SEC, OSG, 'friends' air side on PLDT ownership

by Ina Reformina, ABS-CBN News

Posted at Jun 26 2012 08:23 PM | Updated as of Jun 29 2012 02:51 AM

MANILA, Philippines - The Securities and Exchange Commission (SEC), through counsel Manuel Huberto Gaite, presented its arguments before the Supreme Court (SC) on Tuesday afternoon for the continuation of oral arguments on the petition questioning the extent of foreign ownership of telephone giant Philippine Long Distance Telephone Co. (PLDT).

Gaite pointed out that in spite of the 64% foreign ownership of PLDT common or voting shares, the composition of its governing body, the Board of Directors, complies with the 40% requirement of the 1987 Constitution for foreign ownership of public utilities. Regardless of the voting shares owned by foreigners, Gaite stressed that when it comes to the membership of the Board, foreigners are limited to 40%.

"The Constitution, under Sec. 11, Art. XII (National Economy and Patrimony), limits the participation of foreigners [in public utilities] even if they have the capacity to outvote the Filipinos... the framers of the Constitution wanted the control of the Filipinos in public utility in the Board level ," he said.

Gaite further said the SEC has "consistently" ruled in favor of this position.

Senior Associate Justice Antonio Carpio, who presided over the hearing, lashed at the SEC's arguments. Carpio noted that for the past 4 decades, 2 Philippine Constitutions (1973 and 1987) and various laws have consistently stressed that only a Philippine national or Philippine corporation may own and operate a public utility.

"Why did the SEC ignore these laws for the past decades when the laws are very clear? Only a Philippine national can own and operate a public utility and, if a corporation, at least 60% of the voting stock is owned by the citizens of the Philippines," Carpio said.

He stressed that the same position is supported by the Foreign Investments Act (FIA).

Carpio further lashed at the SEC when Gaite responded to his questioning by saying that the FIA is "not very clear" on its usage of the term 'capital' in Sec. 11, Art XII, of the 1987 Constitution.

"When I look at the FIA, I am sometimes confused... because it sometimes says 'capital without distinction...' in another, 'capital with voting rights...' then 'outstanding capital stock,'" Gaite said.

"It's very clear. The FIA and all the prior laws to it [state] that 60% of voting stocks should be owned by Filipino nationals.," Carpio stressed.

Carpio cited 7 SEC opinions which ran contrary to Gaite's claims.

Associate Justice Presbitero Velasco, Jr., meantime, agreed with the SEC, pointing out that the FIA only applies to companies already existing in the country, and not to those who intend to apply for franchise for the operation of public utilities.

"It (FIA) applies only to companies who want to invest in certain areas of investment... FIA has no involvement at all in the issue at hand because FIA refers to companies already existing in the Philippines," Velasco said. 

Solicitor General's position

Solicitor General Francis Jardeleza, who was given 15 minutes to present his arguments, told the high court that the Office of the Solicitor General's (OSG) definition of the term 'capital' refers to shares of stocks with the right to vote in the election of officers, consistent with the high court's ruling in June of last year.

He stressed that this application of 'capital' is necessary for Filipinos to exercise control over public utilities. To achieve this, Filipinos, not foreigners, should own at least 50% plus one share of the voting stock, he added.

"To operate means to control, to direct, to conduct... this in turn, allows the stockholders to gain majority of the Board... who in turn, controls the operation. Holders of non-voting shares do not participate in making operating decisions," Jardeleza said.

He said the term 'capital' can only mean voting shares because the voting shares elect majority of the members of the Board of Directors.

To stress his point, Jardeleza cited the high court's ruling in April on the Hacienda Luisita agrarian dispute case.

"Your honors held that control of the corporation must be placed in the hands of the farmers... the farmers should always own the majority of the common shares entitled to elect members of the Board of Directors," he said.

Jardeleza pointed out that based on the records of the debates of the Constitutional Commission of 1986, the delegates "intended control of a public utility in the hands of majority of the Board elected by the Filipino majority of the voting stockholders."

"This cannot be allowed to be circumvented by foreigners who own more than 40% of the controlling shares," he said.

Amici curiae insights

Amici curiae (friends of the Court) Fr. Joaquin Bernas and Dr. Bernardo Villegas, both members of the 1986 ConCom, were asked to present their insights on the issue.

Bernas narrated what transpired in the ConCom debates. And though the framers of the 1987 Constitution did not come in total agreement on the exact definition of the term 'capital,' he said that "the desire was for the national economy not to be controlled by aliens."

Bernas also told the high court that when the Constitution was ratified, it was the people's understanding of the word 'capital' that prevailed.

"What did the people on the street vote for when they ratified? What they voted on was not on the debates... but on their understanding of the word 'capital' in their everyday meaning encountered in everyday life," he said.

Charter 'too restrictive'

Villegas, for his part, said the economic provisions in the Constitution needed amendments for being "too restrictive" on foreign investments.

"In all ranking of doing business, we are at the bottom. Part of this is constitutional restrictions, there are so many restrictions," he said.

Villegas disclosed to the high court that he has been advocating for Congress and Malacañan to amend the economic provisions of the Constitution. He added that only the "few Filipino elites" are engaged in the ownership of corporations.

The 5-hour oral arguments stemmed from the motions for reconsideration separately filed by PLDT and the SEC on the high court's June 2011 ruling on the petition of PLDT stockholder Wilson Gamboa. Gamboa alleged that the Constitutional provision on foreign ownership of Philippine public utilities was violated in the case of PLDT.

The Supreme Court ruled on the legal issue on the definition of the term "capital" in Section 11, Article XII of the Constitution, and held that this "refers only to shares of stock entitled to vote in the election of directors" or common shares. The high court also directed the SEC to apply this definition in determining the extent of allowable foreign ownership in PLDT, and impose sanctions if there is a violation of Section 11, Article XII of the Constitution.