Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS,
First Regular Session

COMMITTEE REPORT NO. 815

Submitted by the COMMITTEE ON GAMES AND AMUSEMENTS
on.

Re: __ House Bill No. 3536
Recommending its approval without amendments

Sponsors: Representatives Amado S, Bagatsing and Hermilando I, Mandanas

Mr. Speaker:

The Committee on Games and Amusements, to which was referred House Bill
No. 3536, introduced by Representatives Amado S. Bagatsing and Hermilando 1.
Mandanas, entitled:

“AN ACT
AMENDING PRESIDENTIAL DECREE NO. 1869, AS AMENDED,
CONSOLIDATING AND AMENDING PRESIDENTIAL DECREE NOS.
1067-A, 1067-B, 1067-C, 1399 AND 1632, RELATIVE TO THE
FRANCHISE AND POWERS OF THE PHILIPPINE AMUSEMENT AND
GAMING CORPORATION (PAGCOR), SUBJECTING PAGCOR TO
THE AUDIT JURISDICTION OF THE COMMISSION ON AUDIT”

has considered the same and has the honor to report it back to the House of
Representatives with the recommendation that House Bill No. 3536 be approved without
amendment, with Representatives Amado S. Bagatsing, Hermilando L. Mandanas, as
authors thereof.

Respectfully submitted,

 BAGATSING
Chairman
Committee on Games and Amusements

‘The Honorable Speaker
House of Representatives

Quezon City
fh: 63536 15 congress


CO-AUTHORSHIP ON
HOUSE BILL NO. 3536

AN ACT AMENDING PRESIDENTIAL DECREE NO. 1869, AS
AMENDED, CONSOLIDATING AND AMENDING PRESIDENTIAL.
DECREE NOS. 1067-A, 1067-B, 1067-C, 1399 AND 1632, RELATIVE TO.
THE FRANCHISE AND POWERS OF THE PHILIPPINE AMUSEMENT
AND GAMING CORPORATION (PAGCOR), SUBJECTING PAGCOR
TO THE AUDIT JURISDICTION OF THE COMMISSION ON AUDIT”

HON. AMADO S. BAGA
Chairman

Vice-Chairmen:

1. HON. REXLON T, GATCHALIAN

2. HON. ROBERTO V. PUNO

3. HON. ELEANDRO JESUS F, MADRONA

fe

4. HON. FLORENCIO C. GARAY ¢ Zila sl —*
5. v4

5. HON. NIEL C. TUPAS, JR.

ION. THELMA Z. ALMARIO.

HO! NTONIO M. DIAZ

}. HON. PANGALIAN M. BALINDONG
Members:

1, HON. DARYL GR. J. ABAYON

2. HON. GIORGIDI B. AGGABAO

3. HON. MANUEL S. AGYAO.

4. HON. ANTONIO C. ALVAREZ

5. HON. MARIA ZENAIDA B. ANGPING
6. HON. RODOLFO W. ANTONINO:

7. HON. JOSE S. AQUINO IL

8. HON. DIOSDADO M. ARROYO

9. HON. IGNACIO T. ARROYO

10. HON. ELPIDO F. BARZAGA, JR.

11. HON. MARIA JOCELYN V. BERNOS
12. HON. AL FRANCIS C. BICHARA

13. HON. ANNA YORK P. BONDOC

14. HON. MARY MITZI L. CASAYON

eae



). HON. LUCY T. GOMEZ

. HON. EDUARDO R. GULLAS

. HON. NUR G. JAAFAR

. HON. ANTONIO T. KHO

. HON. ROSENDO S. LABADLABAD

| HON. ANTONIO F. LAGDAMEO, JR.
5. HON. CARMELO F. LAZATIN

HON. CARLO V. LOPEZ

37.
38.

