Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SIXTEENTH CONGRESS
First Regular Session

House Bill No._ 1909

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 (PO.17/KWh), oil (PO.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

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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 eamers, 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

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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 M AGAL ARROYO onl tarren ARROYO
Second District, Camarines Sur Second District, Pampanga


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SIXTEENTH CONGRESS
First Regular Session

House Bill No. 1909

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 2013.”

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-4-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
reflected 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. — lf 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. — All laws, decrees, orders, rules and
regulations including Presidential Decree No. 87, or parts thereof, which are


inconsistent with any of the provisions of this Act are hereby repealed, amended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

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,