A Philippine legal article on constitutional limits, statutory regimes, deal structures, and compliance pitfalls

I. Why natural resources are treated differently

In Philippine law, “natural resources” are part of the national patrimony. The Constitution adopts a protective approach: while foreign capital is generally welcome in many industries, the ownership, control, and exploitation of natural resources are treated as matters of sovereignty, security, and intergenerational equity. As a result, foreign participation is typically limited to contractual arrangements and minority equity—with a few constitutionally recognized exceptions.

II. Constitutional framework (the core rules)

A. State ownership and the Regalian doctrine

The Constitution declares that all lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. Private rights may exist only by authority of law (e.g., titles over alienable land, leases, permits, and service contracts).

B. The default rule: exploitation reserved to Filipinos / Filipino-controlled entities

The exploration, development, and utilization (EDU) of natural resources must be under the full control and supervision of the State. The State may undertake EDU directly or may enter into certain arrangements with:

Filipino citizens, or
Corporations/associations at least 60% owned by Filipino citizens (often called “60–40” Filipino ownership).

This 60% Filipino equity requirement is the backbone of most restrictions: if an entity is more than 40% foreign-owned, it is generally not qualified to hold rights to exploit natural resources through the ordinary modes.

C. Recognized modes for private participation

For qualified Filipino citizens or 60% Filipino-owned corporations, the Constitution allows the State to enter into:

Co-production agreements
Joint venture agreements
Production-sharing agreements

These are the “standard” constitutional modes implemented in sector-specific laws (mining, petroleum, etc.). The State must retain control and supervision.

D. The key exception for foreign corporations: FTAAs (large-scale)

The Constitution allows the President to enter into agreements with foreign-owned corporations for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils, through Financial or Technical Assistance Agreements (FTAAs), subject to the general requirement that the State remains in control and supervision.

In practice, this is the principal pathway for 100% foreign-owned contractors to participate in large-scale minerals and petroleum projects—but only within FTAA rules and limits, and with heightened political/regulatory scrutiny.

E. Foreign individuals are generally excluded

Foreign individuals generally cannot participate in EDU of natural resources in their own right, except as allowed by specific laws in limited ways (e.g., employment roles, technical services, lending, equipment supply), but not as holders of exploitation rights.

III. What counts as “natural resources”

Philippine law treats the following as natural resources (among others):

Minerals (metallic and non-metallic), quarry resources
Petroleum and natural gas
Coal
Forests and timber
Waters (surface and groundwater; water rights are state-granted)
Fisheries (marine wealth and aquatic resources)
Wildlife, flora and fauna
Forces of potential energy (often implicated in geothermal, hydro, wind resources)
Public lands and certain resource-bearing domains

Because the category is broad, foreign investment limits can arise in projects that look like infrastructure or power, but are legally tied to resource utilization (e.g., geothermal or hydro).

IV. The “60–40” rule and how it is policed

A. Beneficial ownership and “Filipino control”

The legal test is not merely what the articles of incorporation say. Regulators and courts examine:

Equity ownership (at least 60% Filipino beneficial ownership)
Voting power / control
Corporate layers (whether upstream owners are themselves qualified)
Board and management arrangements
Protective provisions that may amount to foreign control

B. The “control test” and “grandfather rule”

In regulated sectors tied to national patrimony, authorities apply scrutiny beyond surface share percentages:

Under the control test, a corporation is Filipino if at least 60% of its outstanding capital stock entitled to vote is owned by Filipinos.
Under the grandfather rule (applied in sensitive sectors when warranted), regulators look through corporate layers to determine the ultimate Filipino ownership of a corporation’s capital, preventing “layering” structures that technically appear compliant but are effectively foreign-controlled.

C. Anti-Dummy Law (critical compliance risk)

Philippine law penalizes arrangements that evade nationality restrictions by using Filipino “dummies” or by allowing foreigners to intervene in management, operation, administration, or control beyond what the Constitution and statutes permit.

Common red flags:

Side agreements transferring effective control to foreigners
Supermajority vetoes over ordinary operational decisions
Management contracts that effectively hand control to a foreign firm
Loan covenants designed to seize operational control
Equity instruments that are nominally non-voting but effectively controlling

Penalties can include criminal liability, deportation (for foreign individuals), and cancellation of permits or contracts.

V. Sector-by-sector restrictions and governing regimes

A. Mining (metallic and non-metallic minerals)

Key instrument: Mining rights are typically granted through mining tenements and agreements administered by the DENR (through the Mines and Geosciences Bureau).

Foreign equity participation:

Mineral Agreements (e.g., production sharing/co-production/joint venture forms implemented under mining law) are generally available only to:
- Filipino citizens, or
- Corporations at least 60% Filipino-owned
FTAA is the route for:
- Foreign-owned corporations, for large-scale exploration/development/utilization

What foreign investors commonly do:

Invest as minority equity holders in a 60–40 Philippine mining corporation, or
Participate as the FTAA contractor (if eligible and project qualifies as large-scale), or
Provide financing/offtake, EPC, technical services—carefully structured to avoid “control” issues.

