SIXTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
Second Regular Session 
) 
) 
) 
SENATE 
2668 
S.No. 
Introduced by Senator FRANCIS G. ESCUDERO 
AN ACT 
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'15 
FEB 25 P3 :30 
ORDAINING THE DEVELOPMENT OF THE DOWNSTREAM NATURAL GAS 
INDUSTRY, CONSOLIDATING FOR THE PURPOSE ALL LAWS RELATING TO 
THE TRANSMISSION, DISTRIBUTION AND SUPPLY OF NATURAL GAS AND 
FOR OTHER PURPOSES 
EXPLANATORY NOTE 
Natural gas is considered by many modern economies as the fuel of choice 
because of its abundance, clean-burning properties and versatility as a fuel source. With 
the successful launching of the Malampaya Deep Water Gas-to-Power Project on 
October 16, 2001 marked the birth of the country's natural gas industry. The 
Malampaya gas field discovery signaled a significant leap towards energy self-reliance 
as it now fuels about one-third of the country's total power generation. A total of 2700 
MW of installed capacity of gas-fired power plants make use of the natural gas 
produced from Malampaya. 
Aside from the use of natural gas for power generation, alternative applications 
in the transport sector is also being pursued. The launching of the Natural Gas Vehicle 
Program for Public Transport (NGVPPT) on October 16, 2002 served as a banner 
program for the use of natural gas in the transport sector. 
FollOWing the inauguration of the Malampaya Deep Water Gas-to- Power 
Project, government advocacy has been initiated to create an impetus to the 
development of the country's downstream natural gas industry. These are the (i) 
signing on January 18, 2002 by President Gloria Macapagal-Arroyo of Executive Order 
No. 66 designating the Department of Energy (DOE) as the lead agency for the 
development of the country's natural gas industry; and (ii) issuance on August 27, 2002 
by the DOE of the interim rules and regulations governing the transmission, 
distribution and supply sub-sectors of the natural gas industry. 
However, both issuances are not sufficient to impart a clear, comprehensive and 
integrated regulatory framework that will provide direction and to accelerate the 
development of the country's nascent downstream natural gas sector. 
As dynamic developments are taking place in this very young sector, it is 
imperative that conditions favorable to the establishment of the critical infrastructure 
and natural gas market are put in place to optimize economic efficiency and returns 
from the downstream natural gas industry. 


The foregoing premises thus necessitate the immediate passage of the Natural 
Gas Bill, which proposal has remained pending for a considerable time to date. 
FRANCIS G. ESCUDERO 


SIXTEENTH COJ>JGRESS OF THE 
REPUBLIC OF H-IE PHILIPPINES 
Second Regular Session 
SENATE 
) 
) 
) 
'15 
FEB 25 P 3:30 
_________ 
S_,_N_O_, _2_B_6_B ______ 
H_I,_X_'E_JVED BY;~_ 
Introduced by Senator FRANCIS G, ESCUDERO 
AN ACT 
ORDAINING THE DEVELOPMENT OF THE DOWNSTREAM NATURAL 
GAS INDUSTRY, CONSOLIDATING FOR THE PURPOSE ALL LAWS 
RELATING TO THE TRANSMISSION, DISTRIBUTION AND SUPPLY 
OF NATURAL GAS AND FOR OTHER PURPOSES 
Be it enacted by the Senate and the House of Representatives of the Republic of 
the Philippines in Congress assembled: 
1 
CHAPTER I 
2 
TITLE AND DECLARATION OF POLICY 
3 
SECTION I, Short Title, - This Act shall be known as the "Downstream 
4 
Natural Gas Industry Development Act", 
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18 
State: 
SEC. 2, Declaration of Policy, - It is hereby declared the policy of the 
(a) To promote the role of natural gas as a socially-acceptable, 
environment-friendly and economically efficient source of energy 
by creating favorable conditions for establishing a Downstream 
Natural Gas Industry for the benefit of all segments of the nation's 
population and all sectors of its economy; 
(b) To ensure the safety, quality, reliability and security of the 
transmission, distribution and supply of natural gas; 
(c) To ensure transparent and reasonable rates and prices of natural 
gas transmission, distribution and supply in a regime of open and 
fair competition and full public accountability that will promote 
greater operational and economic efficiency and the enhanced 
competitiveness of the Philippine products in the global market; 
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1 
(d) To encourage the inflow of private capital in providing the 
2 
infrastructure and services necessary to support an expanded role 
3 
of natural gas i_n the nation's energy supply; 
4 
(e) To protect the public interest as it is affected by the quality of, and 
5 
rates charged for, the transmission, distribution and supply of 
6 
natural gas and related services; 
7 
(f) To assure the development of a Downstream Natural Gas Industry 
8 
infrastructure that it] socially-acceptable and compliant with 
9 
existing environmental laws; 
10 
(g) To ensure that the Downstream Natural Gas Industry shall be 
11 
regulated in a manner that will ensure the quality, reliability, 
12 
security and reasonableness of charges for the transmission, 
13 
distribution and supply of natural gas, encourage private 
14 
investment in the Downstream Natural Gas Industry and promote 
15 
the efficient and competitive operation thereof; 
16 
(h) To develop the necessary trades, technical expertise and skills to 
17 
support the Downstream Natural Gas Industry; 
18 
(i) To facilitate the development of end-uses of natural gas that 
19 
promotes 
fuel 
diversity 
and 
compliance 
with 
existing 
20 
environmental laws including, but not limited to, the use of natural 
21 
gas as a motor vehicle fuel; and 
22 
G) To encourage equity participation in gas transmission utilities and 
23 
gas distribution utilities by the private sector. 
24 
SEC. 3. Scope. -
This Act shall provide a framework for the 
25 
development of a Downstream Natural Gas Industry and its transition from 
26 
an emerging to a mature industry status and competitive natural gas market, 
27 
and define the responsibilities of various government agencies and private 
28 
entities in furtherance of this national goal. 
29 
All activities of the Department of Energy (DOE) and the Energy 
30 
Regulatory Commission (ERC) relevant to the development and regulation of 
31 
the Downstream Natural Gas Industry shall be in accordance with this Act. 
2 


I 
SEC. 4. Definition of Terms. - As used in this Act, the following terms 
2 
shall have the following meanings: 
3 
(a) "Captive market": 
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• 
with respect to the transmission of natural gas, refers to natural 
gas end-users who do not have a choice of a gas transmission 
utility; 
• 
with respect to the distribution of natural gas, refers to natural 
gas end-users who do not have a choice of a gas distribution 
utility; 
• 
with respect to the supply of natural gas, refers to natural gas 
end-users who do not have a choice of supplier of natural gas or 
other economically competitive energy substitute; 
(b) "Congress" refers to the Congress of the Republic of the 
Philippines; 
(c) "Contestable market" is a market that is not a captive market; 
(d) "Delivery" refers to the transmission or distribution of natural gas 
and the supply of natural gas, at wholesale or retail; 
(e) "Department of Energy" or "DOE" refers to the government agency 
created pursuant to Republic Act No. 7638, as amended 
(f) "Department of Environment and Natural Resources" or "DENR" 
refers to the government agency created pursuant to Executive 
Order Nos. 192 and 292, as amended; 
(g) "Distribution" refers to the conveyance of natural gas by a gas 
distribution utility through its gas distribution system; 
(h) "Downstream Natural Gas Industry" refers to the transmission, 
distribution and supply of natural gas and related activities, such 
as, but not limited to, 
processing, storing, regasification, 
interconnection, measurement and/ or metering; 
(i) "End_user" refers to any person that will receive delivery of natural 
gas for its own use; 
3 


