Quis

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

NINETEENTH CONGRESS
First Regular Session

, 17

HOUSE BILL NO.

Introduced by Representatives FERDINAND MARTIN G. ROMUALDEZ,
YEDDA MARIE K. ROMUALDEZ and JUDE A. ACIDRE

EXPLANATORY NOTE,

“The Natural Gas Industry has played a major role in the rise of numerous countries within the
international arena. In fact, within an increasingly competitive global economy, the natural gas industry
has fuelled the rapid rise of the Gross Domestic Product (GDP} of many countries by enabling their
energy intensive industries to have access to an affordable, abundant and accessible energy source to be
utilized long-term.

Moreover, with the impending negative effects of climate change as a result of anthropogenic
activities such as overreliance on fossil fue
adopt and utilize its natural ga
future development,

countries such as the Philippines have begun to openly
dustry as a means to achieve its

tainable development goals for

As it stands, the launching of the Malampaya Deep Water G:

towards the rise of the natural gas industry within the countey. As

1o-Power Project has given birth
result, the utllization of the
Malampaya Gas Field has enabled the country to harness and make use of a clean, abundant and-
accessible energy resource which has greatly propelled the country towards greater heights. Moreover,
other industries like the transport industry through the Natural Gas Vehicle Program for Public
Transportation (NGVPPT) have begun to utilize Natural Gas as an alternative to traditional fuel as a
means to integrate other industeies within the utilization of natural gas

a primary energy resource

Aside from the launching of the Malampaya Deep Water Gas-to Power Project, various
government policies have been initiated to adopt and speathead the development of the country's
downstream natural gas industry. Policies such as (i) Executive Order No. 66 which was signed by
President Gloria Macapagal-Arroyo on January 18, 2002 which designated the Department of Energy
(DOE) as the primary


agency that would push for the development of the country's natural gas industry as well as (ji) the
issuance of the DOE interim rules and regulations governing the transmission, distribution and supply
sub-sectors of the natural gas industry.

As it stands, the Malampaya's natural gas supply has been slowly decreasing throughout the
years. In light of this, the Philippines is in dire need for solutions that would satisfy the country's needs
for energy. However, despite the presence of the abovementioned policies, we are still lacking on a
clear, comprehensive and integrated legislative framework that would serve as a pillar towards achieving
the rapid development of the country's natural gas sector. As a result, international natural gas
companies would tend to shy away from investing within the country which leaves the government with
‘no other available options.

While acknowledging the fact that the natural gas industey is still a relatively young industry, it
is vital that we introduce a proper legislative framework that would provide favorable conditions
towards establishing a healthy natural gas industry in the country. This would then in turn lead towards
rapid economic development while respectfully practicing sustainable development towards a brighter
future.

This proposed measure was originally filed in the 18 Congress as House Bill No. 3031,
authored by Representatives Lord Allan Jay Q. Velasco and Wilter “Sharky” Wee Palma Il.

In view of the foregoing, immediate passage of this bill is earnestly sought.

RDINAND M. - ROM
Representative
First District, Leyte

MARIE K. ROMUALDEZ
Representative
“arty List, Tingog Sinirangan Party-List, Tingog Sinirangan



Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

NINETEENTH CONGRESS
First Regular Session

HOUSE BILL NO.

Introduced by Representatives FERDINAND MARTIN G. ROMUALDEZ,
YEDDA MARIE K. ROMUALDEZ and JUDE A. ACIDRE

AN ACT
PROMOTING THE DEVELOPMENT OF THE PHILIPPINE DOWNSTREAM
NATURAL GAS INDUSTRY, CONSOLIDATING FOR THE PURPOSE ALL LAWS
RELATING TO THE TRANSMISSION, DISTRIBUTION AND SUPPLY OF
NATURAL GAS, AND APPROPRIATING FUNDS THEREFOR

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

CHAPTER I
TITLE AND DECLARATION OF POLICY

SECTION 1. Short Title. — This Act shall be known as the "Philippine Downstream Natural Gas
Industry Development Act”.

SEC. 2. Declaration of Policy. - It is hereby declared the policy of the State to:

(@) Promote natural gas as a safe, environment-friendly, efficient and cost-effective source of
energy, and an indispensable contributor to grid security, especially with the entry of more
intermittent renewable energy sources by establishing the Philippine downstream natural gas
industry (PDNGI) for the benefit of all segments of the nation’s population and all sectors of its
economy;

(b) Promote natural gas as the energy fuel, which has tremendous potential to meet the
increasing local demand for fuel, and the development of the Philippines as a liquefied natural
gas (LNG) trading and transshipment hub within the Asia-Pacific Region. In all cases, the State
shall ensure the safe, secure, reliable, transparent, competitive and environmentally responsible

operation of the PDNGI value chain;


(© Provide a conducive industry environment through the issuance of policies, regulations,
safety code, product quality and facility operational standards, and plans and programs geared
towards the promotion and development of the PDNGI;

(@ Promote the conversion of existing fossil fuel-operated machines and facilities to natural
gas use, provided it is technically and financially feasible;

(©) Promote access to and the financial viability of the PDNGI by liberalizing the entry of
investors under a system of competition, transparency and fair trade and providing responsive
policy support, with the end goal of attaining fair price for all stakeholders;

