Quezon Power Plant

EN ERGY IN DU STRY IMPSA

Distribution Sector
Transmission Sector
IV . PROJE CT FI NAN CE IN T HE PHI LIPPI NE CO NTEX T – Supply Sector
INDU STRY SPE CIFI C
Downstream Energy Industry

1. Oil
Read:
POWER A ND EN ERGY
● Republic Act No. 8479
● Garcia vs. Corona, G.R. No. 132451. December 17, 1999.
A. Upstream Energy Industry – Exploration, Development
and Utilization of Resources 2. Compressed Natural Gas
3. Biofuels - Republic Act No. 9367 (Biofuels Act of 2006)
1. Petroleum – Oil and Gas
Read:
Article XII, Section 2, 1987 Constitution Pasted from <file:///C:\Documents%20and
Presidential Decree No. 87 (1972) %20Settings\Charisse%20Mae%20Mendoza\My
Proclamation No. 72 %20Documents\5y,%201s\ProjDev\ProjDEVCourse
The Guide to Financing International Oil and Gas Projects, %20Outline.doc>
Milbank, Tweed, Hadley & McCloy, pp. 59-81.
Executive Order No. 66 (designating DOE as lead agency for
development of Philippine natural gas industry)
Case Study: The Malampaya Deep Water Gas to Power Project

2. Geothermal ARTICLE XII, SECTION 2, 1987 CONSTITUTION

Read:
Article XII, Section 2, 1987 Constitution ARTICLE XII
Presidential Decree No. 1442 NATIONAL ECONOMY AND PATRIMONY
Case Study: Tiwi-Makban Power Plant Section 2. All lands of the public domain, waters, minerals,
coal, petroleum, and other mineral oils, all forces of potential
3. Coal Energy energy, fisheries, forests or timber, wildlife, flora and fauna,
Read: and other natural resources are owned by the State. With the
exception of agricultural lands, all other natural resources
Presidential Decree No. 972 shall not be alienated. The exploration, development, and
Presidential Decree No. 1174 utilization of natural resources shall be under the full control
and supervision of the State. The State may directly
4. Alternative and Renewable Energy undertake such activities, or it may enter into co-production,
Read: joint venture, or production-sharing agreements with Filipino
Republic Act No. 7156 citizens, or corporations or associations at least 60 per
Executive Order No. 462 centum of whose capital is owned by such citizens. Such
Executive Order No. 232 agreements may be for a period not exceeding twenty-five
Mining years, renewable for not more than twenty-five years, and
under such terms and conditions as may provided by law. In
Please see IV.E below. cases of water rights for irrigation, water supply, fisheries, or
industrial uses other than the development of waterpower,
Midstream Energy Industry – Power Generation and beneficial use may be the measure and limit of the grant.
Distribution The State shall protect the nations marine wealth in its
archipelagic waters, territorial sea, and exclusive economic
1. Power Generation Sector zone, and reserve its use and enjoyment exclusively to
Filipino citizens.
The Congress may, by law, allow small-scale utilization of
Independent Power Producers natural resources by Filipino citizens, as well as cooperative
fish farming, with priority to subsistence fishermen and fish
Read: ● The Guide to Financing Power Projects, Baker & workers in rivers, lakes, bays, and lagoons.
Mckenzie, pp. 21-37. The President may enter into agreements with foreign-owned
corporations involving either technical or financial assistance
● Administrative Order No. 10, May 26, 2001, Office of the for large-scale exploration, development, and utilization of
President minerals, petroleum, and other mineral oils according to the
general terms and conditions provided by law, based on real
● R.A. No. 8975, Prohibiting Injunctions and TROs contributions to the economic growth and general welfare of
Project Documentation the country. In such agreements, the State shall promote the
development and use of local scientific and technical
Read: The Guide to Financing Power Projects, Baker & resources.
Mckenzie, pp. 37-65. The President shall notify the Congress of every contract
entered into in accordance with this provision, within thirty
Philippine Power Industry days from its execution.
Read: Republic Act No. 9136, “Electric Power Industry
Reform Act of 2001”

Case Study PRESIDENTIAL DECREE NO. 87 (1972)

1|Project Development_Cha Mendoza

PRESIDENTIAL DECREE No. 87
AMENDING PRESIDENTIAL DECREE NO. 8 ISSUED ON
OCTOBER 2, 1972, AND PROMULGATING AN
AMENDED ACT TO PROMOTE THE DISCOVERY AND PRO
DUCTIONOF INDIGENOUS PETROLEUM AND
APPROPRIATE FUNDS THEREFOR
WHEREAS, Presidential Decree No. 8 dated October 2, 1972
was issued to promote the discovery and development of
the country's indigenous petroleum resources and adopting
therefore as part of the law of the land the provisions of
Senate Bill No. 531
(An Act to Promote the Discovery, Production of Indigeno
us Petroleum and Appropriate Funds Therefor);
WHEREAS, it was found necessary for the national interest to
amend Senate Bill No. 531 among others things to provide
more meaningful incentives to prospective service
contractors.
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, by virtue of the powers vested in me by the
Constitution as Commander-in-Chief of all the Armed Forces of
the Philippines, and pursuant to Proclamation No. 1081, dated
September 21, 1972, and General Order No. 1, dated
September 22, 1972, as amended, do hereby amend
Presidential Decree No. 8 as follows:
AN ACT TO PROMOTE THE DISCOVERY AND PRODUCTIO
N OF INDIGENOUS PETROLEUM, AND APPROPRIATING
FUNDS THEREFOR.
Section 1. Short title. This Act shall be known and may be
cited as "THE OIL EXPLORATION AND DEVELOPMENT ACT OF
1972."
Section 2. Declaration of policy. It is hereby declared to be
the policy of the State to hasten
the discovery and production of indigenous petroleum th
rough the utilization of government and/or private resources,
local and foreign, under the arrangements embodied in
this Act which are calculated to yield the maximum benefit to
the Filipino people and the revenues to the Philippine
Government for use in furtherance of national economic
development, and to assure just returns to participating
private enterprises, particularly those that will provide the
necessary services, financing and technology and fully
assume all exploration risks.
Section 3. Definition of terms. As used in this Act, the
following shall have the following respective meanings:
(a) "Petroleum" shall include any mineral oil hydrocarbon
gas, bitumen, asphalt, mineral gas and all other similar or
naturally associated substances with the exception of coal,
peat, bituminous shale and/or other stratified mineral fuel
deposits.
(b) "Crude oil" or "crude" means oil in its natural state before
the same has been refined or otherwise treated. It does not
include oil produced through destructive distillation of coal,
bituminous shales or other stratified deposits, either in its
national state or after the extraction of water, and sand or
other foreign substances therefrom.
(c) "Natural gas" means gas obtained from boreholes and
wells and consisting primarily of hydrocarbons.
(d) "Petroleum operations" means searching for and
obtaining petroleum within the Philippines through drilling
and pressure or suction or the like, and all other operations
incidental thereto. It includes the transportation, storage,
handling and sale (whether for export or for domestic
consumption) of petroleum so obtained but does not include
any: (1) transportation of petroleum outside the Philippines;
(2) processing or refining at a refinery; or (3) any transactions
in the products so refined.
(e) "Petroleum in commercial quantity" means petroleum in
such quantities which will permit its being economically
developed as determined by the contractor after taking into
consideration the location of the reserves, the depths and
number of wells required to be drilled and the transport and
terminal facilities needed to exploit the reserves which have
been discovered.
(f) "Posted price" refers to the FOB price established by the
2|Project Development_Cha Mendoza
Contractor in consultation with the Petroleum Board for each
grade, gravity and quality of crude oil offered for sale to
buyers generally for export at the particular point of export,
which price shall be based upon geographical location, and
the fair market export values for crude oil of comparable
grade, gravity and quality.
(g) "Market Price" shall mean the price which would be
realized for petroleum produced under a contract as
hereinafter defined if sold in a transaction between
independent persons dealing at arm's length in a free market.
(h) "Barrel" means 42 U.S. gallons or 9702 cubic inches at
temperature of 60º Fahrenheit.
Any reference in this Act to the value of any crude oil at the
posted price or market price shall be construed as a reference
to the amount obtained by multiplying the number of barrels
of that crude oil by the posted price or market price per barrel
applicable to that crude oil.
(i) "Crude oil exported" shall include not only crude oil
exported as such but also indigenous crude oil refined in the
Philippines for export.
(j) "Government" means the Government of the Republic of
the Philippines.
(k) "Contractor" means the contractor in a service contract
whether acting alone or in consortium with others.
(l) "Contract" refers to a service contract.
(m) "Filipino participation incentive" means the allowance
which may be given the Contractor with Filipino participation
as provided in Section 28 hereof.
(n) "Philippine corporation" means a corporation organized
under Philippine laws at least sixty per cent of the capital of
which is owned and held by citizens of the Philippines.
(o) "Affiliate" means (a) a company in which a contractor
holds directly or indirectly at least fifty per cent of its
outstanding shares entitled to vote; (b) a company which
holds directly or indirectly at least fifty per cent of the
contractor's outstanding shares entitled to vote; or (c) a
company in which at least fifty per cent of its share
outstanding and entitled to vote are owned by a company
which owns directly or indirectly at least fifty per cent of the
shares outstanding and entitled to vote of the contractor.
(p) "Gross income" means the gross proceeds from the sale of
crude, natural gas or casinghead petroleum spirit produced
under the contract and sold during the taxable year at posted
or market price, as the case may be, and such other income
which are incidental to and arising from any one or more of
the petroleum operations of the contractor.
(q) "Taxable net income" means the gross income less the
deductions allowed in this Act.
(r) "Taxable year" means the calendar or fiscal year of the
contractor.
(s) "Casinghead petroleum spirit" means any liquid
hydrocarbon obtained from natural gas by separation or by
any chemical or physical process.
(t) "Petroleum Board" refers to the Petroleum Board
created in Section seventeen of this Act.
(u) "Operating Expenses" means the total expenditures
for petroleum operations made by the Contractor both within
and without the Philippines as provided in a service contract.
Section 4. Government may
undertake petroleum exploration and production. Subject
to the existing private rights, the Government may directly
explore for and produceindigenous petroleum. It may also
indirectly undertake the same under service contracts as
hereinafter provided. These contracts may cover free areas,
national reserve areas and/or petroleum reservations, as
provided for in the Petroleum Act of 1949, whether on-shore
or off-shore. In every case, however, the contractor must be
technically competent and financially capable as determined
by the Board to undertake the operations required in the
contract.
Section 5. Execution of contract authorized in this Act. Every
contract herein authorized shall, subject to the approval of the
President, be executed by the Petroleum Board created in
this Act, after due public notice pre-qualification and public
bidding or concluded through negotiations. In case bids are
requested or if requested no bid is submitted or the bids
submitted are rejected by the Petroleum Board for being
disadvantageous to the Government, the contract may be
concluded through negotiation.
In opening contract areas and in selecting the best offer
for petroleum operations, any of the following alternative
procedures may be resorted to by the Petroleum Board,
subject to prior approval of the President:
(a) The Petroleum Board may select an area or areas and
offer it for bid, specifying the minimum requirements and
conditions; or
(b) The Petroleum Board may open for bidding a large area
wherein bidders may select integral areas not larger than the
maximum provided in this Act. Only the best offer shall be
accepted and the selection thereon shall be made by a
weighted system of evaluating the different aspects of each
bid; or
(c) An area may be selected by an interested party who shall
negotiate with the Petroleum Board for a contract under the
terms and conditions provided in this Act.
Section 6. Nature of service contract. In a service contract,
service and technology are furnished by the service
contractor for which it shall be entitled to the stipulated
service fee while financing is provided by the Government to
which all petroleum produced shall belong.
Section 7. Special stipulation in service contract. Where the
Government is unable to finance petroleum exploration
operations or in order to induce the contractor to exert the
maximum efforts to discover and produce petroleum as soon
as possible, the service contract shall stipulate that if the
contractor shall furnish services, technology and financing,
the proceeds of sale of the petroleum produced under the
contract shall be the source of funds for payment of the
service fee and the operating expenses due the contractor.
Section 8. Obligation of contractor in service contract. The
arrangement pursuant to the preceding section seven shall be
such that the contractor, which may be a consortium, shall
undertake, manage and execute petroleum operations. The
contract may authorize the contractor to take and dispose of
and market either domestically or for export
allpetroleum produced under the contract subject to
supplying the domestic requirements of the Republic of the
Philippines on a pro-rata basis. The Government shall oversee
the management of the operations contemplated in the
contract and in this connection shall require the contractor to
—
(a) Provide all necessary services and technology;
(b) Provide the requisite financing;
(c) Perform the exploration work obligations and program
prescribed in the agreement between the Government and
the Contractor, which may be more but shall not be less than
the obligations prescribed in this Act;
(d) Once petroleum in commercial quantity is discovered,
operate the field on behalf of the Government in accordance
with accepted good oil field practices using modern and
scientific methods to enable maximum
economic production of petroleum; avoiding hazards to life,
health and property; avoiding pollution of air, land and waters;
and pursuant to an efficient and economic program of
operation;
(e) Assume all exploration risks such that if no petroleum in
commercial quantity is discovered and produced, it will not be
entitled to reimbursement;
(f) Furnish the Petroleum Board promptly with geological and
other information, data and reports which it may require;
(g) Maintain detailed technical records and accounts of its
operations;
(h) Conform to regulations regarding, among others, safety,
demarcation of agreement acreage and work areas, non-
interference with the rights of other petroleum, mineral and
natural resources operators;
(i) Maintain all meters and measuring equipment in good
order and allow access to these as well as to the exploration
3|Project Development_Cha Mendoza
and production sites and operations to inspectors authorized
by the Petroleum Board;
(j) Allow examiners of the Bureau of Internal Revenue and
other representatives authorized by the Petroleum Board full
access to their accounts, books and records, for tax and other
fiscal purposes; and
(k) Be subject to Philippine income tax.
On the other hand, the Petroleum Board shall —
(1) On behalf of the Government, reimburse the Contractor for
all operating expenses not exceeding seventy per cent of the
gross proceeds from production in any year: Provided, That
if in any year the operating expenses exceeds seventy per
cent of gross proceeds from production, then the unrecorded
expenses shall be recovered from the operations of
succeeding years.
(2) Pay the Contractor a service fee the net amount of which
shall not exceed forty per cent of the balance of the gross
income after deducting the Filipino participation incentive, if
any, and all operating expenses recovered pursuant to
Section 8 (1) above.
(3) Reimbursement of operating expenses and payment of the
service fee shall be in such form and manner as provided for
in the contract.
Section 9. Minimum terms and conditions. — In addition to
those elsewhere provided in this Act, every contract executed
in pursuance hereof shall contain the following minimum
terms and conditions:
(a) Every contractor shall be obliged to spend in direct
prosecution of exploration work and in delineation and
development following the discovery of oil in commercial
quantity not less than the amounts provided for in the
contract between the Government and the contractor and
these amounts shall not be less than the total obtained by
multiplying the number of hectares covered by the contract
by the following amounts for hectare:
Period On-shore Of-shore
Year 1 P3.00 P3.00
Year 2 3.00 3.00
Year 3 3.00 6.00
Year 4 3.00 6.00
Year 5 3.00 6.00
Year 6 9.00 18.00
Year 7 9.00 18.00
Year 8 9.00 18.00
Year 9 9.00 18.00
Year 10 9.00 18.00
Provided, That if during any contract year the Contractor shall
spend more than the amount of money required to be spent,
the excess may be credited against the money required to be
spent by the Contractor during the succeeding contract years:
Provided, further, That in case the same Contractor holds two
or more areas under different contracts of service, the total
amount of work obligations for exploration required for the
initial term of all contracts may be spent within any one or
more of them as if they are covered by a single contract of
service: Provided, further, That should the Contractor fail to
comply with the work obligations provided for in the contract,
it shall pay to the Government the amount it should have
spent but did not in direct prosecution of its work obligations:
Provided, finally, That the Contractor shall drill a minimum
footage of test wells before the end of periods of time as may
be specified in the contract with the PetroleumBoard in order
to be entitled to the extension of the exploration period for 3
years as provided for in paragraph (e) herein.
(b) In case the contractor renounces or abandons wholly or
partly the area covered by his contract within two years from
its effective date, it shall in respect of the abandoned area
pay the Government the amount it should have spent, but did
not, for exploration work during said two years, for which
payment, among other obligations, the performance
guarantee posted by the contractor shall be answerable.
(c) Every contract shall provide for the compulsory
relinquishment of at least twenty-five per cent of the initial
area at the end of five years from its effective date and in the
event of an extension of the contract from seven to ten years,
an additional relinquishment of at least twenty-five per cent of
the initial area at the end of seven years from its effective
date. But the portion already delineated as production area
pursuant to the succeeding paragraph shall not be taken into
account in ascertaining the extent of relinquishment required.
Any area renounced or abandoned under Sec. 9(b) above shall
be credited against the portion of the area subject to the
contract which is required to be surrendered hereunder.
(d) The Contractor shall, from the discovery of petroleum in
commercial quantity, delineate the production area within
the period agreed upon in the contract.
(e) The exploration period under every contract shall be seven
years, extendible for three years if the contractor has not
been in default in its exploration work obligations and other
obligations after which the contract shall lapse
unless Petroleum has been discovered by the end of the
tenth year and the contractor for requests a further extension
of one year to determine whether it is in commercial quantity,
in which event, another extension of one year for exploration
may be granted. If Petroleum in commercial quantity has
been discovered, the Contractor may retain after the
exploration period and during the effectivity of the Contract
twelve and one-half per cent of the initial area in addition to
the delineated production area: Provided, however, That the
contractor shall pay annual rentals on such retained area
which shall not be less than ten pesos per hectare or fraction
thereof for on-shore areas and not less than twenty pesos as
determined by the Petroleum Board per hectare or fraction
thereof for off-shore areas: Provided, further, That such
rentals can be offset against exploration expenditures actually
spent on such area.
(f) Where petroleum in commercial quantity is discovered
during the exploration period in any area covered by the
contract, the contract with respect to said area shall remain in
force forproduction purposes during the balance of the ten
year exploration period and for an additional period of twenty-
five years, thereafter renewable for a period not exceeding
fifteen years under such terms and conditions as may be
agreed upon by the parties at the time of renewal.
(g) All materials, equipment, plants and other installations
erected or placed on the exploration and/or production area
of a movable nature by the contractor shall remain properties
of the contractor unless not removed therefrom within one
year after the termination of the contract.
(h) The contractor shall be subject to the provisions of laws of
general application relating to labor, health, safety, and
ecology insofar as they are not in conflict with the provisions
otherwise contained in this Act.
(i) Every contract executed in pursuance of this Act shall
contain provisions regarding the discovery, production, sale
and disposal of natural gas and casinghead petroleum spirit
that shall be in line with the rules herein prescribed for crude
oil except that:
(1) The market price shall be the basis for tax and all other
purposes;
(2) After meeting requirements in secondary recovery
operations priority shall be given to supplying prospective
demand in the Philippines.
Section 10. Contract areas. Subject to Section eighteen
hereof, a contractor or its affiliate may enter into one or more
contracts with the Government. Contracts for off-shore areas
4|Project Development_Cha Mendoza
may cover any portion beneath the Philippine territorial
waters or its continental shelf, or portion of the continental
slope, terrace or areas which are or may be subject to
Philippine jurisdiction: Provided, That for off-shore areas
beyond water depths of 200 meters, the Petroleum Board
may provide for more liberal terms than that provided for
herein with respect to contract areas, exploration period and
relinquishment.
Section 11. Transfer and assignment. The rights and
obligations under a contract executed under this Act shall not
be assigned or transferred without the prior approval of
the Petroleum Board: Provided, That with respect to the
transfer or assignment of contractual rights and obligations
under this Act to an affiliate of the transferor, the approval
thereof by the Petroleum Board shall be automatic, if the
transferee is as qualified as the transferor to enter into such
contract with the Government: Provided, further, That the
affiliate relationships between the original transferor or a
company which holds at least fifty per cent of the contractor's
outstanding shares entitled to vote and each transferee shall
be maintained during the existence of the contract.
Section 12. Privileges of contractor. The provisions of any
law to the contrary notwithstanding, a contract executed
under this Act may provide that the contractor shall have the
following privileges:
(a) Exemption from all taxes except income tax.
(b) Exemption from payment of tariff duties and
compensating tax on the importation of machinery and
equipment, and spare parts and all materials required
for petroleum operations subject to the conditions that said
machinery, equipment, spare parts and materials of
comparable price and quality are not manufactured
domestically; and directly and actually needed and will be
used exclusively by the contractor in its operations or in
operations for it by a subcontractor are covered by shipping
documents in the name of the contractor to whom the
shipment will be delivered direct by the customs authorities;
and prior approval of the Petroleum Board was obtained by
the contractor before the importation of such machinery,
equipment, spare parts and materials which approval shall not
be unreasonably withheld: Provided, however, That the
contractor or its subcontractor may not sell, transfer or
dispose of these machinery, equipment, spare parts and
materials without the prior approval of the Petroleum Board
and payment of taxes due the Government: Provided, further,
That should the contractor or its subcontractor sell, transfer or
dispose of these machinery equipment, spare parts or
materials without the prior consent of the Petroleum Board,
it shall pay twice the amount of the tax exemption granted:
Provided, finally That the Petroleum Board shall allow and
approve the sale, transfer, or disposition of the said items
without tax if made (1) to another contractor; (2) for reasons
of technical obsolescence; or (3) for purposes of replacement
to improve and/or expand the operations of the contract;
(c) Exemption upon approval by the Petroleum Board from
laws, regulations and/or ordinances restricting the (1)
construction, installation, and operation of power plant for the
exclusive use of the contractor if no local enterprise can
supply within a reasonable period and at reasonable cost the
power needed by the contractor in its petroleum operations,
(2) exportation of machinery and equipment which were
imported solely for its petroleum operation when no longer
needed therefor;
(d) Exemption from publication requirements under
Republic Act Numbered Five thousand four hundred fifty-five;
and the provisions of Republic Act Numbered Sixty-one
hundred and seventy-three with respect to the
exploration, production, exportation or sale or disposition of
crude oil discovered and produced in the Philippines;
(e) Exportation of petroleum subject to the prior filing pro-
rata of domestic needs as elsewhere provided in this Act;
(f) Entry, upon the sole approval of the Petroleum Board
which shall not be unreasonably withheld, of alien technical
and specialized personnel (including the immediate members
of their families), who may exercise their professions solely
for the operations of the contractor as prescribed in its
contract with the Government under this Act: Provided, That
if the employment or connection of any such alien with
contractor ceases, the applicable laws and regulations on
immigration shall apply to him and his immediate family:
Provided, further, That Filipinos shall be given preference to
positions for which they have adequate training: And
provided, finally, That the contractor shall adopt and
implement a training program for Filipinos along technical or
specialized lines, which program shall be reported to
the Petroleum Board;
(g) Rights and obligations in any contract concluded pursuant
to this Act shall be deemed as essential considerations for the
conclusion thereof and shall not be unilaterally changed or
impaired; and
(h) The privileges and benefits granted to a contractor under
the provisions of this Act together with any applicable
obligations shall likewise be made available to
concessionaires under thePetroleum Act of 1949 and their
authorized contractors and/or service operators, whether local
or foreign, if they so elect.
Section 13. Repatriation of capital and retention of profits
abroad. The contractor shall be entitled to (1) repatriate over
a reasonable period the capital investment actually brought
into the country in foreign exchange or other assets and
registered with the Central Bank; (2) retain abroad all foreign
exchange representing proceeds arising from exports
accruing to the contractor over and above (a) the foreign
exchange to be converted into pesos in an amount sufficient
to cover, or equivalent to, the local costs for administration
and operations of the exported crude and (b) Revenues due
the Government on such crude: Provided, however, That the
Government and the contractor shall stipulate in the contract
the currency in which the Government revenues arising under
(b) above are to be paid; (3) convert into foreign exchange
and remit abroad at prevailing rates no less favorable to
Contractor than those available to Contractor than those
available to any other purchaser of foreign currencies, any
excess balances of their peso earnings
from petroleum production and sale over and above the
current working balances they require, and (4) convert foreign
exchange into Philippine currency for all purposes in
connection with its petroleum operations at prevailing rates
no less favorable to contractor than those available to any
other purchaser of such currency.
Section 14. Full disclosure of interest in contractor. Interest
held in the contractor by domestic mining
and petroleum companies and/or the latter's stockholders
may be allowed to any extent after full disclosure thereof to,
and approved by the Petroleum Board.
Section 15. Arbitration. The Petroleum Board may stipulate
in a contract executed under this Act that disputes in the
implementation thereof between the Government and the
contractor may be settled in accordance with generally
accepted international arbitration practice.
Section 16. Performance guarantee. In order to guarantee
compliance with the obligations of the contractor in contracts
executed under this Act, the contractor shall post a bond or
other guarantee of sufficient amount in favor of the
Government and with surety or sureties satisfactory to
the Petroleum Board, conditioned upon the faithful
performance by the contractor of any or all of the obligations
under and pursuant to said contracts.
IMPLEMENTING AGENCY
Section 17. There is hereby created a Petroleum Board
composed of the Secretary of Agriculture and Natural
Resources, as Chairman, and the Secretary of Finance, the
Secretary of Justice, the Chairman of the Board of
Investments, the Governor of the Central Bank, the Secretary
of Trade and Tourism and the Director of Mines as
members. The Director of Mines shall be its Executive Officer.
The Board shall be attached to the National Economic
Development Authority.
5|Project Development_Cha Mendoza
Section 18. Functions of Petroleum Board. In accordance
with the provisions and objectives of this Act,
the Petroleum Board shall:
(a) Define and give public notice when applicable of the areas
available for service contract;
(b) Enter into contracts herein authorized with such terms and
conditions as may be appropriate under the circumstances
including the grant of special allowance: Provided, however,
That no depletion allowance shall be granted: Provided,
further, That except as provided in Sections twenty-six and
twenty-seven hereof, no contract in favor of one contractor
and its affiliates shall cover less than fifty thousand nor more
than seven hundred and fifty thousand hectares for on-sphere
areas, or less than eighty thousand nor more than one million
five hundred thousand hectares for off-shore areas: Provided,
finally, That in no case shall the annual net revenue or share
of the Government, including all taxes paid by or on behalf of
the contractor, be less than sixty per cent of the difference
between the gross income and the sum of operating expenses
and Filipino participation incentive;
(c) Provide for the manner and form of the income tax
payment, the reimbursement of operating expenses, the
payment of service fee, and payment of Filipino participation
incentive allowance, if any, in the service contract;
(d) Make specific proposals to Congress for the grant of
subsidy to contractors and petroleum companies at least
sixty per cent of the capital of which is owned by Philippine
citizens, to be derived from the revenue or share that will
accrue to the Government in pursuance of this Act;
(e) Undertake intensive studies and researches on oil field
practices, procedures, and policies;
(f) Promulgate such rules and regulations as may be
necessary and assess charges for services rendered, to
implement the intent and provisions of this Act;
(g) Appoint, discipline and remove, and determine the
compensation of, its technical staff and other personnel:
Provided, That positions which are highly technical or
primarily confidential shall not be subject to the Civil Service
Laws and Rules, and of the Wage and Position Classification
Office;
(h) Within four months after the close of every fiscal year,
submit to the President and Legislature an annual report on
its activities, with appropriate recommendation; and
(i) Generally, exercise all powers necessary or incidental to
attain the objectives of this Act.
TAX PROVISIONS
Section 19. Imposition of tax. The contractor shall be liable
each taxable year for Philippine income tax on income derived
from its petroleum operations under its contract of service,
computed as provided in Section 20, through 25.
Section 20. Determination of gross income. The gross
income shall consist of:
(a) In respect of crude oil exported, the gross proceeds from
the sale of crude oil at the posted price;
(b) In respect of crude oil sold for consumption in the
Philippines, the gross income shall consist of the gross
proceeds from the sale thereof at market price per barrel;
(c) In respect of natural gas and/or
casinghead petroleum exported or sold for consumption in
the Philippines the gross income shall consist of the total
quantity sold at the prevailing market price thereof; and
(d) Such other income which are incidental to and/or arising
from any petroleum operation.
Section 21. Deductions from gross income. In computing the
taxable net income, there shall be allowed as deductions:
(1) Filipino participation incentive; and
(2) Operating expenses reimbursed pursuant to Section 8 (1)
which includes amortization and depreciation as provided in
Section 22.
Section 22. Amortization and Depreciation. Intangible
exploration costs may be deductible in full; all tangible
exploration costs such as capital expenditures and other
recoverable capital assets are to be depreciated for a period
of ten years.
Section 23. Deductions not allowed. In ascertaining the
taxable net income, no deduction from gross income shall be
allowed in respect of any interest or other consideration paid
or suffered in respect of the financing of
its petroleum operations.
Section 24. Return and payment of tax. Every party to a
service contract shall render to the Petroleum Board a return
for each taxable year in duplicate in such form and manner as
provided by law setting forth its gross income and the
deductions herein allowed. The return shall be filed by
the Petroleum Board with the Commissioner of Internal
Revenue or his deputies or other persons authorized by him to
receive such return within the period specified in the National
Internal Revenue Code and the Rules and Regulations
promulgated thereunder. Every party to a service contract
shall be subject to tax separately on its share of taxable
income arising from such contract.
Section 25. Applicability of the provisions of the National
Revenue Code. All provisions of the National Internal Revenue
Code and rules and regulations promulgated in relation
therewith which are not inconsistent with the provisions of
this Act shall be applicable to the Contractor.
SPECIAL PROVISIONS
Section 26. Option of exploration concessionaires. A holder
of a valid and subsisting petroleum exploration concession
under the Petroleum Act of 1949 may, at his option enter
into a contract of service under the rules of
the Petroleum Act of 1949, subject to constitutional
restrictions, with any local or foreign oil company under such
terms and conditions as may be agreed upon by the
concessionaire and the service contractor. As an alternative
the concessionaire may convert his concession into a service
contract as provided in this Act through negotiations, with all
the rights and privileges herein authorized: Provided, That the
contract which may be concluded after said negotiation shall
contain at least the minimum terms and conditions provided
in this Act and shall take into account terms and conditions
more favorable to the Government contained in contracts
involving exploration pursuant to this Act: Provided, further,
That the exploration period shall commence to run from the
effective date of the original concession, except when the
concession has been effective for a period of seven years or
more, in which case the contractor shall be required to
commence exploratory drilling operations within a period of
not exceeding eighteen months from the date of effectivity of
the service contract. If the contractor is not in default in the
drilling operations as hereunder required, an extension of the
exploration period may be granted as provided in Section
nine, paragraph (e) of this Act.
Section 27. Alternative option of exploration
concessionaire. The concessionaire referred to in the
preceding section may form a consortium with another
company or companies and jointly enter into a service
contract with the Government under this Act, with the right to
assign to the consortium, subject to the approval of
the Petroleum Board, the area covered by his concession
which shall thereupon be governed by the provisions of
this Act: Provided, That the voluntary relinquishment of the
concession and its assignment, as well as all technical data on
the area resulting from studies conducted by the
concessionaire subsisting improvement introduced by him
thereon, shall be evaluated and given a fair value which may
constitute his contribution, wholly or in part, to the
consortium: Provided, however, That the exploration period
under the new contract shall commence to run from the date
of the effectivity of the contract if it covers areas in addition
to the assigned areas; otherwise the provisions of the
preceding section shall apply: Provided, further, That duly
published applications, for exploration concessions or bids
therefor already awarded by the Secretary of Agriculture and
Natural Resources under the provisions of
the Petroleum Act of 1949 shall be recognized and the
corresponding deeds of concessions issued accordingly:
Provided, finally, That exploration concessions on which the
holder thereof failed to perform the three consecutive years
6|Project Development_Cha Mendoza
the exploration work required under the provisions of
the Petroleum Act of 1949, as amended by
Republic Act Numbered Five Thousand Eighty-Six shall be
considered automatically cancelled.
Section 28. Filipino Participation Incentive. The contractor
under a service contract in which Philippine citizens or
corporations have a minimum participating interest of fifteen
per cent in the contract area may be subject to reasonable
conditions imposed by the Petroleum Board be granted by a
government subsidy, commensurate with the scope of Filipino
participation, i.e., a Filipino participation incentive, not
exceeding seven and one-half per cent, which shall be
computed by deducting the said allowance from the posted or
market price, whichever, is the higher, of crude oil exports
produced in the contract area, and from the market price of
crude oil produced in the contract area, sold or disposed of for
consumption in the Philippines.
Section 29. Publicity. Negotiation with the Government for
the conclusion of a contract under this Act and every contract
concluded hereunder shall be given publicity consistent with
the best interest of the Government.
Section 30. Provisions of Petroleum Act applicable. The
provisions of the Petroleum Act of 1949, as amended, shall
not be applicable to the service contract provided in this Act,
except the following Articles:
(a) Article 16, referring to public easements on lands covered
by concessions;
(b) Article 17, providing that petroleum operations are
subject to existing mining rights, permits, leases and
concessions in respect of substances other
than petroleum and to existingpetroleum rights;
(c) Article 18, referring to the right of the Government to
establish reservations or grant mining rights
on petroleum concessions;
(d) Article 20, granting exploration and exploitation
concessionaires the right to enter private lands covered by
their concessions;
(e) Article 21, referring to easement and the exercise of the
right of eminent domain over private lands for the purpose of
carrying out any work essential to petroleum operations;
(f) Article 22, providing for easements over public land for the
purpose of carrying out any work essential
to petroleum operations; and
(g) Article 23, which grants concessionaires the right to utilize
for any of the work to which the concession relates, timber,
water, and clay from any public lands within their
concessions.