1 
G) "Energy Regulatory Commission" or "ERC" refers to the 
2 
independent quasi-judicial regulatory agency created pursuant to 
3 
Republic Act No. 9136, otherwise known as the "Electric Power 
4 
Industry Reform Act of 2001", whose expanded functions are 
5 
provided in this Act; 
6 
(k) "Franchib,e" refers to the right, privilege and authority issued by 
7 
Congress authorizing a person to engage in the transmission of 
8 
natural gas and! or distribution of natural gas within a specific 
9 
geographical area; 
1 0 
(1) "Franchise area" refers to a geographical area assigned or granted 
11 
under a franchise; 
12 
(m) "Gas Distribution Code" refers to the code to be formulated by the 
13 
DOE pursuant to Section 5(g) of this Act that sets the technical 
14 
performance standards for operating gas distribution utilities and 
15 
the minimum financial standards for gas distribution systems; 
16 
(n) "Gas distribution system" refers to the system of pipelines and 
17 
related facilities extending from the delivery points where the gas 
18 
distribution system receives the natural gas to the point of 
19 
connection to the premises of the end-user; 
20 
(0) "Gas distribution utility" refers to any person that has a franchise 
21 
to operate a gas distribution system; 
22 
(p) "Gas supply contract" refers to a contract between a supplier and a 
23 
purchaser for the supply of natural gas; 
24 
(q) "Gas Transmission Code" refers to the code to be developed by the 
25 
DOE pursuant to Section 5(g) of this Act that sets the technical 
26 
performance standards for operating gas transmission systems and 
27 
the minimum financial standards for gas transmission utilities; 
28 
(r) "Gas transmission system" refers to the system to the system of 
29 
high pressure pipelines, storage and related facilities that are used 
30 
to transport natural gas from the interconnection with gathering 
31 
facilities, liquefied natural gas (LNG) regasification facilities or 
32 
other gas transmission systems to gas distribution systems, other 
33 
gas transmission systems or end-users; 
4 


I 
(s) "Gas transmission utility" refers to any person that has a franchise 
2 
to operate or intending to operate a gas transmission system except 
3 
own-use pipelines; 
4 
(t) "Gathering facilit,ies" refers to natural gas pipelines and related 
5 
facilities used to gather gas in the field and bring it to a location for 
6 
processing or for delivery at an interconnection with the gas 
7 
transmission system. The terms" gather" and" gathering" shall be 
8 
construed accord:ingly; 
9 
(u) "Infrastructure development period" refers to the period prescribed 
lOin 
Chapter IV of this Act; 
II 
(v) "Joule" refers to the unit of energy or work done when the point of 
12 
application of a force of one Newton is displaced a distance of one 
13 
meter in the direction of the force. It is also equal to one watt-
14 
second; 
15 
(w) "Large end-user" refers to an end-user whose aggregate annual 
16 
natural gas consumption is one thousand (1,000) gigajoules (gross 
17 
heating value) or greater, as may be determined by the ERe; 
18 
(x) "LNG' refers to liquefied natural gas"; 
19 
(y) "Natural gas" refers to hydrocarbons, obtained initially from sub-
20 
surface reservoirs, primarily methane, which, at atmospheric 
21 
temperature and pressure, is in a gaseous phase. The term "natural 
22 
gas" shall include LNG; 
23 
(z) "Permit" refers to an authorization issued by the DOE, initially, for 
24 
the construction, operation, expansion and modification of gas 
25 
transmission systems, gas distribution systems and for the supply 
26 
of natural gas; 
27 
(aa) "Person" refers to a natural or juridical person, as the case may be, 
28 
including the national and local government of the Republic of 
29 
the 
Philippines, 
its 
agencies 
and 
instrumentalities, 
and 
30 
government-owned and -controlled corporations; 
31 
(bb) "Petroleum operations" refers to searching for and obtaining 
32 
petroleum within the Philippines through drilling and pressure or 
5 


1 
suction or the like, and all other operations incidental thereto. It 
2 
includes the transportation, storage, handling and sale (whether 
3 
for export or for domestic consumption) of petroleum so obtained 
4 
but does not include any: (1) transportation of petroleum outside 
5 
the Philippines; (2) processing or refining at a refinery; or (3) any 
6 
transaction in the products so refined; 
7 
(cc) "Philippine Energy Plan" or "PEP" refers to the overall energy 
8 
program formulated and updated yearly by the DOE and 
9 
submitted to Congress pursuant to Republic Act No. 7638, as 
10 
amended; 
11 
(dd) "Service contract" refers to the award granted by the Philippine 
12 
government to a qualified person to engage in the exploration, 
13 
development and utilization of natural resources *rough joint 
14 
venture, co-production, production-sharing or other similar 
15 
arrangement with the State pursuant to Article XII, Section 2 of 
16 
the Constitution, including service contracts under Presidential 
17 
Decree No. 87, as amended; 
18 
(ee) "Supplier" refers to any person authorized by the DOE, initially, 
19 
to engage in the supply of natural gas; 
20 
(ff) "Supply" refers to the domestic trading and! or sale of natural gas 
21 
for wholesale or retail; 
22 
(gg) "Transmission" refers to the transportation of natural gas through 
23 
a gas transmission system; and 
24 
(hh) "Unbundled service" refers to the pricing of the energy value of 
25 
natural gas separately from the rates charged for natural gas 
26 
transmission or distribution 
27 
CHAPTER II 
28 
POWERS AND FUNCTIONS OF THE DOE AND THE ERC 
29 
SEC. 5. Powers and Functions of the DOE. - In addition to its existing 
30 
powers and functions, the DOE shall have the overall responsibility of 
31 
supervising and monitoring the development of the Downstream Natural Gas 
32 
Industry and regulation of the construction and operation of natural gas 
33 
pipelines and related facilities for the transmission, distribution and supply of 
6 


1 
natural gas. Towards this end, the DOE shall have the following-powers and 
2 
functions: 
3 
(a) Prepare and periodically update a Downstream Natural Gas 
4 
Industry Development Plan (DNGIDP) and integrate the same into 
5 
the PEP. The DNGIDP shall consider and integrate the individual 
6 
or joint development plans of the Downstream Natural Gas 
7 
Industry participants pursuant to this Act, which are submitted to 
8 
the DOE. Appropriate mechanisms shall be provided to protect the 
9 
confidentiality of any information that is commercially or 
10 
competitively sensitive. The DOE shall publish an initial draft of the 
11 
plan and undertake public consultations thereon prior to its 
12 
adoption; 
13 
(b) Issue permits for the construction, operation and maintenance of 
14 
pipelines and related facilities for the transmission, distribution 
15 
and/ or supply of natural gas; 
16 
(c) Establish standards setting forth the characteristics for classifying 
17 
pipeline and pipeline-related facilities either as gas transmission 
18 
systems or gas distribution systems. These characteristics may 
19 
include both the physical characteristics related to the diameter, 
20 
size and pressure of pipeline facilities, and the functional 
21 
characteristics of such facilities; 
22 
(d) Before the end of April of each year, submit to the Office of the 
23 
President and Congress an annual report; 
24 
(e) Ensure the safety, reliability, quality and security of supply of 
25 
natural gas. Consistent with the development of the Downstream 
26 
Natural Gas Industry, the DOE shall, among others: 
27 
(i) Encourage private sector investments in the Downstream 
28 
Natural Gas Industry and promote the development of 
29 
domestic markets for natural gas; 
30 
(ii) In consultation with the Downstream Natural Gas Industry 
31 
participants and other government agencies, promote a 
32 
system of incentives to encourage industry participants, 
33 
including new producers and end-users, to provide adequate 
34 
and reliable supply of natural gas; and 
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(iii) Undertake, in coordination with other governmental 
agencies, as appropriate, an information campaign to 
educate the public on the benefits of developing the 
Downstream Natural Gas Industry and the potential for 
utilizing natural gas as a source of energy. 
(f) Within six months from the effectivity of this Act, develop plans 
and programs to encourage market development and customer 
choice; 
(g) Within twelve (12) months from the effectivity of this Act, the DOE 
shall, preparatory to the holding of public consultations with the 
Downstream Natural Gas Industry participants, draft the Gas 
Transmission and Distribution Codes which shall contain, among 
others, the following: 
(i) Technical performance standards for gas transmission and 
distribution utilities: Provided, That in the establishment of 
the performance standards, the nature and function of the 
entities shall be considered; and 
(ii) Minimum financial capability standards for gas transmission 
and distribution utilities: Provided, That such standards are 
set to ensure that the Downstream Natural Gas Industry 
participants meet the minimum financial standards to 
protect the public interest. 
Within eighteen (18) months from the effectivity of this 
Act, the DOE shall, in consultation with the Downstream 
Natural Gas Industry participants, issue the final Gas 
Transmission and Distribution Codes. 
(h) By order, revoke, after due notice and hearing, the permit of any 
person that fails to comply with the rules and regulations 
promulgated pursuant to this Act, the Gas Transmission Code, the 
Gas Distribution Code, or any requirement of this Act. The DOE 
shall allow such persons sufficient time to remedy the violation of 
or for an orderly disgorgement, when applicable, but in no case 
shall such remediation period exceed twelve (12) months from the 
date of issuance of the order; 
8 


