FOURTEENTH CONGRESS OF THE REPUBLIC ) 
OF THE PHILIPPINES 
7 
JUI. -3 /I1 'I :? I 
First Regular Session 
1 
S E N A T E  
S.B.No. 733 
Introduced by Senator Ramon Bong Revilla, Jr. 
EXPLANATORYNOTE 
The discovery of natural gas in the country has raised hopes about a brighter 
future for all of us. As an alternative to crude oil, natural gas may hold the key to the 
current energy crisis and our over dependence on petroleum products. 
However, this can only happen if we allow the natural gas industry to flourish and 
be fully developed. It is therefore imperative that we create conditions favorable to the 
establishment of a downstream Natural Gas Industry that will, among others, accelerate 
the expansion of natural gas seivice for the benefit of the populace. Likewise, it is also 
important that we lay down a regulatory framework that will ensure the quality, 
regularity, security and reasonableness of charges for the transmission, distribution and 
supply of natural gas. 
It is about time that we develop the downstream natural gas industry and 
transform it from an emerging industry to one that is mature and competitive. This, 
ultimately, will redound to the benefit of the country and will help ensure that power will 
always be available. 
For these reasons, I urge the immediate passage of the bill. 
ON BO 
REVILLA, JR. 
Pr 


.. 
FOURTEENTH CONGRESS OF THE REPUBLIC ) 
OF THE PHILIPPINES 
7 
JUL -3 a1 i 3 1  
First Regular Session 
1 
’ -*v 
RECEIVE0 BY’- 
S E N A T E  
S.B.No. 733 
Introduced by Senator Ramon Bong Revilla, Jr. 
AN ACT 
ORDAINING THE DEVELOPMENT OF THE DOWNSTREAM NATURAL GAS 
INDUSTRY AND CONSOLIDATING FOR THAT 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 
Philippines in Congress assembled: 
CHAPTER I 
TITLE AND DECLARATION OF POLICY 
SEC. 1. Short Title. - This Act shall be known as the “Downstream Natural Gas 
Industry Act of 2007”. It shall hereinafter be referred to as the Act. 
SEC. 2. Declaration of Policy. - It is hereby declared the policy of the State: 
To promote the role of Natural Gas as an environment- friendly and 
economically efficient sowce of energy by creating favorable conditions 
for establishing a Downstream Natural Gas Industry that will accelerate 
the expansion of Natural Gas service for the benefit of all segments of the 
nation’s population and all sectors of its economy; 
To ensure the safety, quality, reliability, security and affordability of the 
Transmission, Distribution and Supply of Natural Gas; 
To ensure transparent and reasonable rates and prices of Natural Gas 
Transmission, Distribution and Supply in a regime of free and fair 
competition and full public accountability that will promote greater 
operational and economic efficiency and the enhanced competitiveness of 
Philippine products in the global market; 
To encourage the inflow of private capital in providing the infrastructure 
and services necessary to develop new gas supplies and increase the 
utilization of Natural Gas; 
To ensure fair and non-discriminatory treatment of public and private 
sector entities in the development of the Downstream Natural Gas 
Industry; 
To protect the public interest as it is affected by the quality of, and the 
rates charged for, the Transmission, Distribution and Supply of Natural 
Gas and related services; 


To assure the development of a Downstream Natural Gas Industry 
infrastructure that is socially acceptable and compliant with existing 
environmental laws; 
To ensure that the Downstream Natural Gas Industry shall be regulated in 
a manner that will ensure the quality, reliability, security and 
reasonableness of charges for the Transmission, Distribution and Supply 
of Natural Gas, encourage private investment in the Downstream Natural 
Gas Industry and promote the efficient and competitive operation thereof ; 
To develop the necessary trades, technical expertise and skills to support 
the development of the Downstream Natural Gas Industry; 
To facilitate the development of end-uses of Natural Gas that promotes 
€uel diversity and compliance with existing environmental laws including, 
but not limited to, the use of Natural Gas as a vehicular fuel; and 
To encourage equity participation in Gas Transmission Utilities and Gas 
Distribution Utilities by the general public. 
SEC. 3. Scope. - This Act shall provide a framework for the development of a 
Downstream Natural Gas Industry and its transition from an emerging to a mature 
industry status and 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 DOE and the ERC relevant to the development and regulation 
of the Downstream Natural Gas Industry shall be in accordance with this Act. 
SEC. 4. Definition of Terms. - As used in this Act, the following terms shall have 
the following meanings: 
(a) “Captive Market” refers to Nattual Gas End-users who do not have the choice 
of a transporter or distributor, or Supplier of Natural Gas or other economically 
competitive energy substitute, as may be determined by the ERC in accordance 
with this Act; 
(b) “Congress” refers to the Congress of the Philippines; 
(c) “Contestable Market” i s  a market which is not a Captive Market; 
(d) “Delivery” refers to the Transportation Transmission or Distribution of 
Natural Gas and the Supply of Natural Gas, at wholesale or retail; 
(e) “Department of Energy” or “DO” ’refers to the government agency 
created pursuant to Republic Act No. 7638, as amended; 
[Q “Department of Environment nnd NaturnI Resonrces” or “DENR” refers to 
the government agency created pursuant to Executive Orders Nos. 192 and 292, 
as amended; 
(g) “Distribzrtion” 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, re-gassification, interconnection, measurement and/or 
metering; 
(i) “End-user” refers to any person that receives delivery of Natural Gas for its 
own use: 