CO-AUTHORSHIP ON
HOUSE BILL NO. 3536

AN ACT AMENDING PRESIDENTIAL DECREE NO. 1869, AS
AMENDED, CONSOLIDATING AND AMENDING PRESIDENTIAL
DECREE NOS. 1067-A, 1067-B, 1067-C, 1399 AND 1632, RELATIVE TO
THE FRANCHISE AND POWERS OF THE PHILIPPINE AMUSEMENT
AND GAMING CORPORATION (PAGCOR), SUBJECTING PAGCOR
TO THE AUDIT JURISDICTION OF THE COMMISSION ON AUDIT”

HON. IMELDA G. CALIXTO-RUBIANO.
HON. ARNEL M. CERAFICA

HON. NELSON P. COLLANTES

HON. ANTONIO RAFAEL G. DEL ROSARIO

. HON. JOEL ROY R. DUAVIT

HON. RAMON H. DURANO V1

HON. NAPOLEON S. DY

2. HON. JOSEPH VICTOR G. EJERCITO

. HON. YEVGENY VINCENTE B. EMANO
|. HON. ROGELIO J. ESPINA

. HON. BEN P. EVARDONE

HON. ERICO BASILIO A. FABIAN

’. HON. MYLENE J. GARCIA-ALBANO.

HON. ARNULFO F. GO la

HON. ROY M. LOYOLA
HON. MARIA MILAGROS H.
MAGSAYSAY

v


CO-AUTHORSHIP ON
HOUSE BILL NO. 3536

AN ACT AMENDING PRESIDENTIAL DECREE NO. 1869, AS
AMENDED, CONSOLIDATING AND AMENDING PRESIDENTIAL,
DECREE NOS. 1067-A, 1067-B, 1067-C, 1399 AND 1632, RELATIVE TO
THE FRANCHISE AND POWERS OF THE PHILIPPINE AMUSEMENT
AND GAMING CORPORATION (PAGCOR), SUBJECTING PAGCOR
TO THE AUDIT JURISDICTION OF THE COMMISSION ON AUDIT”

. HON. ERINEO S. MALIKSI

). HON. FRANCISCO T. MATUGAS / _ oti
HON. NEIL BENEDICT A. MONTEJO Sy

. HON. LORETO LEO S. OCAMPOS N =

. HON. EDWIN DL. OLIVAREZ i 1

4. HON. PEDRO M. PANCHO

HON. IMELDA QUIBRANZA-DIMAPORO/

. HON. ARTURO O. RADAZA Lan
7. HON. LANIM. REVILLA

. HON. CESAR V. SARMIENTO.

. HON. MEL SENEN S. SARMIENTO

. HON. MA. VICTORIA R. SY-ALVARADO
.HON. MILAGROSA T. TAN

. HON. REYNALDO V. UMALI

. HON. ISIDRO T. UNGAB

| HON. RENATO J. UNICO JR.

HON. BERNARDO M. VERGARA



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

FIFTEENTH CONGRI
First Regular Session

HOUSE BILLNO.__ 85986

AND HERMILANDO IL. MANDANAS

EXPLANATORY NOTE

Presidential Decree No. 1869 which consolidated Presidential Decree Nos.
1067-A, 1067-C, 1399 and 1632, relative to the franchise and powers of the
Philippine Amusement and Gaming Corporation (PAGCOR), was enacted on July \,
1983 to enable the then Marcos Government to cegulate and centralize thru an
appropriate institution all games of chance authorized by existing franchise or
permitted by law.

In this same decree, PAGCOR was given greater flexibility in its opecation by
limiting governmental audit only to the determination of the five percent (5%)
franchise tax and the government's share of fifty percent (50%).

When President Cory Aquino took over the reins of government in 1986.
PAGCOR was placed under full audit by the Commission on Audit through COA
Resolution 86-13, which declared Section 15 of PD 1869 relative to the franchise and
powers of PAGCOR, to be without force and effect insofar as the audit thereof is
concerned.

‘This measure is not questioning whether COA is performing its audit function
of PAGCOR but rather there is need to amend the law to conform with the
Constitution. The COA circular cannot amend the existing law, which is PD 1369. If
the proper amendment to the law is not done the Supreme Court may declare the law
unconstitutional.

Itis therefore urgently requested that this bill be approved by this Chamber.

yp LE
-RMILLANDO I. MANDANAS, AMADO S. BAGATSING.

