FIFTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
First Regular Session 
SENATE 
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) 
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s. No. 2164 
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Introduced by Senator FRANCIS G. ESCUDERO 
EXPLANATORY NOTE 
Natural gas is considered by many modern economies as the fuel of choice 
because of its abundance, clean-burning properties and versatility as a fuel 
source. With the successful launching of the Malampaya Deep Water Gas-to-
Power Project on October 16, 2001 marked the birth of the country's natural gas 
industry. The Malampaya gas field discovery signaled a significant leap towards 
energy self-reliance as it now fuels about one-third of the country's total power 
generation. A total of 2700 MW of installed capacity of gas-fired power plants 
make use of the natural gas produced from Malampaya. 
Aside from the use of natural gas for power generation, alternative 
applications in the transport sector is also being pursued. The launching by 
President Gloria Macapagal-Arroyo of the Natural Gas Vehicle Program for 
Public Transport (NGVl'PT) on October 16, 2002 served as a banner program for 
the use of natural gas in the transport sector. 
Following the inauguration of the Malampaya Deep Water Gas-to- Power 
Projecti government advocacy has been initiated to create an impetus to the 
development of the country's downstream natural gas industry. These are the (i) 
signing on January 18, 2002 by President Gloria Macapagal-Arroyo of Executive 
Order No. 66 designating the Department of Energy (DOE) as the lead agency for 
the development of the country's natural gas industry; and (ii) issuance on 
August 27, 2002 by the DOE of the interim rules and regulations governing the 
transmission, distribution and supply sub-sectors of the natural gas industry. 
However, both issuances are not sufficient to impart a clear, 
comprehensive and integrated regulatory framework that will proVide direction 
and to accelerate the development of the country's nascent downstream natural 
gas sector. 
As dynamic developments are taking place in this very young sector, it is 
imperative that conditions favorable to the establishment of the critical 
infrastructure and natural gas market are put in place to optimize economic 
efficiency and returns from the downstream natural gas industry. 
The foregoing premises thus necessitate the immediate passage of the 
Natural Gas Bill. 
FRANCIS G. ESCUDERO 


FIFTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
First R.egular Session 
SENATE 
) 
) 
) 
_____ 
5_" NO"216.4 ______ ,_·._~MiD_..,~Q( ;;,~ 
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Introduced by Senator FRANCIS G. ESCUDERO 
AN ACT 
ORDAINING THE DEVELOPMENT OF THE DOWNSTREAM NATURAL 
GAS INDUSTRY, CONSOLIDATING FOR THE l'URPOSE ALL LAWS 
RELATING TO THE TRANSMISSION, DISTRIBUTION AND SUPPLY 
OF NATURAL GAS AN FOR OTHER PURPOSES 
He it enacted by the Senate and the I-louse of Representatives of the Republic of 
the Philippines in Congress assembled: 
. 
CHAPTER I 
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TITLE AND DECLARATION OF POLICY 
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SECTION 1. Short Title. - This Act shall be known as the "Doll'nstremn 
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Nilturni GIIS Industry Development Act". 
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State: 
SEC. 2. Declllrntion of Policy. - It is hereby declared the policy of the 
(a) To promote the role of natural gas as a socially-acceptable, 
environment-friendly and economically efficient source of energy 
by creating favorable conditions for establishing a Downstream 
Natural Gas Industry for the benefit of all segments of the nation's 
population and all sectors of its economy; 
(b) To ensure the safety, quality, reliability and security of the 
transmission, distribution and supply of natural gas; 
(c) To ensure transparent and reasonable rates and prices of natural 
gas transmission, distribution and supply in a regime of open and 
fair competition and full public accountability that will promote 
greater operational and economic efficiency and the enhanced 
competitiveness of the Philippine products in the global market; 


