Presidential Decree No.

1857
OFFICE OF THE PRESIDENT
OF THE PHILIPPINES
Malacañang
PRESIDENTIAL DECREE NO. 1857
AN ACT GRANTING NEW INCENTIVES TO PETROLEUM SERVICE CONTRACTORS,
AND FOR THIS PURPOSE AMENDING CERTAIN SECTIONS OF PRESIDENTIAL
DECREE NUMBERED EIGHTY-SEVEN, AS AMENDED, OTHERWISE KNOWN AS "THE
OIL EXPLORATION AND DEVELOPMENT ACT OF 1972".
WHEREAS, one of the more important policy decisions in the area of oil and gas exploration and
development is the adoption of the service contract system embodied in Presidential Decree No.
87, as amended, also known and cited as the "Oil Exploration and Development Act of 1972";
WHEREAS, the service contract system which attracted foreign capital and expertise in an area
where local resources are not adequate, allows maximum benefits to the Philippine
GOVERNMENT and at the same time providing reasonable returns to companies that render
financial and technical services and assume all the risk of oil exploration;
WHEREAS, while the results from the implementation of the service contract system has so far
been encouraging giving the country several hydrocarbon discoveries and three producing
oilfields, it is necessary that we offer improved fiscal and contractual terms to service contractors
in order for the Philippines to continue her oil exploration momentum in the light of current
worldwide developments that has caused drastic cutbacks in exploration budgets of most
exploration companies;
WHEREAS, eight (8) exploratory wells have been drilled so far in water deeper than 200 meters
or 600 feet, of which two (2) are discoveries, which give deepwater drilling new significance in
Philippine petroleum operations;
WHEREAS, there is a need to provide for a new set of incentives to revitalize interest and
encourage more drilling activity in our country, with special reference to deepwater oil exploration.
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the
powers vested in me by the Constitution, do hereby decree as follows;
SECTION 1. Section three of Presidential Decree numbered Eighty-Seven, is hereby amended
by adding, after subparagraph (u) thereof, three new subparagraphs to be known as
subparagraphs (v), (w), and (x) to read as follows:
"(v)"Deepwater Contract" refers to a service contract at least eighty-five percent (85%) of the total
contract area are in water depths beyond 200 meters.
"(w)"Deepwater Contractor" means the contractor in a deepwater contract, whether acting alone
or in consortium with others."
"(x)"Deepwater well" refers to a well drilled on water depths beyond 200 meter, whether within or
without a deepwater contract."
SECTION 2. Subparagraph (1) of the second paragraph of Section 8 of the same decree, is
hereby amended to read as follows:
"(1) On behalf of the GOVERNMENT, reimburse the CONTRACTOR for all operating expenses
not exceeding seventy percent (70%) of the gross proceeds from production in any year,
Provided, that if in any year, the operating expenses exceed seventy percent (70%) of gross
proceeds from production, then the unrecovered expenses shall be recovered from the
operations of succeeding years,
"The provisions of Section 21, 22 and 23 hereof to the contrary notwithstanding, reimbursement
of all operating expenses of the contractor includes amortization, depreciation and interest as
provided here under:
a. "(a) Amortization and Depreciation-Intangible exploration costs may be reimbursed in full. All
tangible exploration costs such as capital assets are to be depreciated for a period of five (5)
years under the straight-line or double-declining balance method of depreciation at the option of
the contractor."

b. "(b) Any interest or other paid or suffered in respect of the financing as approved by the
GOVERNMENT of its development and production operations, shall be reimbursed to the extent
of two-thirds (2/3) of the amount thereof, except interest on loans or indebtedness incurred to
finance exploration operations.

SECTION 3. A new section to be known as Section TEN-A, is hereby inserted between sections
ten and eleven of the same decree to read as follows:
"SECTION 10. A Deepwater Contract, Deepwater CONTRACTOR and Deepwater Well.
a. "(a) Cost Recovery Allowed - Subject to cost recovery limitation as provided in the Contract,
there shall be allowed the gross recovery of the operating expenses incurred by a deepwater
contractor or its affiliate in two or more areas under different deepwater contract and in the drilling
of deepwater wells as if they are covered by a single contract,
b. "(b) Cross Recovery Rules
(1) Year to which Cross Recovery may be carried - Operating expenses incurred preceding the
date of production shall be cross- recoverable starting on the date of production:
a.The entire amount of operating expenses incurred within ten (10) years preceding the date of
production shall be cross-recoverable;

b. Operating expenses incurred more than 10 years preceding the date of production shall be
reduced by an amount equal to twenty percent (20%) thereof, for each year beyond ten (10)
years preceding the date of production.
(3) Time to Avail Incentive - Cross Recovery of operating expenses set forth in this section shall
be allowed for a period of ten (10) years from the effectivity of this amendatory decree, unless
extended by law.
"(c) Cross Recovery Defined - For purposes of this section, the term "Cross recovery" means that
the operating expenses incurred by a deepwater contractor or its affiliate in two or more areas
under different deepwater contracts and the operating expenses it incurred in the drilling of
deepwater wells may be recovered from the gross proceeds resulting from the sale of
all petroleum produced within any one or more of the deepwater contracts (or contracts where the
deepwater well is located), as if they are covered by a single contract.
"(d) Operating Expenses Defined - For purpose of this section, the term "Operating Expenses"
means the total expenditures for petroleum operation incurred by the contractor, both within
and without the Philippines except administrative items, as provided in the service contract.
"(e) Special Rules
1. Cross Recovery may be allowed under the service contract in other areas upon the
determination and recommendation of the Secretary of Energy and subject to the
approval by the President, taking into consideration factor such as exploration conditions,
high operation cost, location, requirements for terminal facilities.

2. Cross Recovery shall apply to any corporation authorized to engage in petroleum

operations in the Philippines pursuant to a service contract entered into by said
corporation and the DEPARTMENT for:
a. Contracts entered into pursuant to this decree, as amended, before the effectivity of this
amendatory decree; and
b. New contracts entered into after the effectivity of this mandatory decree."
"(f) Exploration Period in Deepwater Contract and Deepwater Well Contract - The provisions of
subparagraph (e), Section Nine of the Decree shall apply to deepwater contract and deepwater
well, except that when petroleum has been discovered by the end of the tenth year in deepwater
contract and deepwater well, the deepwater contract or contract for deepwater well shall be
further extended to determine whether the discovery is in commercial quantity, in which event,
another extension for a period not exceeding five (5) years shall be granted. In the event
the deepwater contract or contract for deepwater well shall remain in force for production
purpose, the extension period not exceeding five years shall be credited as part of the initial
twenty-five years production term."
SECTION 4. Section twelve of the same decree is hereby amended by adding, after
subparagraph (h) thereof, a new subparagraph to be known as subparagraph (i) to read as
follows:
"(i) Exemption from the investment requirements of foreign corporations under Section 126 in
relation to Section 148 of the Corporation Code of the Philippines."
SECTION 5. The DEPARTMENT shall be vested with the authority to promulgate such rules and
regulations as may be necessary to implement the provision of this decree, subject to the
approval of the Secretary of Energy.
SECTION 6. Any provision of existing general and special laws inconsistent with the provisions of
this decree is hereby modified, amended or repealed accordingly.
SECTION 7. This Decree shall take effect upon its approval.

DONE in the City of Manila this 1st day of January in the Year of Our Lord, Nineteen Hundred
and Eighty-three.