Section 31. Preference to Local Labor. The Contractor shall
give priority in employment to qualified personnel in the
municipality or municipalities or province where the
exploration or productionoperations are located.
Section 32. Foreign Assistance. Nothing in this Act or of any
other law shall preclude the Government of the Republic of
the Philippines, through the Petroleum Board or any other
proper office or agency, from negotiating or entering into any
agreement with any foreign country or government for
assistance in terms of equipment, technical know-how and
financing for the exploration
andproduction of indigenous crude oil and its by-products.
Section 33. Funds. To carry out the purpose of this Act,
there is hereby appropriated, out of any funds in the National
Treasury not otherwise appropriated, the sum of five hundred
thousand pesos for the fiscal year nineteen hundred seventy-
three. Hereafter, the necessary appropriations shall be
included in subsequent General Appropriations Act.
Section 34. Repealing Clause. All laws, executive orders and
regulations inconsistent with the provisions of this Act are
hereby repealed, provided that no existing rights shall be
prejudiced thereby.
Section 35. Effectivity date. This Act shall take effect upon
its approval.
Done in the City of Manila, this thirty first day of December, in
the year of Our Lord, nineteen hundred and seventy-two.

EXECUTIVE ORDER NO. 66 (DESIGNATING DOE AS LEAD
AGENCY FOR DEVELOPMENT OF PHILIPPINE
NATURAL GAS INDUSTRY)
Executive Order No. 66
DESIGNATING THE DEPARTMENT OF ENERGY AS THE
LEAD AGENCY IN DEVELOPING THE PHILIPPINE
NATURAL GAS INDUSTRY
WHEREAS, the Malampaya Gas-to-Power Project, the largest
and most important investment of its kind in the Philippine
history, represents the beginning of the Natural Gas Industry
in the Philippines;
WHEREAS, the development of the Natural Gas Industry shall
signal the much awaited boost to the economy by opening up
vast opportunities both for the government and the private
sector;
WHEREAS, Section 2 of R.A. 7638 otherwise known as the
“Department of Energy Act of 1992,” declares, among others,
that it is the policy of the State to ensure a continuous,
adequate and economic supply of energy with the end in view
of ultimately achieving self-reliance in the country’s energy
requirements through the integrated and intensive
exploration, production, management and development of the
country’s indigenous energy resources, without sacrificing
ecological concerns;
WHEREAS, Sections 4, 5(a) and 5(b) of R.A. 7638 provide that
the Department of Energy (DOE) is mandated to formulate
policies for the planning and implementation of a
comprehensive program for the efficient supply and
economical use of energy consistent with the approved
national economic plan, and to provide a mechanism for the
integration, rationalization and coordination of the various
energy programs of the Government with a preferential bias
for environment-friendly, indigenous and low-cost sources of
energy;
WHEREAS, Section 5(c) of R.A. 7638 mandates the DOE to
establish and administer programs for the exploration,
transportation, marketing, distribution, utilization,
conservation, stockpiling and storage of energy resources of
all forms, whether conventional or non-conventional;
WHEREAS, Section 5(e) of R.A. 7638 authorizes the DOE to
regulate private sector activities relative to energy projects
provided it shall provide for an environment conducive to free
and active private sector participation and investment in all
energy activities;
WHEREAS, natural gas has been recognized as an
environment-friendly, indigenous and low-cost source of
energy among the indigenous energy resources;
WHEREAS, the critical nature of developing the Natural Gas
Industry necessitates the involvement and support of various
government agencies to ensure a unified and coordinated
effort towards establishing a successful and robust Natural
Gas Industry;
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President
of the Philippines, by virtue of the powers vested in me by
law, do hereby order:
SECTION 1. The Department of Energy is hereby designated
as the lead government agency in ensuring a unified and
coordinated effort towards establishing a successful and
robust Natural Gas Industry;
7|Project Development_Cha Mendoza
SEC. 2. Pursuant to its mandate, the Department of
Energy shall recommend and/or issue appropriate policy
statements, industry rules and guidelines and other issuances
in order to facilitate and encourage private sector activities,
investments and participation in the natural gas industry;
SEC. 3. The Department of Energy may call upon any
department, agency or instrumentality of the Government for
assistance to ensure the development of the Natural Gas
Industry and shall have the authority to retain the services of
technical consultants of proven and internationally recognized
expertise in natural gas technology as may be deemed
necessary;
SEC. 4. All Other Government Agencies shall assist and
cooperate with the Department of Energy as may be
necessary to develop and implement the programs for the
natural gas industry.
SEC. 5. Funds. – The funding requirements to carry out these
tasks shall be chargeable against the savings from the
appropriations of the Department for the first year of
implementation of this Order. Funds for succeeding years
shall be chargeable against the regular appropriations of
the Department;
SEC. 6. Effectivity. – This Order shall take effect immediately.
Done in the city of Manila this 18th day of January, in the year
of Our Lord, two thousand and one.
Pasted from
<http://www.oocities.com/collegepark/center/3660/eo66.htm
>
Case Study: The Malampaya Deep Water Gas to Power Project
PRESIDENTIAL DECREE NO. 1442
PRESIDENTIAL DECREE No. 1442
AN ACT TO PROMOTE THE EXPLORATION AND
DEVELOPMENT OF GEOTHERMAL RESOURCES
WHEREAS, it is necessary for the economic and industrial
development of the country to reduce our dependence on
imported energy supplies and accelerate the development of
geothermal resources which have been identified as a viable
and untapped economical source of energy;
WHEREAS, it is in the national interest to allow service
contracts for financial, technical, management or other forms
of assistance with qualified domestic and foreign entities, for
the exploration, development, exploitation, or utilization of
the country's geothermal resources;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, by virtue of the powers vested in me by the
Constitution of the Philippines, do hereby order and decree as
follows:
Section 1. Exploration of and Development of Geothermal
Resources by the Government. Subject to existing private
rights, the Government may directly explore for, exploit and
develop geothermal resources. It may also indirectly
undertake the same under service contracts awarded through
public bidding or concluded through negotiation, with a
domestic or foreign contractor who must be technically and
financially capable of undertaking the operations required in
the service contract; Provided, that if the service contractor
shall furnish the necessary services, technology and financing,
the service contractor may be paid a fee not exceeding forty
per centum (40%) of the balance of the gross value of the
geothermal operations after deducting the necessary
expenses incurred in the operations; Provided, further, that
the execution of the activities and operations subject of the
service contract, including the implementation of the work Section 5. Exploitation Permits. In cases where discovered
program and accounting procedures agreed upon, shall at all geothermal resources are deemed inappropriate for service
times be subject to direct supervision of the Government, contracts arrangements in view of economic and/or technical
through the Bureau of Energy Development. reasons, the Bureau of Energy Development may issue
Service contracts as above authorized shall be subject to the development and exploitation permits for such resources and
approval of the Secretary of Energy. formulate the applicable rules and regulations to govern the
Geothermal resources mean (a) all products of geothermal same.
processes, embracing indigenous steam, hot water and hot Section 6. Rules and Regulations. The Director of Energy
brines; (b) steam and other gases, hot water and hot brines Development shall be vested with the authority to promulgate
resulting from water, gas, or other fluids artificially introduced such rules and regulations as may be necessary to implement
into geothermal formations; (c) heat or other associated the provisions of this Act, subject to approval by the Secretary
energy found in geothermal formations; and (d) any by- of Energy.
product derived from them. Section 7. Repealing Clause. The provisions of Republic Act
Section 2. Geothermal Contract Areas. Service contracts, as No. 5092 and other laws, rules and regulations inconsistent
herein authorized, may cover public lands, government with this Decree are hereby repealed.
geothermal reservations, including those presently Section 8. Effectivity. This Decree shall take effect
administered or unappropriated areas, as well as areas immediately upon approval.
covered by exploration permits or leases granted under Done in the City of Manila, this 11th day of June, in the year of
Republic Act No. 5092. Our Lord, nineteen hundred and seventy-eight.
Service contracts for exploration and development of
geothermal resources may also cover private lands, or other Pasted from
lands subject of agricultural, mining, petroleum or other rights <http://www.lawphil.net/statutes/presdecs/pd1978/pd_1442_1
or devoted to purposes other than the exploration or use of 978.html>
geothermal energy; Provided, that the right to enter private
lands, and to established easements over such lands shall, in
the absence of a voluntary agreement with the private
landowner, upon application of the contractor to the Court of
First Instance of the province or the municipal court of the PRESIDENTIAL DECREE NO. 972
municipality where the land is situated, and upon posting of
Manila
the necessary bond as may be fixed by the same court, be
PRESIDENTIAL DECREE No. 972 July 28, 1976
allowed by the court subject to payment of reasonable
PROMULGATING AN ACT TO PROMOTE AN
compensation.
ACCELERATED EXPLORATION, DEVELOPMENT,
Section 3. Conversion of Geothermal Exploration Permits and
EXPLOITATION, PRODUCTION AND UTILIZATION
Leases to Service Contract. Holders of valid and subsisting
OF COAL
geothermal exploration permits and geothermal leases
WHEREAS, the increasing cost of imported crude oil
granted by the Government prior to January 17, 1973,
imposes an unduly heavy demand on the country's
pursuant to Republic Act No. 5092, shall enter into service
international reserves thereby making it imperative for
contracts as herein provided relative to the areas covered by
the government to pursue actively the exploration,
their respective permits or leases within six months from the
development and exploitation of indigenous energy
effective date of this Decree; and, in default thereof, the
resources;
geothermal exploration permits and geothermal leases shall
WHEREAS, while coal has been identified as a fossil fuel
be deemed automatically canceled and the area covered
known to exist in mineable quantities in the country
thereby shall revert back to the State.
which could provide a viable energy source for some
All geothermal exploration permit application filed under
vital industries, large tracts of coalbearing lands have
Republic Act No. 5092 shall be deemed withdrawn and no
not been explored and mined in a manner and to an
effect as of the effective date of this Decree.
extent adequate to meet the needs of the economy;
Section 4. Privileges of Service Contractors. The provisions of
WHEREAS, the proliferation of fragmented coal permits
any law to the contrary notwithstanding, a service contract
and leases has prevented, or deterred, the adequate
executed under this Act may provide that the contractor shall
and speedy exploration, development, exploitation and
have the following privileges:
production of indigenous coal resources;
(a) Exemption from payment of tariff duties and
WHEREAS, to develop, achieve and implement a well-
compensating tax on the importation of machinery and
planned, systematic and meaningful exploration,
equipment, and spare parts and all materials required for
development, exploitation and production of local coal
geothermal operations subject to such conditions as may be
resources, participation of the private sector with
imposed by the Director of Energy Development; Provided,
sufficient capital, technical and managerial resources
that should the contractor or its sub-contractor sell, transfer
must be encouraged and the technical and financial
or dispose of the machinery, equipment, spare parts or
capabilities of the coal industry upgraded;
materials without the prior consent of the Bureau of Energy
WHEREAS, hand in hand with an accelerated coal
Development, it shall pay twice the amount of the taxes and
exploration, development, exploitation and production
duties not paid because of the exemption granted;
program, it is essential that the market for domestic
(b) Entry, upon the sole approval of the Bureau of Energy
coal production be developed by granting incentives to
Development which shall not be unreasonably withheld, and
prospective coal users to convert their facilities for coal
subject to such conditions as it may impose, of alien technical
utilization;
and specialized personnel (including the immediate members
WHEREAS, to realize the above, it is necessary to
of their families), who may exercise their professions solely
amend and/or supplement existing legislation relating
for the operations of the contractor as prescribed in its
to coal;
contract with the Government under this Act;
WHEREAS, Article XVII, Section 12 of the Constitution of
(c) Subject to the regulations of the Central Bank, repatriation
the Philippines provides in part that when the National
of capital investment and remittance of earnings derived from
interest so requires the incumbent President of the
its service contract operations, as well as such sums as may
Philippines or the interim Prime Minister may review all
be necessary to cover principal and interest of foreign
contracts, concessions, permits or other forms or
obligations incurred for the geothermal operations.
privileges for the exploration, development,
(d)Other privileges provided in Section 12 of Presidential
exploitation or utilization of natural resources entered
Decree no. 87 as may be applied to the geothermal operation.
into, granted, issued or acquired before the ratification

8|Project Development_Cha Mendoza

of the Constitution;
NOW, THEREFORE, I, FERDINAND E. MARCOS, by virtue
of the powers vested in me by the Constitution of the
Philippines, do hereby decree and declare as part of the
law of the land the following:
Section 1. Short Title. This Act shall be known and
may be cited as "The Coal Development Act of 1976."
Section 2. Declaration of Policy. It is hereby declared
to be the policy of the state to immediately accelerate
the exploration, development, exploitation production
and utilization of the country's coal resources. A coal
development program is therefore promulgated and
established by this Decree.
Section 3. Coal Development Program. The country
shall be divided into coal regions and exploration and
exploitation programs shall be instituted and
implemented pursuant to this Decree.
These programs shall be geared towards the promotion
and development of the necessary technical and
financial capability to undertake a work program to
effectively explore exploit coal resources.
In recognition, however, of the social constraints that
may be encountered in effecting the establishment of
coal units in regions where there is high concentration
of small coal miners, a special coal program shall be
formulated and implemented in coordination with the
appropriate government agency/agencies to meet the
particular needs of such regions.
Section 4. Government to Undertake Coal Exploration
Development and Production. The Government,
through the Energy Development Board, its successors
or assigns, shall undertake by itself the active
exploration, development and production of coal
resources. It may also execute coal operating contracts
as hereafter defined. The active exploration and
exploitation of coal resources by the Government or
through coal operating contracts may cover public
lands, any unreserved or unappropriated coal bearing
lands, claims located and recorded by private parties
areas covered by valid and subsisting coal revocable
permits, coal leases and other existing rights granted
by the Government for the exploration and exploitation
of coal lands, government mineral reservations, coal
areas/mines whose leases or permits are presently
owned or operated or held by government-owned or
controlled corporations and coal mineable areas
operated or held by government agencies.
Section 5. Blocking System. The Energy Development
Board shall establish coal regions delimiting its extent
and boundaries after taking into consideration the
various coal bearing lands of the Philippines. Each coal
region shall be divided into meridional blocks or
quadrangles of two minutes (2') of latitude and one and
one-half minutes (1-1/2) of longtitude, each block
containing an area of one thousand (1,000) hectares,
more or less, the boundaries thereof to coincide with
the full two minutes and one and one-half minutes of
latitude and longtitude, respectively, based on the
Philippine Coast and Geodetic Survey Map, scale of
1:50,000.
Section 6. Coal Contract Area. In conformity with the
blocking system herein established, the Energy
Development Board shall determine in each coal region
what areas, are available for coal operating contracts.
In opening such contract areas, the Energy
Development Board may resort to either of the
following alternative procedures:
(a) By offering an area or areas for bids, specifying the
minimum requirements and conditions in accordance
with this Decree: or
(b) By negotiating with a qualified party for a coal
operating contract under the terms and conditions
provided in this Decree.
No person shall be entitled to more than fifteen (15)
9|Project Development_Cha Mendoza
blocks of coal lands in any one coal region.
Section 7. Existing Permitees/Leaseholders. All valid
and subsisting holders of coal revocable permits, coal
leases and other existing rights granted by the
government for the exploration and exploitation of coal
lands or the operators thereof duly approved by the
appropriate government agency, shall be given
preference in the grant of coal operating contract over
the area covered by their permits, leases or other rights
subjects to their compliance with the following
conditions and guidelines:
(a) Those whose areas fall within a block as described
in Section 5 hereof shall organize or consolidate
themselves into a coal unit, singly or jointly with valid
and subsisting holders of coal revocable permits, coal
leases and other existing coal rights or the duly
approved operator thereof, of contiguous blocks
provided that a coal unit shall not be entitled to more
than fifteen (15) blocks of coal lands in any coal region.
(b) Consolidation of areas into coal unit which shall
require approval by the Energy Development Board
must be completed within a period of six (6) months
from the effectivity of this Decree.
(c) In order to qualify for consolidation into coal units,
permitees, leaseholders or operators must have
complied with the requirements of their existing
permits, leases and/or rights as defined under existing
laws, rules and regulations.
(d) Members of the coal unit shall agree on the form,
terms and extent of participation of its individual
members. All holders of valid and subsisting coal
revocable permits, coal leases and other existing rights
granted by the government for the exploration,
development and exploitation of coal lands shall be
given percentage interest in the unit or payments out
of production under such terms and conditions as may
be agreed by the members of the unit and approved by
the Energy Development Board.
(e) A coal unit shall enter into a coal operating contract
as hereafter provided within six (6) months from its
formation.
Coal revocable permits, coal leases and other existing
rights granted by the government for the exploration
and exploitation of coal lands shall be deemed
automatically canceled and the area covered thereby
shall revert back to the State for failure of the holders
or the qualified operators thereof for any cause
whatsoever to consolidate their areas into coal units or
secure a coal operating contract within the period
specified in this section.
Section 8. Coal Operating Contract. Each coal
operating contract herein authorized shall, subject to
the approval of the President, be executed by the
Energy Development Board.
In a coal operating contract, service, technology and
financing are furnished by the operator for which it
shall be entitled to the stipulated fee and
reimbursement of operating expenses. Accordingly, the
operator must be technically competent and financially
capable as determined by the Energy Development
Board to undertake the coal operations as required in
the contract.
Section 9. Obligations of Operator in Coal Operating
Contract. The operator under a coal operating contract
shall undertake, manage and execute the coal
operations which shall include:
(a) The examination and investigation of lands
supposed to contain coal, by detailed surface geologic
mapping, core drilling, trenching, test pitting and other
appropriate means, for the purpose of probing the
presence of coal deposits and the extent thereof;
(b) Steps necessary to reach the coal deposits so that
can be mined, including but not limited to shaft sinking
and tunneling; and
(c) The extraction and utilization of coal deposits.
The Government shall oversee the management of
operation contemplated in the coal operating contract
and in this connection, shall require the operator to:
(a) Provide all the necessary service and technology;
(b) Provide the requisite financing;
(c) Perform the work obligations and program
prescribed in the coal operating contract which shall be
less than those prescribed in this Decree;
(d) Operate the area on behalf of the Government in
accordance with good coal mining practices using
modern methods appropriate for the geological
conditions of the area to enable maximum economic
production of coal, avoiding hazards to life, health and
property, avoiding pollution of air, land and waters, and
pursuant to an efficient and economic program of
operation;
(e) Furnish the Energy Development Board promptly
with all information, data and reports which it may
require;
(f) Maintain detailed technical records and account of
its expenditures;
(g) Maintain detailed technical records and account of
safety demarcation of agreement acreage and work
areas, non-interference with the rights of the other
petroleum, mineral and natural resources operators;
(h) Maintain all necessary equipment in good order and
allow access to these as well as to the exploration,
development and production sites and operations to
inspectors authorized by the Energy Development
Board;
(i) Allow representatives authorized by the Energy
Development Board full access to their accounts, books
and records for tax and other fiscal purposes;
On the other hand, the Energy Development Board
shall:
(a) On behalf of the Government, reimburse the
operator for all operating expenses not exceeding
seventy per cent (70%) of the gross proceeds from
production in any year; Provided, that if in any year, the
operating expenses exceed seventy per cent (70%) of
the gross proceeds from production, then the
unrecovered expenses shall be recovered from the
operating of succeeding years. Operating expenses
means the total expenditures for coal operating
incurred by the operator as provided in a coal operating
contract;
(b) Pay the operator a fee, the net amount of which
shall not exceed forty per cent (40%) of the balance of
the gross income after deducting all operating
expenses;
(c) Reimburse operating expenses and pay the
operator's fee in such form and manner as provided for
in the coal operating contract.
Section 10. Additional Fee. All valid and subsisting
holders of coal revocable permits, coal leases and other
existing rights granted by the government for the
exploration and exploitation of coal lands or the duly
qualified operators thereof who have organized their
area into a coal unit may, subject to conditions imposed
by the Energy Development Board, be granted in the
coal operating contract, in addition to the face provided
in Paragraph 2 of Section 9, a special allowance, the
amount of which shall not exceed thirty per cent (30%)
of the balance of the gross income after deducting all
operating expenses.
Coal operating contracts entered into with Philippine
citizens or corporations except those already covered
under the precedings paragraph, shall be granted a
special allowance, the amount of which shall not
exceed twenty per cent (20%) of the balance of the
gross income after deducting all operating expenses;
Provided, that coal operating contracts in which
Philippine citizens or corporations have a minimum
10 | P r o j e c t Development_Cha Mendoza
participating interest of fifteen per cent (15%) in the
contract area, may subject to reasonable conditions
imposed by the Energy Development Board, be granted
a special allowance not exceeding ten per cent (10%) of
the balance of the gross income after deducting all
operating expenses.
For the purpose of this section, a Philippine corporation
means a corporation organized under Philippine laws at
least sixty per cent (60%) of the capital of which,
including the voting shares, is owned and held by
citizens of the Philippines.
Section 11. Minimum Terms and Conditions. In
addition to those elsewhere provided in this Decree,
every coal operating contract executed in pursuance
hereof shall contain the following minimum terms and
conditions:
(a) Every operator shall be obliged to spend in direct
prosecution of exploration work not less than the
amounts provided for in the coal operating contract and
these amounts shall not be less than the total obtained
by multiplying the number of coal blocks or fraction
thereof covered by the contract by One Million Pesos
(P1,000,000.00) per block annually; Provided, that if the
area or a portion thereof is suitable for open pit mining
as determined jointly by the operator and the Energy
Development Board, the minimum expenditure
requirement herein provided may be reduced up to Two
Hundred Thousand Pesos (P200,000.00) per block
annually. From the time coal reserves in commercial
quantity have been determined jointly by the operator
and the Energy Development Board, the operator shall
undertake development and production of the contract
area within the period agreed upon in the contract and
shall be obliged to spend in the development and
production of the contract area an amount which shall
be determined by negotiation between the operator
and the Energy Development Board taking into account
factors such as measured reserves, quality of coal,
mining method and location and accessibility to
market; Provided, further, that if during any contract
year the operator shall spend more than the amount of
money required to be spent, the excess may be
credited against the money required to be spent by the
operator during the succeeding years, except excess
expenditures for exploration cannot be credited against
financial commitment for development and production;
Provided, further, that should the operator fail to
comply with the work obligations provided for in the
coal operating contract, it shall pay to the Government
the amount it should have spent but did not in direct
prosecution of its work obligations; Provided, finally,
that except in case of open pit mining, the operator
shall drill at least thirty (30) holes per blocks and a
minimum footage of exploratory holes before the end of
the exploration period as may be specified in the coal
operating contract.
(b) The exploration period under every coal operating
contract shall be for two (2) years. If the operator has
complied with its exploration work obligations, the
exploration period may be extended for another two (2)
years. The coal operating contract shall lapse unless
coal of commercial quantity is measured during the
exploration period or at the end thereof in any area
covered by the coal operating contract. If coal of
commercial quantity is measured, the coal operating
contract shall remain in force for development and
production during the balance of the exploration period
and/or for an additional period ranging from ten (10) to
twenty (20) years, thereafter renewable for a series of
three (3)-year periods not exceeding twelve (12) years
under such terms and conditions as may be agreed
upon by the parties.
(c) All materials, equipment, plants and other
installations erected or placed on the exploration and/or
production area of a movable nature by the operator
shall become properties of the Energy Development
Board if not removed therefrom within one (1) year
after the termination of the coal operating contract.
(d) The operator shall be subject to the provisions of
laws of general application relating to labor, health,
safety and ecology insofar as they are not in conflict
with the provisions otherwise contained in this Decree.
Section 12. Full Disclosure of Interest in Coal
Operating Contract. Interest held in the coal operating
contract by domestic mining companies and/or the
latter's stockholders may be allowed to any extent after
full disclosure thereof and approved by the Energy
Development Board.
Section 13. Arbitration. The Energy Development
Board may stipulate in a coal operating contract
executed under this Decree that disputes in the
implementation thereof between the Government and
the operator may be settled by arbitration.
Section 14. Performance Guarantee. In order to
guarantee compliance with the obligations of the
operator executed under this Decree, the operator shall
post a bond or other guarantee of sufficient amount in
favor of the Government and with surety or sureties
satisfactory to the Energy Development Board,
conditioned upon the faithful performance by the
operator of any or all of the obligations under and
pursuant to said coal operating contracts.
Section 15. Transfer and Assignment. The rights and
obligations under a coal operating contract executed
under this Decree shall not be transferred or assigned
without the prior approval of the Energy Development
Board; Provided, that such transfer or assignment may
be made only to a qualified person possessing the
resources and capability to continue the mining
operation of the coal operating contract and that the
operator has complied with all the obligations of the
coal operating contract.
Section 16. Incentives to Operators. The provisions of
any law to the contrary notwithstanding, a contract
executed under this Decree may provide that the
operator shall have the following incentives:
(a) Exemption from all taxes except income tax;
(b) Exemption from payment of tariff duties and
compensating tax on importation of machinery and
equipment and spare parts and materials required for
the coal operations subject to the following conditions:
1. that machinery, equipment, spare parts and
materials of comparable price and quality are not
manufactured in the Philippines;
2. that the same are directly and actually needed and
will be used exclusively by the operator in its
operations or in operation for it by a contractor;
3. That they are covered by shipping documents in the
name of the operator to whom the shipment will be
delivered directly by the customs authorities; and
4. that prior approval of the Energy Development Board
was obtained by the operator before the importation of
such machinery, equipment, spare parts and materials,
which approval shall not be unreasonably withheld;
Provided, however, that the operator or its contractor
may not sell, transfer, or dispose of the machinery,
equipment, spare parts and materials without the prior
approval of the Energy Development Board and
payment of taxes and duties thereon; Provided, further,
that should the operator or its contractor sell, transfer,
or dispose of these machinery, equipment, spare parts
or materials without the prior approval of the Energy
Development Board, it shall pay twice the amount of
the taxes and duties thereon; Provided, finally, that the
Energy Development Board shall allow and approved
the sale, transfer or disposition of the said items
without tax if made:
(a) to another operator under a coal operating contract;
11 | P r o j e c t Development_Cha Mendoza
(b) for reasons of technical obsolescence; or
(c) for purposes of replacement to improve and/or
expand the operation under the coal operating
contract.
(c) Accelerated Depreciation. At the option of the
taxpayer and in accordance with the procedures
established by the Bureau of Internal Revenue, fixed
assets owned by the coal units in the performance of its
coal operating contract may be:
1. Depreciated to the extent of not more than twice as
fast as normal rate of depreciated or depreciated at
normal rate of depreciation if expected life is ten (10)
years or less; or
2. Depreciated over any number of years between five
(5) years and expected life if the latter is more than ten
(10) years, and the depreciation thereon allowed as a
deduction from taxable income; Provided, that the
taxpayer notifies the Bureau of Internal Revenue at the
beginning of the depreciation period which depreciation
rate allowed by this section will be used by it.
(d) Foreign Loans and Contracts. The right to remit at
the prevailing exchange rate at the time of remittance
of such sum as may be necessary to cover principal and
interest of foreign loans and foreign obligations arising
from technological assistance contracts relating to the
performance of the coal operating contract, subject to
Central Bank regulations.
(e) Preference in Grant of Government Loans.
Government financial institutions such as the
Development Bank of the Philippines, the Philippine
National Bank, the Government Service Insurance
System, the Social Security System, the Land bank of
the Philippines and other government institutions as are
now engaged or may hereafter engage in financing on
investment operations shall, in accordance with and to
the extent allowed by the enabling provisions of their
respective charters or applicable laws, accord high
priority to applications for financial assistance
submitted by operators in the performance of coal
operating contracts, whether such financial assistance
be in the form of equity participation in preferred,
common or preferred convertible shares of stock, or in
loans and guarantee, and shall facilitate the processing
thereof and the release of the funds therefor. However,
financial assistance under this paragraph shall be
extended only to operators which are Philippine
Nationals as the term is defined under Republic Act No.
5186, as amended.
(f) Entry upon the sole approval of the Energy
Development Board which shall not be unreasonably
withheld of alien technical and specialized personnel
(including the immediate members of their families)
who may exercise their profession only for the
operation of the operator as prescribed in its coal
operating contract with the government under this
Decree; Provided, that if the employment or connection
of any such alien with the operator ceases, the
applicable laws and regulations on immigration shall
apply to him and his immediate family; Provided,
further, that Filipinos shall be given preference to
positions for which they have adequate training, and;
Provided, finally, that the operator shall adopt and
implement a training program for Filipinos along
technical or specialized lines, which program shall be
reported to the Energy Development Board.
Section 17. Incentives to Coal Users. The following
incentives shall be granted to enterprises/industries
which will convert their existing oil fired plants facilities
to make the same adaptable for coal burning:
(a) Tax Exemption on Imported Capital Equipment.
Within seven (7) years from the date of approval of the
plan for conversion of existing oil fired plants and
facilities to make the same adaptable for coal burning,
the importation of machinery and equipment, and spare
parts shipped with such machinery and equipment
necessary to implement their program of conversion
shall not be subject to tariff and customs duties and
compensating tax; Provided, that said machinery,
equipment and spare parts are:
1. Not manufactured in the Philippines in reasonable
quantity and quality at reasonable prices;
2. Directly and actually needed and will be used
exclusively in the implementation of the conversion of
existing plants to coal burning;
3. Covered by shipping documents in the name of the
enterprise to whom the shipment will be delivered
direct by customs authorities;
4. Prior approval, before importation of such machinery,
equipment and spare parts was obtained. If imported
machinery, equipment and spare parts are sold,
transferred or otherwise disposed of without the
required prior approval, the importer shall pay twice
the amount of the tax and duty thereon. However, the
sale, transfer or disposition of the said items shall be
allowed and approved without tax and duty if made to
another company for use in:
(a) Converting its existing plants to coal burning subject
to the same conditions and limitations as herein
provided;
(b) For reasons of technical obsolescence; or
(c) For replacement of equipment to improve and/or
expand the operations of the enterprise.
For replacement of modernization of existing facilities
of subject enterprises/industries which will be utilized
partly or entirely in the conversion of coal burning, in
lieu of an exemption from payment of tariff duties and
taxes, it shall be granted deferment in the payment of
such taxes and duties for a period of not exceeding ten
(10) years after posting the appropriate bond as may
be required by the Secretary of Finance.
(b) Tax Credit on Domestic Capital Equipment. Within
seven (7) years from the date of approval of the plan
for conversion of existing oil fired plants, and facilities
to make the same adaptable for coal burning, a tax
credit equivalent to one hundred per cent (100%) of the
value of the compensating tax and customs duties that
would have been paid on machinery, equipment and
spare parts necessary to implement the program of
conversion had these items been imported, shall be
given to the industry with a program of conversion to
coal burning that purchases said machinery, equipment
and spare parts from a domestic manufacturer;
Provided:
1. That said machinery, equipment and spare parts are
directly and actually needed and will be used
exclusively in the implementation of the conversion of
its existing plants to coal burning;
2. That the prior approval was obtained for the
purchase of the machinery, equipment and spare parts.
If the machinery, equipment and spare parts are sold,
transferred or otherwise disposed of without the
required prior government approval, the purchaser
shall pay twice the amount of the tax credit given to it.
However, the sale, transfer or disposition of the said
items shall be allowed and approved without tax if
made:
a) To another company for use in its approved program
of conversion to coal burning subject to the same
conditions and limitations as herein provided:
b) For reasons of technical obsolescence; or
c) For purposes of replacement to improve and/or
expand the operation of the enterprise.
(c) Net operating Lose Carryover. A net operating loss
incurred in any of the first ten (10) years after the start
of the implementation of the coal conversion program
may be carried over as a deduction from taxable
income for the six (6) years immediately following the
year of such loss. The entire amount of the loss shall be
12 | P r o j e c t Development_Cha Mendoza
carried over to the first of the (6) taxable years
following the loss, and any portion of such loss which
exceeds the taxable income of such first year shall be
deducted in like manner from the taxable income of the
next remaining five (5) years. The net operating loss
shall be computed in accordance with the provision of
the National Internal Revenue Code, any provision of
this Decree to the contrary notwithstanding, except
that income not taxable either in whole or in part under
this or other laws shall be included in the gross income.
(d) Capital Gains Tax Exemption. Exemption from
income tax on the proceeds of the gains realized from
the sale, disposition or transfer of capital assets which
are sold or disposed of as a result of the conversion of
facilities to a coal burning plant; Provided, that such
sale, disposition or transfer are registered with the
Bureau of Internal Revenue; Provided, however, that
the gains realized from the subject sale, disposition or
transfer of capital assets are invested in new issues of
capital stock of an enterprise registered under the
Investment Incentives Act, as amended, and other
allied incentives laws; Provided, further, that the shares
of stock representing the investment are not disposed
of, transferred, assigned, or conveyed for a period of
seven (7) years from the date the investment was
made; and, Provided, finally, that if such shares of stock
are disposed of within the said period of seven (7)
years, all taxes due on the gains realized from the
original transfer, sale, or disposition of the capital
assets shall become immediately due and payable.
(e) Accelerated Depreciation. At the option of the
taxpayer and in accordance with the procedure
established by the Bureau of Internal Revenue, fixed
assets used by the industry in carrying out the program
of conversion to coal burning may be:
1. Depreciated to the extent of not more than twice as
fast as normal rate of depreciation or depreciated at
normal rate of depreciation if expected life is ten (10)
years or less; or
2. Depreciated over any number of years between five
(5) years and expected life if the latter is more than ten
(10) years, and the depreciation thereon allowed as a
deduction from taxable income; Provided, that the
taxpayer notifies the Bureau of Internal Revenue at the
beginning of the depreciation period which depreciation
rate allowed by this section will be used by it.