(d) To encourage the inflow of private capital in providing the 
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infrastructure and services necessary to support an expanded role 
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of natural gas in the nation's energy supply; 
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(e) To protect the public interest as it is affected by the quality of, and 
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rates charged for, the transmission, distribution and supply of 
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natural gas and related services; 
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(f) To assure the development of a Downstream Natural Gas Industry 
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infrastructure that is SOCially-acceptable and compliant with 
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existing environmental laws; 
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(g) To ensure that the Downstream Natural Gas Industry shall be 
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regulated in a manner that will ensure the quality, reliability, 
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security and reasonableness of charges for the transmission, 
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distribution and supply of natural gas, encourage private 
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investment in the Downstream Natural Gas Industry and promote 
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the efficient and competitive operation thereof; 
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(h) To develop the necessary trades, technical expertise and skills to 
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support the Downstream Natural Gas Industry; 
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(i) To facilitate the development of end-uses of natural gas that 
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promotes 
fuel 
diversity 
and 
compliance 
with 
existing 
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environmental laws including, but not limited to, the use of natural 
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gas as a motor vehicle fuel; and 
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0) To encourage equity participation in gas transmission utilities and 
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gas distribution utilities by the private sector. 
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SEC. 3. Scope. -
This Act shall provide a framework for the 
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development of a Downstream Natural Gas Industry and its transition from 
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an emerging to a mature industry status and competitive natural gas market, 
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and define the responsibilities of various government agencies and private 
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entities in furtherance of this national goal. 
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All activities of the Department of Energy (DOE) and the Energy 
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Regulatory Commission (ERC) relevant to the development and regulation of 
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the Downstream Natural Gas Industry shall be in accordance with this Act. 
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SEC. 4. Definition of Terms. - As used in this Act, the following terms 
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shall have the following meanings: 
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(a) "Captive market": 
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with respect to the transmission of natural gas, refers to natural 
gas end-users who do not have a choice of a gas transmission 
utility; 
• 
with respect to the distribution of natural gas, refers to natural 
gas end-users who do not have a choice of a gas distribution 
utility; 
• 
with respect to the supply of natural gas, refers to natural gas 
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end-users who do not have a choice of supplier of natural gas or 
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other economically competitive energy substitute; 
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(b) "Congress" refers to the Congress of the Republic of the 
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Philippines; 
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(c) "Contestable market" is a market that is not a captive market; 
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(d) "Delivery" refers to the transmission or distribution of natural gas 
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and the supply of natural gas, at wholesale or retail; 
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(e) "Department of Energy" or "DOE" refers to the government agency 
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created pursuant to Republic Act No. 7638, as amended 
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(f) "Department of Environment and Natural I{esources" or "DENE" 
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refers to the government agency created pursuant to Executive 
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Order Nos. 192 and 292, as amended; 
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(g) "Distribution" refers to the conveyance of natural gas by a gas 
, 
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distribution utility through its gas distribution system; 
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(h) "Downstream Natural Gas Industry" refers to the transmission, 
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distribution and supply of natural gas and related activities, such 
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as, 
but not limited 
to, 
processing, storing, 
regasification, 
interconnection, measurement and/ or metering; 
(i) "End-user" refers to any person that will receive delivery of natural 
gas for its own use; 
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G) "Energy Regulatory Commission" or "ERe" refers to the 
independent quasi-judicial regulatory agency created pursuant to 
Republic Act No. 9136, otherwise known as the "Electric Power 
Industry Reform Act of 2001", whose expanded functions are 
proVided in this Act; 
(k) "Franchise" refers to the right, privilege and authority issued by 
Congress authorizing a person to engage in the transmission of 
natural gas and/ or distribution of natural gas within a specific 
geographical area; 
(I) "Franchise area" refers to a geographical area assigned or granted 
under a franchise; 
(m) "Gas Distribution Code" refers to the code to be formulated by the 
DOE pursuant to Section 5(g) of this Act that sets the technical 
performance standards for operating gas distribution utilities and 
the minimum financial standards for gas distribution systems; 
(n) "Gas distribution system" refers to the system of pipelines and 
related facilities extending from the delivery points where the gas 
distribution system receives the natural gas to the point of 
connection to the premises of the end-user; 
(0) "Gas distribution utility" refers to any person that has a franchise 
to operate a gas distribution system; 
(p) "Gas supply contract" refers to a contract between a supplier and a 
purchaser for the supply of natural gas; 
(q) "Gas Transmission Code" refers to the code to be developed by the 
DOE pursuant to Section 5(g) of this Act that sets the technical 
performance standards for operating gas transmission systems and 
the minimum financial standards for gas transmission utilities; 
(r) "Gas transmission system" refers to the system to the system of 
high pressure pipelines, storage and related facilities that are used 
to transport natural gas from the interconnection with gathering 
facilities, liquefied natural gas (LNG) regasification facilities or 
other gas transmission systems to gas distribution systems, other 
gas transmission systems or end-users; 
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(s) "Gas transmission utility" refers to any person that has a franchise 
to operate or intending to operate a gas transmission system except 
own-use pipelines; 
(I) "Gathering facilities" refers to natural gas pipelines and related 
facilities used to gather gas in the field and bring it to a location for 
processing Or for delivery at an interconnection with the gas 
transmission system. The terms'" gather" and" gathering" shall be 
construed accordingly; 
(u) "Infrastructure development period" refers to the period prescribed 
in Chapter IV of this Act; 
(v) "Joule" refers to the unit of energy or work done when the point of 
application of a force of one Newton is displaced a distance of one 
meter in the direction of the force. It is also equal to one watt-
second; 
(w) "Large end-user" refers to an end-user whose aggregate annual 
natural gas consumption is one thousand (1,000) gigajoules (gross 
heating value) or greater, as may be determined by the ERC; 
(x) "LNG' refers to liquefied natural gas"; 
(y) "Natural gas" refers to hydrocarbons, obtained initially from sub-
surface reservoirs, primarily methane, which, at atmospheriC 
temperature and pressure, is in a gaseous phase. The term "natural 
gas" shall include LNG; 
(z) "Permit" refers to an authorization issued by the DOE, initially, for 
the construction, operation, expansion and modification of gas 
transmission systems, gas distribution systems and for the supply 
of natural gas; 
(aa) "Person" refers to a natural or juridical person, as the case may be, 
including the national and local government of the Republic of 
the 
Philippines, 
its 
agencies 
and 
instrumentalities, 
and 
government-owned and -controlled corporations; 
(bb) "Petroleum operations" refers to searching for and obtaining 
petroleum within the Philippines through drilling and pressure or 
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suction or the like, and all other operations incidental thereto. It 
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includes the transportation, storage, handling and sale (whether 
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for export or for domestic consumption) of petroleum so obtained 
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but does not include any: (1) transportation of petroleum outside 
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the Philippines; (2) processing or refining at a refinery; or (3) any 
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transaction in the products so refined; 
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(cc) "Philippine Energy Plan" or "PEP" refers to the overall energy 
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program formulated and updated yearly by the DOE and 
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submitted to Congress pursuant to Republic Act No. 7638, as 
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amended; 
, 
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(dd) "Service contract" refers to the award granted by the Philippine 
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government to a qualified person to engage in the exploration, 
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development and utilization of natural resources *rough joint 
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venture, co-production, production-sharing or other similar 
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arrangement with the State pursuant to Article XII, Section 2 of 
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the Constitution, including service contracts under Presidential 
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Decree No. 87, as amended; 
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(ee) "Supplier" refers to any person authorized by the DOE, initially, 
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to engage in the supply of natural gas; 
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(£f) "Supply" refers to the domestic trading and/ or sale of natural gas 
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for wholesale or retail; 
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(gg) "Transmission" refers to the transportation of natural gas through 
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a gas transmission system; and 
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(hh) "Unbundled service" refers to the pricing of the energy value of 
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natural gas separately from the rates charged for natural gas 
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transmission or distribution 
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CHAPTER II 
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POWERS AND FUNCTIONS OF THE DOE AND THE ERC 
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SEC. 5. Powers lind Functions of the DOE. - In addition to its existing 
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powers and functions, the DOE shall have the overall responsibility of 
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supervising and monitoring the development of the Downstream Natural Gas 
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Industry and regulation of the construction and operation of natural gas 
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pipelines and related facilities for the transmission, distribution and supply of 
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natural gas. Towards this end, the DOE shall have the following-powers and 
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{unctions: 
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(a) Prepare and periodically update a Downstream Natural Gas 
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Industry Development Plan (DNCIDp) and integrate the same into 
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the PEP. The DNCIDP shall consider and integrate the individual 
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or joint development plans of the Downstream Natural Cas 
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Industry participants pursuant to this Act, which are submitted to 
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the DOE. Appropriate mechanisms shall be provided to protect the 
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confidentiality of any information that is commercially or 
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competitively sensitive. The DOE shall publish an initial draft of the 
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plan and undertake public consultations thereon prior to its 
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adoption; 
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(b) Issue permits for the construction, operation and maintenance of 
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pipelines and related facilities for the transmission, distribution 
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and! or supply of natural gas; 
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(c) Establish standards setting forth the characteristics for classifying 
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pipeline and pipeline-related facilities either as gas transmission 
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systems or gas distribution systems. These characteristics may 
)' 
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include both the physical characteristics related to the diameter, 
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size and pressure of pipeline facilities, and the functional 
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characteristics of such facilities; 
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(d) Before the end of April of each year, submit to the Office of the 
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President and Congress an annual report; 
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(e) Ensure the safety, reliability, quality and security of supply of 
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natural gas. Consistent with the development of the Downstream 
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Natural Cas Industry, the DOE s.hall, among others: . 
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(i) Encourage private sector investments in the Downstream 
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Natural Cas Industry and promote the development of 
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domestic markets for natural gas; 
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(ii) In consultation with the Downstream Natural Gas Industry 
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participants and other government agencies, promote a 
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system of incentives to encourage industry participants, 
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including new producers and end-users, to provide adequate 
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and reliable supply of natural gas; and 
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(iii) Undertake, in coordination with other governmental 
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agencies, as appropriate, an information campaign to 
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educate the public on the benefits of developing the 
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Downstream Natural Gas Industry and the potential for 
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utilizing natural gas as a source of energy. 
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'(f) Within six months from the effectivity of this Act, develop plans 
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and programs to encourage market development and customer 
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choice; 
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(g) Within twelve (12) months from the effectivity of this Act, the DOE 
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shall, preparatory to the holding of public consultations with the 
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Downstream Natural Gas Industry participants, .draft the Gas 
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Transmission and Distribution Codes which shall contain, among 
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others, the following: 
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(i) Technical performance standards for gas transmission and 
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distribution utilities: Provided, That in the establishment of 
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the performance standards, the nature and function of the 
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entities shall be considered; and 
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(ii) Minimum financial capability standards for gas transmission 
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and distribution utilities: Provided, That such standards are 
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set to ensure that the Downstream Natural Gas Industry 
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participants meet the minimum financial standards to 
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protect the public interest. 
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Within eighteen (IS) months from the effectivity of this 
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Act, the DOE shall, in consultation with the Downstream 
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Natural Gas Industry participants, issue the final Gas 
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Transmission and Distribution Codes. 
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,(h) By order, revoke, after due notice and hearing, the permit of any 
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person that fails to comply with the rules and regulations 
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promulgated pursuant to this Act, the Gas Transmission Code, the 
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Gas Distribution Code, or any requirement of this Act. The DOE 
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shall allow such persons sufficient time to remedy the violation of 
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or for an orderly disgorgement, when applicable, but in no case 
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shall such remediation period exceed twelve (12) months from the 
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date of issuance of the order; 
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(i) Encourage private enterprises in the Downstream Natural Gas 
2 
Industry to broaden their ownership base and promote widest 
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public ownership thereof; 
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G) Formulate, in consultation with the Downstream Natural Gas 
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Industry participants, the rules and regulations as may be necessary 
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to implement the objectives of this Act; 
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(k) Exercise original and exclusive jurisdiction over all cases contesting 
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permits, nonprice regulation, fees, fines and penalties imposed by it 
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in the exercise of the abovementioned powers and functions; and 
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(I) Exercise such other powers and functions as may be necessary or 
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incidental to attain the objectives of this Act. Subject to existing 
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rules and regulations, the DOE is hereby authorized to create 
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offices and appoint personnel thereto as may be necessary to 
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efficiently and effectively perform its functions as stipulated in this 
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Act. 
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SEC. 6. Powers and Functions of the EI~C. - In addition to its existing 
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powers and functions, the ERe shall have the sole regulatory responsibility 
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for establishing the rates and related terms and conditions of service for the 
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transmission, distribution and supply of natural gas to the extent that such 
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activities are regulated pursuant to the requirements set forth in this Act. It 
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shall: 
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(a) Within one year from the effectivity of this Act, promulgate, upon 
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due notice and public consultation, rules and regulations to 
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promote competition and prohibit/ penalize abuse of market 
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power, cartelization and any anti-competitive or discriminatory 
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behavior, in order to further the intent of this Act and protect the 
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public interest. Such rules and regulations shall: 
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(i) Define the relevant product and geographic markets for 
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purposes of establishing anti-competitive conduct; 
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(ii) Provide criteria to determine the relevant market structure; 
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and 
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(iii) Establish the periodic reportorial requirements of the 
Downstream Natural Gas Industry participants as may be 
necessary to enforce the provisions of this section. 
(b) In the public interest, establish and enforce a methodology for 
setting transmission, distribution and supply rates, taking into 
account all relevant Considerations, including the efficiency or 
inefficiency of the regulated entities. The rates must be such as to 
allow the recovery of just and reasonable costs an<;1 a reasonable 
return to enable the entity to operate viably. The ERC may, upon 
due notice and public consultation, adopt internationally accepted 
rate setting methodology. The rate setting methodology so adopted 
and applied shall promote efficiency and ensure a reasonable price 
or tariff. The rates prescribed shall be nondiscriminatory; 
(c) Apply administrative procedures that will ensure the constitutional 
right to due process; 
(d) Before the end of April of each year, submit to the Office of the 
President of the Philippines and Congress, copy furnished the DOE, 
an annual report containing such matters or cases which have been 
filed before or referred to it during the preceding year, the actions 
and proceedings undertaken and its decision or resolution in each 
case. The ERC shall make copies of such report available to any 
interested party upon payment of a charge which reflects the 
printing costs; 
(e) Publish in newspapers of general circulation all its decisions 
involving rates and anticompetitive cases; and 
(f) Exercise such other powers as may be necessary or incidental to 
attain the objectives of this Act. 
Subject to existing rules and regulations, the ERC is hereby 
authorized to create offices and appoint personnel thereto as may 
be necessary to efficiently and effectively perform its functions as 
stipulated in this Act. 
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CHAPTER III 
2 
ORGANIZATION AND OPERATION OF THE DOWNSTREAM 
3 
NATURAL GAS INDUSTRY 
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SEC 7. Organiziltion. - For purposes of this Act, the Downstream Natural Gas 
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Industry shall be divided into three sectors, namely: transmission of natural 
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gas, distribution of natural gas and supply of natural gas. 
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SEC 8.Regullltion of Trnnsmission, Distribution lInd Supply Sectors. - The 
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transmission, distribution and supply of natural gas are businesses affected 
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with public interest and the regulation of these businesses as provided for in 
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this Act is hereby deemed necessary in the public interest. 
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SEC 9. Frnnchise Requirement. -
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(a) Transmission and distribution of natural gas declared public utility 
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operations. - The transmission and distribution of natural gas as 
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provided for in this Act are hereby declared to be public utility 
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operations, requiring a franchise; 
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(b) Franchise. - Any person that seeks to operate for commercial 
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purposes a gas transmission system or gas distribution system shall 
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be required to obtain a franchise, any law to' the contrary 
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notwithstanding. The franchise requirement shall apply with 
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respect to all gas transmission systems and gas distribution 
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systems, regardless of the size or pressure of the pipeline. The 
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foregoing, notwithstanding, this franchise requirement shall not 
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apply to: 
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(i) Holders 
of service 
contracts 
which 
authorizes 
the 
construction and operation of facilities for the transmission 
of natural gas only to the extent that such facilities are: (1) 
for own use; (2) used to transport natural gas from the point 
of extraction or production to the processing or gathering 
facility; and (3) used to provide service to existing 
customers or such person under a gas supply contract 
entered into prior to the effectivity of this Act, which gas 
supply contract shall not be affected by &e enactment of this 
Act. 
However, the operation of any pipeline facility used to 
serve or deliver natural gas to third persons, whether or not 
11 