(® Ensure compliance with International and Philippine health, safety, security,
environment (HSSE) standards and best practices under a system of safe, secure, high-quality,
environmentally responsible operation and services that afford protection to consumers;

(@ Encourage the inflow of private capital through equity participation by the private sector
in the downstream natural gas value chain including gas transmission and distribution utilities;

(b) Ensure transparent and reasonable price of natural gas and rates for its importation,
storage and regasification, transmission and distribution in a regime of open and fair competition
and full public accountability that shall promote greater operational and economic efficiency and
enhanced competitiveness of the Philippine products in the global market;

(i) Develop the necessary trades, technical expertise and skills to support the PDNGI; and
@) Facilitate the development of end-uses of natural gas including the use of natural gas as
fuel for power, commercial, industrial, residential and transport that promote fuel diversity and

compliance with existing environmental laws

SEC, 3. Scope. — This Act shall provide a framework for the development of the PDNGI and
its transition from emerging industry into mature industry status within a competitive natural gas
market, and define the responsibilities of various government agencies and private entities in
furtherance of this national goal.

‘All activities of the Department of Energy (DOE), Energy Regulatory Commission (ERC) and
other concerned government agencies relevant to the development and regulation of the

PDNGI shall be in accordance with this Act.

SEC. 4. Definition of Terms. ~ As used in this Act:
(®) Affliates refer to the corporate relationships of two or more persons, one of whom either

‘owns of controls or is being controlled by other persons. As used herein, “control” shall mean


the power to direct or cause the direction of management policies as an inherent part of
decision-making power;

(©) Anti-Competitive Behavior refers to the practices and agreements in violation of the
provisions of Republic Act No. 10667, otherwise known as the “Philippine Competition At”:

(© Capacity refers to the maximum flow expressed in normal cubic meters per time unit o in
energy unit per time unit;

(@ Delivery refers to the transmission or distribution of natural gas and the supply of natural
gas at wholesale or retail;

(©) Distribution refers to the transportation of natural gas through a gas distribution system to
end-users;

() Distribution stem refers generally to the pipeline and related facilities used to transport
natural gas extending between the last delivery point of the transmission system to the last
connection point to the end-user;

® — End-user refers to any person that will receive delivery of natural gas for resale or final
use;

(H) Franchise refers to the right, privilege and authority issued by Congress authorizing a
person to engage in the transmission of natural gas or distribution of natural gas within a specific
geographical area;

@ Gathering facilities vefer to natural gas pipelines and its ancillary 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;

@) Importation refers to the act of bringing LNG into the Philippines;

(®) Insurance refers generally to a risk-transfer mechanism that ensures full or partial financial
compensation for the loss or damage caused by events beyond the control of the insured party
wherein compensation is normally proportionate to the loss incurred;

@ Liquefied natural gas or LNG refers to natural gas which has been liquefied by cooling at a
cryogenic temperature;

(mm) Natural gas refers to gas obtained from boreholes and wells consisting primarily of a
mixture of methane, ethane, propane and butane with small amounts of heavier hydrocarbons
and some impurities, consistent with the Philippine National Standards (PNS) ot the standards
developed by the International Organization for Standardization (ISO);

(2) Natural gas distribution code refers to the code to be formulated by the DOE pursuant to
Section 5(g) of this Act that shall set the technical performance standards for operating gas

distribution utilities and the minimum financial standards for gas distribution systems;


(0) Natural gas distribution stem refers to the system of conventional pipelines and related
facilities extending from the delivery points where the gas distribution system receives the natural
£28 to the point of connection in the premises of the end-user; and any available virtual pipeline
that allows alternative modes of transportation;

©) Natural gas distribution utility vefers to any person engaged in the operation of a natural gas
distribution system providing services for general public use, which requires a franchise to
operate a gas distribution system;

(@ Natural gas sales and purchase agreement ot NGSPA refers to any contract or agreement for
the delivery and sale of indigenous or imported natural gas by and between sellers, suppliers,
buyers and end-users;

© Natural as transmission code refers to the code to be developed by the DOE pursuant to
Section 5(g) of this Act that shall set the technical performance standards for operating gas
transmission systems and the minimum financial standards for gas transmission utilities;

() Natural gas transmission sistem refers to the system of high-pressure pipelines, storage and
its ancillary facilities that are used to transport natural gas from the interconnection with
gathering facilities, other LNG-telated facilities and other gas transmission ot distribution
systems;

(9 Natural gas transmission utility tefers to a natural ot juridical person that has a franchise to
operate or is intending to operate a gas transmission system except own-use pipelines;

(®) — Own-use permit refers to an authorization granted by the DOE to a permit holder or
operator for the exclusive use by the operator or its affiliates in the operation of its natural gas
facility;

(*) Permit refers to an authorization issued by the DOE for the importation, construction,
commercial operation and maintenance of natural gas facilities;

(w) Permit bolder or operator refers to a natural or jutidical person who is granted permit by
the DOE to engage in the importation, construction, commercial operation and maintenance of
natural gas facilities;

(3) Person refers to a natural or juridical person, as the case may be, including the national
and local governments of the Republic of the Philippines, its agencies and instrumentalities, and
government-owned and controlled corporations;

