CONGRESSMAN ENRIQUE T. GARCIA (SECOND DISTRICT OF BATAAN) PETITIONER, VS. THE BOARD OF INVESTMENTS, THE DEPARTMENT OF TRADE AND INDUSTRY, LUZON PETROCHEMICAL CORPORATION, AND PI…

This is a petition to annul and set aside the decision of the
Board of Investments (BOI)/Department of Trade and Industry (DTI) approving the
transfer of the site of the proposed petrochemical plant from Bataan to Batangas and the shift
of feedstock for that plant from naphtha only to naphtha and/or liquefied
petroleum gas (LPG).

This petition is a sequel to the petition in G.R. No. 88637
entitled “Congressman Enrique T. Garcia v. the Board of
Investments”, September 7, 1989, where this Court issued a decision,
ordering the BOI as follows:

“WHEREFORE, the petition for certiorari is granted.  The Board of Investments is ordered:  (1) to publish the amended application for
registration of the Bataan Petrochemical Corporation,
(2) to allow the petitioner to have access to its records on the original and
amended applications for registration, as a petrochemical manufacturer, of the
respondent Bataan Petrochemical Corporation,
excluding, however, privileged papers containing its trade secrets and other
business and financial information, and (3) to set for hearing the petitioner’s
opposition to the amended application in order that he may present at such
hearing all the evidence in his possession in support of his opposition to the
transfer of the site of the BPC petrochemical plant to Batangas
province.  The hearing shall not exceed a
period of ten (10) days from the date fixed by the BOI, notice of which should
be served by personal service to the petitioner through counsel, at least three
(3) days in advance.  The hearings may be
held from day to day for a period of ten (10) days without postponements.  The petition for a writ of prohibition or
preliminary injunction is denied.  No costs.” (Rollo,
pages 450-451)

However, acting on the petitioner’s motion for partial
reconsideration asking that we rule on the import of P.D. Nos. 949 and 1803 and
on the foreign investor’s claim of right of final choice of plant site, in the
light of the provisions of the Constitution and the Omnibus Investments Code of
1987, this Court on October 24, 1989, made the observation that P.D. Nos. 949
and 1803 “do not provide that the Limay site
should be the only petrochemical
zone in the country, nor prohibit the establishment of a petrochemical plant elsewhere in the country, that the
establishment of a petrochemical plant in Batangas
does not violate P.D. No. 949 and P.D. No. 1803.”

Our resolution skirted the issue of whether the investor given
the initial inducements and other circumstances surrounding its first choice of
plant site may change it simply because it has the final choice on the
matter.  The Court merely ruled that the
petitioner appears to have lost interest in the case by his failure to appear at the hearing
that was set by the BOl after receipt of the decision, so he may be deemed to have waived the fruit of
the judgment.  On this ground, the motion for partial reconsideration
was denied.

A motion for reconsideration of said resolution was filed by
the petitioner asking that we
resolve the basic issue of
whether or not the foreign investor has the right of final choice of plant site; that the
non-attendance of the petitioner
at the hearing was because the decision was not yet final and executory; and that the petitioner had not therefor waived the right to a
hearing before the BOI.

In the Court’s resolution
dated January 17, 1990, we stated:

“Does the investor
have a ‘right of final choice’ of plant site?  Neither under the 1987 Constitution nor in
the Omnibus Investments Code is there such a ‘”right of final choice.’ In the first place, the investor’s choice is subject
to processing and approval or disapproval by the BOI (Art. 7, Chapter II, Omnibus
Investments Code).  By submitting its
application and amended application to the
BOI for approval, the investor recognizes the sovereign prerogative of
our Government, through the BOI, to approve or disapprove the same after determining whether its proposed
project will be feasible, desirable and beneficial to our country.  By asking that his opposition to the LPC’s amended application be heard by the BOI, the
petitioner likewise acknowledges that the BOI, not the investor, has the last word or the ‘final choice’ on
the matter.

Secondly, as this case has shown, even a choice that had been
approved by the BOI may not be ‘final’, for supervening circumstances and
changes in the conditions of a place may dictate a corresponding change in the
choice of plant site in order that the project will not fail.  After all,
our country will benefit only when a project succeeds, not when it fails.”
(Rollo, pp. 538-539)

Nevertheless, the motion for
reconsideration of the petitioner was denied.

