EN ERGY IN DU STRY

Quezon Power Plant IMPSA Distribution Sector Transmission Sector Supply Sector Downstream Energy Industry 1. Oil Read: ● Republic Act No. 8479 ● Garcia vs. Corona, G.R. No. 132451. December 17, 1999. 2. 3. Compressed Natural Gas Biofuels - Republic Act No. 9367 (Biofuels Act of 2006)

IV .

PROJE CT FI NAN CE IN T HE PHI LIPPI NE CO NTEX T – INDU STRY SPE CIFI C

POWER A ND EN ERGY A. Upstream Energy Industry – Exploration, Development and Utilization of Resources 1. Petroleum – Oil and Gas Read: Article XII, Section 2, 1987 Constitution Presidential Decree No. 87 (1972) Proclamation No. 72 The Guide to Financing International Oil and Gas Projects, Milbank, Tweed, Hadley & McCloy, pp. 59-81. Executive Order No. 66 (designating DOE as lead agency for development of Philippine natural gas industry) Case Study: The Malampaya Deep Water Gas to Power Project 2. Geothermal Read: Article XII, Section 2, 1987 Constitution Presidential Decree No. 1442 Case Study: Tiwi-Makban Power Plant 3. Coal Energy Read: Presidential Decree No. 972 Presidential Decree No. 1174 4. Alternative and Renewable Energy Read: Republic Act No. 7156 Executive Order No. 462 Executive Order No. 232 Mining Please see IV.E below. Midstream Energy Industry – Power Generation and Distribution 1. Power Generation Sector

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ARTICLE XII, SECTION 2, 1987 CONSTITUTION ARTICLE XII NATIONAL ECONOMY AND PATRIMONY Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least 60 per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of waterpower, beneficial use may be the measure and limit of the grant. The State shall protect the nations marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens. The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fish workers in rivers, lakes, bays, and lagoons. The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technical resources. The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution.

Independent Power Producers Read: ● The Guide to Financing Power Projects, Baker & Mckenzie, pp. 21-37. ● Administrative Order No. 10, May 26, 2001, Office of the President ● R.A. No. 8975, Prohibiting Injunctions and TROs Project Documentation Read: The Guide to Financing Power Projects, Baker & Mckenzie, pp. 37-65. Philippine Power Industry Read: Republic Act No. 9136, “Electric Power Industry Reform Act of 2001” Case Study

PRESIDENTIAL DECREE NO. 87 (1972)

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PRESIDENTIAL DECREE No. 87 AMENDING PRESIDENTIAL DECREE NO. 8 ISSUED ON OCTOBER 2, 1972, AND PROMULGATING AN AMENDED ACT TO PROMOTE THE DISCOVERY AND PRO DUCTIONOF INDIGENOUS PETROLEUM AND APPROPRIATE FUNDS THEREFOR WHEREAS, Presidential Decree No. 8 dated October 2, 1972 was issued to promote the discovery and development of the country's indigenous petroleum resources and adopting therefore as part of the law of the land the provisions of Senate Bill No. 531 (An Act to Promote the Discovery, Production of Indigeno us Petroleum and Appropriate Funds Therefor); WHEREAS, it was found necessary for the national interest to amend Senate Bill No. 531 among others things to provide more meaningful incentives to prospective service contractors. NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution as Commander-in-Chief of all the Armed Forces of the Philippines, and pursuant to Proclamation No. 1081, dated September 21, 1972, and General Order No. 1, dated September 22, 1972, as amended, do hereby amend Presidential Decree No. 8 as follows: AN ACT TO PROMOTE THE DISCOVERY AND PRODUCTIO N OF INDIGENOUS PETROLEUM, AND APPROPRIATING FUNDS THEREFOR. Section 1. Short title. This Act shall be known and may be cited as "THE OIL EXPLORATION AND DEVELOPMENT ACT OF 1972." Section 2. Declaration of policy. It is hereby declared to be the policy of the State to hasten the discovery and production of indigenous petroleum th rough the utilization of government and/or private resources, local and foreign, under the arrangements embodied in this Act which are calculated to yield the maximum benefit to the Filipino people and the revenues to the Philippine Government for use in furtherance of national economic development, and to assure just returns to participating private enterprises, particularly those that will provide the necessary services, financing and technology and fully assume all exploration risks. Section 3. Definition of terms. As used in this Act, the following shall have the following respective meanings: (a) "Petroleum" shall include any mineral oil hydrocarbon gas, bitumen, asphalt, mineral gas and all other similar or naturally associated substances with the exception of coal, peat, bituminous shale and/or other stratified mineral fuel deposits. (b) "Crude oil" or "crude" means oil in its natural state before the same has been refined or otherwise treated. It does not include oil produced through destructive distillation of coal, bituminous shales or other stratified deposits, either in its national state or after the extraction of water, and sand or other foreign substances therefrom. (c) "Natural gas" means gas obtained from boreholes and wells and consisting primarily of hydrocarbons. (d) "Petroleum operations" means searching for and obtaining petroleum within the Philippines through drilling and pressure or suction or the like, and all other operations incidental thereto. It includes the transportation, storage, handling and sale (whether for export or for domestic consumption) of petroleum so obtained but does not include any: (1) transportation of petroleum outside the Philippines; (2) processing or refining at a refinery; or (3) any transactions in the products so refined. (e) "Petroleum in commercial quantity" means petroleum in such quantities which will permit its being economically developed as determined by the contractor after taking into consideration the location of the reserves, the depths and number of wells required to be drilled and the transport and terminal facilities needed to exploit the reserves which have been discovered. (f) "Posted price" refers to the FOB price established by the 2|Project Development_Cha Mendoza

Contractor in consultation with the Petroleum Board for each grade, gravity and quality of crude oil offered for sale to buyers generally for export at the particular point of export, which price shall be based upon geographical location, and the fair market export values for crude oil of comparable grade, gravity and quality. (g) "Market Price" shall mean the price which would be realized for petroleum produced under a contract as hereinafter defined if sold in a transaction between independent persons dealing at arm's length in a free market. (h) "Barrel" means 42 U.S. gallons or 9702 cubic inches at temperature of 60º Fahrenheit. Any reference in this Act to the value of any crude oil at the posted price or market price shall be construed as a reference to the amount obtained by multiplying the number of barrels of that crude oil by the posted price or market price per barrel applicable to that crude oil. (i) "Crude oil exported" shall include not only crude oil exported as such but also indigenous crude oil refined in the Philippines for export. (j) "Government" means the Government of the Republic of the Philippines. (k) "Contractor" means the contractor in a service contract whether acting alone or in consortium with others. (l) "Contract" refers to a service contract. (m) "Filipino participation incentive" means the allowance which may be given the Contractor with Filipino participation as provided in Section 28 hereof. (n) "Philippine corporation" means a corporation organized under Philippine laws at least sixty per cent of the capital of which is owned and held by citizens of the Philippines. (o) "Affiliate" means (a) a company in which a contractor holds directly or indirectly at least fifty per cent of its outstanding shares entitled to vote; (b) a company which holds directly or indirectly at least fifty per cent of the contractor's outstanding shares entitled to vote; or (c) a company in which at least fifty per cent of its share outstanding and entitled to vote are owned by a company which owns directly or indirectly at least fifty per cent of the shares outstanding and entitled to vote of the contractor. (p) "Gross income" means the gross proceeds from the sale of crude, natural gas or casinghead petroleum spirit produced under the contract and sold during the taxable year at posted or market price, as the case may be, and such other income which are incidental to and arising from any one or more of the petroleum operations of the contractor. (q) "Taxable net income" means the gross income less the deductions allowed in this Act. (r) "Taxable year" means the calendar or fiscal year of the contractor. (s) "Casinghead petroleum spirit" means any liquid hydrocarbon obtained from natural gas by separation or by any chemical or physical process. (t) "Petroleum Board" refers to the Petroleum Board created in Section seventeen of this Act. (u) "Operating Expenses" means the total expenditures for petroleum operations made by the Contractor both within and without the Philippines as provided in a service contract. Section 4. Government may undertake petroleum exploration and production. Subject to the existing private rights, the Government may directly explore for and produceindigenous petroleum. It may also indirectly undertake the same under service contracts as hereinafter provided. These contracts may cover free areas, national reserve areas and/or petroleum reservations, as provided for in the Petroleum Act of 1949, whether on-shore or off-shore. In every case, however, the contractor must be technically competent and financially capable as determined by the Board to undertake the operations required in the contract. Section 5. Execution of contract authorized in this Act. Every contract herein authorized shall, subject to the approval of the President, be executed by the Petroleum Board created in this Act, after due public notice pre-qualification and public

bidding or concluded through negotiations. In case bids are requested or if requested no bid is submitted or the bids submitted are rejected by the Petroleum Board for being disadvantageous to the Government, the contract may be concluded through negotiation. In opening contract areas and in selecting the best offer for petroleum operations, any of the following alternative procedures may be resorted to by the Petroleum Board, subject to prior approval of the President: (a) The Petroleum Board may select an area or areas and offer it for bid, specifying the minimum requirements and conditions; or (b) The Petroleum Board may open for bidding a large area wherein bidders may select integral areas not larger than the maximum provided in this Act. Only the best offer shall be accepted and the selection thereon shall be made by a weighted system of evaluating the different aspects of each bid; or (c) An area may be selected by an interested party who shall negotiate with the Petroleum Board for a contract under the terms and conditions provided in this Act. Section 6. Nature of service contract. In a service contract, service and technology are furnished by the service contractor for which it shall be entitled to the stipulated service fee while financing is provided by the Government to which all petroleum produced shall belong. Section 7. Special stipulation in service contract. Where the Government is unable to finance petroleum exploration operations or in order to induce the contractor to exert the maximum efforts to discover and produce petroleum as soon as possible, the service contract shall stipulate that if the contractor shall furnish services, technology and financing, the proceeds of sale of the petroleum produced under the contract shall be the source of funds for payment of the service fee and the operating expenses due the contractor. Section 8. Obligation of contractor in service contract. The arrangement pursuant to the preceding section seven shall be such that the contractor, which may be a consortium, shall undertake, manage and execute petroleum operations. The contract may authorize the contractor to take and dispose of and market either domestically or for export allpetroleum produced under the contract subject to supplying the domestic requirements of the Republic of the Philippines on a pro-rata basis. The Government shall oversee the management of the operations contemplated in the contract and in this connection shall require the contractor to — (a) Provide all necessary services and technology; (b) Provide the requisite financing; (c) Perform the exploration work obligations and program prescribed in the agreement between the Government and the Contractor, which may be more but shall not be less than the obligations prescribed in this Act; (d) Once petroleum in commercial quantity is discovered, operate the field on behalf of the Government in accordance with accepted good oil field practices using modern and scientific methods to enable maximum economic production of petroleum; avoiding hazards to life, health and property; avoiding pollution of air, land and waters; and pursuant to an efficient and economic program of operation; (e) Assume all exploration risks such that if no petroleum in commercial quantity is discovered and produced, it will not be entitled to reimbursement; (f) Furnish the Petroleum Board promptly with geological and other information, data and reports which it may require; (g) Maintain detailed technical records and accounts of its operations; (h) Conform to regulations regarding, among others, safety, demarcation of agreement acreage and work areas, noninterference with the rights of other petroleum, mineral and natural resources operators; (i) Maintain all meters and measuring equipment in good order and allow access to these as well as to the exploration 3|Project Development_Cha Mendoza

and production sites and operations to inspectors authorized by the Petroleum Board; (j) Allow examiners of the Bureau of Internal Revenue and other representatives authorized by the Petroleum Board full access to their accounts, books and records, for tax and other fiscal purposes; and (k) Be subject to Philippine income tax. On the other hand, the Petroleum Board shall — (1) On behalf of the Government, reimburse the Contractor for all operating expenses not exceeding seventy per cent of the gross proceeds from production in any year: Provided, That if in any year the operating expenses exceeds seventy per cent of gross proceeds from production, then the unrecorded expenses shall be recovered from the operations of succeeding years. (2) Pay the Contractor a service fee the net amount of which shall not exceed forty per cent of the balance of the gross income after deducting the Filipino participation incentive, if any, and all operating expenses recovered pursuant to Section 8 (1) above. (3) Reimbursement of operating expenses and payment of the service fee shall be in such form and manner as provided for in the contract. Section 9. Minimum terms and conditions. — In addition to those elsewhere provided in this Act, every contract executed in pursuance hereof shall contain the following minimum terms and conditions: (a) Every contractor shall be obliged to spend in direct prosecution of exploration work and in delineation and development following the discovery of oil in commercial quantity not less than the amounts provided for in the contract between the Government and the contractor and these amounts shall not be less than the total obtained by multiplying the number of hectares covered by the contract by the following amounts for hectare: Period Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 On-shore P3.00 3.00 3.00 3.00 3.00 9.00 9.00 9.00 9.00 9.00 Of-shore P3.00 3.00 6.00 6.00 6.00 18.00 18.00 18.00 18.00 18.00

Provided, That if during any contract year the Contractor shall spend more than the amount of money required to be spent, the excess may be credited against the money required to be spent by the Contractor during the succeeding contract years: Provided, further, That in case the same Contractor holds two or more areas under different contracts of service, the total amount of work obligations for exploration required for the initial term of all contracts may be spent within any one or more of them as if they are covered by a single contract of service: Provided, further, That should the Contractor fail to comply with the work obligations provided for in the contract, it shall pay to the Government the amount it should have spent but did not in direct prosecution of its work obligations: Provided, finally, That the Contractor shall drill a minimum footage of test wells before the end of periods of time as may

be specified in the contract with the PetroleumBoard in order to be entitled to the extension of the exploration period for 3 years as provided for in paragraph (e) herein. (b) In case the contractor renounces or abandons wholly or partly the area covered by his contract within two years from its effective date, it shall in respect of the abandoned area pay the Government the amount it should have spent, but did not, for exploration work during said two years, for which payment, among other obligations, the performance guarantee posted by the contractor shall be answerable. (c) Every contract shall provide for the compulsory relinquishment of at least twenty-five per cent of the initial area at the end of five years from its effective date and in the event of an extension of the contract from seven to ten years, an additional relinquishment of at least twenty-five per cent of the initial area at the end of seven years from its effective date. But the portion already delineated as production area pursuant to the succeeding paragraph shall not be taken into account in ascertaining the extent of relinquishment required. Any area renounced or abandoned under Sec. 9(b) above shall be credited against the portion of the area subject to the contract which is required to be surrendered hereunder. (d) The Contractor shall, from the discovery of petroleum in commercial quantity, delineate the production area within the period agreed upon in the contract. (e) The exploration period under every contract shall be seven years, extendible for three years if the contractor has not been in default in its exploration work obligations and other obligations after which the contract shall lapse unless Petroleum has been discovered by the end of the tenth year and the contractor for requests a further extension of one year to determine whether it is in commercial quantity, in which event, another extension of one year for exploration may be granted. If Petroleum in commercial quantity has been discovered, the Contractor may retain after the exploration period and during the effectivity of the Contract twelve and one-half per cent of the initial area in addition to the delineated production area: Provided, however, That the contractor shall pay annual rentals on such retained area which shall not be less than ten pesos per hectare or fraction thereof for on-shore areas and not less than twenty pesos as determined by the Petroleum Board per hectare or fraction thereof for off-shore areas: Provided, further, That such rentals can be offset against exploration expenditures actually spent on such area. (f) Where petroleum in commercial quantity is discovered during the exploration period in any area covered by the contract, the contract with respect to said area shall remain in force forproduction purposes during the balance of the ten year exploration period and for an additional period of twentyfive years, thereafter renewable for a period not exceeding fifteen years under such terms and conditions as may be agreed upon by the parties at the time of renewal. (g) All materials, equipment, plants and other installations erected or placed on the exploration and/or production area of a movable nature by the contractor shall remain properties of the contractor unless not removed therefrom within one year after the termination of the contract. (h) The contractor shall be subject to the provisions of laws of general application relating to labor, health, safety, and ecology insofar as they are not in conflict with the provisions otherwise contained in this Act. (i) Every contract executed in pursuance of this Act shall contain provisions regarding the discovery, production, sale and disposal of natural gas and casinghead petroleum spirit that shall be in line with the rules herein prescribed for crude oil except that: (1) The market price shall be the basis for tax and all other purposes; (2) After meeting requirements in secondary recovery operations priority shall be given to supplying prospective demand in the Philippines. Section 10. Contract areas. Subject to Section eighteen hereof, a contractor or its affiliate may enter into one or more contracts with the Government. Contracts for off-shore areas 4|Project Development_Cha Mendoza

may cover any portion beneath the Philippine territorial waters or its continental shelf, or portion of the continental slope, terrace or areas which are or may be subject to Philippine jurisdiction: Provided, That for off-shore areas beyond water depths of 200 meters, the Petroleum Board may provide for more liberal terms than that provided for herein with respect to contract areas, exploration period and relinquishment. Section 11. Transfer and assignment. The rights and obligations under a contract executed under this Act shall not be assigned or transferred without the prior approval of the Petroleum Board: Provided, That with respect to the transfer or assignment of contractual rights and obligations under this Act to an affiliate of the transferor, the approval thereof by the Petroleum Board shall be automatic, if the transferee is as qualified as the transferor to enter into such contract with the Government: Provided, further, That the affiliate relationships between the original transferor or a company which holds at least fifty per cent of the contractor's outstanding shares entitled to vote and each transferee shall be maintained during the existence of the contract. Section 12. Privileges of contractor. The provisions of any law to the contrary notwithstanding, a contract executed under this Act may provide that the contractor shall have the following privileges: (a) Exemption from all taxes except income tax. (b) Exemption from payment of tariff duties and compensating tax on the importation of machinery and equipment, and spare parts and all materials required for petroleum operations subject to the conditions that said machinery, equipment, spare parts and materials of comparable price and quality are not manufactured domestically; and directly and actually needed and will be used exclusively by the contractor in its operations or in operations for it by a subcontractor are covered by shipping documents in the name of the contractor to whom the shipment will be delivered direct by the customs authorities; and prior approval of the Petroleum Board was obtained by the contractor before the importation of such machinery, equipment, spare parts and materials which approval shall not be unreasonably withheld: Provided, however, That the contractor or its subcontractor may not sell, transfer or dispose of these machinery, equipment, spare parts and materials without the prior approval of the Petroleum Board and payment of taxes due the Government: Provided, further, That should the contractor or its subcontractor sell, transfer or dispose of these machinery equipment, spare parts or materials without the prior consent of the Petroleum Board, it shall pay twice the amount of the tax exemption granted: Provided, finally That the Petroleum Board shall allow and approve the sale, transfer, or disposition of the said items without tax if made (1) to another contractor; (2) for reasons of technical obsolescence; or (3) for purposes of replacement to improve and/or expand the operations of the contract; (c) Exemption upon approval by the Petroleum Board from laws, regulations and/or ordinances restricting the (1) construction, installation, and operation of power plant for the exclusive use of the contractor if no local enterprise can supply within a reasonable period and at reasonable cost the power needed by the contractor in its petroleum operations, (2) exportation of machinery and equipment which were imported solely for its petroleum operation when no longer needed therefor; (d) Exemption from publication requirements under Republic Act Numbered Five thousand four hundred fifty-five; and the provisions of Republic Act Numbered Sixty-one hundred and seventy-three with respect to the exploration, production, exportation or sale or disposition of crude oil discovered and produced in the Philippines; (e) Exportation of petroleum subject to the prior filing prorata of domestic needs as elsewhere provided in this Act; (f) Entry, upon the sole approval of the Petroleum Board which shall not be unreasonably withheld, of alien technical and specialized personnel (including the immediate members of their families), who may exercise their professions solely

for the operations of the contractor as prescribed in its contract with the Government under this Act: Provided, That if the employment or connection of any such alien with contractor ceases, the applicable laws and regulations on immigration shall apply to him and his immediate family: Provided, further, That Filipinos shall be given preference to positions for which they have adequate training: And provided, finally, That the contractor shall adopt and implement a training program for Filipinos along technical or specialized lines, which program shall be reported to the Petroleum Board; (g) Rights and obligations in any contract concluded pursuant to this Act shall be deemed as essential considerations for the conclusion thereof and shall not be unilaterally changed or impaired; and (h) The privileges and benefits granted to a contractor under the provisions of this Act together with any applicable obligations shall likewise be made available to concessionaires under thePetroleum Act of 1949 and their authorized contractors and/or service operators, whether local or foreign, if they so elect. Section 13. Repatriation of capital and retention of profits abroad. The contractor shall be entitled to (1) repatriate over a reasonable period the capital investment actually brought into the country in foreign exchange or other assets and registered with the Central Bank; (2) retain abroad all foreign exchange representing proceeds arising from exports accruing to the contractor over and above (a) the foreign exchange to be converted into pesos in an amount sufficient to cover, or equivalent to, the local costs for administration and operations of the exported crude and (b) Revenues due the Government on such crude: Provided, however, That the Government and the contractor shall stipulate in the contract the currency in which the Government revenues arising under (b) above are to be paid; (3) convert into foreign exchange and remit abroad at prevailing rates no less favorable to Contractor than those available to Contractor than those available to any other purchaser of foreign currencies, any excess balances of their peso earnings from petroleum production and sale over and above the current working balances they require, and (4) convert foreign exchange into Philippine currency for all purposes in connection with its petroleum operations at prevailing rates no less favorable to contractor than those available to any other purchaser of such currency. Section 14. Full disclosure of interest in contractor. Interest held in the contractor by domestic mining and petroleum companies and/or the latter's stockholders may be allowed to any extent after full disclosure thereof to, and approved by the Petroleum Board. Section 15. Arbitration. The Petroleum Board may stipulate in a contract executed under this Act that disputes in the implementation thereof between the Government and the contractor may be settled in accordance with generally accepted international arbitration practice. Section 16. Performance guarantee. In order to guarantee compliance with the obligations of the contractor in contracts executed under this Act, the contractor shall post a bond or other guarantee of sufficient amount in favor of the Government and with surety or sureties satisfactory to the Petroleum Board, conditioned upon the faithful performance by the contractor of any or all of the obligations under and pursuant to said contracts. IMPLEMENTING AGENCY Section 17. There is hereby created a Petroleum Board composed of the Secretary of Agriculture and Natural Resources, as Chairman, and the Secretary of Finance, the Secretary of Justice, the Chairman of the Board of Investments, the Governor of the Central Bank, the Secretary of Trade and Tourism and the Director of Mines as members. The Director of Mines shall be its Executive Officer. The Board shall be attached to the National Economic Development Authority.

Section 18. Functions of Petroleum Board. In accordance with the provisions and objectives of this Act, the Petroleum Board shall: (a) Define and give public notice when applicable of the areas available for service contract; (b) Enter into contracts herein authorized with such terms and conditions as may be appropriate under the circumstances including the grant of special allowance: Provided, however, That no depletion allowance shall be granted: Provided, further, That except as provided in Sections twenty-six and twenty-seven hereof, no contract in favor of one contractor and its affiliates shall cover less than fifty thousand nor more than seven hundred and fifty thousand hectares for on-sphere areas, or less than eighty thousand nor more than one million five hundred thousand hectares for off-shore areas: Provided, finally, That in no case shall the annual net revenue or share of the Government, including all taxes paid by or on behalf of the contractor, be less than sixty per cent of the difference between the gross income and the sum of operating expenses and Filipino participation incentive; (c) Provide for the manner and form of the income tax payment, the reimbursement of operating expenses, the payment of service fee, and payment of Filipino participation incentive allowance, if any, in the service contract; (d) Make specific proposals to Congress for the grant of subsidy to contractors and petroleum companies at least sixty per cent of the capital of which is owned by Philippine citizens, to be derived from the revenue or share that will accrue to the Government in pursuance of this Act; (e) Undertake intensive studies and researches on oil field practices, procedures, and policies; (f) Promulgate such rules and regulations as may be necessary and assess charges for services rendered, to implement the intent and provisions of this Act; (g) Appoint, discipline and remove, and determine the compensation of, its technical staff and other personnel: Provided, That positions which are highly technical or primarily confidential shall not be subject to the Civil Service Laws and Rules, and of the Wage and Position Classification Office; (h) Within four months after the close of every fiscal year, submit to the President and Legislature an annual report on its activities, with appropriate recommendation; and (i) Generally, exercise all powers necessary or incidental to attain the objectives of this Act. TAX PROVISIONS Section 19. Imposition of tax. The contractor shall be liable each taxable year for Philippine income tax on income derived from its petroleum operations under its contract of service, computed as provided in Section 20, through 25. Section 20. Determination of gross income. The gross income shall consist of: (a) In respect of crude oil exported, the gross proceeds from the sale of crude oil at the posted price; (b) In respect of crude oil sold for consumption in the Philippines, the gross income shall consist of the gross proceeds from the sale thereof at market price per barrel; (c) In respect of natural gas and/or casinghead petroleum exported or sold for consumption in the Philippines the gross income shall consist of the total quantity sold at the prevailing market price thereof; and (d) Such other income which are incidental to and/or arising from any petroleum operation. Section 21. Deductions from gross income. In computing the taxable net income, there shall be allowed as deductions: (1) Filipino participation incentive; and (2) Operating expenses reimbursed pursuant to Section 8 (1) which includes amortization and depreciation as provided in Section 22. Section 22. Amortization and Depreciation. Intangible exploration costs may be deductible in full; all tangible exploration costs such as capital expenditures and other recoverable capital assets are to be depreciated for a period of ten years.

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Section 23. Deductions not allowed. In ascertaining the taxable net income, no deduction from gross income shall be allowed in respect of any interest or other consideration paid or suffered in respect of the financing of its petroleum operations. Section 24. Return and payment of tax. Every party to a service contract shall render to the Petroleum Board a return for each taxable year in duplicate in such form and manner as provided by law setting forth its gross income and the deductions herein allowed. The return shall be filed by the Petroleum Board with the Commissioner of Internal Revenue or his deputies or other persons authorized by him to receive such return within the period specified in the National Internal Revenue Code and the Rules and Regulations promulgated thereunder. Every party to a service contract shall be subject to tax separately on its share of taxable income arising from such contract. Section 25. Applicability of the provisions of the National Revenue Code. All provisions of the National Internal Revenue Code and rules and regulations promulgated in relation therewith which are not inconsistent with the provisions of this Act shall be applicable to the Contractor. SPECIAL PROVISIONS Section 26. Option of exploration concessionaires. A holder of a valid and subsisting petroleum exploration concession under the Petroleum Act of 1949 may, at his option enter into a contract of service under the rules of the Petroleum Act of 1949, subject to constitutional restrictions, with any local or foreign oil company under such terms and conditions as may be agreed upon by the concessionaire and the service contractor. As an alternative the concessionaire may convert his concession into a service contract as provided in this Act through negotiations, with all the rights and privileges herein authorized: Provided, That the contract which may be concluded after said negotiation shall contain at least the minimum terms and conditions provided in this Act and shall take into account terms and conditions more favorable to the Government contained in contracts involving exploration pursuant to this Act: Provided, further, That the exploration period shall commence to run from the effective date of the original concession, except when the concession has been effective for a period of seven years or more, in which case the contractor shall be required to commence exploratory drilling operations within a period of not exceeding eighteen months from the date of effectivity of the service contract. If the contractor is not in default in the drilling operations as hereunder required, an extension of the exploration period may be granted as provided in Section nine, paragraph (e) of this Act. Section 27. Alternative option of exploration concessionaire. The concessionaire referred to in the preceding section may form a consortium with another company or companies and jointly enter into a service contract with the Government under this Act, with the right to assign to the consortium, subject to the approval of the Petroleum Board, the area covered by his concession which shall thereupon be governed by the provisions of this Act: Provided, That the voluntary relinquishment of the concession and its assignment, as well as all technical data on the area resulting from studies conducted by the concessionaire subsisting improvement introduced by him thereon, shall be evaluated and given a fair value which may constitute his contribution, wholly or in part, to the consortium: Provided, however, That the exploration period under the new contract shall commence to run from the date of the effectivity of the contract if it covers areas in addition to the assigned areas; otherwise the provisions of the preceding section shall apply: Provided, further, That duly published applications, for exploration concessions or bids therefor already awarded by the Secretary of Agriculture and Natural Resources under the provisions of the Petroleum Act of 1949 shall be recognized and the corresponding deeds of concessions issued accordingly: Provided, finally, That exploration concessions on which the holder thereof failed to perform the three consecutive years 6|Project Development_Cha Mendoza

the exploration work required under the provisions of the Petroleum Act of 1949, as amended by Republic Act Numbered Five Thousand Eighty-Six shall be considered automatically cancelled. Section 28. Filipino Participation Incentive. The contractor under a service contract in which Philippine citizens or corporations have a minimum participating interest of fifteen per cent in the contract area may be subject to reasonable conditions imposed by the Petroleum Board be granted by a government subsidy, commensurate with the scope of Filipino participation, i.e., a Filipino participation incentive, not exceeding seven and one-half per cent, which shall be computed by deducting the said allowance from the posted or market price, whichever, is the higher, of crude oil exports produced in the contract area, and from the market price of crude oil produced in the contract area, sold or disposed of for consumption in the Philippines. Section 29. Publicity. Negotiation with the Government for the conclusion of a contract under this Act and every contract concluded hereunder shall be given publicity consistent with the best interest of the Government. Section 30. Provisions of Petroleum Act applicable. The provisions of the Petroleum Act of 1949, as amended, shall not be applicable to the service contract provided in this Act, except the following Articles: (a) Article 16, referring to public easements on lands covered by concessions; (b) Article 17, providing that petroleum operations are subject to existing mining rights, permits, leases and concessions in respect of substances other than petroleum and to existingpetroleum rights; (c) Article 18, referring to the right of the Government to establish reservations or grant mining rights on petroleum concessions; (d) Article 20, granting exploration and exploitation concessionaires the right to enter private lands covered by their concessions; (e) Article 21, referring to easement and the exercise of the right of eminent domain over private lands for the purpose of carrying out any work essential to petroleum operations; (f) Article 22, providing for easements over public land for the purpose of carrying out any work essential to petroleum operations; and (g) Article 23, which grants concessionaires the right to utilize for any of the work to which the concession relates, timber, water, and clay from any public lands within their concessions. Section 31. Preference to Local Labor. The Contractor shall give priority in employment to qualified personnel in the municipality or municipalities or province where the exploration or productionoperations are located. Section 32. Foreign Assistance. Nothing in this Act or of any other law shall preclude the Government of the Republic of the Philippines, through the Petroleum Board or any other proper office or agency, from negotiating or entering into any agreement with any foreign country or government for assistance in terms of equipment, technical know-how and financing for the exploration andproduction of indigenous crude oil and its by-products. Section 33. Funds. To carry out the purpose of this Act, there is hereby appropriated, out of any funds in the National Treasury not otherwise appropriated, the sum of five hundred thousand pesos for the fiscal year nineteen hundred seventythree. Hereafter, the necessary appropriations shall be included in subsequent General Appropriations Act. Section 34. Repealing Clause. All laws, executive orders and regulations inconsistent with the provisions of this Act are hereby repealed, provided that no existing rights shall be prejudiced thereby. Section 35. Effectivity date. This Act shall take effect upon its approval. Done in the City of Manila, this thirty first day of December, in the year of Our Lord, nineteen hundred and seventy-two.

