Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session

House Bill No._1585

Introduced by Representatives
DIOSDADO MACAPAGAL ARROYO and GLORIA MACAPAGAL ARROYO

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

EXPLANATORY NOTE

Our Constitution echoes the vision that the development of our country's
energy resources should redound to the benefit of the Filipino people. To achieve
this, Congress recently enacted Republic Act No. 9513 otherwise known as the
Renewable Energy Act of 2008 to introduce substantial and meaningful reforms
in the energy sector.

Though Congress has taken the right direction on renewable sources of
energy, much is still left to be desired with respect to other indigenous sources of
energy. Presently, government impositions associated with making available
such resources for electricity generation are even more burdensome than those
applied on imported fuels resulting to higher prices of electricity generated from
indigenous energy resources.

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
(P0.20/kWh) and liquefied natural gas (P0.29/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%

Comparing the Philippine situation to our Asian neighbors with similar
endowments in terms of natural resources, Thailand, Indonesia, Malaysia and
Vietnam have put a premium on the domestic use of their indigenous natural
resources. As a result, they have lower electricity rates that the Philippines.
Thus, rather than enjoying the benefits of cheaper electricity, Filipinos are
effectively being penalized for developing and utilizing their own domestic energy
resources.

It is about time that the country should fully benefit from using its energy
resources. This can be achieved in part by removing the disparities in the
tax/royalty 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, and
hopefully 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 P0.50/kWh for all customers.

A 2008 study by UP Professor Dante B. Canlas, former Director General
at the National Economic Development Authority, has 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 Philippine industries. Incidentally, the study also concludes that
the reduction of these royalties will 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.

Philippine industries, where millions of Filipinos rely on for livelihood, need
to be more competitive and productive especially now when they are being
threatened by the effects of the global financial crisis and recessions in the
advanced economies of the world. Our country’s leading export earners, the
‘semiconductor and electronics industries are all making calls 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: (1) 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; (2) 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 (3) remove the disparities in
tax/royalty treatment between indigenous energy resources and imported fuels.
It is expected, therefore, that this proposal will ultimately lower electricity rates to
the Filipino consumers in a significant and sustainable manner making the
immediate passage of this bill of utmost importance.

For these reasons, we urge our colleagues to work with us for the
passage of this Bill.

DIOSDADO IGAL ARROYO GLORI. Kits oh les ‘ROYO.
Second District, Camarines Sur Segond District, Pampanga


Republic of the Philippin
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session

1585

House Bill No.

Introduced by Representatives
DIOSDADO MACAPAGAL ARROYO and GLORIA MACAPAGAL ARROYO

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. Short Title. - This Act shall be known as the “Electricity Rate
Reduction Act of 2010."

SECTION 2. Declaration of Policy. — It is hereby declared the policy of the
State to reduce the cost of energy and electricity as a catalyst for economic
growth. Towards this end, the State shall endeavor the following:

a. Ensure that. 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;


b. Maintain. and uphold the competitiveness _ of
indigenous sources of energy vis-a-vis imported fuels thereby
increasing the country's energy self-sufficiency; and

c. Guarantee that 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.

SECTION 3. Definition of Terms. — As used in this Act, the following terms
shall be construed to mean as follows:

a. “Department of Energy” 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. 91 36.

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.

d. “Indigenous sources of energy” refers to energy
sources that are native to the Philippines except those that are
subject of or covered by Republic Act No. 9513 or the Renewable
Energy Act of 2008;

e. “Net proceeds from the sale of the energy resource”
refers to the difference between the gross proceeds from the sale
of such energy resource and the sum of expenses allowed to be
recovered under the relevant service contract.

SECTION 4. Government Share. — Notwithstanding any law to the contrary,
the Government Share shall henceforth be utilized and applied to reduce the
commodity price of the indigenous energy resources sold by a service contractor
for generation of electricity. The Government Share is thus reduced to three
percent (3%) of the net proceeds from ‘the sale of the energy resource over the
life of the relevant service contract.

The commodity price reduction under the preceding section shall be fully
feflected as a reduction in the price of electricity produced by generation
companies utilizing the indigenous energy resource. The commodity price


reduction shall be subject to annual adjustment or reconciliation to ensure that
such reduction shall be revenue-neutral to the service contractor.

SECTION 5. Utilization of the Reduction in the Electricity Price. — In order
that end-users will fully benefit from the reduction in the electricity price of any
generation company utilizing the indigenous energy resource:

a. Any distribution utility obtaining supply from said
generation company shall pass on the full reduction in electricity
price to its end-user customers, thereby lowering the retail rates of
electricity; and

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.

SECTION 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 pertinent 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 once this Act has been approved

For ease of implementation, the DOE 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.

SECTION 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.

SECTION 8. Repealing Clause. — Ail 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.

SECTION 9. Effectivity Clause. - This Act shall take effect fifteen (15) days
after its complete publication in at least two. (2) newspapers of general
circulation.

Approved,