(©) Philippine downstream natural gas industry ot PDNGI refers to the sectors of transmission,
distribution, supply, and use of natural gas and their related activities, such as importation,

storing, regasification, transmission and distribution of natural gas to end-users;


©) Philippine Energy Plan o PEP refers to the overall energy program formulated and
updated yearly by the DOE and submitted to Congress pursuant to Republic Act No. 7638,
otherwise known as the “Department of Energy Act of 1992”, as amended;

(aa) Rates refer to the payment on the utilization of the capacity and use of other services
offered by the permit holder or operator of the transmission and distribution pipeline;

(bb) Supplier refers to any person engaged and registered with the DOE to trade on
indigenous or imported LNG and their subsequent supply to end-users;

(cc) Supply refers to the trade or sale of indigenous or imported natural gas and their
subsequent sale to end-users;

(dd) Third-party ascess or TPA refers to a transparent and non-discriminatory access and
utilization by a third-party user of the excess capacity of the LNG terminal and its related
facilities;

(¢e) Transmission refers to the transportation of natural gas through a natural gas transmission
system;

(f) Virtual Pipeline refers to alternative methods of transporting natural gas to places where
there is no pipeline network available. It is based on a modular system of compression ot
liquefaction, transport and decompression and regasification of natural gas, which communities,

industries, gas stations and others may use.

CHAPTER II
POWERS AND RESPONSIBILITIES OF THE DOE AND THE ERC

SEC. 5. Powers and Responsibilities of the DOE. — tn addition to its existing powers and
functions, the DOE shall have the overall responsibility of supervising and monitoring the
development of the Philippine downstream natural gas industry. Towards this end, the DOE
shall perform the following powers and functions:
(@) Prepare the Natural Gas Industry Development Plan (NGIDP) within two (2) years from
the effectivity of this Act, incorporating therein the plans submitted by public and private
stakeholders after open discussions and consultations with them. The NGIDP shall consist of
approved regasification, transmission and distribution development plans which shall be
integrated into the Philippine Energy Plan (PEP), and reviewed and updated every three (3) years
after its adoption;
(®) Establish standards on gas quality, facility installation and safety of operation. For this
Purpose, a Philippine Inter-Agency Technical Committee (PIA-TC) shall be created by the
Bureau of Philippine Standards (BPS) to be chaired by the DOE. The PIA-TC shall have as
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members the representatives of concerned government agencies and private industries. A
Philippine Inter-Agency Health, Safety, Security and Environment Inspection and Monitoring
‘Team (PIA-HSSE IMT) shall likewise be created to monitor and enforce compliance with
established standards;

(© Evaluate applications and issue permits on the importation, exportation, receipt,
unloading, loading, storage, tegasification of liquefied natural gas; transmission, distribution,
marketing, utilization, aggregation of natural gas; and the safe, secure, reliable and efficient
planning, construction, operation, expansion, modification, maintenance, decommissioning and
abandonment of the downstream natural gas industry infrastructure and facilities;

(@ Evaluate applications for permits or authorities to operate, including a Notice to Proceed
(NTP), a Permit to Construct, Expand, Rehabilitate and Modify (PCERM), and a Permit to
Operate and Maintain (POM) downstream natural gas projects and facilities, accreditation to
import, supply and transport natural gas, Acknowledgement to Import (ATI) LNG and
Acknowledgement to Supply and Transport (AST) natural gas;

© Review, suspend or revoke, after due notice and hearing, permits issued in accordance
with the preceding paragraphs (c) and (d) herein, and Section 12 of this Act after a finding of
‘non-compliance with the provisions of this Act, rules and regulations that shall be issued to
implement it, and related issuances;

(9 Issue a written approval on the assignment or transfer of interest on any permits issued
in accordance with Section 50 of this Act, after finding that the assignee or transferee has met all
the legal, technical, and financial qualifications and has committed itself to assume all existing
obligations of the permit holder, and such assignment or transfer is in accordance with existing
Jaws, rules, and regulations: Provided, That permits requiring the prior issuance of a legislative
franchise shall not be subject to assignment or transfer of interest;

(® _ Issue, in coordination with the ERC and in consultation with other concerned
government agencies and the PDNGI participants, the Gas Transmission and Distribution
Codes, which shall contain the standards and best practices on safe, high-quality,
environmentally responsible and consumer protected operation and service, competitive
practices and reasonable rates of service;

(b) Endorse requests for investigation to the Philippine Competition Commission (PCC) of
any anti-competitive behavior in the conduct of any business under the downstream natural gas
industry;

@ Issue directives to qualified government agencies, in their capacities as investing arms, to
spearhead the development of the PDNGI value chain as the DOE may deem imperative to

catalyze its development within a given timeline;


@ Determine the qualifications and detailed responsibilities of the Natural Gas
Transmission System Operator (NGTSO) and Natural Gas Distribution Utilities (NGDUs)
pursuant to their responsibilities provided in this Act;

(®) Initiate actions against the NGTSO or NGDUs for failure to comply with the
qualifications and detailed responsibilities specified in this Act;

® Review and approve the natural gas supply and regasification development plan of the
regusification terminal owner of operator, natural gas transmission development plan of the
NGTSO, and the natural gas distribution development plans of the NGDUs, and integrate the
same into the PEP;

(m) Require the PDNGI participants to submit the regasification, transmission and
distribution development plans, and regular and special reports regarding the organization,
business, conduct, practices, and management of any business entity duly registered as part of the
downstream natural gas industry, subject to Section 20 hereof; and

(1) Exercise such other powers and functions as may be necessary or incidental to attain the
objectives of this Act. Subject to existing laws, rules and regulations, the DOE is hereby
authorized to create offices and appoint personnel as may be necessary to efficiently and

effectively implement this Act.