Special notes:

Mining projects are heavily impacted by environmental compliance, IP/community consent, local government positions, and evolving administrative policies.
Rights are not “ownership” of minerals; they are state-granted privileges subject to police power and contract terms.

B. Petroleum and natural gas (upstream)

Key instrument: Petroleum exploration and production are typically undertaken through service contract-style frameworks administered by the Department of Energy.

Foreign participation:

The constitutional exception for large-scale minerals/petroleum allows foreign corporations to serve as contractors under arrangements consistent with State control and supervision (commonly structured to fit within FTAA-like principles for petroleum and service-contract practice).

Practical structures:

Foreign companies as contractors/operators under DOE-approved contracts (subject to constitutional constraints), often with Filipino participation and state oversight, or
Joint bidding consortia that ensure compliance with nationality and control requirements, depending on the contract type and policy at the time of award.

C. Coal

Coal is treated as a natural resource and is typically governed by DOE permitting and contractual arrangements. Foreign participation must respect the constitutional rules on natural resource utilization (often via qualified Philippine entities or constitutionally permissible contract forms under state oversight).

D. Geothermal, hydro, and other “forces of potential energy”

Because the Constitution includes “all forces of potential energy,” projects extracting energy directly from natural sources can implicate patrimony restrictions.

Geothermal: commonly treated as natural resource utilization (resource extraction), not just power generation. Upstream rights and service contracts may carry nationality constraints; downstream power generation can be separately regulated as an energy project.
Hydro: use of water resources and public domain aspects can trigger restrictions; water rights/permits and site rights are central.

Foreign investors often participate through:

Minority equity in qualified corporations,
Technical services, EPC, and O&M contracts,
Project finance structures—again mindful of “control” pitfalls.

E. Water resources and water rights

Waters are owned by the State. Private parties obtain water permits/rights through the National Water Resources Board (or sectoral rules) for appropriation and use.

Foreign investment sensitivity arises not only from the water right itself, but from:

Land/site ownership limits (foreigners cannot own land),
Public utility/public service considerations for water distribution systems,
Control issues if the project is treated as a public utility or involves government franchises.

F. Forest resources, timber, and logging

Forests/timber are natural resources under State ownership. Rights are typically granted via licenses, concessions, community-based arrangements, or similar authorizations. Nationality restrictions generally limit rights-holders to qualified Filipino citizens or corporations, with foreign participation typically confined to:

Supply contracts,
Equipment leasing,
Technical services,
Minority investment where allowed and not tantamount to control.

G. Fisheries and marine wealth

Marine wealth in archipelagic waters, territorial sea, and exclusive economic zone is reserved to Filipinos, subject to the Constitution and fisheries laws.

Typical restrictions include:

Commercial fishing vessel ownership and operation requirements (commonly requiring Filipino citizenship and/or Filipino-controlled corporations)
Limits on foreign participation in capture fisheries
Stronger local preference in municipal waters (often reserved to municipal fisherfolk and local residents, with strict limitations)

Foreign investors often participate in:

Processing, cold chain, logistics (depending on how tightly tied to resource extraction),
Aquaculture structures (still sensitive, depending on site, waters, and permits),
Joint ventures where legally permitted and structured to preserve Filipino control.

H. Land and resource-bearing lands

Even when a project is about extracting or using a resource, land becomes the choke point.

General rule: Foreign individuals cannot own land. Foreign-owned corporations (more than 40% foreign equity) generally cannot own land either.

Common lawful alternatives:

Long-term leases (e.g., under investor lease frameworks) subject to statutory caps and conditions
Easements, usufruct-like arrangements where legally recognized
Lease of private land from Filipino owners
Government leases or usufructs in certain zones, subject to enabling laws and constitutional boundaries

Landholding restrictions often determine whether a foreign investor chooses:

A 60–40 project company that can own land (subject to other restrictions), or
A lease-based structure if the investor’s vehicle is foreign-owned.

I. Ancestral domains and Indigenous Peoples’ rights (project-stopper category)

Where a resource project overlaps ancestral domains, the Indigenous Peoples’ Rights Act (IPRA) and related rules can require Free and Prior Informed Consent (FPIC) and impose benefit-sharing, no-go zones, and strong procedural requirements. While not a “foreign restriction” per se, it materially affects foreign-led deals because:

Failure can void approvals,
FPIC processes influence timelines and bankability,
Community agreements can create control/operational constraints.

VI. Deal structuring for foreign investors (what works—and what breaks)

A. Common compliant pathways

Minority equity in a 60–40 Philippine resource company
- Foreign investor holds up to 40%
- Must avoid contractual control that undermines Filipino control
FTAA / constitutionally permissible large-scale arrangements
- Foreign investor participates as contractor/operator where allowed
- Subject to strict state oversight, approvals, and continuing compliance
Contractual participation without resource-right ownership
- EPC contracts, O&M, technical services
- Equipment supply/leasing
- Offtake agreements (buying output)
- Project finance / lending with security packages that do not transfer control unlawfully

B. Control traps to avoid

Reserved matters that effectively give foreign investors operational control (especially day-to-day decisions)
Board domination (e.g., foreign appointment rights that negate Filipino board control)
Management contracts granting foreigners management of core extraction operations
Step-in rights that are triggered too easily or allow takeover of operations
Convertible instruments that would breach the 40% cap upon conversion
Voting arrangements that shift effective voting control to foreigners despite nominal equity

C. Financing and security: how lenders get comfortable

Foreign lenders and investors frequently seek:

Pledges over shares (subject to nationality compliance upon enforcement)
Assignments of project receivables
Mortgages over permitted assets
Account control arrangements
Covenants and reporting

These must be structured so that enforcement does not result in an unlawful transfer of control or ownership of restricted assets to foreign parties.

