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EIGHTEENTH (18") CONGRESS
1 Regular Session

House pit no. 3031

Introduced by Hon. LORD ALLAN JAY Q. VELASCO
Hon. WILTER “SHARKY” WEE PALMA II

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

Moreover, with the impending negative effects of climate change as a result
of anthropogenic activities such as overreliance on fossil fuels, countries such as
the Philippines have begun to openly adopt and utilize its natural gas industry as a
means to achieve its sustainable development goals for future development.

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


Aside from the launching of the Malampaya Deep Water Gas-to Power
Project, various government policies have been initiated to adopt and spearhead
the development of the country’s downstream natural gas industry. Policies such
as (i) Executive Order No. 66 which was signed by President Gloria Macapagal-
Arroyo on January 18, 2002 which designated the Department of Energy (DOE) as
the primary agency that would push for the development of the country’s natural
gas industry as well as (ii) the issuance of the DOE interim rules and regulations
governing the transmission, distribution and supply sub-sectors of the natural gas
industry.

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

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

Lone District, Marinduque

ry Sea
ATDY- WILTER “SHARKY” WEE PALMA II
1* District, Zamboanga Sibugay


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Philippines

EIGHTEENTH (18) CONGRESS
First Regular Session

House ait no. 3031

Introduced by Hon. LORD ALLAN JAY Q. VELASCO
Hon. WILTER “SHARKY” WEE PALMA II

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

CHAPTER |
TITLE AND DECLARATION OF POLICY

SECTION 1. Short Title. This Act shall be known as the "Downstream Natural
Gas Industry Development Act. It shall herein after be referred to as the Act.

SEC. 2. Declaration of Policy. - \t is hereby declared the policy of the State:

(a) Promote Natural Gas as the energy fuel which has tremendous potential to
satisfy increasing local fuel demand including the development of the Philippines
as an LNG trading and transshipment hub within the Asia-Pacific Region. In all
cases, the State shall ensure safe, secure, reliable, transparent, competitive and
10 environmentally responsible operation of the PDNGI Value Chain;


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(b) Provide a conducive environment through the issuance of policies,
regulations, safety code, product quality and facility operational standards, plans
and programs geared towards the promotion and development of the Philippine
Downstream Natural Gas Industry;

(c) Promote the conversion of existing fuel-operated machines and facilities to
Natural Gas use, provided it is technically and financially feasible;

(d) Promote access and financial viability of the PDNGI by liberalizing entry
under a system of competition, transparency and fair trade with the end goal of
attaining fair price for all stakeholders;

(e) Ensure compliance with International and Philippine Health, Safety,
Security, Environment (HSSE) standards and best practices under a system of safe,
high-quality, environmentally responsible and consumer protected operation and
service;

(f) Encourage inflow of private capital through equity participation by the
private sector in the operations and business activities in the downstream natural
gas value chain to include but not limited to gas transmission and distribution
utilities;

(g) Ensure transparent and reasonable price of natural gas and rates for its
storage and regasification, transmission and distribution 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;

(h) Develop the necessary trades, technical expertise and skills to support the
Downstream Natural Gas Industry; and

(i) Facilitate the development of end-uses of natural gas that promotes fuel
diversity and compliance with existing environmental laws. (including, but not


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limited to, the use of natural gas as a motor vehicle fuel; and) End-uses shall
include, but not limited to, power, commercial, industrial and transport;

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 Department of Energy (DOE), Energy Regulatory
Commission (ERC) and other concerned government agencies 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) Affiliates refer to any corporation which, alone or together with any other
person, directly or indirectly, through one or more intermediaries, controls,
is controlled by, or is under common control with another corporation. as
used herein, “control” shall mean the power to direct or cause the direction
of the management policies of a corporation by contract, agency or
otherwise;

(b) Anti-Competitive Behavior refers to price fixing, output fixing and any
concerted practices, agreements by Persons or Association of Persons that
restricts, prevents or distorts competition;

(c) Bar refers to a unit of pressure that is equal to one million dynes per square
centimeter;

(d) Capacity refers to the maximum flow, expressed in normal cubic meters per
time unit or in energy unit per time.