(SGD.)
FERDINAND E. MARCOS
President of the Philippines

PRESIDENTIAL DECREE No. 972 July 28, 1976

PROMULGATING AN ACT TO PROMOTE AN ACCELERATED EXPLORATION,

DEVELOPMENT, EXPLOITATION, PRODUCTION AND UTILIZATION OF COAL

WHEREAS, the increasing cost of imported crude oil imposes an unduly heavy demand on the
country's international reserves thereby making it imperative for the government to pursue
actively the exploration, development and exploitation of indigenous energy resources;

WHEREAS, while coal has been identified as a fossil fuel known to exist in mineable quantities in
the country which could provide a viable energy source for some vital industries, large tracts of
coalbearing lands have not been explored and mined in a manner and to an extent adequate to
meet the needs of the economy;

WHEREAS, the proliferation of fragmented coal permits and leases has prevented, or deterred,
the adequate and speedy exploration, development, exploitation and production of indigenous
coal resources;

WHEREAS, to develop, achieve and implement a well- planned, systematic and meaningful
exploration, development, exploitation and production of local coal resources, participation of the
private sector with sufficient capital, technical and managerial resources must be encouraged and
the technical and financial capabilities of the coal industry upgraded;

WHEREAS, hand in hand with an accelerated coal exploration, development, exploitation and
production program, it is essential that the market for domestic coal production be developed by
granting incentives to prospective coal users to convert their facilities for coal utilization;

WHEREAS, to realize the above, it is necessary to amend and/or supplement existing legislation
relating to coal;

WHEREAS, Article XVII, Section 12 of the Constitution of the Philippines provides in part that
when the National interest so requires the incumbent President of the Philippines or the interim
Prime Minister may review all contracts, concessions, permits or other forms or privileges for the
exploration, development, exploitation or utilization of natural resources entered into, granted,
issued or acquired before the ratification 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) 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 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 proportion 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;

(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 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 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 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 per Angular Convergency of

Kilometer Departure

5° 2.83

6° 3.4

7° 3.97

8° 4.55

9° 5.12

10° 5.7
 11° 6.29

12° 6.87

13° 7.46

14° 8.06

15° 8.66

16° 9.27

17° 9.88

18° 10.5

19° 11.13

20° 11.76

21° 12.41

The angular convergency correction, expressed in seconds, shall be added to the observed
astronomical azimuth for points west and subtracted for points east of the central meridian.

All bearing of lines and coordinates of corners not in accordance with the Philippine Plane
Coordinate System as used in the area computations of surveyed coal block that are within 150
m. from the periphery of the coal block undergoing survey shall be transformed to the Philippine
Plane Coordinate System.

The zone number and central meridian of the Philippine Plane Coordinate System shall, in all
cases, be indicated on the fieldnotes, computations, plans, maps, and reports of the surveys.

For higher precision of surveys, convergency corrections, scale factors and azimuth correction (T-
t) shall be referred from the formula used in the table of DANR Technical Bulletin No. 26,
however, for tertiary precision of surveys, the scale factors and the azimuth correction (T-t) may
be discarded.

Coal block surveys shall be definitely fixed in position on the earth's surface by monuments of
prominent and permanent structure marking corner points of the coal block and by bearings and
distances from the points of known geographic or Philippine Plane Coordinate System.

These tie points shall either be as follows:

1. Triangulation stations established by:

(a) The Bureau of Coast and Geodetic Survey.

(b) The United States Army Engineer Survey.

 (c) The 29th Engineer Topographic (Base) Battalion.

(d) The Bureau of Lands.

(e) The Bureau of Mines.

(f) Other organizations, the survey of which is of acknowledged standard.

2. Bureau of Lands Location Monuments (BLM) and Bureau of Lands Barrio Monuments
(BLBM) established by the Bureau of Lands.

3. Political Boundary Monuments such as Provincial Boundary Monuments (PBM),

Municipal Boundary Monuments (MBM) and Barrio Boundary Monuments (BBM):
Provided, That they were established by Cadastral Land Surveys, Group Settlement
Surveys or Public Land Subdivision Surveys of the Bureau of Lands.

4. Bureau of Mines Reference Points (BMRP) monuments established by the Bureau of

Mines.

5. Church cross, church spire, church dome, church tower, historical monument of known
geographic or Philippine Plane Coordinate System acknowledged by the Bureau of Coast
and Geodetic Survey, Bureau of Lands or Bureau of Mines.

6. Corners of approved coal block surveys with known geographic and/or Philippine
Plane Coordinate Systems may be used as starting point of a coal block survey:
Provided, however, That at least three (3) or more undisturbed corners of concrete
monuments are surveyed for a good common point and the tie is computed from the tie
point of the aforesaid approved surveys.

Should any discrepancy of datum plane between or among tie points arise, proper investigation
shall be conducted by the authorized geodetic engineer and a report thereon shall be submitted
to the Energy Development Board to form part of the survey returns for further investigation and
record purposes.

Plans of coal blocks recorded under the Act shall correctly and neatly drawn to scale in drawing
inks on the survey plan.

The latitudes and longitudes of the meridional blocks shall be drawn to scale on the plan
whenever practicable, in light black inks.

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 manner of execution of coal land surveys shall be in accordance with these Regulations, as
supplemented by the Manual of Regulations for Mineral Land Surveys in the Philippines
promulgated on June 22, 1965 and the Philippine Land Surveyors Manual (Technical Bulletin No.
22, Bureau of Lands, July 1, 1955), as far as the provisions thereof are not inconsistent with the
Decree.

(G) Submittal and Verification of Survey Returns. Survey returns coal block shall be submitted to
the Energy Development Board within one (1) year from effective date of the coal operating
contract and shall consist of the following:
 1. Field notes completely filled in, paged and sealed (G.E.) and fieldnotes cover on EDB
Form No. 14 hereto attached as Attachment "E", and made part of these regulations, duly
accomplished, signed and sealed by the geodetic engineer and notary public.

2. Azimuth computations from astronomical observations, traverse computations, area

computations, elevation and topographic survey computations and other reference
computations all in original and in duplicate properly accomplished and signed by the
computer and the geodetic engineer.

Computerized (EDP) computations, however, may be submitted in place of the duplicate

computations.

3. Tracing cloth plan/s duly accomplished with the corresponding working sheet thereof.

4. Descriptive and field investigation report on the coal block in quintuplicate duly signed
by the geodetic engineer and authorized assistant, if any, and duly notarized.

5. A consolidated plan at scale at 1:4,000 showing the relative positions of the surveyed
coal blocks and other coal blocks with existing rights at the time of the survey, if any.

6. Other documents pertinent to the survey of coal blocks.

Survey returns without items (1) to (6) above, shall not be accepted for verification and approval
purposes.

Concerns and/or location monuments of approved surveys of coal blocks inspite of the nullity,
cancellation, rejection or abandonment of the coal operating contract over the surveyed area,
shall be preserved as reference mark and the geographic position thereof shall be kept for use in
future coal block surveys, unless otherwise said survey is found to be erroneous by later
approved coal block surveys.

Surveys of subsisting coal blocks rights, permits and leases which are to be erroneous may be
ordered by the Energy Development Board to be corrected motu proprio, when justified by
existing circumstances.

IV. Procedure of Filing an Application for Negotiated Coal Operating Contract under
Presidential Decree No. 972.

In addition to the documents required to be submitted in the preceding section, the following
documents shall accompany all applications for a coal operating contract:

(a) Information Sheet for Coal Operators (EDB Form No. 11).

(b) Proposed Coal Operating Contract Patterned after the Model Contract (EDB Form No.
15).

(c) A Comparative Analysis in tabulated form of items in the Coal Operating Contract
proposal which deviate from the Model Contract. Reasons for the proposed changes
should likewise be presented.

(d) In cases of a corporation, a Certificate of Authority from the Board of Directors of

applicant Operator authorizing a designated representatives/representative to negotiate
the Coal Operating Contract. The certification must be executed under oath by the
 Corporate Secretary and if executed abroad, must be properly authenticated. In cases of
partnership or other forms of association, a duly authorized representative/s negotiate the
Coal Operating Contract by the partners or members thereof.