EXECUTIVE ORDER NO. 66 (DESIGNATING DOE AS LEAD AGENCY FOR DEVELOPMENT OF PHILIPPINE NATURAL GAS INDUSTRY) Executive Order No. 66 DESIGNATING THE DEPARTMENT OF ENERGY AS THE LEAD AGENCY IN DEVELOPING THE PHILIPPINE NATURAL GAS INDUSTRY WHEREAS, the Malampaya Gas-to-Power Project, the largest and most important investment of its kind in the Philippine history, represents the beginning of the Natural Gas Industry in the Philippines; WHEREAS, the development of the Natural Gas Industry shall signal the much awaited boost to the economy by opening up vast opportunities both for the government and the private sector; WHEREAS, Section 2 of R.A. 7638 otherwise known as the “Department of Energy Act of 1992,” declares, among others, that it is the policy of the State to ensure a continuous, adequate and economic supply of energy with the end in view of ultimately achieving self-reliance in the country’s energy requirements through the integrated and intensive exploration, production, management and development of the country’s indigenous energy resources, without sacrificing ecological concerns; WHEREAS, Sections 4, 5(a) and 5(b) of R.A. 7638 provide that the Department of Energy (DOE) is mandated to formulate policies for the planning and implementation of a comprehensive program for the efficient supply and economical use of energy consistent with the approved national economic plan, and to provide a mechanism for the integration, rationalization and coordination of the various energy programs of the Government with a preferential bias for environment-friendly, indigenous and low-cost sources of energy; WHEREAS, Section 5(c) of R.A. 7638 mandates the DOE to establish and administer programs for the exploration, transportation, marketing, distribution, utilization, conservation, stockpiling and storage of energy resources of all forms, whether conventional or non-conventional; WHEREAS, Section 5(e) of R.A. 7638 authorizes the DOE to regulate private sector activities relative to energy projects provided it shall provide for an environment conducive to free and active private sector participation and investment in all energy activities; WHEREAS, natural gas has been recognized as an environment-friendly, indigenous and low-cost source of energy among the indigenous energy resources; WHEREAS, the critical nature of developing the Natural Gas Industry necessitates the involvement and support of various government agencies to ensure a unified and coordinated effort towards establishing a successful and robust Natural Gas Industry; NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Philippines, by virtue of the powers vested in me by law, do hereby order: SECTION 1. The Department of Energy is hereby designated as the lead government agency in ensuring a unified and coordinated effort towards establishing a successful and robust Natural Gas Industry; 7|Project Development_Cha Mendoza

SEC. 2. Pursuant to its mandate, the Department of Energy shall recommend and/or issue appropriate policy statements, industry rules and guidelines and other issuances in order to facilitate and encourage private sector activities, investments and participation in the natural gas industry; SEC. 3. The Department of Energy may call upon any department, agency or instrumentality of the Government for assistance to ensure the development of the Natural Gas Industry and shall have the authority to retain the services of technical consultants of proven and internationally recognized expertise in natural gas technology as may be deemed necessary; SEC. 4. All Other Government Agencies shall assist and cooperate with the Department of Energy as may be necessary to develop and implement the programs for the natural gas industry. SEC. 5. Funds. – The funding requirements to carry out these tasks shall be chargeable against the savings from the appropriations of the Department for the first year of implementation of this Order. Funds for succeeding years shall be chargeable against the regular appropriations of the Department; SEC. 6. Effectivity. – This Order shall take effect immediately. Done in the city of Manila this 18th day of January, in the year of Our Lord, two thousand and one. Pasted from <http://www.oocities.com/collegepark/center/3660/eo66.htm > Case Study: The Malampaya Deep Water Gas to Power Project

PRESIDENTIAL DECREE NO. 1442 PRESIDENTIAL DECREE No. 1442 AN ACT TO PROMOTE THE EXPLORATION AND DEVELOPMENT OF GEOTHERMAL RESOURCES WHEREAS, it is necessary for the economic and industrial development of the country to reduce our dependence on imported energy supplies and accelerate the development of geothermal resources which have been identified as a viable and untapped economical source of energy; WHEREAS, it is in the national interest to allow service contracts for financial, technical, management or other forms of assistance with qualified domestic and foreign entities, for the exploration, development, exploitation, or utilization of the country's geothermal resources; NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution of the Philippines, do hereby order and decree as follows: Section 1. Exploration of and Development of Geothermal Resources by the Government. Subject to existing private rights, the Government may directly explore for, exploit and develop geothermal resources. It may also indirectly undertake the same under service contracts awarded through public bidding or concluded through negotiation, with a domestic or foreign contractor who must be technically and financially capable of undertaking the operations required in the service contract; Provided, that if the service contractor shall furnish the necessary services, technology and financing, the service contractor may be paid a fee not exceeding forty per centum (40%) of the balance of the gross value of the geothermal operations after deducting the necessary expenses incurred in the operations; Provided, further, that the execution of the activities and operations subject of the

service contract, including the implementation of the work program and accounting procedures agreed upon, shall at all times be subject to direct supervision of the Government, through the Bureau of Energy Development. Service contracts as above authorized shall be subject to the approval of the Secretary of Energy. Geothermal resources mean (a) all products of geothermal processes, embracing indigenous steam, hot water and hot brines; (b) steam and other gases, hot water and hot brines resulting from water, gas, or other fluids artificially introduced into geothermal formations; (c) heat or other associated energy found in geothermal formations; and (d) any byproduct derived from them. Section 2. Geothermal Contract Areas. Service contracts, as herein authorized, may cover public lands, government geothermal reservations, including those presently administered or unappropriated areas, as well as areas covered by exploration permits or leases granted under Republic Act No. 5092. Service contracts for exploration and development of geothermal resources may also cover private lands, or other lands subject of agricultural, mining, petroleum or other rights or devoted to purposes other than the exploration or use of geothermal energy; Provided, that the right to enter private lands, and to established easements over such lands shall, in the absence of a voluntary agreement with the private landowner, upon application of the contractor to the Court of First Instance of the province or the municipal court of the municipality where the land is situated, and upon posting of the necessary bond as may be fixed by the same court, be allowed by the court subject to payment of reasonable compensation. Section 3. Conversion of Geothermal Exploration Permits and Leases to Service Contract. Holders of valid and subsisting geothermal exploration permits and geothermal leases granted by the Government prior to January 17, 1973, pursuant to Republic Act No. 5092, shall enter into service contracts as herein provided relative to the areas covered by their respective permits or leases within six months from the effective date of this Decree; and, in default thereof, the geothermal exploration permits and geothermal leases shall be deemed automatically canceled and the area covered thereby shall revert back to the State. All geothermal exploration permit application filed under Republic Act No. 5092 shall be deemed withdrawn and no effect as of the effective date of this Decree. Section 4. Privileges of Service Contractors. The provisions of any law to the contrary notwithstanding, a service contract executed under this Act may provide that the contractor shall have the following privileges: (a) Exemption from payment of tariff duties and compensating tax on the importation of machinery and equipment, and spare parts and all materials required for geothermal operations subject to such conditions as may be imposed by the Director of Energy Development; Provided, that should the contractor or its sub-contractor sell, transfer or dispose of the machinery, equipment, spare parts or materials without the prior consent of the Bureau of Energy Development, it shall pay twice the amount of the taxes and duties not paid because of the exemption granted; (b) Entry, upon the sole approval of the Bureau of Energy Development which shall not be unreasonably withheld, and subject to such conditions as it may impose, of alien technical and specialized personnel (including the immediate members of their families), who may exercise their professions solely for the operations of the contractor as prescribed in its contract with the Government under this Act; (c) Subject to the regulations of the Central Bank, repatriation of capital investment and remittance of earnings derived from its service contract operations, as well as such sums as may be necessary to cover principal and interest of foreign obligations incurred for the geothermal operations. (d)Other privileges provided in Section 12 of Presidential Decree no. 87 as may be applied to the geothermal operation.

Section 5. Exploitation Permits. In cases where discovered geothermal resources are deemed inappropriate for service contracts arrangements in view of economic and/or technical reasons, the Bureau of Energy Development may issue development and exploitation permits for such resources and formulate the applicable rules and regulations to govern the same. Section 6. Rules and Regulations. The Director of Energy Development shall be vested with the authority to promulgate such rules and regulations as may be necessary to implement the provisions of this Act, subject to approval by the Secretary of Energy. Section 7. Repealing Clause. The provisions of Republic Act No. 5092 and other laws, rules and regulations inconsistent with this Decree are hereby repealed. Section 8. Effectivity. This Decree shall take effect immediately upon approval. Done in the City of Manila, this 11th day of June, in the year of Our Lord, nineteen hundred and seventy-eight. Pasted from <http://www.lawphil.net/statutes/presdecs/pd1978/pd_1442_1 978.html>

PRESIDENTIAL DECREE NO. 972 Manila 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 wellplanned, 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

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of the Constitution; NOW, THEREFORE, I, FERDINAND E. MARCOS, by virtue of the powers vested in me by the Constitution of the Philippines, do hereby decree and declare as part of the law of the land the following: Section 1. Short Title. This Act shall be known and may be cited as "The Coal Development Act of 1976." Section 2. Declaration of Policy. It is hereby declared to be the policy of the state to immediately accelerate the exploration, development, exploitation production and utilization of the country's coal resources. A coal development program is therefore promulgated and established by this Decree. Section 3. Coal Development Program. The country shall be divided into coal regions and exploration and exploitation programs shall be instituted and implemented pursuant to this Decree. These programs shall be geared towards the promotion and development of the necessary technical and financial capability to undertake a work program to effectively explore exploit coal resources. In recognition, however, of the social constraints that may be encountered in effecting the establishment of coal units in regions where there is high concentration of small coal miners, a special coal program shall be formulated and implemented in coordination with the appropriate government agency/agencies to meet the particular needs of such regions. Section 4. Government to Undertake Coal Exploration Development and Production. The Government, through the Energy Development Board, its successors or assigns, shall undertake by itself the active exploration, development and production of coal resources. It may also execute coal operating contracts as hereafter defined. The active exploration and exploitation of coal resources by the Government or through coal operating contracts may cover public lands, any unreserved or unappropriated coal bearing lands, claims located and recorded by private parties areas covered by valid and subsisting coal revocable permits, coal leases and other existing rights granted by the Government for the exploration and exploitation of coal lands, government mineral reservations, coal areas/mines whose leases or permits are presently owned or operated or held by government-owned or controlled corporations and coal mineable areas operated or held by government agencies. Section 5. Blocking System. The Energy Development Board shall establish coal regions delimiting its extent and boundaries after taking into consideration the various coal bearing lands of the Philippines. Each coal region shall be divided into meridional blocks or quadrangles of two minutes (2') of latitude and one and one-half minutes (1-1/2) of longtitude, each block containing an area of one thousand (1,000) hectares, more or less, the boundaries thereof to coincide with the full two minutes and one and one-half minutes of latitude and longtitude, respectively, based on the Philippine Coast and Geodetic Survey Map, scale of 1:50,000. Section 6. Coal Contract Area. In conformity with the blocking system herein established, the Energy Development Board shall determine in each coal region what areas, are available for coal operating contracts. In opening such contract areas, the Energy Development Board may resort to either of the following alternative procedures: (a) By offering an area or areas for bids, specifying the minimum requirements and conditions in accordance with this Decree: or (b) By negotiating with a qualified party for a coal operating contract under the terms and conditions provided in this Decree. No person shall be entitled to more than fifteen (15) 9|Project Development_Cha Mendoza

blocks of coal lands in any one coal region. Section 7. Existing Permitees/Leaseholders. All valid and subsisting holders of coal revocable permits, coal leases and other existing rights granted by the government for the exploration and exploitation of coal lands or the operators thereof duly approved by the appropriate government agency, shall be given preference in the grant of coal operating contract over the area covered by their permits, leases or other rights subjects to their compliance with the following conditions and guidelines: (a) Those whose areas fall within a block as described in Section 5 hereof shall organize or consolidate themselves into a coal unit, singly or jointly with valid and subsisting holders of coal revocable permits, coal leases and other existing coal rights or the duly approved operator thereof, of contiguous blocks provided that a coal unit shall not be entitled to more than fifteen (15) blocks of coal lands in any coal region. (b) Consolidation of areas into coal unit which shall require approval by the Energy Development Board must be completed within a period of six (6) months from the effectivity of this Decree. (c) In order to qualify for consolidation into coal units, permitees, leaseholders or operators must have complied with the requirements of their existing permits, leases and/or rights as defined under existing laws, rules and regulations. (d) Members of the coal unit shall agree on the form, terms and extent of participation of its individual members. All holders of valid and subsisting coal revocable permits, coal leases and other existing rights granted by the government for the exploration, development and exploitation of coal lands shall be given percentage interest in the unit or payments out of production under such terms and conditions as may be agreed by the members of the unit and approved by the Energy Development Board. (e) A coal unit shall enter into a coal operating contract as hereafter provided within six (6) months from its formation. Coal revocable permits, coal leases and other existing rights granted by the government for the exploration and exploitation of coal lands shall be deemed automatically canceled and the area covered thereby shall revert back to the State for failure of the holders or the qualified operators thereof for any cause whatsoever to consolidate their areas into coal units or secure a coal operating contract within the period specified in this section. Section 8. Coal Operating Contract. Each coal operating contract herein authorized shall, subject to the approval of the President, be executed by the Energy Development Board. In a coal operating contract, service, technology and financing are furnished by the operator for which it shall be entitled to the stipulated fee and reimbursement of operating expenses. Accordingly, the operator must be technically competent and financially capable as determined by the Energy Development Board to undertake the coal operations as required in the contract. Section 9. Obligations of Operator in Coal Operating Contract. The operator under a coal operating contract shall undertake, manage and execute the coal operations which shall include: (a) The examination and investigation of lands supposed to contain coal, by detailed surface geologic mapping, core drilling, trenching, test pitting and other appropriate means, for the purpose of probing the presence of coal deposits and the extent thereof; (b) Steps necessary to reach the coal deposits so that can be mined, including but not limited to shaft sinking and tunneling; and

(c) The extraction and utilization of coal deposits. The Government shall oversee the management of operation contemplated in the coal operating contract and in this connection, shall require the operator to: (a) Provide all the necessary service and technology; (b) Provide the requisite financing; (c) Perform the work obligations and program prescribed in the coal operating contract which shall be less than those prescribed in this Decree; (d) Operate the area on behalf of the Government in accordance with good coal mining practices using modern methods appropriate for the geological conditions of the area to enable maximum economic production of coal, avoiding hazards to life, health and property, avoiding pollution of air, land and waters, and pursuant to an efficient and economic program of operation; (e) Furnish the Energy Development Board promptly with all information, data and reports which it may require; (f) Maintain detailed technical records and account of its expenditures; (g) Maintain detailed technical records and account of safety demarcation of agreement acreage and work areas, non-interference with the rights of the other petroleum, mineral and natural resources operators; (h) Maintain all necessary equipment in good order and allow access to these as well as to the exploration, development and production sites and operations to inspectors authorized by the Energy Development Board; (i) Allow representatives authorized by the Energy Development Board full access to their accounts, books and records for tax and other fiscal purposes; On the other hand, the Energy Development Board shall: (a) On behalf of the Government, reimburse the operator for all operating expenses not exceeding seventy per cent (70%) of the gross proceeds from production in any year; Provided, that if in any year, the operating expenses exceed seventy per cent (70%) of the gross proceeds from production, then the unrecovered expenses shall be recovered from the operating of succeeding years. Operating expenses means the total expenditures for coal operating incurred by the operator as provided in a coal operating contract; (b) Pay the operator a fee, the net amount of which shall not exceed forty per cent (40%) of the balance of the gross income after deducting all operating expenses; (c) Reimburse operating expenses and pay the operator's fee in such form and manner as provided for in the coal operating contract. Section 10. Additional Fee. All valid and subsisting holders of coal revocable permits, coal leases and other existing rights granted by the government for the exploration and exploitation of coal lands or the duly qualified operators thereof who have organized their area into a coal unit may, subject to conditions imposed by the Energy Development Board, be granted in the coal operating contract, in addition to the face provided in Paragraph 2 of Section 9, a special allowance, the amount of which shall not exceed thirty per cent (30%) of the balance of the gross income after deducting all operating expenses. Coal operating contracts entered into with Philippine citizens or corporations except those already covered under the precedings paragraph, shall be granted a special allowance, the amount of which shall not exceed twenty per cent (20%) of the balance of the gross income after deducting all operating expenses; Provided, that coal operating contracts in which Philippine citizens or corporations have a minimum 10 | P r o j e c t Development_Cha Mendoza

participating interest of fifteen per cent (15%) in the contract area, may subject to reasonable conditions imposed by the Energy Development Board, be granted a special allowance not exceeding ten per cent (10%) of the balance of the gross income after deducting all operating expenses. For the purpose of this section, a Philippine corporation means a corporation organized under Philippine laws at least sixty per cent (60%) of the capital of which, including the voting shares, is owned and held by citizens of the Philippines. Section 11. Minimum Terms and Conditions. In addition to those elsewhere provided in this Decree, every coal operating contract executed in pursuance hereof shall contain the following minimum terms and conditions: (a) Every operator shall be obliged to spend in direct prosecution of exploration work not less than the amounts provided for in the coal operating contract and these amounts shall not be less than the total obtained by multiplying the number of coal blocks or fraction thereof covered by the contract by One Million Pesos (P1,000,000.00) per block annually; Provided, that if the area or a portion thereof is suitable for open pit mining as determined jointly by the operator and the Energy Development Board, the minimum expenditure requirement herein provided may be reduced up to Two Hundred Thousand Pesos (P200,000.00) per block annually. From the time coal reserves in commercial quantity have been determined jointly by the operator and the Energy Development Board, the operator shall undertake development and production of the contract area within the period agreed upon in the contract and shall be obliged to spend in the development and production of the contract area an amount which shall be determined by negotiation between the operator and the Energy Development Board taking into account factors such as measured reserves, quality of coal, mining method and location and accessibility to market; Provided, further, that if during any contract year the operator shall spend more than the amount of money required to be spent, the excess may be credited against the money required to be spent by the operator during the succeeding years, except excess expenditures for exploration cannot be credited against financial commitment for development and production; Provided, further, that should the operator fail to comply with the work obligations provided for in the coal operating contract, it shall pay to the Government the amount it should have spent but did not in direct prosecution of its work obligations; Provided, finally, that except in case of open pit mining, the operator shall drill at least thirty (30) holes per blocks and a minimum footage of exploratory holes before the end of the exploration period as may be specified in the coal operating contract. (b) The exploration period under every coal operating contract shall be for two (2) years. If the operator has complied with its exploration work obligations, the exploration period may be extended for another two (2) years. The coal operating contract shall lapse unless coal of commercial quantity is measured during the exploration period or at the end thereof in any area covered by the coal operating contract. If coal of commercial quantity is measured, the coal operating contract shall remain in force for development and production during the balance of the exploration period and/or for an additional period ranging from ten (10) to twenty (20) years, thereafter renewable for a series of three (3)-year periods not exceeding twelve (12) years under such terms and conditions as may be agreed upon by the parties. (c) All materials, equipment, plants and other installations erected or placed on the exploration and/or

production area of a movable nature by the operator shall become properties of the Energy Development Board if not removed therefrom within one (1) year after the termination of the coal operating contract. (d) The operator shall be subject to the provisions of laws of general application relating to labor, health, safety and ecology insofar as they are not in conflict with the provisions otherwise contained in this Decree. Section 12. Full Disclosure of Interest in Coal Operating Contract. Interest held in the coal operating contract by domestic mining companies and/or the latter's stockholders may be allowed to any extent after full disclosure thereof and approved by the Energy Development Board. Section 13. Arbitration. The Energy Development Board may stipulate in a coal operating contract executed under this Decree that disputes in the implementation thereof between the Government and the operator may be settled by arbitration. Section 14. Performance Guarantee. In order to guarantee compliance with the obligations of the operator executed under this Decree, the operator shall post a bond or other guarantee of sufficient amount in favor of the Government and with surety or sureties satisfactory to the Energy Development Board, conditioned upon the faithful performance by the operator of any or all of the obligations under and pursuant to said coal operating contracts. Section 15. Transfer and Assignment. The rights and obligations under a coal operating contract executed under this Decree shall not be transferred or assigned without the prior approval of the Energy Development Board; Provided, that such transfer or assignment may be made only to a qualified person possessing the resources and capability to continue the mining operation of the coal operating contract and that the operator has complied with all the obligations of the coal operating contract. Section 16. Incentives to Operators. The provisions of any law to the contrary notwithstanding, a contract executed under this Decree may provide that the operator shall have the following incentives: (a) Exemption from all taxes except income tax; (b) Exemption from payment of tariff duties and compensating tax on importation of machinery and equipment and spare parts and materials required for the coal operations subject to the following conditions: 1. that machinery, equipment, spare parts and materials of comparable price and quality are not manufactured in the Philippines; 2. that the same are directly and actually needed and will be used exclusively by the operator in its operations or in operation for it by a contractor; 3. That they are covered by shipping documents in the name of the operator to whom the shipment will be delivered directly by the customs authorities; and 4. that prior approval of the Energy Development Board was obtained by the operator before the importation of such machinery, equipment, spare parts and materials, which approval shall not be unreasonably withheld; Provided, however, that the operator or its contractor may not sell, transfer, or dispose of the machinery, equipment, spare parts and materials without the prior approval of the Energy Development Board and payment of taxes and duties thereon; Provided, further, that should the operator or its contractor sell, transfer, or dispose of these machinery, equipment, spare parts or materials without the prior approval of the Energy Development Board, it shall pay twice the amount of the taxes and duties thereon; Provided, finally, that the Energy Development Board shall allow and approved the sale, transfer or disposition of the said items without tax if made: (a) to another operator under a coal operating contract; 11 | P r o j e c t Development_Cha Mendoza

(b) for reasons of technical obsolescence; or (c) for purposes of replacement to improve and/or expand the operation under the coal operating contract. (c) Accelerated Depreciation. At the option of the taxpayer and in accordance with the procedures established by the Bureau of Internal Revenue, fixed assets owned by the coal units in the performance of its coal operating contract may be: 1. Depreciated to the extent of not more than twice as fast as normal rate of depreciated or depreciated at normal rate of depreciation if expected life is ten (10) years or less; or 2. Depreciated over any number of years between five (5) years and expected life if the latter is more than ten (10) years, and the depreciation thereon allowed as a deduction from taxable income; Provided, that the taxpayer notifies the Bureau of Internal Revenue at the beginning of the depreciation period which depreciation rate allowed by this section will be used by it. (d) Foreign Loans and Contracts. The right to remit at the prevailing exchange rate at the time of remittance of such sum as may be necessary to cover principal and interest of foreign loans and foreign obligations arising from technological assistance contracts relating to the performance of the coal operating contract, subject to Central Bank regulations. (e) Preference in Grant of Government Loans. Government financial institutions such as the Development Bank of the Philippines, the Philippine National Bank, the Government Service Insurance System, the Social Security System, the Land bank of the Philippines and other government institutions as are now engaged or may hereafter engage in financing on investment operations shall, in accordance with and to the extent allowed by the enabling provisions of their respective charters or applicable laws, accord high priority to applications for financial assistance submitted by operators in the performance of coal operating contracts, whether such financial assistance be in the form of equity participation in preferred, common or preferred convertible shares of stock, or in loans and guarantee, and shall facilitate the processing thereof and the release of the funds therefor. However, financial assistance under this paragraph shall be extended only to operators which are Philippine Nationals as the term is defined under Republic Act No. 5186, as amended. (f) Entry upon the sole approval of the Energy Development Board which shall not be unreasonably withheld of alien technical and specialized personnel (including the immediate members of their families) who may exercise their profession only for the operation of the operator as prescribed in its coal operating contract with the government under this Decree; Provided, that if the employment or connection of any such alien with the operator ceases, the applicable laws and regulations on immigration shall apply to him and his immediate family; Provided, further, that Filipinos shall be given preference to positions for which they have adequate training, and; Provided, finally, that the operator shall adopt and implement a training program for Filipinos along technical or specialized lines, which program shall be reported to the Energy Development Board. Section 17. Incentives to Coal Users. The following incentives shall be granted to enterprises/industries which will convert their existing oil fired plants facilities to make the same adaptable for coal burning: (a) Tax Exemption on Imported Capital Equipment. Within seven (7) years from the date of approval of the plan for conversion of existing oil fired plants and facilities to make the same adaptable for coal burning, the importation of machinery and equipment, and spare

parts shipped with such machinery and equipment necessary to implement their program of conversion shall not be subject to tariff and customs duties and compensating tax; Provided, that said machinery, equipment and spare parts are: 1. Not manufactured in the Philippines in reasonable quantity and quality at reasonable prices; 2. Directly and actually needed and will be used exclusively in the implementation of the conversion of existing plants to coal burning; 3. Covered by shipping documents in the name of the enterprise to whom the shipment will be delivered direct by customs authorities; 4. Prior approval, before importation of such machinery, equipment and spare parts was obtained. If imported machinery, equipment and spare parts are sold, transferred or otherwise disposed of without the required prior approval, the importer shall pay twice the amount of the tax and duty thereon. However, the sale, transfer or disposition of the said items shall be allowed and approved without tax and duty if made to another company for use in: (a) Converting its existing plants to coal burning subject to the same conditions and limitations as herein provided; (b) For reasons of technical obsolescence; or (c) For replacement of equipment to improve and/or expand the operations of the enterprise. For replacement of modernization of existing facilities of subject enterprises/industries which will be utilized partly or entirely in the conversion of coal burning, in lieu of an exemption from payment of tariff duties and taxes, it shall be granted deferment in the payment of such taxes and duties for a period of not exceeding ten (10) years after posting the appropriate bond as may be required by the Secretary of Finance. (b) Tax Credit on Domestic Capital Equipment. Within seven (7) years from the date of approval of the plan for conversion of existing oil fired plants, and facilities to make the same adaptable for coal burning, a tax credit equivalent to one hundred per cent (100%) of the value of the compensating tax and customs duties that would have been paid on machinery, equipment and spare parts necessary to implement the program of conversion had these items been imported, shall be given to the industry with a program of conversion to coal burning that purchases said machinery, equipment and spare parts from a domestic manufacturer; Provided: 1. That said machinery, equipment and spare parts are directly and actually needed and will be used exclusively in the implementation of the conversion of its existing plants to coal burning; 2. That the prior approval was obtained for the purchase of the machinery, equipment and spare parts. If the machinery, equipment and spare parts are sold, transferred or otherwise disposed of without the required prior government approval, the purchaser shall pay twice the amount of the tax credit given to it. However, the sale, transfer or disposition of the said items shall be allowed and approved without tax if made: a) To another company for use in its approved program of conversion to coal burning subject to the same conditions and limitations as herein provided: b) For reasons of technical obsolescence; or c) For purposes of replacement to improve and/or expand the operation of the enterprise. (c) Net operating Lose Carryover. A net operating loss incurred in any of the first ten (10) years after the start of the implementation of the coal conversion program may be carried over as a deduction from taxable income for the six (6) years immediately following the year of such loss. The entire amount of the loss shall be 12 | P r o j e c t Development_Cha Mendoza

