as “Camago-
Malampaya” (Project) located offshore northwest of Palawan.

Under the Contract, the Republic was entitled to 60% of the net
proceeds from the sale of petroleum (including natural gas) produced
from petroleum operations, while the Service Contractor, was entitled
to 40% of the net proceeds.

On 17 February 1998, President Fidel V. Ramos issued

Administrative Order No. 381 (A.O. 381) which, in part, stated
that the Province of Palawan (Respondent) was expected to receive
about US$2.1 Billion from the estimated US$8.1 Billion total
government share from the Malampaya project.

On 10 June 1998, DoE Secretary Francisco L. Viray wrote

Palawan Governor Salvador P. Socrates, requesting for the deferment
of payment of 50% of Palawan’s share in the project for the first seven
years of operations.

Thereafter, the Provincial Government of Palawan (Respondent)

asserted its claim over 40% of the National Government’s share in the
proceeds of the project.
 It argued that since the reservoir is located within its territorial
jurisdiction, it is entitled to said share under Section 290 of the
Local Government Code.
On 7 May 2003, the Respondent filed a petition for declaratory
relief before the RTC of Palawan and Puerto Princesa against DoE
Secretary Vicente S. Perez, Jr., DoF Secretary Jose Isidro N. Camacho
and DBM Secretary Emilia T. Boncodin (Department Secretaries).

It sought judicial determination of its rights under A.O. No. 381,

R.A. 7611 (The Strategic Environmental Plan for Palawan Act),
Section 290 of the Local Government Code, and Provincial
Ordinance No. 474.

It further asked the RTC to declare that the Camago-Malampaya

natural gas reservoir is part of the territorial jurisdiction of the
Province of Palawan and that the Respondent was entitled to receive
40% of the National Government’s share in the proceeds of the Project.

On the other hand, the Republic argued that the Respondent was
not entitled to 40% share because the Camago-Malampaya reservoir
is outside its territorial jurisdiction.

It argued that Palawan’s territorial jurisdiction is limited to its

land area and to the municipal waters within 15km from its coastline.
It denied being estopped by the acts of government officials who
earlier acknowledged Palawan’s share in the proceeds of the project.

On 9 February 2005, while the case is pending before the RTC,

the Department Secretaries, with authority from President Gloria
Macapagal-Arroyo, executed an Interim Agreement with the
Province of Palawan.

The agreement provided for the equal sharing between the

Republic and the Province of Palawan of 40% of the funds already
remitted to the Republic under Service Contract No. 38 and funds to
be remitted to the Republic until the final and executory judgment of
the Civil Case filed, or 30 June 2010.
 However, the Respondent claimed that the Republic failed to
fulfill their commitments under the Interim Agreement.
On 16 December 2005, the RTC decided in favor of the Province
of Palawan.

The RTC held that it was “unthinkable” to limit Palawan’s

territorial jurisdiction to its landmass and municipal waters considering
that the Local Government Code empowered them to protect the
environment.

Applying the principles of decentralization and devolution of

powers to local government units, as recognized in the 1987
Constitution, the RTC ruled that the State’s resources must be shared
with the LGUs.

Furthermore, the RTC ruled that the Tan v. COMELEC,

Municipality of Paoay v. Manaois and Laguna Lake Development
Authority v. CA were inapplicable.

The RTC further declared that the Regalian Doctrine could not
be used by the Department Secretaries as a shiled to defeat the
Constitutional provision giving LGUs an equitable share in the proceeds
of the utilization and development of national wealth within their
respective areas. The doctrine, as ruled by the RTC, is subject to this
Constitutional limitation and the 40% LGU share set by the LGC.

Lastly, the RTC ruled that the Republic legally acknowledged

Palawan’s claim to the proceeds of the Camago-Malampaya project
and it was “too late in the day for [it] to take a 180 degree turn.”

On 16 February 2006, the Republic challenged the RTC’s decision

before the Supreme Court through a petition for review, docketed as
G.R. No. 170867.

On 25 July 2007, while the case is pending before the Supreme

Court, the Republic and the Respondent entered into a Provisional
Implementation Agreement (PIA), that allowed 50% of the disputed
 40% of the Net Government share in the proceeds of Service Contract
No. 38, to be utilized for the immediate and effective implementation
of development projects for the people of Palawan.

Hence, on 1 December 2007, President Arroyo issued E.O. No.

683, which authorized the release of funds to the implementing
agencies pursuant to the PIA, without prejudice to any ongoing
discussion or the final judicial resolution of Palawan’s claim of territorial
jurisdiction over the area.

On 7 February 2008, a petition for certiorari, questioning the

constitutionality of E.O. No. 683 was filed before the CA by Arigo, et.
al., as citizens and taxpayers.

They argued that the PIA is contrary to the Constitution and the
Local Government Code.

However, the CA dismissed the petition of Arigo, et. al., because

of failure to submit relevant documents and for being filed
prematurely, considering that it has same essential facts and issues in
G.R. No. 170867.

On 23 June 2009, the Supreme Court, consolidated G.R. No.

185941 with G.R. No. 170867.

ISSUE:
Whether the national wealth, in this case the Camago-Malampaya
reservoir, is within the Province of Palawan’s “area” for it to be entitled
to 40% of the government’s share under Service Contract No. 38.

RULING:
NO. The Supreme Court declared that under existing law, the
Province of Palawan is not entitled to share in the proceeds of the
Camago-Malampaya natural gas project.
 The Supreme Court ruled that the LGU’s territorial jurisdiction
refers only to its land area, unless clearly expanded by Congress.

Here, the Camago-Malampaya natural gas project is not within

the land area of Respondent. Therefore, it is not within its territorial
jurisdiction.

Furthermore, the Supreme Court ruled that Area as delimited by

law and not exercise of jurisdiction as basis of the LGU’s equitable
share. An LGU’s territorial jurisdiction is not necessarily co-extensive
with its exercise or assertion of powers. To hold otherwise may result
in condoning acts that are clearly ultra vires.

It may lead to, in the words of the Republic, LGUs “rushing to

exercise its powers and functions in areas rich in natural resources
(even if outside its boundaries) with the intention of seeking a share
in the proceeds of its exploration” – a situation that “would sow conflict
not only among the LGU and the National Government but worse,
between and among LGUs.”

Moreover, the Supreme Court ruled that an LGU cannot claim

territorial jurisdiction over an area simply because its government has
exercised a certain degree of authority over it.

Territorial jurisdiction is defined, not by the local government,

but by the law that creates it; it is delimited, not by the extent of the
LGU’s exercise of authority, but by physical boundaries as fixed in its
charter.

In this case, there is no law clearly granting the Province of

Palawan territorial jurisdiction over the Camago-Malampaya reservoir.

Furthermore, The Supreme Court laid down the rules that the
State cannot be estopped by the omission, mistake or error of its
officials or agents; the UNCLOS did not confer on LGUs their own
continental shelf; and LGU’s share cannot be granted based on equity.
PREPARED BY:
Sadsad, Ivan Benedik T.