*? District, Batangas 5" District, Manila


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session

HOUSE BILL NO. 3536 |

Introduced by: HONORABLES AMADO
HERMILANDO I. MANDANAS,

AN ACT
AMENDING PRESIDENTIAL DECREE NO. 1869, AS AMENDED,
CONSOLIDAY'ING AND AMENDING PRESIDENTIAL DECREE NOS. 1067-4,
1067-B, 1067-C, 1399 AND 1632, RELATIVE TO THE FRANCHISE AND POWERS
OF THE PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR),
SUBJECTING PAGCOR TO THE AUDIT JURISDICTION OF THE COMMISSION
ON AUDIT

Be it enacted by the Senate and the House of Representatives of the Philippines in
Congress assembl2a:

SECTION 1. Section 15 of Presidential Decree No. 1869 is hereby amended to read
as follows: :

“Section 15. Auditor — The Commission on Audit | or any government agency
that the office of the President may designate } shall appoint a representative who shall be the
Auditor of the Corporation and such personnel as may be necessary to assist said
representative in the performance of his duties. The salaries of the Auditor or representative

and his staff shall be fixed by the Chairman of the Commission on Audit. { or designated

government agency, with the advice of the Board, and said salaries and other expenses shall
be paid by | he Corporation. The funds of the Corporation to be covered by the audit shall be
limited 10 the 5% franchise tax and the 50% of the gross earnings pertaining to the
government as its share .] FUNDS AND TRANSACTIONS, INCLUDING REVENUES,
INCOM IE AND EXPENDITURES, OF THE CORPORATION, SHALL BE AUDITED
PURS CANT TO EXISTING LAWS AND REGULATIONS.”

SEC. 2. All laws, decrees, executive orders, instructions, rules and regulations or

Parts thereof inconsistent with the provisions of this Act are hereby repealed or modified

ac zordingly,


2

SEC, 3. This Act shall take effect thirty (30) days after its approval and after its
Publication in the Official Gazette o in two (2) national newspapers of general circulation,

Approved,


MINUTES OF THE MEETING OF THE COMMITTEE ON GAMES AND
AMUSEMENTS HELD ON FEBRUARY 14, 2011, 1:30 PM AT CONFERENCE
ROOMS 9 AND 10, RAMON V. MITRA BLDG. HOUSE OF REPRESENTATIVES,
QUEZON CITY.

|. CALL TO ORDER/ROLL CALL

The Chair, Hon. Amado S. Bagatsing called the meeting to order at 1:49 p.m.
Upon motion of Hon. Giorgidi Aggabao, duly seconded, the calling of the roll was
dispensed with.

I, APPROVAL OF THE MINUTES OF THE PREVIOUS MEETING OF THE
COMMITTEE HELD ON JANUARY 31, 2011.

Upon motion of Hon. Giorgidi Aggabao, duly seconded, the reading of the minutes
of the previous meeting held last January 31, 2011, was dispensed with and was
considered approved.

RESOURCE PERSONS:
1. Atty. Jorge A. Sarmiento - — Pagcor President & Chief Operating Officer
2. Henry Reyes = Pagcor Asst. Vice Pres. for Community Relations
3. Atty. Jose Ferdinand Rojas Ill - PCSO General Manager

4. Atty. Mabel Mamba - PCSO Director

5. Atty. Aquil Tamano - GAB Commissioner

6. Atty. Benjamin Samson - Dept. of Justice, Asst . Prosecutor

7. Atty. Manuel Femandez © - OGCC, Asst. Gov't Corporate Counsel

8. Sec. Jose Marie. Ponce - CEZA Administrator

9. Mr. Nilo Aldeguer - CEZA Senior Deputy Administrator

10. Mr. Joffrey Cabalsa = CEZA Deputy Administrator

14. Mr. Dennis Valdes - PhilWeb President

12. Chief Superintendent Francisco Villaroman - PNP Regional Director, Region II
13. Chief Superintendent Gil Lebin - PNP Provincial Director Region VI

12. Chief Inspector Manuel de Vera - PNP RLSO 2, PRO 2

43. Atty.Angelo Nino Santos - Meridien Vista Gaming Corporation Representative

INITIAL DELIBERATION OF HB NO. 3536 “ An Act Amending Presidential
Decree No. 1869, as Amended, Consolidating and Amending Presidential
Decree Nos. 1067-A, 1067-1 067-C, 1399 and 1632, Relative to the Franchise
and Powers of the Philippine Amusement and Gaming Corporation
(PAGCOR), Subjecting Pagcor to the Audit Jurisdiction of the Commission on
Audit” authored by Hon. Amado Bagatsing and Hon. Hermilando Mandanas

The Chair reiterated that this measure was refiled by him considering that this was
passed by this Committee and was approved on third Reading by this House during
the 14! Congress but was left pending in the Senate. He added that under the new
House Rules of this Congress once a measure has been approved on 3” Reading
during the previous Congress, this bill is refiled and with one meeting, the
Committee can approve the bill immediately and be reported out to the plenary.


