G.R. No. 212686, 28 September 2015, 771 SCRA 559
Petitioner seeks to enjoin the sale of the Naga Power Plant Complex (NPPC) to respondent SPC Power Corporation (SPC) resulting from the latter’s exercise of the right to top the winning bid of respondent Therma Power Visayas, Inc. (TPVI).
Respondent PSALM, established by law whose principal purpose is to manage the orderly sale, disposition, and privatization of the National Power Corporation’s (NPC’s) generation assets, real estate and other disposable assets privatized Naga Land-Based Gas Turbine (LBGT) and land underlying the LBGT was also leased out for a period of 10 years to SPC which resulted in SPC’s acquisition of the LBGT through an Asset Purchase Agreement (LBGT-APA) and lease of the land under a Land Lease Agreement (LBGT-LLA).
Under the said agreement, SPC has the “right to top” in the event of lease or sale of property which is not part of the leased premises. The Board of Directors of PSALM approved the commencement of the 3rd Round of Bidding for the sale of the LBGT wherein only SPC and TPVI submitted bids. TPVI won the bidding and was issued with Notice of Award.
PSALM notified both SPC and TPVI where SPC, in its letter reply confirmed that it is exercising the right to top provided under LBGT-APA against the winning bid of TPVI and will pay the amount of the difference of its bid and the winning bid.
Do right to top provisions in the land lease agreements entered into by PSALM contravene public policy on competitive bidding?
There is no basis whatsoever for the grant to respondent of the right of first refusal with respect to the fly ash of NPC power plants since the right to purchase at the time of bidding is that which is precisely the bidding subject, not yet existent much more vested in respondent.
In this case, all potential bidders were aware of the existence of SPC’s right to top as duly disclosed in the Bidding Procedures for the 3rd Round of Bidding for the NPPC.TPVI did not question the said right to top and participated in the bidding where SPC was also a bidder. Emerging as the winning bidder, TPVI nevertheless knew that the acceptance of its bid was subject to SPC’s exercise of the right to top by confirming its exercise of the right of first refusal and paying the amount of the winning bid plus five percent (5%).
Notwithstanding compliance with the conduct of bidding and procedures, we hold that SPC’s right to top under the LBGT-LLA is void for lack of a valid interest or right to the object over which the right of first refusal is to be exercised.
First, the property subject of the right of first refusal is outside the leased premises covered by the LBGT-LLA.
Second, the right of first refusal refers not only to land but to any property within the vicinity of the leased premises, as in this case, an entire power plant complex (NPPC) and the land on which it is built.
And third, while SPC cited concerns regarding security, right of way or other operational requirements, these are clearly not analogous to a lessee’s legitimate interest on the property being leased.
Indeed, acquisition of a three coal-fired thermal plants with far greater generating capacity than the gas turbine plant currently owned by SPC will not be merely for purposes of the latter’s reasonable access, security or present operational needs. Besides, no such right or interest may be invoked by SPC because, as confirmed by PSALM itself, SPC never operated the Naga LBGT.
In the field of public contracts, these stipulations are weighed with the taint of invalidity for contravening the policy requiring government contracts to be awarded through public bidding. Unless clearly falling under statutory exceptions, government contracts for the procurement of goods or services are required to undergo public bidding “to protect the public interest by giving the public the best possible advantages thru open competition.”
The inclusion of a right of first refusal in a government contract executed post-bidding, as here, negates the essence of public bidding because the stipulation “gives the winning bidder an x x x advantage over the other bidders who participated in the bidding x x x.”
Moreover, a “right of first refusal”, “or “right to top,” whether granted to a bidder or non-bidder, discourages other parties from submitting bids, narrowing the number of possible bidders and thus preventing the government from securing the best bid.
*Case digest by JAY MARK P. BALBOSA JD – IV, Andres Bonifacio College, SY 2019 – 2020.