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(e) Captive market:

* 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;

(f) Congress refers to the Congress of the Republic of the Philippines;
(g) Contestable market refers to a market that is not a captive market;
(h) Containment refers to safe storage and isolation of LNG;

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

(j) Deregulation refers to the removal of Government price control;

(k) Distribution refers to the transportation of natural gas through a gas
distribution system;

(I) Distribution System refers generally to the pipeline and related facilities
used to transport Natural Gas extending between the last delivery point of
the Transmission System to the last connection point to the Customer;

(m) End-user refers to any person that will receive delivery of natural gas for
resale of final use;

(n) Financial Closing refers generally to the stage of negotiation where a legally
binding financial commitment actually exists to provide funding for a


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project and all conditions have already been met to permit mobilization of
funds;

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

(p) Franchise area refers to a geographical area assigned or granted under a
franchise;

(q) Force Majeure shall include Acts of God, storms, typhoons, earthquakes,
unavoidable accidents, acts of war or conditions attributable to or arising
out of war (declared or undeclared), laws, rules, regulations, and orders by
any government or governmental agency, strikes, lockouts, or other labor or
political disturbances, insurrections, riots, and other civil disturbances,
hostile acts of hostile forces constituting direct and serious threat to life and
property, and all other matters or events of a like or comparable nature
beyond the control of the Party concerned;

(r) Gas distribution code refers to the code to be formulated by the DOE
pursuant to Section 5 (g) of this Act that sets the technical performance
standards for operating gas distribution utilities and the minimum financial
standards for gas distribution systems;

(s) Gas distribution system refers to the system of pipelines and 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;

(t) Gas distribution utility refers to any person that has a franchise to operate a
gas distribution system;


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(u) Gas Sales and Purchase Agreement or GSPA refers to a contract or
agreement for the delivery and sale of indigenous or imported Natural Gas
by and between seller and buyer;

(v) Gas transmission code refers to the code to be developed by the DOE
pursuant to Section 5(g) of this Act that sets the technical performance
standards for operating gas transmission systems and the minimum
financial standards for gas transmission utilities;

(w) Gas transmission system refers to the system of high-pressure pipelines,
storage and related facilities that are used to transport natural gas from the
interconnection with gathering facilities, LNG-related facilities or other gas
transmission systems to gas distribution systems, other gas transmission
systems or end-users other than affiliates or own-users;

(x) Gas transmission utility refers to any person that has a franchise to operate
or intending to operate a gas transmission system except own-use
pipelines;

(y) Gathering facilities refers to natural gas pipelines and related facilities used
to gather gas in the field and bring it to a location for processing or for
delivery at an interconnection with the gas transmission system. The terms
“gather” and "gathering" shall be construed accordingly;

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

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

(bb) Infrastructure development period refers to the period prescribed in
Chapter IV of this Act;


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(cc) Joule 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;

(dd) Large end-user refers to an end-user whose aggregate annual natural gas
consumption is one thousand (1,000) gigajoules (gross heating value) or
greater, as may be determined by the ERC;

(ee) Landed Cost refers to the cost of imported product upon delivery to the
Philippines, which consist generally of the total of FOB, insurance, freight
cost, currency conversion, custom duties and other applicable fees;

(ff) Liquefied Natural Gas or LNG refers to Natural Gas which has been
liquefied by cooling at a cryogenic temperature;

(gg) Natural Gas refers to gas obtained from boreholes and wells consisting
primarily of a mixture of methane, ethane, propane and butane with small
amounts of heavier hydrocarbons and some impurities, notably nitrogen
and complex sulfur compounds and water, carbon dioxide and hydrogen
sulfide which may exist in the feed gas but are removed before
liquefaction;

(hh) Own-use Permit refers to an authorization granted by the DOE to the
Permit Holder/Operator for the exclusive use in the operation of its facility;