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such facility was, prior to such operation, previously 
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utilized only as a gathering facility, shall require a franchise. 
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(ii) Operators of pipeline facilities to transport natural gas for 
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their own use: Provided, however, That such operators shall 
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secure a permit from the POE as provided herein; and 
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(iii) Operators 
of 
related 
facilities 
that 
are 
operated 
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independently from the pipeline. 
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The franchise so granted shall include a provision 
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that shall honor and protect the forty percent (40%) share of 
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local government units (LGUs) from the proceeds of the 
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gross collection derived by the national government from its 
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share in any coproduction, joint venture or production-
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sharing agreement in the utilization and development of the 
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national wealth within their territorial jurisdiction, pursuant 
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to Article X, Section 7 of the Constitution and Section 290 of 
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Republic Act No. 7160, otherwise known as the Local 
17 
Government Code of 1991, as amended. The share of the 
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LGU concerned shall be included automatically in the 
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General Appropriations Act following the year the revenue 
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was generated. 
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(c) Prior regulatory approvals. - The grantee of such franchise shall also be 
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required to secure from the DOE a permit as provided herein, and to 
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'secure from the appropriate government agencies all other regulatory 
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approvals, licenses, permits and authorizations applicable to such 
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grantee under existing laws. The DOE shall not unreasonably withhold 
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or delay the grant of any permit, and may not reopen any legislative 
27 
determination in the review and grant of any franchise. 
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SEC. 10. Philippine Ownership Requirement. - As required under Article XII, 
29 
Section 11 of the Constitution of the Republic of the Philippines, no franchise, 
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certificate, or any other form of authorization of a public utility shall be 
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granted except to citizens of the Philippines or to- corporations or associations 
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organized under the laws of the Philippines at least sixty percent (60%) of 
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whose capital is owned by such citizens. 
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SEe. 11. 71Jird Pllriy Access. -
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(a) Third Party Access Obligation. - Gas transmission systems and gas 
3 
distribution systems excluding those constructed and operated for own 
4 
use or as part of gathering facilities of service contractors shall be 
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available for nondiscriminatory access by third party users which may 
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include parties to a service contract, suppliers and customers, with due 
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regard to the economic viability of the operation of such facilities. Such 
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operators shall negotiate in good faith with third party users the 
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,provisions and terms of access in accordance with the guidelines to be 
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. promulgated by the DOE; 
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(b) Available Capacity. - Third party access obligations shall apply only to 
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the available capacity of the gas transmission systems and gas 
13 
distribution systems as determined by subtracting from the design 
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capacity of the gas transmission systems and gas distribution systems 
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the volume of capacity that is: 
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(i) Used by the owner or operator to serve his own customer; 
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and/ or 
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(ii) Allocated to third parties under transportation contracts. 
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Nondiscriminatory third party access shall be available to 
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users by contract with the gas transmission or gas 
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distribution utility. If the gas transmission or gas 
distribution utility with available capacity refuses service to 
a user or offers discriminatory service, the affected party 
may request for the intervention of the ERe. The gas 
transmission or gas distribution utility shall be required to 
file proof that capacity was not available when service was 
denied. 
Gas transmission utilities shall not be obligated to 
undertake, nor may the DOE require, the expansion of an 
existing gas transmission system to serve additional 
customers or the sizing of a gas transmission system for the 
purpose of increasing capacity to serve load in excess of the 
load proposed to be served by the gas transmission utility. 
However, in situations where no entity is interested to build 
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additional transmission capacity in any franchise area, the 
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DOE may conduct a public bidding and award the same to 
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the lowest bidder. 
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(c) Deferment of Third Party Access Obligation. - As may be provided in 
5 , 
the permit, the implementation of third party access to gas 
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transmission systems and gas distribution systems may be deferred 
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where, upon the determination by the DOE:. 
8 
(i) It can be demonstrated that such deferment is necessary to 
9 
enable the efficient planning of the infrastructure and 
10 
aggregation of the initial demand necessary to justify 
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investments In the gas transmission systems and gas 
12 
distribution systems; or 
13 
(ii) It is in the interest of the customers served by the gas 
14 
transmission system and gas distribution system to ensure 
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stability of supply. 
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In 
either 
case, 
the 
DOE 
may 
not 
defer 
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implementation of third party access for a period longer 
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than three years after completion of construction in the case 
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of gas transmission systems and five years after completion 
20 
of construction in the case of gas distribution systems: 
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Provided, however, That the deferment period may be 
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extended on reasonable grounds. 
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(d) Approved Access Conditions for Gas Transmission Utilities and Gas 
24 
Distribution Utilities. - Prior to the conduct of negotiations with third 
25 
parties, a gas transmission utility and a gas distribution utility shall 
26 
request the DOE to approve its access conditions in accordance with 
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the third party access gUidelines to be promulgated by the DOE in 
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consultation with the industry participants. 
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SEC. 12.Environmenia/ Protection. - Gas transmission utilities, gas distribution 
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utilities and suppliers shall comply with all environmental laws, rules, 
31 
regulations and standards promulgated by the Department of Environment 
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and Natural Resources (DENR) and other appropriate governmental agencies. 
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5 
6 
7 
8 
9 
10 
11 
12 
13 
14 
15 
16 
17 
18 
19 
20 
21 
22 
23 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
CHAPTER IV 
NATURAL GAS TRANSMISSION SECTOR 
SEC. 15. Permit . . No person or entity shall undertake the construction, 
operation and maintenance of a natural gas transmission system unless it has 
secured a franchise: Provided, however, That for a period not exceeding five 
years after the effectivity of this Act, the DOE may issue a provisional permit 
with a maximum term of two years, renewable twice for a maximum 
cumulative term not exceeding six years for the continued operation of a gas 
transmission system constructed prior to and in operation as of the date of 
effectivity of this Act: Provided, further, That during the same period, the 
DOE J;l1ay issue a permit for the expansion, extension or modification of a 
natural gas transmission system. 
The DOE shall issue a public notice of all permit applications and 
afford interested parties reasonable opportunity to comment upon such 
applications. The DOE shall issue a permit upon its determination that the 
construction, ownership, control, installation, operation and maintenance of 
the gas transmission system would be consistent with ;the policy declarations 
contained in this Act: Provided, however, That if a permit is sought for new 
service that would be provided within the franchise area of a gas distribution 
utility, the DOE shall consider the economic effects of granting such a permit 
upon the gas distribution utility and its customers. 
SEC. 16. Terms and Conditions of Permits. - In issuing a permit, the DOE shall 
have the power to impose such reasonable terms and conditions as the public 
interest may require. Among such conditions shall be the requirement that the 
permit holder complies in full with the Gas Transmission Code promulgated 
by the DOE pursuant to Section 5(g) of this Act. 
SEC. 17. Fees. - The DOE shall have the authority to prescribe and collect fees 
and charges relating to the issuance and/ or review of permits, supervision 
and regulation of gas transmission systems. 
SEC. 18. Abandonment of Gas Transmission Systems. - No holder of a permit for 
the construction, installation, operation or maintenance of a gas transmission 
system shall abandon or withdraw from service any portion of such gas 
, 
transJ;nission system without obtaining prior authorization from the DOE, 
whlch determination shall be made within one hundred eighty (180) days 
15 