WV.

The Chair recognized Hon. Antonino who moved that the Committee approve the
bill. He manifested that he intended to file a motion to put PAGCOR under COA
audit. The Chair then asked the comment of PAGCOR and Atty. Jorge Sarmiento
replied that they do not object to the bill but fully support this measure, He further
clarified that PAGCOR has been under COA audit since the time of President Cory
until now. He explained that before this, they were audited only on the government
share, however, in 1987, during the time of Senator Guingona who was then COA
Chair, COA exercised their audit power over the whole of PAGCOR, in consonance

with the Constitution,

Explaining his bill, the Chair remarked that under its charter, PAGCOR had a private
component but after the EDSA Revolution, a COA circular was issued to put the
entire PAGCOR under COA audit. He added that this bill was filed to put the record

straight

The Chair then advised the body that there is a motion to approve this bill and
hearing no objection, the motion was approved. He then instructed the Committee
Secretary to prepare the committee report to be sent to the Committee on Rules.

CONTINUATION OF THE DELIBERATION ON HB NO. 447 “ Resolution
Directing the Committee on Games and Amusements of the House of
Representatives to Investigate, in Aid of Legislation, the Number games
operations, i.e., Virtual, Jai-Alai, Video, Karera, etc, of Meridien Vista Gaming,
Inc., and its Beneficial Owner, Mr. Charlie “Atong” Ang, Leading to the Loss of
PCSO STL Revenues in its Area of Operations “ by Hon. Napoleon Dy and
Hon. Giorgidi Aggabao

The Chair recognized Hon. Aggabao who informed the body that the parliamentary
status of the bill is that Atty. Santos was trying to represent the officials of Meridien
but he was not recognized by the members of the Committee and hearing the lack
of resource persons, the meeting was adjourned.

The Chair then mentioned that Atty. Santos submitted a letter of authority from the
the president of Meridien.

Hon. Aggabao asked if the official of Meridien have been invited as agreed in the
last meeting. He mentioned that it is the practice in other committees that counsel of
persons subject of an investigation may not speak at the hearing

When the Chair asked if Mr. Atong Ang is an owner of Meridien, Atty Santos
Clarified that he represents only the corporate personality of Meridien. He said that
Atong Ang is not an owner and his name does not appear in any of the documents
of Meridien

The Chair remarked that this information is material to this investigation. However,
there are other matters that need clarification.

When asked if Atong Ang is a consultant of the Meridien, Atty Santos said that as
far as he knows, Atong Ang was a consultant before the opening of Meridien,


At this point, the Chair asked Atty. Santos of Meridien if he knows a certain Mr. Aitor
Totoricaguena to which Atty. Santos replied that this person is the president of
Meridien who is a Spanish national and who is now in Spain to attend to personal

matters.

For the information of the body, the Chair said that he received a letter from Mr.
Totoricaguena and in the last paragraph of his letter, the President of Meridien said
it is not proper for him to comment on this resolution as this is still the subject matter
of a pending case; making comments of the same during the pendency of the case
might affect or prejudge the outcome of the case.

Hon. Aggabao said that this is the quandary of the committee. This is a legislative
inquiry, a probe into certain factual allegations and therefore it is important that
those witnesses appearing before this committee should have first hand knowledge
about those facts we want elicited. He said, with all due respect to Atty. Santos,
everything that he would be telling us here would be hearsay at best.. Unless the
top officials appear, he said this committee will not be able to get to the bottom of
this. He said he would be constrained to request for the second time that the
principal officials of Meridien appear before this inquiry.

The Chair remarked that he agrees with Hon. Aggabao and although this case is
pending in the courts, this committee is investigating in aid of legislation. The Chair
also said that he feels that in the case of CEZA and Meridien, they have
transgressed the powers of Congress saying that he heard that the jai- alai operates
even outside of CEZA, so what would prevent anyone who wants to go into gaming
from doing the same.