1 
(i) Encourage private enterprises in the Downstream Natural Gas 
2 
Industry to broaden their ownership base and promote widest 
3 
public ownership thereof; 
4 
G) Formulate, in consultation with the Downstream Natural Gas 
5 
Industry participants, the rules and regulations as may be necessary 
6 
to implement the objectives of this Act; 
7 
(k) Exercise original and exclusive jurisdiction over all cases contesting 
8 
permits, nonprice regulation, fees, fines and penalties imposed by it 
9 
in the exercise of the abovementioned powers and functions; and 
10 
(1) Exercise such other powers and functions as may be necessary or 
11 
incidental to attain the objectives of this Act. Subject to existing 
12 
rules and regulations, the DOE is hereby authorized to create 
13 
offices and appoint personnel thereto as may be necessary to 
14 
efficiently and effectively perform its functions as stipulated in this 
15 
Act. 
16 
SEC. 6. Powers and Functions of the ERe. - In addition to its existing 
17 
powers and functions, the ERe shall have the sole regulatory responsibility 
18 
for establishing the rates and related terms and conditions of service for the 
19 
transmission, distribution and supply of natural gas to the extent that such 
20 
activities are regulated pursuant to the requirements set forth in this Act. It 
21 
shall: 
22 
(a) Within one year from the effectivity of this Act, promulgate, upon 
23 
due notice and public consultation, rules and regulations to 
24 
promote competition and prohibit/ penalize abuse of market 
25 
power, cartelization and any anti-competitive or discriminatory 
26 
behaVior, in order to further the intent of this Act and protect the 
27 
public interest. Such rules and regulations shall: 
28 
(i) Define the relevant product and geographic markets for 
29 
purposes of establishing anti-competitive conduct; 
30 
(ii) Provide criteria to determine the relevant market structure; 
31 
and 
9 


1 
(iii) Establish the periodic reportorial requirements of the 
2 
Downstream Natural Gas Industry participants as may be 
3 
necessary to enforce the provisions of this section. 
4 
(b) In the public interest, establish and enforce a methodology for 
5 
setting tr.ansmission, distribution and supply rates, taking into 
6 
account a II relevant Considerations, including the efficiency or 
7 
inefficiency of the regulated entities. The rates must be such as to 
8 
allow the recovery of just and reasonable costs and a reasonable 
9 
return to enable the entity to operate viably. The ERC may, upon 
10 
due notice and public consultation, adopt internationally accepted 
11 
rate setting methodology. The rate setting methodology so adopted 
12 
and applied shall promote efficiency and ensure a reasonable price 
13 
or tariff. The rates prescribed shall be nondiscriminatory; 
14 
(c) Apply administrative procedures that will ensure the constitutional 
15 
right to due lprocess; 
16 
(d) Before the end of April of each year, submit to the Office of the 
17 
President of the Philippines and Congress, copy furnished the DOE, 
18 
an annual report containing such matters or cases which have been 
19 
filed before or referred to it during the preceding year, the actions 
20 
and proceedings undertaken and its decision or resolution in each 
21 
case. The ERC shall make copies of such report available to any 
22 
interested party upon payment of a charge which reflects the 
23 
printing costs; 
24 
(e) Publish in newspapers of general circulation all its decisions 
25 
involving rates and anticompetitive cases; and 
26 
(f) Exercise such other powers as may be necessary or incidental to 
27 
attain the objectives of this Act. 
28 
Subject to existing rules and regulations, the ERC is hereby 
29 
authorized to create offices and appoint personnel thereto as may 
30 
be necessary to efficiently and effectively perform its functions as 
31 
stipulated in this Act. 
32 
10 


1 
CHAPTER III 
2 
ORGANIZATION AND OPERATION OF THE DOWNSTREAM 
3 
NATURAL GAS INDUSTRY 
4 
SEC 7. Organization. - For purposes of this Act, the Downstream 
5 
Natural Gas Industry shall be divided into three sectors, namely: transmission 
6 
of natural gas, distribution of natural gas and supply of natural gas. 
7 
SEC 8.Regulation of Transmission, Distribution and Supply Sectors. - The 
8 
transmission, distribution and supply of natural gas are businesses affected 
9 
with public interest and the regulation of these businesses as provided for in 
10 
this Act is hereby deemed necessary in the public interest. 
11 
SEC 9. Franchise Requirement. -
12 
(a) Transmission and distribution of natural gas declared public utility 
13 
operations. - The transmission and distribution of natural gas as 
14 
provided for in this Act are hereby declared to be public utility 
15 
operations, requiring a franchise; 
16 
(b) Franchise. - Any person that seeks to operate for commercial 
17 
purposes a gas transmission system or gas distribution system shall 
18 
be required to obtain a franchise, any law to the contrary 
19 
notwithstanding. The franchise requirement shall apply with 
20 
respect to all gas transmission systems and gas distribution 
21 
systems, regardless of the size or pressure of the pipeline. The 
22 
foregoing, notwithstanding, this franchise requirement shall not 
23 
apply to: 
24 
25 
26 
27 
28 
29 
30 
31 
32 
33 
34 
35 
(i) Holders of service contracts which authorizes the 
construction and operation of facilities for the transmission 
of natural gas only to the extent that such facilities are: (1) 
for own use; (2) used to transpo~t natural gas from the point 
of extraction or production to the processing or gathering 
facility; and (3) used to provide service to existing 
customers or such person under a gas supply contract 
entered into prior to the effectivity of this Act, which gas 
supply contract shall not be affected by &e enactment of this 
Act. 
However, the operation of any pipeline facility used to 
serve or deliver natural gas to third persons, whether or not 
II 