0‘) “Energy Regulatory Commission” or “ERC” refers to the regulatory 
agency created pursuant to Republic Act No. 9136 or the Electric Power Industry 
Reform Act of 2001 whose expanded functions are provided in this Act; 
(k) “Franchise” refers to the right, privilege and authority issued by Congress 
authorizing a person to engage in the Transmission and/or 22 Distribution of 
Natural Gas within a specific geographical area; 
(I) “Franchise Area” refers to a geographical area assigned or granted under a 
Franchise; 
(m) “Gas Disfribntion Code” refers to the code to be formulated by the DOE as 
required by the Act that sets the technical performance standards for operatiiig 
Gas Distribution Utilities and the minimum financial standards for Gas 
Distribution Utilities; 
(n) “Gas Distribution System” refers to the system of pipelines, storage related 
facilities extending from the delivery points where the Gas Distribution System 
receives the Natural Gas to the point of connection to the premises of the End- 
User; 
(0) “Gas Distribution Utility” refers to any Person that has a Franchise granted by 
Congress to operate a Gas Distribution System; 
@) “Gas Permit” refers to an authorization issued by the DOE for the 
construction, operation, expansion and modification of Gas Transmission Systems 
and Gas Distribution Systems and for the Supply of Natural Gas. 
(q) “Gas Supply Contract” refers to a contract for the Supply of Natural Gas 
between a Supplier and a purchaser; 
(r) “Gas Transmission Code” refers to the code to be developed by the 
DOE as required by the Act that sets the technical performance standards for 
operating Gas Transmission Systems and the minimum financial standards for 
Gas Transmission Utilities; 
(s) “Gas Transmission System” refers generally to the system of pipelines, 
storage and related facilities that are used to transport Natural Gas from the 
interconnection with Gathering Facilities, LNG regassification facilities or other 
Gas Transmission Systems to the interconnections with Gas Distribution Systems, 
other Gas Transmission Systems, or End-users; 
(t) ‘Gas Transmission Utility‘) refers to any Person that has a Franchise to 
operate a Gas Transmission System and does not include those who operate own- 
use pipelines, storage and related facilities operated independently of the pipeline 
or those intending to operate a Gas Transmission System: 
(u) l‘Gatlrering Facilities” refers to Natural Gas pipelines and related facilities 
used to gather gas in the field and bring it lo a location for processing or for 
delivery at an interconnection with the Gas Transmission System; the terms 
(‘Gather” and “Gathering” shall be construed accordingly; 
(v) “Jorrle” refers to the unit of energy or work done when the point of 
application of a force of one Newton is displaced a distance of one meter in the 
direction of the force. It is also equal to one watt-second; 
(w) “LNG” refers to Liquefied Natural Gas”; 


(x) “Natziml Cas” refers to hydrocarbons, primarily methane, which, at 
atmospheric temperature and pressure, are in a gaseous phase. For purposes of 
this Act, the term “Natural Gas” shall be inclusive of LNG; 
(y) “Person” refers to a natural or judicial person, as the case may be including 
the national and local government of the Republic of the Philippines, its agencies 
and instrumentalities and government-owned and controlled corporations; 
(z) “Petroleum Operations” as defined in PD 87, refers to searching for and 
obtaining petroleum within the Philippines through drilling and pressure or 
suction or the like, and all other operations incidental thereto. It includes the 
transportation, storage, handling and sale (whether for export or for domestic 
consumption) of petroleum so obtained but does not include any: (1) 
transportation of petroleum outside the Philippines; (2) processing or refining at a 
refinery; or (3) any transactions in the products so refined; 
(aa) “Philippine Energy Plan” or “PEP’ refers to the overall energy 
program formulated and updated yearly by the DOE and submitted to Congress 
pursuant to Republic Act No. 7638, as amended; 
(bb) “Service Contract” refers to the award granted by the Philippine 
government to a qualified Person to engage in the exploration, development and 
utilization of natural resources through joint venture, co-production, production- 
sharing or other similar arrangement with the State pursuant to Article XII, 
Section 2, of the Constitution, including, Service Contracts under Presidential 
Decree No. 87, as amended; 
(cc) “Supplier” refers to any Person authorized by the DOE to engage in 
the Supply of Natural Gas; 
(dd) “Supply” refers to the domestic trading and/or sale of Natural Gas for 
wholesale or retail; 
(ee) “Third Party Access” refers to the system of allowing any qualified 
Person access to the Gas Transmission Systems and Gas Distribution Systems 
under the conditions prescribed in Chapter I1 Sec. 10 hereof; 
(ff, “Transmission” refers to the transportation of Natural Gas through 
Gas Transmission System; 
(gg) “Unbundled Service” refers to the pricing of the energy value of 
Natural Gas separately from the rates charged for natural gas Transmission or 
Distribution; and 
(hh) ‘Vehiczrlnr Natural Cas ” means Natural Gas that is used as a fuel in 
a self-propelled vehicle. 
CHAPTER I1 
ORGANIZATION AND OPERATION OF THE 
DOWNSTREAM NATURAL GAS INDUSTRY 
SEC. 5. Organization. - For purposes of this Act, the Downstream Natural Gas 
Industry shall be divided into three (3) sectors, namely: Transmission, Distribution and 
Supply of Natural Gas. 
SEC. 6. Regulation of Transmission, Distribution and Supplj Sectors. - The 
Transmission, Distribution and Supply of Natural Gas are businesses affected with public 
interest and the regulation of these businesses as provided for in this Act is hereby 
deemed necessary in the public interest. 