The Chair added that because of the Committee on Games and Amusements
meeting last January 31, sabongsabong.com.ph opted to postpone the opening of
their operations in the Philippines and in lieu thereof, they decided to go on air
internationally.

With the permission of Hon. Aggabao, the Chair expressed his sentiment that even
if the officials of Meridien are not present, the committee can direct questions to the
other resource persons who are present

Hon. Antonino asked the Meridien representative if he could provide this committee
the Articles of Incorporation papers and the General Information Sheet filed with the
Securities and Exchange Commission. Hon. Aggabao requested that these papers
be submitted within five days.

At this point, Atty. Tamano volunteered that he has a copy of these documents and
he submitted the same to the committee.

Hon, Magsaysay asked why CEZA issued a cease and desist order for Meridien to
operate within CEZA. The basis for this, as per CEZA, is the legal opinion of OGCC
stating we do not have a clear mandate pertaining to the operation of jai-alai
rendered by then Atty. Agra and that there should be an expressed provision in our
franchise to operate within or outside of CEZA.


That is why CEZA said they would like to go to court to seek clarification whether
they have the authority to issue license for jai-alai inside CEZA and outside of their
Jurisdiction. This happened because when they sought the first legal opinion, OGCC
said that they have the franchise within CEZA and outside CEZA. However, in their
second opinion, OGCC withdrew it. He said that is why CEZA issued a Cease and
Desist Order, then, Meridien filed a suit against them, and it is now pending in the

court.

The representative of CEZA stated that under Section VI of their charter, they can
license, directly or indirectly, tourism activities including games, amusements and
creation of sports facilities such as horseracing, dog racing, gambling casinos, golf
courses and others. CEZA also said there is no mention of jai-alai, although they
were not sure if it falls under tourism activities or games or amusements

When Hon. Magsaysay asked why they allowed Meridien to operate outside of their
jurisdiction, CEZA said it is because of the first opinion of the OGCC and besides,
CEZA said these were just betting stations, mostly international.

In answer to the query of the Chair as to why CEZA issued a Cease and Desist
Order, CEZA said the OGCC legal opinon stated that CEZA does not have the
authority to issue jai-alai licenses inside or outside of CEZA. CEZA said Meridien
gives licenses to pelotaris thru CEZA. They explained that when CEZA issued a
Cease and Desist Order, there was no jai-alai operation yet. It was only when
Meridien secured an injunction from the court that they continued operation until the

actual playing.

The Chair asked what the Games and Amusements Board (GAB) have done since
ja-alai is under their jurisdiction. Commissioner Tamano replied that when they
assumed last December, GAB formed an adhoc committee for jai-alai operations.
They requested their anti-gambiing unit to do surveillance, GAB said they submitted
their report to this committee last January 31 wherein they mentioned that there
was an on-going jai-alai operations. Because of this report, GAB issued a Show
Cause Order to all the off-fronton outlets operating in Metro Manila based on
Republic Act 954 and Executive Order 141 which gives power to GAB to regulate
jal-alai. GAB also said that they have received a letter from Meridien which says
that GAB has no power to regulate them.

The Chair declared that now GAB should issue a Cease and Desist Order to CEZA
because the players are not licensed by GAB, the rules and regulations are not
approved by GAB, betting is not monitored by GAB so who is protecting the betting
public.

Hon. Umali asked if these jai-alai frontons are extensions of Meridien in Manila
GAB said that when they sent Show Cause Order to these off-frontons, it was
Meridien who answered them, which shows that Meridien is actually the one
operating them.

The Chair then recognized the representative from OGCC who narrated that,
originally, the case was filed in the Regional Trial Court of Aparri, Cagayan but they
lost the case, however they elevated it to the- Court of Appeals. He said further that
the lower court allowed Meridien to continue with its jai-alai operations. When they

4


appealed in 2009 the Court of Appeals affirmed the lower court's decision. OGCC
made a Motion for Reconsideration but it was denied last January 6, 2011. After that
OGCC said they filed for 30 days extension of time so they could file a Petition for
Certiorari before the Supreme Court. OGCC said the last day to file is on February
21°". The Chair asked OGCC how come they lost the case in the Court of Appeals
OGCC explained that it was the fault of the lawyer who previously handled the case
who, upon receipt, did not file a Motion of Reconsideration nor a Notice of Appeal
within the 15 day statutory period.

