Good morning Mr. Chair.

The audit observations are discussed in detail in the Final Audit Report, and in
brief/summary are the FIVE AREAS FOR IPROVEMENT”

1. There were issues in the implementation of the Capacity Addition Program under the five-year MEP and
the NPC Performance Scorecard.

a. Delays in the completion of projects due to weaknesses in the procedures and internal controls.

NPC Circular No. 2020-013:

 Projects in missionary areas must adhere to programmed timelines in the MEP and NPC implementation
standards.

2016 Revised IRR of RA 9184 - ANNEX D (2.1):

 Suspension of procurement for goods, supplies, and materials allowed only in unforeseen and significant
events affecting project implementation.

2016 Revised IRR of RA 9184 - ANNEX E (10.1/10.2):

 Infrastructure project procurement suspension allowed due to force majeure, fortuitous events, or failure
to correct unsafe conditions.
 Contractors can suspend work due to right-of-way issues, lack of necessary construction plans, peace and
order concerns, and delays in material delivery or payment.

The key consideration of the Management for entering into a contract is the timely completion of these
projects in order to realize the intended benefits. In this case, the purpose was defeated for the newly
installed/ commissioned generating sets. Based on our analyses, the execution of these projects had faced
considerable delays as a consequence of several /repetitive work suspensions. These delays were primarily
caused by the lapses in the planning during the procurement phase of the projects, right-of-way issues, force
majeure and fortuitous events, leading to repeated work suspensions and deficiencies in the initial planning
process. The root causes for the suspensions and time extension involve:
a. Revision of Operation Scheme of the generators (5x1.0MW Boac DPP) (83 CD)
 Initial plans or specifications for the generator sets' operation were inadequate or required
adjustments due to unforeseen site conditions.
 The equipment layout scheme could have been finalized before the bidding process and the project's
start. Despite changes during implementation, the significant delay occurred close to the project's
intended completion, despite the contractor and NPC's field representative being aware of the site
conditions for over six months. Adjustments and catch-up plans could have been anticipated and
enacted earlier. The delays due to these technical issues result from a lack of proper planning and
coordination, not qualifying as unforeseeable circumstances under RA 9184 and its implementing rules.
b. Implementation of Enhanced Community Quarantine.
 The global Covid-19 pandemic disrupted project timelines impacting the Torrijos Diesel Power Plant
Project, Sacol DPP and 4 island barangays. The second suspension of work for the Four Island
Barangays project and Sacol DPP, although justified by the State of Calamity declared due to the Covid-
19 pandemic, occurred after the contract had expired ( (memorandum from the Executive Secretary,
Office of the President under Proclamation No. 929 dated 16 March 2020).
c. Pending approval of Special Agreement on Protected Areas (SAPA) Certificate from Protected Area
Management Board (PAMB-DENR) under the Expanded National Integrated Protected Areas System Act
2018. The work operations were significantly suspended from 18 October 2018 to 28 February 2021 or
865 CD due to unresolved right-of-way (ROW) issues.
  The SAPA application, with necessary documents, was submitted on 25 June 2019. It was obtained on
23 October 2020, taking over a year to secure.
 The suspension may have been warranted due to valid right-of-way problems, the timing of acquiring
the necessary right-of-way and initiating construction should have been carefully coordinated by all
relevant parties. SPUG who was then the implementor of the project, had confirmed the protected
area status of Great Sta. Cruz Island as early as 2014 during a site visit. Had the requirements for the
SAPA Certificate been timely secured as part of the pre-construction activities, the project could have
potentially been completed within the specified contract period.
d. Unsettled issue on the final configuration of the Single Line Diagram (SLD) for the 2x1.5 MW Torrijos DPP
which affected the working space area in the Main Control Room.
 Because of this issue, the succeeding activities could not commence until finalization of the project's
main component and a considerable period was consumed during coordination with PES-DDD and
SPUG-LOD regarding the space problem including the collaboration with the suppliers for the
manufacturing of the major electrical equipment.There was also a limited site mobility because of the
pandemic and the imposed lockdowns at Marinduque.
 The congested space problem in the main control room was a technical issue or constraint, not an
unforeseeable circumstance that could have been anticipated and avoided with detailed planning and
inspection. Contractors are responsible for reviewing project documents and site conditions to identify
potential issues and seek clarifications or adjustments early in the process, during the pre-bid
conference or even during the early part of the construction activity.

b.TIME EXTENSION (AMENDMENT TO ORDER NO. 2)

e. Unavailability of bulk-cargo shipment. This is due to the effect of Chinese holidays on the schedule of
cargo ships from Shanghai, China. Chinese holidays can disrupt regular shipping schedules, causing
delays in cargo availability.
f. Delayed hauling of gensets. This is due to logistical issues or transportation constraints at Balanacan
Port.
 These events may have been foreseeable in a general sense, the specific details and impacts may not
have been reasonably predictable or within the parties' control at the time the contract was
established. As such, they could be considered unforeseen events warranting adjustments to the
contract's time frame.