SEC. 7. Franchise Requirement. - 
(a) Transmission and Distribution of Naturul Gus declared public irlilities. The 
Transmission and Distribution of Natural Gas as provided for in this Act are hereby 
declared to be public utility operations, requiring a Franchise or similar legislative 
authorization; 
(b) Congressional Franchise and similar legislative umthorizution. Any person that 
seeks to operate for commercial purposes a Gas Transmission System or Gas Distribution 
System shall first be required to hold or obtain a Franchise, any law to the contrary 
notwithstanding. The Franchise requirement shall apply with respect to all Gas 
Transmission Systems and Gas Distribution Systems, regardless of the size or pressure of 
the pipeline. The foregoing, notwithstanding, this Franchise requirement does not apply 
to operators o f  facilities for the Transmission and Distribution of Natural Gas for Own- 
use and related facilities that .are operated independently from the pipeline; 
(e) Prior regiilatory approvals. The grantee of such Franchise shall also be required to 
secure from the DOE a Gas Permit as provided herein, and to secure from the appropriate 
government agencies all other regulatory approvals, licenses, permits and authorizations 
applicable to such grantee under existing laws. The DOE shall not unreasonably withhold 
or delay the grant of any Gas Permit, and may not reopen any legislative determination 
in the review and grant of any Franchise. 
SEC. 8. Plrilippine Ownership Requirement. - As Article XII, Section 1 1, of the 
Constitution of the Republic of required under the Philippines, 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 or associations organized under the laws of the 
Philippines at least sixtyper centurn (60%) of whose capital is owned by such citizens. 
SEC. 9. Gus Trunsrnission Systems of Service Contract Holders. - Any Person 
who is a holder of a Service Contract that authorizes the construction and operation of 
facilities for the Transmission or Distribution of Natural Gas shall not be required to 
obtain a Franchise or other legislative authorizations under this Act only to the extent 
such facilities are: 
(a) located in the production area and upstream of gas processing or 
refining facilities and are not used to serve End-users; or 
(b) used exclusively 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 the 
enactment of this Act. In all other cases, Service Contract holders shall be 
subject to the Franchise and other regulatory approval requirements set 
forth in this Act. 
SEC. 10. Third Party Access. - Gas Transmission Systems and Gas Distribution 
Systems excluding those constructed and operated for own use shall be available for non- 
discriminatory access by third party users which may include parties to a Service 
Contract, Suppliers and End-users, with due regard to the economic viability of the 
operation of such facilities. Such operators shall negotiate in good faith with’ third-party 
users the provision and terms of access in accordance with guidelines to be promulgated 
by the DOE. 
a) Available Capmi@ Third Party Access obligations shall apply only to the 
available capacity of the Gas Transmission Systems and Gas Distribution Systems 
as determined by subtracting the volume of capacity that is: 
(i) Used by the owner or operator to serve his own customer; 
and/or 


(ii) Allocated by the owner or operator to third parties under transportation 
contracts from the design capacity of the Gas Transmission Systems and Gas 
Distribution Systems. 
Non-discriminatory third-party access shall be available to 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 the DOE’S intervention. The Gas 
Transmission or Distribution Utility shall be required to file proof that capacity was not 
available when service was denied. 
b) Deferment of Third Party Access Obligation. As a condition imposed by a 
Permit, the DOE may determine that implementation of Third Party Access to Gas 
Transmission Systems and Gas Distribution Systems may be deferred where: 
(i) It can be demonstrated that such deferment is necessary to 10 enable 
the efficient planning of the infrastructure and aggregation of the initial demand 
necessary to justify investments in the Gas Transmission Systems and Gas 
Distribution Systems; or 
(ii) It is in the interest of the End-users served by the Gas Transmission 
System and Gas Distribution System to ensure stability of supply. 
In either case, the DOE shall not defer implementation of Third Party Access for a 
period longer than three (3) years after completion of construction in the case of Gas 
Transmission Systems and five (5) years after completion or construction in the case of 
Gas Distribution Systems. Provided, however, that the deferment period can be extended 
on reasonable grounds. 
(c) Approved Access Conditions for Gas Transmission Utilities and Gas 
Distribution Utilities. Prior to conducting negotiations with third parties, a Gas 
Transmission Utility and a Gas Distribution Utility shall request the DOE to 
approve its access conditions. The DOE shall approve access conditions after it 
has determined that they are consistent with the guidelines which it shall 
promulgate pursuant to this Act. 
SEC. 11. Environmental Protection. - Gas Transmission Utilities, Gas 
Distribution Utilities and Suppliers shall comply with all environmental laws, rules, 
regulations and standards promulgated by the DENR and other appropriate governmental 
agencies. 
CHAPTER I11 
POWERS AND. FUNCTIONS OF THE DOE 
SEC. 12. Powers and Fmcfions of the DOE. In addition to its existing powers 
and functions, the DOE shall have the overall responsibility of supervising and 
monitoring the development of the Natural Gas Industry and regulation of the 
construction and operation of Natural Gas pipelines and related facilities for the 
Transmission, Distribution and Supply of Natural Gas. Towards this end, the DOE shall 
have the following powers and functions: 
(a) 
Issue permits for the construction of pipelines and related facilities for the 
Transmission, Distribution and Supply of Natural Gas; 
Establish standards setting forth the characteristics for classifying pipeline 
and related facilities either as Gas Transmission Systems, Gas Distribution 
Systems, or Gathering Facilities. These standards may include both the 
physical characteristics related to the diameter, size and pressure of 
pipeline facilities, and the functional characteristics of such facilities; 
(b) 


(c) 
Prepare and periodically update a five-year Natural Gas Development Plan 
and integrate the same into the PEP. The DOE shall consider and integrate 
the individual or joint development plans prepared and submitted to it by 
the Downstream Natural Gas industsy participants pursuant to this Act. 
Appropriate mechanisms shall be provided to protect the confidentiality of 
any information that is commercially sensitive. The DOE shall publish an 
initial draft of the plan and undertake public consultations thereon prior to 
its adoption; 
Before the end of April of each year, submit to the Office of the President 
and Congress an annual report; 
Ensure the safety, reliability, quality and security of supply of Natural 
Consistent with the development of the Downstream Natural Gas Industry, 
the DOE shall, among others; 
(d) 
(e) 
(i) Encourage private sector investments in delivery infrastructure 
and promote the development of domestic markets for Natural Gas; 
(ii) In consultation with the Downstream Natural Gas Industry 
participants and other government agencies, promote a system of 
incentives to encourage industry participants, including new 
producers and End-users to provide adequate and reliable supply of 
Natural Gas; and 
(iii) Undertake, in coordination with other governmental agencies, 
as appropriate, an information campaign to educate the public on 
the benefits of developing the Natural Gas Industry and the 
potential for utilizing Natural Gas as a source of energy. 
(f) 
Within one (1) year from the effectivity of this Act, promulgate rules and 
regulations to promote competition, encourage market development and 
customer choice and prohibit/penalize abuse of market power, 
cartelization and any anti-competitive or discriminatory behavior, in order 
to further the intent of this Act and protect the public interest. Such rules 
and regulations shall: 
(i) define the relevant product and geographic markets for purposes 
of establishing anti-competitive conduct; 
(ii) provide criteria to determine the relevant market structure; and 
(iii) establish the periodic reportorial requirements of Natural Gas 
Industry participants as may be necessary to enforce the provisions 
of this Section. 
(8) 
Within six (6) months from the effectivity of this Act, the DOE shall, 
preparatory to the holding of public consultations with Natural Gas 
industry participants, issue draft 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 Natural Gas Industry participants meet the 
minimum financial standards to protect the public interest. 