carried over to the first of the (6) taxable years following the loss, and any portion of such loss which exceeds the taxable income of such first year shall be deducted in like manner from the taxable income of the next remaining five (5) years. The net operating loss shall be computed in accordance with the provision of the National Internal Revenue Code, any provision of this Decree to the contrary notwithstanding, except that income not taxable either in whole or in part under this or other laws shall be included in the gross income. (d) Capital Gains Tax Exemption. Exemption from income tax on the proceeds of the gains realized from the sale, disposition or transfer of capital assets which are sold or disposed of as a result of the conversion of facilities to a coal burning plant; Provided, that such sale, disposition or transfer are registered with the Bureau of Internal Revenue; Provided, however, that the gains realized from the subject sale, disposition or transfer of capital assets are invested in new issues of capital stock of an enterprise registered under the Investment Incentives Act, as amended, and other allied incentives laws; Provided, further, that the shares of stock representing the investment are not disposed of, transferred, assigned, or conveyed for a period of seven (7) years from the date the investment was made; and, Provided, finally, that if such shares of stock are disposed of within the said period of seven (7) years, all taxes due on the gains realized from the original transfer, sale, or disposition of the capital assets shall become immediately due and payable. (e) Accelerated Depreciation. At the option of the taxpayer and in accordance with the procedure established by the Bureau of Internal Revenue, fixed assets used by the industry in carrying out the program of conversion to coal burning may be: 1. Depreciated to the extent of not more than twice as fast as normal rate of depreciation or depreciated at normal rate of depreciation if expected life is ten (10) years or less; or 2. Depreciated over any number of years between five (5) years and expected life if the latter is more than ten (10) years, and the depreciation thereon allowed as a deduction from taxable income; Provided, that the taxpayer notifies the Bureau of Internal Revenue at the beginning of the depreciation period which depreciation rate allowed by this section will be used by it. (f) Foreign Loans and Contracts. The right to remit at the prevailing exchange rate at the time of remittance such sum as may be necessary to cover interest and principal of foreign loan and foreign obligations arising from technological assistance contracts relating to the implementation of the program of conversion to coal burning subject to Central Bank regulation. (g) Preference in Grant of Government Loans. Government financial institutions such as the Development Bank of the Philippines, the Philippine National Bank, the Government Service Insurance System, the Social Security System, the Land Bank of the Philippines and such other government institutions as are now engaged or may hereafter engage in financing of investment operations shall, in accordance with and to the extent allowed by the enabling provisions of their respective charters or applicable laws, accord high priority to application for financial assistance submitted by enterprises/industries requiring funding to implement the program of conversion to coal burning, whether such financial assistance be in the form of equity participation in preferred, common or preferred convertible shares of stock, or in loans and guarantee, and shall facilitate the processing thereof and the release of the funds therefor; However, financial assistance shall be extended only under this paragraph to industry converting to coal burning which is a Philippine National

as this term is defined under Republic Act No. 5186, as amended. The foregoing incentives to enterprises/industries which will convert their existing oil fired plants and facilities to make the same adaptable for coal burning shall be administered and implemented by the Board of Investments created under Republic Act No. 5186, also known as the Investment Incentives Act, as amended. The Board of Investments shall have the power to process and approved, under such terms and conditions as it may deem necessary, plans for conversion to coal burning and applications for availment of the foregoing incentives. It shall promulgate such rules and regulations as may be necessary to implement the intent and provisions of this section. Section 18. Implementing Agency. Except as otherwise provided in Section 17 hereof, the Energy Development Board, created pursuant to Presidential Decree No. 910, in addition to the powers, duties and functions under existing laws, shall be charged with carrying out the provisions of this Decree and shall be vested with the authority to promulgate rules and regulations implementing thereof. Section 19. Separability Clause. Should any provision of this Decree be held unconstitutional, no other provision hereof shall be effected thereby. Section 20. Repealing Clause. The provisions of Presidential Decree No. 463, otherwise known as the "Mineral Resources Development Decree of 1974" and other laws insofar as they deal, relate or affect the exploration, exploitation and administration of coal lands are hereby repealed. Furthermore, all laws, decree, executive orders, administrative orders, rules, and regulations, or parts thereof in conflict or inconsistent with any provision of this Decree are hereby repealed, revoked, modified or amended accordingly. Section 21. Effectivity. This Decree shall take effect immediately upon approval. Done in the City of Manila, this 28th day of July, in the year of Our Lord, nineteen hundred and seventy-six. RULES AND REGULATIONS IMPLEMENTING PRESIDENTIAL DECREE NO. 972, OTHERWISE KNOWN AS THE "COAL DEVELOPMENT ACT OF 1976" Pursuant to the Presidential Decree No. 972, otherwise known and cited as the "Coal Development Act of 1976", the following rules and regulations to implement the intent and provisions of the Act are hereby promulgated: I. Registration (a) Coverage and Period. All holders of coal permits, leases, locations, patents, mining grants or concessions, applications and other existing rights granted by the government for the exploration, development and exploitation of coal lands and/or the duly authorized operators thereof shall register their permits, leases, locations, patents, mining grants or concessions, applications and other rights with the Energy Development Board within thirty (30) days from the date hereof. (b) Requirement of Registration. The registration contemplated in Paragraph A hereof shall require the accomplishment and submission to the Energy Development Board of the attached EDB Form No. 11 (Information Sheet, Attachment "A"). The Information Sheet and all accompanying annexes and exhibits shall be verified (under oath) by the holder of the permit, lease, patent, location, concession or grant and application in cases of an individual or by a responsible officer thereof in cases of partnership, corporations or cooperatives. The Information Sheet shall serve as the basis for the evaluation of the status and work 13 | P r o j e c t Development_Cha Mendoza

performance of the holders or operators to determine compliance with the requirements of their existing permits, leases, locations, grants, patents, concessions, applications and other rights under laws, rules and regulations then in force. (c) Effect of Failure to Register. Failure to comply with the registration required herein shall be deemed to constitute a waiver of rights and shall result in automatic cancellation or termination of holder's or operator's right in any coal permit, lease, location, patent, mining grant or concession, application and other rights. (d) Place of Filing. The Information Sheet and all accompanying annexes and exhibits shall be filed with the offices of the Energy Development Board at the Philippine National Petroleum Center, Merrit Road, Fort Bonifacio, Rizal or at the Energy Development Board Cebu Office situated at barrio Opao, Mandaue City. II. Blocking System. A. Coal Regions. The following coal regions in the Philippines (see attached map, Attachment "b") are hereby established: 1. Cagayan Region 2. Ilocos Region 3. Central Luzon Region 4. Bondoc Peninsula Region 5. Bicol Region 6. Catanduanes Region 7. Samar-Leyte Region 8. Cebu Region 9. Negros Region 10. Panay Region including Semirara Island 11. Mindoro Region 12. Agusan-Davao Region 13. Surigao Region 14. Cotabato Region 15. Zamboanga Regions Additional coal regions may be established by the Energy Development Board when attendant circumstances justify and warrant it. B. Guidelines on Use of the Blocking System 1. Each of the above coal regions is divided into meridional blocks or quadrangles of two minutes (2') of latitude and one and one-half minutes (1-1/2') of longtitude, each block containing an area of one thousand (1,000) hectares, more or less. The boundaries of the block must coincide with the defined latitude and longtitude in the Energy Development Board Coal Blocking Maps (Scale 1:50,000) plotted on the Coast and Geodetic Survey maps. 2. This blocking system shall apply to areas being organized and consolidated into a coal unit as well as free areas. No person, partnership or corporation shall be entitled to more than fifteen (15) blocks of coal land in any one coal region. 3. A coal unit shall conform to the blocking system as closely as possible with its final configuration arrived at by both the permitee/leaseholder/applicant and the Energy Development Board but always subject to the final approval of the latter. 4. Any specific problem that may arise which is not presently covered by these guidelines will be considered on a case-to-case basis, e.g. inability to conform to the blocking system due to position of adjoining coal units, etc. 5. The ground survey for locating the coal blocks herein established shall be done by the Energy Development Board at the expense of the permittee/leaseholder/applicant or by the latter when so authorized by the Energy Development Board. The corners of each block shall be marked by appropriate survey monuments. The survey plans shall be submitted to the Energy Development Board for verification and approval within one (1) year from the

effective date of the coal operating contract, a requirement which shall be included as one of the obligations of the operator in coal operating contract. 6. Maps pertinent to the blocking system may be purchased at P50.00 per sheet at the Energy Development Board Office at the Philippine National Petroleum Center, Merritt Road, Fort Bonifacio, Rizal. The Energy Development Board maintains exclusive rights over the printing and sale of these maps and no map or any portion thereof may be reproduced without the permission of the Board. 7. These maps are considered official maps and shall form part of the official application paper that an applicant for a coal operating submits to the Board. III. Survey of Coal Blocks (A) Period of Survey. Within one (1) year from the effective date of the coal operating contract, the operator shall conduct the survey of the coal blocks which constitute the coal contract area of the coal operating contract. The survey shall be conducted in accordance with the regulations hereunder provided. (B) Documents to Accompany Application for a Coal Operating Contract Necessary for Survey of Coal Blocks. The following documents shall be submitted upon filing of the application for a coal operating contract: 1. A notarized survey service contract executed by and between the applicant and a duly licensed geodetic engineer which shall stipulate, among others, the following: (a) The names of the contracting parties. (b) The coal sought to be surveyed. (c) The consideration or contract price and mode of payment of the same. (d) The date of the submittal of the survey returns to the Energy Development Board. 2. Affidavit of the duly licensed geodetic engineer representing that he can execute the survey of the coal blocks and submit the returns thereof within one (1) year from the effectivity date of the coal operating contract. (C) Abandonment. Failure to perform the ground survey for the coal blocks within one (1) year from the effective date of the coal operating contract shall constitute automatic abandonment of the coal block and the land embraced therein shall thereupon be opened to application for another coal operating contract by qualified persons. (D) Qualified Geodetic Engineers. Coal block surveys shall be executed by geodetic engineers of the Energy Development Board or by any duly licensed geodetic engineers. (E) Cost of Survey. If the Ground survey shall be undertaken by a geodetic engineers of the Energy Development Board, the applicant shall pay the actual cost of the survey. (F) Execution of Coal Block Survey. Corners of the coal block shall be defined by monuments placed at intervals of not more than four hundred (400) meters apart. When the boundary lines of the coal block pass across mountains or rolling terrains, the intermediate monuments between corners shall be established or ridges, whenever practicable, in which case, all consecutive corner monuments shall be intervisible. The sizes of corner monument of a coal shall be as follows: 1. Corners (principal corners) that fall on points with exact two minutes and/or one and one-half minutes of latitude and longitude, 20 cm. x 20 cm. concrete monuments shall be set 50 cm. in the ground. 2. Other concerns of the coal block shall by cylindrical concrete monuments of 15 cm. in diameter x 60 cm. long set 50 cm. in the ground. The corners of the coal block shall be concrete 14 | P r o j e c t Development_Cha Mendoza

monuments or cement patch on boulder, centered with a hole, spike, pipe or nail and marked with the corresponding corner number and coal block number. The latitude and longitude of the principal corner shall also be indicated on the sides of the concrete monuments when it coincides with the full two minutes and/or one and one-half minutes of latitude and longitude, respectively. When the coal block undergoing survey adjoins submerged land, a witness corner monument along the boundary leading the shoreline shall be set on the ground to witness the boundary- point-corner of the coal block at the low tide level of the sea or lake. Concrete monuments, galvanized iron pipes, fixed rocks, boulders or stakes and other monuments shall be set to define the corners of the coal block along the shoreline at low tide level. All computations, plans and maps of coal blocks surveys to be submitted to the Energy Development Board for verification and approval shall be prepared by using the Philippine Plane Coordinate System. The characteristics of the Philippine Plane Coordinate System as used in the DANR Technical Bulletin No. 26 are as follows: Spheroid Carke's Spheroid of 1865. Projection Transverse Mercator in zones of two degrees (2 degrees) net width. Point of Origin The intersection of the equator and the central meridian of each zone, with a northing of 0.00 meter and an easting of 500,000.00 meters. Scale factor of the Central Meridian 0.99995 zonification. NOTE: The overlap of 30 minutes thereof, however is reduced to 5 minutes which are as follows:

Zone No. I II III IV V 117-00 E 119-00 E 121-00 E 123-00 E 125-00 E 16-00 to 118-05 E 117-55 to 120-05 E 119-55 to 122-05 E 121-55 to 124-05 E 123-55 to 126-05 E

The tables in the DANR Technical Bulletin No. 26 and EDB Form No. 12 and EDB Form No. 13 hereto attached as Attachment "C" and "D", respectively, and part of these Regulations shall be used for the transformation of geographic to plane coordinates, and from plane to geographic coordinates. In all coal block surveys, the corresponding central meridian of the zone where the coal block is situated shall be used and the amount of convergency correction in seconds of arc from the central meridian to be applied to the observed astronomical azimuth of the line shall be, for all practice purposes, the product of the departure of the point of observation from the central meridian in kilometers and the number of seconds of angular convergency per kilometer of departure corresponding to the latitude of the place of observation which are tabulated as follows: Latitude in Seconds of Arc Angular Convergency of per Kilometer Departure 5° 6° 2.83 3.4

7° 8° 9° 10° 11° 12° 13° 14° 15° 16° 17° 18° 19° 20° 21°

3.97 4.55 5.12 5.7 6.29 6.87 7.46 8.06 8.66 9.27 9.88 10.5 11.13 11.76 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

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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. The Lawphil Project - Arellano Law Foundation

resources calculated yield maximum benefit to the Filipino people and revenues to the Philippine Government and assure just and fair returns to the participating private enterprises; WHEREAS, in line with the policy of the Government to encourage and accelerate exploration and development of indigenous resources and in the light of current conditions in the coal industry, it is imperative that Presidential Decree No. 972 be amended granting additional incentives to coal operators participating in the coal development program; WHEREAS, in order that coal operations should not be unnecessarily hampered and snagged by the difficulties and delays in securing surface rights under existing laws and regulations for the entry into, access to or occupation of private lands, it is necessary to provide a just and equitable system of rights acquisition and use by coal operators which would also be given incentives and protection to private landowners and occupants; NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the authority 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. Section Seven (e) of Presidential Decree No. 972, is hereby amended to read as follows: "Sec. 7. Existing Permittees/Leaseholders (e) In order to give holders of valid and subsisting 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, sufficient time to upgrade their financial and technical capabilities to develop a viable work program to be embodied in a coal operating contract, the deadline for entering and concluding a duly executed coal operating contract is extended from July 27, 1977 to January 27, 1978; Provided, that the extension shall apply only to those who have complied with the requirements of unitization; Provided, further that those who have unitized may be granted by the Board during the extension period special operating permits in order not to disrupt existing coal operations; Provided, finally, that no further extension shall be allowed after the extension granted in this decree, and coal permits, leases and other rights not converted to coal operating contract for any cause by January 27, 1978 shall be deemed automatically canceled and the area thereby shall be open for coal operating contract in accordance with Section 6 thereof." Section 2. Section Nine, Third Paragraph, Sub-Paragraph of the same Decree is hereby amended to read as follows: Sec. 9. Obligations of Operator in a Coal Operating Contract. (a) On behalf of the Government, reimburse the operator for all operating expenses not exceeding ninety percent (90%) of the gross proceeds from production in any year; Provided, that if in any year, the operating expenses exceed ninety percent (90%) of the gross proceeds from production, then the unrecovered expenses shall be recovered from the operation of succeeding years. Operating expenses mean the total expenditures for coal operation incurred by the operator as provided in a coal operating contract; Section 3. Section Ten of the same Decree is hereby amended to read as follows: "Sec. 10. Additional Fee. All valid and subsisting holders of coal revocable permits, coal leases and other existing rights granted by the government for the exploration and exploitation of coal lands or the duly qualified operators thereof who have organized their area into a coal unit, subject to conditions imposed by the Energy Development Board, be granted in the coal operating contract, in addition to the operator's fee provided in Section 9, a special allowance, the amount of which shall not exceed forty percent (40%) 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 proceeding paragraph, shall be granted a special allowance the amount of which shall not exceed thirty per cent (30%) of

Pasted from <http://www.lawphil.net/statutes/presdecs/pd1976/pd_972_19 76.html>

PRESIDENTIAL DECREE NO. 1174 PRESIDENTIAL DECREE No. 1174 AMENDING PRESIDENTIAL DECREE NUMBERED NINE HUNDRED SEVENTY TWO, OTHERWISE KNOWN AS THE "COAL DEVELOPMENT ACT OF 1976" WHEREAS, the coal development program envisioned in Presidential Decree No. 972, otherwise known as the "Coal Development Act of 1976" encourage the participation of the private sector with adequate and sufficient financial, technical and managerial resources to undertake a work program to effectively explore, develop and exploit indigenous coal 16 | P r o j e c t Development_Cha Mendoza

the balance of the gross income after deducting all operating expenses; Provided, that coal operating contracts in which Philippine citizens or corporations have a minimum participating interest of forty percent (40%) in the contract area may, subject to reasonable conditions imposed by the Energy Development Board, be granted a special allowance not exceeding twenty percent (20%) of the balance of the gross income after deducting all operating expenses. "For the purpose of this section, a Philippine corporation means a corporation organized under Philippine laws at least sixty percent (60%) of the capital of which, including the voting shares, is owned and held by citizens of the Philippines. Section 4. Section Eleven (a) of the same Decree is hereby amended to read as follows: "Sec. 11. Minimum Terms and Conditions. In addition to those elsewhere provided in this Decree, every coal operating contract executed in pursuance hereof shall contain the following minimum terms and conditions; (a) Every operator shall be obliged to spend in direct prosecution of exploration work not less than the amounts provided for in the coal operating contract and these amounts shall not be less than the total obtained by multiplying the number of coal blocks covered by the contract by One Million Pesos (P1,000,000.00) per block annually; Provided, that if the area or a portion thereof is suitable for open pit mining as determined jointly by the operator and the Energy Development Board, the minimum expenditure requirement herein provided may be reduced up to Two Hundred Thousand Pesos (P200,000.00) per block annually. From the time coal reserves in commercial quantity have been determined jointly by the operator and the Energy Development Board, the operator shall undertake the development and production of the contract area within the period agreed upon in the contract and shall be obliged to spend in the development and production of the contract area an amount which shall be determined by negotiation between the operator and the Energy Development Board taking into account factors such as measured reserves, quality of coal, mining method and location and accessibility to market; Provided, further, that with the approval of the Board, the operator may concentrate all the annual work obligations on any one or more of several contiguous or geologically related blocks if it is shown that such concentration of work will be most advantageous and beneficial in the development and operation of the coal operating contract are; Provided, further, that if during any contract year, the operator shall spend more than the amount of money required to be spent, the excess may be credited against the money required to be spent by the operator during the succeeding years; Provided, furthermore, that should the operator fail to comply with the work obligations provided for in the coal operating contract, it shall pay to the Government the amount it should have spent but did not in direct prosecution of its work obligations; Provided, finally, that except in case of open pit mining, the operator shall drill at least thirty (30) holes per block and a minimum footage of exploratory holes before the end of the exploration period as may be specified in the coal operating contract. The Board may, however, taking into account the geological and technical factors involved; allow a lesser number of drill holes and footage giving due credit to other accepted exploration methods and practices. Section 5. The same Decree is hereby further amended by adding the following sections immediately following Section Sixteen thereof. "Sec. 16-A. Entry and Use of Private Lands (a) Coal exploration, development and exploitation is hereby declared of public use and benefit and for which the power of eminent domain may be invoked and exercised for the entry, acquisition and use of private lands; Provided, that any person or entity acquiring any option or right on such land after the execution of a coal operating contract covering such land not be entitled to the compensation herein provided. (b) The coal operator shall not be prevented from entry into private lands for the purpose of exploring, developing and exploiting coal contract area, upon prior written notification 17 | P r o j e c t Development_Cha Mendoza

sent to, and duly received by, the surface owner of the land and occupant thereof. However, if the surface owner of the land and occupant thereof refuses to allow the coal operator's entry into the land despite his receipt of the written notification, or refuses to receive said written notification, or cannot be found, then the coal operator shall notify the Energy Development Board of such fact, and shall be attached thereto a copy of the written notification. (c) In all cases mentioned in the preceding paragraph, the coal operator shall post a bond with the Energy Development Board in the amount to be fixed by said Energy Development Board based on type of the land and the value of the trees, plants and other existing improvements thereon which shall be the basis of compensation of the surface owner of the land and/or occupant thereof in the appropriated cases mentioned in the next succeeding paragraph. (d) In the absence of an agreement between the coal operator and the surface owner of the land and/or occupant, the surface owner of the land and occupant thereof shall be entitled to the following compensation; (1) Titled Lands. For the conduct of exploration, development and exploitation within lands covered by Torrens Title or other government-recognized titles, the surface owner shall receive as compensation from the coal operator at least One Peso (P1.00) for every ton of coal extracted on his hand. However, in the event that the surface owner suffers damage to his plants, trees, crops and other improvements on his land as a direct result of the coal operation conducted by the coal operator, the former shall be entitled to compensation for the value thereof that are damaged or destroyed. (2) Untitled Lands or land with Incomplete Titles. For the conduct of exploration, development and exploitation of coal within untitled lands or lands with incomplete titles, the surface owner shall receive as compensation from the coal operator at least Fifty Centavos (P0.50) for every ton of coal extracted on his land. However, in the event that the surface landowner suffers damage to his plants, trees, crops and other improvements on his land as a direct result of operation conducted by the coal operator, the former shall be entitled to compensation for the value thereof that are damaged or destroyed. Lands with incomplete titles referred to herein shall mean those possessory rights which can ripen into rights of ownership registerable under the Torrens System. (3) Government Reserved Lands. Government reserved lands for purposes other than mining shall be open to a coal operating contract by filing an application therefore with the Energy Development Board, subject always to compliance with pertinent laws, rules and regulations covering such reserved lands; Provided, that the compensation due the surface owner shall accrue equally between the supervising agency and of the Energy Development Board, to be disbursed for conservation measures." "Sec. 16-B Timber Rights. Any provision of law to the contrary notwithstanding, the operator may cut trees or timber within his coal contract area subject to applicable law and to the rules and regulations of the Bureau of Forest Development as may be necessary for the exploration, development and exploitation of his coal contract area; Provided, that if the lands covered in the coal contract area are already covered by existing timber concessions, the amount of timber needed and manner of cutting and removal thereof shall be subject to the same rules and agreed upon by the operator and the timber concessionaire; Provided, further, that, in case no agreement can be reached between the operator and the timber concessionaire, the matter shall be submitted to the Energy Development Board whose decision shall be final. The operator granted a timber right shall be obligated to perform reforestation works within the coal contract area in accordance with the regulations of the Bureau of Forest Development." "Sec. 16-C Water Rights. A coal operator shall also enjoy water rights necessary for the exploration, development and exploitation of his coal contract area upon application filed with the Director of the Bureau of Public Works in accordance

with the existing laws of water and the rules and regulations promulgated thereunder; Provided, that water rights already granted or legally existing shall not thereby be impaired; Provided, further, that the government reserves the right to regulate water rights and the reasonable and equitable distribution of water supply so as to prevent the monopoly of the use thereof." "Sec. 16-D Applicability of Certain Provisions of Presidential Decree No. 463 The provisions of Chapter XIV (Penal Provisions) of Presidential Decree No. 463, otherwise known as the "Mineral Resources Development Decree of 1974" shall be applicable to the coal operations; Provided, that any reference therein to the Decree and to the Bureau Director of Mines shall mean Presidential Decree No. 972 and the Energy Development Board, respectively. Section 6. Separability Clause. Should any provisions of this Decree be held unconstitutional, no other provision hereof shall be effected thereby. Section 7. Repealing Clause. All laws, decrees, executive orders, administrative orders, rules and regulations, or parts thereof in conflict or inconsistent with any provision of this Decree are hereby repealed, revoked, modified or amended accordingly. Section 8. Effectivity. This Decree shall take effect immediately. Done in the City of Manila, this 27th day of July, in the year of Our Lord, nineteen hundred and seventy-seven. Pasted from <http://www.lawphil.net/statutes/presdecs/pd1977/pd_1174_1 977.html>

REPUBLIC ACT NO. 7156 Republic Act No. 7156 September 12, 1991 AN ACT GRANTING INCENTIVES TO MINIHYDROELECTRIC POWER DEVELOPERS AND FOR OTHER PURPOSES Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:: Section 1. Title. – This Act shall be known as the "Minihydroelectric Power Incentive Act.". Section 2. Declaration of Policy. – It is hereby declared the policy of the State to strengthen and enhance the development of the country's indigenous and self-reliant scientific and technological resources and capabilities and their adaptation to the country in order to attain energy selfsufficiency and thereby minimize dependence on outside source of energy supply. In pursuance thereof, it is further declared that mini-hydroelectric power developers shall be granted the necessary incentives and privileges to provide an environment conducive to the development of the country's hydroelectric power resources to their full potential. Section 3. Declaration of Objectives. – The objectives of the framework being established for the development of minihydroelectric power generation are as follows: (1) To encourage entrepreneurs to develop potential sites for hydroelectric power existing in their respective localities; (2) To encourage entrepreneurs to develop potential sites for hydroelectric power existing in the country by granting the necessary incentives which will provide a reasonable rate of return; (3) To facilitate hydroelectric power development by eliminating overlapping jurisdiction of the many government agencies whose permits, licenses, clearances and other similar authorizations issued by various government agencies as presently required for such development, and by vesting in one agency the exclusive authority and responsibility for the development of mini-hydroelectric power; (4) To apportion a part of the realty and special privilege taxes and other economic benefits of the hydroelectric power

potential to the respective localities where they are established; and (5) To provide a contractual framework wherein some stability of conditions can be relied upon for long-term financing purposes. Section 4. Definition of Terms. – As used in this Act, the following terms shall be understood, applied and construed as follows: (1) "Hydroelectric power" shall refer to the electric power produced by utilizing the kinetic energy of falling or running water to turn a turbine generator; (2) "Mini-hydroelectric power plant" shall refer to an electricpower-generating plant which: (a) utilizes the kinetic energy of falling or running water (run-of-river hydro plants) to turn a turbine generator producing electricity; and (c) has an installed capacity of not less than 101 kilowatts nor more than 10,000 kilowatts. (3) "Mini-hydroelectric power development" shall refer to the construction and installation of a hydroelectric- powergenerating plant and its auxiliary facilities such as transmission, substation and machine shop with an installed capacity of not less that 101 kilowatts nor more than 10,000 kilowatts; (4) "Mini-hydroelectric power developer" or "developer" shall refer to any individual, cooperative, corporation or association engaged in the construction and installation of a hydroelectric-power-generating plant with an installed capacity of not less than 101 kilowatts nor more than 10,000 kilowatts; (5) "Domestic use" shall refer to the utilization of water for drinking, washing, bathing, cooking or other household needs, home gardens and watering of lawns or for domestic animals; (6) "Municipal use" shall refer to the utilization of water for supplying the water requirements of the community; and (7) "Irrigation use" shall refer to the utilization of water for producing agricultural crops. Section 5. Agency in Charge. – The Office of Energy Affairs, hereinafter referred to as the OEA, shall be the sole and exclusive authority responsible for the regulation, promotion and administration of mini-hydroelectric power development and the implementation of the provisions of this Act. Section 6. Powers and Duties of the OEA. – The OEA shall exercise the following powers and duties: (1) Within six (6) months from approval of this Act, promulgate, in consultation with the National Water Resources Board (NWRB), such rules and regulations as may be necessary for the proper implementation and administration of this Act; (2) Process and approve applications for mini-hydroelectric power development, imposing such terms and conditions as it may deem necessary to promote the objectives of this Act, subject to the following standards, namely: (a) The applicant must be a citizen of the Philippines or a corporation, partnership, association or joint stock company, constituted and organized under the laws of the Philippines, at least sixty percent (60%) of the stock or paid-up capital of which belongs to citizens of the Philippines; (b) The applicant must prove that the operation of the proposed mini-hydroelectric project and the authorization to do business will promote the public interest in a proper and suitable manner and, for this purpose, within six (6) months from approval of this Act, formulate, in consultation with the National Economic and Development Authority (NEDA), the National Electrification Administration (NEA), and the Department of Trade and Industry (DTI), standards to measure the technical and financial capability of the developer; and (c) The applicant must be financially capable of undertaking the proposed mini-hydroelectric project and meeting the responsibilities incident to its operations; (3) Charge reasonable fees in connection with the filing, processing, evaluation, and approval of applications for minihydroelectric power development in all suitable sites in the country;