(f) Foreign Loans and Contracts. The right to remit at
the prevailing exchange rate at the time of remittance
such sum as may be necessary to cover interest and
principal of foreign loan and foreign obligations arising
from technological assistance contracts relating to the
implementation of the program of conversion to coal
burning subject to Central Bank regulation.
(g) Preference in Grant of Government Loans.
Government financial institutions such as the
Development Bank of the Philippines, the Philippine
National Bank, the Government Service Insurance
System, the Social Security System, the Land Bank of
the Philippines and such other government institutions
as are now engaged or may hereafter engage in
financing of investment operations shall, in accordance
with and to the extent allowed by the enabling
provisions of their respective charters or applicable
laws, accord high priority to application for financial
assistance submitted by enterprises/industries
requiring funding to implement the program of
conversion to coal burning, whether such financial
assistance be in the form of equity participation in
preferred, common or preferred convertible shares of
stock, or in loans and guarantee, and shall facilitate the
processing thereof and the release of the funds
therefor; However, financial assistance shall be
extended only under this paragraph to industry
converting to coal burning which is a Philippine National
as this term is defined under Republic Act No. 5186, as
amended.
The foregoing incentives to enterprises/industries which
will convert their existing oil fired plants and facilities to
make the same adaptable for coal burning shall be
administered and implemented by the Board of
Investments created under Republic Act No. 5186, also
known as the Investment Incentives Act, as amended.
The Board of Investments shall have the power to
process and approved, under such terms and conditions
as it may deem necessary, plans for conversion to coal
burning and applications for availment of the foregoing
incentives. It shall promulgate such rules and
regulations as may be necessary to implement the
intent and provisions of this section.
Section 18. Implementing Agency. Except as
otherwise provided in Section 17 hereof, the Energy
Development Board, created pursuant to Presidential
Decree No. 910, in addition to the powers, duties and
functions under existing laws, shall be charged with
carrying out the provisions of this Decree and shall be
vested with the authority to promulgate rules and
regulations implementing thereof.
Section 19. Separability Clause. Should any provision
of this Decree be held unconstitutional, no other
provision hereof shall be effected thereby.
Section 20. Repealing Clause. The provisions of
Presidential Decree No. 463, otherwise known as the
"Mineral Resources Development Decree of 1974" and
other laws insofar as they deal, relate or affect the
exploration, exploitation and administration of coal
lands are hereby repealed. Furthermore, all laws,
decree, executive orders, administrative orders, rules,
and regulations, or parts thereof in conflict or
inconsistent with any provision of this Decree are
hereby repealed, revoked, modified or amended
accordingly.
Section 21. Effectivity. This Decree shall take effect
immediately upon approval.
Done in the City of Manila, this 28th day of July, in the
year of Our Lord, nineteen hundred and seventy-six.
RULES AND REGULATIONS IMPLEMENTING
PRESIDENTIAL DECREE NO. 972, OTHERWISE
KNOWN AS
THE "COAL DEVELOPMENT ACT OF 1976"
Pursuant to the Presidential Decree No. 972, otherwise
known and cited as the "Coal Development Act of
1976", the following rules and regulations to implement
the intent and provisions of the Act are hereby
promulgated:
I. Registration
(a) Coverage and Period. All holders of coal permits,
leases, locations, patents, mining grants or
concessions, applications and other existing rights
granted by the government for the exploration,
development and exploitation of coal lands and/or the
duly authorized operators thereof shall register their
permits, leases, locations, patents, mining grants or
concessions, applications and other rights with the
Energy Development Board within thirty (30) days from
the date hereof.
(b) Requirement of Registration. The registration
contemplated in Paragraph A hereof shall require the
accomplishment and submission to the Energy
Development Board of the attached EDB Form No. 11
(Information Sheet, Attachment "A"). The Information
Sheet and all accompanying annexes and exhibits shall
be verified (under oath) by the holder of the permit,
lease, patent, location, concession or grant and
application in cases of an individual or by a responsible
officer thereof in cases of partnership, corporations or
cooperatives. The Information Sheet shall serve as the
basis for the evaluation of the status and work
13 | P r o j e c t Development_Cha Mendoza
performance of the holders or operators to determine
compliance with the requirements of their existing
permits, leases, locations, grants, patents, concessions,
applications and other rights under laws, rules and
regulations then in force.
(c) Effect of Failure to Register. Failure to comply with
the registration required herein shall be deemed to
constitute a waiver of rights and shall result in
automatic cancellation or termination of holder's or
operator's right in any coal permit, lease, location,
patent, mining grant or concession, application and
other rights.
(d) Place of Filing. The Information Sheet and all
accompanying annexes and exhibits shall be filed with
the offices of the Energy Development Board at the
Philippine National Petroleum Center, Merrit Road, Fort
Bonifacio, Rizal or at the Energy Development Board
Cebu Office situated at barrio Opao, Mandaue City.
II. Blocking System.
A. Coal Regions. The following coal regions in the
Philippines (see attached map, Attachment "b") are
hereby established:
1. Cagayan Region
2. Ilocos Region
3. Central Luzon Region
4. Bondoc Peninsula Region
5. Bicol Region
6. Catanduanes Region
7. Samar-Leyte Region
8. Cebu Region
9. Negros Region
10. Panay Region including Semirara Island
11. Mindoro Region
12. Agusan-Davao Region
13. Surigao Region
14. Cotabato Region
15. Zamboanga Regions
Additional coal regions may be established by the
Energy Development Board when attendant
circumstances justify and warrant it.
B. Guidelines on Use of the Blocking System
1. Each of the above coal regions is divided into
meridional blocks or quadrangles of two minutes (2') of
latitude and one and one-half minutes (1-1/2') of
longtitude, each block containing an area of one
thousand (1,000) hectares, more or less. The
boundaries of the block must coincide with the defined
latitude and longtitude in the Energy Development
Board Coal Blocking Maps (Scale 1:50,000) plotted on
the Coast and Geodetic Survey maps.
2. This blocking system shall apply to areas being
organized and consolidated into a coal unit as well as
free areas. No person, partnership or corporation shall
be entitled to more than fifteen (15) blocks of coal land
in any one coal region.
3. A coal unit shall conform to the blocking system as
closely as possible with its final configuration arrived at
by both the permitee/leaseholder/applicant and the
Energy Development Board but always subject to the
final approval of the latter.
4. Any specific problem that may arise which is not
presently covered by these guidelines will be
considered on a case-to-case basis, e.g. inability to
conform to the blocking system due to position of
adjoining coal units, etc.
5. The ground survey for locating the coal blocks herein
established shall be done by the Energy Development
Board at the expense of the
permittee/leaseholder/applicant or by the latter when
so authorized by the Energy Development Board. The
corners of each block shall be marked by appropriate
survey monuments. The survey plans shall be
submitted to the Energy Development Board for
verification and approval within one (1) year from the
effective date of the coal operating contract, a
requirement which shall be included as one of the
obligations of the operator in coal operating contract.
6. Maps pertinent to the blocking system may be
purchased at P50.00 per sheet at the Energy
Development Board Office at the Philippine National
Petroleum Center, Merritt Road, Fort Bonifacio, Rizal.
The Energy Development Board maintains exclusive
rights over the printing and sale of these maps and no
map or any portion thereof may be reproduced without
the permission of the Board.
7. These maps are considered official maps and shall
form part of the official application paper that an
applicant for a coal operating submits to the Board.
III. Survey of Coal Blocks
(A) Period of Survey. Within one (1) year from the
effective date of the coal operating contract, the
operator shall conduct the survey of the coal blocks
which constitute the coal contract area of the coal
operating contract. The survey shall be conducted in
accordance with the regulations hereunder provided.
(B) Documents to Accompany Application for a Coal
Operating Contract Necessary for Survey of Coal
Blocks. The following documents shall be submitted
upon filing of the application for a coal operating
contract:
1. A notarized survey service contract executed by and
between the applicant and a duly licensed geodetic
engineer which shall stipulate, among others, the
following:
(a) The names of the contracting parties.
(b) The coal sought to be surveyed.
(c) The consideration or contract price and mode of
payment of the same.
(d) The date of the submittal of the survey returns to
the Energy Development Board.
2. Affidavit of the duly licensed geodetic engineer
representing that he can execute the survey of the coal
blocks and submit the returns thereof within one (1)
year from the effectivity date of the coal operating
contract.
(C) Abandonment. Failure to perform the ground survey
for the coal blocks within one (1) year from the
effective date of the coal operating contract shall
constitute automatic abandonment of the coal block
and the land embraced therein shall thereupon be
opened to application for another coal operating
contract by qualified persons.
(D) Qualified Geodetic Engineers. Coal block surveys
shall be executed by geodetic engineers of the Energy
Development Board or by any duly licensed geodetic
engineers.
(E) Cost of Survey. If the Ground survey shall be
undertaken by a geodetic engineers of the Energy
Development Board, the applicant shall pay the actual
cost of the survey.
(F) Execution of Coal Block Survey. Corners of the coal
block shall be defined by monuments placed at
intervals of not more than four hundred (400) meters
apart. When the boundary lines of the coal block pass
across mountains or rolling terrains, the intermediate
monuments between corners shall be established or
ridges, whenever practicable, in which case, all
consecutive corner monuments shall be intervisible.
The sizes of corner monument of a coal shall be as
follows:
1. Corners (principal corners) that fall on points with
exact two minutes and/or one and one-half minutes of
latitude and longitude, 20 cm. x 20 cm. concrete
monuments shall be set 50 cm. in the ground.
2. Other concerns of the coal block shall by cylindrical
concrete monuments of 15 cm. in diameter x 60 cm.
long set 50 cm. in the ground.
The corners of the coal block shall be concrete
14 | P r o j e c t Development_Cha Mendoza
monuments or cement patch on boulder, centered with
a hole, spike, pipe or nail and marked with the
corresponding corner number and coal block number.
The latitude and longitude of the principal corner shall
also be indicated on the sides of the concrete
monuments when it coincides with the full two minutes
and/or one and one-half minutes of latitude and
longitude, respectively.
When the coal block undergoing survey adjoins
submerged land, a witness corner monument along the
boundary leading the shoreline shall be set on the
ground to witness the boundary- point-corner of the
coal block at the low tide level of the sea or lake.
Concrete monuments, galvanized iron pipes, fixed
rocks, boulders or stakes and other monuments shall be
set to define the corners of the coal block along the
shoreline at low tide level.
All computations, plans and maps of coal blocks
surveys to be submitted to the Energy Development
Board for verification and approval shall be prepared by
using the Philippine Plane Coordinate System.
The characteristics of the Philippine Plane Coordinate
System as used in the DANR Technical Bulletin No. 26
are as follows:
Spheroid Carke's Spheroid of 1865.
Projection Transverse Mercator in zones of two degrees
(2 degrees) net width.
Point of Origin The intersection of the equator and the
central meridian of each zone, with a northing of 0.00
meter and an easting of 500,000.00 meters.
Scale factor of the Central Meridian 0.99995
zonification.
NOTE: The overlap of 30 minutes thereof, however is
reduced to 5 minutes which are as follows:
Zone No.
I 117-00 E 16-00 to 118-05 E
II 119-00 E 117-55 to 120-05 E
III 121-00 E 119-55 to 122-05 E
IV 123-00 E 121-55 to 124-05 E
V 125-00 E 123-55 to 126-05 E
The tables in the DANR Technical Bulletin No. 26 and
EDB Form No. 12 and EDB Form No. 13 hereto attached
as Attachment "C" and "D", respectively, and part of
these Regulations shall be used for the transformation
of geographic to plane coordinates, and from plane to
geographic coordinates.
In all coal block surveys, the corresponding central
meridian of the zone where the coal block is situated
shall be used and the amount of convergency
correction in seconds of arc from the central meridian
to be applied to the observed astronomical azimuth of
the line shall be, for all practice purposes, the product
of the departure of the point of observation from the
central meridian in kilometers and the number of
seconds of angular convergency per kilometer of
departure corresponding to the latitude of the place of
observation which are tabulated as follows:
Latitude in Seconds of Arc Angular Convergency of
per Kilometer Departure
5° 2.83
6° 3.4
 Public Land Subdivision Surveys of the Bureau of Lands.
7° 3.97
4. Bureau of Mines Reference Points (BMRP)
monuments established by the Bureau of Mines.
8° 4.55
5. Church cross, church spire, church dome, church
tower, historical monument of known geographic or
9° 5.12
Philippine Plane Coordinate System acknowledged by
the Bureau of Coast and Geodetic Survey, Bureau of
10° 5.7
Lands or Bureau of Mines.
11° 6.29 6. Corners of approved coal block surveys with known
geographic and/or Philippine Plane Coordinate Systems
12° 6.87 may be used as starting point of a coal block survey:
Provided, however, That at least three (3) or more
13° 7.46 undisturbed corners of concrete monuments are
surveyed for a good common point and the tie is
14° 8.06 computed from the tie point of the aforesaid approved
surveys.
15° 8.66 Should any discrepancy of datum plane between or
among tie points arise, proper investigation shall be
16° 9.27 conducted by the authorized geodetic engineer and a
report thereon shall be submitted to the Energy
17° 9.88 Development Board to form part of the survey returns
for further investigation and record purposes.
18° 10.5 Plans of coal blocks recorded under the Act shall
correctly and neatly drawn to scale in drawing inks on
19° 11.13 the survey plan.
The latitudes and longitudes of the meridional blocks
20° 11.76 shall be drawn to scale on the plan whenever
practicable, in light black inks.
21° 12.41 In addition to the symbols used to designate various
kinds of surveys, the survey symbol CBS shall be used
to designate a coal blocks survey.
The angular convergency correction, expressed in The manner of execution of coal land surveys shall be
seconds, shall be added to the observed astronomical in accordance with these Regulations, as supplemented
azimuth for points west and subtracted for points east by the Manual of Regulations for Mineral Land Surveys
of the central meridian. in the Philippines promulgated on June 22, 1965 and
All bearing of lines and coordinates of corners not in the Philippine Land Surveyors Manual (Technical
accordance with the Philippine Plane Coordinate Bulletin No. 22, Bureau of Lands, July 1, 1955), as far as
System as used in the area computations of surveyed the provisions thereof are not inconsistent with the
coal block that are within 150 m. from the periphery of Decree.
the coal block undergoing survey shall be transformed (G) Submittal and Verification of Survey Returns.
to the Philippine Plane Coordinate System. Survey returns coal block shall be submitted to the
The zone number and central meridian of the Philippine Energy Development Board within one (1) year from
Plane Coordinate System shall, in all cases, be indicated effective date of the coal operating contract and shall
on the fieldnotes, computations, plans, maps, and consist of the following:
reports of the surveys. 1. Field notes completely filled in, paged and sealed
For higher precision of surveys, convergency (G.E.) and fieldnotes cover on EDB Form No. 14 hereto
corrections, scale factors and azimuth correction (T-t) attached as Attachment "E", and made part of these
shall be referred from the formula used in the table of regulations, duly accomplished, signed and sealed by
DANR Technical Bulletin No. 26, however, for tertiary the geodetic engineer and notary public.
precision of surveys, the scale factors and the azimuth 2. Azimuth computations from astronomical
correction (T-t) may be discarded. observations, traverse computations, area
Coal block surveys shall be definitely fixed in position computations, elevation and topographic survey
on the earth's surface by monuments of prominent and computations and other reference computations all in
permanent structure marking corner points of the coal original and in duplicate properly accomplished and
block and by bearings and distances from the points of signed by the computer and the geodetic engineer.
known geographic or Philippine Plane Coordinate Computerized (EDP) computations, however, may be
System. submitted in place of the duplicate computations.
These tie points shall either be as follows: 3. Tracing cloth plan/s duly accomplished with the
1. Triangulation stations established by: corresponding working sheet thereof.
(a) The Bureau of Coast and Geodetic Survey. 4. Descriptive and field investigation report on the coal
(b) The United States Army Engineer Survey. block in quintuplicate duly signed by the geodetic
(c) The 29th Engineer Topographic (Base) Battalion. engineer and authorized assistant, if any, and duly
(d) The Bureau of Lands. notarized.
(e) The Bureau of Mines. 5. A consolidated plan at scale at 1:4,000 showing the
(f) Other organizations, the survey of which is of relative positions of the surveyed coal blocks and other
acknowledged standard. coal blocks with existing rights at the time of the
2. Bureau of Lands Location Monuments (BLM) and survey, if any.
Bureau of Lands Barrio Monuments (BLBM) established 6. Other documents pertinent to the survey of coal
by the Bureau of Lands. blocks.
3. Political Boundary Monuments such as Provincial Survey returns without items (1) to (6) above, shall not
Boundary Monuments (PBM), Municipal Boundary be accepted for verification and approval purposes.
Monuments (MBM) and Barrio Boundary Monuments Concerns and/or location monuments of approved
(BBM): Provided, That they were established by surveys of coal blocks inspite of the nullity,
Cadastral Land Surveys, Group Settlement Surveys or cancellation, rejection or abandonment of the coal

15 | P r o j e c t Development_Cha Mendoza
 resources calculated yield maximum benefit to the Filipino
operating contract over the surveyed area, shall be
people and revenues to the Philippine Government and assure
preserved as reference mark and the geographic
just and fair returns to the participating private enterprises;
position thereof shall be kept for use in future coal
WHEREAS, in line with the policy of the Government to
block surveys, unless otherwise said survey is found to
encourage and accelerate exploration and development of
be erroneous by later approved coal block surveys.
indigenous resources and in the light of current conditions in
Surveys of subsisting coal blocks rights, permits and
the coal industry, it is imperative that Presidential Decree No.
leases which are to be erroneous may be ordered by
972 be amended granting additional incentives to coal
the Energy Development Board to be corrected motu
operators participating in the coal development program;
proprio, when justified by existing circumstances.
WHEREAS, in order that coal operations should not be
IV. Procedure of Filing an Application for
unnecessarily hampered and snagged by the difficulties and
Negotiated Coal Operating Contract under
delays in securing surface rights under existing laws and
Presidential Decree No. 972.
regulations for the entry into, access to or occupation of
In addition to the documents required to be submitted
private lands, it is necessary to provide a just and equitable
in the preceding section, the following documents shall
system of rights acquisition and use by coal operators which
accompany all applications for a coal operating
would also be given incentives and protection to private
contract:
landowners and occupants;
(a) Information Sheet for Coal Operators (EDB Form No.
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
11).
Philippines, by virtue of the authority vested in me by the
(b) Proposed Coal Operating Contract Patterned after
Constitution of the Philippines, do hereby decree and declare
the Model Contract (EDB Form No. 15).
as part of the law of the land the following:
(c) A Comparative Analysis in tabulated form of items in
Section 1. Section Seven (e) of Presidential Decree No. 972,
the Coal Operating Contract proposal which deviate
is hereby amended to read as follows:
from the Model Contract. Reasons for the proposed
"Sec. 7. Existing Permittees/Leaseholders
changes should likewise be presented.
(e) In order to give holders of valid and subsisting coal
(d) In cases of a corporation, a Certificate of Authority
revocable permits, coal leases and other existing rights
from the Board of Directors of applicant Operator
granted by the government for the exploration and
authorizing a designated
exploitation of coal lands or the operators thereof duly
representatives/representative to negotiate the Coal
approved by the appropriate government agency, sufficient
Operating Contract. The certification must be executed
time to upgrade their financial and technical capabilities to
under oath by the Corporate Secretary and if executed
develop a viable work program to be embodied in a coal
abroad, must be properly authenticated. In cases of
operating contract, the deadline for entering and concluding a
partnership or other forms of association, a duly
duly executed coal operating contract is extended from July
authorized representative/s negotiate the Coal
27, 1977 to January 27, 1978; Provided, that the extension
Operating Contract by the partners or members
shall apply only to those who have complied with the
thereof.
requirements of unitization; Provided, further that those who
(e) Copies of all technical reports or works done on the
have unitized may be granted by the Board during the
proposed coal contract areas, whenever available.
extension period special operating permits in order not to
The applicant shall pay a processing fee of P1.00 per
disrupt existing coal operations; Provided, finally, that no
hectare but in no case less than P1,000.00 for the
further extension shall be allowed after the extension granted
proposed coal contract area. Check should be made
in this decree, and coal permits, leases and other rights not
payable to the Energy Development Board. No
converted to coal operating contract for any cause by January
negotiations can commence until the above
27, 1978 shall be deemed automatically canceled and the
requirements have been fully complied with.
area thereby shall be open for coal operating contract in
V. Publication and Effectivity
accordance with Section 6 thereof."
These rules and regulations shall take effect
Section 2. Section Nine, Third Paragraph, Sub-Paragraph of
immediately.
the same Decree is hereby amended to read as follows:
Copies thereof shall be published in newspapers of
Sec. 9. Obligations of Operator in a Coal Operating Contract.
general circulations in the Philippines.
Done in Makati, Metro Manila, on August 27, 1976.
(a) On behalf of the Government, reimburse the operator for
The Lawphil Project - Arellano Law Foundation
all operating expenses not exceeding ninety percent (90%) of
the gross proceeds from production in any year; Provided,
that if in any year, the operating expenses exceed ninety
percent (90%) of the gross proceeds from production, then
the unrecovered expenses shall be recovered from the
operation of succeeding years. Operating expenses mean the
Pasted from total expenditures for coal operation incurred by the operator
<http://www.lawphil.net/statutes/presdecs/pd1976/pd_972_19 as provided in a coal operating contract;
76.html> Section 3. Section Ten of the same Decree is hereby
amended to read as follows:
"Sec. 10. Additional Fee. All valid and subsisting holders of
coal revocable permits, coal leases and other existing rights
granted by the government for the exploration and
exploitation of coal lands or the duly qualified operators
PRESIDENTIAL DECREE NO. 1174 thereof who have organized their area into a coal unit, subject
PRESIDENTIAL DECREE No. 1174 to conditions imposed by the Energy Development Board, be
AMENDING PRESIDENTIAL DECREE NUMBERED NINE granted in the coal operating contract, in addition to the
HUNDRED SEVENTY TWO, OTHERWISE KNOWN AS THE operator's fee provided in Section 9, a special allowance, the
"COAL DEVELOPMENT ACT OF 1976" amount of which shall not exceed forty percent (40%) of the
WHEREAS, the coal development program envisioned in balance of the gross income after deducting all operating
Presidential Decree No. 972, otherwise known as the "Coal expenses.
Development Act of 1976" encourage the participation of the "Coal operating contracts entered into with Philippine citizens
private sector with adequate and sufficient financial, technical or corporations except those already covered under the
and managerial resources to undertake a work program to proceeding paragraph, shall be granted a special allowance
effectively explore, develop and exploit indigenous coal the amount of which shall not exceed thirty per cent (30%) of

16 | P r o j e c t Development_Cha Mendoza
the balance of the gross income after deducting all operating
expenses; Provided, that coal operating contracts in which
Philippine citizens or corporations have a minimum
participating interest of forty percent (40%) in the contract
area may, subject to reasonable conditions imposed by the
Energy Development Board, be granted a special allowance
not exceeding twenty percent (20%) of the balance of the
gross income after deducting all operating expenses.
"For the purpose of this section, a Philippine corporation
means a corporation organized under Philippine laws at least
sixty percent (60%) of the capital of which, including the
voting shares, is owned and held by citizens of the Philippines.
Section 4. Section Eleven (a) of the same Decree is hereby
amended to read as follows:
"Sec. 11. Minimum Terms and Conditions. In addition to those
elsewhere provided in this Decree, every coal operating
contract executed in pursuance hereof shall contain the
following minimum terms and conditions;
(a) Every operator shall be obliged to spend in direct
prosecution of exploration work not less than the amounts
provided for in the coal operating contract and these amounts
shall not be less than the total obtained by multiplying the
number of coal blocks covered by the contract by One Million
Pesos (P1,000,000.00) per block annually; Provided, that if the
area or a portion thereof is suitable for open pit mining as
determined jointly by the operator and the Energy
Development Board, the minimum expenditure requirement
herein provided may be reduced up to Two Hundred Thousand
Pesos (P200,000.00) per block annually. From the time coal
reserves in commercial quantity have been determined jointly
by the operator and the Energy Development Board, the
operator shall undertake the development and production of
the contract area within the period agreed upon in the
contract and shall be obliged to spend in the development
and production of the contract area an amount which shall be
determined by negotiation between the operator and the
Energy Development Board taking into account factors such
as measured reserves, quality of coal, mining method and
location and accessibility to market; Provided, further, that
with the approval of the Board, the operator may concentrate
all the annual work obligations on any one or more of several
contiguous or geologically related blocks if it is shown that
such concentration of work will be most advantageous and
beneficial in the development and operation of the coal
operating contract are; Provided, further, that if during any
contract year, the operator shall spend more than the amount
of money required to be spent, the excess may be credited
against the money required to be spent by the operator
during the succeeding years; Provided, furthermore, that
should the operator fail to comply with the work obligations
provided for in the coal operating contract, it shall pay to the
Government the amount it should have spent but did not in
direct prosecution of its work obligations; Provided, finally,
that except in case of open pit mining, the operator shall drill
at least thirty (30) holes per block and a minimum footage of
exploratory holes before the end of the exploration period as
may be specified in the coal operating contract. The Board
may, however, taking into account the geological and
technical factors involved; allow a lesser number of drill holes
and footage giving due credit to other accepted exploration
methods and practices.
Section 5. The same Decree is hereby further amended by
adding the following sections immediately following Section
Sixteen thereof.
"Sec. 16-A. Entry and Use of Private Lands
(a) Coal exploration, development and exploitation is hereby
declared of public use and benefit and for which the power of
eminent domain may be invoked and exercised for the entry,
acquisition and use of private lands; Provided, that any person
or entity acquiring any option or right on such land after the
execution of a coal operating contract covering such land not
be entitled to the compensation herein provided.
(b) The coal operator shall not be prevented from entry into
private lands for the purpose of exploring, developing and
exploiting coal contract area, upon prior written notification
17 | P r o j e c t Development_Cha Mendoza
sent to, and duly received by, the surface owner of the land
and occupant thereof. However, if the surface owner of the
land and occupant thereof refuses to allow the coal operator's
entry into the land despite his receipt of the written
notification, or refuses to receive said written notification, or
cannot be found, then the coal operator shall notify the
Energy Development Board of such fact, and shall be attached
thereto a copy of the written notification.
(c) In all cases mentioned in the preceding paragraph, the
coal operator shall post a bond with the Energy Development
Board in the amount to be fixed by said Energy Development
Board based on type of the land and the value of the trees,
plants and other existing improvements thereon which shall
be the basis of compensation of the surface owner of the land
and/or occupant thereof in the appropriated cases mentioned
in the next succeeding paragraph.
(d) In the absence of an agreement between the coal operator
and the surface owner of the land and/or occupant, the
surface owner of the land and occupant thereof shall be
entitled to the following compensation;
(1) Titled Lands. For the conduct of exploration, development
and exploitation within lands covered by Torrens Title or other
government-recognized titles, the surface owner shall receive
as compensation from the coal operator at least One Peso
(P1.00) for every ton of coal extracted on his hand. However,
in the event that the surface owner suffers damage to his
plants, trees, crops and other improvements on his land as a
direct result of the coal operation conducted by the coal
operator, the former shall be entitled to compensation for the
value thereof that are damaged or destroyed.
(2) Untitled Lands or land with Incomplete Titles. For the
conduct of exploration, development and exploitation of coal
within untitled lands or lands with incomplete titles, the
surface owner shall receive as compensation from the coal
operator at least Fifty Centavos (P0.50) for every ton of coal
extracted on his land. However, in the event that the surface
landowner suffers damage to his plants, trees, crops and
other improvements on his land as a direct result of operation
conducted by the coal operator, the former shall be entitled to
compensation for the value thereof that are damaged or
destroyed.
Lands with incomplete titles referred to herein shall mean
those possessory rights which can ripen into rights of
ownership registerable under the Torrens System.
(3) Government Reserved Lands. Government reserved lands
for purposes other than mining shall be open to a coal
operating contract by filing an application therefore with the
Energy Development Board, subject always to compliance
with pertinent laws, rules and regulations covering such
reserved lands; Provided, that the compensation due the
surface owner shall accrue equally between the supervising
agency and of the Energy Development Board, to be
disbursed for conservation measures."
"Sec. 16-B Timber Rights. Any provision of law to the contrary
notwithstanding, the operator may cut trees or timber within
his coal contract area subject to applicable law and to the
rules and regulations of the Bureau of Forest Development as
may be necessary for the exploration, development and
exploitation of his coal contract area; Provided, that if the
lands covered in the coal contract area are already covered
by existing timber concessions, the amount of timber needed
and manner of cutting and removal thereof shall be subject to
the same rules and agreed upon by the operator and the
timber concessionaire; Provided, further, that, in case no
agreement can be reached between the operator and the
timber concessionaire, the matter shall be submitted to the
Energy Development Board whose decision shall be final. The
operator granted a timber right shall be obligated to perform
reforestation works within the coal contract area in
accordance with the regulations of the Bureau of Forest
Development."
"Sec. 16-C Water Rights. A coal operator shall also enjoy
water rights necessary for the exploration, development and
exploitation of his coal contract area upon application filed
with the Director of the Bureau of Public Works in accordance
with the existing laws of water and the rules and regulations
promulgated thereunder; Provided, that water rights already
granted or legally existing shall not thereby be impaired;
Provided, further, that the government reserves the right to
regulate water rights and the reasonable and equitable
distribution of water supply so as to prevent the monopoly of
the use thereof."
"Sec. 16-D Applicability of Certain Provisions of Presidential
Decree No. 463 The provisions of Chapter XIV (Penal
Provisions) of Presidential Decree No. 463, otherwise known
as the "Mineral Resources Development Decree of 1974" shall
be applicable to the coal operations; Provided, that any
reference therein to the Decree and to the Bureau Director of
Mines shall mean Presidential Decree No. 972 and the Energy
Development Board, respectively.
Section 6. Separability Clause. Should any provisions of this
Decree be held unconstitutional, no other provision hereof
shall be effected thereby.
Section 7. Repealing Clause. All laws, decrees, executive
orders, administrative orders, rules and regulations, or parts
thereof in conflict or inconsistent with any provision of this
Decree are hereby repealed, revoked, modified or amended
accordingly.
Section 8. Effectivity. This Decree shall take effect
immediately.
Done in the City of Manila, this 27th day of July, in the year of
Our Lord, nineteen hundred and seventy-seven.
Pasted from
<http://www.lawphil.net/statutes/presdecs/pd1977/pd_1174_1
977.html>
REPUBLIC ACT NO. 7156
Republic Act No. 7156 September 12, 1991
AN ACT GRANTING INCENTIVES TO MINI-
HYDROELECTRIC POWER DEVELOPERS AND FOR OTHER
PURPOSES
Be it enacted by the Senate and House of Representatives of
the Philippines in Congress assembled::
Section 1. Title. – This Act shall be known as the "Mini-
hydroelectric Power Incentive Act.".
Section 2. Declaration of Policy. – It is hereby declared the
policy of the State to strengthen and enhance the
development of the country's indigenous and self-reliant
scientific and technological resources and capabilities and
their adaptation to the country in order to attain energy self-
sufficiency and thereby minimize dependence on outside
source of energy supply. In pursuance thereof, it is further
declared that mini-hydroelectric power developers shall be
granted the necessary incentives and privileges to provide an
environment conducive to the development of the country's
hydroelectric power resources to their full potential.
Section 3. Declaration of Objectives. – The objectives of
the framework being established for the development of mini-
hydroelectric power generation are as follows:
(1) To encourage entrepreneurs to develop potential sites for
hydroelectric power existing in their respective localities;
(2) To encourage entrepreneurs to develop potential sites for
hydroelectric power existing in the country by granting the
necessary incentives which will provide a reasonable rate of
return;
(3) To facilitate hydroelectric power development by
eliminating overlapping jurisdiction of the many government
agencies whose permits, licenses, clearances and other
similar authorizations issued by various government agencies
as presently required for such development, and by vesting in
one agency the exclusive authority and responsibility for the
development of mini-hydroelectric power;
(4) To apportion a part of the realty and special privilege
taxes and other economic benefits of the hydroelectric power
18 | P r o j e c t Development_Cha Mendoza
potential to the respective localities where they are
established; and
(5) To provide a contractual framework wherein some stability
of conditions can be relied upon for long-term financing
purposes.
Section 4. Definition of Terms. – As used in this Act, the
following terms shall be understood, applied and construed as
follows:
(1) "Hydroelectric power" shall refer to the electric power
produced by utilizing the kinetic energy of falling or running
water to turn a turbine generator;
(2) "Mini-hydroelectric power plant" shall refer to an electric-
power-generating plant which: (a) utilizes the kinetic energy
of falling or running water (run-of-river hydro plants) to turn a
turbine generator producing electricity; and (c) has an
installed capacity of not less than 101 kilowatts nor more than
10,000 kilowatts.
(3) "Mini-hydroelectric power development" shall refer to the
construction and installation of a hydroelectric- power-
generating plant and its auxiliary facilities such as
transmission, substation and machine shop with an installed
capacity of not less that 101 kilowatts nor more than 10,000
kilowatts;
(4) "Mini-hydroelectric power developer" or "developer" shall
refer to any individual, cooperative, corporation or association
engaged in the construction and installation of a
hydroelectric-power-generating plant with an installed
capacity of not less than 101 kilowatts nor more than 10,000
kilowatts;
(5) "Domestic use" shall refer to the utilization of water for
drinking, washing, bathing, cooking or other household needs,
home gardens and watering of lawns or for domestic animals;
(6) "Municipal use" shall refer to the utilization of water for
supplying the water requirements of the community; and
(7) "Irrigation use" shall refer to the utilization of water for
producing agricultural crops.