· , 
from the filing of the application for abandonment. Such abandonment shall 
2 
be done in accordance with existing laws. 
3 
SEC. 19. Gas Transmission Code Compliance. - All gas transmission utilities 
4 
shall ensure the safety,- reliability, adequacy, security, stability and integrity 
5 
of their gas transmission systems in accordance with the technical 
6 
specifications and performance standards set forth in the Gas Transmission 
7 
Code to be promulgated by the DOE. Each gas transmission utility shall 
8 
submit to the DOE a statement of its compliance with such technical 
9 
specifications and performance standards prescribed in the Gas Transmission 
10 
Code. Any gas transmission utility that does not comply with any of the 
11 
prescribed technical specifications or performance standards shall include in 
12 
such statement of compliance an undertaking to comply with said technical 
13 
specifications and performance standards within a reasonable time as may be 
14 
necessary to ensure safety and reliability, or prevent environmental harm. The 
15 
DOE shall, within sixty (60) days upon receipt of such plan, evaluate the same 
16 
and notify the gas transmission utility concerned of its decision thereon. 
17 
Failure to submit a feasible and credible plan and/ or failure to implement the 
18 
same shall serve as grounds for the imposition of appropriate sanctions, fines 
19 
or penalties pursuant to Section 39 of this Act. 
20 
SEC.. 20. ERC Rate Regulation 0/ Gas Transmission Utilities. -
Gas 
21 
Transmission Rate. Except as otherwise provided during the infrastructure 
22 
development period, the ERC shall review and approve the rates, charges and 
23 
other amounts proposed to be charged by the gas transmission utilities as 
24 
provided under Section 33 of this Act. Where such rates are applicable to 
25 
services provided to captive markets, the ratemaking methodology to be 
26 
applied by the ERC shall be based on the principle of full recovery of prudent 
27 
and reasonable costs incurred, including a reasonable return on rate base that 
28 
is consistent with the encouragement of private investment and goal of 
29 
developing a Downstream Natural Gas Industry infrastructure, or such other 
30 
principles that will promote the determination of just and reasonable rates. 
31 
Where a rate applicant successfully demonstrates that its rates will be applicable 
32 
to contestable markets, the ERe shall have the authority to permit negotiated rates. 
16 