In consultation with Natural Gas industry participants, the DOE shall issue final 
Gas Transmission and Distribution Codes within twelve (12) months from the effectivity 
By order, revoke, after due notice and hearing, the Gas 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 Person 
sufficient time to remedy the violation for an orderly disgorgement, when 
applicable, but in no case shall such remediation period exceed twelve (1 
2) months from the date of issuance of the order. 
Encourage private enterprises in the Downstream Natural Gas Industry to 
broaden the base of their ownership and thereby encourage the widest 
public ownership thereof; 
Formulate, in consultation with the Downstream Natural Gas Industry 
Participants, rules and regulations as may be necessary to implement the 
objectives of this Act; 
Exercise such other powers as ma? be necessary or incidental to attain the 
objectives of this Act; and 
Exercise original and exclusive jurisdiction over all cases dealing with 
issuance o f  Permits, non-price regulatory measures, fees, fines and 
penalties imposed by the DOE in the exercise of the above-mentioned 
powers. 
CHAPTER IV 
POWERS AND FUNCTIONS OF THE ERC 
SEC. 13. Powers and Functions ofthe ERC. - In addition to its existing powers 
and functions, ERC shall assume sole regulatory responsibility for establishing the rates 
and related terms and conditions of service for the Transmission, Distribution, and 
Supply of Natural Gas to the extent that each such activity is regulated pursuant to the 
requirements set forth in this Act. Towards this end, the ERC shall have the following 
powers and functions; 
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 must be such as to allow the recovery of the 
just and reasonable costs and a reasonable return on rate base (RORB) to 
enable the entity to operate viably. The ERC may adopt alternative forms 
or internationally-accepted rate-setting methodology as it may deem 
appropriate. The rate-setting methodology so adopted and applied must 
ensure a reasonable price or tariff. The rates prescribed shall be non- 
discriminatory. The ERC shall determine such form of rate-setting 
methodology which shall promote efficiency. 
Determine whether take-or-pay charges, minimum bill payments or 
similar fixed obligations contained in Gas Sales and Purchase Contracts or 
pipeline Transmission contracts entered into by Gas Transmission and 
Distribution Utilities and electric power industry participants can be 
recovered from their tariffs to their own customers; 
Apply administrative procedures that will ensure the Constitutional 
right to due process. 


CHAPTER V 
NATURAL GAS TRANSMISSION SECTOR 
SEC. 14. Gas Permit Requirement - Any Person that holds a Franchise granted 
by Congress authorizing it to serve as a Gas Transmission Utility shall, before it operates, 
maintains or constructs Gas Transmission Systems, secure from the DOE a Gas Permit 
issued pursuant to the standards set forth in this Act and the rules and regulations 
promulgated by the DOE. The DOE shall issue a public notice of all Gas Permit 
applications and afford interested parties reasonable opportunity to comment upon such 
applications. The DOE shall issue a Gas Permit upon its determination that the 
construction, control, installation, operation and maintenance of the Gas Transmission 
System would be consistent with the policy declarations contained in this Act. Provided, 
however, that if a Gas Permit is sought for new service that would be provided within the 
Franchise area of Gas Transmission Utility, the DOE shall consider the economic effects 
of granting such a Gas Permit upon that Gas Transmission Utility and its End-users. 
SEC. 15. Terms and Conditions of Permits. - In issuing a Gas Permit, the DOE 
shall have the power to impose such reasonable terms and 24 conditions as the public 
interest may require. Among such conditions shall be the requirement that the Permit 
holder complies in full with the Gas Transmission Code promulgated by the DOE 
pursuant to Section 17 hereof. Gas Transmission Utilities shall not be obligated to 
undertake, nor may 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 maximum design capacity of the 
pipeline proposed by the Gas Transmission Utility; 
SEC. 16. Functions/Obligations of Gas Transmission Utilities. - A Gas 
Transmission Utility shall have the obligation to provide Transmission services and 
connections to its Gas Transmission System for any End-user subject to economic 
viability. Any Gas Transmission Utility engaged therein shall provide non-discriminatory 
access to its Gas Transmission System to any Supplier and eligible End-users under 
Section 10, Chapter I1 of this Act. 
SEC. 17. Gas Transmission Code Compliance. - All Gas Transmission Utilities 
shall be required to ensure and maintain the safety, reliability, adequacy, security, 
stability and integrity of their Gas Transmission Systems in accordance with the 
performance standards set forth in Gas Transmission Code to be promulgated by the 
DOE. Each Gas Transmission Utility shall submit to the DOE a statement of its 
compliance with the technical specifications prescribed in the Gas Transmission Code 
and the performance standards prescribed in the rules and regulations implementing this 
Act. A Gas Transmission Utility that does not comply with a prescribed technical 
specification or performance standard shall 1 include within such statement of 
compliance a plan for achieving 2 compliance with said technical specifications and 
perforinaim standards 3 within three (3) years or such lesser period as may be necessary 
to prevent safety, reliability, or environmentaal Imm. 
The DOE shall, within sixty (60) 
days upon receipt of such plan, evaluate the same and notify the Gas Transmission 
Utility concerned whether its plan is accepted. Failure to submit a feasible and credible 
plan and/or failure to implement the same shall serve as grounds for the imposition of 
appropriate sanctions, fines or penalties. 
SEC. 18. Abandonment of Gas Transmission Systems. - No holder of a Permit 
for the construction, installation, operation or maintenance of a Gas Transmission System 
shall abandon or withdraw from service any portion of such Gas Transmission System 
without obtaining prior authorization from the DOE, which determination shall be made 
within one hundred eighty (180) days from the filing of the application for abandonment. 
Such abandonment shall be done in accordance with existing laws. 
SEC. 19. Fees. - The DOE shall have the authority to prescribe and collect fees 
and charges relating to the issuance and/or review of Permits, and other services related 
to the supervision and regulation of Gas Transmission Systems. 