The contract was extended for 45 C.D. from 24-Mar-17 (1st Revised Expiry) to 08-May-17 (2nd Revised Expiry)
Amendment to Order No. 1
- Additional scope of work for the Construction of New S/Y Bay
- Additional Electro-mechanical equipment
Amendment to Order No. 3
- Variation Order : (+) ₱8,050,584.75 (2.79%)

The weaknesses identified by the audit discloses that the program is at risk of failing to fulfill its mission
effectively, efficiently, and in compliance with laws and its own strategic framework. Addressing these
weaknesses is important for improving the program's performance and ensuring it delivers the intended
economic, social, and environmental benefits.
b. Expanded coverage of suspension of works/activities for the Five (5) Island Barangays Project in
Zamboanga, instead of just the Great Sta. Cruz Island for which the Special Agreement for Protected Area
(SAPA) Permit was not secured before the start of the project.

 The Five Island Barangays Project in Zamboanga was wholly suspended instead of partially suspending
activities solely for the Great Sta. Cruz Island, where initially, a Special Agreement for Protected Area
(SAPA) Permit had not been secured before project commencement. Significant delays totaling 865 CD
for Great Sta. Cruz and 455 CD for other four island barangays.

An Overview of Events and Circumstances Surrounding the Five Island Barangays Project as follows:
 Partial suspension initially requested for Great Sta. Cruz DPP by Contractor
 Notice of Suspension covered entire Five Island Barangays Project, including other four island barangays
 Issued one month before contract expiry, delaying completion and commissioning of islands
 Suspension only pertains to works/activities at project sites, not “Contract Time”
 Despite differing statuses of project sites, all treated uniformly under project suspension by PES
Management

 The root cause of the expanded suspension can be attributed to a lack of differentiation in the project
management approach. Despite each island barangay having different land classifications and unique
requirements, they were all uniformly suspended in the project. This lack of distinction led to delays
and impacted the completion timelines for all the island barangays. It led to significant delays totaling
865 calendar days. Proper planning and coordination, along with proactive engagement with
stakeholders, are essential for ensuring project success and timely completion.

(Don’t read) :
 Great Sta Cruz Island is classified as Protected Area under Expanded National Integrated Protected
Areas System Act of 2018 (E-NIPAS).
 SAPA Certificate required for Permit to Enter (PTE) project site
 PTE or SAPA Certificate not secured prior to the start of the project, contributing to its suspension
 Contractor's Partial Suspension of Work for Great Sta. Cruz approved by OIC-VP PES
 Contract for Great Sta. Cruz Diesel Power installation effective from 21 Feb 2018 to 17 Nov 2018, with
no activity for the whole contract duration
 Contractor commenced construction on other sites and mobilized on following dates:
 Tigtabon/Pangapuyan (13 March 2018); Tumalutab (18 March 2018); Manalipa (27 June 2018)
 Notice of Suspension issued by OIC-VP PES on 08 November 2018 confirming Contractor’s request;
Suspension was relative to the issue on the SAPA certificate from PAMB/DENR, which is the Great Sta.
Cruz Island but covered the entire project.
 Notice of Resumption of Work for four project sites issued on 16 January 2020; New contract expiry
date on 29 February 2020, excluding Great Sta. Cruz Island. Justification: SAPA process ongoing for
Great Sta. Cruz, but Contractor permitted to proceed with power plant construction.
 Contractor requested temporary suspension of works starting 18 March 2020; Reason: National State
of Emergency declared (Proclamation No. 929) and Enhanced Community Quarantine (ECQ) imposed.
 Suspension of works issued on 03 April 2020 due to ECQ although the contract for four Island
Barangays expired on 29 February 2020
 Suspension only pertains to works/activities at project sites, not “Contract Time”
  Land Classification:
Tumalutab - private lands (not all private lands there are still public lands)
Manalipa - private lands
Tigtabon – A & D (FLAG approved)
Pangapuyan – alienable and disposable (for re-submission of Indicative Management Plan)
Great Sta. Cruz - Protected Area

 All 4 IB with Certificate of Non Coverage (1MW and below)

 ECC for GSC (PA) (1MW and above)
 Certificate of Pre-condition for 5IBs. (They are Energy Projects of National SIGNIFICANCE)

 Additional Information for the Board:

Specific actions taken to address the expanded suspension and mitigate its impact on project timelines.

1. Conducted a comprehensive assessment of each island barangay's land classifications, right-of-way

issues, and permitting requirements in 2019.
2. Coordinated with relevant authorities, i.e. PAMB-DENR and Zamboanga LGU for permits to prioritize
to address permitting challenges effectively. Sought exemption from the SAPA Certificate’s additional
requirement.
3. Implemented contingency plans to mitigate the impact of the expanded suspension on project
timelines, including adjustments to the project schedule and resource allocation.