CHAPTER VI 
2 
DISTRIBUTION SECTOR 
3 
SEC. 21. Permit. - No person or entity shall undertake the construction, 
4 
operation and maintenance of a natural gas distribution system unless it has 
5 
secured a franchise: Provided, however, That for a period not exceeding five 
6 
years after the effectivity of this Act, the DOE may issue a provisional permit 
7 
with a maximum term of two years, renewable twice for a maximum 
, 
8 
cumulative term not exceeding six years for the continued operation of a gas 
9 
distribution system constructed prior to and in operation as of the date of 
10 
effectivity of this Act: Provided, further, That during the same period, the 
11 
DOE may issue a permit for the expansion, extension or modification of a 
12 
natural gas distribution system. 
13 
The DOE shall issue a public notite of all permit applications and 
14 
afford interested parties an opportunity to comment on such applications. The 
15 
DOE shall issue a permit upon its determination that the construction, 
16 
ownership, control, installation, operation and maintenance of the gas 
17 
distribution systems would be consistent with the policy declarations 
18 
contained in this Act: Provided, however, That if a permit is sought for new 
19 
service that would be provided within the franchise area of another gas 
20 
distribution utility, the DOE shall consider the economic effects of granting 
21 
such a permit upon the gas distribution utility and its customers. 
22 
SEC. 22. Terms and Conditions of Permits. - In issuing a permit, the DOE shall 
23 
have the power to impose such reasonable term and conditions to a permit as 
24 
the public interest may require. Among such conditions shall be the 
25 
requirement that the permit holder comply in full with the Gas Distribution 
26 
Code promulgated by the DOE pursuant to Section 5(g) of this Act. 
27 
SEC. 23. Fees. - The DOE shall have the authority to prescribe and collect fees 
28 
and charges relating to .the issuance and/or review of permits, supervision 
29 
and regulation of gas distribution systems. 
30 
SEC. 24. Abandonment of Gas Distribution Systems. - No holder of a permit for 
31 
the construction, installation, operation or maintenance of a gas distribution 
32 
system shall abandon or withdraw from service any portion of such gas 
33 
distribution system without obtaining prior authorization from the DOE, 
34 
which determination shall be made within one hundred eighty (180) days from 
17 


the filing of the application for abandonment. Such abandonment shall be done In 
2 
accordance with existing laws. 
3 
SEC 25. GIlS Distributlon Code Compliance. - All gas distribution utilities shall 
4 
be required to ensure and maintain the safety, reliability, adequacy, security, 
5 
stability and integrity of their gas distribution systems in accordance with the 
6 
performance standards set forth in the Gas Distribution Code to be 
7 
promulgated by the DOE. Each gas distribution utility shall submit to the 
8 
DOE a statement of its compliance with the technical specifications prescribed 
9 
in the Gas Distribution Code and the performance standards prescribed in the 
10 
implementing rules and regulations promulgated by the DOE pursuant to 
11 
Section 43 of this Act. A gas distribution utility that fails to comply with any 
12 
of the prescribed technical specifications or performance standards shall 
13 
include within such statement of compliance a plan for achieving compliance 
14 
with the said technical specifications and performance standards within a 
15 
reasonable time as may be necessary to ensure safety and reliability, or 
16 
prevent environmental harm. The DOE shall, within sixty (60) days from 
17 
receipt of such plan, evaluate the same and notify the gas distribution utility 
18 
concerned of its decision thereon. Failure to submit a feasible and credible 
19 
plan and/ or failure to implement the same shall serve as grounds for the 
20 
imposition of appropriate sanctions, fines or penalties pursuant to Section 39 
21 
of this Act. 
22 
SEC 26. Gas Distribution naie. - Except as provided for during the 
23 
infrastructure development period, the distribution rates charged by gas 
24 
distribution utilities shall be subject to regulation by the ERC based on the 
25 
principle of full recovery of prudent and reasonable economic costs incurred, 
26 
including a reasonable return on rate base that is consistent with the 
27 
encouragement of private investment and goal of developing the 
28 
Downstream Natural Gas Industry infrastructure, or such other principles 
29 
that will promote the determination of just and reasonable rates by the ERC 
30 
Where a rate applicant successfully demonstrates that its rates will be 
31 
applicable to contestable markets, the ERC shall have the authority to permit 
32 
negotiated rates. 
33 
SEC 27. Functions of Gas Distribution Utilities. - All gas distribution utilities 
34 
shall have the following functions: 
18 


(a) Obligation to provide distribution services and connections to its gas 
2 
distribution system for any end-user within the area covered by its 
3 
permit consistent with the Gas Distribution Code. Any gas distribution 
4 
,utility engaged therein shall provide nondiscriminatory access to its 
5 
> gas distribution system to suppliers and! or end-users entitled to retail 
6 
access under Section 30 of Chapter VII of this Act. Any gas distribution 
7 
utility shall be entitled to impose and collect from such suppliers 
8 
and! or end-users distribution charges and connection fees as 
9 
approved by the ERC after due notice and hearing; 
10 
(b) Ensure the safety, reliability, adequacy, security, stability and integrity 
I I 
of their gas distribution systems in accordance with the technical 
12 
specifications and performance standards set forth In the Gas 
13 
Distribution Code to be promulgated by the DOE pursuant to Section 
14 
5(g) of this Act. Each gas distribution utility shaH submit to the ERC a 
IS 
statement of its compliance with such technical specifications and 
16 
performance standards> Any gas distribution utility that fails to comply 
17 
with any of the prescribed technical specifications or performance 
18 
standards shall include in such statement of, compliance an 
19 
undertaking to comply with said technical speCifications and 
20 
performance standards within a reasonable time as may be necessary 
21 
to ensure safety and reliability, or prevent environmental harm. The 
22 
ERC shall, within sixty (60) days upon receipt of such plan, evaluate 
23 
the same and notify the gas distribution utility concerned of its 
24 
decision thereon. Failure to submit a feasible and credible plan and! or 
25 
failure to implement the same shall serve as grounds for the imposition 
26 
of appropriate sanctions, fines or penalties pursuant to Section 39 of 
27 
this Act; 
28 
(c) Provide universal service within the area covered by its permit except 
29 
as provided herein. Compliance with the universal service obligation 
30 
shall be addressed as part of the annual development and maintenance 
31 
plan of a gas distribution utility. A gas distribution utility shall be 
32 
obliged to develop and maintain an efficient system for the distribution 
33 
of natural gas at the reasonable> request of end-users within its 
34 
franchise area including: 
19 


