ies Reb of he Phipines DEPARTMENT OF THE INTERIOR AND LOCAL GOVERNMENT DILG-NAPOLCOM Cert, EDEA comer Quezon Aveve, st Ting. Qvezon ly itp lg gop 14 AUG 2018 MR. LAURENCE C. OLANA. CILG OPINION NO. 55S. Sangguniang Bayan Member Chairman, Committee on Laws and Rules Impasugong, Bukidnon Dear SB Member Olana: This has reference to your letter dated 27 March 2018 requesting this Department's legal opinion whether or not it is legal for the Municipal Government to become a part of a private corporation. It is noted that the herein request is related to the request of Vice-Mayor Maria Norly T. Pepito of the Municipality of Impasugong, Bukidnon, in which, the request of VM Pepito has been answered by this Department in its Legal Opinion No. 23, $. 2018. In the said legal opinion, we note that since we were not furnished with a copy of the Memorandum of Agreement (MOA), we considered the subject project as a Build- operate-and-transfer! (BOT) arrangement on the basis of the attached Deed of Assignment (DOA). It is only upon receipt of your letter that we were apprised that the MOA entered into between the Municipal Government of Impasugong, Bukidnon, Urbiztondo Pelonio and Associates Corporation and Bukidnon Second Electric Cooperative (BUSECO) is for the creation/putting up of a corporation, to be known as the “Impasugong Energy Corporation” (IEC). The three parties thereto will be the incorporators of the said * Section 1.3(c}ii) of the Implementing Rules and Regulations of RA No. 6957, as amended by RA No. 7718 Build-operate-and-transfer (BOT) is a contractual arrangement whereby the projece proponent undertakes the construction, including financing, ofa given infrastructure facility, and the operation and maintenance thereof. The project proponent operates the facility over a fixed term during which ic is allowed to charge facility users appropriate tolls, fees, rentals, and charges not exceeding those proposed in its bid or as negotiated and incorporated in the contract to enable the project proponent to recover its investment, and operating and maintenance expenses in the project. The project proponent transfers the facility to the government agency or local government unit concerned at the end ofthe fixed term that shall not exceed ‘ky 60) years. Thisshall include asupply-and-operate situation which isa contractual arrangement whereby the supplier of equipment and machinery fora given infrastructure faciiy, ifthe interest of Government so requires, operates the facility providing in the process technology transter and training to Filipino nationals 18corporation. The said corporation is being created for purposes of establishing the Gakaon Mini-Hydro Power Plant in the Municipality of Impasugong, Hence, we find that your query should be whether or not a municipal government may become an incorporator of a private corporation, and whether or not the municipal government may assign its properties and the administrative management of the same to a Private entity in which the local government unit (LGU) is an incorporator. Incorporators under Batas Pambansa (BP) Blg, 68, otherwise known as the “Corporation Code of the Philippines” axe those stockholders or members mentioned in the articles of incorporation as originally forming and composing the corporation and who are signatories thereof (Section 5). Incorporators are composed of natural persons not less than five (5) but not more than fifteen (15), all of legal age and a majority of whom are residents of the Philippines (Section 10). We are well aware that municipal government is not a natural person but a public corporation formed or organized for the government of a portion of the state? To further claborate, municipal corporation is a class ofa public corporation, wherein they are created as a body politic and corporate constituted by the incorporation of inhabitants for purposes of local government, It is established by law partly as an agency of the State to assist in the civil government of the country, but chiefly to regulate and administer the local or internal affairs of the city, town or district which is incorporated’. Moreover, as provided Section 15 of the Local Government Code (LGC), every LGU created or recognized under the LGC. is a body politic and corporate endowed with powers to be exercised by it in conformity with law. As such, it shall exercise powers as a political subdivision of the National Government and as a corporate entity representing the inhabitants ofits territory, As clearly pointed out, municipal government is not a natural person, hence, cannot be an incorporator. The same is true with the other parties to the MOA as they are corporation and cooperative. With the foregoing discussions, this Department is of the considered view that the answer to your second query will also be in negative. Nevertheless, we would like to reiterate that if the subject project is one of a BOT arrangement, then the municipal government may assign its properties and the administrative management of the same to a private entity subject to conditions imposed under Section 302 of the LGC, to wit: “SECTION 302, Financing, Construction, Maintenance, Operation, and Management of Infrastructure Projects by the Private Sector. ? Section 3, Act No. 1459 or the “Corporation Law” * Dillon, Municipal Corporations, Vol. 2, pp. 58-59(@) Local government units may enter into contracts