SEC. 6. Powers and Responsibilities of the ERC. — In addition to its existing powers and
functions, the ERC shall have the sole regulatory responsibility for establishing the rates and
related tetms and conditions of service for the transmission and distribution, regasification and
supply of natural gas to the extent that such activities are regulated pursuant to the requirements
set forth in this Act. It shall:

(@) 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 shall be to allow the recovery of just
and reasonable costs and 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, and the rates to be prescribed shall be non-disctiminatory. For
this purpose, the ERC is hereby authorized to require from all participants in the natural gas
supply chain all necessary and appropriate records and documents relevant to the determination
of just and reasonable fuel cost used in power generation as recoverable component of electricity

cost to end-users;


() __Regasification services and supply services shall be subjected to rate regulation when
there is no competing regasification operators;

© Apply administrative procedures that will ensure the constitutional right to due process;
(@ 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 ot
cases, which have been filed before or referred to it during the preceding year, the actions and
proceedings undertaken thereon and its decision or resolution on each case. The ERC shall make
copies of such report available to any interested party upon payment of a charge, which shall
reflect the printing costs;

(©) Publish in newspapers of general circulation all its cases and decisions involving rates;
(Create offices and appoint personnel thereto as may be necessary to efficiently and
effectively perform its functions as stipulated in this Act, subject to existing laws, rules and
regulations; and

(@) _ Exercise such other powers as may be necessary or incidental to attain the objectives of
this Act.

CHAPTER III
POWERS AND RESPONSONSIBILITIES OF GOVERNMENT AGENCIES

Sec. 7. Powers and Responsibilities of the Department of Environment and Natural
Resources (DENR). ~ n addition to its functions under Executive Order No. 192, otherwise
known as the ‘Reorganization Act of the Department of Environment and Natural Resoures”, the DENR
shall, together with the DOE, determine and monitor compliance with the environmental
standards for the location, construction, improvement, expansion, operation, rehabilitation,
repair, maintenance, decommissioning, and abandonment of LNG terminals, natural gas

transmission systems, and all related equipment and facilities.

Sec. 8. Powers and Responsibilities of the Department of Health (DOH). ~ In addition to
its functions under Executive Order No. 317, Seties of 1941, entitled, “Organizing the Department of
Health and Public Welfare”, as amended, the DOH shall, together with the DOE, determine and
‘monitor compliance with the health standards for the location, construction, improvement,
expansion, operation, rehabilitation, repair, maintenance, decommissioning, and abandonment of

LNG terminals, natural gas transmission systems, and all related equipment and facilities.


Sec. 9. Powers and Responsibilities of the Department of Trade and Industry-Burcau of
Philippine Standards (DTI-BPS).— In addition to its functions undet Republic Act No. 4109,
entitled, “An Act to Convert the Division of Standards under the Bureau of Commerce into a Bureau of
Standards, o Provide forthe Standardization and/or Inspection of Products and Imports ofthe Philippines and
Jor other Purposes”, the DTI-BPS shall, together with the DOE, determine, develop, formulate,
Promulgate, and revise, the Philippine National Standards for natural gas transmission systems,
and for natural gas, in its original or liquefied form, LING terminals, all related equipment and

facilities.

SEC. 10. Powers and Responsibilities of the Philippine Competition Commission (PCO).
~ All matters concerning abuse of market power, cartelization, and any anti-competitive or
discriminatory behavior shall be subject to the quasi-judicial powers of the PCC as provided for
under Republic Act No. 10667, otherwise known as the “Philippine Competition Act”

CHAPTER IV
STRUCTURE, OPERATION AND REGULATIONS OF THE
DOWNSTREAM NATURAL GAS INDUSTRY

SEC. 11. Structure. ~ For purposes of this Act, the structure of the PDNGI value chain shall
consist of an LNG terminal and its related facilities, transmission, distribution pipelines and their

related facilites, storage and distribution-related facilities, and supply and transport of natural

gas.

SEC. 12. Permits. ~The DOE shall have the power to issue, review, suspend and revoke for
cause, the permits necessary for the construction, expansion, rehabilitation, modification,
operation and maintenance of any PDNGI facility or activity. Own-use permit for natural gas
facilities shall be allowed for the exclusive use of the operator and its affiliates in the operation of
its facilities. The holder of an own-use permit shall still comply with the requirements in this Act.
‘Transmission and distribution of natural gas shall be exempted from franchise requirement.

The owner and operator of an LNG terminal shall have the option to apply for both permits and
simultaneously perform the functions of an own-use LNG terminal permit holder, pursuant to
Section 35 of this Act, and a third-party access (TPA) LNG terminal permit holder pursuant to
Section 26 of this Act, to the extent of the capacity allowed by and during the period specified in

each type of permit.