The provided table outlines the milestones and suspensions for both the Five Island Barangays Project and the
Great Sta. Cruz Diesel Power Plant Project. The Five Island Barangays Project experienced two suspensions,
leading to a cumulative suspension of 572 calendar days. Conversely, the Great Sta. Cruz Diesel Power Plant
Project encountered one suspension, resulting in a cumulative suspension of 865 calendar days.

(SLIDE 6) c. Prolonged rectification of remaining punchlist items

Issue: The remaining punchlist items constitute 0.02% of the contract. Punchlists include:
a. Two (2) remaining Site Acceptance Test (SAT) punchlist items of the replacement transformer (Conduct of
Excitation Current Test and Full Load Test); and
b. Two (2) remaining Joint Final Inspection (JFI) punch list items (Delivery of Flow Meters and Troubleshooting
of the Remote Monitoring System due to discrepancy of data against IGNT Generator Controller).

The project was commercially operated on 21 October 2017. Rectification of remaining punchlist items were
officially closed by ESD on 11 March 2021.

 The root cause of the delayed completion of punchlist items, is the replacement of a faulty transformer,
stemmed from negotiation delays, and issues with supplied equipment. Despite attempts to address the
issue, including negotiations for replacement and discussions on penalties, the resolution process took
several years, prolonging the project's completion timeline.
 It took the Contractor four (4) years to complete the rectification of the outstanding punchlist for
rectification - replacement transformer. The Contractor's proposal is to supply as spare the original 1,250
KVA power transformer without installation, at no cost to NPC as an alternate compliance to the failed Full
Load Test.
(DO NOT read) Show Cause Order was not issued since the Liquidated Damages amounting to Php 109,253.76
is only 0.037% of the total contract cost was already imposed for the unperformed works.

(DO NOT READ)-The actual completion of item no. 14 of the Bill of Quantities (BOQ) “Training at the site at
least Eight (8) NPC Personnel to be conducted by experts who are knowledgeable and trained by the genset
manufacturer or his authorized distributor” is on 25 May 2017 incurring 17 C.D. delayed to the target
completion date due to the Technical Personnel of the Manufacturer prioritized to complete the installation of
electromechanical works of the gensets since the training comprises an actual operation of the units.
-The actual completion of item no. 15 of the Bill of Quantities (BOQ) “Test and Commissioning” is on 05 July
2012 incurring 58 C.D. delayed to the target completion date due to unfinished electromechanical works. The
delayed completion of electromechanical works is attributed to the limited Foreign Technical Personnel of the
contractor.

Considering the foregoing, we recommended the NPC Management to require the Power Engineering
Service Group (PES) to:
1. Direct the Project Management Department and relevant offices to:
 take immediate actions to address the issues that hamper timely project completion
 strictly enforce penalty and termination provisions of the contract and the Procurement Act.
2. Establish criteria for minor and major punchlist items to determine levels of justification required for
completing rectification works and additional penalties that may be imposed on top of liquidated
damages.
3. Consult the Office of the Legal Counsel on the imposition of additional penalties and other legal
remedies for delayed or non-rectification of major punchlist items.

MANAGEMENT COMMENTS, ACTIONS TAKEN/ PLANS:

 PES to establish Documentation Committee to revise QMS Procedures for Site Management and set
criteria for minor and major punchlist items by Q4 2024.
 PES Departments convened on 26 January 2024 to discuss criteria for identifying punchlist items.
-Based on a query from PES-ESD last week, the initial agreement among the concerned departments of
PES on the identification of major punchlists, which affect the operation of the plant, will be at the
discretion of those departments (DDD, PMD, ESD).
- During the consultation with the Office of Legal Counsel (OLC) regarding additional penalty provisions in the
Terms of Reference (TOR) for major items not rectified within the given duration, it was advised that existing
penalties are enough to protect NPC's interests. The OLC emphasized that these penalties rely on strict
monitoring by project implementors. However, they are open to considering any additional suggestions from
the Department for inclusion in the TOR.
- Mr. Chair, allowing the identification of major punchlists within the discretion of PES departments
(DDD, PMD, ESD) may lead to inconsistency and lack of standardization. With clear criteria in place, all
contractors will be treated fairly and equally, and penalties or rectification measures will be applied
consistently across the board. To address this, we propose implementing control measures, including
designating an approving authority and establishing clear criteria for identifying major punchlists. This
ensures fairness, consistency, and efficiency in addressing project issues.