A minority composed of Justices Melencio-Herrera,
Gancayco, Sarmiento and
this ponente voted to grant the motion for
reconsideration stating that the hearing set by the BOI was premature as the
decision of the Court was not yet final and executory;
that as contended by the
petitioner the Court must first rule on whether or not the investor has the
right of final choice of plant site for if the ruling is in the affirmative,
the hearing would be a useless exercise; that in the October 19, 1989
resolution, the Court while upholding validity of the transfer of the plant
site did not rule on the issue of who has the final choice; that they agree
with the observation of the majority that “the investor has no final
choice either under the 1987 Constitution or in the Omnibus Investments Code
and that it is the BOI who decides for the government” and that the plea
of the petitioner should be granted to give him the chance to show the justness
of his claim and to enable the BOI to give a second hard look at the matter.

Thus, the herein petition which relies on the ruling of the Court
in the resolution of January 17, 1990 in G.R. No. 88637 that the investor has
no right of final choice under the 1987 Constitution and the Omnibus
Investments Code.

Under P.D. No. 1803 dated January
16, 1981, 576 hectares of the public domain located in Lamao, Limay, Bataan were reserved
for the Petrochemical Industrial Zone under the administration, management, and
ownership of the Philippine National Oil Company (PNOC).

The Bataan Refining Corporation (BRC)
is a wholly government owned corporation, located at Bataan. 
It produces 60% of the national output of naphtha.

Taiwanese investors in a petrochemical project formed the Bataan Petrochemical Corporation (BPC) and applied with BOI
for registration as a new domestic producer of petrochemicals.  Its application specified Bataan as the plant site.  One of the terms and conditions for
registration of the project was the use of “naphtha cracker” and
“naphtha” as feedstock or fuel for its petrochemical plant.  The petrochemical plant was to be a joint venture with PNOC.  BPC was issued a certificate of registration
on February 24, 1988 by
BOI.

BPC was given
pioneer status and accorded fiscal and other incentives by BOI, like, (1)
exemption from taxes on raw materials, (2) repatriation of the entire proceeds
of liquidation investments in currency originally made and at the exchange rate
obtaining at the time of repatriation; and (3) remittance of earnings on
investments.  As additional incentive,
the House of Representatives approved a bill
introduced by the petitioner eliminating the 48% ad valorem
tax on naphtha if and when it is used as raw materials in the petrochemical
plant.  (G.R. No. 88637, September 7,
1989, pp. 2-3, Rollo, pp. 441-442)

However, in February, 1989, A.T. Chong,
chairman of USI Far East
Corporation, the major investor in BPC, personally delivered to Trade Secretary
Jose Concepcion a letter dated January 25, 1989 advising him of BPC’s desire to amend the original registration certificate
of its project by changing the job site from Limay, Bataan, to Batangas.  The reason adduced for the transfer was the
insurgency and unstable labor situation, and the presence in Batangas of a huge liquefied petroleum gas (LPG) depot
owned by the Philippine Shell Corporation.

The petitioner vigorously opposed the proposal and no less than
President Aquino expressed her preference that the
plant be established in Bataan in a conference with
the Taiwanese investors, the Secretary of National Defense and The Chief of
Staff of the Armed Forces.

Despite speeches in the Senate and House opposing the transfer of
the project to Batangas, BPC filed on April 11, 1989 its request for
approval of the amendments.  Its
application is as follows:  “(1)
increasing the investment amount from US$220 million to US$320 million; (2)
increasing the production capacity of its naphtha cracker, polythylene
plant and polypropylene plant; (3) changing the feedstock from naphtha only to
“naphtha and/or liquefied petroleum gas;” and (4) transferring the
job site from Limay, Bataan,
to Batangas. 
(Annex B to Petition; Rollo, p. 25)

Notwithstanding opposition from many quarters and the request of
the petitioner addressed to Secretary Concepcion to
be furnished a copy of the proposed amendment with its attachments which was
denied by the BOI on May 25, 1989, BOI approved the revision
of the registration of BPC’s petrochemical
project.  (Petition,
Annex F; Rollo, p. 32; See pp. 4 to 6, Decision in
G.R. No. 88637; supra.