(i) The installation of pipes where the connection to the end-
2 
user is within twenty-five (25) meters of the gas distribution 
3 
system; or 
4 
(ii) Increasing the capacity of existing gas distribution systems: 
5 
Provided, however, That no new service shall be required if 
6 
such service would not be economically viable. 
A 
7 
determination by a gas distribution utility that it cannot 
8' 
viably serve a portion of its franchise area shall be subject to 
9 
review by the ERC upon filing of a complaint by the 
10 
requesting end-user. 
11 
The obligation of the gas distribution utility to 
12 
provide universal access involves both an obligation to 
13 
connect end-users within twenty-five (25) meters from the 
14 
main pipeline and an obligation to supply such end-users, 
IS 
to the extent the distribution utility is the sole gas supplier. 
16 
Upon implementation of third party access, the utility shall 
17 
be relieved of its obligation to supply end-users eligible for 
18 
retail access as defined in the guidelines to be promulgated 
19 
by the DOE, but not its obligation to provide connection to 
20 
its distribution system to such end-users. Whether or not 
21 
the gas distribution utility is the sole gas supplier in the 
22 
area, prices charged by the said utility for the supply of gas 
23 
shall be negotiated for the contestable market and regulated 
24 
by the ERC for the captive market; and 
25 
(d) Submit annually to the ERC its plan for maintaining and developing its 
26 
gas distribution system in compliance with the obligations prescribed 
27 
in this Act. 
28 
CHAPTER VII 
29 
SUPPLY SECTOR 
30 
SEC. 28. Permit Requirement. - Any law to the contrary notwithstanding, no 
31 
person may engage in any supply activity unless it has obtained a permit 
32 
from the DOE, initially: Provided, however, That a gas transmission utility or 
33 
gas distribution utility that has secured a permit as such pursuant to Section 
34 
9(c) of this Act and that supplies natural gas to its own customers shall not be 
35 
required to secure a separate permit to engage in its supply activity. For this 
20 


purpose, the DOE shall promulgate rules and regulations prescribing the 
2 
qualifications of suppliers which shall include, among other requirements, a 
3 
demonstration 
of 
their 
technical 
capability, 
financial 
capability, 
4 
creditworthiness and compliance with safety standards. The DOE shall have 
S 
the authority to require suppliers to furnish a bond or other evidence of their 
6 
ability to withstand market disturbances or other events that may increase the 
7 
cost of prOViding service. 
8 
SEe. 29. Supplier Rale and Service Regulation. -
9 
(a) The rates and service of suppliers to captive markets shall be regulated 
10 
by the ERC; and 
11 
(b) The rates and service of suppliers to contestable markets shall not be 
12 
subject to regulation by the ERC Provided, however, That suppliers 
13 
shall be subject to the rules and regulations concerning abuse of market 
14 
power, cartelization and other anti-competitive or discriminatory 
1 S 
behavior promulgated by the ERe. 
16 
(c) The supply of natural gas for electric generation and large end-users is 
17 
hereby deemed to be a contestable market. In all other cases, suppliers 
18 
shall bear the burden of 'demonstrating that a market is contestable. 
19 
SEe. 30. Condilions for Retail Access 10 Gas Distribution Systems. - FollOWing the 
20 
infrastructure development period, retail access to gas distribution systems 
21 
shall be available to large end-users meeting criteria set forth in the rules and 
22 
regulations promulgated by the ERC pursuant to this Act. The ERC shall 
23 
determine when retail access may Be available to other end-users or classes of 
24 
end-users, giving consideration to relevant factors induding whether such 
2S 
end-users or class of end-users constitute a contestable market-end the financial 
26 
consequences of any assets potentially stranded by expanding retail access. 
27 
CHAPTER VIII 
28 
TAXATION 
29 
SEe. 31. Taxes. - Gas transmission utilities, gas distribution utilities and 
30 
suppliers of natural gas shall be subject to the payment of all taxes, duties, 
31 
fees or charges and other impositions under the National Internal Revenue 
32 
Code (NIRC) of 1997, as amended, and other applicable laws: Provided, 
33 
however, That, in recognition of the substantial investments needed for the 
34 
construction, operation and maintenance of gas transmission and gas 
21 


distribution systems, gas transmission utilities and gas distribution utilities 
2 
shall, upon prior endorsement by the DOE and approval by the Board of 
3 
Investments, be entitled to income tax holiday and such other incentives 
4 
granted to pioneer enterprises under the Omnibus Investment Code, as 
5 
amended. The commodity price of gas shall be the only component of the gas 
6 
retail rate which shall be subject to excise taxes under Republic Act No. 8424, 
7 
otherwise known as the Comprehensive Tax Reform Law. 
8 
SEC. 32. WilhdYllwll1 of Exemptions. - Any law to the contrary notwithstanding, 
9 
to achieve the declared policies of this Act, particularly in relation to the 
10 
promotion of fair and nondiscriminatory treatment of public and private 
11 
sector'entities in the development of the Downstream Natural Gas Industry 
12 
infrastructure, all existing tax exemptions applicable to persons engaged in 
13 
the transmission or the distribution of natural gas; insofar as such exemptions 
14 
relate to revenues derived from the transmission or the distribution of natural 
15 
gas, shall be deemed revoked upon the effectivity of this Act. 
16 
CHAPTER IX 
17 
RATEMAKING REQUIREMENTS AND PROCEDURES 
18 
SEC. 33. l~(liemaking Requirements and Procedures of the ERe. - (a) Just and 
19 
reasonable rates and charges. - All rates and charges for transmission, 
20 
distribution or supply of natural gas to the captive market and all rules and 
21 
regulations affecting or pertaining to such rates or charges shall be just and 
22 
reasonable. Any such rate or charge that is not just and reasonable is hereby 
23 
declared to be unlawful; 
24 
(b) Undue preferences and unreasonable rates and charges are prohibited. 
25 
- No gas transmission utility, gas distribution utility or supplier shall, 
26 
with respect to the transmission, distribution or supply of natural gas 
27 
to the captive market: (1) 
make or grant any undue preference Or 
28 
advantage, or (2) maintain any unreasonable difference in rates, 
29 
charges, service, facilities, or in any other respect, between locations or 
30 
between classes of service; 
3 I 
(c) Filing of rate schedules. - Under such rules and regulations as the ERC 
32 
may prescribe, after due notice and publ·ic consultation, the ERC may 
33 
require reports or documents from gas transmission utilities, gas 
34 
'distribution utilities or suppliers to the captive market showing all 
35 
. rates and charges for the transmission, distribution or supply of natural 
36 
gas to the captive market and the classifications, practice and 
22 


2 
regulations affecting such rates, charges, and classifications and 
services: 
Provided, That the ERC 
shall 
provide appropriate 
3 
mechanisms to protect the confidential& of any information that is 
4 
commercially or competitively sensitive; and 
5 
(d) Changes in rate and charges. - Within thirty (30) days upon filing for 
6 
an adjustment in rates, the ERC shall issue an order accepting, rejecting 
7 
or setting for hearing such adjustment. The ERC may, upon the filing 
8 
of an application therefor or at any stage thereafter, with or without 
9 
prior hearing, on the basis of supporting papers duly verified or 
10 
authenticated, and with such notice to the affected parties and 
11 
opportunity for such parties to make such submissions as the ERC 
12 
determines to be appropriate in the circumstances, grant provisional 
13 
relief fixing interim rates for the transmission of natural gas or 
14 
distribution of natural gas or supply of natural gas to the captive 
15 
market applicable during the pendency of the hearing on the 
16 
application, on motion of a party in the case or on its own initiative, 
17 
without prejudice to a final decision after hearing, should the ERC find 
18 
that the pleadings, together with such affidavits, documents and other 
19 
evidences which may be submitted in support of the motion, 
20 
substantially support the provisional order. The final order fixing the 
21 
. applicable rates shall provide for over- or under-recovery of costs 
22 
occasioned by the application of ERC-approved interim rates. At any 
23 
hearing involving rates adjustment, the burden of proof to show that 
24 
the increased rates are just and reasonable shall be upon the gas 
25 
transmission utility, gas distribution utility or supplier to the captive 
26 
market. 
27 
CHAPTER X 
28 
PROMOTION OF COMEPTlTlON 
29 
SEC. 34. Anti-Competitive Behavior. - No gas transmission utility, gas 
30 
distribution utility or supplier, or affiliate thereof, may engage in any anti-
31 \ competitive behavior or abuse of market power including, but not limited to: 
32 
(a) Agreements, decisions and concerted practices of persons or 
33 
associations of persons to fix prices and/ or fix output; and 
34 
(b) Other practices and/ or conduct by a person or groups of persons that 
35 
restrict, prevent or distort competition such as, but not limited to, 
36 
predatory pricing and practices, excessive pricing, bundling and other 
23 