(e) Copies of all technical reports or works done on the proposed coal contract areas,
whenever available.

The applicant shall pay a processing fee of P1.00 per hectare but in no case less than P1,000.00
for the proposed coal contract area. Check should be made payable to the Energy Development
Board. No negotiations can commence until the above requirements have been fully complied
with.

V. Publication and Effectivity

These rules and regulations shall take effect immediately.

Copies thereof shall be published in newspapers of general circulations in the Philippines.

Done in Makati, Metro Manila, on August 27, 1976.

Republic Act No. 8180 March 28, 1996

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 1996."

Section 2. Declaration of Policy. - It shall be the policy of the State to deregulate the
downstream oil industry to 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.

Section 3. Coverage. - This Act shall apply to all persons or entities engaged in any or all the
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) Downstream oil industry shall refer to the business of importing exporting, re-exporting,
shipping, transporting, processing, refining, storing, distribution, marketing and/or selling,
crude oil, gasoline, diesel, liquefied petroleum gas (LPG), kerosene, and other petroleum
and crude oil products;
 b) DOE shall refer to the Department of Energy;

c) Board shall refer to the Energy Regulatory Board;

d) Person shall refer to any person, whether natural or juridical, who is engaged in the
downstream oil industry;

e) Petroleum shall refer to a 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;

f) Crude Oil shall refer to oil in its natural state before the same has been refined or
otherwise treated but excluding water, bottom substances and foreign substances;

g) Petroleum products shall refer to products formed in the course 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, solvent, kerosenes, aviation fuels, diesel oils, fuel oils, waxes and petrolatums,
asphalts, bitumens, coke and refinery sludges, or 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;

h) Wholesale Posted Price (WPP) shall refer to the ceiling price of petroleum products set
by the Board based on a formula using the Singapore Posting:

i) 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;

j) Singapore Posting shall refer to the price of petroleum products periodically posted by
oil refineries in Singapore and reported by independent international publications; and

k) Basel Convention shall refer to the international accord which governs the trade or
movement of hazardous and toxic waste across borders.

Section 5. Liberalization of Downstream Oil Industry and Tariff Treatment. - a) 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 its own trade name, or use the same for his own requirement: Provided, That
any person or entity who shall engage in any such activity shall give prior notice thereof to the
DOE for monitoring purposes: Provided, further, That such notice shall not 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 Bases Convention.

b) Any law to the contrary notwithstanding and starting with the effectivity of this Act, tariff shall be
imposed and collected on imported crude oil at 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.

c) 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 6. Security of Supply. - 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.

Section 7. Promotion of Fair Trade Practices. - The Department of Trade and Industry (DT)
and DOE shall take all measures to promote fair trade and to prevent cartelization and
monopolies and combinations in restraint of trade and any unfair competition, as defined in
Articles 186, 188 and 189 of the Revised Penal Code, in the downstream oil industry. The DOE
shall continue to encourage certain practices in the oil industry which serve the public interest and
are intended to achieve efficiency and cost reduction, ensure continuous supply of petroleum
products, or enhance environmental protection. These practices may include borrow-and-loan
agreements, rationalized depot operations, hospitality agreements, joint tanker and pipeline
utilization, and joint actions on oil spill control and fire prevention.

Section 8. Monitoring. - The DOE shall monitor and publish daily international oil prices to
enable the public to determine whether current market oil prices are reasonable. 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. The
Bureau of Product Standards (BPS), in coordination with DOE, shall set national standards of
quality that are aligned with the international standards/protocols of quality.

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.

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 markets are hereby required to submit monthly to the DOE their actual
and projected importations, local purchases, sales and/or consumption, and inventory on a per
crude/product basis.

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 a Department of Energy (DOE) -
Department of Justice (DOJ) Task Force is hereby mandated to determine the merits of the report
and to initiate the necessary actions warranted under the circumstances to prevent cartelization,
among others.

Section 9. Prohibited Acts. - To ensure fair competition and prevent cartels and monopolies in
the downstream oil industry, the following acts are hereby prohibited.

a) Cartelization which means any agreement, combination or concerted action by refiners

and/or importers or their representatives to fix prices, restrict outputs or divide markets,
either by products or by areas, or allocating markets, either by products or by areas, in
restrain of trade or free competition; and
 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.

Any person, including but not limited to the chief operating officer or chief executive officer of the
corporation involved, who is found guilty of any of the said prohibited acts shall suffer the penalty
of imprisonment for three (3) years and fine ranging from Five hundred thousand pesos
(P500,000) to One million pesos (P1,000,000)

Section 10. Other Prohibited Acts. - To ensure compliance with the provisions of this Act, the
failure to comply with any of the following shall likewise be prohibited: 1) submission of any
reportorial requirements, 2) maintenance of the minimum inventory; and 3) use of clean and safe
(environment and worker-benign) technologies.

Any person, including but not limited to the chief operating officer or chief executive officer of the
corporation involved, who is found guilty of any of the said prohibited acts shall suffer the penalty
of imprisonment for two (2) years and fine ranging from Two hundred fifty thousand pesos
(P250,000) to Five hundred thousand pesos (P500,000).

CHAPTER II
TRANSITION PHASE

Section 11. Phases of Deregulation. - In order to provide a smooth implementation of

deregulation, the policy shift shall be done in two phases: Phase I (Transition Phase) and Phase
II (Full Deregulation Phase).

Section 12. OPSF Claims Buffer Fund. - Upon the effectivity of this Act and prior to Phase I, the
Secretary of DOE shall seek the condonation of all outstanding claims against the
OPSF: Provided, however, That it shall keep or provide a buffer fund of One billion pesos
(P1,000,000,000) therein.

Section 13. OPSF Coverage. - Paragraph (c) Section 8 of Presidential Decree No. 1956, as
amended by Executive Order No. 137, is hereby further amended to read as follows:

"c) Any additional amount to be imposed on petroleum products to augment the

resources of the Fund through an appropriate Order that may be issued by the Board
requiring payment by persons or companies engaged in the business of importing,
manufacturing and/or marketing of petroleum products, including persons or companies
that will directly import refined petroleum products for their own use."

Section 14. Automatic Oil Pricing Mechanism. - To enable the domestic price of petroleum
products to approximate and promptly reflect the price 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 three (3) months after the
effectivity of this Act, approve a formula to determine the wholesale posted prices (WPP)
of petroleum products based on the Singapore posting of refined petroleum products.

Thereafter, the Board shall at the proper times automatically adjust the WPP of petroleum
products based on the Singapore posting using 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) newspapers of general circulation."

b) Paragraph 1 of Letter of Instruction No. 1441, to read as follows:

"1. To review and reset 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

wholesale posted prices of each petroleum product. Any price increase beyond
fifty centavos (P0.50) per liter shall be charged against the OPSF. For this
purpose, the OPSF accrued balance shall be initially fixed at One billion pesos
(P1,000,000,000)."

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 the rates charged by water transport operators, haulers
and pipeline concessionaries. Depending on the basis of the automatic pricing
mechanism, the Board may, within three (3) months after the effectivity of this Act and
after proper notice and full public hearing, prescribe a formula which will automatically set
the margins of the refiners, marketers and dealers, and the rates charged by water
transport operators, haulers and pipeline concessionaries: 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 III
FULL DEREGULATION PHASE

Section 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:
 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. 1880; and

g) Presidential Decree No. 1956, as amended by E.O. No. 137.

Section 16. 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."

Section 17. Foreign Exchange Forward Cover. - Any law to the contrary notwithstanding and
upon full deregulation, no foreign exchange forward cover shall be extended by the Government
to any private importation of crude oil and petroleum products.