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(4) Exclusive authority to issue permits and licenses relative to mini-hydroelectric power development; (5) Require the developer to post a bond or other guarantee of sufficient amount in favor of the Government and with surety or sureties satisfactory to the OEA upon the faithful performance by the contractor of any or all of the obligations under and pursuant to the contract within sixty (60) days after the effective date of the contract; and (6) Generally, exercise all the powers necessary or incidental to attain the purposes of this Act and other laws vesting additional powers on the OEA. Section 7. Sale of Power. – The mini-hydroelectric power developer must first offer to sell electric power to either the National Power Corporation (NPC), franchised private electric utilities or electric cooperatives at a price per kilowatt-hour based on the NPC's or the utility's avoided cost which shall refer to the costs of the affected grids had NPC generated the equivalent electric power itself before disposing the power to third parties. The NPC shall allow the mini-hydroelectric developer to deliver its generated electricity to the developer's customers through existing NPC lines so as to serve such third parties under terms which are to be mutually agreed upon or, if no agreement can be reached, under terms set by the OEA. Section 8. Non-exclusive Development. – Development of less than fifty percent (50%) of the hydroelectric power potential of the proposed site shall be non-exclusive. The OEA, after a thorough review and evaluation of its technical and economic viability, may grant the development of the site to its full power potential to any qualified developer: provided, that first option shall be given to the original developer: provided, further, that in case the original developer forfeits his option to pursue development of the hydroelectric power resource to its full potential, it shall be reimbursed by the successor-developer of the value of its investment based on the declared value of the development for real estate tax purposes over the immediately preceding three (3) years or, in case the declared value over said period differs, on the average value thereof. Section 9. Mandatory Restoration Work. – In all cases where the proposed mini-hydroelectric power development entails the closure or stoppage of existing water outlets, passageways, connections, conduits, apertures or the like from the water source, it shall be mandatory for the developer to restore or reengineer such water outlets, passageways, connections, conduits, apertures or the like on its account or expense, and in such manner that existing users or appropriators shall not be permanently deprived of their use or appropriation. Section 10. Tax Incentives. – Any person, natural or judicial, authorized to engage in mini-hydroelectric power development shall be granted the following tax incentives or privileges: (1) Special Privilege Tax Rates. – The tax payable by grantees to develop potential sites for hydroelectric power and to generate, transmit and sell electric power shall be two percent (2%) of their gross receipts from the sale of electric power and from transactions incident to the generation, transmission and sale of electric power. Such privilege tax shall be made payable to the Commissioner of Internal Revenue or his duly authorized representative on or before the 20th day of the month following the end of each calendar or fiscal quarter; (2) Tax and Duty-free Importation of Machinery, Equipment and Materials. – Within seven (7) years from the date of award, importation of machinery and equipment, materials and parts shipped with such machinery and equipment including control and communication equipment shall not be subject to tariff duties and value-added tax: provided, that the said machinery, equipment, materials and parts: (a) are not manufactured domestically in reasonable quantity and quality at reasonable prices; (b) are directly and actually needed and will be used exclusively in the construction and impounding of water, transformation into energy, and transmission of electric energy to the point of use; and (c) are covered by shipping 19 | P r o j e c t Development_Cha Mendoza

documents in the name of the duly registered developer to whom the shipment will be directly delivered by customs authorities: provided, further, that prior approval of the OEA was obtained before the importation of such machinery, equipment, materials and parts was made; (3) Tax Credit on Domestic Capital Equipment. – A tax credit equivalent to one hundred percent (100%) of the value of the value-added tax and customs duties that would have been paid on the machinery, equipment, materials and parts had these items been imported shall be given to an awardeedeveloper who purchases machinery, equipment, materials and parts from a domestic manufacturer: provided, that such machinery, equipment, materials and parts are directly needed and will be used exclusively by the awardeedeveloper: provided, further, that prior approval by the OEA was obtained by the local manufacturer: provided, finally, that the sale of such machinery, equipment, materials and parts shall be made within seven (7) years from the date of award; (4) Special Realty Tax Rates on Equipment and Machinery. – Any provision of the Real Property Tax Code or any other law to the contrary notwithstanding, realty and other taxes on civil works, equipment, machinery and other improvements of a registered mini-hydroelectric power developer shall not exceed two and a half percent (2.5%) of their original cost; (5) Value-added Tax Exemption. – Exemption from the ten percent (10%) value-added tax on the gross receipts derived from the sale of electric power whether through the NPC grid or through existing electric utility lines; and (6) Income Tax Holiday. – For seven (7) years from the start of commercial operation, a registered mini-hydroelectric power developer shall be fully exempt from income taxes levied by the National Government. Section 11. Disposition and Allotment of Special Privilege Taxes. – If the mini-hydroelectric power development is located in a city, sixty percent (60%) of the special privilege taxes collected shall accrue to the city and forty percent (40%) to the National Government. If the mini-hydroelectric power development is located in a municipality, thirty percent (30%) of the special privilege taxes collected shall accrue to the municipality, thirty percent (30%) to the province and forty percent (40%) to the National Government. Section 12. Term of Contract. – The term of contract shall be for a period of twenty-five (25) years extendible for another twenty-five (25) years under the same original terms and conditions: provided, that said awardee has complied faithfully with all terms and conditions of the award. Section 13. Official Development Assistance. – The provision of Executive Order No. 230 of 1986, on the power of the NEDA Board, and rules and regulations governing the evaluation and authorization for the availment of Official Development Assistance notwithstanding, the privatization of the mini-hydroelectric power plants as provided for in this Act shall be eligible for foreign loans and grants without further evaluation by the NEDA Board, subject to Section 21, Article XII of the Constitution. Section 14. Reporting Requirements. – The OEA shall submit an annual report to the Congress of the Philippines with respect to the implementation of this Act. Section 15. Repealing Clause. – All laws, decrees, executive orders, rules and regulations, or parts thereof, inconsistent with this Act are hereby repealed, amended or modified accordingly. Section 16. Effectivity. – This Act shall take effect fifteen (15) days after its publication in at least two (2) newspapers of general circulation. Approved: September 12, 1991. Pasted from <http://www.lawphil.net/statutes/repacts/ra1991/ra_7156_199 1.html>

EXECUTIVE ORDER NO. 462 EXECUTIVE ORDER NO. 462 May 17, 1991 DEVOLVING TO THE AUTONOMOUS REGIONAL GOVERNMENT OF THE AUTONOMOUS REGION IN MUSLIM MINDANAO THE POWERS AND FUNCTIONS OF THE OFFICE FOR SOUTHERN CULTURAL COMMUNITIES, THE CONTROL AND SUPERVISION OVER ITS OFFICES IN THE REGION AND FOR OTHER PURPOSES WHEREAS, Section 15, Article XV of Republic Act No. 6734 provides that "The Regional Government shall recognize, respect, protect, preserve, revive, develop, promote and enhance the culture, customs, traditions, beliefs and practices of the people in the area of autonomy and shall encourage and undertake the recovery, collection, collation, and restoration of historical and cultural properties for posterity;" WHEREAS, the Oversight Committee created under the said Act recommends that the Autonomous Regional Government must take charge of the promotion of its cultural heritage in keeping with the spirit of autonomy; NOW, THEREFORE, I, CORAZON C. AQUINO, President of the Philippines, by virtue of the powers vested in me by law, do hereby order: Sec. 1. Transfer of Powers and Functions of the Office for Southern Cultural Communities (OSCC). The following functions of the Office for Southern Cultural Communities (OSCC) under Executive Order No. 122-C, series of 1987, are hereby transferred to the Autonomous Regional Government (ARG): a. Formulation, coordination, implementation, and monitoring of policies, plans, programs and projects affecting the southern cultural communities within the Autonomous Region for Muslim Mindanao (ARMM); serve as the link between the Regional Governor and agencies; public or private, internal or external; involved in such programs and projects; and recommend such affirmative actions as may be necessary of their efficient and effective implementation; b. Undertake and coordinate development programs and projects for the advancement of southern cultural communities, including designing, implementing and maintaining settlements in the ARMM; c. Provide mechanism through which the southern cultural communities within the ARMM can seek the ARG assistance and through which such assistance may be extended to them; d. Serve as the custodian and administrator in charge of all existing OSCC settlements within the ARMM, subdivisions, allocations and distribution of public lands and those which shall for the southern cultural communities including ancestral lands as provided by law; e. Enter, subject to existing laws, policies and guidelines, into such contracts, agreements, or arrangements, with government or private agencies or entities as may be necessary to attain the objectives of the ARMM, including obtaining loans from lending institutions; f. Accept grants, donations, gifts, funds, and/or properties in whatever form and from whatever source, for the benefits of the southern cultural communities within the ARMM, and administer the same in accordance with the terms thereof, or in the absence of any condition, in such manner as may be consistent with the interest of southern cultural communities in ARMM as well as any existing laws; g. Undertake studies, formulate policies and plans and implement programs and projects for the preservation and development of the historical and cultural heritage of southern cultural communities within the ARMM as well as establish and maintain ethnographic research centers and museums on the culture and institution of the southern cultural communities in the ARMM as may be necessary; h. Coordinate the enforcement of policies and laws protecting the rights of the southern cultural communities to their ancestral lands, including the applications of customary laws governing property rights and relations, in determining the ownership and extent of ancestral lands, subject to procedures and standards established by the legislature or any other duly constituted authority and for this purpose, 20 | P r o j e c t Development_Cha Mendoza

enlist the assistance of appropriate government agencies, including those concerned with law enforcement; i. Acquire, lease or own such properties or assets in whatever form as may be necessary and sell or otherwise dispose of the same and serve as the custodian or administrator of such lands or areas and other properties or assets as the ARG may reserve for the benefit of the southern cultural communities in the ARMM; j. Conduct inspections or surveys jointly with other appropriate agencies, and issue necessary certifications prior to the grant of any license, lease or permit for the exploitation of natural resources affecting the interests of the southern cultural communities in the ARMM; k. Provide legal and technical services for the survey, adjudication, titling and development of tribal ancestral lands as well as settlements proclaimed by the government for the southern cultural communities within the ARMM; l. Provide medical assistance and health programs in coordination with the Department of Health; m. Coordinate the formulation, design, integration and the implementation, where applicable, of development plans which will assist members of the southern cultural communities in the ARMM in developing their ancestral lands with respect to contiguous areas occupied by members thereof, incorporating therein livelihood programs and ecological or environmental protection for traditional tribal domains, tribal hunting grounds and sacred ancestral places or tribal cultural assets; n. Assist, promote and support community schools, both formal and non-formal for the benefit of members of the southern cultural communities, incorporating therein the cultural values of the beneficiary communities consistent with the Filipino values of good citizenship and love of country, preferably in areas where existing educational facilities are not accessible to members of the southern cultural communities in the ARMM, in coordination with the Department of Education, Culture and Sports; o. Encourage trade fairs and market centers to serve as outlets for the agricultural and handicraft products of the southern cultural communities; support the establishment of other marketing assistance and credit facilities for the promotion of trade and entrepreneurship among southern cultural communities in the ARMM; p. Promote peace and harmony within, between and among the southern cultural communities by acting as mediator and encouraging the peaceful settlement of tribal disputes in accordance with prevailing customary laws of each particular tribe; for such purpose, shall codify the customary laws of each particular tribe, specially those on the conduct of adjudication councils; q. Recommend appropriate legislative proposals intended to promote the interests of the cultural communities within the ARMM; r. Certify, whenever appropriate, membership of persons belonging to the southern cultural communities in the ARMM for purposes of establishing qualifications for specific requirements of government and private agencies and for other benefits as may be provided by law; and s. Perform such other functions as may be provided by law. Sec. 2. Transfer of Programs and Projects. The programs and projects of the OSCC located in the provinces of the ARMM shall be turned over to the Autonomous Regional Government Subject to the usual government accounting and auditing rules and procedures. Sec. 3. Personnel and Administration. (1) All plantilla positions (filled and unfilled) of the OSCC effectively assigned or with the provinces of the ARMM as their official station shall be placed immediately under the control and supervision of the ARG. (2) All personnel of the OSCC who are absorbed by the ARG shall retain their seniority rights, compensation and other benefits as provided under Section 2, Article XIX of Republic Act No. 6743.

(3) Personnel who decline to transfer or be absorbed by the ARG shall have the following options as outlined by the Civil Service Commission: a. Retirement, if eligible; b. Absorption by their line department in another office or region subject to the availability of positions and at management's discretion; c. Transfer to another department subject to the availability of position; or d. Voluntary resignation. Sec. 4. Assets, Equipment and Properties. The field offices and sub-field offices of the OSCC shall be transferred to the ARG, subject to the provisions of law, pertinent issuances and other rules and regulations. Sec. 5. Budget. All outstanding budget balances duly appropriated for the operations of the OSCC in the provinces of ARMM for the current fiscal year as of the date of transfer shall be turned over to the ARG. Sec. 6. Date of Transfer. The date of transfer shall be set one month after the date of effectivity of this Executive Order. Sec. 7. Separability Clause. If, for any reason, any part or provision of this Executive Order shall be held unconstitutional or declared contrary to law, other parts or provisions hereof which are not affected thereby shall continue to be in full force and effect. Sec. 8. Effectivity. This Executive Order shall take effect fifteen (15) days after publication in a newspaper of general circulation and one (1) local newspaper of general circulation in the ARMM. DONE in the City of Manila, this 17th day of May, in the year of Our Lord, nineteen hundred and ninety-one. Pasted from <http://www.lawphil.net/executive/execord/eo1991/eo_462_1 991.html>

of Disabled Persons by virtue of Executive Order No. 123 dated January 1987; WHEREAS, the structural and functional reorganization of the National Council for the Welfare of Disabled Persons is deemed necessary for effective and efficient delivery of services to persons with disabilities; NOW, THEREFORE, I, CORAZON, C. AQUINO, President of the Philippines, by virtue of the powers vested in me by the sovereign will of the Filipino people and the Constitution, do hereby order: Sec. 1. Title. This Executive Order shall otherwise be known as the Reorganization Act of the former National Commission Concerning Disable Persons (NC P) not known as the National Council for the Welfare of Disabled Persons (NCWDP) as provided for under Executive Order No. 123 and attached to the Department of Social Welfare and Development. Sec. 2. Declaration of Policy. The State's paramount concern for the welfare of the disabled persons as embodied in several provisions of the 1987 Constitution of the Philippines is hereby affirmed. Sec. 3. Objectives of the Council. Th Pasted from <http://www.lawphil.net/executive/execord/eo1987/eo_232_1 987.html>

ADMINISTRATIVE ORDER NO. 10, MAY 26, 2001, OFFICE OF THE PRESIDENT ADMINISTRATIVE ORDER NO. 10 - CREATING AN INTERAGENCY COMMITTEE TO REVIEW ALL CONTRACTS ENTERED INTO BY NPC PURSUANT TO REPUBLIC ACT NO. 6957 AS AMENDED, OTHERWISE KNOW AS THE BUILD-OPERATE-TRANSFER (BOT) LAW Whereas, the National Power Corporation (NPC), in response to the energy crisis has entered into take-orpay contracts or arrangements of similar nature with Independent Power Producers (IPPs) / Facility Operators pursuant to the BOT Law. Whereas, these take-or-pay contracts between NPC and the IPPs/Facility Operators are perceived to contain onerous provisions grossly disadvantageous to the government that engendered high electricity rates; Whereas, the obligations arising from these take-orpay contracts far exceeded NPC's ability to pay, due to its assumption of currency and market risks; Whereas, these obligations further accumulated and remained unrecovered resulting into stranded contracted costs of NPC; Whereas, NPC, saddled with these stranded contracted costs is currently suffering substantial financial losses, which if unabated shall cause its financial collapse; Whereas, in order to mitigate high electricity rates, stranded contracted costs and save NPC from financial hemorrhage, there is the urgent need to review all contracts of NPC entered into with IPPs/Facility Operators with the end in view of renegotiating the same. NOW, THEREFORE, I GLORIA MACAPAGAL-ARROYO, President of the Republic of the Philippines, by virtue of the powers vested in me by law, do hereby order; SECTION 1. Creation of an Inter-Agency Committee

EXECUTIVE ORDER NO. 232 ???? EXECUTIVE ORDER NO. 232 July 22, 1987 PROVIDING FOR THE STRUCTURAL AND FUNCTIONAL REORGANIZATION OF THE NATIONAL COUNCIL FOR THE WELFARE OF THE DISABLED PERSONS AND FOR OTHER PURPOSES WHEREAS, the national government recognizes its responsibility to provide disabled persons with the fullest measure of protection and assistance to help develop their abilities in all fields of endeavor and to promote their integration into the mainstream of society, as well as its primary duty for the prevention of disabilities; WHEREAS, the national government is also cognizant of the limitations of the existing system for delivery of services to persons with disabilities and the need to extend the ranges of disability prevention and rehabilitation services; WHEREAS, there is an increasing awareness in the government and private sectors on the problems of disability of their joint responsibility to be involved in the national effort to seek solutions to the problems; WHEREAS, the national leadership notes, with great concern, that in the pursuit of this responsibility, there has been a proliferation of activities and programs for the welfare of persons with disabilities by government agencies and private organizations and that for lack of central direction and coordination, there is widespread overlapping and duplication of efforts, thereby resulting in the wastage of scarce resources and professional services and impairing the achievement of definite goals; WHEREAS, the National Commission Concerning Disable Persons was created on 11 June 1978 by virtue of Presidential Decree No. 1509 as amended; WHEREAS, the National Commission Concerning Disabled Persons was replaced by the National Council for the Welfare

An Inter-Agency Committee ("the Committee") is hereby created to review all contracts entered into by

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the National Power Corporation pursuant to Republic Act No. 6957 as amended, otherwise known as the Build-Operate-Transfer (BOT) Law with IPPs/Facility Operators. SECTION 2. Formation/Composition

R.A. NO. 8975, PROHIBITING INJUNCTIONS AND TROS REPUBLIC ACT NO. 8975 November 7, 2000 AN ACT TO ENSURE THE EXPEDITIOUS IMPLEMENTATION AND COMPLETION OF GOVERNMENT INFRASTRUCTURE PROJECTS BY PROHIBITING LOWER COURTS FROM ISSUING TEMPORARY RESTRANING ORDERS. PRELIMINARY INJUNCTIONS OR PRELIMINARY MANDATORY INJUNCTIONS, PROVIDING PENALTIES FOR VIOLATIONS THEREOF, AND FOR OTHER PURPOSES. Be it enacted by the Senate and House of Representatives of the Philippines Congress assembled: Section 1. Declaration of Policy. - Article XII, Section 6 of the Constitution states that the use of property bears a social function, and all economic agents shall contribute to the common good. Towards this end, the State shall ensure the expeditious and efficient implementation and completion of government infrastructure projects to avoid unnecessary increase in construction, maintenance and/or repair costs and to immediately enjoy the social and economic benefits therefrom. Section 2. Definition of Terms. – (a) National government projects" shall refer to all current and future national government infrastructure, engineering works and service contracts, including projects undertaken by government-owned and –controlled corporations, all projects covered by Republic Act No. 6957, as amended by Republic Act No. 7718, otherwise known as the Build-Operate-andTransfer Law, and other related and necessary activities such as site acquisition, supply and/or installation of equipment and materials, implementation, construction, completion, operation, maintenance, improvement, repair and rehabilitation, regardless of the source of funding. (b) "Service contracts" shall refer to infrastructure contracts entered into by any department, office or agency of the national government with private entities and nongovernment organizations for services related or incidental to the functions and operations of the department, office or agency concerned. Section 3. Prohibition on the Issuance of Temporary Restraining Orders, Preliminary Mandatory Injunctions. – No court, except the Supreme Court, shall issue any temporary restraining order, preliminary injunction or preliminary mandatory injunction against the government, or any of its subdivisions, officials or any person or entity, whether public or private acting under the government direction, to restrain, prohibit or compel the following acts: (a) Acquisition, clearance and development of the right-of-way and/or site or location of any national government project; (b) Bidding or awarding of contract/ project of the national government as defined under Section 2 hereof; (c) Commencement prosecution, execution, implementation, operation of any such contract or project;1awphil.net™ (d) Termination or rescission of any such contract/project; and (e) The undertaking or authorization of any other lawful activity necessary for such contract/project. This prohibition shall apply in all cases, disputes or controversies instituted by a private party, including but not limited to cases filed by bidders or those claiming to have rights through such bidders involving such contract/project. This prohibition shall not apply when the matter is of extreme urgency involving a constitutional issue, such that unless a temporary restraining order is issued, grave injustice and irreparable injury will arise. The applicant shall file a bond, in an amount to be fixed by the court, which bond shall accrue in favor of the government if the court should finally decide that the applicant was not entitled to the relief sought. In after due hearing the court finds that the award of the contract is null and void, the court may, if appropriate under the circumstances, award the contract to the qualified and winning bidder or order a rebidding of the same, without prejudice to any liability that the guilty party may incur under existing laws.

The Committee shall be composed of the representatives from the Department of Finance, Department of Energy, Department of Justice, the National Economic Development Authority and the private sector to be appointed by the President. The representative of the National Economic Development Authority shall act as chair of the Committee with the other departments as members thereof. The National Power Corporation shall act as the Secretariat of the Committee and provide necessary information, data, documentation, resource persons to fully enable the Committee to perform its functions. The Committee shall immediately convene upon effectivity of this Administrative Order and shall have a life of six months from the creation thereof, extendible to a reasonable period upon recommendation of the Committee and approval of the Office of the president. SECTION 3. Functions

The Committee shall have the following functions: 1. Conduct a review of all contracts into by NPC pursuant to the BOT Law and identify, among others, contractual provisions that affect electricity rates, relate to stranded contracted costs, require assumption of risks by NPC. 2. Recommend measures that will mitigate NPC's stranded contracted costs, electricity rates and assumption of risks by NPC. 3. Identify the areas of renegotiations with the Independent Power Producers/Facility Operators. 4. Formulate strategies, alternatives and options for renegotiations of NPC's contracts with IPPs/Facility Operators 5. Direct NPC management to renegotiate its take-orpay contracts with the IPPs based on the Committee's findings and recommendations. 6. Submit a final report on the results of such renegotiations, to the Office of the President within six months from the time of the Committee's creation 7. Perform other functions as may be necessary and appropriate to achieve its objectives. SECTION 4. Effectivity

This Executive Order shall take effect immediately DONE in the City of Manila, this 26th day of May, in the Year of our LORD, Two Thousand and One. Pasted from <http://www.chanrobles.com/administrativeorders/administrat iveorderno10%202001.html>

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Section 4. Nullity of Writs and Orders. – Any temporary restraining order, preliminary injunction or preliminary mandatory injunction issued in violation of Section 3 hereof is void and of no force and effect. Section 5. Designation of Regional Trial Courts. - The Supreme Court may designate regional trial courts to act as commissioners with the sole function of receiving facts of the case involving acquisition clearance and development of right-of-way for government infrastructure projects. The designated regional trial court shall within thirty (30) days from the date of receipt of the referral, forwards its findings of facts to the Supreme Court for appropriate action. Section 6. Penal Sanction. – In addition to any civil and criminal liabilities he or she may incur under existing laws, any judge who shall issue a temporary restraining order, preliminary injunction or preliminary mandatory injunction in violation of Section 3 hereof, shall suffer the penalty of suspension of at least sixty (60) days without pay. Section 7. Issuance of Permits. – Upon payment in cash of the necessary fees levied under Republic Act No. 7160, as amended, otherwise known as the Local Government Code of 1991, the governor of the province or mayor of a highlyurbanized city shall immediately issue the necessary permit to extract sand, gravel and other quarry resources needed in government projects. The issuance of said permit shall consider environmental laws, land use ordinances and the pertinent provisions of the Local Government Code relating to environment. Section 8. Separability Clause. - If any provision of this Act is declared unconstitutional or invalid, other parts or provisions hereof not affected thereby shall continue to be of full force and effect. Section 9. Repealing Clause. - All laws, decrees, including Presidential Decree No. 605, 1818 and Republic Act No. 7160, as amended, orders, rules and regulations or parts thereof inconsistent with this Act are hereby repealed or amended accordingly. Section 10. Effectivity Clause. – This Act shall take effect fifteen (15) days following its publication in at least two (2) newspapers of general circulation. Approved: November 7, 2000 Pasted from <http://www.lawphil.net/statutes/repacts/ra2000/ra_8975_200 0.html>

QUEZON POWER PLANT The Quezon Power Limited Company (QPL) facility is the first build-own-operate power project in the Philippines, and the first one in the country to be financed without government or sovereign guarantees. Quezon Power occupies 87 hectares in the municipality of Mauban, Quezon Province with a 31kilometer transmission line that links into the national transmission network. It supports the national energy planning efforts by diversifying the country's fuel mix for electricity generation, expanding electric services to developing areas, and stabilizing the electricity distribution system in eastern Luzon. Quezon Power, a partnership consisting of InterGen, Ogden Energy Group, Global Power Investments, and PMR Limited, was financed with approximately $809 million in debt and equity including political risk guarantees of $405 million from the U.S. Export-Import bank. In June of 1997, the project issued $215 million of S.E.C. registered bonds. Pasted from <http://wikimapia.org/1121815/Quezon-PowerPlant>

IMPSA In Haste, Arroyo Government Approves Controversial IMPSA Deal by LUZ RIMBAN FOUR DAYS after it assumed office, the government of President Gloria Macapagal-Arroyo gave the final approval to the most controversial power project in the country: a $470million hydroelectric power contract that was awarded to the Argentine firm IMPSA (Industrias Metalurgicas Pescarmona Sociedad Anonima). For eight years, the project to rehabilitate and operate the 750-megawatt Caliraya-Botocan-Kalayaan (CBK) power complex in Laguna was in limbo because various state agencies and rival private companies objected to what they said was the favorable treatment IMPSA was seeking from the government. But in an opinion dated January 24, Justice Secretary Hernando Perez, who was then just two days in his post, set aside these objections and removed the legal obstacles to the turnover of the CBK complex to the Argentine firm. Two weeks later, on February 7, the government-owned National Power Corporation (NPC) formally handed to IMPSA the most strategic power facility in Luzon. The CBK complex is the heart of the Luzon grid. It acts as the grid's regulator, able to transmit power to other plants in the grid in the event of breakdowns. It is also fuelled by water drawn from the Laguna de Bay and the Caliraya and Lumot lakes, a cheap and environmentally safe source of energy. The haste with which the turnover was made under an administration that had barely warmed its seat has raised eyebrows in the power sector. It has also focused attention on the role played in the IMPSA saga of two well-connected individuals who have helped steer the Argentine company through the rough waters of three administrations: Mark Jimenez, a former trusted crony of ousted President Joseph Estrada, and Carlos Villa Abrille, a half-Argentine businessman who has been Philippine ambassador to Buenos Aires since the time of former President Fidel Ramos. It was Villa Abrille who was helping iron out the kinks in the IMPSA deal up to the last days of the Estrada administration. Three days before the president was ousted, businessmen close to him said, the ambassador was in Estrada's Greenhills mansion, seeking Malacañang's help in getting a justice department opinion favoring IMPSA. On January 20, the day Estrada left the presidential palace, Villa Abrille was seen by at least two businessmen at Linden Suites, which Arroyo used as a temporary headquarters during the revolt. Four days later, the opinion that IMPSA wanted was on the new justice secretary's desk. IMPSA-Asia President Francisco Ruben Valenti said he met with Perez at the latter's office on the same day and gave him a briefing on the history of the CBK project. In those days, Perez was busy issuing hold departure orders against Estrada cronies yet he found time for Valenti. But Perez, in an interview, flatly denied he had met with Valenti or other IMPSA officials on the CBK project. He said it was not Valenti, but NPC officials-whose names Perez could not remember-who pestered him to sign the opinion. On January 26, newspapers reported that Jimenez saw Perez and offered to testify against Estrada. But the justice secretary said the Jimenez affidavit does not make any mention of the IMPSA deal. Yet on January 18, a newspaper article said former finance secretary Edgardo Espiritu had cited "the IMPSA power plant project, supposedly involving Mark Jimenez, as the first among many allegedly anomalous transactions." The IMPSA case, which dates back to 1993, shows the lack of transparency in the awarding of multibillion-peso government contracts. It also reveals the opportunities for brokering and deal making that arise from the privatization of the potentially lucrative power sector. The case of IMPSA has been the most publicized, but similar questions have been raised about other power plant contracts, including the one involving the rehabilitation of the

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Binga hydroelectric power plant in Benguet. What these cases have in common is the connections private companies make at the highest levels of government to wangle contracts advantageous to them. "There have been unseen hands working on this contract," said Senator Sergio Osmeña, Jr., who has been opposing the IMPSA contract for the past two years. Osmeña, however, is himself identified with the Lopez family, which owns the First Private Power Corp. The Lopezes lost out to IMPSA, even if they, too, had their connections in Malacañang. "That's the difficulty with business in this country, it's not a level playing field," said a businessman familiar with the IMPSA case and who has brokered deals between government and private firms since the Marcos era. The scramble for CBK began during the Ramos presidency, when the power crisis was at its peak and Luzon was suffering from daily outages. Villa Abrille, who had just been appointed ambassador to Argentina, facilitated IMPSA's unsolicited proposal to rehabilitate CBK. At around that time, the Philippine firm International Container Terminal Services, Inc. or ICTSI owned by the family of businessman Enrique Razon won a contract to privatize a port in Argentina. The perception in the business community was that the Argentines and their brokers wanted the CBK contract as a quid pro quo for the ICTSI deal, although both Valenti and Razon deny this. Both however were present when President Ramos visited Argentina, and when then Argentine president Carlos Menem visited Manila. The IMPSA proposal was taken up in both state visits. The proposal, however, was held up by a land dispute in Laguna. It was also challenged by the Lopezes, who wanted to retain their dominance in the power sector. The Lopez firm offered to charge the NPC only 64.5 centavos per kilowatt hour for the electricity the CBK power plants would produce as against IMPSA's original price of P1.80. IMPSA was forced to match the Lopez bid, although it would later charge the NPC a still higher rate of 69 centavos. Questions were also raised over whether a foreign company should be given rights to operate a hydroelectric power plant as the Water Code allows only corporations with at least 60percent Filipino equity to exploit water resources. When Estrada took over, IMPSA found a patron in Mark Jimenez. The businessman, who is wanted in the U.S. for tax fraud and illegal contributions to the 1996 reelection campaign of Bill Clinton, was selling computers in South America in the mid-1990s. He met Villa Abrille in Argentina and was introduced to the ambassador's friends, Valenti and Enrique Pescarmona, owner of IMPSA. When Estrada was elected in 1998, "Jimenez convinced Estrada to do the IMPSA deal," said a businessman who was often in Malacañang at that time. It was also Jimenez, this businessman said, who set up meetings between Valenti and Estrada, and arranged the signing in Malacañang on Nov. 6, 1998 of the BROT (Build-Rehabilitate-Operate-Transfer) contract between IMPSA and the NPC. But Valenti denies any such relationship with Jimenez, saying only that "forces of evil have tried to link Jimenez with CBK." Valenti did admit though that in July 1998, barely a month after Estrada became president, Jimenez approached him offering to help facilitate approval of the CBK Project. It was also around that time when then NPC President Federico Puno sent Valenti a letter listing the three conditions that were thought necessary to protect NPC interests. The most contentious of these was the condition that the government should not give IMPSA a "performance undertaking," a guarantee that the government would assume IMPSA's debts and capital investments in the event the contract is terminated or if the NPC suffers losses, is privatized or dissolved. The absence of a guarantee made it difficult for IMPSA to get financing for the CBK project. IMPSA needed the funds to rehabilitate the power complex, which is composed of three hydroelectric plants in Laguna. The firm, which would invest 24 | P r o j e c t Development_Cha Mendoza