(ii) Permit refers to an authorization issued by the DOE for the importation,
construction, commercial operation and maintenance Natural Gas facilities;

(ij) Permit Holder/Operator refers to a natural or juridical Person who is
granted a Permit by the DOE to engage in the importation, construction,
commercial operation and maintenance of natural gas facilities;


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(jj) Person refers to a natural or juridical 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;

(kk) Philippine Downstream Natural Gas Industry or PDNGI refers to the
sectors of transmission, distribution and supply of natural gas and their related
activities, such as, but not limited to, importation, storing, regasification,
transmission and distribution of Natural Gas to End-users;

(Il) 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;

(mm) Rates refer to the payment on the utilization of the capacity and use of
other services offered by the Permit Holder/ Operator of the LNG- related
facilities, Transmission and Distribution pipeline;

(nn) Supplier refers to any Person engaged and registered with the DOE to
trade on indigenous or imported LNG and their subsequent supply to
Customers;

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

(pp) Third Party Access or TPA refers to a transparent and non-discriminatory
access and utilization by a third-party user of the excess capacity of the
LNG Terminal and its related facilities, transmission and/or distribution
pipeline and their related facilities;

(qq) Transmission refers to the transportation of natural gas through a gas
transmission system; and


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(rr) Unbundled service refers to the pricing of the energy value of natural gas
separately from the rates charged for natural gas transmission or
distribution

CHAPTER II
POWERS AND RESPONSIBILITIES OF THE DOE AND THE ERC

SEC. 5. Powers and Functions of the DOE. - \n addition to its existing powers
and functions, the DOE shall have the overall responsibility of supervising and
monitoring the development of the Downstream Natural Gas Industry and
regulation of the construction and operation of LNG-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 in coordination with ERC and, in consultation with the other
concerned Government Agencies and the Downstream Natural Gas
Industry participants, the implementing rules and regulations of this Act
within six (6) months from the promulgation of this Act;

(b) Prepare and issue the PDNGI Development Plan within two (2) years from
the effectivity of this Act and integrate the same into the PEP. The plan
shall consider and integrate the individual or joint development plans of the
Downstream Natural Gas Industry participants pursuant to this Act, which
are submitted to the DOE. Appropriate mechanisms shall be provided to
protect the confidentiality of any information that is commercially or
competitively sensitive. Review and update of the plan shall be made every
three (3) years thereafter. Public consultation shall be made prior to the
issuance of the plan or any update thereof;

(c) Evaluate applications for the issuance of permits and/or authority to
Operate, namely a Notice to Proceed (NTP), a Permit to Construct, Expand,
Rehabilitate and Modify (PCERM) and a Permit to Operate and Maintain
(POM) Downstream Natural Gas Projects and/or Facilities including among


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others, Accreditation to Import, Supply and Transport Natural Gas,
Acknowledgement to Import (ATI) LNG and Acknowledgement to Supply
and Transport (AST) Natural Gas;

(d) Establish standards on gas quality, facility installation and safety of
operation. For this purpose, a Philippine Inter-Agency Technical Committee
(PIA-TC) shall be created from representatives of the private industry and
concerned government agencies. A Philippine Inter-Agency health, safety,
security and environment inspection and monitoring team (PIA-HSSE IMT)
shall likewise be created to monitor and enforce compliance of established
standards;

(e) Issue directives to qualified Government Agencies, in their capacities as
investing arms, to spearhead the development of the PDNGI Value Chain
when the DOE deems it imperative to catalyze its development within a
given timeline;

(f) Ensure the safety, quality, reliability, security, competitive and
environmentally responsible supply of natural gas consistent with the
established standards of the Downstream Natural Gas Industry, the DOE
shall, among others:

(i) Encourage private sector investments in the Downstream Natural Gas
Industry 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


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benefits of developing the Downstream Natural Gas Industry and the
potential for utilizing natural gas as a source of energy fuel.

