Republic of the Philippines
HOUSE OF REPRESENTATIVES
CONGRESS OF THE PHILIPPINES
Quezon City, Metro Manila

FIFTEENTH CONGRESS
First Regular Session

House Bill No. 3181

Introduced by Honorable REYNALDO V. UMALI

EXPLANATORY NOTE

Our country is endowed with energy resources that are relatively abundant. Our
Constitution promises that the development of these energy resources shall inure to the
benefit of the Filipino people. Unfortunately, the promise remained as such — a promise
- until substantial reforms began recently when this Congress enacted Republic Act No.
9513 otherwise known as the Renewable Energy Act of 2008

However, much is left to be desired with respect to other indigenous sources of
energy. Government impositions associated with making available such resources for
electricity generation are more burdensome than those applied on imported fuels such
that rates of electricity generated using indigenous energy resources are rendered
artificially high

For instance, as of May 2007, government royalties (or government share) on
indigenous natural gas was around P1.46/kWh, which was 5 to 8 times more than the
taxes imposed on imported fuels such as coal (P0.17/kWh), oil (PO.20/KWh) and
liquefied natural gas (PO.29/KWh). If taxes and royalties were to be removed on both
indigenous and imported fuels, the rates of electricity generated using indigenous
energy resources would be substantially lower. Moreover, between indigenous
petroleum which is intensively used for generating electricity and other local extractive
industries such as mining, the former is being subjected to royalties of about 60% while
the latter enjoys a much lower tax rate of 3%.

Thus, instead of enjoying lower electricity rates, the Filipino is effectively being
penalized for utilizing its own energy resources. In addition, because of the disparities,
the country’s energy self-sufficiency is being held on a tight leash of its own making — a
regrettable stance in the face of volatile energy prices in the intemational markets.

These policy anomalies are not present in our Asian neighbors similarly endowed
with natural resources such as Thailand, Indonesia, Malaysia and Vietnam. While
royalties/taxes on oil and gas in these countries are comparable with those in our
country, domestic use of these indigenous natural resources are afforded substantially
lower prices unlike in our case.

I's about time that the Filipino people should fully benefit from its energy
resources by removing the disparities in the tax/royaity treatment of indigenous
resources not covered by the Renewable Energy Act of 2008. This will directly result in
reducing the commodity prices of these energy resources as they are utilized for
electricity generation, which reduction will translate into lower electricity rates to the


Filipino consumers. In the MERALCO franchise area alone, a reduction of
government royalties will mean a reduction of electricity rates to as much as PO.SO/kWh
for all customers.

In a study conducted in early 2008 by University of the Philippines Professor
Dante B. Canlas, former Director General at the National Economic Development
Authority, it is shown that a reduction of the natural gas royalties to lower the cost of
electricity to industrial loads would induce economic output growth on account of greater
competitiveness and productivity of the Philippine industries. Incidentally, the study also
concludes that the reduction of the royalties provide government additional tax and non-
tax revenues that would be more than sufficient to offset the foregone royalties
collection in less than 2 years from implementation.

There is more need for competitiveness and greater productivity now when
Philippine industries, including the millions of Filipinos whose livelihood depend on
them, are being threatened or already reeling from the effects of the global financial
crisis and the recessions in the largest economies of the world. Recent newspaper
reports reveal that associations of industrial establishments such as the Semiconductor
and Electronics Industries in the Philippines Inc., an organization of semiconductor and
electronics companies which account for about 70% of Philippine exports, is already
making a call for lower royalties and lower electricity rates to help the Philippine export
industry brace for the effects of the global crisis.

Needless to say, the ordinary Filipino, especially the marginal end-user of
electricity, has long been in need of respite from high electricity rates.

In consideration of the foregoing, this bill seeks to lower the government share in
the exploration, development and production of indigenous energy resources other than
those already covered by the Renewable Energy Act of 2008; set such government
share at the level that maintains the relative preference to indigenous renewable energy
resources and still provide for a substantial revenue for the government; and remove
the disparities in tax/royalty treatment between indigenous energy resources and
imported fuels. These are sought to ultimately lower electricity rates to the Filipino
consumers in a significant and sustainable manner.

In view thereof, early consi ion and approval of this bill is earnestly sought.

REYNALDO V. UMALI
Representative
Second District, Province of Oriental Mindoro


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Republic of the Philippines
HOUSE OF REPRESENTATIVES
CONGRESS OF THE PHILIPPINES
Quezon City, Metro Manila

FIFTEENTH CONGRESS
First Regular Session

3181

House Bill No.

Introduced by Honorable REYNALDO V. UMAL!