I 
such facility was, prior to such operation, previously 
2 
utilized only as a gathering facility, shall require a franchise. 
3 
(ii) Operators of pipeline facilities to transport natural gas for 
4 
their own use; Provided, however, That such operators shall 
5 
secure a permit from the DOE as provided herein; and 
6 
(iii) Operators 
of 
related 
facilities 
that 
are 
operated 
7 
independently from the pipeline. 
8 
The franchise so granted shall include a provision 
9 
that shall honor and protect the forty percent (40%) share of 
10 
local government units (LGUs) from the proceeds of the 
II 
gross collection der.ived by the national government from its 
12 
share in any coproduction, joint venture or production-
13 
sharing agreement in the utilization and development of the 
14 
national wealth witllin their territorial jurisdiction, pursuant 
IS 
to Article X, Section 7 of the Constitution and Section 290 of 
16 
Republic Act No. 7160, otherwise known as the Local 
17 
Government Code of 1991, as amended. The share of the 
18 
LGU concerned shall be included automatically in the 
19 
General Appropriations Act following the year the revenue 
20 
was generated. 
21 
(c) Prior regulatory approvals. - The grantee of such franchise shall also be 
22 
required to secure from the DOE a permit as provided herein, and to 
23 
secure from the appropriate government agencies all other regulatory 
24 
approvals, licenses, permits and authorizations applicable to such 
25 
grantee under existing laws. The DOE shall not unreasonably withhold 
26 
or delay the grant of any permit, and may not reopen any legislative 
27 
determination in the review and grant of any franchise. 
28 
SEC. 10. Philippine Ownership Requirement. - As required under Article 
29 
XII, Section 11 of the Constitution of the Republic of the Philippines, no 
30 
franchise, certificate, or any other form of authorization of a public utility 
31 
shall be granted except to citizens of the Philippines or to- corporations or 
32 
associations organized under the laws of the Philippines at least sixty percent 
33 
(60%) of whose capital is owned by such citizens. 
34 
12 


1 
SEe. 11. Third Party Access. -
2 
(a) Third Party Access Obligation. - Gas transmission systems and gas 
3 
distribution systems excluding those constructed and operated for own 
4 
use or as part of gathering facilities of service contractors shall be 
5 
available for nondiscriminatory access by third party users which may 
6 
include parties to a service contract, suppliers and customers, with due 
7 
regard to the economic viability of the operation of such facilities. Such 
8 
operators shall negotiate in good faith with third party users the 
9 
provisions and terms of access in accordance with the guidelines to be 
10 
promulgated by the DOE; 
11 
(b) Available Capacity. - Third party access obligations shall apply only to 
12 
the available capacity of the gas transmission systems and gas 
13 
distribution systems as determined by subtracting from the design 
14 
capacity of the gas transmission systems and gas distribution systems 
15 
the volume of capacity that is: 
16 
(i) Used by the owner or operator to serve his own customer; 
17 
and/ or 
18 
(ii) Allocated to third parties under transportation contracts. 
19 
Nondiscriminatory third party access shall be available to 
20 
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users by contract with the gas transmission or gas 
distribution utility. If the gas transmission or gas 
distribution utility with available capacity refuses service to 
a user or offers discriminatory service, the affected party 
may request for the intervention of the ERe. The gas 
transmission or gas distribution utility shall be required to 
file proof that capacity was not available when service was 
denied. 
Gas transmission utilities shall not be obligated to 
undertake, nor may the DOE require, the expansion of an 
existing gas transmission system to serve additional 
customers or the sizing of a gas transmission system for the 
purpose of increasing capacity to serve load in excess of the 
load proposed to be served by the gas transmission utility. 
However, in situations where no entity is interested to build 
13 


1 
additional transmission capacity in any franchise area, the 
2 
DOE may conduct a public bidding and award the same to 
3 
the lowest bidder. 
4 
(c) Deferment of Third Party Access Obligation. - As may be provided in 
5 
the permit, the implementation of third party access to gas 
6 
transmission systems and gas distribution systems may be deferred 
7 
where, upon the determination by the DOE:. 
8 
(i) It can be demonstrated that such deferment is necessary to 
9 
enable the efficient planning of the infrastructure and 
10 
aggregation of the initial demand necessary to justify 
11 
investments in the gas transmission systems and gas 
12 
distribution systems; or 
13 
(ii) It is in the interest of the customers served by the gas 
14 
transmission system and gas distribution system to ensure 
15 
stability of supply. 
16 
In 
either 
case, 
the 
DOE 
may 
not 
defer 
17 
implementation of third party access for a period longer 
18 
than three years after completion of construction in the case 
19 
of gas transmission systems and five years after completion 
20 
of construction in the case of gas distribution systems: 
21 
Provided, however, That the deferment period may be 
22 
extended on reasonable grounds. 
23 
(d) Approved Access Conditions for Gas Transmission Utilities and Gas 
24 
Distribution Utilities. - Prior to the conduct of negotiations with third 
25 
parties, a gas transmission utility and a gas distribution utility shall 
26 
request the DOE to approve its access conditions in accordance with 
27 
the third party access guidelines to be promulgated by the DOE in 
28 
consultation with the industry participants. 
29 
SEC. 12.Environmental Protection. - Gas transmission utilities, gas 
30 
distribution utilities and suppliers shall comply with all environmental laws, 
31 
rules, regulations and standards promulgated by the Department of 
32 
Environment and Natural Resources (DENR) and other appropriate 
33 
governmental agencies. 
34 
14 


1 
CHAPTER IV 
2 
NATURAL GAS TRANSMISSION SECTOR 
3 
SEC 13. Permit. - No person or entity shall undertake the construction, 
4 
operation and maintenance of a natural gas transmission system unless it has 
5 
secured a franchise: Provided, however, That for a period not exceeding five 
6 
years after the effectivity of this Act, the DOE may issue a provisional permit 
7 
with a maximum term of two years, renewable twice for a maximum 
8 
cumulative term not exceeding six years for the continued operation of a gas 
9 
transmission system constructed prior to and in operation as of the date of 
10 
effectivity of this Act: Provided, further, That during the same period, the 
11 
DOE may issue a permit for the expansion, extension or modification of a 
12 
natural gas transmission system. 
13 
The DOE shall issue a public notice of all permit applications and 
14 
afford interested parties reasonable opportunity to comment upon such 
15 
applications. The DOE shall issue a permit upon its determination that the 
16 
construction, ownership, control, installation, operation and maintenance of 
17 
the gas transmission system would be consistent with ;the policy declarations 
18 
contained in this Act: Provided, however, That if a permit is sought for new 
19 
service that would be provided within the franchise area of a gas distribution 
20 
utility, the DOE shall consider the economic effects of granting such a permit 
21 
upon the gas distribution utility and its customers. 
22 
SEC 14.Terms and Conditions of Permits. - In issuing a permit, the DOE 
23 
shall have the power to impose such reasonable terms and conditions as the 
24 
public interest may require. Among such conditions shall be the requirement 
25 
that the permit holder complies in full with the Gas Transmission Code 
26 
promulgated by the DOE pursuant to Section 5(g) of this Act. 
27 
SEC 15. Fees. - The DOE shall have the authority to prescribe and 
28 
collect fees and charges relating to the issuance and! or review of permits, 
29 
supervision and regulation of gas transmission systems. 
30 
SEC 16. Abandonment of Gas Transmission Systems. - No holder of a 
31 
permit for the construction, installation, operation or maintenance of a gas 
32 
transmission system shall abandon or withdraw from service any portion of 
33 
such gas transmission system without obtaining prior authorization from the 
34 
DOE, which determination shall be made within one hundred eighty (180) 
IS 