(g) Issue in coordination with ERC and, in consultation with the other
concerned Government agencies and the Downstream Natural Gas Industry
participants, the Gas Transmission and Distribution Codes within two (2)
years from the effectivity of this Act which shall contain, among others, but
not limited to the standards and best practices on safe, high-quality,
environmentally responsible and consumer protected operation and
service, competitive practices and reasonable rates of service;

(h) Issue in coordination with ERC, upon due notice and public consultation,
rules and regulations to promote competition 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 within one (1) year from the effectivity of this Act. 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 the Downstream
Natural Gas Industry participants as may be necessary to enforce the
provisions stipulated in Section 5 (h).

(i) Authorize to revoke or suspend, after due notice and hearing, the permit
and operation of any person that fails to comply with the rules and
regulations promulgated pursuant to this Act, or any requirement of this
Act. The DOE shall proceed with the due process in accordance with a duly
issued rules of procedure and regulations; Within three (3) months from
the effectivity of this Act, issue rules and guidelines on LNG-related
operations and the supply sector of the Downstream Natural Gas Industry.


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(j) Exercise original and exclusive jurisdiction over all cases contesting permits,
non-price regulation, abuse of market power, cartelization, any anti-
competitive or discriminatory behavior, fees, fines and penalties imposed
by it in the exercise of the abovementioned powers and functions;

(k) Organize a Task Force with the Department of Justice (DOJ), ERC and
Philippine Competition Commission (PCC) to conduct investigations
involving anti-competitive behavior;

(Il) Require any downstream natural gas players and/or Permitee to furnish,
within a reasonable period specified, all information and documents
relating to all such matters as to the permit and operation of business and
natural gas facilities and provide explanation of the information or
document. The DOE shall have the power to impose appropriate penalty if
that downstream player and/or Permitee fails to provide the required
information or document, without valid reason; and

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

SEC. 6. Powers and Functions of the ERC. - In addition to its existing powers

and functions, the ERC shall have the sole regulatory responsibility for
establishing the rates and related terms and conditions of service for the
transmission, distribution and supply of natural gas to the extent that such
activities are regulated pursuant to the requirements set forth in this Act. It shall:

(a)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 just and


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reasonable costs and a reasonable return to enable the entity to operate
viably. The ERC may, upon due notice and public consultation, adopt
internationally accepted rate setting methodology. The rate setting
methodology so adopted and applied shall promote efficiency and ensure a
reasonable price or tariff. The rates prescribed shall be non-discriminatory;

(b) Apply administrative procedures that will ensure the constitutional right to
due process;

(c) Before the end of April of each year, submit to the Office of the President
of the Philippines and Congress, copy furnished the DOE, an annual report
containing such matters or cases which have been filed before or referred
to it during the preceding year, the actions and proceedings undertaken
and its decision or resolution in each case. The ERC shall make copies of
such report available to any interested party upon payment of a charge
which reflects the printing costs;

(d) Publish in newspapers of general circulation all its cases and decisions
involving rates; and

(e) Exercise such other powers as may be necessary or incidental to attain the
objectives of this Act. Subject to existing rules and regulations, the ERC is
hereby authorized to create offices and appoint personnel thereto as may
be necessary to efficiently and effectively perform its functions as
stipulated in this Act.

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

SEC. 7. Structure. - For purposes of this Act, the structure of the PDNGI

Value Chain shall consists of LNG Terminal and its related facilities, Transmission,


Distribution Pipelines and their related facilities, Storage and Distribution-Related
facilities and Supply and Transport of Natural Gas.

SEC. 8. Permits. - The DOE shall have the power to review and issue,
including their suspension and revocation for a cause, the necessary permits for
the construction, expansion, rehabilitation, modification, operation and
maintenance of any Downstream Natural Gas Facility or activity. Own-Use Permit
for Natural Gas facilities shall be allowed for the Operator's exclusive use in the
operation of its facilities. The Holder of Own-Use Permit shall still comply with the
requirements in this Act.

Own-Use Permit for Transmission, Distribution and Spur line Pipelines shall be
exempted from Franchise requirement.