‘The Chair said that he has information that the same lawyer did not even wait for
the decision to be sent by mail but was on hand to personally get a copy of it
OGCC confirmed that the lawyer went to the court himself which is not usually done
That lawyer was administratively charged for Serious Dishonesty, Grave
Misconduct, Gross Negligence of Duty and Conduct Prejudicial to the Service. No
disbarment was filed but he was dismissed effective January 31, 2011

Hon. Aggabao asked if OGCC was unable to file an appeal within the reglamentary
period, what was then the basis for their appeal in the Court of Appeals. OGCC said
in the RTC, they filed a Relief from Judgment for the abuse of discretion of the lower
court. OGCC said they believe that all is not lost.

Hon Aggabao said he can foresee that there will be no clear adjudication of the
merits but that this case will drag on, and on a question of procedure and not on
fact if CEZA has the authority to grant license to Meridien. He said that there will be
‘No resolution on the substantive issue on whether CEZA can lawfully issue a license
to Meridien.

OGCC cited the resolution of the Court of Appeals denying the Motion for
Reconsideration wherein it says “under the RA 7922, petitioner CEZA has the power
to either operate a sports and/or gaming facilities or similar amusements or issue a
license to a deserving entity. A game is both a pastime and a play for a stake. Jai-
alai is an internationally known sport albeit a betting game. Clearly petitioner CEZA
has the power to issue a license to respondent Meridien for the holding and
operation of jai-alai. No additional legislative franchise categorically granting said
authority to respondent Meridien is therefore necessary. Consequently, considering
that the said license to operate which was issued to respondent Meridien has yet to
expire, the license continues to be valid and subsisting”

Hon. Garin asked who was the judge and OGCC replied that it was RTC judge
Oscar Zaldivar; and from the Court of Appeals, the justices who signed the decision
were Justices Noel Tijam, Marlene Gonzales Sison and Danton Bueser

The Chair pointed out that the courts never mentioned anytime about the operation
of jai-alai outside of CEZA; and the OGCC confirmed that their 2 legal opinion said
that Meridien is not allowed to operate jai-alai inside and outside of CEZA.

For the record, CEZA stressed that after the 2 legal opinion, they have not allowed
Meridien to set up betting stations outside of CEZA.

Hon. Aggabao said that there is a strong suggestion for GAB to issue an injunction
against Meridien and what is their time-table with regard to this. GAB said that they

5


have issued a Show Cause Order and the hearing was supposed to be today but
since this committee has a meeting, they have deferred it to next week, February
21. However, the Chair asked why just a Show Cause Order when the authority of
GAB has been by-passed. Hon. Antonino said not to take lightly the decision of the
Court of Appeals as it is a serious one. He said that the Court of Appeals said that
CEZA could issue licenses without legislating imprimatur. He pointed out that this
would be a precedent for all export processing zones, that CEZA can issue licenses,
whether inside or outside is unclear. He pointed out that congress is placed out of
the picture so GAB is also out of the picture. He suggested that this committee
carefully study this matter.

Hon. Antonino pointed out that in the documents submitted, how come 2 Spanish
citizens were issued par value of P4M and there is a a Filipino, Mr. Eleazar Reyes,
who has subscribed shares of P15,000.00 and the foreigners have P10,000.00.
However, in the Paid-Up Capital of the GIS, the paid-up capital portion of the
15,000.00 shares by the Filipinos is P75,000.00. Whereas in the foreigners
10,000.00 shares, the paid-up capital is P9M. He asked how come two foreigners
contribute 98% of the paid-up capital. He said there seems an irregularity in these
documents which are submitted to the SEC. If this is true, then this could be a basis
for CEZA to withdraw or cancel its license. He said it is clear that based on these
documents the organization of this corporation is not legal.

CEZA said he agreed with Hon. Antonino and he will ask his lawyers to study this,
but for a while, CEZA thought the papers were SEC registered. Cong. Antonino
requested GAB to issue a Cease and Desist Order against Meridien as this would
strengthen their case. Hon. Antonino then asked that CEZA furnish the committee
with that study within this week.