 PES has thoroughly maintained the review, evaluation, and processing of all requests for Contract
Time/Work Suspension and/or Resumption, ensuring further improvement and strengthening to
safeguard NPC’s interests. Ongoing implementation.
 (DO NOT READ) Corrective Actions:
Minimize project delays by:
 Resolving ROW problems prior to start of project. The procedures for the assessment of the
proposed sites for NPC Power Projects already enhanced / revised on 20 March 2023. The revised
procedure describes the participation of the PMD ROW Team who will conduct initial
inspection/assessment and pre-negotiation of possible sites for the project. The PMD ROW Team
submits to DDD the ROW Team’s pre-selected sites for suitability assessment. DD will create the PES
Composite Team who will conduct the Site Suitability Assessment; inspect /assess the suitability of
the site. There will also be a PMD Survey Team who will conduct land/bathymetric survey of the pre-
selected sites by the PMD ROW Team. PMD Survey Team will discuss and analyze the results using
the sites assessment/evaluation, rank the sites, and agree which of the sites will be recommended
for land acquisition. The PES-CT will prepare the consolidated report and route the draft consolidated
report to concerned depts.
 Timely submission/approval of construction drawings specifying the actual measurements for the
actual equipment, highlighting timelines and ensuring their inclusion within the Terms of Reference
(TOR). This will be circularized to set as guidelines in the implementation of the project. The PES-CT is
composed of DDD, EMD, PMD-ERSD and ROW Team while the Procedure on Assessment of Proposed
Site, Rev. 0 consists of DDD, PMD and EMD only. The ROW TEAM and ERSD are not included where
right-of-way issues trigger during the conduct of site selection.

NPC Management should direct the OLC to review all requests for work suspension to evaluate their
merits, particularly those made after the contract expiration, for transparency and impartiality. This
requirement should be integrated in the RMOA as a control point.

MANAGEMENT COMMENTS, ACTIONS TAKEN/ PLANS:

CAG:
 CAG to monitor PES project implementation via WBS and update manual of procedure for continual
planning improvement; revision initiated on 25-26 January 2024.
 OLC ensures compliance, aids in land acquisition/documentation, follows NPC Circular No. 2019-017,
internal policies, and laws to prevent legal issues and project delays. Ongoing implementation.

Ms. Sabado informed that delayed preparation of the project close-out report has an effect in the depreciation
process, which this could not be depreciated.

Ms. Arevalo added that since the project cannot be closed and remains in CWIP, it is not yet considered a fixed asset
and thus not included in the base rate, making recovery impossible.

Mr. Ocampo informed that the late preparation of the close-out report caused by delayed completion of punch list
items is an automatic observation with the COA. The criteria of COA for accounting standards is when the asset is
already functioning as intended for use by the management, depreciation should already commence. Although the
project has pending unitization due to unavailability of the Project Close-out Report and other necessary documents,
but already in use/operational, we have been using the asset as intended for the 5x1MW Boac DPP, there will be no
record for depreciation expenses. The depreciation cost should commence from when the asset was utilized. So,
there would be adjustments on the GL 205 (Adjustment of prior years earnings) whereas the depreciation of the
asset could no longer be beneficial, and will go directly to GL 205. The recovery of the cost could not be used
anymore because it would not be reported/recorded as depreciation expense for the current period and shall be
reported as adjustment to GL 205 only. The reference for the recovery is the depreciation expense excluding the
adjustments. Kaya Maganda po sana to address the time to use the asset then prior to commercial operation, is
 already unitized to depreciate the asset, then we can recover it through RORB. So to resolve the issue, the timely
preparation of Project Close-out Report and all the necessary documents to unitize the asset should be given
importance.

PMD conducted series of meetings with the different managers of PES Departments and agreed to review the tender
documents and found out there is a provision for a one month completion of rectification works by the Contractor,
maximum period of completion of punchlists is one month. They also proposed to consider additional penalty
provision but did not push through because of the provision on liquidated damages. Best effort in coordinating with
the Contractor since the provisions are already being enforced. The maximum 1-month period for closure of
punchlists depends upon the Contractor, and it may not be realistic depending on the scope of work that the
Contractor will be accomplishing. There will be a scheduled meeting on 26 January 2025 between PMD, ESD and DDD
to identify the minor and major punchlists with the intention to come up with a specific action to be taken for the
minor and major punchlists. Major punchlists relevant to the operation of power plant will not be deducted from the
contract but should be complied by the contractor. If not complied, liquidated damages will be imposed to complete
the project.

2. There are weaknesses in the controls for the suspension of works and in the provisions on contract
implementation in the NPC Revised Manual of Approvals (RMOA).

 There are issues in the 2018 NPC Revised Manual of Approvals (RMOA) regarding contract controls,
specifically work suspensions and time extensions. These issues include full authority, potentially lacking
checks and balances.

(SLIDE 8) The tables outline the approving authorities for suspensions, resumptions, and time extensions in
infrastructure projects and procurement of goods/services. These tables delineate the specific individuals or
bodies responsible for approving various actions related to contract implementation, such as suspensions,
resumptions, and time extensions, ensuring clarity and accountability in the decision-making process.