BOI Vice-Chairman Tomas I. Alcantara
testifying before the Committee on Ways and Means of the Senate asserted that:

“The BOI has taken a public position preferring Bataan over Batangas
as the site of the petrochemical
complex, as this would provide a better distribution of industries around the
Metro Manila area.  x x
x In advocating the choice of Bataan
as the project site for the petrochemical complex, the BOI, however, made it
clear, and I would like to repeat this that the BOI made it clear in its
view that the BOI or the government for
that matter could only recommend as to
where the project should be located.  The BOI recognizes and
respects the principle that the final
choice is still with the proponent
who would in the final analysis provide
the funding or risk capital for the
project.  (Petition, p. 13; Annex
D to the petition)

This position has not been denied by BOI in its pleadings in G.R. No. 88637 and in the present
petition.

Section 1, Article VIII of the 1987 Constitution provides:

“SECTION 1.  The judicial power shall be vested in one
Supreme Court and in such lower courts as may be established by law.

Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable,
and to determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.”

There is before us an actual controversy whether the
petrochemical plant should remain in Bataan
or should be transferred to Batangas, and whether its
feedstock originally of naphtha only should be changed to naphtha and/or
liquefied petroleum gas as the approved amended application of the BPC, now
Luzon Petrochemical Corporation (LPC), shows. 
And in the light of the categorical admission of the BOI that it is the
investor who has the final choice of the site and the decision on the
feedstock, whether or not it
constitutes a grave abuse of
discretion for the BOI to yield to the wishes of the investor, national
interest notwithstanding.

We rule that the Court has a constitutional duty to step into
this controversy and determine the paramount issue.  We grant the petition.

First, Bataan
was the original choice as the plant site of the BOI to which the BPC
agreed.  That is why it organized itself
into a corporation bearing the name Bataan.  There is available 576 hectares of public
land precisely reserved as the petrochemical zone in Limay,
Bataan under P.D. No.
1803.  There is no need to buy expensive
real estate for the site unlike in the proposed
transfer to Batangas. 
The site is the result of careful study long before any
covetous interests intruded into the choice. 
The site is ideal.  It is not
unduly constricted and allows for
expansion.  The respondents have not
shown nor reiterated that the alleged peace and order situation in Bataan or unstable labor situation warrant a
transfer of the plant site to Batangas.  Certainly, these were taken into account when
the firm named itself Bataan Petrochemical
Corporation.  Moreover, the evidence
proves the contrary.

Second, the BRC, a government owned Filipino
corporation, located in Bataan produces 60% of the national output
of naphtha which can be used as feedstock for the plant in Bataan. 
It can provide the feedstock requirement of the plant.  On the other hand, the country is short of
LPG and there is need to import the
same for use of the plant in Batangas.  The local production thereof by Shell can
hardly supply the needs of the consumers for cooking purposes.  Scarce dollars
will be diverted, unnecessarily, from vitally essential projects in order to feed the furnaces of the transferred petrochemical plant.

Third, naphtha as feedstock has been exempted by
law from the ad valorem tax by the
approval of Republic Act No. 6767 by President Aquino
but excluding LPG from exemption from ad valorem tax. 
The law was enacted specifically for the petrochemical industry.  The policy determination by both
Congress and the President is clear. 
Neither BOI nor a foreign investor should disregard or contravene
expressed policy by shifting the feedstock from naphtha to LPG.

Fourth, under Section 10, Article XII of the 1987
Constitution, it is the duty of the State to “regulate and
exercise authority over foreign investments within its national jurisdiction
and in accordance with its national goals and priorities.” The development
of a self-reliant and independent national economy effectively controlled by
Filipinos is mandated in Section 19, Article II of the Constitution.

In Article 2 of the
Omnibus Investments Code of 1987
“the sound development of the national economy in consonance with the
principles and objectives of economic nationalism” is the set goal of
government.

Fifth, with the admitted fact that the investor is
raising the greater portion of the capital for the project from local sources
by way of loan which led to the so-called “petroscam
scandal”, the capital requirements would be greatly minimized if LPC does
not have to buy the land for the project and its feedstock shall be limited to
naphtha which is certainly more economical, more readily available than
LPG, and does not have to be imported.

Sixth, if the plant site is maintained in Bataan, the PNOC shall be a partner in the venture
to the great benefit and advantage of the government which shall have a
participation in the management of the project instead of a firm which is a huge multinational corporation.