$130 million and borrow $340 million for the project, would then sell the power it generated to the NPC. Its contract guarantees a 12-percent annual return on equity-about $5.6 million a year-for 25 years. In a letter to the finance department on February 12, 1999, Valenti said "distressed financial markets both abroad and in the Philippines" would make it difficult for IMPSA to implement the project without a performance undertaking. Still, a broad range of officials from the NPC, the finance department and the National Economic and Development Authority (NEDA) refused to agree to a performance undertaking because it would violate the amended BOT (Build-Operate-Transfer) law that says unsolicited proposals like IMPSA's cannot be given such guarantees. Then Finance Secretary Edgardo Espiritu said he adamantly refused to sign a performance undertaking, despite Estrada's insistence, lest he be held liable for graft for violating the BOT law. "Ang pumipirma sa (The one who signs the) guarantee is the Department of Finance," he said. "And I talked to (then NEDA chief) Felipe Medalla and told him, 'Philip, this is not what NEDA had approved.' If we're forced to sign this, said Philip, we should both resign." In the end, apparently to appease the President, what Espirtu signed on July 12, 1999 was a vaguely worded document that barely committed the government to honor the project's obligations. In the meantime, the Manila Times published a report that raised questions about the IMPSA project and the firm's insistence on a government guarantee, calling Estrada an "unwitting ninong" to an anomalous contract. Estrada was mad, threatened a P100-million libel suit against the Times and eventually forced its sale to his crony Jimenez in late July 1999. The Times controversy made it all the more difficult for IMPSA to get the guarantee it wanted. In addition, IMPSA failed to meet other obligations set by the NPC, including a $70-million security deposit, which took the Argentine company two years to post even if the deposit was supposed to have been given immediately after the contract was signed in 1998. IMPSA also violated the condition set by NPC that it retain 100-percent equity in the CBK project for the first seven years. Instead, the company brought in the American firm, Edison Mission Energy (EME), which specializes in hydroelectric power plants. The entry of EME diluted IMPSA's equity to 50 percent even before the contract took effect. Valenti, however, insists that the BROT contract allows IMPSA to maintain a minimum of 20-percent equity. Because of possible questions that might be raised about the government guarantee, the new finance secretary, Jose Pardo, hedged signing anything that might be legally questioned. He finally gave in on December 28, 2000, just three weeks before Estrada's fall, when he signed a Government Acknowledgment and Consent Agreement. This document is not a direct government guarantee but it bound the government to honor agreements IMPSA made with its creditors. On January 17 this year, Pardo wrote the justice department a letter asking for a ruling on whether it was valid for him to sign that document. This was because the investment coordinating committee of NEDA, in which the finance department was represented, required approval of the document by the justice department. NEDA and finance department officials knew they were treading on dangerous legal ground. Unless this ruling was made, the contract could not get final government approval. Pardo quickly withdrew his request for a justice department ruling, given the volatile political situation at that time, and because Espiritu had already come out in public identifying the IMPSA deal as an anomalous contract. But the lobbying went on until just a few days before Estrada's fall, when Villa Abrille was paying visits to the Ejercito residence on Polk Street. A few days later, he was seen at Arroyo's headquarters at the Linden Suites in Mandaluyong. What Perez signed soon after he became justice secretary was the document IMPSA had been waiting for. That opinion deviated from the norm: It is not numbered unlike other

justice department rulings, and has not yet been published, reflecting the lack of transparency surrounding its release. After it was issued, 19 banks led by BNP Paribas, the Dai-ichi Kangyo Bank, the Industrial Bank of Japan and Societe Generale agreed to put their money into the CBK project. What could have convinced lenders to invest in the project was a line in the Perez ruling that said "the Republic of the Philippines has validly and effectively consented to the transfer and assignment to the Lenders of all of CBK's rights under the Government Undertaking." Former finance department officials said the statement commits the government to agreements entered into by IMPSA and its creditors. "It's a dangerous statement to make," said a former finance assistant secretary. "It's an additional defense for IMPSA against the NPC. It could put the Republic in a very precarious situation." Perez defended his decision. "There is nothing illegal in the contract," he said, adding that the IMPSA opinion was just one of the standard rulings justice secretaries are made to sign. "To begin with, I didn't know it was controversial… My staff looked into it and if there's any impropriety, it should have been discussed at other levels." Perez was not completely new to the IMPSA controversy. In 1999, he was a partner in the Balgos & Perez Law Office that defended the Manila Times in the libel suit filed by Estrada. In January, Perez conducted the direct examination on Espiritu during Estrada's impeachment trial. The former finance secretary took the witness stand ready to divulge information on the anomalous contracts entered into by Estrada government, among them the IMPSA contract.—with additional reporting by Malou Mangahas Copyright © 2001 All rights reserved. PHILIPPINE CENTER FOR INVESTIGATIVE JOURNALISM Pasted from <http://www.pcij.org/stories/print/power.html>

REPUBLIC ACT NO. 8479 Republic Act No. 8479 February 10, 1998 AN ACT DEREGULATING THE DOWNSTREAM OIL INDUSTRY AND FOR OTHER PURPOSES Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:: CHAPTER I GENERAL PROVISIONS Section 1. Short Title. – This Act shall be known as the "Downstream Oil Industry Deregulation Act of 1998." Section 2. Declaration of Policy. – It shall be the policy of the State to liberalize and deregulate the downstream oil industry in order to ensure a truly competitive market under a regime of fair prices, adequate and continuous supply of environmentally-clean and high-quality petroleum products. To this end, the State shall promote and encourage the entry of new participants in the downstream oil industry, and introduce adequate measures to ensure the attainment of these goals. Section 3. Coverage. –This Act shall apply to all persons or entities engaged in any and all activities of the domestic downstream oil industry, as well as persons or companies directly importing refined petroleum products for their own use. Section 4. Definition of Terms. – For purposes of this Act, the following terms are hereinbelow defined: (a) Basel Convention shall refer to the international accord which governs the trade or movement of hazardous and toxic wastes across borders; (b) Board shall refer to the Energy Regulatory Board; (c) BOI shall refer to the Board of Investments; (d) Crude Oil shall refer to oil in its natural state before the same has been refined or otherwise treated, but excluding water, bottoms, sediments and foreign substances; (e) Dealer shall refer to any person, whether natural or juridical, who is engaged I the marketing and direct selling of 25 | P r o j e c t Development_Cha Mendoza

petroleum products to motorists, end users, and other consumers; (f) DOE shall refer to the Department of Energy; (g) DOJ shall refer to the Department of Justice; (h) Downstream Oil Industry(DOI) or Industry shall refer to the business of importing; exporting, re-exporting, shipping, transporting, processing, refining, storing, distributing, marketing and/or selling crude oil, gasoline, diesel, liquefied petroleum gas (LPG), kerosene, and other petroleum products; (i) Hauler shall refer to any person, whether natural or juridical, engaged in the transport, distribution, hauling, and carriage of petroleum products, whether in bulk or packed form, from the oil companies and independent marketers to the petroleum dealers and other consumers; (j) LPG Distributor shall refer to any person or entity, whether natural or juridical, engaged in exporting, refilling, transporting, marketing, and/or selling of LPG to end users and other consumers; (k) New Industry Participants shall refer to new participants in a particular sub-sector of the downstream oil industry with investments and initial business operations commencing after January 1, 1994; (l) Person shall refer to any person, whether natural or juridical, who is engaged in any activity of the downstream oil industry; (m) Petroleum shall refer to the naturally occurring mixture of compounds of hydrogen and carbon with a small proportion of impurities and shall include any mineral oil, petroleum gas, hydrogen gas, bitumen, asphalt, mineral wax, and all other similar or naturally-associated substances, with the exception of coal, peat, bituminous shale and/or other stratified mineral fuel deposits; (n) Petroleum Products shall refer to products formed in the case of refining crude petroleum through distillation, cracking, solvent refining and chemical treatment coming out as primary stocks from the refinery such as, but not limited to: LPG, naphtha, gasolines, solvents, kerosenes, aviation fuels, diesel oils, fuel oils, waxes and petrolatums, asphalt, bitumens, coke and refinery sludges, or other such refinery petroleum fractions which have not undergone any process or treatment as to produce separate chemically-defined compounds in a pure or commercially pure state and to which various substances may have been added to render them suitable for particular uses: Provided, That the resultant product contains not less than fifty percent (50%) by weight of such petroleum products; (o) Singapore Import Parity(SIP) shall refer to the deemed landed cost of a petroleum product imported from Singapore at a free-on-board price equal to the average Singapore Posting for that product at the time of loading; (p) Singapore Posting shall refer to the price of petroleum products periodically posted by oil refineries in Singapore and reported by independent international publications; and (q) Wholesale Posted Price (WPP) shall refer to the ceiling price of petroleum products set by the Board based on its duly approved automatic pricing formula. CHAPTER II LIBERALIZATION OF THE DOWNSTREAM OIL INDUSTRY AND PROMOTION OF FREE COMPETITION Section 5. Liberalization of the Industry. – Any law to the contrary notwithstanding, any person or entity may import or purchase any quantity of crude oil and petroleum products from a foreign or domestic source, lease or own and operate refineries and other downstream oil facilities and market such crude oil and petroleum products either in a generic name or his or its own trade name, or use the same for his or its own requirement: Provided,That any person who shall engage in any such activity shall give prior notice thereof to the DOE for monitoring purposes: Provided, further, That such notice shall exempt such person or entity from securing certificates of quality, health and safety and environmental clearance from the proper governmental agencies: Provided, furthermore, That such person or entity shall, for monitoring purposes, report to the DOE his or its every

importation/exportation: Provided, finally, That all oil importations shall be in accordance with the Basel Convention. Section 6. Tariff Treatment. – (a) Any law to the contrary notwithstanding and starting with the effectivity of this Act, a single and uniform tariff duty shall be imposed and collected both on imported crude oil and imported refined petroleum products at the rate of three percent (3%): Provided, however, That the President of the Philippines may, in the exercise of his powers, reduce such tariff rate when in his judgment such reduction is warranted, pursuant to Republic Act No. 1937, as amended, otherwise known as the Tariff and Customs Code:Provided, further, That beginning January 1, 2004 or upon implementation of the Uniform Tariff Program under the World Trade Organization and ASEAN Free Trade Area commitments, the tariff rate shall be automatically adjusted to the appropriate level notwithstanding the provisions under this Section. (b) For as long as the National Power Corporation (NPC) enjoys exemptions from taxes and duties on petroleum products used for power generation, the exemption shall apply to purchases through the local refineries and to the importation of fuel oil and diesel. Section 7. Promotion of Fair Trade Practices. – The Department of Trade and Industry (DTI) and DOE shall take all measures to promote fair trade and prevent cartelization, monopolies, combinations in restraint of trade, and any unfair competition in the Industry as defined in Article 186 of the Revised Penal Code, and Articles 168 and 169 of Republic Act No. 8293, otherwise known as the "Intellectual Property Law". The DOE shall continue to encourage certain practices in the industry which continue to encourage certain practices in the Industry which serve the public interest and are intended to achieve efficiency and cost reduction, ensure continuous supply of petroleum products, and enhance environmental protection. These practices may include borrow-and-loan agreements, rationalized depot and manufacturing operations, hospitality agreements, joint tanker and pipeline utilization, and joint actions on spill control and fire prevention. The DOE shall monitor the relationship between the oil companies (refiners and importers) and their dealers, haulers and LPG distributors to help ensure the observance of fair and equitable practices and to ensure the enforcement of existing contracts: Provided, That the DOE shall conciliate and arbitrate any dispute that may arise with respect to the contractual relationship between the oil companies and the dealers, haulers and LPG distributors involving the dealers' mark-up, the freight rate in transporting petroleum products and the margins of LPG distributors for the protection of the public and to prevent ruinous competition: Provided, further, That the arbitration award of the DOE shall be subject to judicial review under existing law. Section 8. Program to Encourage the Entry of New Participants in the Industry. – The DOE, the Department of Foreign Affairs (DFA) and the DTI shall jointly formulate and establish a program that will promote the entry of new participants in the Industry. Such program shall, among others, include a strategic international information campaign to be implemented through selected embassies and consular offices of the Philippines. This program shall commence implementation after three (3) months from the effectivity of this Act. In this regard, the DOE shall provide a "Philippine Downstream Oil Industry Investment Guide" to new industry participants and prospective participants. This guide, shall, among others, contain: (a) An introduction to the Philippine Downstream Oil Industry and the government's unwavering commitment to deregulation; (b) The entry requirements; (c) Information on the benefits and incentives for new industry participants which shall specify: (i) all the incentives and benefits they can enjoy, and (ii) the procedural and substantive requirements needed for entitlement; and 26 | P r o j e c t Development_Cha Mendoza

(d) Such other information the DOE may deem necessary to promote the entry of new participants. Section 9. Incentives for New Investments. – To the extent applicable, persons with new investments as determined by the DOE and registered with the BOI in refining, storage, marketing and distribution of petroleum products, shall be extended the same incentives granted to BOI-registered enterprises engaged in a preferred area of investments pursuant to Executive Order No. 226, otherwise known as the "Omnibus Investments Code of 1987". Such incentives shall include: (1) Income tax holiday; (2) Additional deduction for labor expenses; (3) Minimum tax and duty of three percent (3%) and valueadded 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 longterm loans with low interest rates and to the gasoline training station training and loan fund provided hereunder, to serve as capital for the establishment and operation of gasoline stations. For these purposes, there is hereby established a gasoline station and loan fund with the initial amount of Three hundred million pesos (P 300,000,000.00) to be provided by the Philippine Amusement and Gaming Corporation (PAGCOR) and administered by the DOE under a separate account. Of this amount, two percent (2%) plus any additional funding shall be allocated for he two-fold program; one percent (1%) plus any additional funding shall be set aside for administrative, maintenance, and other operating expenses; ninety-four percent (94%) shall be used exclusively for

lending and financial assistance; the remaining three percent (3%) shall be utilized in accordance with the provisions of Section 26 of this Act: Provided, That the loans to be awarded herein shall be from short- to medium-term with low interest rates; Provided, further, That these loans shall be awarded to qualified persons who are able to comply with the conditions set forth in the next two (2) preceding paragraphs. CHAPTER III ANTI-TRUST SAFEGUARDS, OTHER PROHIBITED ACTS AND REMEDIES Section 11. Anti-Trust Safeguards. – To ensure fair competition and prevent cartels and monopolies in the Industry, the following acts are hereby prohibited: (a) Cartelization which means any agreement, combination or concerted action by refiners, importers and/or dealers, or their representatives, to fix prices, restrict outputs or divide markets, either by products or by areas, or allocate markets, either by products or by areas, in restraint of trade or free competition, including any contractual stipulation which prescribes pricing levels and profit margins; (b) Predatory pricing which means selling or offering to sell any oil product at a price below the seller's or offeror's average variable cost for the purpose of destroying competition, eliminating a competitor or discouraging a potential competitor from entering the market: Provided, however, That pricing below average variable cost in order to match the lower price of the competitor and not for the purpose of destroying competition shall not be deemed predatory pricing. For purposes of this provision, "variable cost" as distinguished from "fixed cost", refers to costs such as utilities or raw materials, which vary as the output increases or decreases and "average variable cost" refers to the sum of all variable costs divided by the number of units of outputs. Any person, including but not limited to the chief operating officer, chief executive officer or chief finance officer of the partnership, corporation or any entity involved, who is found guilty of any of the said prohibited acts shall suffer the penalty of three (3) to seven (7) years imprisonment, and a fine ranging from One million pesos (P 1,000,0000.00) to Two million pesos (P 2,000,000.00). Section 12. Other Prohibited Acts. – To ensure compliance with the provisions of this Act, the refusal to comply with any of the following shall likewise be prohibited: (a) submission of any reportorial requirements; (b) use of clean and safe (environment and worker-benign) technologies; (c) any order or instruction of the DOE Secretary issued in the exercise of his enforcement powers under Section 15 of this Act; and (d) registration of any fuel additive with the DOE prior to its use as an additive. Any person, including but not limited to the chief operating officer or chief executive officer of the partnership, corporation or any entity involved, who is found guilty of any of the said prohibited acts shall suffer the penalty of imprisonment for two (2) years and a fine ranging from Two hundred fifty thousand pesos (P 250,000.00) to Five hundred thousand pesos (P 500,000.00). Section 13. Remedies. – (a) Government Action. – Whenever it is determined by the Joint Task Force created under Section 14 (d) of this Act, there is a threatened or imminent or actual violation of Section 11 of this Act, it shall direct the provincial or city prosecutors having jurisdiction to institute an action to prevent or restrain such violation with the Regional Trial Court of the place where the defendants reside or has his place of business. Pending hearing of the complaint and before final judgment, the court may at any time issue a temporary restraining order or an injunction as shall be deemed just within the premises, under the same conditions and principles as injunctive relief is granted under the Rules of Court. Whenever it is determined by the Joint Task Force that the Government or any of its instrumentalities or agencies, including government-owned or –controlled corporations, shall 27 | P r o j e c t Development_Cha Mendoza

suffer loss or damage in its business or property by reason of violation of Section 11 of this Act, such instrumentality, agency or corporation may file an action to recover damages and the costs of the suit with the Regional Trial Court which has jurisdiction as provided above. (b) Private Complaint. – Any person or entity shall report any violation of Section 11 of this Act to the Joint Task Force. The Joint Task Force shall investigate such reports in aid of which the DOE Secretary may exercise the powers under Section 15 of this Act. The Joint Task Force shall prepare a report embodying its findings and recommendations as a result of any such investigation, and the report shall be made at the discretion of the Joint Task Force. In the event that the Joint Task Force determines that there has been a violation of Section 11 of this Act, the private person or entity shall be entitled to sue for and obtain injunctive relief, as well as damages, in the Regional Trial Court having jurisdiction over any of the parties, under the same conditions and principles as injunctive relief is granted under the Rules of Court. CHAPTER IV POWERS AND FUNCTIONS OF THE DOE AND DOE SECRETARY Section 14. Monitoring. – (a) The DOE shall monitor and publish daily international crude oil prices, as well as follow the movements of domestic oil prices. It shall likewise monitor the quality of petroleum products and stop the operation of businesses involved in the sale of petroleum products which do not comply with the national standards of quality that are aligned with the national standards/protocols of quality. The Bureau of Product Standards of the DTI, together with the Department of Environment and Natural Resources (DENR), the DOE, the Department of Science and Technology (DOST), representatives of the fuel and automotive industries and the consumers, shall set the specifications for all types of fuel and fuel-related products to improve fuel composition for increased efficiency and reduced emissions. The BPS shall also specify the allowable content of additives in all types of fuels and fuel-related products. (b) The DOE shall monitor the refining and manufacturing processes of local petroleum products to ensure that clean and safe (environment and worker-benign) technologies are applied. This shall also apply to the process of marketing local and imported petroleum products. (c) The DOE shall maintain a periodic schedule of present and future total industry inventory of petroleum products for the purpose of determining the level of supply. To implement this, the importers, refiners, and marketers are hereby required to submit monthly to the DOE their actual importations, local purchases, sales and/or consumption, and inventory on a per crude/product basis. (d) Any report from any person of an unreasonable rise in the prices of petroleum products shall be immediately acted upon. For this purpose, the creation of the DOE-DOJ Task Force is hereby mandated to determine within thirty (30) days the merits of the report and initiate the necessary actions warranted under the circumstance:Provided, That nothing herein shall prevent the said task force from investigating and/or filing the necessary complaint with the proper court or agency motu propio. Upon the effectivity of this Act, the Secretaries of Energy and Justice shall jointly appoint the members of a committee who shall be tasked with the drafting of the rules and guidelines to be adopted by the Task Force in the performance of its duty. These guidelines shall ensure the efficiency, promptness, and effectiveness in the handling of its cases. The Task Force shall be organized and its members appointed within one (1) month from the effectivity of this Act. (e) In times of national emergency, when the public interest so requires, the DOE may, during the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any person or entity engaged in the Industry. Section 15. Additional Powers of the DOE Secretary. – In connection with the enforcement of this Act, the DOE Secretary shall have the following powers:

(a) To gather and compile appropriate information concerning, and to investigate from time to time the organization, business, conduct, practices, and management of any person or entity in the Industry; (b) To require, by general or special orders, persons or entities engaged in a particular activity of the industry: (i) to file an annual or special report, or both in such form as the Secretary may prescribe; or (ii) to answer specific questions in writing, furnishing to the Secretary such information as he may require as to the organization, business, conduct, practices, management, and relation to other corporations, partnerships, and individuals of the respective persons or entities filing such reports or answer. Such reports and/or answer shall be filed with the Secretary under oath and within such reasonable time as the Secretary may prescribe; (c) Upon the direction of the President or either House of Congress, to investigate and report the facts relating to any alleged violation of this Act by any person or corporation; (d) Upon the application of the Secretary of Justice, to investigate and make recommendations for the readjustment of the business of any person or entity alleged to be violating this Act in order that such person or entity may thereafter maintain his or its organization, management, and conduct of business in accordance with law; (e) To recommend to the proper government agency the suspension or revocation and termination of the business permit of an offender; (f) Concomitant with the policy of ensuring a continuous, adequate and economic supply of energy to exercise his powers and functions provided under Section 5 (c) of Republic Act No. 7638; (g) To make public from time to time such portions of the information obtained by him hereunder as are in the public interest; and to make annual and special reports to Congress and to submit therewith recommendations for additional legislation; and to provide for the publication of his reports and decisions in such form and manner as may be best adapted for public information and use: Provided, That the Secretary shall have any authority to make public any trade secret or any commercial or financial information which is obtained from any person or entity which is privileged or confidential, except that the Secretary may disclose such information to officers and employees of appropriate law enforcement agencies or to any officer or employee of any such law enforcement agency upon the prior certification by an officer of any such law enforcement agency that such information will be maintained in confidence and will be used only for official law enforcement purposes; and (h) Whenever a final order has been entered against any defendant in any suit brought by the government to prevent and restrain any violation of the anti-trust provisions of this Act to make investigation, upon his initiative, of the manner in which the decree has been or is being carried out, and upon the application of the Secretary of Justice, it shall be his duty to make such investigation. He shall transmit to the Secretary of Justice a report embodying his findings and recommendations as a result of any such investigation, and the report shall be made public at the discretion of the Secretary. CHAPTER V TRANSITION PHASE Section 16. Phases of Deregulation. – In order to provide a smooth implementation of deregulation, the policy shift shall be done in two (2) phases: Phase I (Transition Phase) and Phase II (Full Deregulation Phase). Section 17. Buffer Fund. – The President may, when the interest of the consumers so requires, taking into account the rise in the domestic prices of petroleum products, use the "Reserve Control Account" as a buffer fund in an amount not exceeding Two billion nine hundred million pesos (P 2,900,000,000.00) to cover increases in the prices of petroleum products, except premium gasoline, during the Transition Phase over the prices prevailing as of the date of the effectivity of this Act. The "Reserve Control Account" refers to a lump sum collation of reserve impositions deducted 28 | P r o j e c t Development_Cha Mendoza

from the appropriations approved by Congress for the operation of the government and the implementation of projects and programs. Section 18. Automatic Oil Pricing Mechanism. – To enable the domestic price of petroleum products to approximate and promptly reflect the prices of oil in the international market, an automatic pricing mechanism shall be established. To this end, the following laws are hereby amended: (a) Paragraph (a), Section 8 of Republic Act No. 6173, as amended by Section 3 of Executive Order No. 172, to read as follows: "SEC. 8. Powers of the Board Upon Notice and Hearing. – The Board shall have the power: "(a) To set the wholesale posted price of petroleum products during the Transition Phase. "For this purpose and for the protection of the public interest, the Board shall, after due notice and hearing, at which any consumer of petroleum products and other parties who may be affected may appear and be heard, and within one (1) month after the effectivity of this Act, approve a marketoriented 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 Pasted from <http://www.lawphil.net/statutes/repacts/ra1998/ra_8479_199 8.html> GARCIA VS. CORONA, G.R. NO. 132451. DECEMBER 17, 1999. G.R. No. 132451 December 17, 1999 CONGRESSMAN ENRIQUE T. GARCIA, petitioner, vs. HON. RENATO C. CORONA, in his capacity as the Executive Secretary, HON. FRANCISCO VIRAY, in his capacity as the Secretary of Energy, CALTEX PHILIPPINES INC., PILIPINAS SHELL PETROLEUM CORP. and PETRON CORP., respondents. YNARES-SANTIAGO, J.: On November 5, 1997, this Court in Tatad v. Secretary of the Department of Energy and Lagman, et al., v. Hon.Ruben Torres, et al., 1 declared Republic Act No. 8180, entitled "An Act Deregulating the Downstream Oil Industry and For Other Purposes", unconstitutional, and its implementing Executive Order No. 392 void. R.A. 8180 was struck down as invalid because three key provisions intended to promote free competition were shown to achieve the opposite result. More specifically, this Court ruled that its provisions on tariff differential, stocking of inventories, and predatory pricing inhibit fair competition, encourage monopolistic power, and interfere with the free interaction of the market forces. While R.A. 8180 contained a separability clause, it was declared unconstitutional in its entirety since the three (3) offending provisions so permeated the law that they were so intimately the esse of the law. Thus, the whole statute had to be invalidated. As a result of the Tatad decision, Congress enacted Republic Act No. 8479, a new deregulation law without the offending provisions of the earlier law. Petitioner Enrique T. Garcia, a member of Congress, has now brought this petition seeking to declare Section 19 thereof, which sets the time of full deregulation, unconstitutional. After failing in his attempts to have Congress incorporate in the law the economic theory he espouses, petitioner now asks us, in the name of upholding the Constitution, to undo a violation which he claims Congress has committed. The assailed Section 19 of R.A. 8479 states in full:

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Sec. 19. Start of Full Deregulation. — Full deregulation of the Industry shall start five (5) months following the effectivity of this Act: Provided, however, That when the public interest so requires, the President may accelerate the start of full deregulation upon the recommendation of the DOE and the Department of Finance (DOF) when the prices of crude oil and petroleum products in the world market are declining and the value of the peso in relation to the US dollar is stable, taking into account relevant trends and prospects; Provided, further, That the foregoing provision notwithstanding, the five (5)-month Transition Phase shall continue to apply to LPG, regular gasoline and kerosene as socially-sensitive petroleum products and said petroleum products shall be covered by the automatic pricing mechanism during the said period. Upon the implementation of full deregulation as provided herein, the Transition Phase is deemed terminated and the following laws are repealed: a) Republic Act No. 6173, as amended; b) Section 5 of Executive Order No. 172, as amended; c) Letter of Instruction No. 1431, dated October 15, 1984; d) Letter of Instruction No. 1441, dated November 20, 1984, as amended; e) Letter of Instruction No. 1460, dated May 9, 1985; f) Presidential Decree No. 1889; and g) Presidential Decree No. 1956, as amended by Executive Order No. 137: Provided, however, That in case full deregulation is started by the President in the exercise of the authority provided in this Section, the foregoing laws shall continue to be in force and effect with respect to LPG, regular gasoline and kerosene for the rest of the five (5)-month period. Petitioner contends that Section 19 of R.A. 8479, which prescribes the period for the removal of price control on gasoline and other finished products and for the full deregulation of the local downstream oil industry, is patently contrary to public interest and therefore unconstitutional because within the short span of five months, the market is still dominated and controlled by an oligopoly of the three (3) private respondents, namely, Shell, Caltex and Petron. The objective of the petition is deceptively simple. It states that if the constitutional mandate against monopolies and combinations in restraint of trade 2 is to be obeyed, there should be indefinite and open-ended price controls on gasoline and other oil products for as long as necessary. This will allegedly prevent the "Big 3" — Shell, Caltex and Petron — from price-fixing and overpricing. Petitioner calls the indefinite retention of price controls as "partial deregulation". The grounds relied upon in the petition are: A. Sec. 19 OF R.A. NO. 8479 WHICH PROVIDES FOR FULL DEREGULATION FIVE (5) MONTHS OR EARLIER FOLLOWING THE EFFECTIVITY OF THE LAW, IS GLARINGLY PRO-OLIGOPOLY, ANTI-COMPETITION AND ANTI-PEOPLE, AND IS THEREFORE PATENTLY UNCONSTITUTIONAL FOR BEING IN GROSS AND CYNICAL CONTRAVENTION OF THE CONSTITUTIONAL POLICY AND COMMAND EMBODIED IN ARTCLE XII, SECTION 19 OF THE 1987 CONSTITUTION AGAINST MONOPOLIES AND COMBINATIONS IN RESTRAINT OF TRADE. B. SAID SECTION 19 OF R.A. No. 8479 IS GLARINGLY PROOLIGOPOLY, ANTI-COMPETITION AND ANTI-PEOPLE, FOR THE FURTHER REASON THAT IT PALPABLY AND CYNICALLY VIOLATES THE VERY OBJECTIVE AND PURPOSE OF R.A. NO. 8479, WHICH IS TO ENSURE A 30 | P r o j e c t Development_Cha Mendoza