Section 18. OPSF Balance. - Upon full deregulation, all outstanding claims during the transition
phase against the OPSF shall be settled out of the One billion peso (P1,000,000,000) buffer fund
and the balance, if any, shall be transferred to the General Fund.

CHAPTER IV
FINAL PROVISIONS

Section 19. Implementation Rules and Regulations. - The DOE, in coordination with the
Board, the Department of Environment and Natural Resource, Department of Labor and
Employment, Department of Health, Department of Finance, Department of Trade and Industry
and National Economic and Development Authority, shall formulate and issue the necessary
implementing rules and regulations within sixty (60) days after the effective of this Act.

Section 20. Administrative Fine. - The DOE may, after due notice and hearing, impose a fine in
the amount of not less than One hundred thousand pesos (P100,000) but not more than One
million pesos and (P1,000,000) upon any person or entity who violates any of its reportorial and
minimum inventory requirements, without prejudice to criminal sanctions.

The Secretary of the DOE may recommend to the proper government agency the suspension or
revocation and termination of the business permit of the offender concerned.

Section 21. Public Information Campaign. - The DOE, in coordination of the Board and the
Philippine Information Agency, shall undertake an information campaign to educate the public on
the deregulation program of the downstream oil industry.
Section 22. Budgetary Appropriations. - Such amount as may be necessary to effectively
implement this Act shall be taken by the DOE from its annual appropriations and the DOE's
Special Fund created under Section 8 of Presidential Decree No. 910, as amended.

Section 23. 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 24. 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 modified accordingly.

Section 25. Effectivity. - This Act shall take effect fifteen (15) days after its complete publication
in at least two (2) newspapers of general circulation.

Approved: March 28, 1996

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 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

(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
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 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).

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

TATAD VS DEPARTMENT OF ENERGY

G.R. No. 124360 and 127867. November 5, 1997
The petitioner question the constitutionality of RA No. 8180 “An Act Deregulating the Downstream
Oil Industry and For Other Purposes.” The deregulation process has two phases: (a) the
transition phase and the (b) full deregulation phase through EO No. 372.
The petitioner claims that Sec. 15 of RA No. 8180 constitutes an undue delegation of legislative
power to the President and the Sec. of Energy because it does not provide a determinate or
determinable standard to guide the Executive Branch in determining when to implement the full
deregulation of the downstream oil industry, and the law does not provide any specific standard to
determine when the prices of crude oil in the world market are considered to be declining nor
when the exchange rate of the peso to the US dollar is considered stable.
Issues:

1. Whether or not Sec 5(b) of R.A. 8180 violates the one title one subject requirement of the
Constitution.
2. Whether or not Sec 15 of R.A. 8180 violates the constitutional prohibition on undue
delegation of power.
3. Whether or not R.A. No. 8180 violates the constitutional prohibition against monopolies,
combinations in restraint of trade and unfair competition

Discussions:

1. The Court consistently ruled that the title need not mirror, fully index or catalogue all contents
and minute details of a law. A law having a single general subject indicated in the title may
contain any number of provisions, no matter how diverse they may be, so long as they are
not inconsistent with or foreign to the general subject, and may be considered in furtherance
of such subject by providing for the method and means of carrying out the general subject.
2. Adopting the ruling from Eastern Shipping Lines, Inc. vs. POEA, the Court states that:

“There are two accepted tests to determine whether or not there is a valid delegation of legislative
power, viz: the completeness test and the sufficient standard test. Under the first test, the law
must be complete in all its terms and conditions when it leaves the legislative such that when it
reaches the delegate the only thing he will have to do is to enforce it. Under the sufficient
standard test, there must be adequate guidelines or limitations in the law to map out the
boundaries of the delegate’s authority and prevent the delegation from running riot. Both tests are
intended to prevent a total transference of legislative authority to the delegate, who is not allowed
to step into the shoes of the legislature and exercise a power essentially legislative.

3. 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.

Rulings:

1. The Court does not concur with this contention. The Court has adopted a liberal construction
of the one title – one subject rule. The Court hold that section 5(b) providing for tariff
differential is germane to the subject of R.A. No. 8180 which is the deregulation of the
downstream oil industry. The section is supposed to sway prospective investors to put up
refineries in our country and make them rely less on imported petroleum.[i][20] We shall,
however, return to the validity of this provision when we examine its blocking effect on new
entrants to the oil market.
2. Sec 15 of R.A. 8180 can hurdle both the completeness test and the sufficient standard test. It
will be noted that Congress expressly provided in R.A. No. 8180 that full deregulation will
start at the end of March 1997, regardless of the occurrence of any event. 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.
3. Section 19 of Article XII of the Constitution allegedly violated by the aforestated provisions of
R.A. No. 8180 mandates: “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.”
PRESIDENTIAL DECREE No. 1067 December 31, 1976

A DECREE INSTITUTING A WATER CODE, THEREBY REVISING AND

CONSOLIDATING THE LAWS GOVERNING THE OWNERSHIP, APPROPRIATION,
UTILIZATION, EXPLOITATION, DEVELOPMENT, CONSERVATION AND PROTECTION
OF WATER RESOURCES

WHEREAS, Article XIV, Section 8 of the New Constitution of the Philippines provides, inter
alia, that all waters of the Philippines belong to the State;

WHEREAS, existing water legislations are piece-meal and inadequate to cope with
increasing scarcity of water and changing patterns of water use;

WHEREAS, there is a need for a Water Code based on rational concepts or integrated and
multipurpose management of water resources and sufficiently flexible to adequately meet
future developments;

WHEREAS, water is vital to national development and it has become increasingly necessary
for government to intervene actively in improving the management of water resources;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of

the powers in me vested by the Constitution, do hereby order and decree the enactment of
the water Code of the Philippines of 1976, as follows:

CHAPTER I
DECLARATION OF OBJECTIVES AND PRINCIPLES

Article 1. This Code shall be known as The Water Code of the Philippines.

Article 2. The objectives of this Code are:

(a) To establish the basic principles and framework relating to the appropriation,
control and conservation of water resources to achieve the optimum development
and rational utilization of these resources;

(b) To define the extent of the rights and obligations of water users and owners
including the protection and regulation of such rights;

(c) To adopt a basic law governing the ownership, appropriation, utilization,

exploitation, development, conservation and protection of water resources and rights
to land related thereto; and

(d) To identify the administrative agencies which will enforce this Code.

Article 3. The underlying principles of this code are:

(a) All waters belong to the State.

 (b) All waters that belong to the State can not be the subject to acquisitive
prescription.

(c) The State may allow the use or development of waters by administrative
concession.

(d) The utilization, exploitation, development, conservation and protection of water

resources shall be subject to the control and regulation of the government through
the National Water Resources Council, hereinafter referred to as the Council.

(e) Preference in the use and development of waters shall consider current usages
and be responsive to the changing needs of the country.

Article 4. Waters, as used in this Code, refers to water under the grounds, water above the
ground, water in the atmosphere and the waters of the sea within the territorial jurisdiction of
the Philippines.

CHAPTER II
OWNERSHIP OF WATERS

Article 5. The following belong to the State:

(a) Rivers and their natural beds;

(b) Continuous or intermittent waters of springs and brooks running in their natural
beds and the beds themselves;

(c) Natural lakes and lagoons;

(d) All other categories of surface waters such as water flowing over lands, water
from rainfall whether natural, or artificial, and water from agriculture runoff, seepage
and drainage;

(e) Atmospheric water;

(f) Subterranean or ground waters; and,

(g) Seawater.