SEC. 9. Rate Regulation. - Rate of charges and fees for the services of
Transmission and/or Distribution pipeline and their related facilities when they
function as Public Utilities shall be subject to the review and approval of the ERC.
The Rate methodology to be applied by the ERC shall be based on the principle of
full recovery of prudent and reasonable costs incurred, including a reasonable
return on rate base that is consistent with the encouragement of private
investment and goal of developing a Downstream Natural Gas Industry
infrastructure, or such other principles that will promote the determination of just
and reasonable rates.

SEC. 10. Compliance to Philippine Laws, Rules and Regulations. —
Operators and/or Permit Holders of Downstream Natural Gas Facilities shall
comply with all Philippine laws, rules and regulations implemented by the
different agencies of the Government;

SEC 11. Compliance to Standards. - The DOE shall ensure that the
Downstream Natural Gas Product and Facilities must be predicated on their high
quality and efficient service, stringent safety systems and overall attention to
detail in design, solid construction and best safety operational and maintenance


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practices. Regulations shall focus on its consistency to both applicable Philippine
and Internationally Accepted Standards in the Natural Gas industry.

SEC. 12. Confidential Information. - The Government shall not use
confidential or commercially sensitive information for purposes other than those
provided herein and shall protect and limit the disclosure of confidential or
commercially sensitive information unless allowed by the Operator or when
required by law, rules and regulations.

SEC. 13. Authority to Obtain Information. - The DOE, ERC and other
concerned Government Agencies may require any downstream natural gas
players and/or Permitee to furnish, within a reasonable period specified all
information and documents relating to all such matters as to the permit, rates
and operation of business and natural gas facilities and provide explanation of the
information or document subject to Section 12 hereof. If that downstream player
and/or Permitee fails to provide the required information or document, without
valid reason shall be guilty of an offense.

SEC. 14, Supply of Natural Gas. - The existing laws and rules governing the
Upstream Natural Gas Sector shall allow the Government the option to sell
directly or otherwise authorize a Service Contractor to sell its share of the
Indigenous Production. For this purpose, the DOE Secretary shall, if warranted
based on the appropriate criteria, direct the supply of the share to the
downstream Natural Gas sector.

The Operator of the LNG-Related Facilities shall likewise ensure the
accommodation of both indigenous and imported supply of Natural Gas. The DOE
shall support and ensure the implementation of any plans to upgrade the terminal
and its ancillary facilities into a hub for International trading and Transshipment;

SEC. 15. Abandonment of Downstream Natural Gas Facility. - No holder of
a permit for the construction, installation, operation or maintenance of a
downstream natural gas facility shall abandon or withdraw from service any


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portion of said downstream natural gas facility and/or project without obtaining
prior authorization from the DOE.

SEC. 16. Registration and Reportorial Requirements of Natural Gas
Participants, Facilities, Import, Export and Supply. - Holders of a permit for the
construction, installation, operation or maintenance of a downstream natural gas
facility including importers, exporters and Supplier and Transporter of natural
gas/LNG shall be registered. Appropriate reportorial requirements shall likewise
be required for proper supervision and monitoring in accordance to the
implementing rule to be subsequently issued.

SEC. 17. Rules of Practice. - All concerned Government agencies shall issue
the appropriate rules of procedure to serve as guideline for administrative legal
proceedings. The Rules of Court shall apply in suppletory manner.

SEC. 18. Fees. - All concerned Government agencies shall have the authority
to prescribe and collect fees and charges relating to the issuance and/or review of
permits, supervision and regulation of the downstream natural gas industry.

CHAPTER IV
FRANCHISE REQUIREMENT

SEC. 19. Transmission and Distribution Pipeline and Related Facility as
Public Utility. - Transmission and Distribution Pipelines including their related
facilities considered as Public Utility are those actually used in the transport of
Natural Gas and operating regularly as a business to serve the general public.
Pipelines and their related facilities functioning as Public Utility shall require a
Congressional Franchise. Excluded are those used exclusively under a dedicated
use agreement or for Own-Use.