TRULY COMPETITIVE MARKET UNDER A REGIME OF FAIR PRICES. C. SAID SECTION 19 OF R.A. No. 8479, BEING GLARINGLY PRO-OLIGOPOLY, ANTI-COMPETITION AND ANTIPEOPLE, BEING PATENTLY UNCONSTITUTIONAL AND BEING PALPABLY VIOLATIVE OF THE LAW'S POLICY AND PURPOSE OF ENSURING A TRULY COMPETITIVE MARKET UNDER A REGIME OF FAIR PRICES, IS A VERY GRAVE AND GRIEVOUS ABUSE OF DISCRETION ON THE PART OF THE LEGISLATIVE AND EXECUTIVE BRANCHES OF GOVERNMENT. D. PREMATURE FULL DEREGULATION UNDER SECTION 19 OF R.A. NO. 8479 MAY AND SHOULD THEREFORE BE DECLARED NULL AND VOID EVEN AS THE REST OF ITS PROVISIONS REMAIN IN FORCE, SUCH AS THE TRANSITION PHASE OR PARTIAL DEREGULATION WITH PRICE CONTROLS THAT ENSURES THE PROTECTION OF THE PUBLIC INTEREST BY PREVENTING THE BIG 3 OLIGOPOLY'S PRICE-FIXING AND OVERPRICING. 3 The issues involved in the deregulation of the downstream oil industry are of paramount significance. The ramifications, international and local in scope, are complex. The impact on the nation's economy is pervasive and far-reaching. The amounts involved in the oil business are immense. Fluctuations in the supply and price of oil products have a dramatic effect on economic development and public welfare. As pointed out in the Tatad decision, few cases carry a surpassing importance on the daily life of every Filipino. The issues affect everybody from the poorest wage-earners and their families to the richest entrepreneurs, from industrial giants to humble consumers. Our decision in this case is complicated by the unstable oil prices in the world market. Even as this case is pending, the price of OPEC oil is escalating to record levels. We have to emphasize that our decision has nothing to do with worldwide fluctuations in oil prices and the counter-measures of Government each time a new development takes place. The most important part of deregulation is freedom from price control. Indeed, the free play of market forces through deregulation and when to implement it represent one option to solve the problems of the oilconsuming public. There are other considerations which may be taken into account such as the reduction of taxes on oil products, the reinstitution of an Oil Price Stabilization Fund, the choice between government subsidies taken from the regular taxpaying public on one hand and the increased costs being shouldered only by users of oil products on the other, and most important, the immediate repeal of the oil deregulation law as wrong policy. Petitioner wants the setting of prices to be done by Government instead of being determined by free market forces. His preference is continued price control with no fixed end in sight. A simple glance at the factors surrounding the present problems besetting the oil industry shows that they are economic in nature. R.A. 8479, the present deregulation law, was enacted to implement Article XII, Section 19 of the Constitution which provides: The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed. This is so because the Government believes that deregulation will eventually prevent monopoly. The simplest form of monopoly exists when there is only one seller or producer of a product or service for which there are no substitutes. In its more complex form, monopoly is defined as the joint acquisition or

maintenance by members of a conspiracy, formed for that purpose, of the power to control and dominate trade and commerce in a commodity to such an extent that they are able, as a group, to exclude actual or potential competitors from the field, accompanied with the intention and purpose to exercise such power. 4 Where two or three or a few companies act in concert to control market prices and resultant profits, the monopoly is called an oligopoly or cartel. It is a combination in restraint of trade. The perennial shortage of oil supply in the Philippines is exacerbated by the further fact that the importation, refining, and marketing of this precious commodity are in the hands of a cartel, local but made up of foreignowned corporations. Before the start of deregulation, the three private respondents controlled the entire oil industry in the Philippines. It bears reiterating at the outset that the deregulation of the oil industry is a policy determination of the highest order. It is unquestionably a priority program of Government. The Department of Energy Act of 1992 5 expressly mandates that the development and updating of the existing Philippine energy program "shall include a policy direction towards deregulation of the power and energy industry." Be that as it may, we are not concerned with whether or not there should be deregulation. This is outside our jurisdiction. The judgment on the issue is a settled matter and only Congress can reverse it. Rather, the question that we should address here is — are the method and the manner chosen by Government to accomplish its cherished goal offensive to the Constitution? Is indefinite price control in the manner proposed by petitioner the only feasible and legal way to achieve it? Petitioner has taken upon himself a most challenging task. Unquestionably, the direction towards which the nation's efforts at economic and social upliftment should be addressed is a function of Congress and the President. In the exercise of this function, Congress and the President have obviously determined that speedy deregulation is the answer to the acknowledged dominion by oligopolistic forces of the oil industry. Thus, immediately after R.A. 8180 was declared unconstitutional in the Tatad case, Congress took resolute steps to fashion new legislation towards the objective of the earlier law. Invoking the Constitution, petitioner now wants to slow down the process. While the Court respects the firm resolve displayed by Congress and the President, all departments of Government are equally bound by the sovereign will expressed in the commands of the Constitution. There is a need for utmost care if this Court is to faithfully discharge its duties as arbitral guardian of the Constitution. We cannot encroach on the policy functions of the two other great departments of Government. But neither can we ignore any overstepping of constitutional limitations. Locating the correct balance between legality and policy, constitutional boundaries and freedom of action, and validity and expedition is this Court's dilemma as it resolves the legitimacy of a Government program aimed at giving every Filipino a more secure, fulfilling and abundant life. Our ruling in Tatad is categorical that the Constitution's Article XII, Section 19, is anti-trust in history and spirit. It espouses competition. We have stated that only competition which is fair can release the creative forces of the market. We ruled that the principle which underlies the constitutional provision is competition. Thus: Sec. 19, Article XII of our Constitution is anti-trust in history and in spirit. It espouses competition. The 31 | P r o j e c t Development_Cha Mendoza

desirability of competition is the reason for the prohibition against restraint of trade, the reason for the interdiction of unfair competition, and the reason for regulation of unmitigated monopolies. Competition is thus the underlying principle of section 19, Article XII of our Constitution which cannot be violated by R.A. No. 8180. We subscribe to the observation of Prof. Gellhorn that the objective of anti-trust law is "to assure a competitive economy, based upon the belief that through competition producers will strive to satisfy consumer wants at the lowest price with the sacrifice of the fewest resources. Competition among producers allows consumers to bid for goods and services, and thus matches their desires with society's opportunity costs." He adds with appropriateness that there is a reliance upon "the operation of the "market" system (free enterprise) to decide what shall be produced, how resources shall be allocated in the production process, and to whom the various products will be distributed. The market system relies on the consumer to decide what and how much shall be produced, and on competition, among producers to determine who will manufacture it." 6 In his recital of the antecedent circumstances, petitioner repeats in abbreviated form the factual findings and conclusions which led the Court to declare R.A. 8180 unconstitutional. The foreign oligopoly or cartel formed by respondents Shell, Caltex and Petron, their indulging in price-fixing and overpricing, their blockade tactics which effectively obstructed the entry of genuine competitors, the dangers posed by the oil cartel to national security and economic development, and other prevailing sentiments are stated as axiomatic truths. They are repeated in capsulized context as the current background facts of the present petition. The empirical existence of this deplorable situation was precisely the reason why Congress enacted the oil deregulation law. The evils arising from conspiratorial acts of monopoly are recognized as clear and present. But the enumeration of the evils by our Tatad decision was not for the purpose of justifying continued government control, especially price control. The objective was, rather, the opposite. The evils were emphasized to show the need for free competition in a deregulated industry. And to be sure, the measures to address these evils are for Congress to determine, but they have to meet the test of constitutional validity. The Court respects the legislative finding that deregulation is the policy answer to the problems. It bears stressing that R.A. 8180 was declared invalid not because deregulation is unconstitutional. The law was struck down because, as crafted, three key provisions plainly encouraged the continued existence if not the proliferation of the constitutionally proscribed evils of monopoly and restraint of trade. In sharp contrast, the present petition lacks a factual foundation specifically highlighting the need to declare the challenged provision unconstitutional. There is a dearth of relevant, reliable, and substantial evidence to support petitioner's theory that price control must continue even as Government is trying its best to get out of regulating the oil industry. The facts of the petition are, in the main, a general dissertation on the evils of monopoly. Petitioner overlooks the fact that Congress enacted the deregulation law exactly because of the monopoly evils he mentions in his petition. Congress instituted the lifting of price controls in the belief that free and fair competition was the best remedy against monopoly power. In other words, petitioner's facts are also the reasons why Congress lifted price controls and why the President accelerated the process. The facts adduced in favor of continued and indefinite price control are

the same facts which supported what Congress believes is an exercise of wisdom and discretion when it chose the path of speedy deregulation and rejected Congressman Garcia's economic theory. The petition states that it is using the very thoughts and words of the Court in its Tatad decision. Those thoughts and words, however, were directed against the tariff differential, the inventory requirement, and predatory pricing, not against deregulation as a policy and not against the lifting of price controls. A dramatic, at times expansive and grandiloquent, reiteration of the same background circumstances narrated inTatad does not squarely sustain petitioner's novel thesis that there can be deregulation without lifting price controls. Petitioner may call the industry subject to price controls as deregulated. In enacting the challenged provision, Congress, on the other hand, has declared that any industry whose prices and profits are fixed by government authority remains a highly regulated one. Petitioner, therefore, engages in a legal paradox. He fails to show how there can be deregulation while retaining government price control. Deregulation means the lifting of control, governance and direction through rule or regulation. It means that the regulated industry is freed from the controls, guidance, and restrictions to which it used to be subjected. The use of the word "partial" to qualify deregulation is sugarcoating. Petitioner is really against deregulation at this time. Petitioner states that price control is good. He claims that it was the regulation of the importation of finished oil products which led to the exit of competitors and the consolidation and dominion of the market by an oligopoly, not price control. Congress and the President think otherwise. The argument that price control is not the villain in the intrusion and growth of monopoly appears to be pure theory not validated by experience. There can be no denying the fact that the evils mentioned in the petition arose while there was price control. The dominance of the so-called "Big 3" became entrenched during the regime of price control. More importantly, the ascertainment of the cause and the method of dismantling the oligopoly thus created are a matter of legislative and executive choice. The judicial process is equipped to handle legality but not wisdom of choice and the efficacy of solutions. Petitioner engages in another contradiction when he puts forward what he calls a self-evident truth. He states that a truly competitive market and fair prices cannot be legislated into existence. However, the truly competitive market is not being created or fashioned by the challenged legislation. The market is simply freed from legislative controls and allowed to grow and develop free from government interference. R.A. 8479 actually allows the free play of supply and demand to dictate prices. Petitioner wants a government official or board to continue performing this task. Indefinite and open-ended price control as advocated by petitioner would be to continue a regime of legislated regulation where free competition cannot possibly flourish. Control is the antithesis of competition. To grant the petition would mean that the Government is not keen on allowing a free market to develop. Petitioner's "selfevident truth" thus supports the validity of the provision of law he opposes. New players in the oil industry intervened in this case. According to them, it is the free market policy and atmosphere of deregulation which attracted and brought the new participants, themselves included, into the market. The intervenors express their fear that this Court would overrule legislative policy and replace it with petitioner's own legislative program. 32 | P r o j e c t Development_Cha Mendoza

The factual allegations of the intervenors have not been refuted and we see no reason to doubt them. Their argument that the co-existence of many viable rivals create free market conditions induces competition in product quality and performance and makes available to consumers an expanded range of choices cannot be seriously disputed. On the other hand, the pleadings of public and private respondents both put forth the argument that the challenged provision is a policy decision of Congress and that the wisdom of the provision is outside the authority of this Court to consider. We agree. As we have ruled in Morfe v. Mutuc 7: (I)t is well to remember that this Court, in the language of Justice Laurel, "does not pass upon question or wisdom, justice or expediency of legislation." As expressed by Justice Tuason: "It is not the province of the courts to supervise legislation and keep it within the bounds of propriety and common sense. That is primarily and exclusively a legislative concern." There can be no possible objection then to the observation of Justice Montemayor: "As long as laws do not violate any Constitutional provision, the Courts merely interpret and apply them regardless of whether or not they are wise or salutary." For they, according to Justice Labrador, "are not supposed to override legitimate policy and . . . never inquire into the wisdom of the law." It is thus settled, to paraphrase Chief Justice Concepcion in Gonzales v. Commission on Elections, that only congressional power or competence, not the wisdom of the action taken, may be the basis for declaring a statute invalid. This is as it ought to be: The principle of separation of powers has in the main wisely allocated the respective authority of each department and confined its jurisdiction to such a sphere. There would then be intrusion not allowable under the Constitution if on a matter left to the discretion of a coordinate branch, the judiciary would substitute its own. If there be adherence to the rule of law, as there ought to be, the last offender should be the courts of justice, to which rightly litigants submit their controversy precisely to maintain unimpaired the supremacy of legal norms and prescriptions. The attack on the validity of the challenged provision likewise insofar as there may be objections, even if valid and cogent, on its wisdom cannot be sustained. In this petition, Congressman Garcia seeks to revive the long settled issue of the timeliness of full deregulation, which issue he had earlier submitted to this Court by way of a Partial Motion for Reconsideration in the Tatadcase. In our Resolution dated December 3, 1997, which has long become final and executory, we stated: We shall first resolve petitioner Garcia's linchpin contention that the full deregulation decreed by R.A. No. 8180 to start at the end of March 1997 is unconstitutional. For prescinding from this premise, petitioner suggests that "we simply go back to the transition period, price control will be revived through the automatic pricing mechanism based on Singapore Posted Prices. The Energy Regulatory Board . . . would play a limited and ministerial role of computing the monthly price ceiling of each and every petroleum fuel product, using the automatic pricing formula. While the OPSF would return, this coverage would be limited to monthly price increases in excess of P0.50 per liter. We are not impressed by petitioner Garcia's submission. Petitioner has no basis in condemning as unconstitutional per se the date fixed by Congress for the beginning of the full deregulation of the downstream oil industry. Our Decision merely faulted the Executive for factoring the depletion of OPSF in advancing the date of full deregulation to February

1997. Nonetheless, the error of the Executive is now a non-issue for the full deregulation set by Congress itself at the end of March 1997 has already come to pass. March 1997 is not an arbitrary date. By that date, the transition period has ended and it was expected that the people would have adjusted to the role of market forces in shaping the prices of petroleum and its products. The choice of March 1997 as the date of full deregulation is a judgment of Congress and its judgment call cannot be impugned by this Court. 8 Reduced to its basic arguments, it can be seen that the challenge in this petition is not against the legality of deregulation. Petitioner does not expressly challenge deregulation. The issue, quite simply, is the timeliness or the wisdom of the date when full deregulation should be effective. In this regard, what constitutes reasonable time is not for judicial determination. Reasonable time involves the appraisal of a great variety of relevant conditions, political, social and economic. They are not within the appropriate range of evidence in a court of justice. It would be an extravagant extension of judicial authority to assert judicial notice as the basis for the determination. 9 We repeat that what petitioner decries as unsuccessful is not a final result. It is only a beginning. The Court is not inclined to stifle deregulation as enacted by Congress from its very start. We leave alone the program of deregulation at this stage. Reasonable time will prove the wisdom or folly of the deregulation program for which Congress and not the Court is accountable. Petitioner argues further that the public interest requires price controls while the oligopoly exists, for that is the only way the public can be protected from monopoly or oligopoly pricing. But is indefinite price control the only feasible and legal way to enforce the constitutional mandate against oligopolies? Art. 186 of the Revised Penal Code, as amended, punishes as a felony the creation of monopolies and combinations in restraint of trade. The Solicitor General, on the other hand, cites provisions of R.A. 8479 intended to prevent competition from being corrupted or manipulated. Section 11, entitled "AntiTrust Safeguards", defines and prohibits cartelization and predatory pricing. It penalizes the persons and officers involved with imprisonment of three (3) to seven (7) years and fines ranging from One million to Two million pesos. For this purpose, a Joint Task Force from the Department of Energy and Department of Justice is created under Section 14 to investigate and order the prosecution of violations. Sec. 8 and 9 of the Act, meanwhile, direct the Departments of Foreign Affairs, Trade and Industry, and Energy to undertake strategies, incentives and benefits, including international information campaigns, tax holidays and various other agreements and utilizations, to invite and encourage the entry of new participants. Section 6 provides for uniform tariffs at three percent (3%). Sec. 13 of the Act provides for "Remedies", under which the filing of actions by government prosecutors and the investigation of private complaints by the Task Force is provided. Sections 14 and 15 provide how the Department of Energy shall monitor and prevent the occurrence of collusive pricing in the industry. It can be seen, therefore, that instead of the price controls advocated by the petitioner, Congress has enacted anti-trust measures which it believes will promote free and fair competition. Upon the other hand, the disciplined, determined, consistent and faithful execution of the law is the function of the President. As stated by public respondents, the remedy against unreasonable price increases is not the 33 | P r o j e c t Development_Cha Mendoza

nullification of Section 19 of R.A. 8479 but the setting into motion of its various other provisions. For this Court to declare unconstitutional the key provision around which the law's anti-trust measures are clustered would mean a constitutionally interdicted distrust of the wisdom of Congress and of the determined exercise of executive power. Having decided that deregulation is the policy to follow, Congress and the President have the duty to set up the proper and effective machinery to ensure that it works. This is something which cannot be adjudicated into existence. This Court is only an umpire of last resort whenever the Constitution or a law appears to have been violated. There is no showing of a constitutional violation in this case. WHEREFORE, the petition is DISMISSED. SO ORDERED. Bellosillo, Melo, Puno, Kapunan, Mendoza, Quisumbing, Purisima, Pardo, Buena and De Leon, Jr., JJ., concur. Davide, Jr., C.J., in the result. I also join Mr. Justice Panganiban in his separate opinion. Vitug, J., in the result. Panganiban, J., please see Separate Opinion. Gonzaga-Reyes, J., took no part. Spouse with counsel for intervenors. Separate Opinions PANGANIBAN, J., separate opinion; In essence, deregulation shifts the burden of price control from the government to the "market forces" in order (1) to eliminate government intervention that may "do more harm than good" 1 and (2) to achieve a truly competitive market of fair prices. 2 It is also aimed at removing government abuse and corruption in price-setting. At bottom, deregulation is supposed to provide the best goods and services at the cheapest prices. The policy, however, is not an infallible cure to abuse, for the evil sought to be avoided may well pass on to the market players, particularly when they combine to restrain trade or engage in unfair competition. In the words of Prof. Romulo L. Neri of the Asian Institute of Management, "[t]he marker is motivated by price and profits (and sadly, not by moral values [or public interest]). The market does not automatically supply those who need (no matter how badly they need it) but only those who have the money to buy." 3 The buzz words of the third millennium are "deregulation," "globalization" and "liberalization." Territorial frontiers are virtually erased by these schemes, as goods and services are exchanged across borders unhampered by traditional tariffs, taxes, currency controls, quantitative restrictions and other protective barriers. Thus, states and governments tend to surrender some of their authorities and powers to the "market" and to the renewed energy of laissez faire, such that the threats to civil liberties and human rights, including economic rights, may shift from government abuses to the more bedeviling market forces that transcend boundaries and sovereignties. In developing countries more than in developed ones, such threats are real and ever present. Judicial Review to Checks Abuses This is where the power of judicial review comes in — to examine the legal effects of these new economic paradigms and, in the present controversy, to check whether the present Oil Deregulation Law (RA 8479) restrains rather than promotes free trade, in contravention of the Constitution. True, the President and Congress, not this Court, have the power and the prerogative to determine whether to adopt such market policies and, if so, under what conditions and circumstances. However, all such policies and their ramifications must conform to the Constitution.

Otherwise, this Court has the duty to strike them down, not because they are unwise or inconvenient, but because they are constitutionally impermissible. Doctrinally, policies and acts of the political departments of government may be voided by this Court on either of two grounds — infringement of the Constitution or grave abuse of discretion. 4 An infringement may be proven by demonstrating that the words of the law directly contradict a provision of the fundamental law, or by presenting proof that the law authorizes or enables the respondents to violate the Constitution. Petitioner Garcia's Thesis on Unconstitutionality Concerns Policy Having set down the doctrinal legal parameters, let me now discuss the petitioner's thesis. Petitioner Enrique T. Garcia anchors his position on the alleged unconstitutionality of Section 19 of RA 8479, 5 which sets the full deregulation of the oil industry five months from the effectivity of the law, on the argument that said provision directly violates Section 19, Article XII of the Constitution, which reads as follows: Sec. 19. The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed. He maintains that once Section 19 of RA 8479 is struck down, the government will be able to fix and lower petroleum prices indefinitely while awaiting the advent of "real" competition in the market. Petitioner contends that the three largest oil companies (the "Big Three") comprise an oligopoly of the downstream oil industry. Oligopolies, he claims, "negate free market competition and fair prices." He submits that "regulation through price control . . . is patently required by the public interest [and] the failure to regulate the oligopoly through price control is patently inimical to the national interest and patently negates, circumvents and contravenes Section 19, Article XII of the Constitution." In Tatad v. Secretary of the Department of Energy, 6 this Court defined a monopoly and a combination in restraint of trade as follows: A monopoly is a privilege or peculiar advantage vested in one or more persons or companies, consisting in the exclusive right or power to carry on a particular business or trade, manufacture a particular article, or control the sale or the whole supply of a particular commodity. It is a form of market structure in which one or only a few firms dominate the total sales of a product or service. On the other hand, a combination in restraint of trade is an agreement or understanding between two or more persons, in the form of a contract, trust, pool, holding company, or other form of association, for the purpose of unduly restricting competition, monopolizing trade and commerce in a certain commodity, controlling its production, distribution and price, or otherwise interfering with freedom of trade without statutory authority. Combination in restraint of trade refers to the means, while monopoly refers to the end. In that case, RA 8180, the predecessor of RA 8479, was struck down by this Court for being contrary to Section 19, Article XII of the Constitution. We took this action because we found that its provisions on (1) tariff differential, (2) minimum inventory and (3) predatory pricing "inhibit fair competition, encourage monopolistic power and interfere with the free interaction of market forces." We concluded, "The aftermath of R.A. No. 8180 is a deregulated market where competition can be corrupted and where market forces can be manipulated by oligopolies." In my Concurring Opinion in Tatad, I labeled RA 8180 as "a pseudo deregulation law which in reality restrains 34 | P r o j e c t Development_Cha Mendoza

free trade and perpetuates a cartel, an oligopoly" because of the aforecited three provisions, and because petitioners therein demonstrated to the Court "that the Big Three oil companies were producing and processing almost identical products which they were selling to the general public at identical prices. When one company adjusted its prices upwards or downwards, the other two followed suit at the same time and by the same amount." 7 In his present Petition, petitioner persistently alleges that "[i]t is self-evident truth that public interest requires the prevention of monopolistic/oligopolitic pricing . . . ," and that such "monopolistic/oligopolistic pricing may be prevented only through price control during the regime of monopoly/oligopoly or through a truly competitive market under a regime of fair prices." In support of his allegations, he cites "self-evident truths [which] have . . . been officially recognized and implemented during more than 20 years of price control before the passage of the two oil deregulation laws" and which "have also been recognized and upheld by no less than the Supreme Court En Banc in the Tatad and Lagman cases . . . ." He contends that "the Big 3 remain as strong and dominant as ever." In other words, petitioner believes that there is no valid reason to lift price control at this time when allegedly there still exists an oligopoly in the industry. He proposes instead that government control should stand for an indefinite period until the new players are able to capture a substantial part of the market. Unfortunately, however, the foregoing thematic statements and economic theory of Petitioner Garcia are policy in nature and are arguments supporting the wisdom of interim government price control. Indeed, "self-evident truths," economic theories, deeply-held beliefs, speculative assumptions and generalizations may be the bases of legislative and executive actions, but they cannot be substitutes for evidence and legal arguments in a judicial proceeding. Considered judgment calls of the legislative and the executive departments are the issues of whether the country should adopt the policy of complete or partial deregulation, and when such policy should take effect and over what products or services. These issues come within judicial determination only when there is clear and substantial proof that said policy and its concomitant variations are violative of the Constitution or are made by those agencies in grave abuse of their discretion. The Legal Issue Is Whether Petitioner Has Submitted Sufficient Proof That the Big Three Have Violated the Constitution To be more specific, the pivotal issue before this Court is not whether it is wiser and more beneficial to empower the government to fix fuel prices; rather, it is whether petitioner has submitted enough factual bases to justify the legal conclusion that the Big Three — Petron, Shell and Caltex — have combined themselves "in restraint of trade or [to cause] unfair competition," to such an extent as to legally justify a striking down of Section 19 of RA 8479. The task of proving this issue is not easy; in fact, it is formidable and daunting. This is because laws are prima facie presumed constitutional and, unless clearly shown to be infirm, they will always be upheld. 8 So, too, regularity in the performance of official functions is the postulate, and any allegation of grave abuse or irregularity must be proven cogently. Deregulation per se Is Not Constitutionally Infirm A close perusal of the assailed Section 19 of RA 8479 and Section 19 of Article XII of the Constitution does not readily reveal their irreconcilability. Indeed, even petitioner admits that the deregulation policy per se is

not contrary to the Constitution. Neither could it be successfully argued that the implementation of such policy within the five-month phase-in period is per se anathema to our fundamental law. It is his imperative task therefore to adduce before the Court factual and legal bases to demonstrate clearly and cogently the unconstitutionality of the acts of Congress and the President in adopting and implementing full deregulation of petroleum prices at this time. In this context, I have pored over the records of this case and searched long and wide for such factual and legal bases but, other than presumptions and generalizations that are unsupported by hard evidence, I could not find any. Petitioner fails to substantiate his allegations that the three oil giants have engaged, directly or indirectly, in an unholy alliance to fix prices and restrain trade. True, retail prices of petroleum products have been increased, to the consternation of the public, but petitioner has not shown by specific fact or clear proof how the questioned provision of RA 8479 has been used to transgress the Constitution. He has not demonstrated that the Big Three arbitrarily dictate and corrupt the price of oil in a manner violative of the Constitution. Petitioner merely resurrects and relies heavily on the arguments, the statistics and the proofs he submitted two years ago in the first oil deregulation case, Tatad v. Secretary of the Department of Energy. Needless to state, those reasons were taken into consideration in said case, and they indeed helped show the unconstitutionality of RA 8180. But exactly the same old grounds cannot continue to support petitioner's present allegation that the major oil companies — Petron, Shell and Caltex — persist to this date in their oligopolistic practices, as a consequence of the current Oil Deregulation Law and in violation of the Constitution. In brief, the legal cause and effect relationship has not been amply shown. Petitioner Has Not Proven Arbitrariness or Despotism Petitioner harps at the five-month period of transition from price control to full deregulation provided under Section 19 of RA 8479. He claims that such short period is not enough to ensure a "truly competitive market" in the supposed oligopoly of the oil industry. Again, his statement is not backed up by evidentiary basis. He offers no substantial proof that Congress, in deciding to lift price controls five months from the effectivity of RA 8475, gravely abused its discretion. To repeat, it is not within the province of the judiciary to determine whether five months is indeed short and, for that matter, what length of time is adequate. That is a matter of legislation addressed to the discretion of our policy makers. It is basic to our form of government that the Court cannot inquire into the wisdom or expediency of the acts of the executive or the legislative department, unless there is a clear showing of constitutional infirmity or grave abuse of discretion amounting to lack or excess of jurisdiction. 9 "By grave abuse of discretion is such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction. Mere abuse of discretion is not enough. It must be grave abuse of discretion, as when the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and must be so patent and so gross as to amount to an evasion of a positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law." 10 These jurisprudential elements of arbitrariness, despotism, passion and hostility have not been shown to exist under the present circumstances. Market Share of New Players 35 | P r o j e c t Development_Cha Mendoza