SEC. 13. Rate Regulation. — The rate of charges and fees for the services of transmission or
distribution pipelines and their related facilities shall, when they function as public utilities, be
subject to the review and approval by the ERC. The rate methodology to be applied by the ERC
shall be based on the principle of full recovery of prudent and reasonable costs incurred,
including a reasonable return on rate base, or such other principles that will promote the
determination of just and reasonable rates that is consistent with the encouragement of private

investments and goal of developing a PDNGI infrastructure

SEC. 14. Compliance with Philippine Laws, Rules and Regulations, ~ Operators ot permit
holders of PDNGI facilities shall comply with all Philippine laws, rules and regulations
implemented by the different agencies of the government.

SEC 15. Compliance with Standards. - The DOE shall ensure that downstream natural gas
products are of high quality, and natural gas facilities provide efficient service, observe stringent
safety systems, accord attention to design details and structural integrity and employ operational
and maintenance best practices. Regulations shall be consistent with applicable Philippine and

internationally-accepted natural gas industry standards,

SEC. 16. Confidential Information. — The government shall not use confidential or
commercially sensitive information for purposes other than those provided herein and shall
protect and limit the disclosure of confidential or commercially sensitive information, unless

allowed by the operator or when required by laws, rules and regulations.

SEC. 17. Authority to Obtain Information. - The DOE, ERC and other concerned
government agencies may require any downstream natural gas player or permit holder, through a
valid order and with due regard to confidential information, proprietary data and trade secrets, to
furnish, within a reasonable petiod specified, all information and documents relating to all such
matters as to the permit, rates and operation of business and natural gas facilities, and provide
explanations on the information or document submitted, subject to Section 16 of this Act. The
failure of a PDNGI patticipant or permite to provide the required information or document

without valid reason shall be punishable under this Act.

SEC. 18. Supply of Natural Gas. ~ Existing laws and rules governing the upstream natural gas
sector shall provide the government the option to sell directly or otherwise authorize a service
contractor to sell its share of the indigenous production. Accordingly, the Secretary of Energy

10


may, when natural gas supply conditions so require, direct the supply of such share of indigenous
production to the downstream natural gas sector.

The operator of an LNG-telated facility shall likewise ensure the accommodation of both
indigenous and imported supply of natural gas. The DOE shall support and ensure the
implementation of any plan to upgrade an LNG terminal and its ancillary facilities into a hub for
international trading and trans-shipment.

Any entity engaged in the distribution of natural gas may engage in the supply of the same.

SEC. 19. Abandonment of Downstream Natural Gas Facility. — No holder of a permit for

the construction, installation, operation or maintenance of a downstream natural gas facility shall
abandon or withdraw from service any portion of said downstream natural gas facility or project
without obtaining prior authorization from the DOE. The DOE shall, in coordination with the
DENR, provide the guidelines and regulations for decommissioning and abandonment of

natural gas infrastructures and facilities.

SEC. 20. Registration and Reportorial Requirements of Natural Gas Participants,
Facilities, Import, Export and Supply. ~ Holders of permits for the construction, installation,
operation or maintenance of a downstream natural gas facility, including importers, exporters
and supplier and transporter of natural gas or LNG, shall be registered with the DOE.
Appropriate reportorial requirements shall likewise be required for proper supervision and

monitoring in accordance with the implementing rules to be issued subsequently.

SEC. 21. Rules of Practice. ~ All concerned government agencies shall issue the appropriate
rules of procedure to serve as guideline for administrative legal proceedings. The Rules of Court
shall apply in a suppletory manner.

SEC. 22. Fees. — All concerned government agencies shall have the authority to prescribe and
collect fees and charges relating to the issuance or review of permits, and the supervision and

regulation of the PDNGI.

CHAPTER V
FRANCHISE REQUIREMENT

SEC. 23. Transmission and Distribution Pipeline and Related Facility as Public Utility. ~
Operators of transmission and distribution pipelines and their related facilities considered as
11


public utility shall be required to obtain a legislative franchise and a Certificate of Public
Convenience and Necessity (CPCN) from the ERC.

Operators of virtual pipelines and their related facilities, which are likewise considered as public
utilities, shall no longer be required a legislative franchise. However, such operators shall be
required to secure a CPCN from the concemed agency having appropriate jurisdiction over
them, in accordance with the provisions of Commonwealth Act. No. 146, otherwise known as

the “Public Service Act”, as amended.

SEC. 24. Philippine Ownership Requirement ~ As required under Article XII, Section 11 of
the Constitution, no franchise, certificate, or any other form of authorization of a public utility
shall be granted except to citizens of the Philippines or to corporations ot associations onganized
under the laws of the Philippines, at least sixty percent (60%) of whose capital is owned by such

citizens.

SEC. 25. LNG Terminals Not a Public Utility. - The operation of an LNG terminal shall not
be considered as a public utility operation. Hence, it shall be exempted from securing a legislative

franchise and a Certificate of Public Convenience and Necessity.

CHAPTER VI
THIRD-PARTY ACCESS

SEC. 26. Thitd-party Access (TPA) Obligation. — Available and uncommitted excess capacity
of an LNG terminal, transmission and distribution pipelines and related facilities shall be made
accessible to third-party users. The ERC shall, in coordination with the DOE and in consultation
with the PDNGI participants, ensure the full implementation of the TPA and shall issue the
TPA Code within one (1) year from the effectivity of this Act.