CHAPTER VI 
NATURAL GAS DISTRIBUTION SECTOR 
SEC. 20. Gas Permit Requirement - Any Person that holds a Franchise granted 
by Congress anthorizing, it to serve as a Gas Distribution Utility shall, before it operates, 
maintains or constructs Distribution Systems, secure from the DOE a Gas Permit issued 
pursuant to the standards set forth in this Act and the rules and regulations promulgated 
by the DOE. The DOE shall issue a public notice of all Gas Permit applications and 
afford interested parties reasonable opportunity to comment upon such applications. The 
DOE shall issue a Gas Permit upon its determination that the construction, control, 
installation, operation and maintenance of the Gas Distribution System would be 
consistent with the policy declarations contained in this Act. Provided, however, that if a 
Gas Permit is sought for new service that would be provided within the Franchise area of 
Gas Distribution Utility, the DOE shall consider the economic effects of granting such a 
Gas Permit upon that Gas Distribution Utility and its End-users. 
SEC. 21. Terms and Conditions of Permits. - In issuing a Permit, the DOE shall 
have the power to impose such reasonable terms and conditions as the public interest may 
require. Among such conditions shall be the requirement that the Permit holder complies 
in full with the Gas Distribution Code promulgated by the DOE pursuant to Section 23 
hereof, 
SEC. 22. Functions of Gas Disfribufion Utilities. - 
(a) A Gas Distribution Utility shall have the obligation to provide Distribution services 
and connections to its Gas Distribution System for any End-user within the area covered 
by its Gas Permit consistent with the Gas Distribution Code. Any Gas Distribution Utility 
engaged therein shall provide non-discriminatory access to its Gas Distribution System to 
eligible End-users under Section 10, Chapter I1 of this Act; 
(b) Any Gas Distribution Utility shall be entitled to impose and collect Distribution 
charges and connection fees from such End-users as approved by the ERC; 
(c) A Gas Distribution Utility shall submit to the DOE annually its plan for maintaining 
and developing its Gas Distribution System in compliance with the obligations imposed 
by this Act; 
(d) A Gas Distribution Utility shall provide universal service within the area covered by 
its Gas Permit except as provided herein. A Gas 
Distribution Utility shall be obliged to develop and maintain an efficient system for the 
Supply of Natural Gas at the reasonable request of End-users within its Franchise Area 
including: 
(i) The installation of pipes where the connection to the End-user is within 
twenty (20) meters of the Gas Distribution System; or Increasing the 
capacity of existing Gas Distribution Systems; provided, however, that no 
new service shall be required if such service would not be economically 
viable. A determination by a Gas Distribution Utility that it cannot viably 
serve a portion of Nits Franchise Area shall be subject to review by the 
DOE upon filing of a complaint by the requesting End-user. 
The obligation of the Gas Distribution Utility to provide universal access involves both 
an obligation to connect End-users within twenty-five (25) meters from the main pipeline 
and an obligation to supply such End-users, to the extent that the Gas Distribution Utility 
is the sole gas Supplier. Upon implementation of Third Party Access, the utility shall be 
relieved of his obligation to supply End-users eligible for retail access as defined in the 
guidelines to be promulgated by the DOE, but not his obligation to provide connection to 
his distribution system to such End-users. Whether or not the Gas Distribution Utility is 
the sole gas supplier in the area, prices charged by the utility for the supply of gas will be 
negotiated for Contestable Market and regulated by the ERC for the Captive Market. 