Has Increased Under RA 8479 Historically, deregulation as a policy in the downstream oil industry was begun in 1996 when new players started to set up and operate their businesses in the country. That was practically a full three years of operations, the last two of which saw no significant barriers in terms of tariff differential, minimum inventory or predatory pricing. Obviously, the conditions prevailing when the Court struck down RA 8180 two years ago have not been proven to be prevalent at present. In 1996, the new players had a market share of barely one percent. 11 The new players have since expanded or increased in number (46 as of June 30, 1999), and they now have about nine percent share of the market. 12 Significantly, these new players have intervened in this case in defense of the law. These are the little Davids who claim that with RA 8479 as their slingshot, they can, given enough time, fight and win against the three erstwhile unbeatable Goliaths. Indeed, they believe that the questioned provision has given them the impetus to compete and thereby eventually show the benefits of deregulation; namely, the best products at the cheapest prices. With this factual backdrop and in the dire absence of contrary proof, it would be specious to conclude that under the aegis of Section 19 of RA 8479, the Big Three have restrained trade or unduly restricted competition. Moreover, the three provisions in RA 8180 which were adjudged abhorrent to the fundamental principles of free enterprise are no longer found in RA 8479. The depletion of the Oil Price Stabilization Fund, the extraneous factor that was considered by the President in accelerating the implementation of full deregulation under RA 8180, was no longer taken into account in the present milieu. The Court's reasons for declaring the unconstitutionality of RA 8180 are, therefore, not germane to the validity of RA 8479. The petitioner cannot rely on the same rationale for the purpose of successfully assailing RA 8479. Indeed, he admits that "the Tatad and Lagman cases . . . did not consider and adjudicate on the lifting of price control per se, under RA 8180, as an issue." Epilogue In sum, I make no secret of my sympathy for petitioner's frustration at the inability of our government to arrest the spiraling cost of fuel and energy. 13 I hear the cry of the poor that life has become more miserable day by day. I feel their anguish, pain and seeming hopelessness in securing their material needs. However, the power to lower petroleum prices through the adoption or the rejection of viable economic policies or theories does not lie in the Court or its members. Furthermore, absent sufficient factual evidence and legal moorings, I cannot vote to declare a law or any provision thereof to be unconstitutional simply because, theoretically, such action may appear to be wise or beneficial or practical. Neither can I attribute grave abuse of discretion to another branch of government without an adequate showing of patent arbitrariness, whim or caprice. Should I do so, I myself will be gravely abusing my discretion, the very evil that petitioner attributes to the legislature. WHEREFORE, I vote to DISMISS the Petition. QUISUMBING, J., concurring opinion; I fully concur in the ponencia of Justice Consuelo Ynares-Santiago. What I would like to stress here and now is that, contrary to certain ill-informed comments in media, petitioner's pleadings were thoroughly dissected at the hearing where he and his counsel as well as the respondents amply presented their

arguments. Questions of law and policy were also illuminated from different perspectives in sessions and in memoranda internally exchanged by members of the Court. Right away, it must be added, no delay attended the resolution of this petition. For while the Constitution allows two years, this case was decided en banc in less than half that period, from the time of submission of the parties' memoranda. Below is a full presentation of my view on the controversy generated by petitioner's insistence that the Court overturn an act passed by his own branch of government and approved by the Chief Executive. At issue in this special civil action for certiorari under Rule 65 is the constitutionality of Sec. 19 of Republic Act No. 8479, 1 entitled "An Act Deregulating the Downstream Oil Industry and for other Purposes". The law was enacted pursuant to the policy of the State to liberalize and deregulate the downstream oil industry. R.A. 8479 is the remedial legislation passed by Congress to cure the infirmities found in Republic Act No. 8180, the first oil industry deregulation law, otherwise known as the "Downstream Oil Industry Deregulation Act of 1996". In a banc decision promulgated on November 5, 1997, the Court declared R.A. 8180 unconstitutional for having transgressed the constitutional prohibition against monopolies and combinations in restraint of trade, specifically mandated in Section 19, Article XII of the Constitution. Consequently, Executive Order No. 392 (E.O. 392) implementing the provision of said law was voided. On December 3, 1997, the motions for reconsideration were denied for utter lack of merit. Now before us is a challenge to the second oil industry deregulation law, R.A. 8479. The relevant factual and procedural antecedents of the present petition are as follows: In 1992, the Philippine government welcomed more liberal economic policies and started the ground work for privatization of some government-owned or controlled corporations and deregulation of the oil industry. In due time, Congress enacted Republic Act No. 7638 on December 9, 1992. It created the Department of Energy (DOE). Among others, it was tasked, at the end of four years from the effectivity of R.A. No. 7638 and upon approval of the President, to institute the "programs and the timetable for the deregulation of appropriate projects and activities of the energy industry." 2 Following the intent of R.A. 7638, the Philippine National Oil Company (PNOC) sold 40% of its equity in Petron Corporation to the Aramco Overseas Company. Sometime in March 1996, Congress made that daring step towards the realization of liberating the oil industry from government regulation and enacted R.A. 8180. On February 8, 1997, President Fidel V. Ramos issued E.O. 392, which signaled the implementation or start of deregulation in the oil industry. Senator Francisco Tatad and Congressmen Enrique Garcia, Edcel Lagman, Joker Arroyo and Wigberto Tañada, among others, filed separate petitions docketed as G.R. Nos. 124360 and 127867, before the Court. The petitioners contended that some of the provisions of R.A. No. 8180 violated Section 19 of Article XII of the 1987 Constitution, which states: The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed. The challenged provisions in R.A. 8180 were: (1) the provision on tariff differential found in Section 5 (b) which states: Sec. 5 (b) — Any law to the contrary notwithstanding and starting with the effectivity of this Act, tariff duty shall be imposed and collected on imported crude oil at 36 | P r o j e c t Development_Cha Mendoza

the rate of three percent (3%) and imported refined petroleum products at the rate of seven percent (7%), except fuel oil and LPG, the rate for which shall be the same as that for imported crude oil: Provided, that beginning on January 1, 2004 the tariff rate on imported crude oil and refined petroleum products shall be the same. Provided,further, That this provision may be amended only by an Act of Congress. (2) the minimum inventory clause, in Section 6 which provides: Sec. 6 — To ensure the security and continuity of petroleum crude and products supply, the DOE shall require the refiners and importers to maintain a minimum inventory equivalent to ten percent (10%) of their respective annual sales volume or forty (40) days of supply, whichever is lower. (3) the predatory pricing scheme in Section 9: Sec. 9 — To ensure fair competition and prevent cartels and monopolies in the downstream oil industry, the following acts shall be prohibited: xxx xxx xxx (b) Predatory pricing which means selling or offering to sell any product at a price unreasonably below the industry average cost so as to attract customers to the detriment of competitors. In declaring provisions of R.A. 8180 unconstitutional, the Court held: . . . Petron, Shell and Caltex stand as the only major league players in the oil market. . . . The tariff differential of 4% therefore works to their immense benefit. . . . New players that intend to equalize the market power of Petron, Shell and Caltex by building refineries of their own will have to spend billions of pesos. Those who will not build refineries but compete with them will suffer the huge disadvantage of increasing their product cost by 4%. They will be competing on an uneven field. The provision on inventory widens the balance of advantage of Petron, Shell and Caltex against prospective new players. Petron, Shell and Caltex can easily comply with the inventory requirement of R.A. No. 8180 in view of their existing storage facilities. Prospective competitors again will find compliance with this requirement difficult as it will entail a prohibitive cost. . . . Finally, we come to the provision on predatory pricing which is defined as ". . . selling or offering to sell any product at a price unreasonably below the industry average cost so as to attract customers to the detriment of competitors." . . . The ban on predatory pricing cannot be analyzed in isolation. Its validity is interlocked with the barriers imposed by R.A. No. 8180 on the entry of new players. 3 That decision came under sharp attack by critics who accused the Court of improvidently intervening in the economic affairs of the State. Economists and businessmen remarked that the decision was a major blow to economic reforms and an additional burden to the government's already huge budget deficit as it would require reinstating a subsidy on oil products. 4 Pertinent portions of the Decision decreed: With this Decision, some circles will chide the Court for interfering with an economic decision of Congress. Such criticism is charmless for the Court is annulling R.A. No. 8180 not because it disagrees with deregulation as an economic policy but because as cobbled by Congress in its present form, the law violates the Constitution. The right call therefor should be for Congress to write a new oil deregulation law that conforms with the Constitution and not for this Court to shirk its duty of striking down a law that offends the Constitution. . . . Indeed when confronted by a law violating the Constitution, the Court has no option but to strike it down dead. . . . Hence, for as long as the

Constitution reigns supreme so long will this Court be vigilant in upholding the economic rights of our people especially from the onslaught of the powerful. Our defense of the people's economic rights may appeal heartless because it cannot be half-hearted. IN VIEW WHEREFORE, the petitions are granted. R.A. No. 8180 is declared unconstitutional and E.O. No. 372 [392] void. 5 Public respondents filed their consolidated motion for reconsideration. Some of the new players, in the industry: Eastern Petroleum Corp., Seaoil Petroleum Corp., Subic Bay Distribution, Inc., TWA, Inc., and Dubphil Gas moved to intervene and aired their stand against the total nullification of R.A. 8180. They also averred that they were in favor of declaring the three offensive provisions unconstitutional. Petitioner Enrique T. Garcia, likewise, filed a partial motion for reconsideration and pushed for a return only to partial deregulation in which the main features of deregulation would be allowed free reign, but the retail price of oil products would still be regulated through the Energy Regulatory Board. The Court found no merit in the motion for reconsideration, motion for intervention, and partial motion for reconsideration. Despite the separability clause, the Court ruled that the three questioned provisions cannot be struck down alone, for they were the ones intended to carry out the policy of the law as embodied in Section 2. 6 On the question of the validity of E.O. 392, the Court held that the Executive Department failed to follow faithfully the standards set by R.A. 8180 when it considered the extraneous factor of depletion of the Oil Price Stabilization Fund (OPSF) fund, instead of limiting the basis for the acceleration of full deregulation of the industry to only two factors, viz: (1) the time when the prices of crude oil and petroleum products in the world market are declining, and (2) the time when the exchange rate of the peso in relation to the US dollar is stable. 7 By considering another factor, the Executive Department rewrote the standards set forth in R.A. 8180. 8 In light of the uncertainty of the consideration given by the Executive department to the depletion of the OPSF fund for the full deregulation of the oil industry, we ruled that E.O. 392 constituted a misapplication of R.A. 8180. In sum, the implementing order was found void, while the basic law was held unconstitutional. On reconsideration, our December 3, 1997 Resolution stressed that R.A. 8180 is unconstitutional because (1) it gave more power to an already powerful oil oligopoly; (2) it blocked the entry of effective competitors; and (3) it will sire an even more powerful oligopoly whose unchecked power will prejudice the interest of the consumers and compromise the general welfare. 9 The Court reiterated, however, that there was no impediment in re-enacting R.A. 8180 minus the provisions which are anti-competition. Consequently, Congress fast-tracked a new oil deregulation law, R.A. 8479, which was approved and duly signed on February 10, 1998. It took effect an February 12, 1998 upon the completion of its publication in a newspaper of general circulation. Dissatisfied with the amendments incorporated into the new law by his own colleagues in Congress, Honorable Enrique T. Garcia filed the instant petition. The Court is the ultimate guardian of our Constitution. By virtue of its power of judicial review, it is dutybound in an appropriate case to ascertain whether a law is free from constitutional flaws. While favoring free competition in the oil industry, the Court struck down R.A. 8180 because of provisions therein that contravened the basic law, our Constitution. Before dwelling into the issues now raised by the petitioner, 37 | P r o j e c t Development_Cha Mendoza

we must determine whether R.A. 8479 truly cured the invalid portions of R.A. 8180. When we advocated vigilance in upholding the economic rights of our people, we truly hoped that Congress would address the defects of R.A. 8180 and not re-enact R.A. 8180 through the guise of R.A. 8479. It bears recalling, however, that when the Supreme Court mediates to allocate constitutional boundaries or invalidates the acts of a coordinate body, what it is upholding is not its own supremacy but the supremacy of the Constitution. With this in mind, we now focus on the provisions of R.A. 8479, in particular the 4% tariff differential, minimum inventory level, and predatory pricing provisions, which aim to prevent the big three oil companies from taking advantage of deregulation as a means of cartelizing their operations, and thereby result in monopolistic and oligopolistic practices condemned by the basic law of the land. First, the 4% tariff differential. On December 31, 1997, after the Court declared with finality that R.A. 8180 is unconstitutional, President Ramos issued Executive Order No. 461. The Order imposed a three percent (3%) import duty on petroleum products enumerated therein. The President's move avoided the revival of the old tariff rates of 10% on crude oil and 20% on refined oil while the legislative department was in the process of crafting a new oil deregulation law. Noteworthy, Sec. 6 of R.A. 8479 imposed the same tariff treatment on petroleum products. Section 6 reads: Sec. 6 — a) Any law to the contrary notwithstanding and starting with the effectivity of this Act, a single and uniform tariff duty shall be imposed and collected both on imported crude oil and imported refined petroleum products at the rate of three percent (3%): Provided, however, That the President of the Philippines may, in the exercise of his powers, reduce such tariff rate when on his judgment such reduction is warranted, pursuant to Republic Act No. 1937, as amended, otherwise known as the "Tariff and Customs Code": Provided, further, That beginning January 1, 2004 or upon implementation of the Uniform Tariff Program under the World Trade Organization and ASEAN Free Trade Area commitments, the tariff rate shall be automatically adjusted to the appropriate level notwithstanding the provisions under this Section. Second, the minimum inventory level requirement. R.A. 8479 eliminated the provision in R.A. 8180 requiring the refiners and importers to maintain a minimum inventory equivalent to ten percent (10%) of their respective annual sales volume or forty (40) days' supply. The minimum inventory requirement was removed, giving the new entrants opportunities to use their resources to be more competitive. Third, predatory pricing. In the December 3, 1997 Resolution of the Court in G.R. Nos. 124360 and 127867, we expressed the view that the definition of predatory pricing was too loose to be a real deterrent. 10 Congressman Dante O. Tinga acknowledged in his explanatory note of House Bill 10057 (H.B. 10057) that the definition of predatory pricing needed specificity, particularly with respect to the definitive benchmark price and the express anticompetitive intent. He suggested the Areeda-Turner test and proposed to redefine predatory pricing. Section 11 par. (b) of R.A. 8479 adopted Congressman Tinga's recommendation, to wit: b) Predatory pricing which means selling or offering to sell any oil product at a price below the seller's or offeror's average variable cost for the purpose of destroying competition, eliminating a competitor or discouraging a potential competitor from entering the market: Provided, however, That pricing below average variable cost in order to match the lower price of the

competitor and not for the purpose of destroying competition shall not be deemed predatory pricing. For purposes of this prohibition, "variable cost" as distinguished from "fixed cost", refers to costs such as utilities or raw materials, which vary as the output increases or decreases and "average variable cost" refers to the sum of all variable costs divided by the number of units of outputs. To strengthen the anti-trust safeguards of R.A. 8479, respondents argue that there are enough provisions to encourage entry of new participants. For instance, R.A. 8479 allows for active participation of the private sector and cooperatives in the retail of petroleum through joint ventures to establish gasoline stations. Moreover, R.A. 8479 requires initial public offering of shares equivalent to 10% of the capital investments by oil companies. Respondents also cite that the enforcement of monitoring activities by the DOE encourages consumer vigilance over unwarranted increase in the prices of petroleum products. Another safeguard against collusion among oligopolists is the creation of a task force with members from the DOE and the Department of Justice (DOJ) to investigate complaints for violations of R.A. 8479. They assert that the mere dominance of Petron, Pilipinas Shell, and Caltex, is not per se a combination in restraint of trade. Combination in restraint of trade, they claim, is the means to achieve monopoly. Petitioner Garcia adverts to oil deregulation in phases. The new oil deregulation law has two phases: (1) the transition phase and (2) the full deregulation phase. During the transition period, all non-pricing aspects were lifted. Although the Oil Price Stabilization Fund was abolished, a buffer fund 11 was created to cover increases in the prices of petroleum products, except premium gasoline. The Automatic Oil Pricing Mechanism was maintained to approximate the domestic prices of petroleum products in the international market. The Energy Regulatory Board (ERB) approved a market-oriented formula to determine the Wholesale Posted Price of petroleum products based solely on the changes of either the Singapore Posting of refined petroleum products, the Singapore Import Parity or the crude landed cost. After the transition phase comes full deregulation as provided by Sec. 19 of R.A. 8479, which reads thus: Sec. 19. Start of Full Deregulation. — Full deregulation of the Industry shall start five (5) months following the effectivity of this Act: Provided however, That when the public interest so requires, the President may accelerate the start of full deregulation upon the recommendation of the Department of Energy (DOE) and the Department of Finance (DOF) when the prices of crude oil and petroleum products in the world market are declining and the value of the peso in relation to the US dollar is stable, taking into account relevant trends and prospects: Provided, further, That the foregoing provision notwithstanding, the five (5)month Transition Phase shall continue to apply to LPG, regular gasoline and kerosene as socially-sensitive petroleum products and said petroleum products shall be covered by the automatic pricing mechanism during the said period. 12 Note that the abovecited transition phase of five months could be abbreviated when public interest so requires. The President's power to accelerate the start of full deregulation, however, depended upon the recommendation of the Departments of Energy and Finance. Accordingly as recommended, on March 14, 1998, President Ramos issued E.O. 471 to accelerate the implementation of full deregulation. Partinently the E.O., which implements R.A. 8479, provides: WHEREAS, Republic Act No. 7638, otherwise known as 38 | P r o j e c t Development_Cha Mendoza

the "Department of Energy Act of 1992," provides that, "at the end of four years from its effectivity last December 1992, the Department [of Energy] shall, upon approval of the President, institute the programs and timetable of deregulation of appropriate energy projects and activities of the energy sector;" WHEREAS, Section 19 of Republic Act No. 8479, otherwise known as the "Downstream Oil Industry Deregulation Act of 1998," provides that [T]hat "when the public interest so requires, the President may accelerate the start of full deregulation upon the recommendation of the Department of Energy (DOE) and the Department of Finance (DOF) when the prices of crude oil and petroleum products in the world market are declining and the value of the peso in relation to the US dollar is stable, taking into account relevant trends and prospects: Provided, further, That the foregoing provision notwithstanding, the five (5)month Transition Phase shall continue to apply to LPG, regular gasoline and kerosene as socially-sensitive petroleum products and said petroleum products shall be covered by the automatic pricing mechanism during said period; WHEREAS, pursuant to the joint recommendation of the Department of Energy and the Department of Finance, and in the interest of the consuming public, recent developments favor the acceleration of the start of full deregulation of the downstream oil industry because: (i) the prices of crude oil and petroleum products in the world market are beginning to be stable and on a downtrend since January 1998; and (ii) the exchange rate of the peso in relation to the US dollar has been stable for the past three months, averaging at around P40.00 to one US dollar; WHEREAS, Executive Order No. 377 dated 31 October 1996 provides for an institutional framework for the administration of the deregulated industry by defining the functions and responsibilities of various government agencies; WHEREAS, pursuant to Republic Act No. 8479, the deregulation of the industry will foster a truly competitive market which can better achieve the social policy objectives of fair prices and adequate, continuous supply of environmentally-clean and high quality petroleum products; NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Philippines, by the powers vested in me by law, do hereby declare the full deregulation of the downstream oil industry; provided, however, that LPG, regular gasoline and kerosene shall be covered by the Automatic Pricing Formula pursuant to R.A. No. 8479. 13 The implementing guidelines for the acceleration of full deregulation of the industry, set forth in E.O. 471, required the concurrence of two conditions, viz.: (1) the downtrend of prices of oil and petroleum products, and (2) stability of exchange rate of peso in relation to US dollar, taking into account relevant trends and prospects. However, E.O. 471 carried an additional proviso, the transition phase was continued for LPG, regular gas and kerosene. These socially sensitive products continued to be covered by the automatic pricing mechanism until July of 1998. Only then was full deregulation of the industry effected, and the automatic pricing mechanism was also lifted for LPG, regular gas and kerosene. Turning now to herein petition, Congressman Enrique Garcia raised the following issues to assail the provision implementing full deregulation of the oil industry: I. Sec. 19 OF R.A. NO. 8479 which provides for full deregulation five (5) months or earlier following the effectivity of the law, is glaringly pro-oligopoly, anti-

competition and anti-people, and is therefore patently unconstitutional for being in gross and cynical contravention of the constitutional policy and command embodied in Article XII, Section 19 of the 1987 Constitution against monopolies and combinations in restraint of trade. II. Said Section 19 of R.A. No. 8479 is glaringly prooligopoly, anti-competition and anti-people, for the further reason that it palpably and cynically violates the very objective and purpose of R.A. No. 8479, which is to ensure a truly competitive market under a regime of fair prices. III. Said Section 19 of R.A. No. 8479, being glaringly pro-oligopoly, anti-competition and anti-people, being patently unconstitutional and being palpably violative of the law's policy and purpose of ensuring a truly competitive market under a regime of fair prices, is a very grave and grievous abuse of discretion on the part of the legislative and executive branches of government. IV. Premature full deregulation under Section 19 of R.A. No. 8479 may and should therefore be declared null and void even as the rest of its provisions remain in force, such as the transition phase or partial deregulation with price controls that ensures the protection of the public interest by preventing the big 3 oligopoly's price-fixing and overpricing. These issues may be synthesized into one: Whether or not the full implementation of deregulating the downstream oil industry as provided in Section 19 of R.A. 8479 violates the Constitutional mandate of free competition in a liberalized oil industry under Section 19, Article XII of the 1987 Philippine Constitution? Petitioner Garcia principally faults Section 19 of the new R.A. 8479 as well as E.O. 471 now for violating the constitutional prohibition against monopoly, and being anti-competition. Petitioner claims that there was a premature full deregulation under Section 19 of R.A. 8479. He protests the acceleration of the full implementation of deregulation decreed under E.O. 471. Petitioner insists that the short transition period is pro-oligopoly, anticompetition and anti-people and is patently unconstitutional because the period is too short to establish true competition in the local oil industry. True competition, he claims, exists only when there can be a sizable number of players, and at present, the new players comprise only 3% of the market share which does not put up real competition against the "Big Three" oil companies (Caltex, Shell and Petron). What he suggests is to prolong the transition phase or partial deregulation with price controls while the big oil companies are still dominating the market, to ensure the protection of the public interest and prevent the big three oligopolies from fixing the price or overpricing. He further contends that the automatic oil pricing mechanism will enable the domestic price of petroleum products to approximate and promptly reflect the price of oil in the international market. He also stressed that new players may come under an indefinite or open-ended transition phase. Commenting on the petition, respondents claim that the propriety of full deregulation involves the wisdom of Congress and is therefore, a non-justiciable issue. They counter petitioner's arguments by pointing out that the shortening of the transition period and acceleration of full deregulation were decreed pursuant to the joint recommendation of the DOE and DOF, based on the concurring conditions of a downtrend of crude oil in world market and the stability of the exchange rate of P40.00 to US$1. The respondents argue that the short transition period is not violative of the Constitution because the new players were given until July 1998 to set up their 39 | P r o j e c t Development_Cha Mendoza

businesses as they have in fact, and they have captured at least 3% of the total oil market. Respondent Petron asserts that full deregulation protects the public from the greed and exploitation of business. Petron further contends that competition can be ushered in only with the certainty of price deregulation and the short transition period would guarantee the investors that within a manageable period, they would be able to set prices, taking into account their investment and operating costs. It claims an indefinite transition period would discourage new investors because the new players had hoped that within a reasonable time, price regulation would be lifted. The Solicitor General filed a comment on behalf of the public respondents, interposing economic arguments that price regulation reduces economic efficiency and is prejudicial to the public. 14 Public respondents assert that the acceleration of full deregulation is based on existing conditions and sound economic theory. Respondent Shell filed a rejoinder, stating that to prolong the transition period will revive the automatic pricing mechanism which means that it will only replace the mode of price regulation by still another regulatory scheme. It argues that if Sec. 19 of R.A. 8479 were to be struck down, full deregulation will never take place and it would render the entire law different from what was passed by Congress. Petitioner counters that he is questioning the constitutionality rather than the wisdom of Sec. 19 of R.A. 8479; it is pro-oligopoly, hence patently unconstitutional. Petitioner further avers that condemnation against monopolies and combination in restraint of trade should be given legal sanction by the Court. Petitioner maintains that the nullification of Sec. 19 of R.A. 8479 will result in partial deregulation, where there will be no regulation as regards the importation of petroleum products and the establishment of gas station, but oil pricing would be regulated based on the Automatic Pricing Mechanism. Note that during the review of R.A. 8180 by the Court in G.R. No. 127867, petitioners Edcel C. Lagman, Arroyo, et al., likewise questioned the constitutionality of Section 15 of R.A. No. 8180 15 as well as E.O. No. 392 16 which provided for the implementation of full deregulation. The Court decreed thus: . . . Full deregulation at the end of March 1997 is mandatory and the Executive has no discretion to postpone it for any purported reason. Thus, the law is complete on the question of the final date of full deregulation. The discretion given to the President is to advance the date of full deregulation before the end of March 1997. Section 15 lays down the standard to guide the judgment of the President — he is to time it as far as practicable when the prices of crude oil and petroleum products in the world market are declining and when the exchange rate of the peso in relation to the US dollar is stable. xxx xxx xxx It ought to follow that the argument that E.O. No. 392 is null and void as it was based on indeterminate standards set by R.A. 8180 must likewise fail. If that were all to the attack against the validity of E.O. No. 392, the issue need not further detain our discourse. 17 In G.R. No. 127867, Congressman Garcia filed an Urgent Motion for Partial Reconsideration from the November 5, 1997, decision of the Court. He sought to strike down only the premature full deregulation but maintain partial deregulation under R.A. No. 8180 with price controls and price mechanism based on Singapore Posted Prices. The Court resolved the issue this way:

We shall first resolve petitioner Garcia's linchpin contention that the full deregulation decreed by R.A. No. 8180 to start at the end of March 1997 is unconstitutional. For prescinding from this premise petitioner suggests that "we simply go back to the transition period under R.A. No. 8180." Under the transition period, price control will be revived through the automatic pricing mechanism based on Singapore Posted Prices. The Energy Regulatory Board . . . would play a limited and ministerial role of computing the monthly price ceiling of each and every petroleum fuel product, using the automatic pricing formula. . . . We are not impressed by petitioner Garcia's submission. Petitioner has no basis in condemning as unconstitutional per se the date fixed by Congress for the beginning of the full deregulation of the downstream oil industry. . . . The choice of March 1997 as the date of full deregulation is a judgment of Congress and its judgment call cannot be impugned by this Court. 18 Now in the present petition, Garcia insists on his old plea for a return only to partial deregulation of the downstream oil industry, wherein the main features of deregulation would be permitted but the retail prices of oil products would still be regulated through an Automatic Pricing Mechanism. However, I find his contentions to be lacking legal basis, even if his proposal appears to be expedient, or even beneficial, especially to the poor. As the Court said Tañada vs. Tuvera, 19 "[T]his Court is not called upon to rule on the wisdom of the law or to repeal it or modify it if we find it impractical. That is not our function. That function belongs to the legislator. Our task is merely to interpret and apply the law as conceived and approved by the political departments of the government in accordance with the prescribed procedure." 20 For if we allow an open-ended transition period to maintain government pricing regulation, we would have suspended the much-needed liberalization of the downstream oil industry. It would certainly run counter to the government's policy of allowing free interplay of market forces, with minimal government supervision. In fact, it could defeat full deregulation to ensure fair competition in the downstream oil industry, where new and prospective players are on even level playing field with the Big Three. Furthermore, to base the implementation of full deregulation on the presence of a sizable number of new investors, as petitioner would want us to do, would be to legislate a floating provision dependent on the happening of a contingent event. To do so, would be to undermine the very purpose of the law, which is to liberalize and deregulate the downstream oil industry in order to ensure a truly competitive market under a regime of fair prices, adequate and continuous supply, environmentally clean and high-quality petroleum products. Consequently, to heed the petitioner's prayer, this Court would have to legislate, a power granted only to Congress. The operation of a statute may be duly suspended only by authority of the legislature. 21 Indeed, a suspension of a valid statute must rest upon legislative action; 22 it may not be effected solely by a judicial act. 23Clearly it is a policy decision of the legislative and executive departments in whose turf we must not tread, under the principle of separation of powers. The term "political question" connotes what it means in ordinary parlance, namely, a question of policy. 24 It refers to "those questions which, under the Constitution, are to be decided by the people in their sovereign capacity, or in regard to which full discretionary authority has been delegated to the legislative or executive of the 40 | P r o j e c t Development_Cha Mendoza

government." 25 If is concerned with issues dependent upon the wisdom, not legality, of a particular measure. 26 The judiciary does not directly settle policy issues. Under our system of government, policy issues are within the domain of the political branches of government and of the people themselves as the repository of all state powers. 27 In PLDT vs. National Telecommunications Commission, 28 the ultimate considerations cited in matters affecting vital industries, are the public need, public interest, and the common good. In that case, the Court said: Free competition in the industry may also provide the answer to a much-desired improvement in the quality and delivery of this type of public utility, to improved technology, fast and handy mobile service, and reduced user dissatisfaction. 29 Similarly, the above-mentioned considerations could undergird the nation's energy and other economic policies. The liberalization of the oil industry is a reform program initiated by Congress to free the government from the obligation of infusing funds to subsidize increases in the prices of oil products. Such funds may now be utilized for other much needed programs with a public purpose. Well-established is the principle that every law has in its favor the presumption of constitutionality. 30 To declare a law unconstitutional, the repugnancy of that law to the Constitution must be clear and unequivocal. But we recognize that even if a law is aimed at the attainment of some public good, still its provisions cannot infringe upon constitutional rights. 31 That infringement, however, must be proved and established persuasively to invalidate a provision of a law, if not the entire law itself. Petitioner ought to have demonstrated the need for the extension of the transition period. But, in fact, he could not downplay the DOE report that new players accounted for a sizable share of the market, some 18.1 percent of the total product imports, and competing companies are keen in joining the Philippine oil industry since the full implementation of deregulation. And, as stressed by the public respondents in the rejoinder dated January 7, 1999: Since 1996, new players have taken a significant share in the market, to wit: (a) seven (7) new players have entered the downstream oil industry before RA No. 8180; (b) during the effectivity of RA No. 8180, twenty eight (28) new players have engaged in a number of downstream oil industry activities; and (c) three (3) new players have engaged in fuel bulk marketing, while two (2) new players have started to establish gasoline service stations immediately before and during the effectivity of RA No. 8479. At the same time, many more companies have indicated their intention to enter the downstream oil industry business. 32 The new players, according to industry experts, are gradually making a dent in the local market and their share is expected to surge in a few years when their retail stations are established. 33 However, the presence or entry of numerous players in the oil industry is not a condition precedent before a full deregulated petroleum industry could be had. But we recognize that it is precisely the implementation of full deregulation that would serve to entice new players to compete against the so-called Big Three. Hopefully, this move would prevent the powerful oil companies from manipulating prices, to the prejudice of the consumers and the public in general. The petitioner strongly manifested his fears concerning pernicious consequences of total lifting of price control in the oil industry. His main concern is that the government might be helpless in case the Big 3 (Shell, Petron and Caltex) overprice their petroleum products.