Infrastructure Projects:
Suspension of Work: The Vice President Concerned is the approving authority.
Resumption of Work: The President & CEO is the approving authority, regardless of duration.
Time Extension: For OP-approved contracts, the President & CEO has the authority. For NP Board-
approved contracts, the NP Board holds the authority.

Procurement of Goods/Services:
Amendment of Purchase Orders/Open Purchase Orders/Indent Orders/Contracts:
Time Extension: The President & CEO has authority for OP-approved contracts, while the NP Board holds
authority for NP Board-approved contracts.
Contract Suspension: Regardless of duration, the Vice President Concerned holds the approving authority.
Contract Resumption: Regardless of duration, the President & CEO is the approving authority.
There is no review by the Office of the Legal Counsel for these requests.

(SLIDE 23) In Annex "D" of Republic Act 9184 (R.A. 9184) and its RIRR:

 Procuring entities can adjust orders for price and delivery schedule changes due to emergencies. They can
also suspend work for force majeure reasons, requiring suppliers to minimize costs. Once lifted, work
resumes with adjusted terms
(SLIDE 24) In Annex "E" of Republic Act 9184 (R.A. 9184) and its RIRR:
 Procuring entities can suspend work for reasons like force majeure. Contractors can also suspend critical
path activities. Contract time may be adjusted if the suspension isn't the contractor's fault. Time
extensions require notices within 30 days for additional work or special circumstances. No extensions for
ordinary weather conditions or contractor negligence. Extensions only for critical path activities, with
various accepted reasons and consent of bondsmen required.

(SLIDE 9) Based on the examined documents submitted by PES, the following ASSESSMENTS were raised:

A. The NPC President approves time extensions for goods and infrastructure projects.
B. The Vice President holds sole authority to suspend goods or infrastructure projects, potentially
hindering checks and balances and oversight.
C. The NPC President approves the resumption of works, regardless of duration.
D. Suspensions lack duration limits, potentially requiring higher-level approval for lengthy suspensions.
E. There is no review by the VP's Office of the Legal Counsel for legal compliance and review on the
validity of the contractor’s justifications.

(SLIDE 26) With the revision of the Proposed RMOA aim to address these concerns with duration limits, Legal
Counsel reviews, and clearer approval procedures.

In the proposed revision of the Revised 2018 MOA, there are changes proposed for contract implementation
for goods and infrastructure projects:

For goods:
 Minor changes (equivalent costs below 50% of the contract price) can be approved by the VP Concerned,
while major changes (equivalent costs at least 50% of the contract price) require approval from the
President & CEO.
 Changes entailing costs against NPC are subject to approval from the original contract approving authority.
 Monthly reports on approved contract suspensions/resumptions are required to be provided to the Office
of the President for durations up to 30 days and to the NP Board for durations exceeding 30 days.
For infrastructure projects:
 Time extensions within 50% of the original contract duration are approved by the President & CEO, while
extensions beyond 50% require NP Board approval.
 PERT/CPM network schedule revisions are approved by the VP Concerned.
 All contract suspensions, terminations, and extensions are subject to review and recommendation by the
Office of the Legal Counsel, in accordance with RIRR 9184.

(DO NOT READ) The RMOA Secretariat presented the proposals for the revision of the RMOA under Contract
Implementation for Goods. She stated that the proposal presented is the final proposal from PES, which has
been approved by the Technical Working Group. The proposal has been reviewed by different functional
groups and has also been examined by Asec. Maya of the DOF, along with other members of the BRRMC.

(SLIDE 7) Based on the above, we recommend that NPC Management enhances contract implementation
controls and ensures efficient project management.

 Conduct regular audits to check compliance.

 Enhance monitoring of contractor and project performance.
 Delegate authority levels for suspension requests within RMOA instead of centralized control.
 Introduce an additional layer of approval for longer suspensions/extensions.
 Consider cumulative periods for suspensions/extensions.
 Include criteria for amendments and extensions in the RMOA.
 Develop guidelines for handling expired contracts.
 Require OLC review for all suspension and extension requests (Add provision to RMOA).

NPC Management is proposing the following improvements in the RMOA :

 There will be levels of authority for the approval of requests for suspension of work instead of full
authority by the VP-PES.
 All requests for suspension of works are to be reviewed by the VP – Office of the Legal Counsel (OLC).
 Suspension of work shall be considered on a cumulative basis, instead of per incident.
 PES inputs/counterproposals for the Revised Manual of Approvals submitted to RMOA TWG.
 CAG to coordinate with AFG for CPD personnel training on power generation trends.