1 
days from the filing of the application for abandonment. Such abandonment 
2 
shall be done in accordance with existing laws. 
3 
SEC. 17. Gas Transmission Code Compliance. - All gas transmission 
4 
utilities shall ensure the safety,- reliability, adequacy, security, stability and 
5 
integrity of their gas transmission systems in accordance with the technical 
6 
specifications and performance standards set forth in the Gas Transmission 
7 
Code to be promulgated by the DOE. Each gas transmission utility shall 
8 
submit to the DOE a statement of its compliance with such technical 
9 
specifications and performance standards prescribed in the Gas Transmission 
10 
Code. Any gas transmission utility that does not comply with any of the 
11 
prescribed technical specifications or performance standards shall include in 
12 
such statement of compliance an undertaking to comply with said technical 
13 
specifications and performance standards within a reasonable time as may be 
14 
necessary to ensure safety and reliability, or prevent environmental harm. The 
15 
DOE shall, within sixty (60) days upon receipt of such plan, evaluate the same 
16 
and notify the gas transmission utility concerned of its decision thereon. 
17 
Failure to submit a feasible and credible plan and/ or failure to implement the 
18 
same shall serve as grounds for the imposition of appropriate sanctions, fines 
19 
or penalties pursuant to Section 39 of this Act. 
20 
SEC. 18. ERe Rate Regulation of Gas Transmission Utilities. -
Gas 
21 
Transmission Rate. Except as otherwise provided during the infrastructure 
22 
development period, the ERC shall review and approve the rates, charges and 
23 
other amounts proposed to be charged by the gas transmission utilities as 
24 
provided under Section 33 of this Act. Where such rates are applicable to 
25 
services provided to captive markets, the ratemaking methodology to be 
26 
applied by the ERC shall be based on the principle of full recovery of prudent 
27 
and reasonable costs incurred, including a reasonable return on rate base that 
28 
is consistent with the encouragement of private investment and goal of 
29 
developing a Downstream Natural Gas Industry infrastructure, or such other 
30 
principles that will promote the determination of just and reasonable rates. 
31 
Where a rate applicant successfully demonstrates that its rates will be applicable 
32 
to contestable markets, the ERe shall have the authority to permit negotiated rates. 
33 
16 


1 
CHAPTER V 
2 
DISTRIBUTION SECTOR 
3 
SEC. 19. Permit. - No person or entity shall undertake the construction, 
4 
operation and maintenance of a natural gas distribution system unless it has 
5 
secured a franchise: Provided, however, That for a period not exceeding five 
6 
years after the effectivity of this Act, the DOE may issue a provisional permit 
7 
with a maximum term of two years, renewable twice for a maximum 
8 
cumulative term not exceeding six years for the continued operation of a gas 
9 
distribution system constructed prior to and in operation as of the date of 
10 
effectivity of this Act: Provided, further, That during the same period, the 
11 
DOE may issue a permi'( for the expansion, extension or modification of a 
12 
natural gas distribution system. 
13 
The DOE shall issue a public notice of all permit applications and 
14 
afford interested parties an opportunity to comment on such applications. The 
15 
DOE shall issue a permit upon its determination that the construction, 
16 
ownership, control, installation, operation and maintenance of the gas 
17 
distribution systems would be consistent with the policy declarations 
18 
contained in this Act: Provided, however, That if a permit is sought for new 
19 
service that would be provided within the franchise area of another gas 
20 
distribution utility, the DOE shall consider the economic effects of granting 
21 
such a permit upon the gas distribution utility and its customers. 
22 
SEC. 20. Terms and Conditions of Permits. - In issuing a permit, the DOE 
23 
shall have the power to impose such reasonable term and conditions to a 
24 
permit as the public interest may require. Among such conditions shall be the 
25 
requirement that the permit holder comply in full with the Gas Distribution 
26 
Code promulgated by the DOE pursuant to Section 5(g) of this Act. 
27 
SEC. 21. Fees. - The DOE shall have the authority to prescribe and 
28 
collect fees and charges relating to .the issuance and! or review of permits, 
29 
supervision and regulation of gas distribution systems. 
30 
SEC. 22. Abandonment of Gas Distribution Systems. - No holder of a 
31 
permit for the construction, installation, operation or maintenance of a gas 
32 
distribution system shall abandon or withdraw from service any portion of 
33 
such gas distribution system without obtaining prior authorization from the 
34 
DOE, which determination shall be made within one hundred eighty (180) days 
17 


1 
from the filing of the application for abandonment. Such abandonment shall be done 
2 
in accordance with existing laws. 
3 
SEC 23. Gas Distribution Code Compliance. - All gas distribution utilities 
4 
shall be required to ensure and maintain the safety, reliability, adequacy, 
5 
security, stability and integrity of their gas distribution systems in accordance 
6 
with the performance standards set forth in the Gas Distribution Code to be 
7 
promulgated by the DOE. Each gas distribution utility shall submit to the 
8 
DOE a statement of its compliance with the technical specifications prescribed 
9 
in the Gas Distribution Code and the performance standards prescribed in the 
10 
implementing rules and regulations promulgated by the DOE pursuant to 
11 
Section 43 of this Act. A gas distribution utility that fails to comply with any 
12 
of the prescribed technical specifications or performance standards shall 
13 
include within such statement of compliance a plan for achieving compliance 
14 
with the said technical specifications and performance standards within a 
15 
reasonable time as may be necessary to ensure safety and reliability, or 
16 
prevent environmental harm. The DOE shall, within sixty (60) days from 
17 
receipt of such plan, evaluate the same and notify the gas distribution utility 
18 
concerned of its decision thereon. Failure to submit a feasible and credible 
19 
plan and/or failure to implement the same shall serve as grounds for the 
20 
imposition of appropriate sanctions, fines or penalties pursuant to Section 39 
21 
of this Act. 
22 
SEC 24. Gas Distribution Rate. - Except as provided for during the 
23 
infrastructure development period, the distribution rates charged by gas 
24 
distribution utilities shall be subject to regulation by the ERC based on the 
25 
principle of full recovery of prudent and reasonable economic costs incurred, 
26 
including a reasonable return on rate base that is consistent with the 
27 
encouragement of private investment and goal of developing the 
28 
Downstream Natural Gas Industry infrastructure, or such other principles 
29 
that will promote the determination of just and reasonable rates by the ERC 
30 
Where a rate applicant successfully demonstrates that its rates will be 
31 
applicable to contestable markets, the ERC shall have the authority to permit 
32 
negotiated rates. 
33 
SEC 25. Functions of Gas Distribution Utilities. - All gas distribution 
34 
utilities shall have the following functions: 
18 


1 
(a) Obligation to provide distribution services and connections to its gas 
2 
distribution system for any end-user within the area covered by its 
3 
permit consistent with the Gas Distribution Code. Any gas distribution 
4 
utility engaged therein shall provide nondiscriminatory access to its 
5 
gas distribution system to suppliers and/ or end-users entitled to retail 
6 
access under Section 30 of Chapter VII of this Act. Any gas distribution 
7 
utility shall be entitled to impose and collect from such suppliers 
8 
and/ or end-users distribution charges and connection fees as 
9 
approved by the ERC after due notice and hearing; 
10 
(b) Ensure the safety, reliability, adequacy, security, stability and integrity 
11 
of their gas distribution systems in accordance with the technical 
12 
specifications and performance standards set forth in the Gas 
13 
Distribution Code to be promulgated by the DOE pursuant to Section 
14 
5(g) of this Act. Each gas distribution utility shall submit to the ERC a 
15 
statement of its compliance with such technical specifications and 
16 
performance standards. Any gas distribution utility that fails to comply 
17 
with any of the prescribed technical specifications or performance 
18 
standards shall include in such statement of, compliance an 
19 
undertaking to comply with said technical specifications and 
20 
performance standards within a reasonable time as may be necessary 
21 
to ensure safety and reliability, or prevent environmental harm. The 
22 
ERC shall, within sixty (60) days upon receipt of such plan, evaluate 
23 
the same and notify the gas distribution utility concerned of its 
24 
decision thereon. Failure to submit a feasible and credible plan and/ or 
25 
failure to implement the same shall serve as grounds for the imposition 
26 
of appropriate sanctions, fines or penalties pursuant to Section 39 of 
27 
this Act; 
28 
(c) Provide universal service within the area covered by its permit except 
29 
as provided herein. Compliance with the universal service obligation 
30 
shall be addressed as part of the annual development and maintenance 
31 
plan of a gas distribution utility. A gas distribution utility shall be 
32 
obliged to develop and maintain an efficient system for the distribution 
33 
of natural gas at the reasonable request of end-users within its 
34 
franchise area including: 
19 