The DOE is hereby authorized to synchronize activities to optimize and stabilize the utilization
of existing infrastructure for the extraction, storage, and delivery of natural gas, such as the
Malampaya natural gas facilities, which shall be subject to the third-party access provision in
order to integrate the same with the PDNGI.

SEC. 27. Available Capacity. - A TPA shall apply only to the available and uncommitted
excess capacity of LNG terminal, transmission or distribution pipelines and their related
facilities, but excluding those constructed and operated under a dedicated use agreement or for
own use. The operators thereof shall conduct an open and sufficient consultation process with

12


both existing and potential third-party users to discuss the available capacity and other available
services.

To ensure safe and reliable operation, the operator shall determine, subject to the review and
recommendation by the DOE, the available and uncommitted excess capacity of the natural gas
facilities offered to third parties. The operator shall likewise allocate such excess capacity based
on the following criteria as they pertain to the third-party user:

(@) Proposed contract price and terms;

(&) —Credit-worthiness;

(© Availability of a functioning off-take facility;

(® Ability to meet fuel specification parameters of the LNG facility; and

(©) Other relevant factors that may directly affect the allocation.

Non-availment by any third-party user of the excess capacity so allocated and offered shall not

be a ground for the denial or cancellation of any permit under this Act.

SEC. 28. Third-party Access (TPA) Principles. ~ Adherence to the principles of
transparency, fair competition, and safe practices is the key to the beneficial participation of
third-party users. In line with this, the following guiding principles shall be observed:

(@) Competition in the downstream natural gas industry must be encouraged because it
promotes efficiency and lowers costs and ptices to the benefit of end-users;

(©) _ Investments in natural gas supply and infrastructure from both local and foreign sources,
which are otherwise prevented by actions of incumbent monopolistic companies shall be
eatnestly pursued and supported;

(©) Benefits to be derived from the diverse and sustainable use of natural gas make it an ideal
tool of development;

(@) Participation of third parties in the downstream natural gas industry shall be anchored on
safe and measurable standards of service and practice;

(©) Open and sufficient consultation between permit holders or facility operators on the
available and excess capacity of natural gas is essential in the formulation of supply agreements
between permit holders or facility operators and third-party users;

(Transparency in business activities shall consistently be observed to spur confidence
Pursuant thereto, permit holders or facility operators shall publish their available and
uncommitted excess capacity, access terms, and conditions, and allow the review and inspection

of their facilities and records to verify the same.

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SEC. 29. Congestion Management. ~ Whenever the holder of a capacity is no longer able to
use or has not released the capacity without justifiable reason, the permit holder or the operator
of the facility shall have the authority to release and market the same. The procedure and criteria
of the release shall be part of the TPA Code. The government agency which shall have an
oversight function on this matter shall be designated in the TPA Code.

SEC. 30. Approved Access Conditions and TPA Contracts. ~ Prior to the conduct of
negotiations with third parties, the permit holder or the facility operator shall request the DOE.
for the review and recommendation of its access conditions in accordance with the TPA Code

All subsequent access contracts shall be reviewed and approved by the DOE.

SEC 31. Infrastructure Development Period. - To develop the TPA, the TPA Code shall
provide an infrastructure development period and the TPA shall become obligatory only against
the permit holder or facility operator if it can be demonstrated that there is already sufficient
demand necessary to justify the investment and sustain the additional operational requirement.
For this purpose, the DOE shall review and attest to the validity of supply and demand outlook

for natural gas.

CHAPTER VII
STANDARDS ON FACILITIES, PRODUCT AND SAFETY PRACTICE

SEC. 32. Standards on LNG Ships and LNG Facility. — All PDNGI facilities shall be
predicated to be of high quality and efficient service, observe stringent safety systems, accord
attention to design details and structural integrity and employ operational and maintenance best
Practices. Regulations shall be consistent with both applicable Philippine and internationally-
accepted natural gas industry standards. The DOE shall ensure compliance with this

requirement.

SEC. 33. Standards on Product Quality. — The permit holder ot operator shall maintain the
quality of gas supply to end-users in accordance with the Philippine and internationally accepted
standards and ensure that delivery of indigenous or imported LNG comply with the purification
Fequirements to ensure that associated compounds that are unnecessary or damaging to the
LNG regasification facility and other related natural gas facilities used for storage, distribution
and transportation of natural gas supply are eliminated. The DOE shall ensure compliance with
this requirement.

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SEC. 34. Standards on Safety Practice. - The permit holder ot operator shall implement an
acceptable health, safety, security and environment management system in accordance with
applicable Philippine and internationally accepted standards. The DOE shall ensure compliance

with this requirement.