vertical restraints, denial of access to essential facilities on fair terms, 
2 
discriminatory conditions on transactions that restrict, prevent or 
3 
distort competition. 
4 
SEC 35. Measures to Promote Competition. - Subject to the provisions of relevant 
5 
laws, the ERe shall adopt measures and/ or corresponding remedies to 
6 
promote competition following an investigation of the relevant circumstances 
7 
and a definitive finding of: 
8 
(a) Price and/ or output fixing; or 
9 
(b) Other practices/conduct that are the subject of investigation restrict 
10 
and/ or prevent and/ or distort competition. 
II 
Such remedies shall, without limitation, include the imposition of price 
12 
controls, issuance of injunctions or disgorgement of excess profits and 
13 
imposition of administrative fines and penalties pursuant to this Act. 
14 
SEC 36. Functional and Structural Unbundling. - When prevailing market 
IS 
conditions so require, any Downstream Natural Gas Industry participant shall 
16 
functionally and structurally unbundle its business activities and rates in 
17 
accordance with the sectors as identified in Section 7 hereof. The ERe shall 
18 
ensure full compliance with this provision. 
19 
SEC 37. Complaint Procedures. - The ERe shall, within one year from the 
20 
effectivity of this Act, promulgate rules and regulations providing for a 
21 
complaint procedure that, without limitation provides the party alleged to 
22 
have engaged in anti-competitive or abusive activities with notice and an 
23 
opportunity to be heard. 
24 
SEC 38.Ajilirzted Suppliers. - In order to prevent anti-competitive conduct, 
25 
service contractors, gas transmission utilities and gas distribution utilities that 
26 
own or control affiliates that are suppliers shall conduct their business as 
27 
follows: 
28 
(a) No preference will be given to the affiliated supplier over other 
29 
persons through contracting for available capacity, scheduling, 
30 
balancing, curtailment priority or tariffs; 
24 


(b) Marketing information provided to the affiliated supplier will be 
2 
provided to any nonaffiliated supplier that is a competitor or potential 
3 
competitor; 
4 
(c) Employees of the affiliated supplier shall, to the maximum extent 
S 
possible, function independently in making business decisions; and 
6 
(d) Books of accounts and records of the affiliated supplier shall be 
7 
maintained separately. 
8 
As used herein, "affiliate" refers to any person or entity which, 
9 
alone or together with any other person or entity, directly or indirectly, 
10 
through one or more intermediaries, controls, or is controlled by 
11 
another person or entity. As used herein," control" shall mean the 
12 
power to direct or cause the direction of the management policies of a 
13 
person by contract, agency or otherwise. 
14 
SEC. 39. Administrative Fines and Penalties. -
1 S 
(a)'The administrative fines and penalties that may be imposed by the 
16 
ERe or the DOE, as the case may be, for any violation of or 
17 
noncompliance with this Act or its implementing rules and regulations 
18 
shall range from a minimum of Fifty thousand pesos (PSO,OOO.OO) to a 
19 
maximum of Fifty million pesos (PSO,OOO,OOO.OO); 
20 
(b) Any person who is found to have engaged in any of the prohibited acts 
21 
pursuant to Section 34 of this Act shall suffer the administrative 
22 
penalty or fine ranging from Ten thousand pesos (PIO,OOO.OO) to Ten 
23 
million pesos (PIO,OOO,OOO.OO), at the discretion of the ERe or the DOE, 
24 
as the case may be; 
2S 
(c) The members of the board of directors or any person that violates the 
26 
provisions of this Act may be fined by an amount not exceeding double 
27 
the amount of damages caused by the offender at the discretion of the 
28 
ERe or the DOE, as the case may be. This rule shall apply to the 
29 
members of the Board who, knowingly or by neglect, allow the 
30 
commission or omission under the law; 
31 
(d) Any party to an administrative proceeding may, at any time, make an 
32 
offer to the ERe or the DOE, as the case may be, conditionally or 
33 
otherwise, for a consent decree, voluntary compliance or desistance 
2S 


and other settlement of the case. The offer and any or alI of the ultimate 
2 
facts upon which the offer is based shall be considered for settlement 
3 
purposes only and shall not constitute an admission by the party 
4 
'making the offer of any violation of the laws, rules, regulations, orders 
5 
and resolutions of the ERC or the DOE, as the case may be, nor as a 
6 
waiver to file any warranted criminal actions; and 
7 
(e) Congress may, upon recommendation of the ERC or the DOE, as the 
8 
case may be, revoke such franchise or privilege granted to the party 
9 
found in violation of the provisions of this Act. 
10 
CHAPTER XI 
11 
ANTI-PILFERAGE AND ANTI-THEFT PROVISIONS 
12 
SEC. 40.Pilferage. - It is hereby declared unlawful for any person to: 
13 
(a) Tap, make or cause to be made any connection with any gas 
14 
transmission system or gas distribution system without previous 
IS 
authority or consent of the gas transmission utility or gas distribution 
16 
utili l y concerned; 
17 
(b) Tamper, install or use tampered meters or any other device which 
18 
interferes with proper or accurate registry or metering of natural gas 
19 
flows or otherwise results in its diversion in a manner whereby natural 
20 
gas is stolen or wasted; 
21 
(c) Damage or destroy any natural gas meter, equipment, pipeline or 
22 
conduit or any part of a gas transmission system or gas distribution 
23 
system or allow any of them to be so damaged or destroyed as to 
24 
interfere with the proper or accurate metering of natural gas flows; and 
25 
(d) )(nowingly use or receive the direct benefit of natural gas delivery 
26 
:service obtained through any of the acts mentioned in paragraphs (a), 
27 
(b) and (c) above. 
28 
SEC. 41. Theft of Equipment and Materials. - It is hereby declared unlawful for 
29 
any person to: 
30 
(a) Cut, saw, slice, separate, split, severe, smelt or remove any portion of a 
31 
gas transmission system or gas distribution system, including pipeline 
32 
materials and meters, from any installation or place of installation or 
33 
any other place or site where it may be rightfully or lawfully stored, 
26 