(SLIDE 11)

3. Real Property Taxes (RPT) and penalties amounting to P1,034,961.54, have not been paid by the NPC.

Due to delays in communicating and endorsing the approved Compromise Agreement and Deed of Usufruct to SPUG
officials, there was a delay in paying Real Property Tax (RPT) arrears from 1996 to 2018, and subsequent RPTs from
2019 to 2022. The Court Decision was disseminated to SPUG and AFG offices on 12 December 2018, but MARELCO,
the property owner, did not receive it due to routing issues. According to the Deed of Usufruct, MARELCO remains the
property owner, while NPC has usufruct rights. MARELCO needs the approved documents for assessment of RPT by
the Assessors Office. Coordination with the Assessors Office for the preparation of Payment Order is ongoing.

Finance Dept - SPUG is responsible for the processing and payment of the RPT and arrears per RMOA, Section
17.08, Disbursement Vouchers/Checks/PIVs.

Considering the foregoing, we recommended the SPUG Management, through the Area Offices and SPUG LOD
– Finance, in coordination with the OLC - Land and Land Rights Department should:
 Clarify roles, improve information flow, and update procedures to prevent delays.
 Regularly review legal documents, ensure compliance, and provide staff training.
 Allocate funds for RPT payments for relevant lots.

MANAGEMENT COMMENTS, ACTIONS TAKEN/ PLANS:

 The OLC and SPUG Luzon Operations Department have initiated steps to facilitate the settlement of
the issue.
 The outstanding claims were included in the CY 2024 Budget.

(SLIDE 12)

4. There were issues in securing permits and complying with DENR environmental regulatory and
accreditation requirements during project implementation and plant operation:

a) Failure to secure SAPA clearance prior to the start of construction.

 Issue for SAPA Clearance was already discussed in Observation 1. Among the issues is that SAPA can only
be issued in protected areas whose management zones have been identified and delineated.
Unfortunately, the Great Sta. Cruz Island is one of those islands who have not yet identified and
delineated by PAMB, which makes the issuance of SAPA certification unauthorized in 2018.
 SAPA approved on 23 October 2020.

(DO NOT READ) The challenges faced by SPUG in securing SAPA clearance, the subsequent transfer of the
project to PES, efforts made by PES to gather requirements and coordinate with PAMB, and the eventual
approval of SAPA in October 2020 illustrate the complexities involved in obtaining necessary permits and
clearances for project implementation, underscoring the importance of thorough planning, coordination, and
adherence to regulatory processes to mitigate delays and ensure successful project execution.

b) Lack of accreditation of Pollution Control Officer for the new plants.

During our mini-grid plant visit, incomplete accreditation of the PCO for new power plants was observed,
mainly due to lacking accreditation for the designated PCO for the Five Island Barangays. The issue was
aggravated with the requirement for re-training, of which EMD was unaware when transferring an accredited
PCO from another region with different requirements.

Additionally, scheduling constraints led to the exclusion of the Plant Head/PCO from the recommended
participants list for the PCO Training Course by SPUG's Technical Training Division, complicating matters further.
The Certificate of Accreditation of the Cluster Head for the Five (5) Island Barangays’ Mini- Grid Plants was
granted on 20 April 2023, valid until 20 April 2026.

This situation highlights challenges in appointing and training PCOs, as required by DENR AO 2014-02 and NPC
Circular No. 2020-13, due to the absence of a clear protocol from relevant groups for PCO accreditation. This
underscores the need for clearer guidelines to simplify the accreditation process for PCOs. There is an ongoing
discussion between NPC and DENR aimed at resolving additional requirements for PCO accreditation.

According to DENR AO 2014-02, establishments' Managing Heads must appoint or designate their Pollution
Control Officers (PCOs) and seek accreditation for them. Consequently, SPUG is tasked with appointing PCOs
for its power plants, requesting official designation through an Office Order, and applying for PCO
accreditation. Additionally, NPC Circular No. 2020-13 mandates SPUG to designate a PCO, who must obtain
accreditation from DENR-EMB before project operation, as part of the environmental permit application
requirements.

c) Lack of Discharge permits for the newly constructed plants.

EMD aims for a 30-day processing timeline for DP applications, prioritizing due filings. Despite meeting
requirements, EMB-DENR-Region IX requested more documents, causing a 12 to 14-month delay in obtaining
discharge permits for mini-grid plants. SPUG intervened on November 20, 2022, helping secure all permits.
Delays were due to inconsistent criteria, application issues, and regulatory workload. Despite having a Permit
to Operate, plants lacked vital discharge permits for environmental compliance and protection. Discharge
Permits were issued on November 17 & 20, 2022 (GSC).