(e) A Gas Distribution Utility shall submit annually to the DOE its plan for 
maintaining and developing its Gas Distribution System in compliance with the 
obligations prescribed in this Act. 
SEC. 23. Gns Distribution Code Complinnce. All Gas Distribution Utilities shall 
be required to ensure and maintain the safety, reliability, adequacy, security, stability and 
integrity of their Gas Distribution Systems in accordance with the performance standards 
set forth in Gas Distribution Code to be promulgated by the DOE. Each Gas Distribution 
Utility shall submit to the DOE a statement of it compliance with the technical 
specifications prescribed in the Gas Distribution Code and the performance standards 
prescribed in the rules and regulations implementing this Act. A Gas Distribution Utility 
that does not comply with a prescribed technical specification or performance standard 
shall include within such statement of compliance a plan for achieving compliance with 
said technical specifications and performance standards' within three (3) yeass or such 
lesser period as may be necessary to prevent safety, reliability, or environmental harm. 
The DOE shall, within sixty (60) days upon receipt of such plan, evaluate the same and 
notify the Gas Distribution Utility concerned whether its plan is accepted. Failure to 
submit a feasible and credible plan and/or failure to implement the same shall serve as 
grounds for the imposition of appropriate sanctions, fines or penalties. 
SEC. 24. Abandonment of Gas Distribution Systems. - No holder of a Permit for 
the construction, installation, operation or maintenance of a Gas System shall abandon or 
withdraw from service any portion of such Gas Distribution System without obtaining 
prior authorization from the DOE, which determination shall be made within one hundred 
eighty (180) days from the filing of the application for abandonment. Such abandonment 
shall be done in accordance with existing laws. 
SEC. 25. Fees. - The DOE shall have the authority to prescribe and collect fees 
and charges relating to the issuance and/or review of Permits, and other services related 
to the supervision and regulation of Gas Distribution Systems. 
CHAPTER VI1 
SUPPLY SECTOR 
SEC. 26. Gns Permit Requirement. - Any law to the contrary notwithstanding, no 
Person may engage in any Supply activity unless it has obtained a Permit, as appropriate, 
from the DOE. For this purpose, the DOE shall promulgate rules and regulations 
prescribing the qualifications of Suppliers which shall include, among other 
requirements, a demonstration of their technical capability, financial capability, and 
creditworthiness. The DOE shall have authority to require Suppliers to furnish a bond or 
other evidence of the ability of a Supplier to withstand market disturbances or other 
events that may increase the cost of providing service. 
SEC. 27. Condition for Siqpliers' Access to Customers of Gas Distribution 
Systems. - Upon the implementation of Third Party Access as stipulated in the Gas Permit 
for a particular Gas Distribution System, large end-users in the geographic area served by 
that Gas Distribution System which meet the criteria set forth in the guidelines 
promulgated by the DOE pursuant to this Act may enter into Gas Supply Contracts with 
any Supplier. The DOE shall determine End-users or classes of End-users that are eligible 
for direct access by Suppliers, giving consideration to relevant factors including whether 
such End-users or class of End-users constitute a Contestable Market and the financial 
consequences of any assets potentially stranded by expanding Supply competition. 
CHAPTER VIII 
OWN-USE FACILITIES 
SEC. 28. Own-Use Permits. Permits for the Transmission and/or Distribution of 
Natural Gas for own-use shall be granted for a specific capacity and defined route, and 
only final users may be the holders of such permits. In issuing a Permit, the DOE shall 


have the power to attach such reasonable terms and conditions to the Permit as the public 
interest may require. Among such conditions shall be the requirement that the Permit 
holder comply in full with the Gas Transmission or Distribution Code promulgated by the 
DOE, as such may be amended from time to time, and to ongoing regulation by the DOE 
as provided herein. 
CHAPTER IX 
RATES AND CHARGES 
SEC. 29. Regulation of Rates and Charges. The ERC shall review and approve 
the rates, charges and other amounts proposed to be charged by Gas Transmission and 
Distribution Utilities and Suppliers. Where such rates are applicable to products and 
services provided to Captive Markets, the ratemaking 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 that is equal to the rate of return on 
investments of comparable risk, or such other principles that will promote the 
determination of just and reasonable rates. Rates and charges for products and/or services 
in Contestable Markets shall be deregulated. Rates and charges shall be calculated on the 
basis of Unbundled Service. 
SEC. 30. Prohibition of Discriminatory and Unreasonable Rates and Charges. - 
No Gas Transmission Utility, Gas Distribution Utility or Supplier shall, with respect to 
the Transmission, Distribution, or Supply of Natural Gas (1) make or grant any undue 
preference or advantage or (2) maintain any unreasonable difference in rates, charges, 
service, facilities, or in any other respect, between locations , or between classes of 
service; or types of customers. 
SEC. 31. Prohibition of Cross Subsidies. Gas Transmission and Distribution 
Utilities shall not, directly or indirectly, subsidize the provision of service with rates for 
other service or for the marketing of gas, or subsidize the marketing of gas with rates for 
other service. 
SEC. 32. Separate Acconnting Systems. For purposes of the preceding section, 
Gas Transmission and Distribution Utilities must separate, if applicable the financial 
information relevant to the provision of Transmission, storage and Distribution services, 
as well as the marketing of gas, in such a way as to clearly identify income, costs and 
operational expenses of each item. 
SEC. 33. Take-or-Pny Obligations. For the purpose of determining their 
eligibility for a passthrough to End-users, take-or-pay provisions in Gas Sales and 
Purchase Contract shall 
(i) Index the contract price to the price of competing alternative fuels such 
as heavy fuel oil and/or gas oil based on internationally accepted reference 
standards; 
(ii) Include re-opener mechanisms to allow for the adjustment of the price 
and/ or volume commitments under extraordinary circumstances causing 
severe economic hardship to either party such as price movements in 
competing alternative fuel market or changes in the gas purchaser’s 
market such as contraction in forecast demand levels: 
(iii) Provide for a reasonable period for recovery of take-or-pay payments. 
Potential parties to a Gas Sales and Purchase Contract may, at their option, and 
prior to the execution of such contract, request that the DOE review their take-or-pay 
provisions for their consistency with a(i) and a(ii) above; 