Article 6. The following waters found on private lands belong to the State:

(a) Continuous or intermittent waters rising on such lands;

(b) Lakes and lagoons naturally occuring on such lands;

(c) Rain water falling on such lands;

(d) Subterranean or ground waters; and,

(e) Water in swamps and marshes.

The owner of the land where the water is found may use the same for domestic purposes
without securing a permit, provided that such use shall be registered, when required by the
Council. The Council, however, may regulate such when there is wastage, or in times of
emergency.

Article 7. Subject to the provisions of this Code, any person who captures or collects water
by means of cisterns, tanks, or pools shall have exclusive control over such water and the
right to dispose of the same.

Article 8. Water legally appropriated shall be subject to the control of the appropriator from
the moment it reaches the appropriator's canal or aqueduct leading to the place where the
water will be used or stored and, thereafter, so long as it is being beneficially used for the
purposes for which it was appropriated.

CHAPTER III
APPROPRIATION OF WATERS

Article 9. Waters may be appropriated and used in accordance with the provisions of this
Code.

Appropriation of water, as used in this Code, is the acquisition of rights over the use of
waters or the taking or diverting of waters from a natural source in the manner and for any
purpose allowed by law.

Article 10. Water may be appropriated for the following purposes:

(a) Domestic

(b) Municipal

(c) Irrigation

(d) Power generation

(e) Fisheries

(f) Livestock raising

(g) Industrial

(h) Recreational, and

(i) Other purposes

Use of water for domestic purposes is the utilization of water for drinking, washing, bathing,
cooking or other household needs, home gardens, and watering of lawns or domestic
animals.

Use of water for municipal purposes is the utilization of water for supplying the water
requirements of the community.
Use of water for irrigation is the utilization of water for producing agricultural crops.

Use of water for power generation is the utilization of water for producing electrical or
mechanical power.

Use of water for fisheries is the utilization of water for the propagation and culture of fish as a
commercial enterprise.

Use of water for livestock raising is the utilization of water for large herds or flocks of animals
raised as a commercial enterprise.

Use of water for industrial purposes is the utilization of water in factories, industrial plants
and mines, including the use of water as an ingredient of a finished product.

Use of water for recreational purposes is the utilization of water for swimming pools, bath
houses, boating, water skiing, golf courses and other similar facilities in resorts and other
places of recreation.

Article 11. The State, for reasons of public policy, may declare waters not previously
appropriated, in whole or in part, exempt from appropriation for any or all purposes and,
thereupon, such waters may not be appropriated for those purposes.

Article 12. Waters appropriated for a particular purpose may be applied for another purpose
only upon prior approval of the Council and on condition that the new use does not unduly
prejudice the rights of other permittees, or require an increase in the volume of water.

Article 13. Except as otherwise herein provided, no person, including government

instrumentalities or government-owned or controlled corporations, shall appropriate water
without a water right, which shall be evidenced by a document known as a water permit.

Water right is the privilege granted by the government to appropriate and use water.

Article 14. Subject to the provisions of this Code concerning the control, protection,
conservation, and regulation of the appropriation and use of waters, any person may
appropriate or use natural bodies of water without securing a water permit for any of the
following:

(a) Appropriation of water by means of handcarried receptacles; and

(b) Bathing or washing, watering or dipping of domestic or farm animals, and

navigation of watercrafts or transportation of logs and other objects by flotation.

Article 15. Only citizens of the Philippines, of legal age, as well as juridical persons, who are
duly qualified by law to exploit and develop water resources, may apply for water permits.

Article 16. Any person who desires to obtain a water permit shall file an application with the
Council who shall make known said application to the public for any protests.

In determining whether to grant or deny an application, the Council shall consider the
following: protests filed, if any; prior permits granted; the availability of water; the water
supply needed for beneficial use; possible adverse effects; land-use economics; and other
relevant factors.

Upon approval of an application, a water permit shall be issued and recorded.

Article 17. The right to the use of water is deemed acquired as of the date of filing of the
application for a water permit in case of approved permits, or as of the date of actual use in a
case where no permit is required.

Article 18. All water permits granted shall be subject to conditions of beneficial use,
adequate standards of design and construction, and such other terms and conditions as may
be imposed by the Council.

Such permits shall specify the maximum amount of water which may be diverted or
withdrawn, the maximum rate of diversion or withdrawal, the time or times during the year
when water may be diverted or withdrawn, the points or points of diversion or location of
wells, the place of use, the purposes of which water may be used and such other
requirements the Council deems desirable.

Article 19. Water rights may be leaded or transferred in whole or in part to another person
with prior approval of the Council, after due notice and hearing.

Article 20. The measure and limit of appropriation of water shall be beneficial use.

Beneficial use of water is the utilization of water in the right amount during the period that the
water is needed for producing the benefits for which the water is appropriated.

Article 21. Standards of beneficial use shall be prescribed by the council for the appropriator
of water for different purposes and conditions, and the use of waters which are appropriated
shall be measured and controlled in accordance therewith.

Excepting for domestic use, every appropriator of water shall maintain water control and
measuring devices, and keep records of water withdrawal. When required by the Council, all
appropriators of water shall furnish information on water use.

Article 22. Between two or more appropriators of water from the same sources of supply,
priority in time of appropriation shall give the better right, except that in times of emergency
the use of water for domestic and municipal purposes shall have a better right over all other
uses; Provided, the where water shortage is recurrent and the appropriator for municipal use
has a lower priority in time of appropriation, then it shall be his duty to find an alternative
source of supply in accordance with conditions prescribed by the Council.

Article 23. Priorities may be altered on grounds of greater beneficial use, multi-purpose use,
and other similar grounds after due notice and hearing, subject to payment of compensation
is proper cases.

Article 24. A water right shall be exercised in such a manner that the rights of third persons
or of other appropriators are not prejudiced thereby.

Article 25. A holder of water permit may demand the establishment of easements necessary
for the construction and maintenance of the works and facilities needed for the beneficial use
of the waters to be appropriated subject to the requirements of just compensation and to the
following conditions:

(a) That he is the owner, lessee, mortgagee or one having real right over the land
upon which he proposes to use water; and

(b) That the proposed easement is the most convenient and the least onerous to the
servient estate.

Easements relating to the appropriation and use of waters may be modified by agreement of
the contracting parties provided the same is not contrary to law or prejudicial to third
persons.

Article 26. Where water shortage is recurrent, the use of the water pursuant to a permit may,
in the interest of equitable distribution of the benefits among legal appropriators, reduce after
due notice and hearing.

Article 27. Water users shall bear the diminution of any water supply due to natural causes
or force majeure.

Article 28. Water permits shall continue to be valid as long as water is beneficially used;
however, it maybe suspended on the grounds of non-compliance with approved plans and
specifications or schedules of water distribution; use of water for a purpose other than that
for which it was granted; non-payment of water charges; wastage; failure to keep records of
water diversion, when required; and violation of any term or condition of any permit or rules
and regulations promulgated by the Council.

Temporary permits may be issued for the appropriation and use of water for short periods
under special circumstances.

Article 29. Water permits may be revoked after due notice and hearing on grounds of non-
use; gross violation of the conditions imposed in the permit; unauthorized sale of water;
willful failure or refusal to comply with rules and regulations of any lawful order; pollution,
public nuisance or acts detrimental to public health and safety; when the appropriator is
found to be disqualified under the law to exploit and develop natural resources of the
Philippines; when, in the case, of irrigation, the land is converted to non-agricultural
purposes; and other similar grounds.

Article 30. All water permits are subject to modification or cancellation by the council, after
due notice and hearing, in favor of a project of greater beneficial use or for multi-purpose
development, and a water permittee who suffers thereby shall be duly compensated by the
entity or person in whose favor the cancellation was made.