CHAPTER VIII
RESPONSIBILITIES OF THE PERMIT HOLDER OR OPERATOR

SEC. 35. Responsibilities of the Permit Holder or Operator, — A permit holder or operator

shall have the following responsibilities:

@) Align all its goals and objectives to the accomplishment of the declared policies of this

Act;

(b) Be directly responsible for the construction and operation of LNG facilities by providing the

necessary services, technology and financing, either by itself or thtough its duly authorized

subcontractors, without entitlement from the Philippine government to any reimbursement of

any expense incurred;

(©) Comply with applicable Philippine laws and regulations relating to tax, labor and

employment, health, safety, indigenous people’s rights, environmental protection and ecological

preservation;

(@ Comply with the regulatory obligations, maintenance of complete records and submission of

all reportorial requirements and other documents as may be required by the DOE, ERC and

other government agencies pursuant to this Act and its implementing rules;

(© Implement the natural gas project strictly adhering to the scope and limits of the permit and

operate in accordance with Philippine and international standards;

( Allow and facilitate, based on a valid order, the entry to the facility of the examiners of the

Bureau of Internal Revenue and the Bureau of Customs and allow them full access to accounts,

books, and records for tax and other fiscal purposes;

@ Allow, based on a valid order, the entry of personnel of the DOE, ERC, PIA-HSSE IMT and

other government agencies to the facility and grant them full access to operational records for

inspection and monitoring activities;

(h) Give preference to qualified local talents for hiring and local companies ot agencies in

entering into subcontracts on projects or services, which are required in the construction or

operation of the LNG facility;

@ Hold the DOR, ERC, PIA-HSSE IMT and other government agencies or other affected

individuals free from all claims, demands or actions arising out of its failure to comply with laws,
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regulations, standards, contracts, and permits in connection with accidents, damages, of injuries
which are beyond their control; and
@ Observe in the regular operational meeting of the DNG-REC and in the development,

issuance and review of plans, protocols, standards and codes applicable to the natural gas project.

CHAPTER IX
INCENTIVES

SEC. 36. Fiscal Incentives. ~ In recognition of the substantial investments needed for the
construction of, operation and maintenance of, and conversion to natural gas facilities, the
PDNGI value chain projects, as certified by the DOE, shall be included in the Strategic
Investment Priorities Plan (SIP) for the next ten (10) years from the effectivity of this Act.
Entities engaged in said projects that are duly registered by any Investment Promotion Agency
(IPA) shall be entitled to all the incentives under Title XIII (Tax Incentives) of the National
Internal Revenue Code of 1997, as amended.

The sale of natural gas to locators inside the ecozone shall be subject to zero percent (0%)

Value-Added Tax (VA), pursuant to the National Internal Revenue Code of 1997, as amended.

SEC. 37. Streamlined Regulatory Process, ~ The operation of LNG terminals, natural gas
transmission systems, natural gas distribution systems, own-use LNG terminals, own-use natural
gas transmission systems, and own-use natural gas distribution systems shall be considered as
energy projects of national significance (EPNS) whose implementation shall not be subject to
unnecessary administrative processing delays pursuant to Executive Order No. 30, seties of
2017. To be considered an EPNS, a project has to be endorsed by the DOE.

SEC. 38. Withdrawal of Exemptions. ~ To achieve the declared policies of this Act,
particularly in relation to the promotion of fair and non-discriminatory treatment of public and
Private sector entities in the development of the PDNGI infrastructure, all existing tax
exemptions applicable to persons engaged in the transmission or the distribution of natural gas,
insofar as such exemptions relate to revenues derived from the transmission or the distribution
of natural gas, shall be deemed revoked upon the effectivity of this Act, any law to the contrary

notwithstanding,

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CHAPTER X
PROMOTION OF COMPETITION

SEC. 39. Anti-Competitive Behavic

No gas transmission utility, gas distribution utility or
supplier, or affiliate thereof, may engage in any anti-competitive behavior or abuse of market
power, specifically the prohibition against monopolies and combinations in restraint of trade
under Article 186 of the Revised Penal Code and Chapter III of the Philippine Competition Act.

SEC. 40. Functional and Structural Unbundling. ~ All PDNGI patticipants shall functionally
and structurally unbundle their business activities and rates in accordance with the particular
sector. The ERC shall, within nine (9) months from the effectivity of this Act, promulgate the
unbundling rules and regulations.

SEC. 41. Complaint and Investigation Procedures. ~The ERC shall, within nine (9) months
AFTER the effectivity of this Act, promulgate rules and regulations providing for a complaint
and investigation procedure that shall, without limitation, provide the party alleged to have

engaged in anti-competitive or abusive activities with notice and an opportunity to be heard.

SEC. 42. Affiliated Suppliers. — In order to prevent anti-competitive conduct, service
contractors, gas transmission utilities and gas distribution utilities that own or control affiliates
that are suppliers shall conduct their businesses, as follows:

@) No preference shall be given to the affiliate supplier over other persons in contracting,
scheduling and balancing of available capacity, as well as curtailment, or the imposition of tariffs;
(©) Marketing information provided to the affiliate supplier shall be provided to any non-
affiliated supplier that is a competitor or potential competitor;

(©) Employees of the affiliate supplier shall, to the maximum extent possible, function
independently in making business decisions; and

(@ Books of accounts and records of the affiliate supplier shall be maintained separately.

CHAPTER XI
FINES AND PENALTIES

SEC. 43. Administrative Fines and Penalties, - The following administrative fines and

penalties shall be imposed on any industry participant who violates the provisions of this Act:

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(a) The permit issued by the DOE under Chapter IV, Section 12 of this Act, may be suspended
or revoked and the DOE shall impose upon the operator a fine of Fifty thousand pesos
(Php50,000.00) per violation of any provision under Chapter VIII, Section 35 of this Act,
without prejudice to other appropriate administrative fines and penalties that other relevant
government agencies may impose on the operator: Provided, That the schedule of fines provided
for in this Section shall be increased by the DOE every five (5) years.