No party to a Gas Sales and Purchase Contract may be compelled to renegotiate 
any term or condition of a duly executed Gas Sales and Purchase Contract or to 
incorporate terms or conditions in such contract which are not commercially acceptable 
to it or its counterparty, it being sufficient that the terms and conditions of the contract as 
a whole mitigate the potential impact upon End-users of take-or-pay provisions. 
CHAPTER X 
RATEMAKING PROCEDURES OF THE ERC 
SEC. 34. Filing of Rate Schedules. - Under such rules and regulations as the 
ERC may prescribe, the ERC may require reports or documents from Gas Transmission 
Utilities, Gas Distribution Utilities or Suppliers showing all rates and charges for the 
Transmission, Distribution, or Supply of Natural Gas and the classifications, practice, and 
regulations affecting such rates, charges, and classifications and services, provided that 
the ERC shall, in the implementing rules and regulations of this Act, provide appropriate 
mechanisms to protect the confidentiality of any information that is commercially or 
competitively sensitive; 
SEC. 35. Changes in Rate and CItarges. - Within thirty (30) days of filing for a 
change in rates, the ERC shall issue an order accepting, rejecting, or setting for hearing 
such change. The ERC may, upon the filing of an application therefore or at any stage 
thereafter with or without prior hearing, on the basis of supporting papers duly verified or 
authenticated, and with such notice to the affected parties and opportunity for such parties 
to make such submissions as the ERC determines to be appropriate in the circumstances, 
grant provisional relief fixing interim rates for the Transmission, Distribution or Supply 
of Natural Gas applicable during the pendency of the hearing on the application, on 
motion of a party in the case or on its own initiative, without prejudice to a final decision 
after hearing, should the ERC find that the pleadings, together with such affidavits, 
documents and other evidences which may be submitted in support of the motion, 
substantially support the provisional order. The final order fixing 12 the applicable rates 
shall provide for over- or under-recovery of costs occasioned by the application of ERC- 
approved interim rates. At any hearing involving rates adjustment, the burden of proof to 
show that the increased rates are just and reasonable shall be upon the Gas Transmission 
Utility, Gas Distribution Utility or Supplier. 
CHAPTER xr 
PROMOTION OF COMPETITION 
SEC. 36. Market Power Abuse and Anti-Competitise Behavior. - 
[a]No Gas Transmission Utility, Gas Distribution Utility or Supplier, or affiliate thereof 
may abuse its market power. Such abuse may include, but shall not be limited to, 
agreeing with competitors to fix prices,fiu output of products or services, or divide 
markets or customers; tying arrangements; unduly discriminatory or preferential 
practices; or misrepresentation or false advertising; 
[b] The DOE shall monitor and, after due notice and hearing upon complaint or on its 
own initiative, penalize any such market power abuse or anti-competitive or 
discriminatory act or behavior. Upon finding that a natural gas industry participant has 
engaged in such act or behavior, the DOE shall stop and redress the same. Such remedies 
shall, without limitation, include the imposition of price controls, issuance of injunctions, 
or disgorgement of excess profits and imposition of administrative fines and penalties 
pursuant to this Act; 
[c] The DOE shall, within one (1) year from the effective date of this Act, promulgate 
rules and regulations providing for a complaint procedure that, without limitation, 
provides the party alleged to have engaged in anticompetitive or abusive activities with 


SEC. 37. Affirirrted 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 business as follows: 
(a) No preference will be given to the Affiliated Supplier over other Persons 
through contracting for available capacity, scheduling, balancing, curtailment 
priority or Tariffs; 
(b) Marketing information provided to the Affiliated Supplier will be 
provided to any non-Affiliated Supplier that is a competitor or potential 
competitor; 
(c) Employees of the Affiliated Supplier shall, to the maximum extent possible, 
function independently in making business decisions; and 
(d) Books of accounts and records of the Affiliated Supplier shall be maintained 
separately. 
CHAPTER XI1 
TAXES 
SEC. 38. Franchise Taxes. - Gas Transmission Utilities and Gas Distribution 
Utilities shall pay a Franchise tax equivalent to two percent (2%) of gross revenues 
obtained from the rendering of Natural Gas Transmission or Distribution services, as 
appropriate, pursuant to Republic Act No. 8424, otherwise known as the comprehensive 
Tax Reform Law, as the same may be amended from time to time. Franchise taxes 
imposed shall be in lieu of all other taxes imposed &der existing law. 
SEC. 39. Excise Tnx. - The Supply of Natural Gas to the Contestable Market 
shall be the only component of the gas retail rate which shall be subject to excise taxes 
under the Republic Act No. 8424, otherwise known as the Comprehensive Tax Reform 
Law, as the same may be amended from time to time. 
SEC. 40. Witlrdrawnl of Exemptions. - In order to achieve the declared policies 
of this Act, including the promotion of fair and non-discriminatory treatment of public 
and private sector entities in the development of the domestic natural gas delivery 
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, any 
law to the contrary notwithstanding, be deemed revoked as of the effectivity of this Act. 
CHAPTER XI11 
ADMINISTRATIVE FINES AND PENALTIES 
SEC. 41. Administraiive Fines and Pennliies. - 
(a) The administrative tines and penalties that shall be imposed by the DOE for Sec. 36 
and any violation of or non-compliance with this Act or the implementing rules and 
regulations for this Act shall range from a minimum of fifty thousand pesos 
(P50,OOO.OO) to a maximum of fifty million pesos (P50,000,000.00); 
(b) Any Person who is found to have engaged in any of the prohibited acts pursuant to 
Section x hereof shall suffer the administrative penalty or fine ranging from ten thousand 
pesos (PlO,OOO.OO) to ten million pesos (PlO,OOO,OOO.OO), 
at the discretion of the 
DOE: 