1 
(i) The installation of pipes where the connection to the end-
2 
user is within twenty-five (25) meters of the gas distribution 
3 
system; or 
4 
(ii) Increasing the capacity of existing gas distribution systems: 
5 
Provided, however, That no new service shall be required if 
6 
such service would not be economically viable. A 
7 
determination by a gas distribution utility that it cannot 
8 
viably serve a portion of its franchise area shall be subject to 
9 
review by the ERC upon filing of a complaint by the 
10 
requesting end-user. 
11 
The obligation of the gas distribution utility to 
12 
provide universal access involves both an obligation to 
13 
connect end-users within twenty-five (25) meters from the 
14 
main pipeline and an obligation to supply such end-users, 
15 
to the extent the distribution utility is the sole gas supplier. 
16 
Upon implementation of third party access, the utility shall 
17 
be relieved of its obligation to supply end-users eligible for 
18 
retail access as defined in the guidelines to be promulgated 
19 
by the DOE, but not its obligation to provide connection to 
20 
its distribution system to such end-users. Whether or not 
21 
the gas distribution utility is the sole gas supplier in the 
22 
area, prices charged by the said utility for the supply of gas 
23 
shall be negotiated for the contestable market and regulated 
24 
by the ERC for the captive market; and 
25 
(d) Submit annually to the ERC its plan for maintaining and developing its 
26 
gas distribution system in compliance with the obligations prescribed 
27 
in this Act. 
28 
CHAPTER VI 
29 
SUPPLY SECTOR 
30 
SEC. 26. Permit Requirement. - Any law to the contrary notwithstanding, 
31 
no person may engage in any supply activity unless it has obtained a permit 
32 
from the DOE, initially: Provided, however, That a gas transmission utility or 
33 
gas distribution utility that has secured a permit as such pursuant to Section 
34 
9(c) of this Act and that supplies natural gas to its own customers shall not be 
35 
required to secure a separate permit to engage in its supply activity. For this 
20 


1 
purpose, the DOE shall promulgate rules and regulations prescribing the 
2 
qualifications of suppliers which shall include, among other requirements, a 
3 
demonstration 
of 
their 
technical 
capability, 
financial 
capability, 
4 
creditworthiness and compliance with safety standards. The DOE shall have 
5 
the authority to require suppliers to furnish a bond or other evidence of their 
6 
ability to withstand market disturbances or other events that may increase the 
7 
cost of providing service. 
8 
SEC 27. Supplier Rate and Service Regulation. -
9 
(a) The rates and service of suppliers to captive markets shall be regulated 
10 
by the ERC; and 
11 
(b) The rates and service of suppliers to contestable markets shall not be 
12 
subject to regulation by the ERC Provided, however, That suppliers 
13 
shall be subject to the rules and regulations concerning abuse of market 
14 
power, cartelization and other anti-competitive or discriminatory 
15 
behavior promulgated by the ERC 
16 
(c) The supply of natural gas for electric generation and large end-users is 
17 
hereby deemed to be a contestable market. In all other cases, suppliers 
18 
shall bear the burden of 'demonstrating that a market is contestable. 
19 
SEC 28. Conditions for Retail Access to Gas Distribution Systems. -
20 
Following the infrastructure development period, retail access to gas 
21 
distribution systems shall be available to large end-users meeting criteria set 
22 
forth in the rules and regulations promulgated by the ERC pursuant to this 
23 
Act. The ERC shall determine when retail access may Be available to other 
24 
end-users or classes of end-users, giving consideration to relevant factors 
25 
including whether such end-users or class of end-users constitute a contestable 
26 
market-end the financial consequences of any assets potentially stranded by 
27 
expanding retail access. 
28 
CHAPTER VII 
29 
TAXATION 
30 
SEC 29. Taxes. - Gas transmission utilities, gas distribution utilities and 
31 
suppliers of natural gas shall be subject to the payment of all taxes, duties, 
32 
fees or charges and other impositions under the National Internal Revenue 
33 
Code (NIRC) of 1997, as amended, and other applicable laws: Provided, 
34 
however, That, in recognition of the substantial investments needed for the 
21 


1 
construction, operation and maintenance of gas transmission and gas 
2 
distribution systems, gas transmission utilities and gas distribution utilities 
3 
shall, upon prior endorsement by the DOE and approval by the Board of 
4 
Investments, be entitled to income tax holiday and such other incentives 
5 
granted to pioneer enterprises under the Omnibus Investment Code, as 
6 
amended. The commodity price of gas shall be the only component of the gas 
7 
retail rate which shall be subject to excise taxes under Republic Act No. 8424, 
8 
otherwise known as the Comprehensive Tax Reform Law. 
9 
10 
SEC. 30. Withdrawal of Exemptions. - Any law to the contrary 
11 
notwithstanding, to achieve the declared policies of this Act, particularly in 
12 
relation to the promotion of fair and nondiscriminatory treatment of public 
13 
and private sector entities in the development of the Downstream Natural 
14 
Gas Industry infrastructure, all existing tax exemptions applicable to persons 
15 
engaged in the transmission or the distribution of natural gas; insofar as such 
16 
exemptions relate to revenues derived from the transmission or the 
17 
distribution of natural gas, shall be deemed revoked upon the effectivity of 
18 
this Act. 
19 
CHAPTER VIII 
20 
RATEMAKING REQUIREMENTS AND PROCEDURES 
21 
SEC. 31. Ratemaking Requirements and Procedures of the ERe. - (a) Just 
22 
and reasonable rates and charges. - All rates and charges for transmission, 
23 
distribution or supply of natural gas to the captive market and all rules and 
24 
regulations affecting or pertaining to such rates or charges shall be just and 
25 
reasonable. Any such rate or charge that is not just and reasonable is hereby 
26 
declared to be unlawful; 
27 
(b) Undue preferences and unreasonable rates and charges are prohibited. 
28 
- No gas transmission utility, gas distribution utility or supplier shall, 
29 
with respect to the transmission, distribution or supply of natural gas 
30 
to the captive market: (1) make or grant any undue preference or 
31 
advantage, or (2) maintain any unreasonable difference in rates, 
32 
charges, service, facilities, or in any other respect, between locations or 
33 
between classes of service; 
34 
(c) Filing of rate schedules. - Under such rules and regulations as the ERC 
35 
may prescribe, after due notice and public consultation, the ERC may 
36 
require reports or documents from gas transmission utilities, gas 
22 


1 
2 
3 
4 
5 
distribution utilities or suppliers to the captive market showing all 
rates and charges for the transmission, distribution or supply of natural 
gas to the captive market and the classifications, practice and 
regulations affecting such rates, charges, and classifications and 
services: 
Provided, That the ERC 
shall provide appropriate 
6 
mechanisms to protect the confidential& of any information that is 
7 
commercially or competitively sensitive; and 
8 
(d) Changes in rate and charges. - Within thirty (30) days upon filing for 
9 
an adjustment in rates, the ERC shall issue an order accepting, rejecting 
10 
or setting for hearing such adjustment. The ERC may, upon the filing 
11 
of an application therefor or at any stage thereafter, with or without 
12 
prior hearing, on the basis of supporting papers duly verified or 
13 
authenticated, and with such notice to the affected parties and 
14 
opportunity for such parties to make such submissions as the ERC 
15 
determines to be appropriate in the circumstances, grant provisional 
16 
relief fixing interim rates for the transmission of natural gas or 
17 
distribution of natural gas or supply of natural gas to the captive 
18 
market applicable during the pendency of the hearing on the 
19 
application, on motion of a party in the case or on its own initiative, 
20 
without prejudice to a final decision after hearing, should the ERC find 
21 
that the pleadings, together with such affidavits, documents and other 
22 
evidences which may be submitted in support of the motion, 
23 
substantially support the provisional order. The final order fixing the 
24 
applicable rates shall provide for over- or under-recovery of costs 
25 
occasioned by the application of ERC-approved interim rates. At any 
26 
hearing involving rates adjustment, the burden of proof to show that 
27 
the increased rates are just and reasonable shall be upon the gas 
28 
transmission utility, gas distribution utility or supplier to the captive 
29 
market. 
30 
CHAPTER IX 
31 
PROMOTION OF COMEPTITION 
32 
SEC. 32. Anti-Competitive Behavior. - No gas transmission utility, gas 
33 
distribution utility or supplier, or affiliate thereof, may engage in any anti-
34 
competitive behavior or abuse of market power including, but not limited to: 
35 
(a) Agreements, decisions and concerted practices of persons or 
36 
associations of persons to fix prices and/ or fix output; and 
23 