In the light of all the clear advantages manifest in the plant’s remaining in Bataan, practically nothing is shown to justify the
transfer to Batangas except a near-absolute
discretion given by BOI to investors not only to freely choose the site but to
transfer it from their own first choice for reasons which remain murky to say
the least.

And this brings us to a prime
consideration which the Court cannot rightly ignore.

Section 1, Article XII of
the Constitution provides that:

xxx                xxx                   xxx

“The State shall promote industrialization and full employment
based on sound agricultural development and agrarian reform, through industries
that make full and efficient use of human and natural resources, and which are
competitive in both domestic and foreign markets.  However, the State shall protect Filipino
enterprises against unfair foreign competition and trade practices.”

xxx                xxx                   xxx

Every provision of the Constitution on the national economy and
patrimony is infused with the spirit of national interest.  The non-alienation of natural resources, the
State’s full control over the development and utilization of our scarce
resources, agreements with foreigners being based on real contributions to the
economic growth and general welfare of the country and the regulation of
foreign investments in accordance with national goals and priorities are too
explicit not to be noticed and understood.

A petrochemical industry is not an ordinary investment
opportunity.  It should not be treated
like a garment or embroidery firm, a shoe-making venture, or even an assembler
of cars or manufacturer of computer chips, where the BOl
reasoning may be accorded fuller faith and credit.  The petrochemical industry is essential to
the national interest.  In other ASEAN
countries like Indonesia
and Malaysia,
the government superintends the industry by controlling the upstream or cracker
facility.

In this particular BPC venture, not only has the Government given
unprecedented favors, among them:

(1) For an initial authorized capital of only P20
million, the Central Bank gave an eligible relending
credit or relending facility worth US $50 million and
a debt to swap arrangement for US$ 30 million or a total accommodation of US $
80 million which at current exchange rates is around P2080 million.

(2) A major part of the
company’s capitalization shall not come from foreign sources but from loans,
initially a P1 Billion syndicated
loan, to be given by both
government banks and a consortium of Philippine, private banks or in common parlance, a case of “guiniguisa sa sariling
manteca.”

(3) Tax exemptions and
privileges were given as part of its “preferred pioneer status.”

(4) Loan applications
of other Philippine firms will be crowded out of the Asian Development Bank
portfolio because of the petrochemical firm’s massive loan request.  (Taken from the proceedings
before the Senate Blue Ribbon Committee).

but through its regulatory agency, the
BOI, it surrenders even the power to make a company abide by its initial
choice, a choice free from any suspicion
of unscrupulous machinations and a choice
which is undoubtedly in the best interests
of the Filipino people.

The Court, therefore, holds and finds that the BOI committed a grave abuse of discretion in approving
the transfer of the petrochemical plant from Bataan
to Batangas and authorizing the change of feedstock
from naphtha only to naphtha and/or LPG for the main reason that the final
say is in the investor all other
circumstances to the contrary notwithstanding.  No cogent advantage to the government has been shown by this transfer.  This is a repudiation of the independent
policy of the government expressed in numerous
laws and the Constitution to run its own affairs the way it deems best for the national interest.

One can but remember the words of a great Filipino leader who in
part said he would not mind having a government run like hell by Filipinos than
one subservient to foreign dictation.  In
this case, it is not even a foreign government but an ordinary investor whom
the BOI allows to dictate what we shall do
with our heritage.

WHEREFORE, the petition is hereby granted.  The decision of the respondent Board of
Investments approving the amendment of the certificate of registration of the
Luzon Petrochemical Corporation on May 23, 1989 under its
Resolution No. 193, Series of 1989, (Annex F to the
Petition) is SET ASIDE as NULL and VOID. 
The original certificate of registration of BPC (now LPC) of February 24, 1988 with Bataan as the plant site and naphtha as the
feedstock is, therefore, ordered maintained.

SO ORDERED.

Cruz, Gancayco, Padilla, Bidin, Sarmiento, and Medialdea, JJ., concur.

Narvasa and
Regalado, JJ., join J. Griño-Aquino
in her dissenting opinion.

Griño-Aquino, J., see dissenting opinion.

Melencio-Herrera, J., concurring with J. Aquino and with short separate dissenting opinion.

Fernan, C.J., no part. Former counsel
for Pilipinas Shell Corp. (Cebu
Office).

Paras, J., no part. Son is part of the Sycip
firm.

Feliciano, J., on leave.