SEC. 20. Philippine Ownership Requirement. - As required under Article XII,
Section 11 of the Constitution of the Republic of the Philippines, no franchise,
certificate, or any other form of authorization of a public utility shall be granted


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except to citizens of the Philippines or to corporations or associations organized
under the laws of the Philippines at least sixty percent (60%) of whose capital is
owned by such citizens.

CHAPTER V
THIRD PARTY ACCESS.

SEC. 21. Third Party Access Obligation. - Available and uncommitted excess
capacity shall be available relating to the use of LNG Terminal and its related
facilities, Transmission and/or Distribution and their related facilities but
excluding those constructed and operated for own use on a transparent and non-
discriminatory access to third party users. The DOE shall ensure the full
implementation of the TPA and shall issue the TPA Code within one (1) year from
the effectivity of this Act.

SEC. 22. Available Capacity. - TPA shall apply only to the available and
uncommitted excess capacity of LNG Terminal and its related facilities,
Transmission and/or Distribution and their related facilities but excluding those
constructed and operated under a dedicated use agreement or for own use. The
Operators thereof, shall comply with an open and sufficient consultation process
on both existing and potential third-party users to discuss the available capacity
and other available services.

To ensure safe and reliable operation, the Operator shall determine, subject to
the review and recommendation of the DOE, the available and uncommitted
excess capacity of the Natural Gas Facilities offered to third parties. The Operator
shall likewise allocate such excess capacity based on, but not limited to, the
following criteria as they pertain to the Third-Party User:

(a) Proposed contract price and terms;

(b) Credit-worthiness;


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(c) Existence of off-take facility;
(d) Ability to meet fuel specification parameters of the LNG facility; and
(e) Other relevant factors that may directly affect the allocation.

Non-availment by any Third-Party User of the excess capacity so allocated and
offered shall not be a ground for the denial or cancellation of any Permit under
this Circular.

SEC. 23. Third Party Access Principles. - The following shall be considered:

(a) Encourages competition which drives efficiencies and lower costs and
prices for the benefit of the end-users;

(b) Supports foreign and local investments in Natural Gas supply and
infrastructure which are otherwise prevented by actions of incumbent
monopolistic companies;

(c) Promotes diverse and sustainable uses of Natural Gas;

(d) Introduces safe and measurable standards of service and practices;

(e) That the Permit Holder or Operator of the facility shall comply with an open
and sufficient consultation process with the Third-Party Users to discuss the
available and uncommitted excess capacity; and

(f) That for the purpose of transparency, the Permit Holder or Operator shall
comply with the release, publication, inspection and review of the available
and uncommitted excess capacity, access terms and conditions.

SEC. 24. Congestion Management. - Whenever the holder of a capacity is no
longer able to use or has not released the capacity without justifiable reason, the
Permit Holder or the operator of the facility shall have the authority to release
and market the same. The procedure and criteria of the release shall be part of
the TPA Code.

SEC. 25. Approved Access Conditions and TPA Contracts. - Prior to the
conduct of negotiations with third parties, the Permit Holder or the Operator shall
request the DOE for the review and recommendation of its access conditions in


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accordance with the TPA Code. All subsequent Access contracts shall be reviewed
and approved by the DOE.

SEC 26. Infrastructure Development Period. - To develop the TPA, the TPA
Code shall allow a development period and TPA shall become obligatory only
against the Permit Holder or Operator if it can already be demonstrated that
there is already sufficient demand necessary to justify the investment and sustain
the additional operational requirement. For this purpose, the DOE shall review
and attest for the validity of supply and demand outlook of natural gas.

CHAPTER VI
STANDARDS ON FACILITIES, PRODUCT AND SAFETY PRACTICE

SEC. 27. Standards on LNG Ships and LNG Facility. - Downstream Natural
Gas Facilities must be predicated on their high quality and efficient service,
stringent safety systems and overall attention to detail in design, solid
construction and best operational practices. Regulations shall focus on its
consistency to both applicable Philippine and Internationally Accepted Standards
in the Natural Gas Industry. The DOE shall ensure compliance on this
requirement.