Section 5. Agency in Charge. – The Office of Energy Affairs,
hereinafter referred to as the OEA, shall be the sole and
exclusive authority responsible for the regulation, promotion
and administration of mini-hydroelectric power development
and the implementation of the provisions of this Act.
Section 6. Powers and Duties of the OEA. – The OEA shall
exercise the following powers and duties:
(1) Within six (6) months from approval of this Act,
promulgate, in consultation with the National Water
Resources Board (NWRB), such rules and regulations as may
be necessary for the proper implementation and
administration of this Act;
(2) Process and approve applications for mini-hydroelectric
power development, imposing such terms and conditions as it
may deem necessary to promote the objectives of this Act,
subject to the following standards, namely:
(a) The applicant must be a citizen of the Philippines or a
corporation, partnership, association or joint stock company,
constituted and organized under the laws of the Philippines, at
least sixty percent (60%) of the stock or paid-up capital of
which belongs to citizens of the Philippines;
(b) The applicant must prove that the operation of the
proposed mini-hydroelectric project and the authorization to
do business will promote the public interest in a proper and
suitable manner and, for this purpose, within six (6) months
from approval of this Act, formulate, in consultation with the
National Economic and Development Authority (NEDA), the
National Electrification Administration (NEA), and the
Department of Trade and Industry (DTI), standards to
measure the technical and financial capability of the
developer; and
(c) The applicant must be financially capable of undertaking
the proposed mini-hydroelectric project and meeting the
responsibilities incident to its operations;
(3) Charge reasonable fees in connection with the filing,
processing, evaluation, and approval of applications for mini-
hydroelectric power development in all suitable sites in the
country;
(4) Exclusive authority to issue permits and licenses relative
to mini-hydroelectric power development;
(5) Require the developer to post a bond or other guarantee
of sufficient amount in favor of the Government and with
surety or sureties satisfactory to the OEA upon the faithful
performance by the contractor of any or all of the obligations
under and pursuant to the contract within sixty (60) days after
the effective date of the contract; and
(6) Generally, exercise all the powers necessary or incidental
to attain the purposes of this Act and other laws vesting
additional powers on the OEA.
Section 7. Sale of Power. – The mini-hydroelectric power
developer must first offer to sell electric power to either the
National Power Corporation (NPC), franchised private electric
utilities or electric cooperatives at a price per kilowatt-hour
based on the NPC's or the utility's avoided cost which shall
refer to the costs of the affected grids had NPC generated the
equivalent electric power itself before disposing the power to
third parties. The NPC shall allow the mini-hydroelectric
developer to deliver its generated electricity to the
developer's customers through existing NPC lines so as to
serve such third parties under terms which are to be mutually
agreed upon or, if no agreement can be reached, under terms
set by the OEA.
Section 8. Non-exclusive Development. – Development of
less than fifty percent (50%) of the hydroelectric power
potential of the proposed site shall be non-exclusive. The OEA,
after a thorough review and evaluation of its technical and
economic viability, may grant the development of the site to
its full power potential to any qualified developer: provided,
that first option shall be given to the original developer:
provided, further, that in case the original developer forfeits
his option to pursue development of the hydroelectric power
resource to its full potential, it shall be reimbursed by the
successor-developer of the value of its investment based on
the declared value of the development for real estate tax
purposes over the immediately preceding three (3) years or,
in case the declared value over said period differs, on the
average value thereof.
Section 9. Mandatory Restoration Work. – In all cases
where the proposed mini-hydroelectric power development
entails the closure or stoppage of existing water outlets,
passageways, connections, conduits, apertures or the like
from the water source, it shall be mandatory for the developer
to restore or reengineer such water outlets, passageways,
connections, conduits, apertures or the like on its account or
expense, and in such manner that existing users or
appropriators shall not be permanently deprived of their use
or appropriation.
Section 10. Tax Incentives. – Any person, natural or
judicial, authorized to engage in mini-hydroelectric power
development shall be granted the following tax incentives or
privileges:
(1) Special Privilege Tax Rates. – The tax payable by grantees
to develop potential sites for hydroelectric power and to
generate, transmit and sell electric power shall be two
percent (2%) of their gross receipts from the sale of electric
power and from transactions incident to the generation,
transmission and sale of electric power. Such privilege tax
shall be made payable to the Commissioner of Internal
Revenue or his duly authorized representative on or before
the 20th day of the month following the end of each calendar
or fiscal quarter;
(2) Tax and Duty-free Importation of Machinery, Equipment
and Materials. – Within seven (7) years from the date of
award, importation of machinery and equipment, materials
and parts shipped with such machinery and equipment
including control and communication equipment shall not be
subject to tariff duties and value-added tax: provided, that the
said machinery, equipment, materials and parts: (a) are not
manufactured domestically in reasonable quantity and quality
at reasonable prices; (b) are directly and actually needed and
will be used exclusively in the construction and impounding of
water, transformation into energy, and transmission of electric
energy to the point of use; and (c) are covered by shipping
19 | P r o j e c t Development_Cha Mendoza
documents in the name of the duly registered developer to
whom the shipment will be directly delivered by customs
authorities: provided, further, that prior approval of the OEA
was obtained before the importation of such machinery,
equipment, materials and parts was made;
(3) Tax Credit on Domestic Capital Equipment. – A tax credit
equivalent to one hundred percent (100%) of the value of the
value-added tax and customs duties that would have been
paid on the machinery, equipment, materials and parts had
these items been imported shall be given to an awardee-
developer who purchases machinery, equipment, materials
and parts from a domestic manufacturer: provided, that such
machinery, equipment, materials and parts are directly
needed and will be used exclusively by the awardee-
developer: provided, further, that prior approval by the OEA
was obtained by the local manufacturer: provided, finally, that
the sale of such machinery, equipment, materials and parts
shall be made within seven (7) years from the date of award;
(4) Special Realty Tax Rates on Equipment and Machinery. –
Any provision of the Real Property Tax Code or any other law
to the contrary notwithstanding, realty and other taxes on
civil works, equipment, machinery and other improvements of
a registered mini-hydroelectric power developer shall not
exceed two and a half percent (2.5%) of their original cost;
(5) Value-added Tax Exemption. – Exemption from the ten
percent (10%) value-added tax on the gross receipts derived
from the sale of electric power whether through the NPC grid
or through existing electric utility lines; and
(6) Income Tax Holiday. – For seven (7) years from the start of
commercial operation, a registered mini-hydroelectric power
developer shall be fully exempt from income taxes levied by
the National Government.
Section 11. Disposition and Allotment of Special
Privilege Taxes. – If the mini-hydroelectric power
development is located in a city, sixty percent (60%) of the
special privilege taxes collected shall accrue to the city and
forty percent (40%) to the National Government.
If the mini-hydroelectric power development is located in a
municipality, thirty percent (30%) of the special privilege
taxes collected shall accrue to the municipality, thirty percent
(30%) to the province and forty percent (40%) to the National
Government.
Section 12. Term of Contract. – The term of contract shall
be for a period of twenty-five (25) years extendible for
another twenty-five (25) years under the same original terms
and conditions: provided, that said awardee has complied
faithfully with all terms and conditions of the award.
Section 13. Official Development Assistance. – The
provision of Executive Order No. 230 of 1986, on the power of
the NEDA Board, and rules and regulations governing the
evaluation and authorization for the availment of Official
Development Assistance notwithstanding, the privatization of
the mini-hydroelectric power plants as provided for in this Act
shall be eligible for foreign loans and grants without further
evaluation by the NEDA Board, subject to Section 21, Article
XII of the Constitution.
Section 14. Reporting Requirements. – The OEA shall
submit an annual report to the Congress of the Philippines
with respect to the implementation of this Act.
Section 15. Repealing Clause. – All laws, decrees,
executive orders, rules and regulations, or parts thereof,
inconsistent with this Act are hereby repealed, amended or
modified accordingly.
Section 16. Effectivity. – This Act shall take effect fifteen
(15) days after its publication in at least two (2) newspapers
of general circulation.
Approved: September 12, 1991.
Pasted from
<http://www.lawphil.net/statutes/repacts/ra1991/ra_7156_199
1.html>
EXECUTIVE ORDER NO. 462
EXECUTIVE ORDER NO. 462 May 17, 1991
DEVOLVING TO THE AUTONOMOUS REGIONAL
GOVERNMENT OF THE AUTONOMOUS REGION IN
MUSLIM MINDANAO THE POWERS AND FUNCTIONS OF
THE OFFICE FOR SOUTHERN CULTURAL COMMUNITIES,
THE CONTROL AND SUPERVISION OVER ITS OFFICES IN
THE REGION AND FOR OTHER PURPOSES
WHEREAS, Section 15, Article XV of Republic Act No. 6734
provides that "The Regional Government shall recognize,
respect, protect, preserve, revive, develop, promote and
enhance the culture, customs, traditions, beliefs and practices
of the people in the area of autonomy and shall encourage
and undertake the recovery, collection, collation, and
restoration of historical and cultural properties for posterity;"
WHEREAS, the Oversight Committee created under the said
Act recommends that the Autonomous Regional Government
must take charge of the promotion of its cultural heritage in
keeping with the spirit of autonomy;
NOW, THEREFORE, I, CORAZON C. AQUINO, President of the
Philippines, by virtue of the powers vested in me by law, do
hereby order:
Sec. 1. Transfer of Powers and Functions of the Office for
Southern Cultural Communities (OSCC). The following
functions of the Office for Southern Cultural Communities
(OSCC) under Executive Order No. 122-C, series of 1987, are
hereby transferred to the Autonomous Regional Government
(ARG):
a. Formulation, coordination, implementation, and monitoring
of policies, plans, programs and projects affecting the
southern cultural communities within the Autonomous Region
for Muslim Mindanao (ARMM); serve as the link between the
Regional Governor and agencies; public or private, internal or
external; involved in such programs and projects; and
recommend such affirmative actions as may be necessary of
their efficient and effective implementation;
b. Undertake and coordinate development programs and
projects for the advancement of southern cultural
communities, including designing, implementing and
maintaining settlements in the ARMM;
c. Provide mechanism through which the southern cultural
communities within the ARMM can seek the ARG assistance
and through which such assistance may be extended to them;
d. Serve as the custodian and administrator in charge of all
existing OSCC settlements within the ARMM, subdivisions,
allocations and distribution of public lands and those which
shall for the southern cultural communities including ancestral
lands as provided by law;
e. Enter, subject to existing laws, policies and guidelines, into
such contracts, agreements, or arrangements, with
government or private agencies or entities as may be
necessary to attain the objectives of the ARMM, including
obtaining loans from lending institutions;
f. Accept grants, donations, gifts, funds, and/or properties in
whatever form and from whatever source, for the benefits of
the southern cultural communities within the ARMM, and
administer the same in accordance with the terms thereof, or
in the absence of any condition, in such manner as may be
consistent with the interest of southern cultural communities
in ARMM as well as any existing laws;
g. Undertake studies, formulate policies and plans and
implement programs and projects for the preservation and
development of the historical and cultural heritage of
southern cultural communities within the ARMM as well as
establish and maintain ethnographic research centers and
museums on the culture and institution of the southern
cultural communities in the ARMM as may be necessary;
h. Coordinate the enforcement of policies and laws protecting
the rights of the southern cultural communities to their
ancestral lands, including the applications of customary laws
governing property rights and relations, in determining the
ownership and extent of ancestral lands, subject to
procedures and standards established by the legislature or
any other duly constituted authority and for this purpose,
20 | P r o j e c t Development_Cha Mendoza
enlist the assistance of appropriate government agencies,
including those concerned with law enforcement;
i. Acquire, lease or own such properties or assets in whatever
form as may be necessary and sell or otherwise dispose of the
same and serve as the custodian or administrator of such
lands or areas and other properties or assets as the ARG may
reserve for the benefit of the southern cultural communities in
the ARMM;
j. Conduct inspections or surveys jointly with other
appropriate agencies, and issue necessary certifications prior
to the grant of any license, lease or permit for the exploitation
of natural resources affecting the interests of the southern
cultural communities in the ARMM;
k. Provide legal and technical services for the survey,
adjudication, titling and development of tribal ancestral lands
as well as settlements proclaimed by the government for the
southern cultural communities within the ARMM;
l. Provide medical assistance and health programs in
coordination with the Department of Health;
m. Coordinate the formulation, design, integration and the
implementation, where applicable, of development plans
which will assist members of the southern cultural
communities in the ARMM in developing their ancestral lands
with respect to contiguous areas occupied by members
thereof, incorporating therein livelihood programs and
ecological or environmental protection for traditional tribal
domains, tribal hunting grounds and sacred ancestral places
or tribal cultural assets;
n. Assist, promote and support community schools, both
formal and non-formal for the benefit of members of the
southern cultural communities, incorporating therein the
cultural values of the beneficiary communities consistent with
the Filipino values of good citizenship and love of country,
preferably in areas where existing educational facilities are
not accessible to members of the southern cultural
communities in the ARMM, in coordination with the
Department of Education, Culture and Sports;
o. Encourage trade fairs and market centers to serve as
outlets for the agricultural and handicraft products of the
southern cultural communities; support the establishment of
other marketing assistance and credit facilities for the
promotion of trade and entrepreneurship among southern
cultural communities in the ARMM;
p. Promote peace and harmony within, between and among
the southern cultural communities by acting as mediator and
encouraging the peaceful settlement of tribal disputes in
accordance with prevailing customary laws of each particular
tribe; for such purpose, shall codify the customary laws of
each particular tribe, specially those on the conduct of
adjudication councils;
q. Recommend appropriate legislative proposals intended to
promote the interests of the cultural communities within the
ARMM;
r. Certify, whenever appropriate, membership of persons
belonging to the southern cultural communities in the ARMM
for purposes of establishing qualifications for specific
requirements of government and private agencies and for
other benefits as may be provided by law; and
s. Perform such other functions as may be provided by law.
Sec. 2. Transfer of Programs and Projects. The programs and
projects of the OSCC located in the provinces of the ARMM
shall be turned over to the Autonomous Regional Government
Subject to the usual government accounting and auditing
rules and procedures.
Sec. 3. Personnel and Administration. (1) All plantilla positions
(filled and unfilled) of the OSCC effectively assigned or with
the provinces of the ARMM as their official station shall be
placed immediately under the control and supervision of the
ARG.
(2) All personnel of the OSCC who are absorbed by the ARG
shall retain their seniority rights, compensation and other
benefits as provided under Section 2, Article XIX of Republic
Act No. 6743.
(3) Personnel who decline to transfer or be absorbed by the
ARG shall have the following options as outlined by the Civil
Service Commission:
a. Retirement, if eligible;
b. Absorption by their line department in another office or
region subject to the availability of positions and at
management's discretion;
c. Transfer to another department subject to the availability of
position; or
d. Voluntary resignation.
Sec. 4. Assets, Equipment and Properties. The field offices and
sub-field offices of the OSCC shall be transferred to the ARG,
subject to the provisions of law, pertinent issuances and other
rules and regulations.
Sec. 5. Budget. All outstanding budget balances duly
appropriated for the operations of the OSCC in the provinces
of ARMM for the current fiscal year as of the date of transfer
shall be turned over to the ARG.
Sec. 6. Date of Transfer. The date of transfer shall be set one
month after the date of effectivity of this Executive Order.
Sec. 7. Separability Clause. If, for any reason, any part or
provision of this Executive Order shall be held unconstitutional
or declared contrary to law, other parts or provisions hereof
which are not affected thereby shall continue to be in full
force and effect.
Sec. 8. Effectivity. This Executive Order shall take effect
fifteen (15) days after publication in a newspaper of general
circulation and one (1) local newspaper of general circulation
in the ARMM.
DONE in the City of Manila, this 17th day of May, in the year
of Our Lord, nineteen hundred and ninety-one.
Pasted from
<http://www.lawphil.net/executive/execord/eo1991/eo_462_1
991.html>
EXECUTIVE ORDER NO. 232
????
EXECUTIVE ORDER NO. 232 July 22, 1987
PROVIDING FOR THE STRUCTURAL AND FUNCTIONAL
REORGANIZATION OF THE NATIONAL COUNCIL FOR THE
WELFARE OF THE DISABLED PERSONS AND FOR OTHER
PURPOSES
WHEREAS, the national government recognizes its
responsibility to provide disabled persons with the fullest
measure of protection and assistance to help develop their
abilities in all fields of endeavor and to promote their
integration into the mainstream of society, as well as its
primary duty for the prevention of disabilities;
WHEREAS, the national government is also cognizant of the
limitations of the existing system for delivery of services to
persons with disabilities and the need to extend the ranges of
disability prevention and rehabilitation services;
WHEREAS, there is an increasing awareness in the
government and private sectors on the problems of disability
of their joint responsibility to be involved in the national effort
to seek solutions to the problems;
WHEREAS, the national leadership notes, with great concern,
that in the pursuit of this responsibility, there has been a
proliferation of activities and programs for the welfare of
persons with disabilities by government agencies and private
organizations and that for lack of central direction and
coordination, there is widespread overlapping and duplication
of efforts, thereby resulting in the wastage of scarce
resources and professional services and impairing the
achievement of definite goals;
WHEREAS, the National Commission Concerning Disable
Persons was created on 11 June 1978 by virtue of Presidential
Decree No. 1509 as amended;
WHEREAS, the National Commission Concerning Disabled
Persons was replaced by the National Council for the Welfare
21 | P r o j e c t Development_Cha Mendoza
of Disabled Persons by virtue of Executive Order No. 123
dated January 1987;
WHEREAS, the structural and functional reorganization of the
National Council for the Welfare of Disabled Persons is
deemed necessary for effective and efficient delivery of
services to persons with disabilities;
NOW, THEREFORE, I, CORAZON, C. AQUINO, President of the
Philippines, by virtue of the powers vested in me by the
sovereign will of the Filipino people and the Constitution, do
hereby order:
Sec. 1. Title. This Executive Order shall otherwise be known as
the Reorganization Act of the former National Commission
Concerning Disable Persons (NC P) not known as the National
Council for the Welfare of Disabled Persons (NCWDP) as
provided for under Executive Order No. 123 and attached to
the Department of Social Welfare and Development.
Sec. 2. Declaration of Policy. The State's paramount concern
for the welfare of the disabled persons as embodied in several
provisions of the 1987 Constitution of the Philippines is hereby
affirmed.
Sec. 3. Objectives of the Council. Th
Pasted from
<http://www.lawphil.net/executive/execord/eo1987/eo_232_1
987.html>
ADMINISTRATIVE ORDER NO. 10, MAY 26, 2001, OFFICE
OF THE PRESIDENT
ADMINISTRATIVE ORDER NO. 10 - CREATING AN INTER-
AGENCY COMMITTEE TO REVIEW ALL CONTRACTS
ENTERED INTO BY NPC PURSUANT TO REPUBLIC ACT
NO. 6957 AS AMENDED, OTHERWISE KNOW AS THE
BUILD-OPERATE-TRANSFER (BOT) LAW
Whereas, the National Power Corporation (NPC), in
response to the energy crisis has entered into take-or-
pay contracts or arrangements of similar nature with
Independent Power Producers (IPPs) / Facility
Operators pursuant to the BOT Law.
Whereas, these take-or-pay contracts between NPC
and the IPPs/Facility Operators are perceived to
contain onerous provisions grossly disadvantageous to
the government that engendered high electricity rates;
Whereas, the obligations arising from these take-or-
pay contracts far exceeded NPC's ability to pay, due to
its assumption of currency and market risks;
Whereas, these obligations further accumulated and
remained unrecovered resulting into stranded
contracted costs of NPC;
Whereas, NPC, saddled with these stranded contracted
costs is currently suffering substantial financial losses,
which if unabated shall cause its financial collapse;
Whereas, in order to mitigate high electricity rates,
stranded contracted costs and save NPC from financial
hemorrhage, there is the urgent need to review all
contracts of NPC entered into with IPPs/Facility
Operators with the end in view of renegotiating the
same.
NOW, THEREFORE, I GLORIA MACAPAGAL-ARROYO,
President of the Republic of the Philippines, by virtue
of the powers vested in me by law, do hereby order;
SECTION 1. Creation of an Inter-Agency Committee
An Inter-Agency Committee ("the Committee") is
hereby created to review all contracts entered into by
the National Power Corporation pursuant to Republic
Act No. 6957 as amended, otherwise known as the
Build-Operate-Transfer (BOT) Law with IPPs/Facility
Operators.
SECTION 2. Formation/Composition
The Committee shall be composed of the
representatives from the Department of Finance,
Department of Energy, Department of Justice, the
National Economic Development Authority and the
private sector to be appointed by the President.
The representative of the National Economic
Development Authority shall act as chair of the
Committee with the other departments as members
thereof.
The National Power Corporation shall act as the
Secretariat of the Committee and provide necessary
information, data, documentation, resource persons to
fully enable the Committee to perform its functions.
The Committee shall immediately convene upon
effectivity of this Administrative Order and shall have
a life of six months from the creation thereof,
extendible to a reasonable period upon
recommendation of the Committee and approval of the
Office of the president.
SECTION 3. Functions
The Committee shall have the following functions:
1. Conduct a review of all contracts into by NPC
pursuant to the BOT Law and identify, among others,
contractual provisions that affect electricity rates,
relate to stranded contracted costs, require
assumption of risks by NPC.
2. Recommend measures that will mitigate NPC's
stranded contracted costs, electricity rates and
assumption of risks by NPC.
3. Identify the areas of renegotiations with the
Independent Power Producers/Facility Operators.
4. Formulate strategies, alternatives and options for
renegotiations of NPC's contracts with IPPs/Facility
Operators
5. Direct NPC management to renegotiate its take-or-
pay contracts with the IPPs based on the Committee's
findings and recommendations.
6. Submit a final report on the results of such
renegotiations, to the Office of the President within six
months from the time of the Committee's creation
7. Perform other functions as may be necessary and
appropriate to achieve its objectives.
SECTION 4. Effectivity
This Executive Order shall take effect immediately
DONE in the City of Manila, this 26th day of May, in the
Year of our LORD, Two Thousand and One.
Pasted from
<http://www.chanrobles.com/administrativeorders/administrat
iveorderno10%202001.html>
22 | P r o j e c t Development_Cha Mendoza
R.A. NO. 8975, PROHIBITING INJUNCTIONS AND TROS
REPUBLIC ACT NO. 8975 November 7, 2000
AN ACT TO ENSURE THE EXPEDITIOUS
IMPLEMENTATION AND COMPLETION OF GOVERNMENT
INFRASTRUCTURE PROJECTS BY PROHIBITING LOWER
COURTS FROM ISSUING TEMPORARY RESTRANING
ORDERS. PRELIMINARY INJUNCTIONS OR PRELIMINARY
MANDATORY INJUNCTIONS, PROVIDING PENALTIES FOR
VIOLATIONS THEREOF, AND FOR OTHER PURPOSES.
Be it enacted by the Senate and House of Representatives of
the Philippines Congress assembled:
Section 1. Declaration of Policy. - Article XII, Section 6 of the
Constitution states that the use of property bears a social
function, and all economic agents shall contribute to the
common good. Towards this end, the State shall ensure the
expeditious and efficient implementation and completion of
government infrastructure projects to avoid unnecessary
increase in construction, maintenance and/or repair costs and
to immediately enjoy the social and economic benefits
therefrom.
Section 2. Definition of Terms. –
(a) National government projects" shall refer to all current and
future national government infrastructure, engineering works
and service contracts, including projects undertaken by
government-owned and –controlled corporations, all projects
covered by Republic Act No. 6957, as amended by Republic
Act No. 7718, otherwise known as the Build-Operate-and-
Transfer Law, and other related and necessary activities such
as site acquisition, supply and/or installation of equipment
and materials, implementation, construction, completion,
operation, maintenance, improvement, repair and
rehabilitation, regardless of the source of funding.
(b) "Service contracts" shall refer to infrastructure contracts
entered into by any department, office or agency of the
national government with private entities and non-
government organizations for services related or incidental to
the functions and operations of the department, office or
agency concerned.
Section 3. Prohibition on the Issuance of Temporary
Restraining Orders, Preliminary Mandatory Injunctions. – No
court, except the Supreme Court, shall issue any temporary
restraining order, preliminary injunction or preliminary
mandatory injunction against the government, or any of its
subdivisions, officials or any person or entity, whether public
or private acting under the government direction, to restrain,
prohibit or compel the following acts:
(a) Acquisition, clearance and development of the right-of-way
and/or site or location of any national government project;
(b) Bidding or awarding of contract/ project of the national
government as defined under Section 2 hereof;
(c) Commencement prosecution, execution, implementation,
operation of any such contract or project;1awphil.net™
(d) Termination or rescission of any such contract/project; and
(e) The undertaking or authorization of any other lawful
activity necessary for such contract/project.
This prohibition shall apply in all cases, disputes or
controversies instituted by a private party, including but not
limited to cases filed by bidders or those claiming to have
rights through such bidders involving such contract/project.
This prohibition shall not apply when the matter is of extreme
urgency involving a constitutional issue, such that unless a
temporary restraining order is issued, grave injustice and
irreparable injury will arise. The applicant shall file a bond, in
an amount to be fixed by the court, which bond shall accrue in
favor of the government if the court should finally decide that
the applicant was not entitled to the relief sought.
In after due hearing the court finds that the award of the
contract is null and void, the court may, if appropriate under
the circumstances, award the contract to the qualified and
winning bidder or order a rebidding of the same, without
prejudice to any liability that the guilty party may incur under
existing laws.
Section 4. Nullity of Writs and Orders. – Any temporary
restraining order, preliminary injunction or preliminary
mandatory injunction issued in violation of Section 3 hereof is
void and of no force and effect.
Section 5. Designation of Regional Trial Courts. - The
Supreme Court may designate regional trial courts to act as
commissioners with the sole function of receiving facts of the
case involving acquisition clearance and development of
right-of-way for government infrastructure projects. The
designated regional trial court shall within thirty (30) days
from the date of receipt of the referral, forwards its findings of
facts to the Supreme Court for appropriate action.
Section 6. Penal Sanction. – In addition to any civil and
criminal liabilities he or she may incur under existing laws,
any judge who shall issue a temporary restraining order,
preliminary injunction or preliminary mandatory injunction in
violation of Section 3 hereof, shall suffer the penalty of
suspension of at least sixty (60) days without pay.
Section 7. Issuance of Permits. – Upon payment in cash of
the necessary fees levied under Republic Act No. 7160, as
amended, otherwise known as the Local Government Code of
1991, the governor of the province or mayor of a highly-
urbanized city shall immediately issue the necessary permit to
extract sand, gravel and other quarry resources needed in
government projects. The issuance of said permit shall
consider environmental laws, land use ordinances and the
pertinent provisions of the Local Government Code relating to
environment.
Section 8. Separability Clause. - If any provision of this Act is
declared unconstitutional or invalid, other parts or provisions
hereof not affected thereby shall continue to be of full force
and effect.
Section 9. Repealing Clause. - All laws, decrees, including
Presidential Decree No. 605, 1818 and Republic Act No. 7160,
as amended, orders, rules and regulations or parts thereof
inconsistent with this Act are hereby repealed or amended
accordingly.
Section 10. Effectivity Clause. – This Act shall take effect
fifteen (15) days following its publication in at least two (2)
newspapers of general circulation.
Approved: November 7, 2000
Pasted from
<http://www.lawphil.net/statutes/repacts/ra2000/ra_8975_200
0.html>
QUEZON POWER PLANT
The Quezon Power Limited Company (QPL) facility is the first
build-own-operate power project in the Philippines, and the
first one in the country to be financed without government or
sovereign guarantees. Quezon Power occupies 87 hectares in
the municipality of Mauban, Quezon Province with a 31-
kilometer transmission line that links into the national
transmission network. It supports the national energy
planning efforts by diversifying the country's fuel mix for
electricity generation, expanding electric services to
developing areas, and stabilizing the electricity distribution
system in eastern Luzon.
Quezon Power, a partnership consisting of InterGen, Ogden
Energy Group, Global Power Investments, and PMR Limited,
was financed with approximately $809 million in debt and
equity including political risk guarantees of $405 million from
the U.S. Export-Import bank. In June of 1997, the project
issued $215 million of S.E.C. registered bonds.
Pasted from <http://wikimapia.org/1121815/Quezon-Power-
Plant>
23 | P r o j e c t Development_Cha Mendoza
IMPSA
In Haste, Arroyo Government Approves Controversial
IMPSA Deal
by LUZ RIMBAN
FOUR DAYS after it assumed office, the government of
President Gloria Macapagal-Arroyo gave the final approval to
the most controversial power project in the country: a $470-
million hydroelectric power contract that was awarded to the
Argentine firm IMPSA (Industrias Metalurgicas Pescarmona
Sociedad Anonima).
For eight years, the project to rehabilitate and operate the
750-megawatt Caliraya-Botocan-Kalayaan (CBK) power
complex in Laguna was in limbo because various state
agencies and rival private companies objected to what they
said was the favorable treatment IMPSA was seeking from the
government.
But in an opinion dated January 24, Justice Secretary
Hernando Perez, who was then just two days in his post, set
aside these objections and removed the legal obstacles to the
turnover of the CBK complex to the Argentine firm. Two weeks
later, on February 7, the government-owned National Power
Corporation (NPC) formally handed to IMPSA the most
strategic power facility in Luzon.
The CBK complex is the heart of the Luzon grid. It acts as the
grid's regulator, able to transmit power to other plants in the
grid in the event of breakdowns. It is also fuelled by water
drawn from the Laguna de Bay and the Caliraya and Lumot
lakes, a cheap and environmentally safe source of energy.
The haste with which the turnover was made under an
administration that had barely warmed its seat has raised
eyebrows in the power sector. It has also focused attention on
the role played in the IMPSA saga of two well-connected
individuals who have helped steer the Argentine company
through the rough waters of three administrations: Mark
Jimenez, a former trusted crony of ousted President Joseph
Estrada, and Carlos Villa Abrille, a half-Argentine businessman
who has been Philippine ambassador to Buenos Aires since
the time of former President Fidel Ramos.
It was Villa Abrille who was helping iron out the kinks in the
IMPSA deal up to the last days of the Estrada administration.
Three days before the president was ousted, businessmen
close to him said, the ambassador was in Estrada's Greenhills
mansion, seeking Malacañang's help in getting a justice
department opinion favoring IMPSA.
On January 20, the day Estrada left the presidential palace,
Villa Abrille was seen by at least two businessmen at Linden
Suites, which Arroyo used as a temporary headquarters
during the revolt. Four days later, the opinion that IMPSA
wanted was on the new justice secretary's desk.
IMPSA-Asia President Francisco Ruben Valenti said he met
with Perez at the latter's office on the same day and gave him
a briefing on the history of the CBK project. In those days,
Perez was busy issuing hold departure orders against Estrada
cronies yet he found time for Valenti.
But Perez, in an interview, flatly denied he had met with
Valenti or other IMPSA officials on the CBK project. He said it
was not Valenti, but NPC officials-whose names Perez could
not remember-who pestered him to sign the opinion.
On January 26, newspapers reported that Jimenez saw Perez
and offered to testify against Estrada. But the justice
secretary said the Jimenez affidavit does not make any
mention of the IMPSA deal. Yet on January 18, a newspaper
article said former finance secretary Edgardo Espiritu had
cited "the IMPSA power plant project, supposedly involving
Mark Jimenez, as the first among many allegedly anomalous
transactions."
The IMPSA case, which dates back to 1993, shows the lack of
transparency in the awarding of multibillion-peso government
contracts. It also reveals the opportunities for brokering and
deal making that arise from the privatization of the potentially
lucrative power sector.
The case of IMPSA has been the most publicized, but similar
questions have been raised about other power plant
contracts, including the one involving the rehabilitation of the
Binga hydroelectric power plant in Benguet. What these cases
have in common is the connections private companies make
at the highest levels of government to wangle contracts
advantageous to them.
"There have been unseen hands working on this contract,"
said Senator Sergio Osmeña, Jr., who has been opposing the
IMPSA contract for the past two years. Osmeña, however, is
himself identified with the Lopez family, which owns the First
Private Power Corp. The Lopezes lost out to IMPSA, even if
they, too, had their connections in Malacañang.
"That's the difficulty with business in this country, it's not a
level playing field," said a businessman familiar with the
IMPSA case and who has brokered deals between government
and private firms since the Marcos era.
The scramble for CBK began during the Ramos presidency,
when the power crisis was at its peak and Luzon was suffering
from daily outages. Villa Abrille, who had just been appointed
ambassador to Argentina, facilitated IMPSA's unsolicited
proposal to rehabilitate CBK.
At around that time, the Philippine firm International
Container Terminal Services, Inc. or ICTSI owned by the family
of businessman Enrique Razon won a contract to privatize a
port in Argentina.
The perception in the business community was that the
Argentines and their brokers wanted the CBK contract as a
quid pro quo for the ICTSI deal, although both Valenti and
Razon deny this.
Both however were present when President Ramos visited
Argentina, and when then Argentine president Carlos Menem
visited Manila. The IMPSA proposal was taken up in both state
visits.
The proposal, however, was held up by a land dispute in
Laguna. It was also challenged by the Lopezes, who wanted to
retain their dominance in the power sector. The Lopez firm
offered to charge the NPC only 64.5 centavos per kilowatt
hour for the electricity the CBK power plants would produce as
against IMPSA's original price of P1.80. IMPSA was forced to
match the Lopez bid, although it would later charge the NPC a
still higher rate of 69 centavos.
Questions were also raised over whether a foreign company
should be given rights to operate a hydroelectric power plant
as the Water Code allows only corporations with at least 60-
percent Filipino equity to exploit water resources.