IAD RECOMMENDATIONS

The SPUG Management and Power Engineering Services should:

 Ensure strict compliance with relevant laws and regulations, including the National Building Code, Civil
Code of the Philippines, and DENR Administrative Order No. 2021-07.
 Clarify responsibilities of functional groups in the DENR accreditation process and designate a focal person
for monitoring PCO accreditation requirements.
 Include a policy in EMD's QMS Manual of Procedures for consistent monitoring and follow-up of permit
applications.
 Improve coordination with EMB-Central Office to refine policies in alignment with ARTA, ensuring clear
requirements and processing timelines.
MANAGEMENT COMMENTS, ACTIONS TAKEN/ PLANS

 The PES has been instructed to coordinate with relevant offices/agencies for compliance with existing laws
during project implementation. Meeting of NPC and DENR-EMB to address the issues and concerns
pertaining to PCO Accreditation Requirements and Wastewater Discharge Permit held last 30 January
2024. Minutes of the Meeting for signature of DENR-EMB as of 18 March 2024.

 Incorporate a policy/protocol for the accreditation of Designated Project Control Officers into the revision
of EMD QMS Procedures.

(SLIDE 12) 4.There were issues in securing permits and complying with DENR environmental regulatory and
accreditation requirements during project implementation and plant operation:

a) Failure to secure SAPA clearance prior to the start of construction.

The failure to secure SAPA clearance prior to the start of construction were due to the following:

From 2014-2017, SPUG faced challenges securing SAPA Clearance for the power plant due to right-of-way
requirements.
Project transferred to PES in June 2017.
PES initiated gathering of requirements and coordination with PAMB only in October 2018.
SAPA issuance faced hurdles as Great Sta. Cruz Island's management zones were not identified by PAMB,
with no timeline provided for completion.
There were issues that needs to be considered prior to the release of the SAPA Certification
according to the guidelines for the issuance of SAPA by PAMB. Among the issues is that SAPA can
only be issued in protected areas whose management zones have been identified and delineated.
Unfortunately, the Great Sta. Cruz Island is one of those islands who have not yet identified and
delineated by PAMB, which makes the issuance of SAPA certification unauthorized in 2018.
PES submitted SAPA application documents to PAMO in June 2019; EICC issued certificate in July 2019.
SAPA approved in October 2020.

The challenges faced by SPUG in securing SAPA clearance, the subsequent transfer of the project to PES, efforts
made by PES to gather requirements and coordinate with PAMB, and the eventual approval of SAPA in October
2020 illustrate the complexities involved in obtaining necessary permits and clearances for project
implementation, underscoring the importance of thorough planning, coordination, and adherence to
regulatory processes to mitigate delays and ensure successful project execution.

b) Lack of accreditation of Pollution Control Officer for the new plants.

During our plant visit at the mini grid plants, we observed that the accreditation process of the PCO for the
newly constructed power plants remains incomplete. This is primarily due to the lack of accreditation for the
designated PCO for the Five Island Barangays. The requirement for re-training (40-hour Basic Training Course)
has compounded the issue, as EMD was unaware of this requirement from EMB-Region IX when transferring
an accredited PCO from another region with varying requirements for PCO accreditation. Additionally, the
exclusion of the Plant Head/PCO from the SPUG’s recommended participants list for the PCO Training Course,
initiated by the Technical Training Division, further complicates matters. This exclusion occurred due to
scheduling constraints related to the deployment and re-deployment of SPUG personnel who may be assigned
as PCOs. Consequently, the Plant Head/PCO was not included in the Office Order released by the HR-TDD for
the 2021 PCO Training Course.
This situation highlights challenges in appointing and training PCOs, as required by DENR AO 2014-02 and NPC
Circular No. 2020-13, due to the absence of a clear protocol from relevant groups for PCO accreditation. This
underscores the need for clearer guidelines to simplify the accreditation process for PCOs. There is an ongoing
discussion between NPC and DENR aimed at resolving additional requirements for PCO accreditation.

According to DENR AO 2014-02, establishments' Managing Heads must appoint or designate their Pollution
Control Officers (PCOs) and seek accreditation for them. Consequently, SPUG is tasked with appointing PCOs for
its power plants, requesting official designation through an Office Order, and applying for PCO accreditation.
Additionally, NPC Circular No. 2020-13 mandates SPUG to designate a PCO, who must obtain accreditation
from DENR-EMB before project operation, as part of the environmental permit application requirements.

c) Lack of Discharge permits for the newly constructed plants.

EMD adheres to a 30-day processing timeline for DP applications to avoid operating without a valid DP,
prioritizing filings due to the numerous permits with varying requirements. Despite compliance with posted DP
application requirements, EMB-DENR-Region IX requested additional documents not on the checklist. This led
to a 12 to 14-month delay in obtaining discharge permits for the mini-grid power plants. SPUG's intervention
on November 20, 2022, facilitated the eventual securing of all Discharge Permits. The delay was attributed to
inconsistencies in criteria set by the two entities, as well as factors such as completeness and accuracy of the
application, workload of the regulatory agency, and issues with supporting documents. Despite holding a
Permit to Operate, the plants lacked necessary discharge permits, crucial for environmental compliance and
preventing adverse effects on the surrounding area.