(b) The permit issued by the DOE under Chapter IV, Section 12, may be suspended or revoked
upon the recommendation by the ERC and the operator may be charged by the ERC a fine of
Five hundred thousand pesos (Php500,000.00) per violation of any provision under Chapter IV,
Section 13 of this Act. This is without prejudice to other appropriate administrative fines and
penalties that other relevant government agencies may impose against the operator.

(©) Congress may, upon the recommendation of the DOE, ERC or other government agencies,
as the case may be, revoke such franchise or privilege granted to the party found in violation of

the provisions of this Act.

SEC. 44. Criminal Fines and Penalties. - Appropriate fines and penalties under existing penal

Jaws shall apply to any criminal violation associated in the implementation of this Act.

CHAPTER XII
TRANSITORY PROVISIONS

SEC. 45. Existing Systems. - Natural gas facilities that have been constructed prior to the
effectivity of this Act shall continue to be operated under their existing permits and shall comply
with additional requirements as may be applicable.

Suppliers who have entered into an NGSPA with end-users and have delivered indigenous or
imported natural gas prior to the effectivity of this Act shall continue to operate under the said

contracts, subject to compliance with the additional requirements in this Act.

SEC. 46. Pending Application. ~ All applications on any activity in the natural gas value chain
pending before the DOE upon the effectivity hereof shall be covered by this Act.

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CHAPTER XIII
FINAL PROVISIONS

SEC. 47. Assignment or Transfer of Interest. — Assignment ot transfer of interest of the
permit shall be allowed only upon prior written approval by the DOE based on acceptable
reasons and compliance by the operator, the assumption by the assignee of all obligations of the
former permit holder, and upon meeting the minimum legal, technical, and financial

qualifications of the transferee.

SEC. 48. Consultation and Arbitration. ~ All parties shall make their best efforts to amicably

settle any dispute atising from the performance or interpretation of any provision of this Act.

SEC. 49. Natural Gas Oversight Commission. - Upon the effectivity of this Act, a

congressional commission, hereinafter referred to as the "Natural Gas Oversight Commissio1

is hereby constituted. The Natural Gas Oversight Commission shall be composed of ten (10)
members, with the Chairpersons of the Committee on Energy of the Senate and the House of
Representatives, as Co-Chairpersons, and four (4) additional members from each House, to be
designated by the Senate President and the Speaker of the House of Representatives,
respectively. The minority shall be entitled to pro rata representation but shall have at least one
representative in the Natural Gas Oversight Commission.

The Natural Gas Oversight Commission shall, in aid of legislation, perform the following
functions:

(@ Set the guidelines and overall framework to monitor the proper implementation of this
Act;

() Look into the appropriateness of creating a single independent regulatory body when the
conditions prevailing so require;

(©) Conduet a periodic review of this Act at least once every three (3) years;

(@® Determine inherent weaknesses in the law and recommend necessary remedial
administrative or legislative measures;

(© Approve the budget for the programs of the natural gas of Oversight Commission and
all disbursements therefrom;

(Q Submit periodic reports to the President of the Philippines and Congress; and

@ Perform such other powers and functions as may be necessary to attain its objectives.

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To carry out its powers and functions, expenses incurred by the Natural Gas Commission during
the initial implementation of this Act shall be charged against the current appropriations of the
Senate and shall thereafter be included in the annual General Appropriations Act.

The Natural Gas Oversight Commission shall adopt its internal rules of procedure, conduct
hearings and receive testimonies, reports and technical advice, invite ot summon by subpoena ad
testificandum any public official, private individual or any other person to testify before it, or
require any person by subpoena duces tecum to produce before it such records, reports, documents
or other materials as it may require, and generally exercise all the powers necessary to attain the
purposes for which it is created.

‘The Natural Gas Oversight Commission shall be assisted by a secretariat to be composed of
personnel who may be seconded from the Senate and the House of Representatives and may
retain consultants. The secretariat shall be headed by an executive director, who possesses a

sufficient background and competence on policies and issues relating to the downstream natural

gas industry.

SEC. 50. Appropriations. ~ The amount necessary for the implementation of this Act shall be
included in the annual General Appropriations Act.

SEC. 51. Implementing Rules and Regulations. ~ The DOE shall, in consultation with the
ERC, relevant government agencies such as the DENR, DOH, Department of Transportation
(DOT), Philippine Ports Authority (PPA), DTI and Department of Finance (DOF), the
PDNGI participants, non-governmental organizations and end-users, promulgate rules and
regulations for the effective implementation of this Act within twelve (12) months AFTER the

effectivity of this Act.

SEC. 52. Separability Clause. ~ If for any reason, any provision of this Act is declared
unconstitutional or invalid, the other parts or provisions hereof, which are not affected thereby,

shall continue to be in full force and effect.
SEC. 53. Repealing Clause. - Any law, presidential decree or issuance, executive order, letter

of instruction, rule or regulation inconsistent with the provisions of this Act is hereby repealed

or modified accordingly.

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SEC. 54. Effectivity. - This Act shall take effect fifteen (15) days after its publication in the

Official Gazette or in. a newspaper of general circulation.

Approved,

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