When Estrada took over, IMPSA found a patron in Mark
Jimenez. The businessman, who is wanted in the U.S. for tax
fraud and illegal contributions to the 1996 reelection
campaign of Bill Clinton, was selling computers in South
America in the mid-1990s. He met Villa Abrille in Argentina
and was introduced to the ambassador's friends, Valenti and
Enrique Pescarmona, owner of IMPSA.
When Estrada was elected in 1998, "Jimenez convinced
Estrada to do the IMPSA deal," said a businessman who was
often in Malacañang at that time. It was also Jimenez, this
businessman said, who set up meetings between Valenti and
Estrada, and arranged the signing in Malacañang on Nov. 6,
1998 of the BROT (Build-Rehabilitate-Operate-Transfer)
contract between IMPSA and the NPC.
But Valenti denies any such relationship with Jimenez, saying
only that "forces of evil have tried to link Jimenez with CBK."
Valenti did admit though that in July 1998, barely a month
after Estrada became president, Jimenez approached him
offering to help facilitate approval of the CBK Project.
It was also around that time when then NPC President
Federico Puno sent Valenti a letter listing the three conditions
that were thought necessary to protect NPC interests. The
most contentious of these was the condition that the
government should not give IMPSA a "performance
undertaking," a guarantee that the government would assume
IMPSA's debts and capital investments in the event the
contract is terminated or if the NPC suffers losses, is
privatized or dissolved.
The absence of a guarantee made it difficult for IMPSA to get
financing for the CBK project. IMPSA needed the funds to
rehabilitate the power complex, which is composed of three
hydroelectric plants in Laguna. The firm, which would invest
24 | P r o j e c t Development_Cha Mendoza
$130 million and borrow $340 million for the project, would
then sell the power it generated to the NPC. Its contract
guarantees a 12-percent annual return on equity-about $5.6
million a year-for 25 years.
In a letter to the finance department on February 12, 1999,
Valenti said "distressed financial markets both abroad and in
the Philippines" would make it difficult for IMPSA to implement
the project without a performance undertaking.
Still, a broad range of officials from the NPC, the finance
department and the National Economic and Development
Authority (NEDA) refused to agree to a performance
undertaking because it would violate the amended BOT
(Build-Operate-Transfer) law that says unsolicited proposals
like IMPSA's cannot be given such guarantees.
Then Finance Secretary Edgardo Espiritu said he adamantly
refused to sign a performance undertaking, despite Estrada's
insistence, lest he be held liable for graft for violating the BOT
law. "Ang pumipirma sa (The one who signs the) guarantee is
the Department of Finance," he said. "And I talked to (then
NEDA chief) Felipe Medalla and told him, 'Philip, this is not
what NEDA had approved.' If we're forced to sign this, said
Philip, we should both resign."
In the end, apparently to appease the President, what Espirtu
signed on July 12, 1999 was a vaguely worded document that
barely committed the government to honor the project's
obligations. In the meantime, the Manila Times published a
report that raised questions about the IMPSA project and the
firm's insistence on a government guarantee, calling Estrada
an "unwitting ninong" to an anomalous contract.
Estrada was mad, threatened a P100-million libel suit against
the Times and eventually forced its sale to his crony Jimenez
in late July 1999. The Times controversy made it all the more
difficult for IMPSA to get the guarantee it wanted. In addition,
IMPSA failed to meet other obligations set by the NPC,
including a $70-million security deposit, which took the
Argentine company two years to post even if the deposit was
supposed to have been given immediately after the contract
was signed in 1998.
IMPSA also violated the condition set by NPC that it retain
100-percent equity in the CBK project for the first seven
years. Instead, the company brought in the American firm,
Edison Mission Energy (EME), which specializes in
hydroelectric power plants. The entry of EME diluted IMPSA's
equity to 50 percent even before the contract took effect.
Valenti, however, insists that the BROT contract allows IMPSA
to maintain a minimum of 20-percent equity.
Because of possible questions that might be raised about the
government guarantee, the new finance secretary, Jose Pardo,
hedged signing anything that might be legally questioned.
He finally gave in on December 28, 2000, just three weeks
before Estrada's fall, when he signed a Government
Acknowledgment and Consent Agreement. This document is
not a direct government guarantee but it bound the
government to honor agreements IMPSA made with its
creditors.
On January 17 this year, Pardo wrote the justice department a
letter asking for a ruling on whether it was valid for him to
sign that document. This was because the investment
coordinating committee of NEDA, in which the finance
department was represented, required approval of the
document by the justice department. NEDA and finance
department officials knew they were treading on dangerous
legal ground. Unless this ruling was made, the contract could
not get final government approval.
Pardo quickly withdrew his request for a justice department
ruling, given the volatile political situation at that time, and
because Espiritu had already come out in public identifying
the IMPSA deal as an anomalous contract.
But the lobbying went on until just a few days before Estrada's
fall, when Villa Abrille was paying visits to the Ejercito
residence on Polk Street. A few days later, he was seen at
Arroyo's headquarters at the Linden Suites in Mandaluyong.
What Perez signed soon after he became justice secretary
was the document IMPSA had been waiting for. That opinion
deviated from the norm: It is not numbered unlike other
justice department rulings, and has not yet been published,
reflecting the lack of transparency surrounding its release.
After it was issued, 19 banks led by BNP Paribas, the Dai-ichi
Kangyo Bank, the Industrial Bank of Japan and Societe
Generale agreed to put their money into the CBK project.
What could have convinced lenders to invest in the project
was a line in the Perez ruling that said "the Republic of the
Philippines has validly and effectively consented to the
transfer and assignment to the Lenders of all of CBK's rights
under the Government Undertaking."
Former finance department officials said the statement
commits the government to agreements entered into by
IMPSA and its creditors. "It's a dangerous statement to make,"
said a former finance assistant secretary. "It's an additional
defense for IMPSA against the NPC. It could put the Republic
in a very precarious situation."
Perez defended his decision. "There is nothing illegal in the
contract," he said, adding that the IMPSA opinion was just one
of the standard rulings justice secretaries are made to sign.
"To begin with, I didn't know it was controversial… My staff
looked into it and if there's any impropriety, it should have
been discussed at other levels."
Perez was not completely new to the IMPSA controversy. In
1999, he was a partner in the Balgos & Perez Law Office that
defended the Manila Times in the libel suit filed by Estrada.
In January, Perez conducted the direct examination on Espiritu
during Estrada's impeachment trial. The former finance
secretary took the witness stand ready to divulge information
on the anomalous contracts entered into by Estrada
government, among them the IMPSA contract.—with
additional reporting by Malou Mangahas
Copyright © 2001 All rights reserved.
PHILIPPINE CENTER FOR INVESTIGATIVE JOURNALISM
Pasted from <http://www.pcij.org/stories/print/power.html>
REPUBLIC ACT NO. 8479
Republic Act No. 8479 February 10, 1998
AN ACT DEREGULATING THE DOWNSTREAM OIL
INDUSTRY AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of
the Philippines in Congress assembled::
CHAPTER I
GENERAL PROVISIONS
Section 1. Short Title. – This Act shall be known as the
"Downstream Oil Industry Deregulation Act of 1998."
Section 2. Declaration of Policy. – It shall be the policy of
the State to liberalize and deregulate the downstream oil
industry in order to ensure a truly competitive market under a
regime of fair prices, adequate and continuous supply of
environmentally-clean and high-quality petroleum products.
To this end, the State shall promote and encourage the entry
of new participants in the downstream oil industry, and
introduce adequate measures to ensure the attainment of
these goals.
Section 3. Coverage. –This Act shall apply to all persons or
entities engaged in any and all activities of the domestic
downstream oil industry, as well as persons or companies
directly importing refined petroleum products for their own
use.
Section 4. Definition of Terms. – For purposes of this Act,
the following terms are hereinbelow defined:
(a) Basel Convention shall refer to the international accord
which governs the trade or movement of hazardous and toxic
wastes across borders;
(b) Board shall refer to the Energy Regulatory Board;
(c) BOI shall refer to the Board of Investments;
(d) Crude Oil shall refer to oil in its natural state before the
same has been refined or otherwise treated, but excluding
water, bottoms, sediments and foreign substances;
(e) Dealer shall refer to any person, whether natural or
juridical, who is engaged I the marketing and direct selling of
25 | P r o j e c t Development_Cha Mendoza
petroleum products to motorists, end users, and other
consumers;
(f) DOE shall refer to the Department of Energy;
(g) DOJ shall refer to the Department of Justice;
(h) Downstream Oil Industry(DOI) or Industry shall refer to the
business of importing; exporting, re-exporting, shipping,
transporting, processing, refining, storing, distributing,
marketing and/or selling crude oil, gasoline, diesel, liquefied
petroleum gas (LPG), kerosene, and other petroleum
products;
(i) Hauler shall refer to any person, whether natural or
juridical, engaged in the transport, distribution, hauling, and
carriage of petroleum products, whether in bulk or packed
form, from the oil companies and independent marketers to
the petroleum dealers and other consumers;
(j) LPG Distributor shall refer to any person or entity, whether
natural or juridical, engaged in exporting, refilling,
transporting, marketing, and/or selling of LPG to end users
and other consumers;
(k) New Industry Participants shall refer to new participants in
a particular sub-sector of the downstream oil industry with
investments and initial business operations commencing after
January 1, 1994;
(l) Person shall refer to any person, whether natural or
juridical, who is engaged in any activity of the downstream oil
industry;
(m) Petroleum shall refer to the naturally occurring mixture of
compounds of hydrogen and carbon with a small proportion of
impurities and shall include any mineral oil, petroleum gas,
hydrogen gas, bitumen, asphalt, mineral wax, and all other
similar or naturally-associated substances, with the exception
of coal, peat, bituminous shale and/or other stratified mineral
fuel deposits;
(n) Petroleum Products shall refer to products formed in the
case of refining crude petroleum through distillation, cracking,
solvent refining and chemical treatment coming out as
primary stocks from the refinery such as, but not limited to:
LPG, naphtha, gasolines, solvents, kerosenes, aviation fuels,
diesel oils, fuel oils, waxes and petrolatums, asphalt,
bitumens, coke and refinery sludges, or other such refinery
petroleum fractions which have not undergone any process or
treatment as to produce separate chemically-defined
compounds in a pure or commercially pure state and to which
various substances may have been added to render them
suitable for particular uses: Provided, That the resultant
product contains not less than fifty percent (50%) by weight
of such petroleum products;
(o) Singapore Import Parity(SIP) shall refer to the deemed
landed cost of a petroleum product imported from Singapore
at a free-on-board price equal to the average Singapore
Posting for that product at the time of loading;
(p) Singapore Posting shall refer to the price of petroleum
products periodically posted by oil refineries in Singapore and
reported by independent international publications; and
(q) Wholesale Posted Price (WPP) shall refer to the ceiling
price of petroleum products set by the Board based on its duly
approved automatic pricing formula.
CHAPTER II
LIBERALIZATION OF THE DOWNSTREAM OIL INDUSTRY
AND PROMOTION OF FREE COMPETITION
Section 5. Liberalization of the Industry. – Any law to the
contrary notwithstanding, any person or entity may import or
purchase any quantity of crude oil and petroleum products
from a foreign or domestic source, lease or own and operate
refineries and other downstream oil facilities and market such
crude oil and petroleum products either in a generic name or
his or its own trade name, or use the same for his or its own
requirement: Provided,That any person who shall engage in
any such activity shall give prior notice thereof to the DOE for
monitoring purposes: Provided, further, That such notice shall
exempt such person or entity from securing certificates of
quality, health and safety and environmental clearance from
the proper governmental agencies: Provided,
furthermore, That such person or entity shall, for monitoring
purposes, report to the DOE his or its every
importation/exportation: Provided, finally, That all oil
importations shall be in accordance with the Basel
Convention.
Section 6. Tariff Treatment. – (a) Any law to the contrary
notwithstanding and starting with the effectivity of this Act, a
single and uniform tariff duty shall be imposed and collected
both on imported crude oil and imported refined petroleum
products at the rate of three percent (3%): Provided,
however, That the President of the Philippines may, in the
exercise of his powers, reduce such tariff rate when in his
judgment such reduction is warranted, pursuant to Republic
Act No. 1937, as amended, otherwise known as the Tariff and
Customs Code:Provided, further, That beginning January 1,
2004 or upon implementation of the Uniform Tariff Program
under the World Trade Organization and ASEAN Free Trade
Area commitments, the tariff rate shall be automatically
adjusted to the appropriate level notwithstanding the
provisions under this Section.
(b) For as long as the National Power Corporation (NPC) enjoys
exemptions from taxes and duties on petroleum products
used for power generation, the exemption shall apply to
purchases through the local refineries and to the importation
of fuel oil and diesel.
Section 7. Promotion of Fair Trade Practices. – The
Department of Trade and Industry (DTI) and DOE shall take all
measures to promote fair trade and prevent cartelization,
monopolies, combinations in restraint of trade, and any unfair
competition in the Industry as defined in Article 186 of the
Revised Penal Code, and Articles 168 and 169 of Republic Act
No. 8293, otherwise known as the "Intellectual Property Law".
The DOE shall continue to encourage certain practices in the
industry which continue to encourage certain practices in the
Industry which serve the public interest and are intended to
achieve efficiency and cost reduction, ensure continuous
supply of petroleum products, and enhance environmental
protection. These practices may include borrow-and-loan
agreements, rationalized depot and manufacturing
operations, hospitality agreements, joint tanker and pipeline
utilization, and joint actions on spill control and fire
prevention.
The DOE shall monitor the relationship between the oil
companies (refiners and importers) and their dealers, haulers
and LPG distributors to help ensure the observance of fair and
equitable practices and to ensure the enforcement of existing
contracts: Provided, That the DOE shall conciliate and
arbitrate any dispute that may arise with respect to the
contractual relationship between the oil companies and the
dealers, haulers and LPG distributors involving the dealers'
mark-up, the freight rate in transporting petroleum products
and the margins of LPG distributors for the protection of the
public and to prevent ruinous competition: Provided,
further, That the arbitration award of the DOE shall be subject
to judicial review under existing law.
Section 8. Program to Encourage the Entry of New
Participants in the Industry. – The DOE, the Department of
Foreign Affairs (DFA) and the DTI shall jointly formulate and
establish a program that will promote the entry of new
participants in the Industry. Such program shall, among
others, include a strategic international information campaign
to be implemented through selected embassies and consular
offices of the Philippines. This program shall commence
implementation after three (3) months from the effectivity of
this Act.
In this regard, the DOE shall provide a "Philippine Downstream
Oil Industry Investment Guide" to new industry participants
and prospective participants. This guide, shall, among others,
contain:
(a) An introduction to the Philippine Downstream Oil Industry
and the government's unwavering commitment to
deregulation;
(b) The entry requirements;
(c) Information on the benefits and incentives for new industry
participants which shall specify: (i) all the incentives and
benefits they can enjoy, and (ii) the procedural and
substantive requirements needed for entitlement; and
26 | P r o j e c t Development_Cha Mendoza
(d) Such other information the DOE may deem necessary to
promote the entry of new participants.
Section 9. Incentives for New Investments. – To the
extent applicable, persons with new investments as
determined by the DOE and registered with the BOI in
refining, storage, marketing and distribution of petroleum
products, shall be extended the same incentives granted to
BOI-registered enterprises engaged in a preferred area of
investments pursuant to Executive Order No. 226, otherwise
known as the "Omnibus Investments Code of 1987".
Such incentives shall include:
(1) Income tax holiday;
(2) Additional deduction for labor expenses;
(3) Minimum tax and duty of three percent (3%) and value-
added tax (VAT) on imported capital equipment;
(4) Tax credit on domestic capital equipment;
(5) Exemption from contractor's tax;
(6) Unrestricted use of consigned equipment;
(7) Exemption from the real property tax on production
equipment or machineries;
(8) Exemption from taxes and duties on imported spare parts;
and
(9) Such other applicable incentives under Article 39 of
Executive Order No. 226.
Any provision of the law to the contrary notwithstanding, the
said incentives may be availed by persons with new
investments for a period of five (5) years from registration
with the BOI: Provided, however, That in the storage,
marketing and distribution of petroleum products, only the
investments of new industry participants shall be entitled to
incentives provided in the said Code. As used herein,
"marketing of petroleum products" shall include the
establishment of gasoline stations.
For this purpose, the industry shall be included in the annual
Investment Priorities Plan (IPP): Provided, That nothing in
herein contained shall preclude qualified persons or entities
as provided under the "Omnibus Investments Code" from
applying from or continue enjoying incentives and benefits
under the said Code.
Section 10. Promotion of Retail Competition. – To
achieve the social and policy objective of fair prices, facilitate
the attainment of a truly competitive product market in the
retail level, the DOE shall promote and encourage by way of
information dissemination, networking, and
management/skills training, the active and direct participation
of the private sector and cooperatives in the retailing of
petroleum products through joint venture/supply agreements
with new industry participants for the establishment and
operation of gasoline stations: Provided, That the training
herein shall include LPG retailing.
To this end, the DOE shall, in accordance with the Technology
and Livelihood Resource Center (TLRC) and Technical
Education and Skills Development Authority (TESDA),
coordinate with new industry participants and existing
petroleum dealers' associations in the formulation and
implementation of a two-fold program on management and
skills training for the establishment, operation, and
maintenance of gasoline stations.
Persons who successfully complete the two-fold program shall
be entitled to government assistance being extended by
government lending agencies, in the form of medium- to long-
term loans with low interest rates and to the gasoline training
station training and loan fund provided hereunder, to serve as
capital for the establishment and operation of gasoline
stations.
For these purposes, there is hereby established a gasoline
station and loan fund with the initial amount of Three hundred
million pesos (P 300,000,000.00) to be provided by the
Philippine Amusement and Gaming Corporation (PAGCOR) and
administered by the DOE under a separate account.
Of this amount, two percent (2%) plus any additional funding
shall be allocated for he two-fold program; one percent (1%)
plus any additional funding shall be set aside for
administrative, maintenance, and other operating expenses;
ninety-four percent (94%) shall be used exclusively for
lending and financial assistance; the remaining three percent
(3%) shall be utilized in accordance with the provisions of
Section 26 of this Act: Provided, That the loans to be awarded
herein shall be from short- to medium-term with low interest
rates; Provided, further, That these loans shall be awarded to
qualified persons who are able to comply with the conditions
set forth in the next two (2) preceding paragraphs.
CHAPTER III
ANTI-TRUST SAFEGUARDS, OTHER PROHIBITED ACTS
AND REMEDIES
Section 11. Anti-Trust Safeguards. – To ensure fair
competition and prevent cartels and monopolies in the
Industry, the following acts are hereby prohibited:
(a) Cartelization which means any agreement, combination or
concerted action by refiners, importers and/or dealers, or their
representatives, to fix prices, restrict outputs or divide
markets, either by products or by areas, or allocate markets,
either by products or by areas, in restraint of trade or free
competition, including any contractual stipulation which
prescribes pricing levels and profit margins;
(b) Predatory pricing which means selling or offering to sell
any oil product at a price below the seller's or offeror's
average variable cost for the purpose of destroying
competition, eliminating a competitor or discouraging a
potential competitor from entering the market: Provided,
however, That pricing below average variable cost in order to
match the lower price of the competitor and not for the
purpose of destroying competition shall not be deemed
predatory pricing. For purposes of this provision, "variable
cost" as distinguished from "fixed cost", refers to costs such
as utilities or raw materials, which vary as the output
increases or decreases and "average variable cost" refers to
the sum of all variable costs divided by the number of units of
outputs.
Any person, including but not limited to the chief operating
officer, chief executive officer or chief finance officer of the
partnership, corporation or any entity involved, who is found
guilty of any of the said prohibited acts shall suffer the
penalty of three (3) to seven (7) years imprisonment, and a
fine ranging from One million pesos (P 1,000,0000.00) to Two
million pesos (P 2,000,000.00).
Section 12. Other Prohibited Acts. – To ensure compliance
with the provisions of this Act, the refusal to comply with any
of the following shall likewise be prohibited:
(a) submission of any reportorial requirements;
(b) use of clean and safe (environment and worker-benign)
technologies;
(c) any order or instruction of the DOE Secretary issued in the
exercise of his enforcement powers under Section 15 of this
Act; and
(d) registration of any fuel additive with the DOE prior to its
use as an additive.
Any person, including but not limited to the chief operating
officer or chief executive officer of the partnership,
corporation or any entity involved, who is found guilty of any
of the said prohibited acts shall suffer the penalty of
imprisonment for two (2) years and a fine ranging from Two
hundred fifty thousand pesos (P 250,000.00) to Five hundred
thousand pesos (P 500,000.00).
Section 13. Remedies. – (a) Government Action. –
Whenever it is determined by the Joint Task Force created
under Section 14 (d) of this Act, there is a threatened or
imminent or actual violation of Section 11 of this Act, it shall
direct the provincial or city prosecutors having jurisdiction to
institute an action to prevent or restrain such violation with
the Regional Trial Court of the place where the defendants
reside or has his place of business. Pending hearing of the
complaint and before final judgment, the court may at any
time issue a temporary restraining order or an injunction as
shall be deemed just within the premises, under the same
conditions and principles as injunctive relief is granted under
the Rules of Court.
Whenever it is determined by the Joint Task Force that the
Government or any of its instrumentalities or agencies,
including government-owned or –controlled corporations, shall
27 | P r o j e c t Development_Cha Mendoza
suffer loss or damage in its business or property by reason of
violation of Section 11 of this Act, such instrumentality,
agency or corporation may file an action to recover damages
and the costs of the suit with the Regional Trial Court which
has jurisdiction as provided above.
(b) Private Complaint. – Any person or entity shall report any
violation of Section 11 of this Act to the Joint Task Force. The
Joint Task Force shall investigate such reports in aid of which
the DOE Secretary may exercise the powers under Section 15
of this Act. The Joint Task Force shall prepare a report
embodying its findings and recommendations as a result of
any such investigation, and the report shall be made at the
discretion of the Joint Task Force. In the event that the Joint
Task Force determines that there has been a violation of
Section 11 of this Act, the private person or entity shall be
entitled to sue for and obtain injunctive relief, as well as
damages, in the Regional Trial Court having jurisdiction over
any of the parties, under the same conditions and principles
as injunctive relief is granted under the Rules of Court.
CHAPTER IV
POWERS AND FUNCTIONS OF THE DOE AND DOE
SECRETARY
Section 14. Monitoring. – (a) The DOE shall monitor and
publish daily international crude oil prices, as well as follow
the movements of domestic oil prices. It shall likewise monitor
the quality of petroleum products and stop the operation of
businesses involved in the sale of petroleum products which
do not comply with the national standards of quality that are
aligned with the national standards/protocols of quality. The
Bureau of Product Standards of the DTI, together with the
Department of Environment and Natural Resources (DENR),
the DOE, the Department of Science and Technology (DOST),
representatives of the fuel and automotive industries and the
consumers, shall set the specifications for all types of fuel and
fuel-related products to improve fuel composition for
increased efficiency and reduced emissions. The BPS shall
also specify the allowable content of additives in all types of
fuels and fuel-related products.
(b) The DOE shall monitor the refining and manufacturing
processes of local petroleum products to ensure that clean
and safe (environment and worker-benign) technologies are
applied. This shall also apply to the process of marketing local
and imported petroleum products.
(c) The DOE shall maintain a periodic schedule of present and
future total industry inventory of petroleum products for the
purpose of determining the level of supply. To implement this,
the importers, refiners, and marketers are hereby required to
submit monthly to the DOE their actual importations, local
purchases, sales and/or consumption, and inventory on a per
crude/product basis.
(d) Any report from any person of an unreasonable rise in the
prices of petroleum products shall be immediately acted
upon. For this purpose, the creation of the DOE-DOJ Task
Force is hereby mandated to determine within thirty (30) days
the merits of the report and initiate the necessary actions
warranted under the circumstance:Provided, That nothing
herein shall prevent the said task force from investigating
and/or filing the necessary complaint with the proper court or
agency motu propio.
Upon the effectivity of this Act, the Secretaries of Energy and
Justice shall jointly appoint the members of a committee who
shall be tasked with the drafting of the rules and guidelines to
be adopted by the Task Force in the performance of its duty.
These guidelines shall ensure the efficiency, promptness, and
effectiveness in the handling of its cases. The Task Force shall
be organized and its members appointed within one (1) month
from the effectivity of this Act.
(e) In times of national emergency, when the public interest
so requires, the DOE may, during the emergency and under
reasonable terms prescribed by it, temporarily take over or
direct the operation of any person or entity engaged in the
Industry.
Section 15. Additional Powers of the DOE Secretary. –
In connection with the enforcement of this Act, the DOE
Secretary shall have the following powers:
(a) To gather and compile appropriate information concerning,
and to investigate from time to time the organization,
business, conduct, practices, and management of any person
or entity in the Industry;
(b) To require, by general or special orders, persons or entities
engaged in a particular activity of the industry: (i) to file an
annual or special report, or both in such form as the Secretary
may prescribe; or (ii) to answer specific questions in writing,
furnishing to the Secretary such information as he may
require as to the organization, business, conduct, practices,
management, and relation to other corporations,
partnerships, and individuals of the respective persons or
entities filing such reports or answer. Such reports and/or
answer shall be filed with the Secretary under oath and within
such reasonable time as the Secretary may prescribe;
(c) Upon the direction of the President or either House of
Congress, to investigate and report the facts relating to any
alleged violation of this Act by any person or corporation;
(d) Upon the application of the Secretary of Justice, to
investigate and make recommendations for the readjustment
of the business of any person or entity alleged to be violating
this Act in order that such person or entity may thereafter
maintain his or its organization, management, and conduct of
business in accordance with law;
(e) To recommend to the proper government agency the
suspension or revocation and termination of the business
permit of an offender;
(f) Concomitant with the policy of ensuring a continuous,
adequate and economic supply of energy to exercise his
powers and functions provided under Section 5 (c) of Republic
Act No. 7638;
(g) To make public from time to time such portions of the
information obtained by him hereunder as are in the public
interest; and to make annual and special reports to Congress
and to submit therewith recommendations for additional
legislation; and to provide for the publication of his reports
and decisions in such form and manner as may be best
adapted for public information and use: Provided, That the
Secretary shall have any authority to make public any trade
secret or any commercial or financial information which is
obtained from any person or entity which is privileged or
confidential, except that the Secretary may disclose such
information to officers and employees of appropriate law
enforcement agencies or to any officer or employee of any
such law enforcement agency upon the prior certification by
an officer of any such law enforcement agency that such
information will be maintained in confidence and will be used
only for official law enforcement purposes; and
(h) Whenever a final order has been entered against any
defendant in any suit brought by the government to prevent
and restrain any violation of the anti-trust provisions of this
Act to make investigation, upon his initiative, of the manner in
which the decree has been or is being carried out, and upon
the application of the Secretary of Justice, it shall be his duty
to make such investigation. He shall transmit to the Secretary
of Justice a report embodying his findings and
recommendations as a result of any such investigation, and
the report shall be made public at the discretion of the
Secretary.
CHAPTER V
TRANSITION PHASE
Section 16. Phases of Deregulation. – In order to provide
a smooth implementation of deregulation, the policy shift
shall be done in two (2) phases: Phase I (Transition Phase) and
Phase II (Full Deregulation Phase).
Section 17. Buffer Fund. – The President may, when the
interest of the consumers so requires, taking into account the
rise in the domestic prices of petroleum products, use the
"Reserve Control Account" as a buffer fund in an amount not
exceeding Two billion nine hundred million pesos (P
2,900,000,000.00) to cover increases in the prices of
petroleum products, except premium gasoline, during the
Transition Phase over the prices prevailing as of the date of
the effectivity of this Act. The "Reserve Control Account"
refers to a lump sum collation of reserve impositions deducted
28 | P r o j e c t Development_Cha Mendoza
from the appropriations approved by Congress for the
operation of the government and the implementation of
projects and programs.
Section 18. Automatic Oil Pricing Mechanism. – To
enable the domestic price of petroleum products to
approximate and promptly reflect the prices of oil in the
international market, an automatic pricing mechanism shall
be established. To this end, the following laws are hereby
amended:
(a) Paragraph (a), Section 8 of Republic Act No. 6173, as
amended by Section 3 of Executive Order No. 172, to read as
follows:
"SEC. 8. Powers of the Board Upon Notice and Hearing. – The
Board shall have the power:
"(a) To set the wholesale posted price of petroleum products
during the Transition Phase.
"For this purpose and for the protection of the public interest,
the Board shall, after due notice and hearing, at which any
consumer of petroleum products and other parties who may
be affected may appear and be heard, and within one (1)
month after the effectivity of this Act, approve a market-
oriented formula to determine the WPP of petroleum products
based solely on the changes of either the Singapore Posting of
refined petroleum products, the SIP or the crude landed cost.
"Thereafter, the Board shall at the proper times automatically
adjust the WPP of petroleum products based on the approved
formula, through appropriate orders, without the need for
notice and hearing.
"The Board shall, on the dates of effectivity of the automatic
oil pricing formula, the initial WPP or the adjusted WPP,
publish the same, together with the corresponding
computation in two (2) national newspapers of general
circulation."
(b) Paragraph 1 of Letter of Instruction No. 1441, to read as
follows:
"1. To review and reset the prices of domestic petroleum
products up or down as necessary on or before the third
Monday of each month to reflect the new WPP of refined
petroleum products based on the approved automatic pricing
formula."
(c) Paragraph 2 of Letter of Instruction No. 1441 is hereby
deleted. In lieu thereof a new paragraph is inserted to read as
follows:
"2. The price adjustment shall be reflected automatically in
the approved WPP of each petroleum product."
(d) The provisions of Section 3 (a) and (c) and Section 5 of
Executive Order No. 172 to the contrary notwithstanding, the
Board shall, during the Transition Phase, maintain the current
margin of dealers and rates charged by water transport
operators, haulers and pipeline concessionaires. Depending
on the basis of the APM, the Board shall, within one (1) month
after the effectivity of this Act and after proper notice and full
public hearing, prescribe a formula which will automatically
set the margins of marketers and dealers, and the rates
charged by water transport operators, haulers and pipeline
concessionaires: Provided, That such formula shall take effect
simultaneously with the effectivity of the automatic oil pricing
formula. Thereafter, the Board shall set the said margins and
rates based on the approved formula without the necessity for
public notice and hearing.
The Board shall, on the day of the effectivity of the aforesaid
formula, publish in at least two (2) newspapers of general
circulation the mechanics of the formula for the information of
the public.
CHAPTER VI
FULL DEREGULATION PHASE
Section 19. Start of Full Deregulation. – Full deregulation
of the Industry shall start five (5) months following the
effectivity of this Act: Provided, however, That when the
public interest so requires, the President may accelerate the
start of full deregulation upon the recommendation of the
DOE and the Department of Finance when the prices of crude
oil and petroleum products in the world market are declining
and the value of the peso in relation to the US dollar is stable,
taking into account the relevant trends and
prospects: Provided, further, That the foregoing provisions
notwithstanding, the five (5)-month Transition Phase shall
continue to apply to LPG, regular gasoline, and kerosene as
socially-sensitive petroleum products and said petroleum
products shall be covered by the automatic pricing
mechanism during the said period.
Upon the implementation of full deregulation as provided
herein, the Transition Phase is deemed terminated and the
following laws are repealed:
(a) Republic Act No. 6173, as amended;
(b) Section 5 of Executive Order No. 172, as amended;
(c) Letter of Instruction No. 1431, dated October 15, 1984;
(d) Letter of Instruction No. 1441, dated November 15, 1984;
(e) Letter of Instruction No. 1460, dated May 9, 1985;
(f) Presidential Decree No. 1889; and
(g) Presidential Decree No. 1956, as amended by Executive
Order No. 137:
Provided, however, That in case full deregulation is started by
the President in exercise of the authority provided in this
Section, the foregoing laws shall continue to be in force and
effect with respect to LPG, regular gasoline and kerosene for
the rest of the five (5)-month period.
Section 20. Jurisdiction on Pricing of Piped Gas. –
Section 3 of Executive Order No. 172, is hereby amended to
read as follows:
"SEC. 3. Jurisdiction, Powers and Functions of the Board. – The
Board shall, upon proper notice and hearing, fix and regulate
the rate of schedule or prices of piped gas to be charged by
duly franchised gas companies which distribute gas by means
of underground pipe system."
CHAPTER VII
FINAL PROVISIONS
Section 21. OPSF Balance. – All outstanding claims against
OPSF as of the effectivity of this Act, subject to the existing
auditing rules and regulations of the Commission on Audit
(COA), shall be considered as accounts payable of the
National Government. For this purpose, and any law to the
contrary notwithstanding, the reimbursement certificates
issued by the DOE covering the said outstanding claims shall
be honored and accepted by the Bureau of Customs and the
Bureau of Internal Revenue as payment to the extent of ten
percent (10%) per payment of the tariff duties and specific
taxes from the creditor-claimants against the OPSF until such
claims are settled in full: Provided, That the reimbursement
certificates shall not be transferable.
Section 22. Initial Public Offering. – In compliance with
the constitutional mandate to encourage private enterprises
to broaden their base of ownership and in recognition of the
vital role of oil in the national economy, any person or entity
engaged in the oil refinery business shall make a public
offering through the stock exchange of at least ten percent
(10%) of its common stock within a period of three (3) years
from the effectivity of this Act or the commencement of its
refinery operations: Provided, That no single person or entity
shall be allowed to own more than five percent (5%) of the
stock offering: Provided, further, That any crude oil refining
company and any stockholder thereof shall not acquire,
directly or indirectly, any share of stock offered by any other
crude oil refining company pursuant to his Section: Provided,
finally, That any such company which made the requisite
public offering before the effectivity of this Act shall be
exempted from the requirement.