CHAPTER IV
UTILIZATION OF WATERS

Article 31. Preference in the development of water resources shall consider security of the
State, multiple use, beneficial effects, adverse effects and costs of development.
Article 32. The utilization of subterranean or ground water shall be coordinated with that of
surface waters such as rivers, streams, springs and lakes, so that a superior right in one not
adversely affected by an inferior right in the other.

For this purpose the Council shall promulgate rules and regulations and declare the
existence of control areas for the coordinated development, protection, and utilization of
subterranean or ground water and surface waters.

Control area is an area of land where subterranean or ground water and surface water are
so interrelated that withdrawal and use in one similarly affects the other. The boundary of a
control area may be altered from time to time, as circumstances warrant.

Article 33. Water contained in open canals, aqueducts or reservoirs of private persons may
be used by any person for domestic purpose or for watering plants as long as the water is
withdrawn by manual methods without checking the stream or damaging the canal, aqueduct
or reservoir; Provided, That this right may be restricted by the owner should it result in loss or
injury to him.

Article 34. A water permittee or appropriator may use any watercourse to convey water to
another point in the watercourse for the purpose stated in a permit and such water may be
diverted or recaptured at that point by said permittee in the same amount less allowance for
normal losses in transit.

Article 35. Works for the storage, diversion, distribution and utilization of water resources
shall contain adequate provision for the prevention and control of diseases that may be
induced or spread by such works when required by the Council.

Article 36. When the reuse of waste water is feasible, it shall be limited as much as possible,
to such uses other than direct human consumption. No person or agency shall distribute
such water for public consumption until it is demonstrated that such consumption will not
adversely affect the health and safety of the public.

Article 37. In the construction and operation of hydraulic works, due consideration shall be
given to the preservation of scenic places and historical relics and, in addition to the
provisions of existing laws, no works that would required the destruction or removal of such
places or relics shall be undertaken without showing that the distribution or removal is
necessary and unaviodable.

Article 38. Authority for the construction of dams, bridges and other structures across of
which may interfere with the flow of navigable or flotable waterways shall first be secured
from the Department of Public Works, Transportation and Communications.

Article 39. Except in cases of emergency to save life or property, the construction or repair
of the following works shall be undertaken only after the plans and specifications therefor, as
may be required by the Council, are approved by the proper government agency; dams for
the diversion or storage of water; structures for the use of water power, installations for the
utilization of subterranean or ground water and other structures for utilization of water
resources.

Article 40. No excavation for the purpose of emission of a hot spring or for the enlargement
of the existing opening thereof shall be made without prior permit.
Any person or agency who intends to develop a hot spring for human consumption must first
obtain a permit from the Department of Health.

Article 41. No person shall develop a stream, lake, or spring for recreational purposes
without first securing a permit from the Council.

Article 42. Unless-otherwise ordered by the President of the Philippines and only in time of
national calamity or emergency, no person shall induce or restrain rainfall by any method
such as cloud seeding without a permit from the proper government emergency.

Article 43. No person shall raise or lower the water level of a river stream, lake, lagoon, or
marsh nor drain the same without a permit.

Article 44. Drainage systems shall be so constructed that their outlets are rivers, lakes, the
sea, natural bodies of water, or such other water course as may be approved by the proper
government agency.

Article 45. When a drainage channel is constructed by a number of persons for their
common benefit, the cost of construction and maintenance of the channel shall be borne by
each in proportion to the benefits drived.

Article 46. When artificial means are employed to drain water from higher to lower land, the
owner of the higher land shall select the routes and methods of drainage that will cause the
minimum damage to the lower lands, subject to the requirements of just compensation.

Article 47. When the use, conveyance or storage of waters results in damage to another, the
person responsible for the damage shall pay compensation.

Article 48. When a water resources project interferes with the access of landowner to a
portion of his property or with the conveyance of irrigation or drainage water, the person or
agency constructing the project shall bear the cost of construction and maintenance of the
bridges, flumes and other structures necessary for maintaining access, irrigation, or
drainage, in addition to paying compensation for land and incidental damages.

Article 49. Any person having an easement for an aqueduct may enter upon the servient
land for the purpose of cleaning, repairing or replacing the aqueduct or the removal of
obstructions therefrom.

Article 50. Lower estates are obliged to receive the waters which naturally and without the
intervention of man flow from the higher estate, as well as the stone or earth which they carry
with them.

The owner of the lower estate can not construct works which will impede this natural flow,
unless he provides an alternative method of drainage; neither can the owner of the higher
estate make works which will increase this natural flow.

Article 51. The banks of rivers and streams and the shores of the seas and lakes throughout
their entire length and within a zone of three (3) meters in urban areas, twenty (20) meters in
agricultural areas and forty (40) meters in forest areas, along their margins are subject to the
easement of public use in the interest of recreation, navigation, floatage, fishing and salvage.
No person shall be allowed to stay in this zone longer than what is necessary for recreation,
navigation, floatage, fishing or salvage or to build structures of any kind.

Article 52. The establishment, extent, form, and conditions of easements of water not
expressly determined by the provisions of this Code shall be governed by the provisions of
the Civil Code.

CHAPTER V
CONTROL OF WATERS

Article 53. To promote the best interest and the coordinated protection of flood plain lands,
the Secretary of Public Works, Transportation and Communications may declare flood
control areas and promulgate guidelines for governing flood plain management plans in
these areas.

Article 54. In declared flood control areas, rules and regulations may be promulgated to
prohibit or control activities that may damage or cause deterioration or lakes and dikes,
obstruct the flow of water, change the natural flow of the river, increase flood losses or
aggravate flood problems.

Article 55. The government may construct necessary flood control structures in declared
flood control areas, and for this purpose it shall have a legal easement as wide as may be
needed along and adjacent to the river bank and outside of the bed or channel of the river.

Article 56. River beds, sand bars and tidal flats may not be cultivated except upon prior
permission from the Secretary of the Department of Public Works, Transportation and
Communication and such permission shall not be granted where such cultivation obstructs
the flow of water or increase flood levels so as to cause damage to other areas.

Article 57. Any person may erect levees or revetments to protect his property from flood,
encroachment by the river or change in the course of the river, provided that such
constructions does not cause damage to the property of another.

Article 58. When a river or stream suddenly changes its course to traverse private lands, the
owners of the affected lands may not compel the government to restore the river to its former
bed; nor can they restrain the government from taking steps to revert the river or stream to
its former course. The owners of the land thus affected are not entitled to compensation for
any damage sustained thereby. However, the former owners of the new bed shall be the
owners of the abandoned bed in proportion to the area lost by each.

The owners of the affected lands may undertake to return the river or stream to its old bed at
their own expense; Provided, That a permit therefor is secured from the Secretary of Public
Works, Transportation and Communication and work pertaining thereto are commenced
within two years from the change in the course of the river or stream.

Article 59. Rivers, lakes and lagoons may, upon the recommendation of the Philippines
Coast Guard, be declared navigable either in whole or in part.

Article 60. The rafting of logs and other objects on rivers and lakes which are flotable may
be controlled or prohibited during designated season of the year with due regard to the
needs of irrigation and domestic water supply and other uses of water.
Article 61. The impounding of water in ponds or reservoirs may be prohibited by the Council
upon consultation with the Department of Health if it is dangerous to public health, or it may
order that such pond or reservoir be drained if such is necessary for the protection of public
health.

Article 62. Waters of a stream may be stored in a reservoir by a permittee in such amount
as will not prejudice the right of any permittee downstream. Whoever operates the reservoir
shall, when required, release water for minimum stream flow.

All reservoir operations shall be subject to rules and regulations issued by the Council or any
proper government agency.

