Republic of the Philippines v Provincial Government of Palawan

GR No. 170867, 4 Dec. 2018

Tijam, J.:

FACTS
Service Contract No. 38 was entered by DOE and Shell Phil. Exploration (SPEX) which
1

led to the drilling of the Camago-Malampaya 2 natural gas reservoir. In Feb. 1998, AO
3813 was issued by Pres. FVR. However, in June 1998, DOE wrote to Palawan Gov.
Socrates, requesting for the deferment of the payment of 50% of the Palawan’s share in
the project for the first 7 years of operation which it would use to pay the NPC’s take-
or-pay quantity (TOPQ) obligation.

According to respondent, since the reservoir is located within its territorial jurisdiction,
it is entitled to 40% share under Sec. 290 of the LGC. On the other hand, the petitioner
counters that since the gas fields were approximately 80km from Palawan’s coastline,
they are outside the territorial jurisdiction of the province and is within the national
territory of the Philippines.

In 2003, the respondent filed a petition before the RTC Palawan seeking judicial
determination of its rights under AO 381, RA 7611, the LGC. It asked the RTC to
declare that the Camago-Malampaya natural gas reservoir is part of its territorial
jurisdiction and that it is entitled to receive 40% from the petitioner’s share in the
proceeds of the project as provided for under Sec. 290 of the LGC. On contrary,
petitioner maintained that Palawan was not entitled to the 40% share for the reservoir is
outside its territorial jurisdiction. According to petitioner, Palawan’s territorial
jurisdiction is limited to its land area and to the municipal waters within 15km from its
coastline.

1
Provides for the production sharing scheme whereby the Gov was entitled to receive an amount
equal to 60% while SPEX to 40% of the net proceeds.
2
The nearest point of the Camago-Malampaya production area is at a distance of 93km to
Kalayaan Island group and 48.8km to the Province of Palawan.
3
Provides that the Province of Palawan is to receive about $2.1B from the estimated $8.1B total
government shared from the natural gas project for the 20-year contract period.
The RTC eventually took side with Palawan. 4 It ruled that it was unthinkable to limit
Palawan’s territorial jurisdiction to its landmass and municipal waters considering that
the LGC empowered them to protect the environment. RA 7611 also adopted a
comprehensive framework for the sustainable development of Palawan compatible
with protecting and enhancing the natural resources and endangered environment of
the province. Moreover, the State’s resources must be shared with the LGUs if they
were expected to deliver basic services to their constituents and to discharge their
functions as agents of the State in enforcing laws, preserving the integrity of the
national territory and protecting the environment. The RTC then issued an Order
directing, among others, the petitioners to submit full accounting and full report of the
actual payments made.

A petition for review was filed by the petitioner before the Court. Hence, this case.

ISSUE
Whether the Camago-Malampaya reservoir is within the territorial jurisdiction of
Palawan making the same entitled to 40% share in the proceeds of the project.

HELD
No, Palawan is not entitled to 40% share in the proceeds of the drilling of the Camago-
Malampaya gas reservoir for it is outside its territorial jurisdiction.

The LGC does not define the term “territorial jurisdiction.” However, the provisions of
LGC indicate that the term refers to the LGU’s territorial boundaries. Under the LGC, a
“province” is composed of a cluster of municipalities, or municipalities and component
cities.

In the creation of municipalities, cities and barangays, the LGC uniformly requires that
the territorial jurisdiction of these government units be “properly identified by metes
and bounds.”5 Therefore, the intention is to consider an LGU’s territorial jurisdiction as
4
RTC ruled that the Palawan is entitled to the 40% share of the national wealth pursuant to the
provisions of Sec. 7, Art. X of the 1987 Constitution and this right is in accord with the provisions of the
Enabling Act, RA 7160 (Local Gov. Code). It rejected the reliance on the cases of Tan v COMELEC, as it
was an election controversy involving the creation of a new province, LLDA v CA, as it highlighted the
primacy of the said agency’s Chater over the LGC, and Municipality of Paoay v Manaois, as it was
rendered before the principle of local autonomy was instituted in the 1987 Constitution and the LGC. It
also ruled the Regalian Doctrine to be inapplicable for said doctrine is subject to the constitutional
provision giving LGUs an equitable share in the proceeds of the utilization and development of national
wealth within their respective doctrines and is also subject to the 40% LGU share set by the LGC. Hence,
from the National Government’s previous actions (wherein Palawan received its shares from collections
derived from the West Linapacan Oil Fields) and previous issuance (pertaining to Pres. FVR’s AO 381
acknowledging Palawan’s claim and share in the proceeds of the Camago-Malampaya project), it was too
late in the day for the National Government to take a 180-degree turn.
5
Secs. 386, 442, 450
pertaining to a physical location or area as identified by its boundaries. LGUs are
creations of law. In enacting charters of LGUs, Congress is called upon to properly
identify their territorial jurisdiction by metes and bounds. Clearly, an LGU’s territorial
jurisdiction cannot extend beyond the boundaries set by its organic law.