Section 23. Implementing Rules and Regulations. – The
DOE, in coordination with the Board, the DENR, DFA,
Department of Labor and Employment (DOLE), Department of
Health (DOH), DOF, DTI, National Economic and Development
Authority (NEDA) and TLRC, shall formulate and issue the
necessary implementing rules and regulations within sixty
(60) days after the effectivity of this Act.
Section 24. Penal Sanction. – Any person who violates any
of the provisions of this Act shall suffer the penalty of three
(3) months to one (1) year imprisonment and a fine ranging
from Fifty thousand pesos (P 50,000.00) to Three hundred
thousand pesos (P 300,000.00).
29 | P r o j e c t Development_Cha Mendoza
Section 25. Public Information Campaign. – The DOE, in
coordination with the Board and the Philippine Information
Agency (PIA), shall undertake an information campaign to
educate the public on the deregulation program of the
Industry.
Section 26. Budgetary Appropriations. – Such amount as
may be necessary to effectively implement this Act shall be
taken by the DOE form its annual appropriations, the DOE'
Special Fund created under Section 8 of Presidential Decree
No. 910, as amended, and such amount allocated under
Section 10 of this Act.
Section 27. Separability Clause. – If, for any reason, any
section or provision of this Act is declared unconstitutional or
invalid, such parts not affected thereby shall remain in full
force and effect.
Section 28. Repealing Clause. – All laws, Presidential
decrees, executive orders, issuances, rules and regulations or
parts thereof, which are inconsistent with the provisions of
this Act are hereby repealed or immediately modified
accordingly.
Section 29. Effectivity. – This Act shall take effect upon its
complete publication in at least two (2) national newspapers
of general circulation.
Approved: February 10, 1998
Pasted from
<http://www.lawphil.net/statutes/repacts/ra1998/ra_8479_199
8.html>
GARCIA VS. CORONA, G.R. NO. 132451. DECEMBER 17,
1999.
G.R. No. 132451 December 17, 1999
CONGRESSMAN ENRIQUE T. GARCIA, petitioner,
vs.
HON. RENATO C. CORONA, in his capacity as the
Executive Secretary, HON. FRANCISCO VIRAY, in
his capacity as the Secretary of Energy, CALTEX
PHILIPPINES INC., PILIPINAS SHELL PETROLEUM
CORP. and PETRON CORP., respondents.
YNARES-SANTIAGO, J.:
On November 5, 1997, this Court in Tatad v. Secretary
of the Department of Energy and Lagman, et
al., v. Hon.Ruben Torres, et al., 1 declared Republic Act
No. 8180, entitled "An Act Deregulating the
Downstream Oil Industry and For Other Purposes",
unconstitutional, and its implementing Executive Order
No. 392 void.
R.A. 8180 was struck down as invalid because three
key provisions intended to promote free competition
were shown to achieve the opposite result. More
specifically, this Court ruled that its provisions on tariff
differential, stocking of inventories, and predatory
pricing inhibit fair competition, encourage monopolistic
power, and interfere with the free interaction of the
market forces.
While R.A. 8180 contained a separability clause, it was
declared unconstitutional in its entirety since the three
(3) offending provisions so permeated the law that
they were so intimately the esse of the law. Thus, the
whole statute had to be invalidated.
As a result of the Tatad decision, Congress enacted
Republic Act No. 8479, a new deregulation law without
the offending provisions of the earlier law. Petitioner
Enrique T. Garcia, a member of Congress, has now
brought this petition seeking to declare Section 19
thereof, which sets the time of full deregulation,
unconstitutional. After failing in his attempts to have
Congress incorporate in the law the economic theory
he espouses, petitioner now asks us, in the name of
upholding the Constitution, to undo a violation which
he claims Congress has committed.
The assailed Section 19 of R.A. 8479 states in full:
Sec. 19. Start of Full Deregulation. — Full deregulation
of the Industry shall start five (5) months following the
effectivity of this Act: Provided, however, That when
the public interest so requires, the President may
accelerate the start of full deregulation upon the
recommendation of the DOE and the Department of
Finance (DOF) when the prices of crude oil and
petroleum products in the world market are declining
and the value of the peso in relation to the US dollar is
stable, taking into account relevant trends and
prospects; Provided, further, That the foregoing
provision notwithstanding, the five (5)-month
Transition Phase shall continue to apply to LPG, regular
gasoline and kerosene as socially-sensitive petroleum
products and said petroleum products shall be covered
by the automatic pricing mechanism during the said
period.
Upon the implementation of full deregulation as
provided herein, the Transition Phase is deemed
terminated and the following laws are repealed:
a) Republic Act No. 6173, as amended;
b) Section 5 of Executive Order No. 172, as amended;
c) Letter of Instruction No. 1431, dated October 15,
1984;
d) Letter of Instruction No. 1441, dated November 20,
1984, as amended;
e) Letter of Instruction No. 1460, dated May 9, 1985;
f) Presidential Decree No. 1889; and
g) Presidential Decree No. 1956, as amended by
Executive Order No. 137:
Provided, however, That in case full deregulation is
started by the President in the exercise of the authority
provided in this Section, the foregoing laws shall
continue to be in force and effect with respect to LPG,
regular gasoline and kerosene for the rest of the five
(5)-month period.
Petitioner contends that Section 19 of R.A. 8479, which
prescribes the period for the removal of price control
on gasoline and other finished products and for the full
deregulation of the local downstream oil industry, is
patently contrary to public interest and therefore
unconstitutional because within the short span of five
months, the market is still dominated and controlled by
an oligopoly of the three (3) private respondents,
namely, Shell, Caltex and Petron.
The objective of the petition is deceptively simple. It
states that if the constitutional mandate against
monopolies and combinations in restraint of
trade 2 is to be obeyed, there should be indefinite and
open-ended price controls on gasoline and other oil
products for as long as necessary. This will allegedly
prevent the "Big 3" — Shell, Caltex and Petron — from
price-fixing and overpricing. Petitioner calls the
indefinite retention of price controls as "partial
deregulation".
The grounds relied upon in the petition are:
A.
Sec. 19 OF R.A. NO. 8479 WHICH PROVIDES FOR FULL
DEREGULATION FIVE (5) MONTHS OR EARLIER
FOLLOWING THE EFFECTIVITY OF THE LAW, IS
GLARINGLY PRO-OLIGOPOLY, ANTI-COMPETITION AND
ANTI-PEOPLE, AND IS THEREFORE PATENTLY
UNCONSTITUTIONAL FOR BEING IN GROSS AND
CYNICAL CONTRAVENTION OF THE CONSTITUTIONAL
POLICY AND COMMAND EMBODIED IN ARTCLE XII,
SECTION 19 OF THE 1987 CONSTITUTION AGAINST
MONOPOLIES AND COMBINATIONS IN RESTRAINT OF
TRADE.
B.
SAID SECTION 19 OF R.A. No. 8479 IS GLARINGLY PRO-
OLIGOPOLY, ANTI-COMPETITION AND ANTI-PEOPLE,
FOR THE FURTHER REASON THAT IT PALPABLY AND
CYNICALLY VIOLATES THE VERY OBJECTIVE AND
PURPOSE OF R.A. NO. 8479, WHICH IS TO ENSURE A
30 | P r o j e c t Development_Cha Mendoza
TRULY COMPETITIVE MARKET UNDER A REGIME OF
FAIR PRICES.
C.
SAID SECTION 19 OF R.A. No. 8479, BEING GLARINGLY
PRO-OLIGOPOLY, ANTI-COMPETITION AND ANTI-
PEOPLE, BEING PATENTLY UNCONSTITUTIONAL AND
BEING PALPABLY VIOLATIVE OF THE LAW'S POLICY AND
PURPOSE OF ENSURING A TRULY COMPETITIVE MARKET
UNDER A REGIME OF FAIR PRICES, IS A VERY GRAVE
AND GRIEVOUS ABUSE OF DISCRETION ON THE PART
OF THE LEGISLATIVE AND EXECUTIVE BRANCHES OF
GOVERNMENT.
D.
PREMATURE FULL DEREGULATION UNDER SECTION 19
OF R.A. NO. 8479 MAY AND SHOULD THEREFORE BE
DECLARED NULL AND VOID EVEN AS THE REST OF ITS
PROVISIONS REMAIN IN FORCE, SUCH AS THE
TRANSITION PHASE OR PARTIAL DEREGULATION WITH
PRICE CONTROLS THAT ENSURES THE PROTECTION OF
THE PUBLIC INTEREST BY PREVENTING THE BIG 3
OLIGOPOLY'S PRICE-FIXING AND OVERPRICING. 3
The issues involved in the deregulation of the
downstream oil industry are of paramount significance.
The ramifications, international and local in scope, are
complex. The impact on the nation's economy is
pervasive and far-reaching. The amounts involved in
the oil business are immense. Fluctuations in the
supply and price of oil products have a dramatic effect
on economic development and public welfare. As
pointed out in the Tatad decision, few cases carry a
surpassing importance on the daily life of every
Filipino. The issues affect everybody from the poorest
wage-earners and their families to the richest
entrepreneurs, from industrial giants to humble
consumers.
Our decision in this case is complicated by the unstable
oil prices in the world market. Even as this case is
pending, the price of OPEC oil is escalating to record
levels. We have to emphasize that our decision has
nothing to do with worldwide fluctuations in oil prices
and the counter-measures of Government each time a
new development takes place.
The most important part of deregulation is freedom
from price control. Indeed, the free play of market
forces through deregulation and when to implement it
represent one option to solve the problems of the oil-
consuming public. There are other considerations
which may be taken into account such as the reduction
of taxes on oil products, the reinstitution of an Oil Price
Stabilization Fund, the choice between government
subsidies taken from the regular taxpaying public on
one hand and the increased costs being shouldered
only by users of oil products on the other, and most
important, the immediate repeal of the oil deregulation
law as wrong policy. Petitioner wants the setting of
prices to be done by Government instead of being
determined by free market forces. His preference is
continued price control with no fixed end in sight. A
simple glance at the factors surrounding the present
problems besetting the oil industry shows that they are
economic in nature.
R.A. 8479, the present deregulation law, was enacted
to implement Article XII, Section 19 of the Constitution
which provides:
The State shall regulate or prohibit monopolies when
the public interest so requires. No combinations in
restraint of trade or unfair competition shall be
allowed.
This is so because the Government believes that
deregulation will eventually prevent monopoly. The
simplest form of monopoly exists when there is only
one seller or producer of a product or service for which
there are no substitutes. In its more complex form,
monopoly is defined as the joint acquisition or
maintenance by members of a conspiracy, formed for
that purpose, of the power to control and dominate
trade and commerce in a commodity to such an extent
that they are able, as a group, to exclude actual or
potential competitors from the field, accompanied with
the intention and purpose to exercise such power. 4
Where two or three or a few companies act in concert
to control market prices and resultant profits, the
monopoly is called an oligopoly or cartel. It is a
combination in restraint of trade.
The perennial shortage of oil supply in the Philippines
is exacerbated by the further fact that the importation,
refining, and marketing of this precious commodity are
in the hands of a cartel, local but made up of foreign-
owned corporations. Before the start of deregulation,
the three private respondents controlled the entire oil
industry in the Philippines.
It bears reiterating at the outset that the deregulation
of the oil industry is a policy determination of the
highest order. It is unquestionably a priority program of
Government. The Department of Energy Act of
1992 5 expressly mandates that the development and
updating of the existing Philippine energy program
"shall include a policy direction towards deregulation of
the power and energy industry."
Be that as it may, we are not concerned with whether
or not there should be deregulation. This is outside our
jurisdiction. The judgment on the issue is a settled
matter and only Congress can reverse it. Rather, the
question that we should address here is — are the
method and the manner chosen by Government to
accomplish its cherished goal offensive to the
Constitution? Is indefinite price control in the manner
proposed by petitioner the only feasible and legal way
to achieve it?
Petitioner has taken upon himself a most challenging
task. Unquestionably, the direction towards which the
nation's efforts at economic and social upliftment
should be addressed is a function of Congress and the
President. In the exercise of this function, Congress
and the President have obviously determined that
speedy deregulation is the answer to the
acknowledged dominion by oligopolistic forces of the
oil industry. Thus, immediately after R.A. 8180 was
declared unconstitutional in the Tatad case, Congress
took resolute steps to fashion new legislation towards
the objective of the earlier law. Invoking the
Constitution, petitioner now wants to slow down the
process.
While the Court respects the firm resolve displayed by
Congress and the President, all departments of
Government are equally bound by the sovereign will
expressed in the commands of the Constitution. There
is a need for utmost care if this Court is to faithfully
discharge its duties as arbitral guardian of the
Constitution. We cannot encroach on the policy
functions of the two other great departments of
Government. But neither can we ignore any
overstepping of constitutional limitations. Locating the
correct balance between legality and policy,
constitutional boundaries and freedom of action, and
validity and expedition is this Court's dilemma as it
resolves the legitimacy of a Government program
aimed at giving every Filipino a more secure, fulfilling
and abundant life.
Our ruling in Tatad is categorical that the Constitution's
Article XII, Section 19, is anti-trust in history and spirit.
It espouses competition. We have stated that only
competition which is fair can release the creative
forces of the market. We ruled that the principle which
underlies the constitutional provision is competition.
Thus:
Sec. 19, Article XII of our Constitution is anti-trust in
history and in spirit. It espouses competition. The
31 | P r o j e c t Development_Cha Mendoza
desirability of competition is the reason for the
prohibition against restraint of trade, the reason for the
interdiction of unfair competition, and the reason for
regulation of unmitigated monopolies. Competition is
thus the underlying principle of section 19, Article XII of
our Constitution which cannot be violated by R.A. No.
8180. We subscribe to the observation of Prof. Gellhorn
that the objective of anti-trust law is "to assure a
competitive economy, based upon the belief that
through competition producers will strive to satisfy
consumer wants at the lowest price with the sacrifice
of the fewest resources. Competition among producers
allows consumers to bid for goods and services, and
thus matches their desires with society's opportunity
costs." He adds with appropriateness that there is a
reliance upon "the operation of the "market" system
(free enterprise) to decide what shall be produced, how
resources shall be allocated in the production process,
and to whom the various products will be distributed.
The market system relies on the consumer to decide
what and how much shall be produced, and on
competition, among producers to determine who will
manufacture it." 6
In his recital of the antecedent circumstances,
petitioner repeats in abbreviated form the factual
findings and conclusions which led the Court to declare
R.A. 8180 unconstitutional. The foreign oligopoly or
cartel formed by respondents Shell, Caltex and Petron,
their indulging in price-fixing and overpricing, their
blockade tactics which effectively obstructed the entry
of genuine competitors, the dangers posed by the oil
cartel to national security and economic development,
and other prevailing sentiments are stated as
axiomatic truths. They are repeated in capsulized
context as the current background facts of the present
petition.
The empirical existence of this deplorable situation was
precisely the reason why Congress enacted the oil
deregulation law. The evils arising from conspiratorial
acts of monopoly are recognized as clear and present.
But the enumeration of the evils by our Tatad decision
was not for the purpose of justifying continued
government control, especially price control. The
objective was, rather, the opposite. The evils were
emphasized to show the need for free competition in a
deregulated industry. And to be sure, the measures to
address these evils are for Congress to determine, but
they have to meet the test of constitutional validity.
The Court respects the legislative finding that
deregulation is the policy answer to the problems. It
bears stressing that R.A. 8180 was declared invalid not
because deregulation is unconstitutional. The law was
struck down because, as crafted, three key provisions
plainly encouraged the continued existence if not the
proliferation of the constitutionally proscribed evils of
monopoly and restraint of trade.
In sharp contrast, the present petition lacks a factual
foundation specifically highlighting the need to declare
the challenged provision unconstitutional. There is a
dearth of relevant, reliable, and substantial evidence to
support petitioner's theory that price control must
continue even as Government is trying its best to get
out of regulating the oil industry. The facts of the
petition are, in the main, a general dissertation on the
evils of monopoly.
Petitioner overlooks the fact that Congress enacted the
deregulation law exactly because of the monopoly evils
he mentions in his petition. Congress instituted the
lifting of price controls in the belief that free and fair
competition was the best remedy against monopoly
power. In other words, petitioner's facts are also the
reasons why Congress lifted price controls and why the
President accelerated the process. The facts adduced
in favor of continued and indefinite price control are
the same facts which supported what Congress
believes is an exercise of wisdom and discretion when
it chose the path of speedy deregulation and rejected
Congressman Garcia's economic theory.
The petition states that it is using the very thoughts
and words of the Court in its Tatad decision. Those
thoughts and words, however, were directed against
the tariff differential, the inventory requirement, and
predatory pricing, not against deregulation as a policy
and not against the lifting of price controls.
A dramatic, at times expansive and grandiloquent,
reiteration of the same background circumstances
narrated inTatad does not squarely sustain petitioner's
novel thesis that there can be deregulation without
lifting price controls.
Petitioner may call the industry subject to price
controls as deregulated. In enacting the challenged
provision, Congress, on the other hand, has declared
that any industry whose prices and profits are fixed by
government authority remains a highly regulated one.
Petitioner, therefore, engages in a legal paradox. He
fails to show how there can be deregulation while
retaining government price control. Deregulation
means the lifting of control, governance and direction
through rule or regulation. It means that the regulated
industry is freed from the controls, guidance, and
restrictions to which it used to be subjected. The use of
the word "partial" to qualify deregulation is sugar-
coating. Petitioner is really against deregulation at this
time.
Petitioner states that price control is good. He claims
that it was the regulation of the importation of finished
oil products which led to the exit of competitors and
the consolidation and dominion of the market by an
oligopoly, not price control. Congress and the President
think otherwise.
The argument that price control is not the villain in the
intrusion and growth of monopoly appears to be pure
theory not validated by experience. There can be no
denying the fact that the evils mentioned in the
petition arose while there was price control. The
dominance of the so-called "Big 3" became entrenched
during the regime of price control. More importantly,
the ascertainment of the cause and the method of
dismantling the oligopoly thus created are a matter of
legislative and executive choice. The judicial process is
equipped to handle legality but not wisdom of choice
and the efficacy of solutions.
Petitioner engages in another contradiction when he
puts forward what he calls a self-evident truth. He
states that a truly competitive market and fair prices
cannot be legislated into existence. However, the truly
competitive market is not being created or fashioned
by the challenged legislation. The market is simply
freed from legislative controls and allowed to grow and
develop free from government interference. R.A. 8479
actually allows the free play of supply and demand to
dictate prices. Petitioner wants a government official or
board to continue performing this task. Indefinite and
open-ended price control as advocated by petitioner
would be to continue a regime of legislated regulation
where free competition cannot possibly flourish.
Control is the antithesis of competition. To grant the
petition would mean that the Government is not keen
on allowing a free market to develop. Petitioner's "self-
evident truth" thus supports the validity of the
provision of law he opposes.
New players in the oil industry intervened in this case.
According to them, it is the free market policy and
atmosphere of deregulation which attracted and
brought the new participants, themselves included,
into the market. The intervenors express their fear that
this Court would overrule legislative policy and replace
it with petitioner's own legislative program.
32 | P r o j e c t Development_Cha Mendoza
The factual allegations of the intervenors have not
been refuted and we see no reason to doubt them.
Their argument that the co-existence of many viable
rivals create free market conditions induces
competition in product quality and performance and
makes available to consumers an expanded range of
choices cannot be seriously disputed.
On the other hand, the pleadings of public and private
respondents both put forth the argument that the
challenged provision is a policy decision of Congress
and that the wisdom of the provision is outside the
authority of this Court to consider. We agree. As we
have ruled in Morfe v. Mutuc 7:
(I)t is well to remember that this Court, in the language
of Justice Laurel, "does not pass upon question or
wisdom, justice or expediency of legislation." As
expressed by Justice Tuason: "It is not the province of
the courts to supervise legislation and keep it within
the bounds of propriety and common sense. That is
primarily and exclusively a legislative concern." There
can be no possible objection then to the observation of
Justice Montemayor: "As long as laws do not violate
any Constitutional provision, the Courts merely
interpret and apply them regardless of whether or not
they are wise or salutary." For they, according to
Justice Labrador, "are not supposed to override
legitimate policy and . . . never inquire into the wisdom
of the law."
It is thus settled, to paraphrase Chief Justice
Concepcion in Gonzales v. Commission on Elections,
that only congressional power or competence, not the
wisdom of the action taken, may be the basis for
declaring a statute invalid. This is as it ought to be: The
principle of separation of powers has in the main wisely
allocated the respective authority of each department
and confined its jurisdiction to such a sphere. There
would then be intrusion not allowable under the
Constitution if on a matter left to the discretion of a
coordinate branch, the judiciary would substitute its
own. If there be adherence to the rule of law, as there
ought to be, the last offender should be the courts of
justice, to which rightly litigants submit their
controversy precisely to maintain unimpaired the
supremacy of legal norms and prescriptions. The
attack on the validity of the challenged provision
likewise insofar as there may be objections, even if
valid and cogent, on its wisdom cannot be sustained.
In this petition, Congressman Garcia seeks to revive
the long settled issue of the timeliness of full
deregulation, which issue he had earlier submitted to
this Court by way of a Partial Motion for
Reconsideration in the Tatadcase. In our Resolution
dated December 3, 1997, which has long become final
and executory, we stated:
We shall first resolve petitioner Garcia's linchpin
contention that the full deregulation decreed by R.A.
No. 8180 to start at the end of March 1997 is
unconstitutional. For prescinding from this premise,
petitioner suggests that "we simply go back to the
transition period, price control will be revived through
the automatic pricing mechanism based on Singapore
Posted Prices. The Energy Regulatory Board . . . would
play a limited and ministerial role of computing the
monthly price ceiling of each and every petroleum fuel
product, using the automatic pricing formula. While the
OPSF would return, this coverage would be limited to
monthly price increases in excess of P0.50 per liter.
We are not impressed by petitioner Garcia's
submission. Petitioner has no basis in condemning as
unconstitutional per se the date fixed by Congress for
the beginning of the full deregulation of the
downstream oil industry. Our Decision merely faulted
the Executive for factoring the depletion of OPSF in
advancing the date of full deregulation to February
1997. Nonetheless, the error of the Executive is now a
non-issue for the full deregulation set by Congress
itself at the end of March 1997 has already come to
pass. March 1997 is not an arbitrary date. By that date,
the transition period has ended and it was expected
that the people would have adjusted to the role of
market forces in shaping the prices of petroleum and
its products. The choice of March 1997 as the date of
full deregulation is a judgment of Congress and its
judgment call cannot be impugned by this Court. 8
Reduced to its basic arguments, it can be seen that the
challenge in this petition is not against the legality of
deregulation. Petitioner does not expressly challenge
deregulation. The issue, quite simply, is the timeliness
or the wisdom of the date when full deregulation
should be effective.
In this regard, what constitutes reasonable time is not
for judicial determination. Reasonable time involves
the appraisal of a great variety of relevant conditions,
political, social and economic. They are not within the
appropriate range of evidence in a court of justice. It
would be an extravagant extension of judicial authority
to assert judicial notice as the basis for the
determination. 9
We repeat that what petitioner decries as unsuccessful
is not a final result. It is only a beginning. The Court is
not inclined to stifle deregulation as enacted by
Congress from its very start. We leave alone the
program of deregulation at this stage. Reasonable time
will prove the wisdom or folly of the deregulation
program for which Congress and not the Court is
accountable.
Petitioner argues further that the public interest
requires price controls while the oligopoly exists, for
that is the only way the public can be protected from
monopoly or oligopoly pricing. But is indefinite price
control the only feasible and legal way to enforce the
constitutional mandate against oligopolies?
Art. 186 of the Revised Penal Code, as amended,
punishes as a felony the creation of monopolies and
combinations in restraint of trade. The Solicitor
General, on the other hand, cites provisions of R.A.
8479 intended to prevent competition from being
corrupted or manipulated. Section 11, entitled "Anti-
Trust Safeguards", defines and prohibits cartelization
and predatory pricing. It penalizes the persons and
officers involved with imprisonment of three (3) to
seven (7) years and fines ranging from One million to
Two million pesos. For this purpose, a Joint Task Force
from the Department of Energy and Department of
Justice is created under Section 14 to investigate and
order the prosecution of violations.
Sec. 8 and 9 of the Act, meanwhile, direct the
Departments of Foreign Affairs, Trade and Industry,
and Energy to undertake strategies, incentives and
benefits, including international information
campaigns, tax holidays and various other agreements
and utilizations, to invite and encourage the entry of
new participants. Section 6 provides for uniform tariffs
at three percent (3%).
Sec. 13 of the Act provides for "Remedies", under
which the filing of actions by government prosecutors
and the investigation of private complaints by the Task
Force is provided. Sections 14 and 15 provide how the
Department of Energy shall monitor and prevent the
occurrence of collusive pricing in the industry.
It can be seen, therefore, that instead of the price
controls advocated by the petitioner, Congress has
enacted anti-trust measures which it believes will
promote free and fair competition. Upon the other
hand, the disciplined, determined, consistent and
faithful execution of the law is the function of the
President. As stated by public respondents, the remedy
against unreasonable price increases is not the
33 | P r o j e c t Development_Cha Mendoza
nullification of Section 19 of R.A. 8479 but the setting
into motion of its various other provisions.
For this Court to declare unconstitutional the key
provision around which the law's anti-trust measures
are clustered would mean a constitutionally interdicted
distrust of the wisdom of Congress and of the
determined exercise of executive power.
Having decided that deregulation is the policy to
follow, Congress and the President have the duty to set
up the proper and effective machinery to ensure that it
works. This is something which cannot be adjudicated
into existence. This Court is only an umpire of last
resort whenever the Constitution or a law appears to
have been violated. There is no showing of a
constitutional violation in this case.
WHEREFORE, the petition is DISMISSED.
SO ORDERED.
Bellosillo, Melo, Puno, Kapunan, Mendoza, Quisumbing,
Purisima, Pardo, Buena and De Leon, Jr., JJ., concur.
Davide, Jr., C.J., in the result. I also join Mr. Justice
Panganiban in his separate opinion.
Vitug, J., in the result.
Panganiban, J., please see Separate Opinion.
Gonzaga-Reyes, J., took no part. Spouse with counsel
for intervenors.
Separate Opinions
PANGANIBAN, J., separate opinion;
In essence, deregulation shifts the burden of price
control from the government to the "market forces" in
order (1) to eliminate government intervention that
may "do more harm than good" 1 and (2) to achieve a
truly competitive market of fair prices. 2 It is also
aimed at removing government abuse and corruption
in price-setting. At bottom, deregulation is supposed to
provide the best goods and services at the cheapest
prices.
The policy, however, is not an infallible cure to abuse,
for the evil sought to be avoided may well pass on to
the market players, particularly when they combine to
restrain trade or engage in unfair competition. In the
words of Prof. Romulo L. Neri of the Asian Institute of
Management, "[t]he marker is motivated by price and
profits (and sadly, not by moral values [or public
interest]). The market does not automatically supply
those who need (no matter how badly they need it) but
only those who have the money to buy." 3
The buzz words of the third millennium are
"deregulation," "globalization" and "liberalization."
Territorial frontiers are virtually erased by these
schemes, as goods and services are exchanged across
borders unhampered by traditional tariffs, taxes,
currency controls, quantitative restrictions and other
protective barriers. Thus, states and governments tend
to surrender some of their authorities and powers to
the "market" and to the renewed energy of laissez
faire, such that the threats to civil liberties and human
rights, including economic rights, may shift from
government abuses to the more bedeviling market
forces that transcend boundaries and sovereignties. In
developing countries more than in developed ones,
such threats are real and ever present.
Judicial Review
to Checks Abuses
This is where the power of judicial review comes in —
to examine the legal effects of these new economic
paradigms and, in the present controversy, to check
whether the present Oil Deregulation Law (RA 8479)
restrains rather than promotes free trade, in
contravention of the Constitution. True, the President
and Congress, not this Court, have the power and the
prerogative to determine whether to adopt such
market policies and, if so, under what conditions and
circumstances. However, all such policies and their
ramifications must conform to the Constitution.
Otherwise, this Court has the duty to strike them down,
not because they are unwise or inconvenient, but
because they are constitutionally impermissible.
Doctrinally, policies and acts of the political
departments of government may be voided by this
Court on either of two grounds — infringement of the
Constitution or grave abuse of discretion. 4 An
infringement may be proven by demonstrating that the
words of the law directly contradict a provision of the
fundamental law, or by presenting proof that the law
authorizes or enables the respondents to violate the
Constitution.
Petitioner Garcia's Thesis on
Unconstitutionality Concerns Policy
Having set down the doctrinal legal parameters, let me
now discuss the petitioner's thesis. Petitioner Enrique
T. Garcia anchors his position on the alleged
unconstitutionality of Section 19 of RA 8479, 5 which
sets the full deregulation of the oil industry five months
from the effectivity of the law, on the argument that
said provision directly violates Section 19, Article XII of
the Constitution, which reads as follows:
Sec. 19. The State shall regulate or prohibit monopolies
when the public interest so requires. No combinations
in restraint of trade or unfair competition shall be
allowed.
He maintains that once Section 19 of RA 8479 is struck
down, the government will be able to fix and lower
petroleum prices indefinitely while awaiting the advent
of "real" competition in the market.
Petitioner contends that the three largest oil
companies (the "Big Three") comprise an oligopoly of
the downstream oil industry. Oligopolies, he claims,
"negate free market competition and fair prices." He
submits that "regulation through price control . . . is
patently required by the public interest [and] the
failure to regulate the oligopoly through price control is
patently inimical to the national interest and patently
negates, circumvents and contravenes Section 19,
Article XII of the Constitution."
In Tatad v. Secretary of the Department of
Energy, 6 this Court defined a monopoly and a
combination in restraint of trade as follows:
A monopoly is a privilege or peculiar advantage vested
in one or more persons or companies, consisting in the
exclusive right or power to carry on a particular
business or trade, manufacture a particular article, or
control the sale or the whole supply of a particular
commodity. It is a form of market structure in which
one or only a few firms dominate the total sales of a
product or service. On the other hand, a combination in
restraint of trade is an agreement or understanding
between two or more persons, in the form of a
contract, trust, pool, holding company, or other form of
association, for the purpose of unduly restricting
competition, monopolizing trade and commerce in a
certain commodity, controlling its production,
distribution and price, or otherwise interfering with
freedom of trade without statutory authority.
Combination in restraint of trade refers to the means,
while monopoly refers to the end.
In that case, RA 8180, the predecessor of RA 8479, was
struck down by this Court for being contrary to Section
19, Article XII of the Constitution. We took this action
because we found that its provisions on (1) tariff
differential, (2) minimum inventory and (3) predatory
pricing "inhibit fair competition, encourage
monopolistic power and interfere with the free
interaction of market forces." We concluded, "The
aftermath of R.A. No. 8180 is a deregulated market
where competition can be corrupted and where market
forces can be manipulated by oligopolies."
In my Concurring Opinion in Tatad, I labeled RA 8180
as "a pseudo deregulation law which in reality restrains
34 | P r o j e c t Development_Cha Mendoza
free trade and perpetuates a cartel, an oligopoly"
because of the aforecited three provisions, and
because petitioners therein demonstrated to the Court
"that the Big Three oil companies were producing and
processing almost identical products which they were
selling to the general public at identical prices. When
one company adjusted its prices upwards or
downwards, the other two followed suit at the same
time and by the same amount." 7
In his present Petition, petitioner persistently alleges
that "[i]t is self-evident truth that public interest
requires the prevention of monopolistic/oligopolitic
pricing . . . ," and that such "monopolistic/oligopolistic
pricing may be prevented only through price control
during the regime of monopoly/oligopoly or through a
truly competitive market under a regime of fair prices."
In support of his allegations, he cites "self-evident
truths [which] have
. . . been officially recognized and implemented during
more than 20 years of price control before the passage
of the two oil deregulation laws" and which "have also
been recognized and upheld by no less than the
Supreme Court En Banc in the Tatad and Lagman
cases . . . ." He contends that "the Big 3 remain as
strong and dominant as ever."
In other words, petitioner believes that there is no valid
reason to lift price control at this time when allegedly
there still exists an oligopoly in the industry. He
proposes instead that government control should stand
for an indefinite period until the new players are able
to capture a substantial part of the market.
Unfortunately, however, the foregoing thematic
statements and economic theory of Petitioner Garcia
are policy in nature and are arguments supporting the
wisdom of interim government price control. Indeed,
"self-evident truths," economic theories, deeply-held
beliefs, speculative assumptions and generalizations
may be the bases of legislative and executive actions,
but they cannot be substitutes for evidence and legal
arguments in a judicial proceeding. Considered
judgment calls of the legislative and the executive
departments are the issues of whether the country
should adopt the policy of complete or partial
deregulation, and when such policy should take effect
and over what products or services. These issues come
within judicial determination only when there is clear
and substantial proof that said policy and its
concomitant variations are violative of the Constitution
or are made by those agencies in grave abuse of their
discretion.
The Legal Issue Is Whether Petitioner
Has Submitted Sufficient Proof That the
Big Three Have Violated the Constitution
To be more specific, the pivotal issue before this Court
is not whether it is wiser and more beneficial to
empower the government to fix fuel prices; rather, it is
whether petitioner has submitted enough factual bases
to justify the legal conclusion that the Big Three —
Petron, Shell and Caltex — have combined themselves
"in restraint of trade or [to cause] unfair competition,"
to such an extent as to legally justify a striking down of
Section 19 of RA 8479. The task of proving this issue is
not easy; in fact, it is formidable and daunting. This is
because laws are prima facie presumed constitutional
and, unless clearly shown to be infirm, they will always
be upheld. 8 So, too, regularity in the performance of
official functions is the postulate, and any allegation of
grave abuse or irregularity must be proven cogently.