Article 63. The operator of a dam for the storage of water may be required to employ an
engineer possessing qualifications prescribed for the proper operations, maintenance and
administration of the dam.

Article 64. The Council shall approve the manner, location, depth, and spacing in which
borings for subterranean or ground water may be made, determine the requirements for the
registration of every boring or alteration to existing borings as well as other control measures
for the exploitation of subterranean or ground water resources, and in coordination with the
Professional Regulation Commission prescribe the qualifications of those who would drill
such borings.

No person shall drill a well without prior permission from the Council.

Article 65. Water from one river basin may be transferred to another river basin only with
approval of the Council. In considering any request for such transfer, the Council shall take
into account the full costs of the transfer, the benefits that would accrue to the basin of origin
without the transfer, the benefits would accrue to the receiving basin on account of the
transfer, alternative schemes for supplying water to the receiving basin, and other relevant
factors.

CHAPTER VI
CONSERVATION AND PROTECTION OF WATERS AND WATERSHEDS AND RELATED
LAND RESOURCES

Article 66. After due notice and hearing when warranted by circumstances, minimum stream
flows for rivers and streams, and minimum water levels for lakes may be established by the
Council under such conditions as may be necessary for the protection of the environment,
control of pollution, navigation, prevention of salt damage, and general public use.

Article 67. Any watershed or any area of land adjacent to any surface water or overlying any
ground water may declared by the Department of Natural Resources as protected area
Rules and regulations may be promulgated by such Department to prohibit or control such
activities by the owners or occupants thereof within the protected area which may damage or
cause the deterioration of the surface water or ground water or interfere with the
investigation, use, control, protection, management or administration of such waters.

Article 68. It shall be the duty of any person in control of a well to prevent the water from
flowing on the surface of the land, or into any surface water, or any porous stratum under
neath the surface without being beneficially used.
Article 69. It shall be the duty of any person in control of a well containing water with
minerals or other substances injurious to man, animals, agriculture, and vegetation to
prevent such waters from flowing on the surface of the land or into any surface water or into
any other aquifer or porous stratum.

Article 70. No person shall utilize an existing well or pond or spread waters for recharging
substerranean or ground water supplies without prior permission of the Council.

Article 71. To promote better water conservation and usage for irrigation purposes, the
merger of irrigation associations and the appropriation of waters by associations instead of
by individuals shall be encouraged.

No water permit shall be granted to an individual when his water requirement can be
supplied through an irrigation association.

Article 72. In the consideration of a proposed water resource project, due regard shall be
given to ecological changes resulting from the construction of the project in order to balance
the needs of development and the protection of the environment.

Article 73. The conservation of fish and wildlife shall receive proper consideration and shall
be coordinated with other features of water resources development programs to insure that
fish and wildlife values receive equal attention with other project purposes.

Article 74. Swamps and marshes which are owned by the State and which primary value for
waterfowl propagation or other wildlife purposes may be reserved and protected from
drainage operation and development.

Article 75. No person shall, without prior permission from the National Pollution Control
Commission, build any works that may produce dangerous or noxious substances or perform
any act which may result in the introduction of sewage, industrial waste, or any pollutant into
any source of water supply.

Water pollution is the impairment of the quality of water beyond a certain standard. This
standard may vary according to the use of the water and shall be set by the National
Pollution Control Commission.

Article 76. The establishment of cemeteries and waste disposal areas that may affect the
source of a water supply or a reservoir for domestic or municipal use shall be subject to the
rules and regulations promulgated by the Department of Health.

Article 77. Tailings from mining operations and sediments from placer mining shall not be
dumped into rivers and waterways without prior permission from the Council upon
recommendation by the National Pollution Control Commission.

Article 78. The application of agricultural fertilizers and pesticides may be prohibited or
regulated by the National Pollution Control Commission in the areas where such application
may cause pollution of a source of water supply.

CHAPTER VII
ADMINISTRATION OF WATERS AND ENFORCEMENT OF THE PROVISIONS OF THIS
CODE
Article 79. The Administration and enforcement of the provisions of this Code, including the
granting of permits and the imposition of penalties for administrative violations hereof, are
hereby vested in the Council, and except in regard to those functions which under this Code
are specifically conferred upon other agencies of the government, the Council is hereby
empowered to make all decisions and determinations provided for in this Code.

Article 80. The Council may deputize any official or agency of the government to perform
any of its specific functions or activities.

Article 81. The Council shall provide a continuing program for data collection, research and
manpower development needed for the appropriation, utilization, exploitation, conservation,
and protection of the water resources of the country.

Article 82. In the implementation of the provisions of this code, the Council shall promulgate
the necessary rules and regulations which may provide for penalties consisting of a fine not
exceeding One Thousand Pesos (P1,000.00) and/or suspension or revocation of the water
permit or other right to the use of water. Violations of such rules and regulations may be
administratively dealt with by the Council.

Such rules and regulations prescribed by any government agency that pertain to the
utilization, exploitation, development, control, conservation, or protection of water resources
shall, if the Council so requires, be subject to its approval.

Article 83. The Council is hereby authorized to impose and collect reasonable fees or
charges for water resources development from water appropriators, except when it is for
purely domestic purposes.

Article 84. The Council and other agencies authorized to enforce this Code are empowered
to enter upon private lands, with previous notice to the owner, for the purpose of conducting
surveys and hydrologic investigations, and to perform such other acts as are necessary in
carrying out their functions including the power to exercise the right of eminent domain.

Article 85. No program or project involving the appropriation, utilization, exploitation,

development, control, conservation, or protection of water resources may be undertaken
without prior approval of the Council, except those which the Council may, in its discretion,
exempt.

The Council may require consultation with the public prior to the implementation of certain
water resources development projects.

Article 86. When plans and specifications of a hydraulic structure are submitted for approval,
the government agency whose functions embrace the type of project for which the structure
is intended, shall review the plans and specifications and recommended to the Council
proper action thereon and the latter shall approve the same only when they are inconformity
with the requirements of this Code and the rules and regulations promulgated by the Council.
Notwithstanding such approval, neither the engineer who drew up the plans and
specifications of the hydraulic structure, nor the constructor who built it, shall be relieved of
his liability for damages in case of failure thereof by reason of defect in plans and
specifications, or failure due to defect in construction, within ten (10) years from the
completion of the structure.
Any action recover such damages must be brought within five (5) years following such
failure.

Article 87. The Council or its duly authorized representatives, in the exercise of its power to
investigate and decide cases brought to its cognizance, shall have the power to administer
oaths, compel the attendance of witnesses by subpoena and the production of relevant
documents by subpoena duces tecum.

Non-compliance of violation of such orders or subpoena and subpoena duces tecum shall be
punished in the same manner as indirect contempt of an inferior court upon application by
the aggrieved party with the proper Court of First Instance in accordance with the provisions
of Rules 71 of the Rules of the Court.

Article 88. The Council shall have original jurisdiction over all disputes to relating to
appropriation, utilization, exploitation, development, control, conservation and protection of
waters within the meaning and context of the provisions of this Code.

The decisions of the Council on water rights controversies shall be immediately executory
and the enforcement thereof may be suspended only when a bond, in a amount fixed by the
Council to answer for damages occasioned by the suspension or stay of execution, shall
have been filed by the appealing party, unless the suspension is virtue of an order of a
competent court.

All dispute shall be decided within sixty (60) days after the parties submit the same for
decision or resolution.

The Council shall have the power to issue writs of execution and enforce its decisions with
the assistance of local or national police agencies.

Article 89. The decisions of the Council on water rights controversies may be appealed to
the Court of First Instance of the province where the subject matter of the controversy is
situated within fifteen (15) days from the date the party appealing receives a copy of the
decision, on any of the following grounds; (1) grave abuse of discretion; (2) question of law;
and (3) questions of fact and law.