, , 
· 
deposited, kept, stocked, inventoried, situated or located, without the 
2 
consent of the gas transmission utility or gas distribution utility 
3 
concerned, whether or not the act is done for profit or gain; 
4 
(b) Take, carry away or remove Or transfer, with or without the use of a 
S 
motor vehicle or other means of conveyance, load, carry, ship or move 
6 
from one place to another, whether by land, air or sea, any portion of a 
7 
gas transmission system or gas distribution system, including pipeline 
8 
materials or meters, from any installation or place of installation, or 
9 
any place or site where it may be rightfully or lawfully stored, 
10 
deposited, kept, stocked, inventoried, situated or located without the 
11 
consent of the gas transmission utility or gas distribution utility 
12 
concerned, whether or not the act is done for profit or gain; and 
13 
(c),store, possess or otherwise keep in his premises, custody or control, 
14 
without lawful purpose, any portion of a gas transmission system or 
15 
gas distribution system, including pipeline materials or meters, 
16 
without the consent of the gas transmission utility or gas distribution 
17 
utility concerned, whether or not the act is done for profit or gain. 
18 
SEC. 42. Penalties. -
19 
(a) Violation of Section 40. - The penalty of prision mayor or a fine ranging 
20 
from Ten thousand pesos (PlO,OOO.OO) to Twenty thousand pesos 
21 
(1'20,000.00) or both, at the discretion of the court, shall be imposed on 
22 
any person found guilty of violating Section 40 of this Act. 
23 
(b) Violation of Section 41. - The penalty of reclusion temporal or a fine 
24 
ranging from Fifty thousand pesos (P50,000.00) to One hundred 
2S 
thousand pesos (PlOO,OOO.OO) or both, at the discretion of the court, 
26 
shall be imposed on any person found guilty of violating Section 41 of 
27 
this Act. 
28 
(c) Provision common to violations of Sections 40 and 41 hereof. - If the 
29 
violation of Section 40 or Section 41 of this Act is committed by, or in 
30 
connivance with, an officer or employee of the gas transmission utility 
31 
or gas distribution utility concerned, such officer or employee shall, 
32 
upon conviction, be punished with a penalty one degree higher than 
33 
the penalty provided herein, and forthwith be dismissed and 
27 


· perpetually disqualified from employment in any public or private 
2 
utility or service company and from holding any public office. 
3 
If the violation of Section 40 or Section 41 of this Act is 
4 
committed by a partnership, firm, corporation, association or any other 
5 
legal entity, including a government-owned or -controlled corporation, 
6 
the penalty shall be imposed on the 'president, manager and each of the 
7 
officers thereof who shall have knowingly permitted, failed to prevent 
8 
or was otherwise responsible for the commission of the offense. 
9 
CHAPTER XII 
10 
FINAL PROVISIONS 
11 
SEC 43. Implementing Rules and Regulations. - The DOE shall, in consultation 
12 
with the ERC, appropriate government agenCies, the Downstream Natural 
13 
Gas Industry participants, nongovernmental organizations and end-users, 
14 
promulgate implementing rules and regulations (IRR) within six months from 
15 
the effectivity of this Act. 
16 
SEC 44. Niltural Gas Oversight Commission. - Upon the effectivity of this Act, a 
17 
congressional commission, hereinafter referred to as the "Natural Gas 
18 
OverSight Commission", is hereby constituted. The Natural Gas Oversight 
19 
Commission shall be composed of ten (10) members, with the chairmen of the 
20 
Committee on Energy of the Senate and the House of Representatives and 
21 
four additional members from each House, to be deSignated by the Senate 
22 
President and the Speaker of the House of Representatives, respectively. The 
23 
minority shall be entitled to pro rata representation but shall have at least one 
24 
representative in the Natural Gas OverSight Commission. 
25 
(a) The Natural Gas Oversight Commission shall, in aid of legislation, 
26 
perform the following functions, among others: 
27 
(b) Set the gUidelines and overall framework to monitor the proper 
28 
implementation of this Act; 
29 
(c) Look into the appropriateness of creating a single independent 
30 
regulatory body when the conditions prevailing so require; 
31 
(d) Conduct a periodic review of this Act at least once every three years; 
32 
(e) Determine inherent weaknesses in the law and recommend necessary 
33 
remedial legislation or executive measures; 
28 


(f) Approve the budget for the programs of the Natural Gas 
2 
(g) Oversight Commission and all disbursements therefrom, including 
3 
compensation of all personnel; 
4 
(h) Submit periodic reports to the President of the Philippines and 
5 
Congress; and 
6 
(i) Perform such other powers and functions as may be necessary to attain 
7 
its objectives. 
8 
To carry out its powers and functions, the initial sum of Fifteen million 
, 
9 
pesos (P15,OOO,OOO.OO) shall be charged against the current appropriations of 
10 
the. Senate. Thereafter, such amount necessary for its continued operation 
II 
shall be included in the annual General Appropriations Act. 
12 
The Natural Gas Oversight Commission shall adopt its internal rules of 
13 
procedure; conduct hearings and receive testimonies, reports and technical 
14 
advice; invite or summon by subpoena rid testificandum any 'public official, 
15 
private individual or any other person to testify before it, or require any 
16 
person by subpoena duces tecum to produce before it such records, reports, 
17 
documents or other materials as it may require; and generally require all the 
18 
powers necessary to attain the purposes for which it is created. The Natural 
19 
Gas Oversight Commission shall be assisted by a secretariat to be composed 
20 
of personnel who may be seconded from the Senate and the House of 
21 
Representatives and may retain consultants. The secretariat shall be headed 
22 
by an executive director who has sufficient background and competence on 
23 
the policies and issues relating to the Downstream Natural Gas Industry 
24 
reforms as prov ided in this Act. 
25 
SEC 45. Separability Clause. - If, for any reason, any provision of this Act is 
26 
declared unconstitutional or invalid, the other parts or provisions hereof 
27 
which are not affected thereby shall continue to be in full force and effect. 
28 
SEC 46. Nonretronctivity, Applicability and Repealing Clause. - The provisions of 
29 
Republic Act No. 387, otherwise known as the "Petroleum Act of 1949", as 
30 
amended, Presidential Decree No. 87, Republic Act No. 8997, and all other 
31 
laws, decrees, executive orders, rules and regulations, circulars and other 
32 
issuances inconsistent with the provisions of this Act are hereby repealed or 
33 
modified accordingly. 
29 


• 
- ,. 
SEC 47. Transitory Provision. - Gas transmission systems and gas distribution 
2 
systems that have been constructed and have commenced operation prior to 
3 
the date of effectivity of this Act shall continue to operate under their existing 
4 
authorities: Provided, That they have complied with existing laws, rules and 
5 
regulations prior to the effectivity of this Act and have secured a provisional 
6 
permit from the DOE as provided in Sections 15 and 21 of this Act Suppliers 
7 
who have entered into gas sales and purchase contracts with customers and 
8 
have delivered indigenous or imported natural gas under said contracts prior 
9 
to the date of effectivity of this Act shall continue to sell natural gas under 
10 
their existing authorities proVided they have complied with existing laws, 
11 
rules and regulations prior to the effectivity of this Act 
12 
Nothing in this Act shall be deemed to revoke or otherwise modify the 
13 
powers and functions of the Philippine National Oil Company and its 
14 
subsidiaries under Presidential Decree No. 334, as amended, any existing 
15 
concession granted under the Petroleum Act of 1949, as amended, certificate 
16 
of public convenience or certificate of public convenience and necessity 
17 
granted pursuant to the Public Service Law, as amended, specific franchise for 
18 
the transmission, distribution or supply of natural gas or other administrative 
19 
or regulatory permit or contract, which concession, certificate, franchise, 
20 
permit or contract shall be allowed to its full term but may not be renewed 
21 
except pursuant to the provisions of this Act 
22 
For a period not exceeding five years after the effectivity of this Act, the 
23 
DOE may issue proviSional permits, with a maximum term of two years, 
24 
renewable twice for a maximum cumulative term not exceeding six years, for 
25 
the construction, operation and maintenance of pipelines and related facilities 
26 
for the transmission, distribution and supply of natural gas. 
27 
SEC 48. EffectiVity Clause. - This Act shall take effect on the fifteenth (15th) 
28 
day following its publication in the Official Gazette and in at least two 
29 
national newspapers of general circulation. 
30 
Approved, 
30