IAD RECOMMENDATIONS

❑ The SPUG Management and Power Engineering Services should:

 Ensure strict compliance with relevant laws and regulations, including the National Building Code,
Civil Code of the Philippines, and DENR Administrative Order No. 2021-07.
 Clarify responsibilities of functional groups in the DENR accreditation process and designate a focal
person for monitoring PCO accreditation requirements.
 Include a policy in EMD's QMS Manual of Procedures for consistent monitoring and follow-up of
permit applications.
 Improve coordination with EMB-Central Office to refine policies in alignment with ARTA, ensuring
clear requirements and processing timelines.

MANAGEMENT COMMENTS, ACTIONS TAKEN/ PLANS

 The PES has been instructed to coordinate with relevant offices/agencies for compliance with
existing laws during project implementation.
 Incorporate a policy/protocol for the accreditation of Designated Project Control Officers into the
revision of EMD QMS Procedures.

(SLIDE 13). There are concerns in the implementation of the Plant Operating Hours Module and COA
guidelines affecting the staffing and manpower levels of certain power plants.

a. Boac DPP faces a disparity between approved positions and actual manpower requirements due to
operational complexities.
b. Torrijos DPP has transitioned to 24-hour operation, requiring appropriate staffing adjustments.
c. Sacol DPP's manpower complement does not align with requirements, given its 24-hour operation.
d. Personnel at Five Island Barangays’ Mini-Grid Plants are hired through Contract of Service and
Institutional Contract Hiring while holding responsibilities of permanent employees.

Our criteria is the Joint Circular No. 2, s.2020 (COA-DBM):

 Defines Contract of Service (COS) for special projects.
 Limits COS hiring to consultants, learning service providers, and technical experts.
 Prohibits COS and Job Order (JO) workers from performing regular employee functions or
exercising control over regular employees.

Boac Diesel Power Plant:

 Initially had 13 permanent positions.
Augmented personnel due to operational demands, complex control room arrangements involving the
5x1MW and 4x1.0MW, resulting in 29 operational personnel by March 2023.

Torrijos Diesel Power Plant:

 Shifted to 24-hour operation with increased capacity.
 Employs 12 personnel, excluding the Plant Superintendent.
 Operational hours extended from 16 to 24 hours per day in 2018, with additional generating sets
added in May 2022.
 Operational hours extended in 2018, with additional generating sets added in May 2022.
 Torrijos DPP functioned as a voltage regulator (backup) during power fluctuations and load
variations in 2016-2018 and was augmented by rented generating sets, addressing the projected
demand increase in the Marinduque area. The existing Aggreko rental with contracted capacity of
1.500 MW was replaced by the 2x1.5 MW Diesel Gensets which addressed the projected increase
in demand in Marinduque area.

Sacol Diesel Power Plant (DPP):

 Operates 24 hours a day with a staffing complement including 1 Principal Engineer C, 11 O/M
Technicians, and 1 Engineer II.
 Operating hours increased to 12-16 on May 27, 2017. On November 8, 2019, the plant
transitioned to 24-hour operation
 Challenges in assigning shifts and discrepancies between job responsibilities highlighted.

Five Island Barangays’ Mini-Grid Plants:

 Personnel hired through COS and Institutional Contract Hiring (ICH).
 Staffing pattern exceeds module requirements, with challenges in continuous monitoring.
 Engineer II under COS supervises plant operations, with discrepancies in responsibilities and hiring
practices.
 Manpower exceeds module requirements, lacking permanent status despite fulfilling duties
similar to permanent employees.

RECOMMENDATIONS

SPUG Management must ensure sufficient personnel for new plant operations.
 Assign permanent staff to authorized positions following staffing guidelines, ensuring they are
appropriately bonded.
 Collaborate with HR to resolve staffing shortages in new plants and those with extended operating
hours.
 Revisit the SPUG Operating Hours Module for Mini-Grid Plants and existing plants in coordination with
SPUG Management and HRD.
  Develop a comprehensive training program by HRD that encompasses various aspects such as risk
management, security, safety protocols, technical skill enhancement, and professional development.

MANAGEMENT COMMENTS, ACTIONS TAKEN/ PLANS

 The AFG – HRD will adopt a medium-term action plan, the Scrap and Build approach. The long-term
plan is reorganization, to be considered after three years if financially feasible. There is an ongoing
development of the Scrap and Build Approach. This shall be implemented to said Observation.

The medium-term action plan for the Scrap and Build approach, serves as a roadmap for replacing compulsory
retirees and personnel opting for early retirement.

The Scrap and Build approach goes beyond simply replacing staff; it is about building a stronger, more resilient
organization that is ready to thrive in the face of change and uncertainty. Through talent management,
organizational development, succession planning, cultural transformation, strategic alignment, stakeholder
engagement, and performance management, the organization can adapt, grow, and succeed in the long run.