AN ACT

DIRECTING THE REDUCTION OF ELECTRICITY RATES THROUGH THE
UTILIZATION OF THE GOVERNMENT SHARE IN THE DISCOVERY,
EXPLORATION, DEVELOPMENT AND/OR PRODUCTION OF INDIGENOUS
SOURCES OF ENERGY FOR THE PURPOSE OF LOWERING THE COST OF
ELECTRICITY

Be it enacted by the Senate and House of Representatives of the Philippines in
Congress assembled:

SECTION 1. This Act shall be known as the “Electricity Rate Reduction Act of
2010”

SEC. 2. Declaration of Policy - It is hereby declared the policy of the State that,
to the end-users of electricity: (i) the government impositions relating to indigenous
sources of energy shall be effectively at par with or more favorable than analogous
impositions on imported fuels in keeping with the Constitutional precept of preserving
the benefits of the national patrimony to the Filipino people; (ii) the competitiveness of
indigenous sources of energy vis-a-vis imported fuels shall be ensured thereby
increasing the country’s energy self-sufficiency; and (iii) the true and lower cost of
electricity generated from indigenous sources of energy shall be reflected in view of the
economic goal under the Constitution of increasing the amount of goods and services
produced by the nation for the benefit of the people

SEC. 3. Definition of Terms - As used in this Act.

(a) “Department of Eneray’ or "DOE" refers to the government agency
created pursuant to Republic Act No. 7638.


(b) “Energy Regulatory Commission’ or “Commission” refers to the
independent quasi-judicial regulatory agency created pursuant to Republic Act No.
9136.

(c) “Government Share” refers to the amount due the national government
and local government units from the discovery, exploration, development and/or
production of indigenous energy resources under new and existing service contracts

pursuant to relevant laws.

(a) “Indi enous sources of energy” refers to energy sources that are native to
the Philippine- e cept those that are subject of or covered by Republic Act No. 9513 or
the Renev able | nergy Act of 2008.

(e) "Net proceeds from the sale of the energy resource” refers to the
differenc > 2etween the gross proceeds from the sale of such energy resource and the
sum of + panses allowed to be recovered under the relevant service contract.

SEC. 4. Government Share - Notwithstanding any law to the contrary, the
Gov en iment Share shall henceforth be utilized and applied to reduce the commodity
pric 12 the indigenous energy resources sold by a service contractor for generation of
ele tr city such that the Government Share is effectively reduced, as it is hereby
rect ¢3d, to three percent (3%) of the net proceeds from the sale of the energy resource
over ine life of the relevant service contract.

The commodity price reduction under the preceding section shall be fully
re Te.t3d as @ reduction in the price of electricity produced by generation companies
u'2.n1 the indigenous e1.2ray resource. The commodity price reduction shall be
Str j@: 9 annual a’ justment or reconciliation to ensure that such reduction shall be
Feve nts. ‘ral to the service contractor.

EC. 5. Lilization of the Reduction in the Electricity Price - In order that end-
-Suv8 wil, full” oanefit from the reduction in the electricity price of any generation
compa vy utiliz ng the indigenous eneray resource:

a) Ary distribution utility obtaining supply from said generation company shall
Pass 0 1 the fill reduction in electricity price to its end-user customers, thereby lowering
the ‘et u'ra 25 of electricity; and



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(b) Any end-user which said generation company may serve during the
implementation of retail competition and open access as provided for under Section 31
of Republic Act No, 9136 shall also be included among those to which the reduction in
electricity price shall be passed on.

The Commission shall determine the reduction in electricity rates to end-users
across end-user classifications, giving priority to efficient end-users such as industrial
loads for maximum multiplier effect on the national economy and marginalized end-users

for more meaningful benefits.

SEC. 6. Implementing Rules and Regulations - Within three (3) months from
the effectivity of this Act, the DOE, in consultation with the Commission, shall issue the
rules and regulations implementing the same: Provided, That the provisions on the
utilization of the Government Share for the reduction of the commodity price of the
indigenous energy shall take effect immediately

For ease of implementation, the Department of Energy shall pursue
amendments to the relevant existing service contracts to provide for the reduced
Government Share under Section 4 above: Provided, That the rights of the concerned
service contractors shall not be impaired thereby; and Provided, further, That the DOE
shall ensure that reduction of Government Share shall be fully reflected in the reduction
Of electricity rates to end-users in accordance with Sections 4, 5 and 6 herein. In any
event, the implementation of this Act shall not be dependent upon such amendments
being adopted by the parties

SEC. 7. Separability Clause - If for any reason, any provision of this Act or any
Part thereof shall be held unconstitutional or invalid, the other parts or provisions of this
Act, which are not affected thereby, shall remain in force and effect.

SEC. 8. Repealing Clause - All laws, decrees, orders, rules and regulations
including Presidential Decree No. 87, or parts thereof, which are inconsistent with any of

the provisions of this Act are hereby repealed, amended or modified accordingly.

SEC. 9. Effectivity Clause - This Act shall take effect fifteen (15) days after its
complete publication in at least two newspapers of general circulation

Approved,