CHAPTER VIII
PENAL PROVISIONS

Article 90. The following acts shall be penalized by suspension or revocation of the violator's
water permit or other right to the use of water and/or a fine of not exceeding One Thousand
Pesos (P1,000.00), in the discretion of the Council:

(a)Appropriation of subterranean or ground water for domestic use by an overlying

landowner without registration required by the Council.

(b) Non-observance of any standard of beneficial use of water.

(c) Failure of the appropriator to keep a record of water withdrawal, when required.

(d) Failure to comply with any of the terms or conditions in a water permit or a water
rights grant.
 (e) Unauthorized use of water for a purpose other than that for which a right or permit
was granted.

(f) Construction or repair of any hydraulic work or structure without duly approved
plans and specifications, when required.

(g) Failure to install a regulating and measuring device for the control of the volume
of water appropriated, when required.

(h) Unauthorized sale, lease, or transfer of water and/or water rights.

(i) Failure to provide adequate facilities to prevent or control diseases when required
by the Council in the construction of any work for the storage, diversion, distribution
and utilization of water.

(j) Drilling of a well without permission of the Council.

(k) Utilization of an existing well or ponding or spreading of water for recharging

subterranean or ground water supplies without permission of the Council.

(l) Violation of or non-compliance with any order, rules, or regulations of the Council.

(m) Illegal taking or diversion of water in an open canal, aqueduct or reservoir.

(n) Malicious destruction of hydraulic works or structure valued at not exceeding

P5,000.00.

Article 91. A. A fine of not exceeding Three Thousand Pesos (P3,000.00) or imprisonment
for not more than three (3) years, or both such fine and imprisonment, in the discretion of the
Court, shall be imposed upon any person who commits any of the following acts:

1. Appropriation of water without a water permit, unless such person is

expressly exempted from securing a permit by the provisions of this Code.

2. Unauthorized obstruction of an irrigation canal.

3. Cultivation of a river bed, sand bar or tidal flat without permission.

4. Malicious destruction of hydraulic works or structure valued at not

exceeding Twenty-Five Thousand Pesos (P25,000.00).

B. A fine exceeding Three Thousand Pesos P3,000.00) but not more than Six
Thousand Pesos P6,000.00) or imprisonment exceeding three (3) years but not more
than six (6) years, or both such fine and imprisonment in the discretion of the Court,
shall be imposed on any person who commits any of the following acts:

1. Distribution for public consumption of water which adversely affects the

health and safety of the public.
 2. Excavation or enlargement of the opening of a hot spring without
permission.

3. Unauthorized obstruction of a river or waterway, or occupancy of a river

bank or seashore without permission.

4. Establishment of a cemetery or a waste disposal area near a source of

water supply or reservoir for domestic municipal use without permission.

5. Constructing, without prior permission of the government agency

concerned, works that produce dangerous or noxious substances, or
performing acts that result in the introduction of sewage, industrial waste, or
any substance that pollutes a source of water supply.

6. Dumping mine tailings and sediments into rivers of waterways without

permission.

7. Malicious destruction of hydraulic works or structure valued more than

Twenty-Five Thousand Pesos (P25,000.00) but at not exceeding One
Hundred Thousand Peso (100,000.00).

C. A fine exceeding Six Thousand Pesos (P6,000.00) but not more than Ten
Thousand Pesos (P10,000.00) or imprisonment exceeding six (6) years but not more
than twelve (12) years, or both such fine and imprisonment, in the discretion of the
Court, shall be imposed upon any person who commits any of the following acts:

1. Misrepresentation of citizenship in order to qualify for water permit.

2. Malicious destruction of a hydraulic works or structure, valued at more

than One Hundred Thousand Pesos (P100,000.00).

Article 92. If the offense is committed by a corporation, trust, firm, partnership, association
or any other juridical person, the penalty shall be imposed upon the President, General
Manager, and other guilty officer or officers of such corporation, trust firm, partnership,
association or entity, without prejudice to the filing of a civil action against said juridical
person. If the offender is an alien, he shall be deported after serving his sentence, without
further proceedings.

After final judgment of conviction, the Court upon petition of the prosecution attorney in the
same proceedings, and after due hearing, may, when the public interest so requires, order
suspension of or dissolution of such corporation, trust, firm, partnership, association or
juridical person.

Article 93. All actions for offenses punishable under Article 91 of this Code shall be brought
before the proper court.

Article 94. Actions for offenses punishable under this Code by a fine of not more than Three
Thousand Pesos (P3,000.00) or by an imprisonment of not more than three (3) years, or
both such fine and imprisonment, shall prescribe in five (5) years; those punishable by a fine
exceeding Three Thousand Pesos (P3,000.00) but not more than Six Thousand Pesos
(P6,000.00) or an imprisonment exceeding three (3) years but not more than six (6) years, or
both such fine and imprisonment, shall prescribe in seven (7) years; and those punishable by
a fine exceeding Six Thousand Pesos (P6,000.00) but not more than Ten Thousand Pesos
(P10,000.00) or an imprisonment exceeding six (6) years but not more than twelve (12)
years, or both such fine and imprisonment, shall prescribe in ten (10) years.

CHAPTER IX
TRANSITORY AND FINAL PROVISIONS

Article 95. Within two (2) years from the promulgation of this Code, all claims for a right to
use water existing on or before December 31, 1974 shall be registered with the Council
which shall confirm said rights in accordance with the provisions of this Code, and shall set
their respective priorities.

When priority in time of appropriation from a certain source of supply cannot be determined,
the order of preference in the use of the waters shall be as follows:

(a) Domestic and municipal use

(b) Irrigation

(c) Power generation

(d) Fisheries

(e) Livestock raising

(f) Industrial use, and

(g) Other uses.

Any claim not registered within said period shall be considered waived and the use of the
water deemed abandoned, and the water shall thereupon be available for disposition as
unappropriated waters in accordance with the provisions of this Code.

Article 96. No vested or acquired right to the use of water can arise from acts or omissions
which are against the law or which infringe upon the rights of others.

Article 97. Acts and contract under the regime of old laws, if they are valid in accordance
therewith, shall be respected, subject to the limitations established in this Code. Any
modification or extension of these acts and contracts after the promulgation of this Code,
shall be subject to the provisions hereof.

Article 98. Interim rules and regulations promulgated by the Council shall continue to have
binding force and effect, when not in conflict with the provisions of this Code.

Article 99. If any provision or part of this Code, or the application thereof to any person or
circumstance, is declared unconstitutional or invalid for any reason, the other provisions or
parts therein shall not be affected.

Article 100. The following laws, parts and/or provisions of laws are hereby repealed:
 (a) The provisions of the Spanish Law on Waters of August 3, 1866, the Civil Code of
Spain of 1889 and the Civil Code of the Philippines (R.A. 386) on ownership of
waters, easements relating to waters, use of public waters and acquisitive
prescription on the use of waters, which are inconsistent with the provisions of this
Code;

(b) The provisions of R.A. 6395, otherwise known as the Revised Charter of National
Power Corporation, particularly section 3, paragraph (f), and section 12, insofar as
they relate to the appropriation of waters and the grant thereof;

(c) The provisions of Act No. 2152, as amended, otherwise known as the Irrigation
Act, section 3, paragraphs (k) and (m) of P.D. No. 813, R.A. 2056; Section 90, C.A.
137; and,

(d) All Decree, Laws, Acts, parts of Acts, rules of Court, executive orders, and
administrative regulations which are contrary to or inconsistent with the provisions of
this Code.

Article 101. This Code shall take effect upon its promulgation.

Done in the City of Manila, this 31st day of December, Nineteen Hundred and Seventy-Six.