The Supreme Court decision on the Angat power plant privatization

30 Oct 2012

The following are excerpts directly quoted from the decision of the Supreme Court in the case of IDEALS, Inc. v. PSALM.

Privatization of AHEPP Mandatory Under EPIRA

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The intent of Congress not to exclude the AHEPP from the privatization of NPC generation assets is evident from the express provision exempting only the aforesaid two power plants in Mindanao. Had the legislature intended that PSALM should likewise be allowed discretion in case of NPC generation assets other than those mentioned in Sec. 47, it could have explicitly provided the same. But the EPIRA exempted from privatization only those two plants in Mindanao and the Small Power Utilities Group (SPUG). Expressio unius est exclusion alterius, the express inclusion of one implies the exclusion of all others.

x x x

The Court therefore cannot sustain the position of petitioners, adopted by respondent MWSS, that PSALM should have exercised the discretion not to proceed with the privatization of AHEPP, or at least the availability of the option to transfer the said facility to another government entity such as MWSS. Having no such discretion in the first place, PSALM committed no grave abuse of discretion when it commenced the sale process of AHEPP pursuant to the EPIRA.

In any case, the Court finds that the operation and maintenance of a hydroelectric power plant is not among the statutorily granted powers of MWSS. Although MWSS was granted authority to construct and operate dams and reservoirs, such was for the specific purpose of supplying water for domestic and other uses, and the treatment, regulation and control of water usage, and not power generation. Moreover, since the sale of AHEPP by PSALM merely implements the legislated reforms for the electric power industry through schemes that aim "[t]o enhance the inflow of private capital and broaden the ownership base of the power generation, transmission and distribution sectors," the proposed transfer to MWSS which is another government entity contravenes the State policy.

x x x

Sale of Government-Owned AHEPP to a Foreign Corporation Not Prohibited
But Only Filipino Citizens and Corporations 60% of whose capital is owned by
Filipinos May be Granted Water Rights

x x x

Foreign ownership of a hydropower facility is not prohibited under existing laws. The construction, rehabilitation and development of hydropower plants are among those infrastructure projects which even wholly-owned foreign corporations are allowed to undertake under the Amended Build-Operate-Transfer (Amended BOT) Law (R.A. No. 7718). Beginning 1987, the policy has been openness to foreign investments as evident in the fiscal incentives provided for the restructuring and privatization of the power industry in the Philippines, under the Power Restructuring Program (PSRP) of the Asian Development Bank.

x x x

As the new owner of the AHEPP, K-Water will have to utilize the waters in the Angat Dam for hydropower generation. Consistent with the goals of the EPIRA, private entities are allowed to undertake power generation activities and acquire NPC's generation assets. But since only the hydroelectric power plants and appurtenances are being sold, the privatization scheme should enable the buyer of a hydroelectric power plant in NPC's multipurpose dam complex to have beneficial use of the waters diverted or collected in the Angat Dam for its hydropower generation activities, and at the same time ensure that NPC retains full supervision and control over the extraction and diversion of waters from the Angat River.

In fine, the Court rules that while the sale of AHEPP to a foreign corporation pursuant to the privatization mandated by the EPIRA did not violate Sec. 2, Art. XII of the 1987 Constitution which limits the exploration, development and utilization of natural resources under the full supervision and control of the State or the State's undertaking the same through joint venture, co-production or production sharing agreements with Filipino corporations 60% of the capital of which is owned by Filipino citizens, the stipulation in the Asset Purchase Agreement and Operations and Maintenance Agreement whereby NPC consents to the transfer of water rights to the foreign buyer, K-Water, contravenes the aforesaid constitutional provision and the Water Code.

Section 6, Rule 23 of the IRR of EPIRA, insofar as it ordered NPC's water rights in multipurpose hydropower facilities to be included in the sale thereof, is declared merely directory and not an absolute condition in the privatization scheme. In this case, we hold that NPC shall continue to be the holder of the water permit even as the operational control and day-to-day management of the AHEPP is turned over to K-Water under the terms and conditions of their APA and O&M Agreement, whereby NPC grants authority to K-Water to utilize the waters diverted or collected in the Angat Dam for hydropower generation. Further, NPC and K-Water shall faithfully comply with the terms and conditions of the Memorandum of Agreement on Water Protocol, as well as with such other regulations and issuances of the NWRB governing water rights and water usage.

WHEREFORE, the present petition for certiorari and prohibition with prayer for injunctive relief/s is PARTLY GRANTED.

The following DISPOSITIONS are in ORDER:

1) The bidding conducted and the Notice of Award issued by PSALM in favor of the winning bidder, KOREA WATER RESOURCES CORPORATION (K-WATER), are declared VALID and LEGAL;

2) PSALM is directed to FURNISH the petitioners with copies of all documents and records in its files pertaining to K-Water;

3) Section 6 (a), Rule 23, IRR of the EPIRA, is hereby declared merely DIRECTORY, and not an absolute condition in all cases where NPC-owned hydropower generation facilities are privatized;

4) NPC shall CONTINUE to be the HOLDER of Water Permit No. 6512 issued by the National Water Resources Board. NPC shall authorize K-Water to utilize the waters in the Angat Dam for hydropower generation, subject to the NWRB's rules and regulations governing water right and usage. The Asset Purchase Agreement and Operation & Maintenance Agreement between NPC/PSALM and K-Water are thus amended accordingly.

Except for the requirement of securing a water permit, K-Water remains BOUND by its undertakings and warranties under the APA and O&M Agreement;

5) NPC shall be a CO-PARTY with K-Water in the Water Protocol Agreement with MWSS and NIA, and not merely as a conforming authority or agency; and

6) The Status Quo Ante Order issued by this Court on May 24, 2010 is hereby LIFTED and SET ASIDE.

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