(e) The members of the Board of Directors of any Person that violates the provisions of 
this Act may be fined by an amount not exceeding double the amount of damages caused 
by the offender at the discretion of the DOE. This rule shall apply to the members of the 
Board who knowingly or by neglect allow the commission or omission under the law; 
(d) Any party to an administrative proceeding may, at any time, make an offer to the 
DOE, conditionally or otherwise, for a consent decree, voluntary compliance or 
desistance and other settlement of the case. The offer and any or all of the ultimate facts 
upon which the offer is based shall be considered for settlement purposes only and shall 
not constitute an admission by the party making the offer of any violation of the laws, 
rules, regulations, orders and resolutions of the DOE, nor as a waiver to file any 
warranted criminal actions; 
(e) In addition Congress may, upon recommendation of the DOE, revoke such Franchise 
or privilege granted to the party who violated the provisions of this Act. 
CHAPTER XIV 
ANTI-PILFEFUGE PROVISIONS 
SEC. 42. Pilfevnge, - It is hereby declared unlawful for any Person to: 
(a) Tap, make or cause to be made any connection with any Gas Transmission System or 
Gas Distribution System without previous authority or consent of the Gas Transmission 
Utility or Gas Distribution Utility concerned; 
(h) Tamper, install or use tampered meters or any other device which interferes with 
proper or accurate registry or metering of Natural Gas flows or otherwise results in its 
diversion in a manner whereby Natural Gas is stolen or wasted; 
(c) Damage or destroy any Natural Gas meter, equipment, pipeline or conduit or any part 
of a Gas Transmission System or Gas Distribution System or allow any of them to he so 
damaged or destroyed as to interfere with the proper or accurate metering of Natural Gas 
flows; and 
(d) Knowingly use or receive the direct benefit of Natural Gas delivery service obtained 
through any of the acts mentioned in subsections (a), (h), and (c) above. 
SEC. 43. Theft of Equipment and Materials. - It is hereby declared unlawful for 
any person to: 
(a) Cut, saw, slice separate, split, severe, smelt, or remove any portion of a Gas 
Transmission System or Gas Distribution System, including pipeline materials and 
meters, from any installation or place of installation or any other place or site where it 
may be rightfully or lawfully stored, deposited, kept, stocked, inventoried, situated or 
located, without the consent of the Gas Transmission Utility or Gas Distribution Utility 
concerned, whether or not the act is done for profit or gain; 
(b) Take, carry away or remove or transfer, with or without the use of a motor vehicle or 
other means of conveyance, load, carry, ship or move from one place to another, whether 
by land, air or sea, any portion of a Gas Transmission System or Gas Distribution 
System, including pipeline materials or meters, from any installation or place of 
installation, or any place or site where it may he rightfully or lawfully stored, deposited, 
kept, stocked, inventoried, situated or located without the consent o f  the Gas 
Transmission Utility or Gas Distribution Utility concerned, whether or not the act is done 
for profit or gain; and 
(c) Store, possess or otherwise keep in his premises, custody or control, without lawful 
purpose, any portion of a Gas Transmission System or Gas Distribution System, 
including pipeline materials or meters, without the consent of the Gas Transmission 
Utility or Gas Distribution Utility concerned, whether or not the act is done for profit or 


SEC. 44. Penalties. - 
(a) Violation of Section 42. The penalty of prision mayor or a fine ranging from Ten 
thousand pesos (PlO,OOO.OO) to Twenty thousand pesos (P20,OOO.OO) or both, at the 
discretion of the court, shall be imposed on any Person found guilty of violating Section 
42 hereof. 
(b) Violation of Section 43. The penalty of reclusion temporal or a fine ranging from 
Fifty thousand pesos (PSO, 000.00) to One hundred thousand 10 pesos (P100, 000.00) or 
both at the discretion of the court, shall be imposed on any person found guilty of 
violating Section 42 hereof. 
(c) Provision common to violations of Sections 42 and 43 hereof. If the violation of 
Section 42 and Section 43 hereof is committed by, or in connivance with, an officer or 
employee of the Gas Transmission Utility or Gas Distribution Utility concerned, such 
officer or employee than the penalty provided herein, and forthwith be dismissed and 
perpetually disqualified from employment in any public or private utility or service 
company and from holding any public office. 
If the violation of Section 42 and Section 43 hereof is committed by a partnership, firm, 
corporation, association or any other legal entity, including a government-owned or 
controlled corporation, the penalty shall be imposed on the president, manager and each 
of the officers thereof who shall have knowingly permitted, failed to prevent or was 
otherwise responsible for the commission of the offense. 
CHAPTER XV 
FINAL. PROVISIONS 
SEC. 45. Implementing Rules and Regulations. - The DOE shall, in consultation 
with relevant government agencies, the Natural Gas Industry participants, non- 
government organizations and end-users, promulgate Implementing Rules and 
Regulations of this Act within six (6) months from its date of effectivity. 
SEC. 46. 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. 47. Non-Retroactivity Applicability and Repealing Clause. - The 
provisions of Republic Act No. 387, otherwise known as the Petroleum Act of 1949, as 
amended, insofar as said provisions relate to the Transmission and Distribution of Natural 
Gas by pipeline concessionaires or other concessionaires, as such terms are defined in the 
Petroleum Act of 1949, Section 1 I(b) thereof obligating the Philippine government to 
grant pipeline concessions for the Transmission and Distribution of Natural Gas under 
specified circumstances, are hereby repealed or amended. The provisions of Presidential 
Decree No. 87, as amended, insofar as the provisions thereof relate to the Transmission 
and Distribution of Natural Gas by Service Contractors, as such term is defined in 
Presidential Decree No. 87, as amended, are hereby amended. All other laws, decrees, 
executive orders, rules and regulations, circulars or other governmental issuances 
referring to the Transmission, Distribution, or Supply of Natural Gas, or otherwise 
authorizing any governmental or other entity to issue licenses, permits, certificates or 
other authorizations for the Transmission, Distribution, or Supply of Natural Gas, are 
hereby repealed or amended accordingly. Further, all other laws, decrees, executive 
orders, rules, regulations, circulars or other governmental issuances defining the term 
“Natural Gas” are hereby amended such that the definition of Natural Gas in this Act 
shalI be deemed the definition of “Natural Gas” for purposes of the said laws, decrees, 
executive orders, rules, regulations, circulars or other governmental issuances. 
Notwithstanding the foregoing, nothing in this Act shall be deemed to revoke or 
otherwise modify any existing concession granted under the Petroleum Act of 1949, as 


amended, certificate of public convenience or certificate of public convenience and 
necessity granted pursuant to the Public Service Law, as :mended, specific congressional 
Franchise for the Transmission, Distribution or Supply of Natural Gas or other 
administrative or regulatory permit or contract, with concession, certificate, Franchise, 
permit or contract shall be allowed to its full term but may not be renewed except 
pursuant to the provisions of this Act. 
SEC. 48. E’fectivify 
Clause. - This Act shall take effect on the fifteenth (15th) 
day following its publication in at least two (2) national newspapers of general 
circulation. 
Approved,