with any duly Prequalified individual contractor, for the financing, construction, operation, and maintenance of any financially viable infrastructure facilities, under the build-operate-and-transfer agreement, subject to the applicable provisions of Republic Act Numbered Sixty-nine hundred fifty-seven (R.A. No. 6957) authorizing the financing, construction, operation and maintenance of infrastructure projects by the private sector and the rules and regulations issued thereunder and such terms and conditions provided in this Section. waxy (©) Projects implemented under this Section shall be subject to the following terms and conditions: () The provincial, city, or municipal engineer, as the case may be, upon formal request in writing by the local chief executive, shall Prepare the plans and specifications for the proposed project, which shall be submitted to the Sanggunian for approval. @) Upon approval by the Sanggunian of the project plans and specifications, the provincial, city, or municipal engineer shall, as the case may be, cause to be published once every week for two (2) consecutive weeks in at least one (1) local newspaper which is circulated in the region, province, city or municipality in which the Project is to be implemented, a notice inviting all duly qualified contractors to participate in a public bidding for the projects so approved. The conduct of public bidding and award of contracts for Jocal government projects under this Section shall be in accordance With this Code and other applicable laws, rules and regulations. In the case of a build-operate-and-transfer agreement, the contract shall be awarded to the lowest complying bidder whose offer is deemed most advantageous to the local government and based on the Present value of its proposed tolls, fees, rentals, and charges over a fixed term for the facility to be constructed, operated, and maintained according to the prescribed minimum design and performance standards, plans, and specifications. For this purpose, the winning contractor shall be automatically granted by the local sovernment unit concerned the franchise to operate and maintain the facility, including the collection of tolls, fees, rentals, and charges in accordance with subsection (c-4) hereof, In the case of a build- operate-and-transfer agreement, the contract shall be awarded to the Jowest complying bidder based on the present value of its proposed schedule of amortization payments for the facility to be constructedaccording to the prescribed minimum design and performance standards, plans, and specifications. () Any contractor who shall undertake the prosecution of any project under this Section shall past the required bonds to protect the interest of the province, city, or municipality, in such amounts as may be fixed by the Sanggunian concerned and the provincial, city, or municipal engineer shall not, as the case may be, allow any contractor to initiate the prosecution of projects under this Section unless such contractor presents proof or evidence that he has posted the required bond. @) The contractor shall be entitled to a reasonable return of its investment in accordance with its bid proposal as accepted by the Jocal government unit concerned. In the case of a build-operate-and- transfer agreement, the repayment shall be made by authorizing the contractor to charge and collect reasonable tolls, fees, rentals, and charges for the use of the project facility not exceeding those proposed in the bid and incorporated in the contract: Provided, That the local government unit concerned shall, based on reasonableness and equity, approve the tolls, fees, rentals and charges: Provided, further, That the imposition and collection of tolls, fees, rentals and charges shall be for a fixed period as proposed in the bid and incorporated in the contract which shall in no case exceed fifty (50) Yeats: Provided, finally, That during the lifetime of the contract, the contractor shall undertake the necessary maintenance and repair of the facility in accordance with standards prescribed in the bidding documents and in the contract. In the case of a build-operate-and. transfer agreement, the repayment shall be made through amortization payments in accordance with the schedule proposed in the bid and incorporated in the contract. In case of land reclamation or construction of industrial estates, the repayment plan may consist of the grant of a portion or percentage of the reclaimed land or the industrial estate constructed. ©) Every infrastructure project undertaken under this Section shall be constructed, operated, and maintained by the contractor under the technical supervision of the local government unit and in accordance with che plans, specifications, standards, and costs approved by it.”It is also noted that under Section 22' of the LGC, LGUs has corporate powers. Thus, although they cannot be incorporators, they can still enter into contracts/Memorandum of Agreement (MOA) with private persons and/or corporations for the benefit of its constituents, We hope to have addressed your query accordingly. Very truly yours By ae. of the Secretary: AUSTERE A. PANADERO. Undersecretary 1 CC: RD ARNELM. AGABE Regional Director DILG-Region X (Northern Mindanao) * ‘ SECTION 22. Corporate Powers. (a) Every local government unit, as a corporation, shalll have the following powers: 22x (5) To enter into contracts. xxx