Based on the discussion, Hon. Magsaysay said that CEZA apparently did not
exercise due diligence in issuing a license to Meridien and that CEZA seems to be
poorly managed if they granted a license to a locator without checking the
documents.

Hon. Garin agreed with Hon. Magsaysay and asked who has oversight powers over
CEZA. If itis congress, then it is incumbent upon us to review the authority given to
CEZA even with the good intent of the previous congresses in the creation of CEZA,
authorities like this has been subject to abuse. She said if there is a need, CEZA
could be dissolved.

Hon, Magsaysay said that in the Subic Bay Freeport Zone, there is no need for a
60/40% ownership as long as it is inside the zone. CEZA also confirmed the same.

Hon. Aggabao requested that the officials of Meridien be present in the next
meeting. At this juncture, the Chair terminated the discussion to give way to athe
deliberation of another measure.


INITIAL DELIBERATION ON HOUSE RESOLUTION NO. 585 “URGING THE
COMMITTEE ON GAMES AND AMUSEMENTS TO CONDUCT AN INQUIRY, IN
AID OF LEGISLATION, ON THE CONTRACT OF THE PHILIPPINE AMUSEMENT
AND GAMING CORPORATION WITH PHILWEB CORP. FOR BEING
ALLEGEDLY DISADVANTAGEOUS TO THE GOVERNMENT” by Hon. Rufus
Rodriguez and Hon. Maximo Rodriguez, Jr.

Hon. Rufus Rodriguez stated that the intellectual property rights agreement was

signed last June 1, 2006. The Software License Agreement said that the fee to be

given is 2.5%. After one month, this was increased to 10%. He pointed out the

issues:

1. PhilWeb does not own the software. Upon checking, the owner of the
software is Real Time Gaming (RTG) Holdings. Therefore, PhilWeb, who
Is receiving 10% is a middleman and has no propriety rights over the
software with which it is being paid. And furthermore, the increase in the
fee is contrary to what is stated in Sec 7A of the Agreement of June 1
which states that “no modifications shall be valid unless made in writing
and is duly signed by the authorized representatives of both parties;” and

2. the amendment was made only last September 13, 2007 after the
agreement was installed

Mr. Dennis Valdez of PhilWeb said that they are more than just the alleged
middleman between Pagcor and RTG. He explained that the internet casino
operation of Pagcor is unique in that it is a café based operation. PhilWeb said that
most internet gaming can be played from the home. Pagcor's gaming can be played
only in cafes. Most internet gaming software is designed for home. RTG software is
designed for pure internet use. As is, PhilWeb said Pagcor cannot use RTG for its
gaming operations. Thus, in addition, the software “MiddieWare" was written by
PhilWeb to conform to the design specifications and ensure that the RTG software
communicates properly with the computer software of Pagcor which is already in

place.

Furthermore, PhilWeb said the PEG software cashiering system, which we know
today as our * Lunchpad” is a proprietary software developed by PhilWeb for use in
Pagcor’s internet casino operations. PhilWeb said they have an. Information
Technology and Software Department with 49 employees, which has the capability
to write internet software similar to the ones by RTG. In June 2006, the Board of
Directors of Pagcor decided to use RTG and so PhilWeb has to abide by this
decision. Hence, PhilWeb said the COA's findings is baseless.

Furthermore, PhilWeb said in addition to the postioning of the proprietary software
system required to run the PEG's operation, they provide Pagcor with web hosting
services and management services which encompass the entire spectrum of
services needed to run Pagcor. They said that PhilWeb is run at no expense to
Pagcor.

Pagcor said they have renegotiated the terms and conditions of the old IPMLA and
effective January 1, 2011, Pagcor said they have aligned closely to the audit report
of COA. Pagcor informed the body that they have reduced the software fee from
10% to 5%.effective January 1, 2011. Pagcor said they have negotiated that the 2%
casino winnings allocated as operator's incentives, PhilWeb agreed that they will no

7


longer be deducted from Pagcor share. This also includes capital advances fee
which is .5166 of casino winnings, which was also removed

As per Pagcor, the operator's incentives fees of 2% of casino winnings and capital
advanced fees which were under PhilWeb's control before are no longer under the
new IPLMA shared expenses PhilWeb will have to shoulder them and not Pagcor.