Deregulation per se Is
Not Constitutionally Infirm
A close perusal of the assailed Section 19 of RA 8479
and Section 19 of Article XII of the Constitution does
not readily reveal their irreconcilability. Indeed, even
petitioner admits that the deregulation policy per se is
not contrary to the Constitution. Neither could it be
successfully argued that the implementation of such
policy within the five-month phase-in period is per se
anathema to our fundamental law. It is his imperative
task therefore to adduce before the Court factual and
legal bases to demonstrate clearly and cogently the
unconstitutionality of the acts of Congress and the
President in adopting and implementing full
deregulation of petroleum prices at this time.
In this context, I have pored over the records of this
case and searched long and wide for such factual and
legal bases but, other than presumptions and
generalizations that are unsupported by hard evidence,
I could not find any. Petitioner fails to substantiate his
allegations that the three oil giants have engaged,
directly or indirectly, in an unholy alliance to fix prices
and restrain trade.
True, retail prices of petroleum products have been
increased, to the consternation of the public, but
petitioner has not shown by specific fact or clear proof
how the questioned provision of RA 8479 has been
used to transgress the Constitution. He has not
demonstrated that the Big Three arbitrarily dictate and
corrupt the price of oil in a manner violative of the
Constitution.
Petitioner merely resurrects and relies heavily on the
arguments, the statistics and the proofs he submitted
two years ago in the first oil deregulation case, Tatad
v. Secretary of the Department of Energy. Needless to
state, those reasons were taken into consideration in
said case, and they indeed helped show the
unconstitutionality of RA 8180. But exactly the same
old grounds cannot continue to support petitioner's
present allegation that the major oil companies —
Petron, Shell and Caltex — persist to this date in their
oligopolistic practices, as a consequence of the current
Oil Deregulation Law and in violation of the
Constitution. In brief, the legal cause and effect
relationship has not been amply shown.
Petitioner Has Not Proven
Arbitrariness or Despotism
Petitioner harps at the five-month period of transition
from price control to full deregulation provided under
Section 19 of RA 8479. He claims that such short
period is not enough to ensure a "truly competitive
market" in the supposed oligopoly of the oil industry.
Again, his statement is not backed up by evidentiary
basis. He offers no substantial proof that Congress, in
deciding to lift price controls five months from the
effectivity of RA 8475, gravely abused its discretion. To
repeat, it is not within the province of the judiciary to
determine whether five months is indeed short and, for
that matter, what length of time is adequate. That is a
matter of legislation addressed to the discretion of our
policy makers.
It is basic to our form of government that the Court
cannot inquire into the wisdom or expediency of the
acts of the executive or the legislative department,
unless there is a clear showing of constitutional
infirmity or grave abuse of discretion amounting to lack
or excess of jurisdiction. 9 "By grave abuse of
discretion is such capricious and whimsical exercise of
judgment as is equivalent to lack of jurisdiction. Mere
abuse of discretion is not enough. It must be grave
abuse of discretion, as when the power is exercised in
an arbitrary or despotic manner by reason of passion
or personal hostility, and must be so patent and so
gross as to amount to an evasion of a positive duty or
to a virtual refusal to perform the duty enjoined or to
act at all in contemplation of law." 10 These
jurisprudential elements of arbitrariness, despotism,
passion and hostility have not been shown to exist
under the present circumstances.
Market Share of New Players
35 | P r o j e c t Development_Cha Mendoza
Has Increased Under RA 8479
Historically, deregulation as a policy in the downstream
oil industry was begun in 1996 when new players
started to set up and operate their businesses in the
country. That was practically a full three years of
operations, the last two of which saw no significant
barriers in terms of tariff differential, minimum
inventory or predatory pricing.
Obviously, the conditions prevailing when the Court
struck down RA 8180 two years ago have not been
proven to be prevalent at present. In 1996, the new
players had a market share of barely one
percent. 11 The new players have since expanded or
increased in number (46 as of June 30, 1999), and they
now have about nine percent share of the
market. 12 Significantly, these new players have
intervened in this case in defense of the law. These are
the little Davids who claim that with RA 8479 as their
slingshot, they can, given enough time, fight and win
against the three erstwhile unbeatable Goliaths.
Indeed, they believe that the questioned provision has
given them the impetus to compete and thereby
eventually show the benefits of deregulation; namely,
the best products at the cheapest prices.
With this factual backdrop and in the dire absence of
contrary proof, it would be specious to conclude that
under the aegis of Section 19 of RA 8479, the Big
Three have restrained trade or unduly restricted
competition.
Moreover, the three provisions in RA 8180 which were
adjudged abhorrent to the fundamental principles of
free enterprise are no longer found in RA 8479. The
depletion of the Oil Price Stabilization Fund, the
extraneous factor that was considered by the President
in accelerating the implementation of full deregulation
under RA 8180, was no longer taken into account in
the present milieu. The Court's reasons for declaring
the unconstitutionality of RA 8180 are, therefore, not
germane to the validity of RA 8479. The petitioner
cannot rely on the same rationale for the purpose of
successfully assailing RA 8479. Indeed, he admits that
"the Tatad and Lagman cases . . . did not consider and
adjudicate on the lifting of price control per se, under
RA 8180, as an issue."
Epilogue
In sum, I make no secret of my sympathy for
petitioner's frustration at the inability of our
government to arrest the spiraling cost of fuel and
energy. 13 I hear the cry of the poor that life has
become more miserable day by day. I feel their
anguish, pain and seeming hopelessness in securing
their material needs.
However, the power to lower petroleum prices through
the adoption or the rejection of viable economic
policies or theories does not lie in the Court or its
members. Furthermore, absent sufficient factual
evidence and legal moorings, I cannot vote to declare a
law or any provision thereof to be unconstitutional
simply because, theoretically, such action may appear
to be wise or beneficial or practical. Neither can I
attribute grave abuse of discretion to another branch
of government without an adequate showing of patent
arbitrariness, whim or caprice. Should I do so, I myself
will be gravely abusing my discretion, the very evil that
petitioner attributes to the legislature.
WHEREFORE, I vote to DISMISS the Petition.
QUISUMBING, J., concurring opinion;
I fully concur in the ponencia of Justice Consuelo
Ynares-Santiago. What I would like to stress here and
now is that, contrary to certain ill-informed comments
in media, petitioner's pleadings were thoroughly
dissected at the hearing where he and his counsel as
well as the respondents amply presented their
arguments. Questions of law and policy were also
illuminated from different perspectives in sessions and
in memoranda internally exchanged by members of
the Court. Right away, it must be added, no delay
attended the resolution of this petition. For while the
Constitution allows two years, this case was
decided en banc in less than half that period, from the
time of submission of the parties' memoranda. Below is
a full presentation of my view on the controversy
generated by petitioner's insistence that the Court
overturn an act passed by his own branch of
government and approved by the Chief Executive.
At issue in this special civil action for certiorari under
Rule 65 is the constitutionality of Sec. 19 of Republic
Act No. 8479, 1 entitled "An Act Deregulating the
Downstream Oil Industry and for other Purposes". The
law was enacted pursuant to the policy of the State to
liberalize and deregulate the downstream oil industry.
R.A. 8479 is the remedial legislation passed by
Congress to cure the infirmities found in Republic Act
No. 8180, the first oil industry deregulation law,
otherwise known as the "Downstream Oil Industry
Deregulation Act of 1996".
In a banc decision promulgated on November 5, 1997,
the Court declared R.A. 8180 unconstitutional for
having transgressed the constitutional prohibition
against monopolies and combinations in restraint of
trade, specifically mandated in Section 19, Article XII of
the Constitution. Consequently, Executive Order No.
392 (E.O. 392) implementing the provision of said law
was voided. On December 3, 1997, the motions for
reconsideration were denied for utter lack of merit.
Now before us is a challenge to the second oil industry
deregulation law, R.A. 8479. The relevant factual and
procedural antecedents of the present petition are as
follows:
In 1992, the Philippine government welcomed more
liberal economic policies and started the ground work
for privatization of some government-owned or
controlled corporations and deregulation of the oil
industry. In due time, Congress enacted Republic Act
No. 7638 on December 9, 1992. It created the
Department of Energy (DOE). Among others, it was
tasked, at the end of four years from the effectivity of
R.A. No. 7638 and upon approval of the President, to
institute the "programs and the timetable for the
deregulation of appropriate projects and activities of
the energy industry." 2
Following the intent of R.A. 7638, the Philippine
National Oil Company (PNOC) sold 40% of its equity in
Petron Corporation to the Aramco Overseas Company.
Sometime in March 1996, Congress made that daring
step towards the realization of liberating the oil
industry from government regulation and enacted R.A.
8180. On February 8, 1997, President Fidel V. Ramos
issued E.O. 392, which signaled the implementation or
start of deregulation in the oil industry.
Senator Francisco Tatad and Congressmen Enrique
Garcia, Edcel Lagman, Joker Arroyo and Wigberto
Tañada, among others, filed separate petitions
docketed as G.R. Nos. 124360 and 127867, before the
Court. The petitioners contended that some of the
provisions of R.A. No. 8180 violated Section 19 of
Article XII of the 1987 Constitution, which states:
The State shall regulate or prohibit monopolies when
the public interest so requires. No combinations in
restraint of trade or unfair competition shall be
allowed.
The challenged provisions in R.A. 8180 were:
(1) the provision on tariff differential found in Section 5
(b) which states:
Sec. 5 (b) — Any law to the contrary notwithstanding
and starting with the effectivity of this Act, tariff duty
shall be imposed and collected on imported crude oil at
36 | P r o j e c t Development_Cha Mendoza
the rate of three percent (3%) and imported refined
petroleum products at the rate of seven percent (7%),
except fuel oil and LPG, the rate for which shall be the
same as that for imported crude oil: Provided, that
beginning on January 1, 2004 the tariff rate on
imported crude oil and refined petroleum products
shall be the same. Provided,further, That this provision
may be amended only by an Act of Congress.
(2) the minimum inventory clause, in Section 6 which
provides:
Sec. 6 — To ensure the security and continuity of
petroleum crude and products supply, the DOE shall
require the refiners and importers to maintain a
minimum inventory equivalent to ten percent (10%) of
their respective annual sales volume or forty (40) days
of supply, whichever is lower.
(3) the predatory pricing scheme in Section 9:
Sec. 9 — To ensure fair competition and prevent
cartels and monopolies in the downstream oil industry,
the following acts shall be prohibited:
xxx xxx xxx
(b) Predatory pricing which means selling or offering to
sell any product at a price unreasonably below the
industry average cost so as to attract customers to the
detriment of competitors.
In declaring provisions of R.A. 8180 unconstitutional,
the Court held:
. . . Petron, Shell and Caltex stand as the only major
league players in the oil market. . . . The tariff
differential of 4% therefore works to their immense
benefit. . . . New players that intend to equalize the
market power of Petron, Shell and Caltex by building
refineries of their own will have to spend billions of
pesos. Those who will not build refineries but compete
with them will suffer the huge disadvantage of
increasing their product cost by 4%. They will be
competing on an uneven field.
The provision on inventory widens the balance of
advantage of Petron, Shell and Caltex against
prospective new players. Petron, Shell and Caltex can
easily comply with the inventory requirement of R.A.
No. 8180 in view of their existing storage facilities.
Prospective competitors again will find compliance with
this requirement difficult as it will entail a prohibitive
cost. . . .
Finally, we come to the provision on predatory pricing
which is defined as ". . . selling or offering to sell any
product at a price unreasonably below the industry
average cost so as to attract customers to the
detriment of competitors." . . . The ban on predatory
pricing cannot be analyzed in isolation. Its validity is
interlocked with the barriers imposed by R.A. No. 8180
on the entry of new players. 3
That decision came under sharp attack by critics who
accused the Court of improvidently intervening in the
economic affairs of the State. Economists and
businessmen remarked that the decision was a major
blow to economic reforms and an additional burden to
the government's already huge budget deficit as it
would require reinstating a subsidy on oil
products. 4 Pertinent portions of the Decision decreed:
With this Decision, some circles will chide the Court for
interfering with an economic decision of Congress.
Such criticism is charmless for the Court is annulling
R.A. No. 8180 not because it disagrees with
deregulation as an economic policy but because as
cobbled by Congress in its present form, the law
violates the Constitution. The right call therefor should
be for Congress to write a new oil deregulation law that
conforms with the Constitution and not for this Court to
shirk its duty of striking down a law that offends the
Constitution. . . . Indeed when confronted by a law
violating the Constitution, the Court has no option but
to strike it down dead. . . . Hence, for as long as the
Constitution reigns supreme so long will this Court be
vigilant in upholding the economic rights of our people
especially from the onslaught of the powerful. Our
defense of the people's economic rights may appeal
heartless because it cannot be half-hearted.
IN VIEW WHEREFORE, the petitions are granted. R.A.
No. 8180 is declared unconstitutional and E.O. No. 372
[392] void. 5
Public respondents filed their consolidated motion for
reconsideration. Some of the new players, in the
industry: Eastern Petroleum Corp., Seaoil Petroleum
Corp., Subic Bay Distribution, Inc., TWA, Inc., and
Dubphil Gas moved to intervene and aired their stand
against the total nullification of R.A. 8180. They also
averred that they were in favor of declaring the three
offensive provisions unconstitutional. Petitioner
Enrique T. Garcia, likewise, filed a partial motion for
reconsideration and pushed for a return only to partial
deregulation in which the main features of
deregulation would be allowed free reign, but the retail
price of oil products would still be regulated through
the Energy Regulatory Board.
The Court found no merit in the motion for
reconsideration, motion for intervention, and partial
motion for reconsideration. Despite the separability
clause, the Court ruled that the three questioned
provisions cannot be struck down alone, for they were
the ones intended to carry out the policy of the law as
embodied in Section 2. 6
On the question of the validity of E.O. 392, the Court
held that the Executive Department failed to follow
faithfully the standards set by R.A. 8180 when it
considered the extraneous factor of depletion of the Oil
Price Stabilization Fund (OPSF) fund, instead of limiting
the basis for the acceleration of full deregulation of the
industry to only two factors, viz: (1) the time when the
prices of crude oil and petroleum products in the world
market are declining, and (2) the time when the
exchange rate of the peso in relation to the US dollar is
stable. 7 By considering another factor, the Executive
Department rewrote the standards set forth in R.A.
8180. 8 In light of the uncertainty of the consideration
given by the Executive department to the depletion of
the OPSF fund for the full deregulation of the oil
industry, we ruled that E.O. 392 constituted a
misapplication of R.A. 8180. In sum, the implementing
order was found void, while the basic law was held
unconstitutional.
On reconsideration, our December 3, 1997 Resolution
stressed that R.A. 8180 is unconstitutional because (1)
it gave more power to an already powerful oil
oligopoly; (2) it blocked the entry of effective
competitors; and (3) it will sire an even more powerful
oligopoly whose unchecked power will prejudice the
interest of the consumers and compromise the general
welfare. 9 The Court reiterated, however, that there
was no impediment in re-enacting R.A. 8180 minus the
provisions which are anti-competition.
Consequently, Congress fast-tracked a new oil
deregulation law, R.A. 8479, which was approved and
duly signed on February 10, 1998. It took effect an
February 12, 1998 upon the completion of its
publication in a newspaper of general circulation.
Dissatisfied with the amendments incorporated into
the new law by his own colleagues in Congress,
Honorable Enrique T. Garcia filed the instant petition.
The Court is the ultimate guardian of our Constitution.
By virtue of its power of judicial review, it is duty-
bound in an appropriate case to ascertain whether a
law is free from constitutional flaws. While favoring
free competition in the oil industry, the Court struck
down R.A. 8180 because of provisions therein that
contravened the basic law, our Constitution. Before
dwelling into the issues now raised by the petitioner,
37 | P r o j e c t Development_Cha Mendoza
we must determine whether R.A. 8479 truly cured the
invalid portions of R.A. 8180. When we advocated
vigilance in upholding the economic rights of our
people, we truly hoped that Congress would address
the defects of R.A. 8180 and not re-enact R.A. 8180
through the guise of R.A. 8479.
It bears recalling, however, that when the Supreme
Court mediates to allocate constitutional boundaries or
invalidates the acts of a coordinate body, what it is
upholding is not its own supremacy but the supremacy
of the Constitution. With this in mind, we now focus on
the provisions of R.A. 8479, in particular the 4% tariff
differential, minimum inventory level, and predatory
pricing provisions, which aim to prevent the big three
oil companies from taking advantage of deregulation
as a means of cartelizing their operations, and thereby
result in monopolistic and oligopolistic practices
condemned by the basic law of the land.
First, the 4% tariff differential. On December 31, 1997,
after the Court declared with finality that R.A. 8180 is
unconstitutional, President Ramos issued Executive
Order No. 461. The Order imposed a three percent
(3%) import duty on petroleum products enumerated
therein. The President's move avoided the revival of
the old tariff rates of 10% on crude oil and 20% on
refined oil while the legislative department was in the
process of crafting a new oil deregulation law.
Noteworthy, Sec. 6 of R.A. 8479 imposed the same
tariff treatment on petroleum products. Section 6
reads:
Sec. 6 — a) Any law to the contrary notwithstanding
and starting with the effectivity of this Act, a single and
uniform tariff duty shall be imposed and collected both
on imported crude oil and imported refined petroleum
products at the rate of three percent
(3%): Provided, however, That the President of the
Philippines may, in the exercise of his powers, reduce
such tariff rate when on his judgment such reduction is
warranted, pursuant to Republic Act No. 1937, as
amended, otherwise known as the "Tariff and Customs
Code": Provided, further, That beginning January 1,
2004 or upon implementation of the Uniform Tariff
Program under the World Trade Organization and
ASEAN Free Trade Area commitments, the tariff rate
shall be automatically adjusted to the appropriate level
notwithstanding the provisions under this Section.
Second, the minimum inventory level requirement. R.A.
8479 eliminated the provision in R.A. 8180 requiring
the refiners and importers to maintain a minimum
inventory equivalent to ten percent (10%) of their
respective annual sales volume or forty (40) days'
supply. The minimum inventory requirement was
removed, giving the new entrants opportunities to use
their resources to be more competitive.
Third, predatory pricing. In the December 3, 1997
Resolution of the Court in G.R. Nos. 124360 and
127867, we expressed the view that the definition of
predatory pricing was too loose to be a real
deterrent. 10 Congressman Dante O. Tinga
acknowledged in his explanatory note of House Bill
10057 (H.B. 10057) that the definition of predatory
pricing needed specificity, particularly with respect to
the definitive benchmark price and the express anti-
competitive intent. He suggested the Areeda-Turner
test and proposed to redefine predatory pricing.
Section 11 par. (b) of R.A. 8479 adopted Congressman
Tinga's recommendation, to wit:
b) Predatory pricing which means selling or offering to
sell any oil product at a price below the seller's or
offeror's average variable cost for the purpose of
destroying competition, eliminating a competitor or
discouraging a potential competitor from entering the
market: Provided, however, That pricing below average
variable cost in order to match the lower price of the
competitor and not for the purpose of destroying
competition shall not be deemed predatory pricing. For
purposes of this prohibition, "variable cost" as
distinguished from "fixed cost", refers to costs such as
utilities or raw materials, which vary as the output
increases or decreases and "average variable cost"
refers to the sum of all variable costs divided by the
number of units of outputs.
To strengthen the anti-trust safeguards of R.A. 8479,
respondents argue that there are enough provisions to
encourage entry of new participants. For instance, R.A.
8479 allows for active participation of the private
sector and cooperatives in the retail of petroleum
through joint ventures to establish gasoline stations.
Moreover, R.A. 8479 requires initial public offering of
shares equivalent to 10% of the capital investments by
oil companies. Respondents also cite that the
enforcement of monitoring activities by the DOE
encourages consumer vigilance over unwarranted
increase in the prices of petroleum products. Another
safeguard against collusion among oligopolists is the
creation of a task force with members from the DOE
and the Department of Justice (DOJ) to investigate
complaints for violations of R.A. 8479. They assert that
the mere dominance of Petron, Pilipinas Shell, and
Caltex, is not per se a combination in restraint of trade.
Combination in restraint of trade, they claim, is the
means to achieve monopoly.
Petitioner Garcia adverts to oil deregulation in phases.
The new oil deregulation law has two phases: (1) the
transition phase and (2) the full deregulation phase.
During the transition period, all non-pricing aspects
were lifted. Although the Oil Price Stabilization Fund
was abolished, a buffer fund 11 was created to cover
increases in the prices of petroleum products, except
premium gasoline. The Automatic Oil Pricing
Mechanism was maintained to approximate the
domestic prices of petroleum products in the
international market. The Energy Regulatory Board
(ERB) approved a market-oriented formula to
determine the Wholesale Posted Price of petroleum
products based solely on the changes of either the
Singapore Posting of refined petroleum products, the
Singapore Import Parity or the crude landed cost.
After the transition phase comes full deregulation as
provided by Sec. 19 of R.A. 8479, which reads thus:
Sec. 19. Start of Full Deregulation. — Full deregulation
of the Industry shall start five (5) months following the
effectivity of this Act: Provided however, That when the
public interest so requires, the President may
accelerate the start of full deregulation upon the
recommendation of the Department of Energy (DOE)
and the Department of Finance (DOF) when the prices
of crude oil and petroleum products in the world
market are declining and the value of the peso in
relation to the US dollar is stable, taking into account
relevant trends and prospects: Provided, further, That
the foregoing provision notwithstanding, the five (5)-
month Transition Phase shall continue to apply to LPG,
regular gasoline and kerosene as socially-sensitive
petroleum products and said petroleum products shall
be covered by the automatic pricing mechanism during
the said period. 12
Note that the abovecited transition phase of five
months could be abbreviated when public interest so
requires. The President's power to accelerate the start
of full deregulation, however, depended upon the
recommendation of the Departments of Energy and
Finance.
Accordingly as recommended, on March 14, 1998,
President Ramos issued E.O. 471 to accelerate the
implementation of full deregulation. Partinently the
E.O., which implements R.A. 8479, provides:
WHEREAS, Republic Act No. 7638, otherwise known as
38 | P r o j e c t Development_Cha Mendoza
the "Department of Energy Act of 1992," provides that,
"at the end of four years from its effectivity last
December 1992, the Department [of Energy] shall,
upon approval of the President, institute the programs
and timetable of deregulation of appropriate energy
projects and activities of the energy sector;"
WHEREAS, Section 19 of Republic Act No. 8479,
otherwise known as the "Downstream Oil Industry
Deregulation Act of 1998," provides that [T]hat "when
the public interest so requires, the President may
accelerate the start of full deregulation upon the
recommendation of the Department of Energy (DOE)
and the Department of Finance (DOF) when the prices
of crude oil and petroleum products in the world
market are declining and the value of the peso in
relation to the US dollar is stable, taking into account
relevant trends and prospects: Provided, further, That
the foregoing provision notwithstanding, the five (5)-
month Transition Phase shall continue to apply to LPG,
regular gasoline and kerosene as socially-sensitive
petroleum products and said petroleum products shall
be covered by the automatic pricing mechanism during
said period;
WHEREAS, pursuant to the joint recommendation of
the Department of Energy and the Department of
Finance, and in the interest of the consuming public,
recent developments favor the acceleration of the start
of full deregulation of the downstream oil industry
because: (i) the prices of crude oil and petroleum
products in the world market are beginning to be
stable and on a downtrend since January 1998; and (ii)
the exchange rate of the peso in relation to the US
dollar has been stable for the past three months,
averaging at around P40.00 to one US dollar;
WHEREAS, Executive Order No. 377 dated 31 October
1996 provides for an institutional framework for the
administration of the deregulated industry by defining
the functions and responsibilities of various
government agencies;
WHEREAS, pursuant to Republic Act No. 8479, the
deregulation of the industry will foster a truly
competitive market which can better achieve the social
policy objectives of fair prices and adequate,
continuous supply of environmentally-clean and high
quality petroleum products;
NOW, THEREFORE, I, FIDEL V. RAMOS, President of the
Philippines, by the powers vested in me by law, do
hereby declare the full deregulation of the downstream
oil industry; provided, however, that LPG, regular
gasoline and kerosene shall be covered by the
Automatic Pricing Formula pursuant to R.A. No.
8479. 13
The implementing guidelines for the acceleration of full
deregulation of the industry, set forth in E.O. 471,
required the concurrence of two conditions, viz.: (1) the
downtrend of prices of oil and petroleum products, and
(2) stability of exchange rate of peso in relation to US
dollar, taking into account relevant trends and
prospects.
However, E.O. 471 carried an additional proviso, the
transition phase was continued for LPG, regular gas
and kerosene. These socially sensitive products
continued to be covered by the automatic pricing
mechanism until July of 1998. Only then was full
deregulation of the industry effected, and the
automatic pricing mechanism was also lifted for LPG,
regular gas and kerosene.
Turning now to herein petition, Congressman Enrique
Garcia raised the following issues to assail the
provision implementing full deregulation of the oil
industry:
I. Sec. 19 OF R.A. NO. 8479 which provides for full
deregulation five (5) months or earlier following the
effectivity of the law, is glaringly pro-oligopoly, anti-
competition and anti-people, and is therefore patently
unconstitutional for being in gross and cynical
contravention of the constitutional policy and
command embodied in Article XII, Section 19 of the
1987 Constitution against monopolies and
combinations in restraint of trade.
II. Said Section 19 of R.A. No. 8479 is glaringly pro-
oligopoly, anti-competition and anti-people, for the
further reason that it palpably and cynically violates
the very objective and purpose of R.A. No. 8479, which
is to ensure a truly competitive market under a regime
of fair prices.
III. Said Section 19 of R.A. No. 8479, being glaringly
pro-oligopoly, anti-competition and anti-people, being
patently unconstitutional and being palpably violative
of the law's policy and purpose of ensuring a truly
competitive market under a regime of fair prices, is a
very grave and grievous abuse of discretion on the part
of the legislative and executive branches of
government.
IV. Premature full deregulation under Section 19 of R.A.
No. 8479 may and should therefore be declared null
and void even as the rest of its provisions remain in
force, such as the transition phase or partial
deregulation with price controls that ensures the
protection of the public interest by preventing the big 3
oligopoly's price-fixing and overpricing.
These issues may be synthesized into one: Whether or
not the full implementation of deregulating the
downstream oil industry as provided in Section 19 of
R.A. 8479 violates the Constitutional mandate of free
competition in a liberalized oil industry under Section
19, Article XII of the 1987 Philippine Constitution?
Petitioner Garcia principally faults Section 19 of the
new R.A. 8479 as well as E.O. 471 now for violating the
constitutional prohibition against monopoly, and being
anti-competition.
Petitioner claims that there was a premature full
deregulation under Section 19 of R.A. 8479. He
protests the acceleration of the full implementation of
deregulation decreed under E.O. 471. Petitioner insists
that the short transition period is pro-oligopoly, anti-
competition and anti-people and is patently
unconstitutional because the period is too short to
establish true competition in the local oil industry. True
competition, he claims, exists only when there can be a
sizable number of players, and at present, the new
players comprise only 3% of the market share which
does not put up real competition against the "Big
Three" oil companies (Caltex, Shell and Petron). What
he suggests is to prolong the transition phase or partial
deregulation with price controls while the big oil
companies are still dominating the market, to ensure
the protection of the public interest and prevent the
big three oligopolies from fixing the price or
overpricing. He further contends that the automatic oil
pricing mechanism will enable the domestic price of
petroleum products to approximate and promptly
reflect the price of oil in the international market. He
also stressed that new players may come under an
indefinite or open-ended transition phase.
Commenting on the petition, respondents claim that
the propriety of full deregulation involves the wisdom
of Congress and is therefore, a non-justiciable issue.
They counter petitioner's arguments by pointing out
that the shortening of the transition period and
acceleration of full deregulation were decreed pursuant
to the joint recommendation of the DOE and DOF,
based on the concurring conditions of a downtrend of
crude oil in world market and the stability of the
exchange rate of P40.00 to US$1.
The respondents argue that the short transition period
is not violative of the Constitution because the new
players were given until July 1998 to set up their
39 | P r o j e c t Development_Cha Mendoza
businesses as they have in fact, and they have
captured at least 3% of the total oil market.
Respondent Petron asserts that full deregulation
protects the public from the greed and exploitation of
business. Petron further contends that competition can
be ushered in only with the certainty of price
deregulation and the short transition period would
guarantee the investors that within a manageable
period, they would be able to set prices, taking into
account their investment and operating costs. It claims
an indefinite transition period would discourage new
investors because the new players had hoped that
within a reasonable time, price regulation would be
lifted.
The Solicitor General filed a comment on behalf of the
public respondents, interposing economic arguments
that price regulation reduces economic efficiency and
is prejudicial to the public. 14 Public respondents
assert that the acceleration of full deregulation is
based on existing conditions and sound economic
theory.
Respondent Shell filed a rejoinder, stating that to
prolong the transition period will revive the automatic
pricing mechanism which means that it will only
replace the mode of price regulation by still another
regulatory scheme. It argues that if Sec. 19 of R.A.
8479 were to be struck down, full deregulation will
never take place and it would render the entire law
different from what was passed by Congress.
Petitioner counters that he is questioning the
constitutionality rather than the wisdom of Sec. 19 of
R.A. 8479; it is pro-oligopoly, hence patently
unconstitutional. Petitioner further avers that
condemnation against monopolies and combination in
restraint of trade should be given legal sanction by the
Court. Petitioner maintains that the nullification of Sec.
19 of R.A. 8479 will result in partial deregulation,
where there will be no regulation as regards the
importation of petroleum products and the
establishment of gas station, but oil pricing would be
regulated based on the Automatic Pricing Mechanism.
Note that during the review of R.A. 8180 by the Court
in G.R. No. 127867, petitioners Edcel C. Lagman,
Arroyo, et al., likewise questioned the constitutionality
of Section 15 of R.A. No. 8180 15 as well as E.O. No.
392 16 which provided for the implementation of full
deregulation. The Court decreed thus:
. . . Full deregulation at the end of March 1997 is
mandatory and the Executive has no discretion to
postpone it for any purported reason. Thus, the law is
complete on the question of the final date of full
deregulation. The discretion given to the President is to
advance the date of full deregulation before the end of
March 1997. Section 15 lays down the standard to
guide the judgment of the President — he is to time it
as far as practicable when the prices of crude oil and
petroleum products in the world market are declining
and when the exchange rate of the peso in relation to
the US dollar is stable.
xxx xxx xxx
It ought to follow that the argument that E.O. No. 392
is null and void as it was based on indeterminate
standards set by R.A. 8180 must likewise fail. If that
were all to the attack against the validity of E.O. No.
392, the issue need not further detain our
discourse. 17
In G.R. No. 127867, Congressman Garcia filed an
Urgent Motion for Partial Reconsideration from the
November 5, 1997, decision of the Court. He sought to
strike down only the premature full deregulation but
maintain partial deregulation under R.A. No. 8180 with
price controls and price mechanism based on
Singapore Posted Prices. The Court resolved the issue
this way:
We shall first resolve petitioner Garcia's linchpin
contention that the full deregulation decreed by R.A.
No. 8180 to start at the end of March 1997 is
unconstitutional. For prescinding from this premise
petitioner suggests that "we simply go back to the
transition period under R.A. No. 8180." Under the
transition period, price control will be revived through
the automatic pricing mechanism based on Singapore
Posted Prices. The Energy Regulatory Board . . . would
play a limited and ministerial role of computing the
monthly price ceiling of each and every petroleum fuel
product, using the automatic pricing formula. . . .
We are not impressed by petitioner Garcia's
submission. Petitioner has no basis in condemning as
unconstitutional per se the date fixed by Congress for
the beginning of the full deregulation of the
downstream oil industry. . . . The choice of March 1997
as the date of full deregulation is a judgment of
Congress and its judgment call cannot be impugned by
this Court. 18
Now in the present petition, Garcia insists on his old
plea for a return only to partial deregulation of the
downstream oil industry, wherein the main features of
deregulation would be permitted but the retail prices of
oil products would still be regulated through an
Automatic Pricing Mechanism.
However, I find his contentions to be lacking legal
basis, even if his proposal appears to be expedient, or
even beneficial, especially to the poor. As the Court
said Tañada vs. Tuvera, 19 "[T]his Court is not called
upon to rule on the wisdom of the law or to repeal it or
modify it if we find it impractical. That is not our
function. That function belongs to the legislator. Our
task is merely to interpret and apply the law as
conceived and approved by the political departments
of the government in accordance with the prescribed
procedure." 20
For if we allow an open-ended transition period to
maintain government pricing regulation, we would
have suspended the much-needed liberalization of the
downstream oil industry. It would certainly run counter
to the government's policy of allowing free interplay of
market forces, with minimal government supervision.
In fact, it could defeat full deregulation to ensure fair
competition in the downstream oil industry, where new
and prospective players are on even level playing field
with the Big Three.
Furthermore, to base the implementation of full
deregulation on the presence of a sizable number of
new investors, as petitioner would want us to do, would
be to legislate a floating provision dependent on the
happening of a contingent event. To do so, would be to
undermine the very purpose of the law, which is to
liberalize and deregulate the downstream oil industry
in order to ensure a truly competitive market under a
regime of fair prices, adequate and continuous supply,
environmentally clean and high-quality petroleum
products.