1 
(b) Other practices and! or conduct by a person or groups of persons that 
2 
restrict, prevent or distort competition such as, but not limited to, 
3 
predatory pricing and practices, excessive pricing, bundling and other 
4 
vertical restraints, denial of access to essential facilities on fair terms, 
5 
discriminatory conditions on transactions that restrict, prevent or 
6 
distort competition. 
7 
SEC 33. Measures to Promote Competition. - Subject to the provisions of 
8 
relevant laws, the ERe ~,;hall adopt measures and! or corresponding remedies 
9 
to 
promote competition following' an investigation of the relevant 
10 
circumstances and a definitive finding of: 
11 
(a) Price and! or output fixing; or 
12 
(b) Other practices! conduct that are the subject of investigation restrict 
13 
and! or prevent and! or distort competition. 
14 
Such remedies shall, without limitation, include the imposition of price 
15 
controls, issuance of injunctions or disgorgement of excess profits and 
16 
imposition of administrative fines and penalties pursuant to this Act. 
17 
SEC 34. Functional and Structural Unbundling. - When prevailing 
18 
market conditions so require, any Downstream Natural Gas Industry 
19 
participant shall functionally and structurally unbundle its business activities 
20 
and rates in accordance with the sectors as identified in Section 7 hereof. The 
21 
ERe shall ensure full compliance with this provision. 
22 
SEC 35. Complaint Procedures. - The ERe shall, within one year from 
23 
the effectivity of this Act, promulgate rules and regulations providing for a 
24 
complaint procedure that, without limitation provides the party alleged to 
25 
have engaged in anti-competitive or abusive activities with notice and an 
26 
opportunity to be heard. 
27 
SEC 36. Affiliated Suppliers. - In order to prevent anti-competitive 
28 
conduct, service contractors, gas transmission utilities and gas distribution 
29 
utilities that own or control affiliates that are suppliers shall conduct their 
30 
business as follows: 
31 
(a) No . preference will be given to the affiliated supplier over other 
32 
persons through contracting for available capacity, scheduling, 
33 
balancing, curtailment priority or tariffs; 
24 


1 
(b) Marketing information provided to the affiliated supplier will be 
2 
provided to any nonaffiliated supplier that is a competitor or potential 
3 
competitor; 
4 
(c) Employees of the affiliated supplier shall, to the maximum extent 
5 
possible, function independently in making business decisions; and 
6 
(d) Books of accounts and records of the affiliated supplier shall be 
7 
maintained separately. 
8 
As used herein, "affiliate" refers to any person or entity which, 
9 
alone or together with any other person or entity, directly or indirectly, 
10 
through one or more intermediaries, controls, or is controlled by 
11 
another person or entity. As used herein," control" shall mean the 
12 
power to direct or cause the direction of the management policies of a 
13 
person by contract, agency or otherwise. 
14 
SEC. 37. Administrative Fines and Penalties.-
15 
(a) The administrative fines and penalties that may be imposed by the 
16 
ERe or the DOE, as the case may be, for any violation of or 
17 
noncompliance with this Act or its implementing rules and regulations 
18 
shall range from a minimum of Fifty thousand pesos (P50,000.00) to a 
19 
maximum of Fifty million pesos (P50,000,OOO.OO); 
20 
(b) Any person who is found to have engaged in any of the prohibited acts 
21 
pursuant to Section 34 of this Act shall suffer the administrative 
22 
penalty or fine ranging from Ten thousand pesos (PIO,OOO.OO) to Ten 
23 
million pesos (PIO,OOO,OOO.OO), at the discretion of the ERe or the DOE, 
24 
as the case may be; 
25 
(c) The members of the board of directors or any person that violates the 
26 
provisions of this Act may be fined by an amount not exceeding double 
27 
the amount of damages caused by the offender at the discretion of the 
28 
ERe or the DOE, as the case may be. This rule shall apply to the 
29 
members of the Board who, knowingly or by neglect, allow the 
30 
commission or omission under the law; 
31 
(d) Any party to an administrative proceeding may, at any time, make an 
32 
offer to the ERe or the DOE, as the case may be, conditionally or 
33 
otherwise, for a consent decree, voluntary compliance or desistance 
25 


1 
and other settlement of the case. The offer and any or alI of the ultimate 
2 
facts upon which the offer is based shall be considered for settlement 
3 
purposes only and shall not constitute an admission by the party 
4 
making the offer of any violation of the laws, rules, regulations, orders 
5 
and resolutions of the ERC or the DOE, as the case may be, nor as a 
6 
waiver to file any warranted criminal actions; and 
7 
(e) Congress may, upon recommendation of the ERC or the DOE, as the 
8 
case may be, revoke such franchise or privilege granted to the party 
9 
found in violation of the provisions of this Act. 
10 
CHAPTER X 
11 
ANTI-PILFERAGE AND ANTI-THEFT PROVISIONS 
12 
SEC. 38. Pilferage. - It is hereby declared unlawful for any person to: 
13 
(a) Tap, make or cause to be made any connection with any gas 
14 
transmission system or gas distribution system without previous 
15 
authority or consent of the gas transmission utility or gas distribution 
16 
utility concerned; 
17 
(b) Tamper, install or use tampered meters or any other device which 
18 
interferes with proper or accurate registry or metering of natural gas 
19 
flows or otherwise results in its diversion in a manner whereby natural 
20 
gas is stolen or wasted; 
21 
(c) Damage or destroy any natural gas meter, equipment, pipeline or 
22 
conduit or any part of a gas transmission system or gas distribution 
23 
system or allow any of them to be so damaged or destroyed as to 
24 
interfere with the proper or accurate metering of natural gas flows; and 
25 
(d) Knowingly use or receive the direct benefit of natural gas delivery 
26 
service obtained through any of the acts mentioned in paragraphs (a), 
27 
(b) and (c) above. 
28 
SEC. 39. Theft of Equipment and Materials. - It is hereby declared 
29 
unlawful for any person to: 
30 
(a) Cut, saw, slice, separate, split, severe, smelt or remove any portion of a 
31 
gas transmission system or gas distribution system, including pipeline 
32 
materials and meters, from any installation or place of installation or 
33 
any other place or site where it may be rightfully or lawfully stored, 
26 


