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SC upholds constitutionality of GOCC Governance Act

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THE Supreme Court  has unanimously upheld the constitutionality of Republic Act No. 10149 or the Government-Owned or -Controlled Corporations (GOCCs) Governance Act, signed into law in 2011 to address the poor handling of the operations  and abuses committed by officials of these corporations.

In a 72-page decision penned by Associate Justice Marvic Leonen, the Court en banc dismissed the consolidated  petitions filed by Albay Rep. Edcel Lagman and Surigao del Sur 1st District Rep. Prospero Pichay Jr. assailing the constitutionality of RA 10149 on the ground that it violates their right to security of tenure, unduly delegates legislative and breaches the equal protection clause of the Constitution.

“Congress enacted Republic Act No. 10149 to address the reported abuses, poor performance, and inefficiencies in the operations of GOCCs. The law, among others, reduced the terms of incumbent GOCC officers and created a central policy-making and regulatory body for GOCCs, tasked with reforming and developing a standardized compensation and position classification system for GOCCs,” the SC ruling stated.

“These actions were geared toward achieving what Congress perceived to be a great public need …. Absent any clear showing of unconstitutionality, these provisions, duly deliberated upon and approved by the legislature, are upheld,” it added.

Prior to the passage of the law, congressional inquiries into the activities of some GOCCs  showed  billions of funds going to waste due to excesses and incompetence of its officials, including the “obscene bonuses” and retirement schemes  given to board of directors of these firms,  particularly  in the Manila Economic and Cultural Office, where directors could retire after only two years of service, at the rate of P600,000 per year of service.

The inquiries conducted in 2009 also showed the GOCCs’ mounting debt despite accounting for 28 percent of national expenditures while their debts were  valued at P5.557 trillion, exceeding  the national government’s assets of P2.879 trillion.

Of the P475.296-billion interagency receivables, 91 percent  or P433.383 billion were due from GOCCs.

Despite these inefficiencies, Congress reported that GOCCs still declared approximately P14.6 billion in dividends, and received subsidies worth around P7.6 billion, or greater than their tax liability of around P6.7 billion.

To address these abuses, Republic Act No. 10149 was signed into law on June 6, 2011.

The law is primarily geared towards improving the State’s “ownership rights in GOCCs and to promote growth by ensuring that operations are consistent with national development policies and programs,” said the high tribunal.

In order to fulfill this objective, the law created the Governance Commission for GOCCs (Governance Commission), an agency attached to the Office of the President.

It is empowered, among others, to evaluate the performance and determine the relevance of GOCCs, and to ascertain whether these GOCCs should be reorganized, merged, streamlined, abolished, or privatized, in consultation with the department or agency to which they are attached.

The petitioners argued  that Section 17 of RA 10149, which shortens to one year  the fixed terms of incumbent CEOs and appointive  directors of GOCCs with original charters, violates their constitutionally  guaranteed right to security of tenure under Article IX-B, Section 2(3) of the Constitution.

However, the Court dismissed the argument, saying that the legislature may, “in good faith” “change the qualifications for and shorten the term of existing offices” even if these changes would remove, or shorten the term of, an incumbent.

It also said the shortening of the term of GOCC officials is for the interest of the public.

“Public interest warrants the term reduction. Shortening the term of directors to one year allows for a yearly evaluation of their performance and promotes accountability for public funds,” the SC said.

The SC did not give credence to the petitioners’ claim that Section 5 of RA 10149 creating the Governance Commission is an invalid delegation of Congress’ exclusive power to reorganize and public offices.

It explained that the Governance Commission was merely  tasked to conduct an evaluation to determine the propriety of the reorganization, abolition, merger, streamlining or privatization of GOCCs as mandated under RA 10149.

The Governance Commission only needs to carry out the mandate. In ascertaining the determinants for abolishing or reorganizing GOCCs, the Governance Commission only acts as an investigative body on behalf of Congress

Likewise, the SC rejected the petitioners’ argument that the law violates the equal protection clause under the Constitution since it excluded some GOCCs.

Specifically excluded from the coverage of the law are the Bangko Sentral ng Pilipinas, state universities and colleges, cooperative,  local water districts,  and economic zone authorities and research institutions, provided that a third of their board members shall be appointed from the list submitted by the Governance Commission.

However, the SC pointed out that the equal protection clause in the Constitution “is not a guarantee of absolute equality in the operation of laws.”

The said provision, according to the Court, does not prevent a “reasonable classification” of the subject of legislation.

“In sum, excluding certain entities—the Bangko Sentral ng Pilipinas, state universities and colleges, local water utility districts, cooperatives, economic zone authorities, and research institutions—from the law’s coverage does not violate the equal protection clause, because there is reasonable basis to do so,” the SC said.

“Without a showing that the exclusions under Section 4 of Republic Act No. 10149 created unreasonable distinctions between classes of entities, this Court finds that the exclusions were valid,” it added.

Read full article on BusinessMirror

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