Consequently, to heed the petitioner's prayer, this
Court would have to legislate, a power granted only to
Congress. The operation of a statute may be duly
suspended only by authority of the
legislature. 21 Indeed, a suspension of a valid statute
must rest upon legislative action; 22 it may not be
effected solely by a judicial act. 23Clearly it is a policy
decision of the legislative and executive departments
in whose turf we must not tread, under the principle of
separation of powers. The term "political question"
connotes what it means in ordinary parlance, namely,
a question of policy. 24 It refers to "those questions
which, under the Constitution, are to be decided by the
people in their sovereign capacity, or in regard to
which full discretionary authority has been delegated
to the legislative or executive of the
40 | P r o j e c t Development_Cha Mendoza
government." 25 If is concerned with issues dependent
upon the wisdom, not legality, of a particular
measure. 26 The judiciary does not directly settle
policy issues. Under our system of government, policy
issues are within the domain of the political branches
of government and of the people themselves as the
repository of all state powers. 27
In PLDT vs. National Telecommunications
Commission, 28 the ultimate considerations cited in
matters affecting vital industries, are the public need,
public interest, and the common good. In that case, the
Court said:
Free competition in the industry may also provide the
answer to a much-desired improvement in the quality
and delivery of this type of public utility, to improved
technology, fast and handy mobile service, and
reduced user dissatisfaction. 29
Similarly, the above-mentioned considerations could
undergird the nation's energy and other economic
policies. The liberalization of the oil industry is a reform
program initiated by Congress to free the government
from the obligation of infusing funds to subsidize
increases in the prices of oil products. Such funds may
now be utilized for other much needed programs with a
public purpose.
Well-established is the principle that every law has in
its favor the presumption of constitutionality. 30 To
declare a law unconstitutional, the repugnancy of that
law to the Constitution must be clear and unequivocal.
But we recognize that even if a law is aimed at the
attainment of some public good, still its provisions
cannot infringe upon constitutional rights. 31 That
infringement, however, must be proved and
established persuasively to invalidate a provision of a
law, if not the entire law itself.
Petitioner ought to have demonstrated the need for the
extension of the transition period. But, in fact, he could
not downplay the DOE report that new players
accounted for a sizable share of the market, some 18.1
percent of the total product imports, and competing
companies are keen in joining the Philippine oil
industry since the full implementation of deregulation.
And, as stressed by the public respondents in the
rejoinder dated January 7, 1999:
Since 1996, new players have taken a significant share
in the market, to wit: (a) seven (7) new players have
entered the downstream oil industry before RA No.
8180; (b) during the effectivity of RA No. 8180, twenty
eight (28) new players have engaged in a number of
downstream oil industry activities; and (c) three (3)
new players have engaged in fuel bulk marketing,
while two (2) new players have started to establish
gasoline service stations immediately before and
during the effectivity of RA No. 8479. At the same time,
many more companies have indicated their intention to
enter the downstream oil industry business. 32
The new players, according to industry experts, are
gradually making a dent in the local market and their
share is expected to surge in a few years when their
retail stations are established. 33
However, the presence or entry of numerous players in
the oil industry is not a condition precedent before a
full deregulated petroleum industry could be had. But
we recognize that it is precisely the implementation of
full deregulation that would serve to entice new
players to compete against the so-called Big Three.
Hopefully, this move would prevent the powerful oil
companies from manipulating prices, to the prejudice
of the consumers and the public in general.
The petitioner strongly manifested his fears concerning
pernicious consequences of total lifting of price control
in the oil industry. His main concern is that the
government might be helpless in case the Big 3 (Shell,
Petron and Caltex) overprice their petroleum products.
But the people are not without legal recourse. The
public can manifest outright objections to overpricing
and report to the Department of Energy any
unreasonable increase in the prices of these oil
products. The monitoring power of the DOE is
embodied in Sec. 14 of R.A. 8479, and its
implementing rule, Section 18 of DOE Circular No. 98-
03-004, thus:
R.A. 8479, Sec. 14 — Powers and Functions of the DOE
and DOE Secretary:
Monitoring —
a) The DOE shall monitor and publish daily
international crude oil prices, as well as follow the
movements of domestic oil prices. It shall likewise
monitor the quality of petroleum products and stop the
operation of business involved in the sale of petroleum
products which do not comply with the national
standards of quality that are aligned with the national
standards/protocols of quality. . . .
xxx xxx xxx
d) Any report from any person of an unreasonable rise
in the prices of petroleum products shall be
immediately acted upon. For this purpose, the creation
of DOE-DOJ Task Force is hereby mandated to
determine within thirty (30) days the merits of the
report and initiate the necessary actions warranted
under the circumstances: Provided that nothing herein
shall prevent the said task force from investigating
and/or filing the necessary complaint with the proper
court or agency motu propio.
Department Circular No. 98-03-004, Sec. 18 — Powers
and Functions of the DOE and DOE Secretary
Monitoring —
The DOE shall monitor the following pursuant to
Section 14 of the Act. Any misrepresentation,
mislabeling, concealment or fraud, shall be subject to
penalties under existing applicable laws.
a. Prices
The DOE shall monitor and publish international oil
prices as well as follow the movement of domestic oil
prices.
(1) Price Display Boards
For the convenience of the public, all retailers of
petroleum products shall display the prices of each
type of petroleum product sold in gasoline stations in
prominently installed price display boards with
backgrounds preferably conforming to the color coding
scheme for the product, such as: green for Unleaded
Premium Gasoline, red for Premium Low Lead Gasoline,
orange for Regular Gasoline, yellow for Diesel Fuel, and
white for Kerosene. In the case of LPG (which has no
product color), the price display board may be light
blue in color. The numeric entries in these boards shall
be at least six (6) inches in height.
The price display boards shall be properly installed and
labeled not later than June 30, 1998. Failure to comply
with this requirements shall be penalized pursuant to
Section 24 of the Act.
(2) Unreasonable Rise in Prices
Any report from any person of an unreasonable rise in
the prices of petroleum products shall be immediately
acted upon by the DOE-DOJ Task Force in accordance
with Section 17 of this IRR. The said Task force shall
determine within thirty (30) days the merits of the
report and shall initiate the necessary actions
warranted under the circumstances.
A calculus of fear and pessimism, however, does not
justify the remedy petitioner seeks: that we now
overturn a law enacted by Congress and approved by
the Chief Executive. The Court must act on valid legal
reasons that will explain why we should interfere with
vital legislation. 34 To strike down a provision of law
we need a clear showing that what the Constitution
prohibits, the statute has allowed to be done. 35 Since
41 | P r o j e c t Development_Cha Mendoza
there is no clear showing that Section 19 of R.A. 8479
has violated the constitutional prohibition against
monopolies and combinations in restraint of trade, I
vote that the present petition be DISMISSED.
Footnotes
1 281 SCRA 330 (197).
2 CONSTITUTION, Article XII, Section 19.
3 Rollo, pp. 15-16.
4 American Tobacco Co. v. United States, 328 U.S. 781;
90 L. Ed. 1575.
5 Republic Act No. 7638.
6 supra., at 358; citing Gellhorn, Anti Trust Law and
Economics in a Nutshell, 1986 ed., p. 45.
7 22 SCRA 424, at 450-51 (1968); citations omitted.
8 Tatad v. Secretary of the Department of Energy, 282
SCRA 337, 353 (1997).
9 Coleman v. Miller 307 U.S. 433; 59 S. Ct. 972; 83 L.
Ed. 1385 (1939).
PANGANIBAN, J., separate opinion;
1 See public respondent's Memorandum, p.
19, citing Samuelson and Nordhaus, Economics, 1992
ed., p. 341.
2 § 2, RA 8479.
3 Neri, Economics and Public Policy, 1999 ed., p. 23.
Parentheses in original but brackets supplied.
4 Tañada v. Angara, 272 SCRA 18, May 2, 1997; Tatad
v. Secretary of the Department of Energy, infra;
Santiago v. Guingona Jr., GR. No. 134577, November
18, 1998.
5 Sec. 19. Start of Full Deregulation. — Full
deregulation of the [Downstream Oil] Industry shall
start five (5) months following the effectivity of this
Act: Provided, however, That when the public interest
so requires, the President may accelerate the start of
full deregulation upon the recommendation of the DOE
and the Department of Finance (DOF) when the prices
of crude oil and petroleum products in the world
market are declining and the value of the peso in
relation to the US dollar is stable, taking into account
relevant trends and prospects . . . .
6 281 SCRA 330, 355; November 5, 1997; per Puno, J.
9 This quote is taken from a comment I made in Battles
in the Supreme Court, 1998 ed., p. 121.
8 Lim v. Pacquing, 240 SCRA 649, January 27, 1995;
Tano v. Socrates, 278 SCRA 154, 1997; Tan v. People,
290 SCRA 117, May 19, 1998.
9 Tañada v. Angara, supra; Santiago v. Guingona
Jr., supra. See also Garcia v. Comelec, 227 SCRA 100,
October 5, 1993; Tañada v. Cuenco, 103 Phil 1051,
February 28, 1957; Magtajas v. Pyrce Properties Corp.,
223 SCRA 255, July 20, 1994.
10 Tañada v. Angara, supra, citing Zarate v. Olegario,
260 SCRA 1; October 7, 1996; San Sebastian College v.
Court of Appeals, 197 SCRA 138, 144, May 15, 1991;
Commissioner of Internal Revenue v. Court of Tax
Appeals, 195 SCRA 444, 458, March 20, 1991; Simon v.
Civil Service Commission, 215 SCRA 410, November 5,
1992; Bustamante v. Commissioner on Audit, 216
SCRA 134, 136, November 27, 1992.
11 Solicitor general's Memorandum, p. 44.
12 Ibid.
13 During the Oral Argument on July 13, 1999, I
compared petitioner to a Don Quixote bravely battling
petroleum-powered windmills. If only for his gutsy
Quixotic quest, I have, like many members of the
Court, lent a sympathetic ear to petitioner, not only in
this case but also in the earlier Tatad in which I wrote a
Concurring Opinion to the Court's Decision striking
down RA 8180, the Oil Deregulation Law then.
QUISUMBING, J., concurring opinion;
1 Rollo, pp. 40-47.
2 Sec. 5 [b] of R.A. 7638.
3 Tatad vs. Secretary of the Department of Energy, 281
SCRA 330, 359-360 (1997).
4 See Philippine Star issue of Dec. 4, 1997.
5 Supra, note 3 at 370.
6 Tatad vs. Secretary of the Department of Energy, 282
SCRA 337, 354 (1997).
7 Supra, note 3, at 353.
8 Ibid.
9 Supra, note 6, at 358.
10 Supra, see note 6 at 345.
11 Sec. 17 of Republic Act Number 8479 — Buffer
Fund: The President may, when the interest of the
consumers so requires, taking into account the rise in
the domestic prices of petroleum products, use the
"Reserve Control Account" as a buffer fund in the
amount not exceeding Two billion nine hundred million
pesos (2,900,000,000.00) to cover increases in the
prices of petroleum products, except premium
gasoline, during the Transition Phase over the prices
prevailing as of the date of the effectivity of this Act. . .
..
12 Rollo, p. 46.
13 "Annex 2" of Public Respondent's Comment.
14 See David Weimer and Aidan Vining, "Policy
Analysis: Concepts and Practice, 1992 ed., pp. 124,
126 — Comment — Solicitor General for Public
Respondents p. 15-16. According to the article, there
have been two major lines of criticism to the use of
price regulation (1) regulators are quickly captured by
the firms that they regulate and (2) such regulation
induces inefficient and wasteful behavior. The outcome
of such incentives are inefficiency and overuse of
capital under rate of return regulation.
15 Sec. 15. Implementation of Full Deregulation. —
Pursuant to Section 5(e) of Republic Act No. 7638, the
DOE shall, upon approval of the President, implement
the full deregulation of the downstream oil industry not
later than March, 1997. As far as practicable, the DOE
shall time the full deregulation when the prices of
crude oil and petroleum products in the world market
are declining and when the exchange rate of the peso
in relation to the US dollar is stable. Upon the
implementation of the full deregulation as provided
herein, the transition phase is deemed terminated and
the following laws are deemed repealed:
xxx xxx xxx
16 xxx xxx xxx
WHEREAS, Section 15 of Republic Act No. 8180,
otherwise known as the "Downstream Oil Industry
Deregulation Act of 1996," provides that "the DOE
shall, upon approval of the President, implement the
full deregulation of the downstream oil industry not
later than March, 1997. As far as practicable, the DOE
shall time the full deregulation when the prices of
crude oil and petroleum products in the world market
are declining and when the exchange rate of the peso
in relation to the US dollar is stable;
WHEREAS, pursuant to the recommendation of the
Department of Energy, there is an imperative need to
implement the full deregulation of the downstream oil
industry because of the following recent developments:
(i) depletion of the buffer fund on or about 7 February
1997 pursuant to the Energy Regulatory Board's Order
dated 16 January 1997; (ii) the prices of crude oil had
been stable at $21-$23 per barrel since October 1996
while prices of petroleum products in the world market
had been stable since mid-December of last year.
Moreover, crude oil prices are beginning to soften for
the last few days while prices of some petroleum
products had already declined' and (iii) the exchange
rate of the peso in relation to the US dollar has been
stable for the past twelve (12) months, averaging at
around P26.20 to ONE US dollar;
xxx xxx xxx
17 Supra, note 3, at 352-353.
18 Supra, note 6, at 353.
42 | P r o j e c t Development_Cha Mendoza
19 146 SCRA 446 (1986).
20 Id., at 455, 456.
21 73 Am. Jur. 2d. Sec. 374.
22 Id., citing Winslow v. Fleischner, 112 Or 23, 228 P
101, 34 ALR 826.
23 Id., citing King v. State, 87 Tenn 304, 10 SW 509.
24 Daza vs. Singson 180 SCRA 496, 500
(1989); citing Tanada vs. Cuenco, 103 Phil. 1051
(1957), Association of Small Landowners in the
Philippines, Inc. vs. Secretary of Agrarian Reform, 175
SCRA 343, 377 (1989).
25 Ibid.
26 Ibid.
27 Valmonte vs. Belmonte, Jr., 170 SCRA 256, 268
(1989).
28 190 SCRA 717 (1990).
29 Id. at 737.
30 Basco vs. Phil. Amusements and Gaming
Corporation, 197 SCRA 52, 68 (1991); citing Yu Cong
Eng vs. Trinidad, 47 Phil. 385 (1925); Salas vs. Jarencio,
46 SCRA 734 (1972); Peralta vs. COMELEC, 82 SCRA 30
(1978); Abbas vs. COMELEC, 179 SCRA 287 (1989).
31 Salas vs. Jarencio, 46 SCRA 734, 749 (1972).
32 Public respondents' Rejoinder, p. 7.
33 The Philippine Star, November 23, 1998 issue.
34 Tolentino vs. Secretary of Finance, 235 SCRA 630,
674 (1994); citing Alalayan vs. National Power Corp.,
24 SCRA 172 (1968); Cordero vs. Cabatuando, 6 SCRA
418 (1962); Sumulong vs. COMELEC, 73 Phil. 288
(1941). As of December 10, 1999, Philippine Star, p.
26, reports that "the deregulation of the oil industry
under Republic Act (RA) 8479 has resulted in the entry
of 53 new players, 10 of which are foreign players. . .
Their entry has forced the industry to offer more
competitive prices and products."
35 Morfe vs. Mutuc, 22 SCRA 424, 435 (1968).
The Lawphil Project - Arellano Law Foundation
Pasted from
<http://www.lawphil.net/judjuris/juri1999/dec1999/gr_132451
_1999.html>
REPUBLIC ACT NO. 9367 (BIOFUELS ACT OF 2006)
Republic Act No. 9367 January 12, 2007
AN ACT TO DIRECT THE USE OF BIOFUELS,
ESTABLISHING FOR THIS PURPOSE THE BIOFUEL
PROGRAM, APPROPRIATING FUNDS THEREFOR, AND
FOR OTHER PURPOSES.
Be it enacted by the Senate and House of Representatives of
the Philippines in Congress assembled:
SECTION 1. Short Title - This act shall be known as the
"Biofuels Act of 2006".
SEC. 2. Declaration Policy - It is hereby declared the policy
of the State to reduce dependence on imported fuels with due
regard to the protection of public health, the environment,
and the natural ecosystems consistent with the country's
sustainable economic growth that would expand opportunities
for livelihood by mandating the use of biofuels as a measure
to:
a) Develop and utilize indigenous renewable and sustainable-
sources clean energy sources to reduce dependence on
imported oil.
b) Mitigate toxic and greenhouse gas (GSG) emissions;
c) increase rural employment and income; and
d) Ensure the availability of alternative and renewable clean
energy without any detriment to the natural ecosystem,
biodiversity and food reserves of the country.
SEC. 3. Definition of terms - As used in this act, the
following term shall be taken to means as follows:
a) AFTA - shall refer to the ASIAN free trade agreement
initiated by the Association of South East Asian Nation;
b) Alternative Fuel Vehicle/Engine - shall refer to
vehicle/engines that use alternative fuels such as biodiesel,
bioethanel, natural gas, electricity, hydrogen and automotive
LPG instead of gasoline and diesel;
c) Bioethanol fuel - shall refer to ethanol (C2H30H) produce
from feedback and other biomass.
d) Biodiesel - shall refer to Fatty Acid Methyl Ester (FAME) or
mono-alkyl ester delivered from vegetable oil, or animal fats
and other biomass-derived oils that shall be technically
proven and approved by the DOE for use in diesel engines,
with quality specifications in accordance with the Philippine
National Standards (PNS)
e) Bioethanol fuels - shall refer to the hydrous and anhydrous
bioethanol suitably denatured for use as motor fuel with
quality specifications in accordance with the PNS;
f) Biofuel - shall refer to the bioethanol and biodiesel and
other fuels made from biomass and primary used for motive,
thermal power generation, with quality specifications in
accordance with PNS;
g) Biomass - shall refer to any organic matter, particularly
cellulosic or ligno-cellulosic matter, which is available on a
renewable or recurring basis, including trees, crops and
associated residues, plant fiber, poultry litter and other animal
wastes, industrial wastes and biodegradable component of
solid waste;
h) DA - shall refer to the Department of Agriculture created
under Executive Order No. 116, as amended;
i) Diesel - shall refer to the refined petroleum distillate, which
may contain small amount of hydrocarbon or nonhydrocarbon
additives to improve ignition quality or other characteristic,
suitable for compression ignition engine and other suitable
types of engines with quality specifications in accordance with
PNS;
j) DENR - shall refer to the Department of Environment and
Natural Resources created under Executive No. 192, as
amended;
k) DOE - shall refer to the Department of Energy created
under Republic Act No. 7638, as amended;
l) DOLE - shall refer to the Department of Labor and
Employment created under Executive Order No. 126, as
amended;
m) DOF - shall refer to the Department of Finance created
under Administrative Orders No. 127 and 127-A;
n) DOST - shall refer to the Department of Science and
Technology created under Republic Act no. 2067
o) DOTC - shall refer to the Department of Transportation and
Communication created under Executive Order No. 125-A, as
amended;
p) DTI - shall refer to the Department of Trade and Industry
created under Executive Order No. 133;
q) Feedstock - shall refer to the organic sources such as
molasses, sugarcane, cassava, coconut, jatropha, sweet
sorghum or other biomass used in the production of biofuels;
r) Gasoline – shall refer to volatile mixture of liquid
hydrocarbon, generally containing small amounts of additives
suitable for use as fuel in spark-ignition internal combustion
engines with quality specifications in accordance with the
PNS;
s) Motor fuel - shall refer to all volatile and inflammable liquids
and gas produced, blended or compounded for the purpose
of, or which are suitable or practicable for, operating motor
vehicle;
t) MTBE - shall refer to Methyl Tertiary Butyl Ether;
u) NBB or Board - shall refer to the National Biofuel Board
created under Section 8 of this Act ;
v) Oil Company - shall refer to any entity that distributes and
sells petroleum fuel products;
w) Oxygenate - shall refer to substances, which, when added
to gasoline, increase the amount of oxygen in that gasoline
blend;
43 | P r o j e c t Development_Cha Mendoza
x) PNS – shall refer to the Philippine National Standard;
consistent with section 26 of R.A. No. 8749 otherwise known
as the 'Philippine Clean Air Act of 1999;
y) Renewable Energy Sources - shall refer to energy sources
that do not have an upper limit on the total quantity to be
used. Such resources are renewable on a regular basis; and
z) WTO - shall refer to the World Trade Organization.
SEC. 4. Phasing Out of the Use of Harmful Gasoline
Additives and/or Oxygenates. – Within six months from
affectivity of this Act, the DOE, according to duly accepted
international standards, shall gradually phase out the use of
harmful gasoline additives such as, but not limited to MTBE
SEC. 5. Mandatory Use of Biofuels. – Pursuant to the
above policy, it is hereby mandated that all liquid fuels for
motors and engines sold in the Philippines shall contain
locally-sourced biofuels components as follows:
5.1 Within two years from the effectivity of this Act, at least
five percent (5%) bioethanol shall comprise the annual total
volume of gasoline fuel actually sold and distributed by each
and every oil company in the country; subject to requirement
that all bioethanol blended gasoline shall contain a minimum
of five percent (5%) bioethanol fuel by volume Provided, that
ethanol blend conforms to PNS.
5.2 Within four years from the effectivity of this Act, the NBB
created under this Act is empowered to determine the
feasibility thereafter recommend to DOE to mandate a
minimum of ten percent(10%) blend of bioethanol by volume
into all gasoline fuel distributed and sold by each and every
oil company in the country.
In the event of supply shortage of locally-produced bioethanol
during the four–year period, oil companies shall be allowed to
import bioethanol but only to the extent of the shortage as
may be determined by NBB.
5.3 Within three months from the effectivity of this Act, a
minimum of one percent (1%) biodiesel by volume shall be
blended into all diesel engine fuels sold in the
country: Provided That the biodiesel blend conforms to PNS
for biodiesel.
Within two years from the effectivity of this Act, the NBB
created under this Act is empowered to determine the
feasibility and thereafter recommend to DOE to mandate a
minimum of two percent (2%) blend of biodiesel by volume
which may be increased taking into account considerations
including but not limited to domestic supply and availability of
locally-sourced biodiesel component.
SEC. 6. Incentive Scheme – To encourage investments in
the production, distribution and use of locally-produced
biofuels at and above the minimum mandated blends, and
without prejudice to enjoying applicable incentives and
benefits under existing laws, rules and regulations, the
following additional incentives are hereby provided under this
Act.
a) Specific tax
The specific tax on local or imported biofuels component, per
liter of volume shall be zero (0). The gasoline and diesel fuel
component, shall remain subject to the prevailing specific tax
rate.
b) Value Added Tax
The sale of raw material used in the production of biofuels
such as, but not limited to, coconut, jatropha, sugarcane,
cassava, corn, and sweet sorghum shall be exempt from the
value added tax.
c) Water Effluents
All water effluents, such as but not limited to distillery slops
from the production of biofuels used as liquid fertilizer and for
other agricultural purposes are considered "reuse", and are
therefore, exempt from wastewater charges under the system
provided under section 13 of R.A No. 9275, also known as the
Philippine Clean Water Act: Provided, however, That such
application shall be in accordance with the guidelines issued
pursuant to R.A. No. 9275, subject to the monitoring and
evaluation by DENR and approved by DA.
d) Financial Assistance
Government financial institutions, such as the Development
Bank of the Philippines, Land Bank of the Philippines,
Quedancor and other government institutions providing
financial services shall, in accordance with and to the extent
by the enabling provisions of their respective charters or
applicable laws, accord high priority to extend financing to
Filipino citizens or entities, at least sixty percent (60%) of the
capital stock of which belongs to citizens of the Philippines
that shall engage in activities involving production storage,
handling and transport of biofuel feedstock, including the
blending of biofuels with petroleum, as certified by the DOE.
SEC. 7. Powers and Functions of the DOE. – In addition to
its existing powers and functions, the DOE is hereby
mandated to take appropriate and necessary actions to
implement the provisions of this Act. In pursuance thereof, it
shall within three months from effectivity of this Act:
a) Formulate the implementing rules and regulations under
Section 15 of this Act;
b) Prepare the Philippines Biofuel program consistent with the
Philippine Energy Plan and taking into consideration the DOE's
existing biofuels program;
c) Establish technical fuel quality standards for biofuels and
biofuel-blended gasoline and diesel which comply with the
PNS.
d) Establish guidelines for the transport, storage and handling
of biofuels;
e) Impose fines and penalties against persons or entities
found to have committed any of the prohibited acts under
Section 12 (b) to (e) of this Act;
f) Stop the sale of biofuels and biofuel-blended gasoline and
diesel that are not in conformity with the specifications
provided for under Section 5 of this Act, the PNS and
corresponding issuances of the Department; and
g) Conduct an information campaign to promote the use of
biofuels
SEC. 8. Creation of the National Biofuel Board (NBB) –
The National Biofuel Board is hereby created. It shall be
composed of the Secretary of the DOE as chairman and the
Secretaries of the DTI, DOST, DA, DOF, DOLE, and the
Administrators of the PCA, and the SRA, as members.
The DOE Secretary, in his capacity as Chairperson, shall,
within one month from the effectivity of this Act, convene the
NBB.
The Board shall by assisted by a Technical Secretariat
attached to the Office of the Secretary of the DOE. It shall be
headed by a Director to be appointed by the Board. The
number of staff of the Technical Secretariat and the
corresponding positions shall be determined by the Board,
subject to approval by the Department of Budget and
Management (DBM) and existing civil services rules and
regulations.
SEC. 9. Powers and Functions of the NBB. – The NBB
shall have the following powers and functions:
a) Monitor the implementation of, and evaluate for further
expansion, the National Biofuel Program (NBP) prepares by
the DOE pursuant to Section 7 (b) of this Act;
b) Monitor the supply and utilization of biofuels and biofuel-
blends and recommend appropriate measures in cases of
shortage of feedstock supply for approval of the Secretary of
DOE. For this purpose:
1. The NBB is empowered to require all entities engaged in
the production, blending and distribution of biofuels to submit
reports of their actual and projected sales and inventory of
biofuels, in a format to be prescribed for this purpose; and
2. The NBB shall determine availability of locally-sourced
biofuels and recommend to DOE the appropriate level or
percentage of locally–sourced biofuels to the total annual
volume of gasoline and diesel sold and distributed in the
country.
c) Review and recommend to DOE the adjustment in the
minimum mandated biofuel blends subject to the availability
of locally–sourced biofuels: Provided, That the minimum blend
may be decreased only within the first four years from the
effectivity of this Act. Thereafter, the minimum blends of the
five percent (5%) and two percent (2%) for bioethanol and
biodiesel respectively, shall not be decreased;
44 | P r o j e c t Development_Cha Mendoza
d) Recommend to DOE a program that will ensure the
availability of alternative fuel technology for vehicles, engine
and parts in consonance with the mandated minimum biofuel-
blends, and to maximize the utilization of biofuels including
other biofuels;
e) Recommend to DOE the use of biofuel–blends in air
transport taking into account safety and technical viability;
and
f) Recommend specific actions to be executed by the DOE and
other appropriate government agencies concerning the
implementation of the NBP, including its economic, technical,
environment, and social impact.
SEC. 10. Security of Domestic Sugar Supply. - Any
provision of this Act to the contrary notwithstanding, the SRA,
pursuant to its mandate, shall, at all times, ensures that the
supply of sugar is sufficient to meet the domestic demand and
that the price of sugar is stable.
To this end, the SRA shall recommend and the proper
agencies shall undertake the importation of sugar whenever
necessary and shall make appropriate adjustments to the
minimum access volume parameters for sugar in the Tariff
and Custom Code.
SEC. 11. Role of Government Agencies. – To ensure the
effective implementation of the NBP, concerned agencies
shall perform the following functions:
a) The DOF shall monitor the production and importation of
biofuels through the Bureau of Internal Revenue (BIR) and the
Bureau of Customs (BOC);
b) The DOST and the DA shall coordinate in identifying and
developing viable feedstock for the production of biofuels;
c) The DOST, through the Philippine Council for Industry and
Energy Research and Development (PCIERD), shall develop
and implement a research and development program
supporting a sustainable improvement in biofuel production
and utilization technology. It shall also publish and promote
related technologies developed locally and abroad.
d) The DA through its relevant agencies shall:
(1) Within three months from effectivity of this Act, develop a
national program for the production of crops for use as
feedstock supply. For this purpose, the Administrators of the
SRA and the PCA, and other DA-attached agencies shall,
within their authority develop and implement policies
supporting the Philippine Biofuel Program and submit the
same to the Secretary of the DA for consideration;
(2) Ensure increased productivity and sustainable supply of
biofuel feedstocks. It shall institutes program that would
guarantee that a sufficient and reliable supply of feedstocks is
allocated for biofuel production; and
(3) Publish information on available and suitable areas for
cultivation and production of such crops.
e) The DOLE shall:
(1) Promote gainful livelihood opportunities and facilitate
productive employment through effective employment
services and regulation;
(2) Ensure the access of workers to productive resources and
social coverage; and
(3) Recommend plans, policies and programs that will
enhance the social impact of the NBP.
f) The Tariff Commission, in coordination with the appropriate
government agencies, shall create and classify a tariff line for
biofuels and biofuel-blends in consideration of WTO and AFTA
agreements; and
g) The local government units (LGU) shall assist the DOE in
monitoring the distribution sale in use of biofuels and biofuel-
blends
SEC. 12. Prohibited Acts. The following acts shall be
prohibited:
a) Diversion of biofuels, whether locally produced or imported,
to purposes other than those envisioned in this Act;
b) Sale of biofuel–blended gasoline or diesel that fails to
comply with the minimum biofuel–blend by volume in
violation of the requirement under Section 5 of this Act;
c) Distribution, sale and use of automotive fuel containing
harmful additives such as, but not limited to, MTBE at such
concentration exceeding the limits to be determined by the this Act, are hereby repealed, modified or amended
NBB. accordingly.
d) Noncompliance with the established guidelines of the PNS SEC. 20. Separability Clause. - If any provision of this Act is
and DOE adopted for the implementation of this Act; and declared unconstitutional in the same shall not affect the
e) False labeling of gasoline, diesel, biofuels and biofuel- validity and effectivity of the other provision hereof.
blended gasoline and diesel. SEC. 21. Effectivity. - This act shall effect fifteen (15) day
SEC. 13. Penal Provisions. - Any person, who willfully aids after publication in at least two newspapers of general
or abets in the commission of a crime prohibited herein or circulation.
who causes the commission of any such act by another shall Approved,
be liable in the same manner as the principal.
In the case of association, partnerships or corporations, the JOSE DE VENECIA JR. MANNY VILLAR
penalty shall be imposed on the partner, president, chief Speaker of the House of President of the Senate
operating officer, chief executive officer, directors or officers, Representatives
responsible for the violation.
The commission of an act enumerated in Section 12, upon This Act which is a consolidation of Senate Bill No. 2226 and
conviction thereof, shall suffer the penalty of one year to five House Bill No. 4629 was finally passed by the Senate and the
years imprisonment and a fine ranging from a minimum of House of Representatives on November 29 2006.
One million pesos (P 1,000,000.00) to Five million pesos
(P 5,000,000.00). ROBERTO P. NAZARENO OSCAR G. YABES
In addition, the DOE shall confiscate any amount of such Secretary General Secretary of Senate
products that fail to comply with the requirements of Sections House of Represenatives
4 & 5 of this Act, and implementing issuance of the DOE. The
DOE shall determine the appropriate process and the manner Approved: January 12, 2007
of disposal and utilization of the confiscated products. The GLORIA MACAPAGAL-ARROYO
DOE is also empowered to stop and suspend the operation of President of the Philippines
businesses for refusal to comply with any order or instruction
of the DOE Secretary in the exercise of his functions under Pasted from
this Act. <http://www.lawphil.net/statutes/repacts/ra2007/ra_9367_200
Further, the DOE is empowered to impose administrative fines 7.html>
and penalties for any violation of the provisions of this Act,
implementing rules and regulations and other issuance
relative to this Act.
SEC. 14. Appropriations. - Such sums as may be necessary
for the initial implementation of this Act shall be taken from
the current appropriations of the DOE. Thereafter, the fund
necessary to carry out provisions of this Act shall be included
in the annual General Appropriation Act.
SEC. 15. Implementing Rules and Regulations (IRR). -
The DOE, in consultation with the NBB, the stakeholders and
the other agencies concerned, shall within three months from
affectivity of this Act, promulgated the IRR of this
Act: Provided, That prior to its effectively, the draft of the IRR
shall be posted at the DOE web site for at least one month,
and shall be published in at least two newspapers of general
circulation.
SEC. 16. Congressional Oversight Committee. - Upon
affectivity of this act, a Congressional Committee, hereinafter
referred to as the Biofuels Oversight Committee, is hereby
constituted. The biofuels oversight committee shall be
compose of (14) members, with the Chairmen of the
Committees on Energy of both House of Congress as co-
chairmen. The Chairmen of the Committee on Agriculture and
Trade and Industry shall be ex officio members. An additional
four members from each House, to be designated by the
Senate President and Speaker of the House of
Representatives, respectively. The minority shall be entitled
to pro-rata representation but shall have at least one
representative in the Biofuel Oversight Committee.
SEC. 17. Benefits of Biofuel Workers. - This Act shall not
in any way result in the forfeiture or diminution of existing
benefits enjoyed by the sugar workers as prescribed under
the R.A. No. 6982, or the Sugar Amelioration Act of 1991. In
case sugarcane shall be used as feedstock.
The NBB shall establish a mechanism similar to that provided
under the Sugar Amelioration Act of 1991 for the benefit of
other biofuel workers.
SEC. 18. Special Clause. - This act shall not be interpreted
as prejudicial to clean development mechanism (CDM)
projects that cause carbon dioxide (CO2) and greenhouse
gasses (GHG) emission reductions by means of biofuel use.
SEC. 19. Repealing Clause. - The provision of Section 148
(d) of R.A. No. 8424, otherwise known as Tax Reform Act. of
1997, and all other laws, presidential decrees or issuance,
executive orders, presidential proclamations. rules and
regulations or part thereof inconsistent with the provisions of

45 | P r o j e c t Development_Cha Mendoza