1 
.deposited, kept, stocked, inventoried, situated or located, without the 
2 
consent of the gas transmission utility or gas distribution utility 
3 
concerned, whether 01' not the act is done for profit or gain; 
4 
(b) Take, carry away or ]'emove or transfer, with or without the use of a 
5 
motor vehicle or other means of conveyance, load, carry, ship or move 
6 
from one place to another, whether by land, air or sea, any portion of a 
7 
gas transmission sYE.tem or gas distribution system, including pipeline 
8 
materials or meters., from any installation or place of installation, or 
9 
any place or site where it may be rightfully or lawfully stored, 
10 
deposited, kept, stocked, inventoried, situated or located without the 
11 
consent of the gas transmission utility or gas distribution utility 
12 
concerned, whether or not the act is done for profit or gain; and 
13 
(c) Store, possess or otherwise keep in his premises, custody or control, 
14 
without lawful purpose, any portion of a gas transmission system or 
15 
gas distribution system, including pipeline materials or meters, 
16 
without the consent of the gas transmission utility or gas distribution 
17 
utility concerned, whether or not the act is done for profit or gain. 
18 
SEC 40. Penalties. -
19 
(a) Violation of Section 40. - The penalty of prision mayor or a fine ranging 
20 
from Ten thousand pesos (PlO,OOO.OO) to Twenty thousand pesos 
21 
(P20,000,00) or both, at the discretion of the court, shall be imposed on 
22 
any person found guilty of violating Section 40 of this Act. 
23 
(b) Violation of Section 41. - The penalty of reclusion temporal or a fine 
24 
ranging from Fifty thousand pesos (P50,000.00) to One hundred 
25 
thousand pesos (PlOO,OOO.OO) or both, at the discretion of the court, 
26 
shall be imposed on any person found guilty of violating Section 41 of 
27 
this Act. 
28 
(c) Provision common to violations of Sections 40 and 41 hereof. - If the 
29 
violation of Section 40 or Section 41 of this Act is committed by, or in 
30 
connivance with, an officer or employee of the gas transmission utility 
31 
or gas distribution utility concerned, such officer or employee shall, 
32 
upon conviction, be punished with a penalty one degree higher than 
33 
the penalty provided herein, and forthwith be dismissed and 
27 


1 
perpetually disqualified from employment in any public or private 
2 
utility or service company and from holding any public office. 
3 
If the violation of Section 40 or Section 41 of this Act is 
4 
committed by a partnership, firm, corporation, association or any other 
5 
legal entity, including a government-owned or -controlled corporation, 
6 
the penalty shall be imposed on the president, manager and each of the 
7 
officers thereof who shall have knowingly permitted, failed to prevent 
8 
or was otherwise responsible for the commission of the offense. 
9 
CHAPTER XI 
10 
FINAL PROVISIONS 
11 
SEC. 41. Implementing Rules and Regulations. - The DOE shall, in 
12 
consultation with the ERe, appropriate government agencies, 
the 
13 
Downstream 
Natural 
Gas 
Industry 
participants, 
nongovernmental 
14 
organizations and end-users, promulgate implementing rules and regulations 
15 
(IRR) within six months from the effectivity of this Act. 
16 
SEC. 42. Natural Gas Oversight Commission. - Upon the effectivity of this 
17 
Act, a congressional commission, hereinafter referred to as the "Natural Gas 
18 
Oversight Commission", is hereby constituted. The Natural Gas OverSight 
19 
Commission shall be composed of ten (10) members, with the chairmen of the 
20 
Committee on Energy of the Senate and the House of Representatives and 
21 
four additional members from each House, to be deSignated by the Senate 
22 
President and the Speaker of the House of Representatives, respectively. The 
23 
minority shall be entitled to pro rata representation but shall have at least one 
24 
representative in the Natural Gas Oversight Commission. 
25 
(a) The Natural Gas Oversight Commission shall, in aid of legislation, 
26 
perform the follOWing functions, among others: 
27 
(b) Set the guidelines and overall framework to monitor the proper 
28 
implementation of this Act; 
29 
(c) Look into the appropriateness of creating a single independent 
30 
regulatory body when the conditions prevailing so require; 
31 
(d) Conduct a periodic review of this Act at least once every three years; 
32 
(e) Determine inherent weaknesses in the law and recommend necessary 
33 
remedial legislation or executive measures; 
28 


1 
(f) Approve the budget for the programs of the Natural Gas 
2 
(g) Oversight Commission and all disbursements therefrom, including 
3 
compensation of all personnel; 
4 
(h) Submit periodic reports to the President of the Philippines and 
5 
Congress; and 
6 
(i) Perform such otheJf powers and functions as may be necessary to attain 
7 
its objectives. 
8 
To carry out its powers and functions, the initial sum of Fifteen million 
9 
pesos (P15,000,000.00) s.hall be charged against the current appropriations of 
10 
the Senate. Thereafter, such amount necessary for its continued operation 
11 
shall be included in the annual General Appropriations Act. 
12 
The Natural Gas Oversight Commission shall adopt its internal rules of 
13 
procedure; conduct hearings and receive testimonies, reports and technical 
14 
advice; invite or summon by subpoena ad testificandum any public official, 
15 
private individual or any other person to testify before it, or require any 
16 
person by subpoena duces tecum to produce before it such records, reports, 
17 
documents or other materials as it may require; and generally require all the 
18 
powers necessary to attain the purposes for which it is created. The Natural 
19 
Gas Oversight Commission shall be assisted by a secretariat to be composed 
20 
of personnel who may be seconded from the Senate and the House of 
21 
Representatives and may retain consultants. The secretariat shall be headed 
22 
by an executive director who has sufficient background and competence on 
23 
the policies and issues relating to the Downstream Natural Gas Industry 
24 
reforms as provided in this Act. 
25 
SEC. 43. SeparabilihJ Clause. - If, for any reason, any provision of this 
26 
Act is declared unconstitutional or invalid, the other parts or provisions 
27 
hereof which are not affected thereby shall continue to be in full force and 
28 
effect. 
29 
SEC. 44. Nonretroactivity, Applicability and Repealing Clause. - The 
30 
provisions of Republic Act No. 387, otherwise known as the "Petroleum Act of 
31 
1949", as amended, Presidential Decree No. 87, Republic Act No. 8997, and all 
32 
other laws, decrees, executive orders, rules and regulations, circulars and 
29 


1 
other issuances inconsistent with the provisions of this Act are hereby 
2 
repealed or modified accordingly. 
3 
SEC. 45. Transitory Provision. - Gas transmission systems and gas 
4 
distribution systems that have been constructed and have commenced 
5 
operation prior to the date of effectivity of this Act shall continue to operate 
6 
under their existing authorities: Provided, That they have complied with 
7 
existing laws, rules and regulations prior to the effectivity of this Act and 
8 
have secured a provisional permit from the DOE as provided in Sections 15 
9 
and 21 of this Act. Suppliers who have entered into gas sales and purchase 
10 
contracts with customers and have delivered indigenous or imported natural 
11 
gas under said contracts prior to the date of effectivity of this Act shall 
12 
continue to sell natural gas under their existing authorities provided they 
13 
have complied with existing laws, rules and regulations prior to the effectivity 
14 
of this Act. 
15 
Nothing in this Act shall be deemed to revoke or otherwise modify the 
16 
powers and functions of the Philippine National Oil Company and its 
17 
subsidiaries under Presidential Decree No. 334, as amended, any existing 
18 
concession granted under the Petroleum Act of 1949, as amended, certificate 
19 
of public convenience or certificate of public convenience and necessity 
20 
granted pursuant to the Public Service Law, as amended, specific franchise for 
21 
the transmission, distribution or supply of natural gas or other administrative 
22 
or regulatory permit or contract, which concession, certificate, franchise, 
23 
permit or contract shall be allowed to its full term but may not be renewed 
24 
except pursuant to the provisions of this Act. 
25 
For a period not exceeding five years after the effectivity of this Act, the 
26 
DOE may issue provisional permits, with a maximum term of two years, 
27 
renewable twice for a maximum cumulative term not exceeding six years, for 
28 
the construction, operation and maintenance of pipelines and related facilities 
29 
for the transmission, distribution and supply of natural gas. 
30 
SEC. 46. Effectivity Clause. - This Act shall take effect on the fifteenth 
31 
(15th) day following its publication in the Official Gazette and in at least two 
32 
national newspapers of general circulation. 
33 
Approved, 
30