But the people are not without legal recourse. The public can manifest outright objections to overpricing and report to the Department of Energy any unreasonable increase in the prices of these oil products. The monitoring power of the DOE is embodied in Sec. 14 of R.A. 8479, and its implementing rule, Section 18 of DOE Circular No. 9803-004, thus: R.A. 8479, Sec. 14 — Powers and Functions of the DOE and DOE Secretary: Monitoring — a) The DOE shall monitor and publish daily international crude oil prices, as well as follow the movements of domestic oil prices. It shall likewise monitor the quality of petroleum products and stop the operation of business involved in the sale of petroleum products which do not comply with the national standards of quality that are aligned with the national standards/protocols of quality. . . . xxx xxx xxx d) Any report from any person of an unreasonable rise in the prices of petroleum products shall be immediately acted upon. For this purpose, the creation of DOE-DOJ Task Force is hereby mandated to determine within thirty (30) days the merits of the report and initiate the necessary actions warranted under the circumstances: Provided that nothing herein shall prevent the said task force from investigating and/or filing the necessary complaint with the proper court or agency motu propio. Department Circular No. 98-03-004, Sec. 18 — Powers and Functions of the DOE and DOE Secretary Monitoring — The DOE shall monitor the following pursuant to Section 14 of the Act. Any misrepresentation, mislabeling, concealment or fraud, shall be subject to penalties under existing applicable laws. a. Prices The DOE shall monitor and publish international oil prices as well as follow the movement of domestic oil prices. (1) Price Display Boards For the convenience of the public, all retailers of petroleum products shall display the prices of each type of petroleum product sold in gasoline stations in prominently installed price display boards with backgrounds preferably conforming to the color coding scheme for the product, such as: green for Unleaded Premium Gasoline, red for Premium Low Lead Gasoline, orange for Regular Gasoline, yellow for Diesel Fuel, and white for Kerosene. In the case of LPG (which has no product color), the price display board may be light blue in color. The numeric entries in these boards shall be at least six (6) inches in height. The price display boards shall be properly installed and labeled not later than June 30, 1998. Failure to comply with this requirements shall be penalized pursuant to Section 24 of the Act. (2) Unreasonable Rise in Prices Any report from any person of an unreasonable rise in the prices of petroleum products shall be immediately acted upon by the DOE-DOJ Task Force in accordance with Section 17 of this IRR. The said Task force shall determine within thirty (30) days the merits of the report and shall initiate the necessary actions warranted under the circumstances. A calculus of fear and pessimism, however, does not justify the remedy petitioner seeks: that we now overturn a law enacted by Congress and approved by the Chief Executive. The Court must act on valid legal reasons that will explain why we should interfere with vital legislation. 34 To strike down a provision of law we need a clear showing that what the Constitution prohibits, the statute has allowed to be done. 35 Since 41 | P r o j e c t Development_Cha Mendoza

there is no clear showing that Section 19 of R.A. 8479 has violated the constitutional prohibition against monopolies and combinations in restraint of trade, I vote that the present petition be DISMISSED. Footnotes 1 281 SCRA 330 (197). 2 CONSTITUTION, Article XII, Section 19. 3 Rollo, pp. 15-16. 4 American Tobacco Co. v. United States, 328 U.S. 781; 90 L. Ed. 1575. 5 Republic Act No. 7638. 6 supra., at 358; citing Gellhorn, Anti Trust Law and Economics in a Nutshell, 1986 ed., p. 45. 7 22 SCRA 424, at 450-51 (1968); citations omitted. 8 Tatad v. Secretary of the Department of Energy, 282 SCRA 337, 353 (1997). 9 Coleman v. Miller 307 U.S. 433; 59 S. Ct. 972; 83 L. Ed. 1385 (1939). PANGANIBAN, J., separate opinion; 1 See public respondent's Memorandum, p. 19, citing Samuelson and Nordhaus, Economics, 1992 ed., p. 341. 2 § 2, RA 8479. 3 Neri, Economics and Public Policy, 1999 ed., p. 23. Parentheses in original but brackets supplied. 4 Tañada v. Angara, 272 SCRA 18, May 2, 1997; Tatad v. Secretary of the Department of Energy, infra; Santiago v. Guingona Jr., GR. No. 134577, November 18, 1998. 5 Sec. 19. Start of Full Deregulation. — Full deregulation of the [Downstream Oil] Industry shall start five (5) months following the effectivity of this Act: Provided, however, That when the public interest so requires, the President may accelerate the start of full deregulation upon the recommendation of the DOE and the Department of Finance (DOF) when the prices of crude oil and petroleum products in the world market are declining and the value of the peso in relation to the US dollar is stable, taking into account relevant trends and prospects . . . . 6 281 SCRA 330, 355; November 5, 1997; per Puno, J. 9 This quote is taken from a comment I made in Battles in the Supreme Court, 1998 ed., p. 121. 8 Lim v. Pacquing, 240 SCRA 649, January 27, 1995; Tano v. Socrates, 278 SCRA 154, 1997; Tan v. People, 290 SCRA 117, May 19, 1998. 9 Tañada v. Angara, supra; Santiago v. Guingona Jr., supra. See also Garcia v. Comelec, 227 SCRA 100, October 5, 1993; Tañada v. Cuenco, 103 Phil 1051, February 28, 1957; Magtajas v. Pyrce Properties Corp., 223 SCRA 255, July 20, 1994. 10 Tañada v. Angara, supra, citing Zarate v. Olegario, 260 SCRA 1; October 7, 1996; San Sebastian College v. Court of Appeals, 197 SCRA 138, 144, May 15, 1991; Commissioner of Internal Revenue v. Court of Tax Appeals, 195 SCRA 444, 458, March 20, 1991; Simon v. Civil Service Commission, 215 SCRA 410, November 5, 1992; Bustamante v. Commissioner on Audit, 216 SCRA 134, 136, November 27, 1992. 11 Solicitor general's Memorandum, p. 44. 12 Ibid. 13 During the Oral Argument on July 13, 1999, I compared petitioner to a Don Quixote bravely battling petroleum-powered windmills. If only for his gutsy Quixotic quest, I have, like many members of the Court, lent a sympathetic ear to petitioner, not only in this case but also in the earlier Tatad in which I wrote a Concurring Opinion to the Court's Decision striking down RA 8180, the Oil Deregulation Law then. QUISUMBING, J., concurring opinion; 1 Rollo, pp. 40-47. 2 Sec. 5 [b] of R.A. 7638. 3 Tatad vs. Secretary of the Department of Energy, 281 SCRA 330, 359-360 (1997).

4 See Philippine Star issue of Dec. 4, 1997. 5 Supra, note 3 at 370. 6 Tatad vs. Secretary of the Department of Energy, 282 SCRA 337, 354 (1997). 7 Supra, note 3, at 353. 8 Ibid. 9 Supra, note 6, at 358. 10 Supra, see note 6 at 345. 11 Sec. 17 of Republic Act Number 8479 — Buffer Fund: The President may, when the interest of the consumers so requires, taking into account the rise in the domestic prices of petroleum products, use the "Reserve Control Account" as a buffer fund in the amount not exceeding Two billion nine hundred million pesos (2,900,000,000.00) to cover increases in the prices of petroleum products, except premium gasoline, during the Transition Phase over the prices prevailing as of the date of the effectivity of this Act. . . .. 12 Rollo, p. 46. 13 "Annex 2" of Public Respondent's Comment. 14 See David Weimer and Aidan Vining, "Policy Analysis: Concepts and Practice, 1992 ed., pp. 124, 126 — Comment — Solicitor General for Public Respondents p. 15-16. According to the article, there have been two major lines of criticism to the use of price regulation (1) regulators are quickly captured by the firms that they regulate and (2) such regulation induces inefficient and wasteful behavior. The outcome of such incentives are inefficiency and overuse of capital under rate of return regulation. 15 Sec. 15. Implementation of Full Deregulation. — Pursuant to Section 5(e) of Republic Act No. 7638, the DOE shall, upon approval of the President, implement the full deregulation of the downstream oil industry not later than March, 1997. As far as practicable, the DOE shall time the full deregulation when the prices of crude oil and petroleum products in the world market are declining and when the exchange rate of the peso in relation to the US dollar is stable. Upon the implementation of the full deregulation as provided herein, the transition phase is deemed terminated and the following laws are deemed repealed: xxx xxx xxx 16 xxx xxx xxx WHEREAS, Section 15 of Republic Act No. 8180, otherwise known as the "Downstream Oil Industry Deregulation Act of 1996," provides that "the DOE shall, upon approval of the President, implement the full deregulation of the downstream oil industry not later than March, 1997. As far as practicable, the DOE shall time the full deregulation when the prices of crude oil and petroleum products in the world market are declining and when the exchange rate of the peso in relation to the US dollar is stable; WHEREAS, pursuant to the recommendation of the Department of Energy, there is an imperative need to implement the full deregulation of the downstream oil industry because of the following recent developments: (i) depletion of the buffer fund on or about 7 February 1997 pursuant to the Energy Regulatory Board's Order dated 16 January 1997; (ii) the prices of crude oil had been stable at $21-$23 per barrel since October 1996 while prices of petroleum products in the world market had been stable since mid-December of last year. Moreover, crude oil prices are beginning to soften for the last few days while prices of some petroleum products had already declined' and (iii) the exchange rate of the peso in relation to the US dollar has been stable for the past twelve (12) months, averaging at around P26.20 to ONE US dollar; xxx xxx xxx 17 Supra, note 3, at 352-353. 18 Supra, note 6, at 353. 42 | P r o j e c t Development_Cha Mendoza

19 146 SCRA 446 (1986). 20 Id., at 455, 456. 21 73 Am. Jur. 2d. Sec. 374. 22 Id., citing Winslow v. Fleischner, 112 Or 23, 228 P 101, 34 ALR 826. 23 Id., citing King v. State, 87 Tenn 304, 10 SW 509. 24 Daza vs. Singson 180 SCRA 496, 500 (1989); citing Tanada vs. Cuenco, 103 Phil. 1051 (1957), Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform, 175 SCRA 343, 377 (1989). 25 Ibid. 26 Ibid. 27 Valmonte vs. Belmonte, Jr., 170 SCRA 256, 268 (1989). 28 190 SCRA 717 (1990). 29 Id. at 737. 30 Basco vs. Phil. Amusements and Gaming Corporation, 197 SCRA 52, 68 (1991); citing Yu Cong Eng vs. Trinidad, 47 Phil. 385 (1925); Salas vs. Jarencio, 46 SCRA 734 (1972); Peralta vs. COMELEC, 82 SCRA 30 (1978); Abbas vs. COMELEC, 179 SCRA 287 (1989). 31 Salas vs. Jarencio, 46 SCRA 734, 749 (1972). 32 Public respondents' Rejoinder, p. 7. 33 The Philippine Star, November 23, 1998 issue. 34 Tolentino vs. Secretary of Finance, 235 SCRA 630, 674 (1994); citing Alalayan vs. National Power Corp., 24 SCRA 172 (1968); Cordero vs. Cabatuando, 6 SCRA 418 (1962); Sumulong vs. COMELEC, 73 Phil. 288 (1941). As of December 10, 1999, Philippine Star, p. 26, reports that "the deregulation of the oil industry under Republic Act (RA) 8479 has resulted in the entry of 53 new players, 10 of which are foreign players. . . Their entry has forced the industry to offer more competitive prices and products." 35 Morfe vs. Mutuc, 22 SCRA 424, 435 (1968). The Lawphil Project - Arellano Law Foundation

Pasted from <http://www.lawphil.net/judjuris/juri1999/dec1999/gr_132451 _1999.html>

REPUBLIC ACT NO. 9367 (BIOFUELS ACT OF 2006) Republic Act No. 9367 January 12, 2007 AN ACT TO DIRECT THE USE OF BIOFUELS, ESTABLISHING FOR THIS PURPOSE THE BIOFUEL PROGRAM, APPROPRIATING FUNDS THEREFOR, AND FOR OTHER PURPOSES. Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled: SECTION 1. Short Title - This act shall be known as the "Biofuels Act of 2006". SEC. 2. Declaration Policy - It is hereby declared the policy of the State to reduce dependence on imported fuels with due regard to the protection of public health, the environment, and the natural ecosystems consistent with the country's sustainable economic growth that would expand opportunities for livelihood by mandating the use of biofuels as a measure to: a) Develop and utilize indigenous renewable and sustainablesources clean energy sources to reduce dependence on imported oil. b) Mitigate toxic and greenhouse gas (GSG) emissions; c) increase rural employment and income; and d) Ensure the availability of alternative and renewable clean energy without any detriment to the natural ecosystem, biodiversity and food reserves of the country.

SEC. 3. Definition of terms - As used in this act, the following term shall be taken to means as follows: a) AFTA - shall refer to the ASIAN free trade agreement initiated by the Association of South East Asian Nation; b) Alternative Fuel Vehicle/Engine - shall refer to vehicle/engines that use alternative fuels such as biodiesel, bioethanel, natural gas, electricity, hydrogen and automotive LPG instead of gasoline and diesel; c) Bioethanol fuel - shall refer to ethanol (C2H30H) produce from feedback and other biomass. d) Biodiesel - shall refer to Fatty Acid Methyl Ester (FAME) or mono-alkyl ester delivered from vegetable oil, or animal fats and other biomass-derived oils that shall be technically proven and approved by the DOE for use in diesel engines, with quality specifications in accordance with the Philippine National Standards (PNS) e) Bioethanol fuels - shall refer to the hydrous and anhydrous bioethanol suitably denatured for use as motor fuel with quality specifications in accordance with the PNS; f) Biofuel - shall refer to the bioethanol and biodiesel and other fuels made from biomass and primary used for motive, thermal power generation, with quality specifications in accordance with PNS; g) Biomass - shall refer to any organic matter, particularly cellulosic or ligno-cellulosic matter, which is available on a renewable or recurring basis, including trees, crops and associated residues, plant fiber, poultry litter and other animal wastes, industrial wastes and biodegradable component of solid waste; h) DA - shall refer to the Department of Agriculture created under Executive Order No. 116, as amended; i) Diesel - shall refer to the refined petroleum distillate, which may contain small amount of hydrocarbon or nonhydrocarbon additives to improve ignition quality or other characteristic, suitable for compression ignition engine and other suitable types of engines with quality specifications in accordance with PNS; j) DENR - shall refer to the Department of Environment and Natural Resources created under Executive No. 192, as amended; k) DOE - shall refer to the Department of Energy created under Republic Act No. 7638, as amended; l) DOLE - shall refer to the Department of Labor and Employment created under Executive Order No. 126, as amended; m) DOF - shall refer to the Department of Finance created under Administrative Orders No. 127 and 127-A; n) DOST - shall refer to the Department of Science and Technology created under Republic Act no. 2067 o) DOTC - shall refer to the Department of Transportation and Communication created under Executive Order No. 125-A, as amended; p) DTI - shall refer to the Department of Trade and Industry created under Executive Order No. 133; q) Feedstock - shall refer to the organic sources such as molasses, sugarcane, cassava, coconut, jatropha, sweet sorghum or other biomass used in the production of biofuels; r) Gasoline – shall refer to volatile mixture of liquid hydrocarbon, generally containing small amounts of additives suitable for use as fuel in spark-ignition internal combustion engines with quality specifications in accordance with the PNS; s) Motor fuel - shall refer to all volatile and inflammable liquids and gas produced, blended or compounded for the purpose of, or which are suitable or practicable for, operating motor vehicle; t) MTBE - shall refer to Methyl Tertiary Butyl Ether; u) NBB or Board - shall refer to the National Biofuel Board created under Section 8 of this Act ; v) Oil Company - shall refer to any entity that distributes and sells petroleum fuel products; w) Oxygenate - shall refer to substances, which, when added to gasoline, increase the amount of oxygen in that gasoline blend;

x) PNS – shall refer to the Philippine National Standard; consistent with section 26 of R.A. No. 8749 otherwise known as the 'Philippine Clean Air Act of 1999; y) Renewable Energy Sources - shall refer to energy sources that do not have an upper limit on the total quantity to be used. Such resources are renewable on a regular basis; and z) WTO - shall refer to the World Trade Organization. SEC. 4. Phasing Out of the Use of Harmful Gasoline Additives and/or Oxygenates. – Within six months from affectivity of this Act, the DOE, according to duly accepted international standards, shall gradually phase out the use of harmful gasoline additives such as, but not limited to MTBE SEC. 5. Mandatory Use of Biofuels. – Pursuant to the above policy, it is hereby mandated that all liquid fuels for motors and engines sold in the Philippines shall contain locally-sourced biofuels components as follows: 5.1 Within two years from the effectivity of this Act, at least five percent (5%) bioethanol shall comprise the annual total volume of gasoline fuel actually sold and distributed by each and every oil company in the country; subject to requirement that all bioethanol blended gasoline shall contain a minimum of five percent (5%) bioethanol fuel by volume Provided, that ethanol blend conforms to PNS. 5.2 Within four years from the effectivity of this Act, the NBB created under this Act is empowered to determine the feasibility thereafter recommend to DOE to mandate a minimum of ten percent(10%) blend of bioethanol by volume into all gasoline fuel distributed and sold by each and every oil company in the country. In the event of supply shortage of locally-produced bioethanol during the four–year period, oil companies shall be allowed to import bioethanol but only to the extent of the shortage as may be determined by NBB. 5.3 Within three months from the effectivity of this Act, a minimum of one percent (1%) biodiesel by volume shall be blended into all diesel engine fuels sold in the country: Provided That the biodiesel blend conforms to PNS for biodiesel. Within two years from the effectivity of this Act, the NBB created under this Act is empowered to determine the feasibility and thereafter recommend to DOE to mandate a minimum of two percent (2%) blend of biodiesel by volume which may be increased taking into account considerations including but not limited to domestic supply and availability of locally-sourced biodiesel component. SEC. 6. Incentive Scheme – To encourage investments in the production, distribution and use of locally-produced biofuels at and above the minimum mandated blends, and without prejudice to enjoying applicable incentives and benefits under existing laws, rules and regulations, the following additional incentives are hereby provided under this Act. a) Specific tax The specific tax on local or imported biofuels component, per liter of volume shall be zero (0). The gasoline and diesel fuel component, shall remain subject to the prevailing specific tax rate. b) Value Added Tax The sale of raw material used in the production of biofuels such as, but not limited to, coconut, jatropha, sugarcane, cassava, corn, and sweet sorghum shall be exempt from the value added tax. c) Water Effluents All water effluents, such as but not limited to distillery slops from the production of biofuels used as liquid fertilizer and for other agricultural purposes are considered "reuse", and are therefore, exempt from wastewater charges under the system provided under section 13 of R.A No. 9275, also known as the Philippine Clean Water Act: Provided, however, That such application shall be in accordance with the guidelines issued pursuant to R.A. No. 9275, subject to the monitoring and evaluation by DENR and approved by DA. d) Financial Assistance Government financial institutions, such as the Development Bank of the Philippines, Land Bank of the Philippines,

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Quedancor and other government institutions providing financial services shall, in accordance with and to the extent by the enabling provisions of their respective charters or applicable laws, accord high priority to extend financing to Filipino citizens or entities, at least sixty percent (60%) of the capital stock of which belongs to citizens of the Philippines that shall engage in activities involving production storage, handling and transport of biofuel feedstock, including the blending of biofuels with petroleum, as certified by the DOE. SEC. 7. Powers and Functions of the DOE. – In addition to its existing powers and functions, the DOE is hereby mandated to take appropriate and necessary actions to implement the provisions of this Act. In pursuance thereof, it shall within three months from effectivity of this Act: a) Formulate the implementing rules and regulations under Section 15 of this Act; b) Prepare the Philippines Biofuel program consistent with the Philippine Energy Plan and taking into consideration the DOE's existing biofuels program; c) Establish technical fuel quality standards for biofuels and biofuel-blended gasoline and diesel which comply with the PNS. d) Establish guidelines for the transport, storage and handling of biofuels; e) Impose fines and penalties against persons or entities found to have committed any of the prohibited acts under Section 12 (b) to (e) of this Act; f) Stop the sale of biofuels and biofuel-blended gasoline and diesel that are not in conformity with the specifications provided for under Section 5 of this Act, the PNS and corresponding issuances of the Department; and g) Conduct an information campaign to promote the use of biofuels SEC. 8. Creation of the National Biofuel Board (NBB) – The National Biofuel Board is hereby created. It shall be composed of the Secretary of the DOE as chairman and the Secretaries of the DTI, DOST, DA, DOF, DOLE, and the Administrators of the PCA, and the SRA, as members. The DOE Secretary, in his capacity as Chairperson, shall, within one month from the effectivity of this Act, convene the NBB. The Board shall by assisted by a Technical Secretariat attached to the Office of the Secretary of the DOE. It shall be headed by a Director to be appointed by the Board. The number of staff of the Technical Secretariat and the corresponding positions shall be determined by the Board, subject to approval by the Department of Budget and Management (DBM) and existing civil services rules and regulations. SEC. 9. Powers and Functions of the NBB. – The NBB shall have the following powers and functions: a) Monitor the implementation of, and evaluate for further expansion, the National Biofuel Program (NBP) prepares by the DOE pursuant to Section 7 (b) of this Act; b) Monitor the supply and utilization of biofuels and biofuelblends and recommend appropriate measures in cases of shortage of feedstock supply for approval of the Secretary of DOE. For this purpose: 1. The NBB is empowered to require all entities engaged in the production, blending and distribution of biofuels to submit reports of their actual and projected sales and inventory of biofuels, in a format to be prescribed for this purpose; and 2. The NBB shall determine availability of locally-sourced biofuels and recommend to DOE the appropriate level or percentage of locally–sourced biofuels to the total annual volume of gasoline and diesel sold and distributed in the country. c) Review and recommend to DOE the adjustment in the minimum mandated biofuel blends subject to the availability of locally–sourced biofuels: Provided, That the minimum blend may be decreased only within the first four years from the effectivity of this Act. Thereafter, the minimum blends of the five percent (5%) and two percent (2%) for bioethanol and biodiesel respectively, shall not be decreased;

d) Recommend to DOE a program that will ensure the availability of alternative fuel technology for vehicles, engine and parts in consonance with the mandated minimum biofuelblends, and to maximize the utilization of biofuels including other biofuels; e) Recommend to DOE the use of biofuel–blends in air transport taking into account safety and technical viability; and f) Recommend specific actions to be executed by the DOE and other appropriate government agencies concerning the implementation of the NBP, including its economic, technical, environment, and social impact. SEC. 10. Security of Domestic Sugar Supply. - Any provision of this Act to the contrary notwithstanding, the SRA, pursuant to its mandate, shall, at all times, ensures that the supply of sugar is sufficient to meet the domestic demand and that the price of sugar is stable. To this end, the SRA shall recommend and the proper agencies shall undertake the importation of sugar whenever necessary and shall make appropriate adjustments to the minimum access volume parameters for sugar in the Tariff and Custom Code. SEC. 11. Role of Government Agencies. – To ensure the effective implementation of the NBP, concerned agencies shall perform the following functions: a) The DOF shall monitor the production and importation of biofuels through the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC); b) The DOST and the DA shall coordinate in identifying and developing viable feedstock for the production of biofuels; c) The DOST, through the Philippine Council for Industry and Energy Research and Development (PCIERD), shall develop and implement a research and development program supporting a sustainable improvement in biofuel production and utilization technology. It shall also publish and promote related technologies developed locally and abroad. d) The DA through its relevant agencies shall: (1) Within three months from effectivity of this Act, develop a national program for the production of crops for use as feedstock supply. For this purpose, the Administrators of the SRA and the PCA, and other DA-attached agencies shall, within their authority develop and implement policies supporting the Philippine Biofuel Program and submit the same to the Secretary of the DA for consideration; (2) Ensure increased productivity and sustainable supply of biofuel feedstocks. It shall institutes program that would guarantee that a sufficient and reliable supply of feedstocks is allocated for biofuel production; and (3) Publish information on available and suitable areas for cultivation and production of such crops. e) The DOLE shall: (1) Promote gainful livelihood opportunities and facilitate productive employment through effective employment services and regulation; (2) Ensure the access of workers to productive resources and social coverage; and (3) Recommend plans, policies and programs that will enhance the social impact of the NBP. f) The Tariff Commission, in coordination with the appropriate government agencies, shall create and classify a tariff line for biofuels and biofuel-blends in consideration of WTO and AFTA agreements; and g) The local government units (LGU) shall assist the DOE in monitoring the distribution sale in use of biofuels and biofuelblends SEC. 12. Prohibited Acts. The following acts shall be prohibited: a) Diversion of biofuels, whether locally produced or imported, to purposes other than those envisioned in this Act; b) Sale of biofuel–blended gasoline or diesel that fails to comply with the minimum biofuel–blend by volume in violation of the requirement under Section 5 of this Act; c) Distribution, sale and use of automotive fuel containing harmful additives such as, but not limited to, MTBE at such

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concentration exceeding the limits to be determined by the NBB. d) Noncompliance with the established guidelines of the PNS and DOE adopted for the implementation of this Act; and e) False labeling of gasoline, diesel, biofuels and biofuelblended gasoline and diesel. SEC. 13. Penal Provisions. - Any person, who willfully aids or abets in the commission of a crime prohibited herein or who causes the commission of any such act by another shall be liable in the same manner as the principal. In the case of association, partnerships or corporations, the penalty shall be imposed on the partner, president, chief operating officer, chief executive officer, directors or officers, responsible for the violation. The commission of an act enumerated in Section 12, upon conviction thereof, shall suffer the penalty of one year to five years imprisonment and a fine ranging from a minimum of One million pesos (P 1,000,000.00) to Five million pesos (P 5,000,000.00). In addition, the DOE shall confiscate any amount of such products that fail to comply with the requirements of Sections 4 & 5 of this Act, and implementing issuance of the DOE. The DOE shall determine the appropriate process and the manner of disposal and utilization of the confiscated products. The DOE is also empowered to stop and suspend the operation of businesses for refusal to comply with any order or instruction of the DOE Secretary in the exercise of his functions under this Act. Further, the DOE is empowered to impose administrative fines and penalties for any violation of the provisions of this Act, implementing rules and regulations and other issuance relative to this Act. SEC. 14. Appropriations. - Such sums as may be necessary for the initial implementation of this Act shall be taken from the current appropriations of the DOE. Thereafter, the fund necessary to carry out provisions of this Act shall be included in the annual General Appropriation Act. SEC. 15. Implementing Rules and Regulations (IRR). The DOE, in consultation with the NBB, the stakeholders and the other agencies concerned, shall within three months from affectivity of this Act, promulgated the IRR of this Act: Provided, That prior to its effectively, the draft of the IRR shall be posted at the DOE web site for at least one month, and shall be published in at least two newspapers of general circulation. SEC. 16. Congressional Oversight Committee. - Upon affectivity of this act, a Congressional Committee, hereinafter referred to as the Biofuels Oversight Committee, is hereby constituted. The biofuels oversight committee shall be compose of (14) members, with the Chairmen of the Committees on Energy of both House of Congress as cochairmen. The Chairmen of the Committee on Agriculture and Trade and Industry shall be ex officio members. An additional four members from each House, to be designated by the Senate President and Speaker of the House of Representatives, respectively. The minority shall be entitled to pro-rata representation but shall have at least one representative in the Biofuel Oversight Committee. SEC. 17. Benefits of Biofuel Workers. - This Act shall not in any way result in the forfeiture or diminution of existing benefits enjoyed by the sugar workers as prescribed under the R.A. No. 6982, or the Sugar Amelioration Act of 1991. In case sugarcane shall be used as feedstock. The NBB shall establish a mechanism similar to that provided under the Sugar Amelioration Act of 1991 for the benefit of other biofuel workers. SEC. 18. Special Clause. - This act shall not be interpreted as prejudicial to clean development mechanism (CDM) projects that cause carbon dioxide (CO2) and greenhouse gasses (GHG) emission reductions by means of biofuel use. SEC. 19. Repealing Clause. - The provision of Section 148 (d) of R.A. No. 8424, otherwise known as Tax Reform Act. of 1997, and all other laws, presidential decrees or issuance, executive orders, presidential proclamations. rules and regulations or part thereof inconsistent with the provisions of 45 | P r o j e c t Development_Cha Mendoza

this Act, are hereby repealed, modified or amended accordingly. SEC. 20. Separability Clause. - If any provision of this Act is declared unconstitutional in the same shall not affect the validity and effectivity of the other provision hereof. SEC. 21. Effectivity. - This act shall effect fifteen (15) day after publication in at least two newspapers of general circulation. Approved, JOSE DE VENECIA JR. Speaker of the House of Representatives MANNY VILLAR President of the Senate

This Act which is a consolidation of Senate Bill No. 2226 and House Bill No. 4629 was finally passed by the Senate and the House of Representatives on November 29 2006. ROBERTO P. NAZARENO Secretary General House of Represenatives Approved: January 12, 2007 GLORIA MACAPAGAL-ARROYO President of the Philippines Pasted from <http://www.lawphil.net/statutes/repacts/ra2007/ra_9367_200 7.html> OSCAR G. YABES Secretary of Senate

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