In addition, an LGU’s territorial jurisdiction is not necessarily coextensive with its

exercise or assertion of powers. To hold otherwise may result in condoning acts that are
clearly ultra vires. Moreover, the LGU’s statutory obligation to maintain ecological
balance is but part of the nation’s collective effort to preserve its environment as a
whole. In fine, 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.

Under the LGC, territorial jurisdiction is contextually synonymous with territory and
the term “territory” is used to refer to the land area comprising the LGU. This is clear
from the fact that: 1) the law requires the territory to be contiguous, 6 except when
comprised of two or more islands; 2) the minimum area of contiguous territory is
measured in km2; 3) such minimum area must be certified by the Lands Management
Bureau; and 4) the territory should be identified by metes and bounds, 7 with technical
descriptions.8

In the case of Tan vs COMELEC, it was ruled by the Court that territory refers only to
the mass of land area and excludes the waters over which the political unit exercises
control. In the context of the LGC, there would arise no need for the legislators to use
the word contiguous if they had intended that the term “territory” embrace not only
land area but also territorial waters. LGU may have control over the waters but it may
not necessarily claim them as part of their territory. Hence, the exercise of authority
does not determine the LGU’s territorial jurisdiction. The Court also, in this case,
excluded the marginal sea from the LGU’s territory.

In the instant case, the Camago-Malampaya reservoir is located in the continental shelf.
If the marginal sea is not included in the LGU’s territory, with more reason should the
continental shelf, located miles further, be deemed excluded therefrom.

In fine, an LGU’s territorial jurisdiction refers to its territorial boundaries or to its

territory. The territory of LGUs refers to their land area, unless expanded by law to
include the maritime area. Since no law grants the Province of Palawa territorial
6
“Contiguous” signifies 2 solid masses being in actual contact.
7
“Metes and bounds” are boundaries or limits of a tract of land especially as described by
reference and distances between point on the land.
8
“Technical descriptions” are used to describe these boundaries and are commonly found in
certificates of land title.
jurisdiction over the Camago-Malampaya reservoir, said area cannot be considered as
part of the territory of the Province. Accordingly, only the utilization of natural
resources found within the land area as delimited by law is subject to the LGU’s
equitable share under the LGC.

On a separate note, Sec. 1, Art. X of the 1987 Constitution did not apportion the entire
Philippine territory among the LGUs. By indicating that the LGUs comprise the
territorial subdivisions of the State, the Constitution did not make every portion of the
national territory a part of an LGU’s territory. The particular wordings of the said
provision were used only because the municipalities, and barangays have been fixed as
the standard territorial and political subdivisions of the Philippines. Said constitutional
provision was intended merely to institutionalize the LGUs.

P.S., (baka maitanong) the Federal Paramountcy Doctrine 9 is not applicable in the case
because, but not limited to, of the following reasons: 1) the US does not appear to have
an equitable sharing provision to Sec. 7, Art. X of the 1987 Constitution; 2) the
Philippines is not composed of States that were previously independent nations; 3) the
Court is not called upon to determine who between the Province of Palawan and the
National Government has the paramount or dominant right to explore or exploit the
natural resources in the marginal sea or beyond.

9
A doctrine derived from 4 US jurisprudences, provides that Federal Government, rather than
the State, have the paramount rights over a particular area which includes full dominion over its natural
resources.