VII. Regulatory landscape and approvals (typical pipeline)

A. Typical agencies involved

Depending on the resource:

DENR / Mines and Geosciences Bureau (mining/quarry)
DOE (petroleum, coal, geothermal, certain energy resource contracts)
BFAR (fisheries)
NWRB and related bodies (water rights)
NCIP (ancestral domains/FPIC)
LGUs (local permits; significant influence)
Environmental regulators and permitting authorities for EIA/ECC processes

B. Permits are privileges, not property

A crucial Philippine reality: natural resource rights are typically revocable privileges subject to:

Compliance with law and permit terms
Environmental and social obligations
Police power measures
Policy shifts and administrative issuances
Court challenges and community opposition

This has major implications for:

Valuation,
Political risk,
Force majeure/policy change clauses,
Stabilization and arbitration provisions.

VIII. Enforcement, disputes, and legal consequences

A. Administrative consequences

Cancellation/suspension of tenements or contracts
Disqualification from bidding or renewal
Fines and penalties
Confiscation of performance securities or bonds

B. Criminal and civil exposure

Anti-dummy violations
Fraud, false statements in applications, simulated contracts
Environmental crimes (in some cases)
Civil nullity of contracts designed to circumvent nationality limits

C. Investor–State and contract arbitration (context)

Foreign investors may seek protection through:

Contract-based arbitration clauses, or
Treaty-based protections (where applicable)

But treaty protection does not allow a foreign investor to override constitutional restrictions; it generally concerns fair treatment, expropriation standards, discrimination, and due process—with outcomes highly fact-specific.

IX. Frequently asked questions (Philippine practice-focused)

1) Can a foreigner “own” minerals or oil in the Philippines?

No. Minerals, petroleum, and similar resources are owned by the State. Private parties only obtain rights to explore/develop/utilize under state-issued contracts or permits, subject to constitutional limits.

2) Can a 100% foreign-owned company run a mining project?

Only through a constitutionally permissible large-scale arrangement, chiefly via an FTAA (and only if the project and approvals fit that framework). Otherwise, ordinary mineral agreements typically require a 60% Filipino-owned holder.

3) Can foreigners control the operations if they stay under 40% equity?

They must be careful. Even at 40% or less, contractual rights that amount to effective control can violate patrimony restrictions and the Anti-Dummy Law.

4) Can foreigners own land needed for a resource project?

Generally no. Foreign individuals cannot own land; corporations more than 40% foreign-owned generally cannot own land. Long-term leases and other lawful site-control mechanisms are commonly used.

5) Do these restrictions apply to downstream processing?

Downstream processing (e.g., mineral processing, refining, manufacturing) may be more open than upstream extraction, but the line blurs if the processing rights are tied to extraction permits, resource tenements, or exclusive access structures that regulators treat as part of resource utilization.

X. Practical checklist for foreign investors (bankability and compliance)

Identify the resource classification
- Is it minerals, petroleum, timber, fisheries, water, geothermal/hydro?
Determine the right-holding vehicle
- 60–40 Philippine corporation vs. FTAA/large-scale framework vs. pure contracting
Map all permits and the approving agencies
Verify nationality compliance using look-through analysis
- Apply control test; be prepared for grandfather-rule scrutiny
Audit governance and reserved matters
- Ensure Filipinos retain control consistent with law
Stress-test financing enforcement
- Avoid security that could transfer restricted assets/control to foreigners
Check land/site control constraints early
Run community/IP and environmental gating
- ECC/EIA pathways; FPIC where applicable
Plan for policy-change risk
- Stabilization mechanisms, termination compensation, insurance options
Document compliance

Clear paper trail for beneficial ownership and decision-making

XI. Bottom line

Foreign investment in Philippine natural resources is feasible, but it is not an “equity-first” regime. The system is built on:

State ownership,
Filipino control as the default, and
carefully bounded exceptions (especially for large-scale minerals and petroleum through FTAA-type arrangements).

Successful foreign participation usually depends on choosing the correct pathway (60–40 vehicle, FTAA/large-scale structure, or non-right-holding contractual participation), then designing governance, financing, and operational arrangements that do not slip into prohibited foreign control.

If you want, I can also draft:

a case-note style addendum summarizing the key Supreme Court doctrines affecting FTAAs and “control vs. beneficial ownership,” or
a deal-structure template (term-sheet level) showing compliant governance, reserved matters, and financing safeguards for a 60–40 resource project.