Also, pursuant to the COA audit observations that the old sharing between PhilWeb
and Pagcor is based on net receipts, it is now based on gross revenue

Under the agreement, PhilWeb shall continue its marketing activities including
advertising and promotions and Pageor shall continue to have regulatory control
over PEGs and their operations.

Pagcor said that the impact of this renegotiation is that there is an increase of
P112M share for Pagcor to the P1.1B share of Pagcor from 2010.

Hon. Rufus Rodriguez said Pagcor will be in the losing end because winner payout
is 97%, therefore of the P17B sales, Pagcor was able to get P139M only. He said
that the COA audit report recommends that there should be a change of
management of PhilWeb as Pagcor is left with “crumbs”

The Chair asked who is holding the source code. Pagcor said it is PhilWeb. The
Chair said he heard that the winners of the internet games are usually the relatives
of the employees of PhilWeb or RTG. PhilWeb claimed that is not true as the
employees are not allowed to play.

Hon. Magsaysay asked how does Pagcor monitor the sales of PhilWeb. Pagcor said
they have computers wherein they can see every sales and pay out to winners,

At this point, the Chair requested Pagcor to submit their position paper on this
measure and the list and location of the 161 internet gaming outlets and the
corresponding sales and the franchise holders of each.

With regard to the increase of the software fee, Hon. Rufus Rodriguez asked what
was the basis for the increase from 2.5% to 10%. Pagcor said this contract was
signed before the new management. Before that, Kismet Gaming Corporation was
the one in contract with PhilWeb. Then one month after RTG signed up, the fee
went up to 10%. Pagcor said they will submit to the committee the explanation they
made to COA to explain this.

Hon. Padilla asked when will House Resolution 447 be scheduled. The Chair said it
will be sometime in March before adjournment. He also asked for the contract and
or documents between CEZA and Meridien. He also requested! if he can invite
some resource persons from Nueva Vizcaya, with proper coordination of the Chair
and the committee secretary.

Hon. Rufus requested the following to be submitted next meeting:

1. the Agreement (IPLMA)


2. the financial statements showing the total revenues from 2006 to 2010
with the breakdown of how much are the management fees of 14%,
25% web hosting fee, 10% software licensing fee .5166% capital
advances fee, 2% allocation populators incentives fee, and how much
was received by Pagcor and PhilWeb.

The Chair then directed the committee secretary to ask Pagcor and PhilWeb to
‘submit these documents. He also asked Pagcor and PhilWeb to submit the same.

Hon. Magsaysay asked when her resolution concerning Pagcor will be
scheduled for hearing. The Chair said sometime in March.

Hon Rufus Rodriguez asked when the ocular inspection of these internet games
will be scheduled. Pagcor and the Chair said they will consult and will inform the

boay.

Vv. ADJOURNMENT

| hereby certify to the correctness of the above statements.
sack Gece.

GRA DEL CASTILLO

Committee Secretary

Prepared by:

biti dle be

Supervising Legislative Staff Officer II

a BE.

HON AMADO S. BAGATSING
Chairman
Committee on Games and Amusement



FACT SHEET

HOUSE BILL NO. 3536
(As Approved by the Committee on Feb. 14, 2011)

AMENDMENT TO PD 1869, SUBJECTING PAGCOR TO THE
AUDIT JURISDICTION OF THE COMMISSION ON AUDIT

Introduced by: The Honorable Representatives Bagatsing and Mandanas

Committee Referral: Committee on Games and Amusements
Committee Chairperson: Honorable Amado S. Bagatsing

OBJECTIVE:

+ To make all transactions of the Philippine Amusement and Gaming
Corporation (PAGCOR) transparent by subjecting them to COA audit
which will eventually erase doubts relative to the actual revenue to be
remitted to the government.

KEY PROVISION

* Amends Section 15 of Presidential Decree No. 1869 to allow the
Commission on Audit to appoint a representative who shall be the
auditor of the Corporation and that all funds and transactions
including revenues, income and expenditures of the PAGCOR, shall be
covered by the audit jurisdiction of the Commission on Audit.

RELATED LAWS

* Presidential Decree No. 1869 Charter of the PAGCOR
* Republic Act No. 9487 Extending the Franchise of PAGCOR