SEC. 28. Standards on Product Quality. - The Permit Holder or Operator
shall maintain the quality of gas supply to Customers in accordance with the
Philippine or Internationally Accepted Standards and ensure that delivery of
indigenous or imported LNG must always pass the purification requirements from
associated compounds unnecessary or damaging to the LNG regasification facility
and other related natural gas facilities used for storage, distribution and
transportation of natural gas supply. The DOE shall ensure compliance on this
requirement.

SEC. 29. Standards on Safety Practice. - The Permit Holder or Operator
shall implement an acceptable health, safety, security and environment


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management system in accordance to applicable Philippine or Internationally
Accepted Standards. The DOE shall ensure compliance on this requirement.

CHAPTER VII
RESPONSIBILITIES OF THE PERMIT HOLDER OR OPERATOR

SEC. 30. Responsibilities. -

(a) Align all its goals and objectives to the accomplishment of the Declared
Policies of this Act;

(b) Be directly responsible for the construction and operation by providing
the necessary services, technology and financing, either by itself or through its
duly authorized subcontractors, without entitlement from the Philippine
Government to any reimbursement of any expense incurred;

(c) Comply with applicable Philippine laws and regulations relating to tax,
labor, health, safety, indigenous people’s rights, environment and specially
protected areas and ecology;

(d) Comply with the regulatory obligations, maintenance of complete records
and submission of all reportorial requirements and other documents as maybe
required by the DOE, ERC and other Government agencies under the authority of
this Act and its implementing rules;

(e) Implement the LNG Project strictly adhering to the scope and limits of the
Permit and Operate in accordance to the Philippine and International Standards;

(f) Allow and facilitate the necessary preparations based on a valid order,
Examiners of the Bureau of Internal Revenue and Bureau of Customs entry, to the
facility premises and full access to accounts, books, and records for tax and other
fiscal purposes;

(g) Allow and facilitate the necessary preparations, based on a valid order,
for DOE, ERC, PIA-HSSE IMT and other Government agencies entry to facility
premises and full access to operational records for inspection and monitoring
activities;


(h) Give preference to qualified local talents for hiring and local
companies/agencies in entering into subcontracts on projects or services which
are required in the constructions or operations;

(i) Hold the DOE, ERC, PIA-HSSE IMT and other Government agencies free
from all claims, demands or actions arising out of its failure to comply with laws,
regulations, standards, contracts, and permits in connection but not limited to
accidents, damages or injuries; and

(j) Participate in regular operational meeting with the DNG-REC and in the
development, issuance and review of plans, protocols, standards and codes
applicable to the Natural Gas project.

CHAPTER VIII
INCENTIVES

SEC. 31. BO! Incentives. - \n recognition of the substantial investments
needed for the construction, operation and maintenance, the PDNGI value chain
shall be part of Investment Priority Plan and be entitled to income tax holiday and
such other incentives granted to pioneer enterprises under the Omnibus
Investment Code, as amended.

The price of natural gas used in PDNGI value chain shall be exempted from duties
and excise tax.

SEC. 32. Withdrawal of Exemptions. - Any law to the contrary
notwithstanding, to achieve the declared policies of this Act. particularly in
relation to the promotion of fair and non-discriminatory treatment of public and
private sector entities in the development of the Downstream Natural Gas
Industry infrastructure, all existing tax exemptions applicable to persons engaged
in the transmission or the distribution of natural gas; insofar as such exemptions
relate to revenues derived from the transmission or the distribution of natural gas
shall be deemed revoked upon the effectivity of this Act.


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SEC. 33. Natural Gas Share in the Philippine Energy Plan. - To achieve the
declared policies of this Act, the DOE shall ensure that the required share of
Natural Gas, consistent with the PDNG! Development Plan as integrated into the
PEP, be fully implemented. For this purpose, necessary implementing rules shall
be issued to support the full implementation.

CHAPTER IX
PROMOTION OF COMPETITION

SEC. 34. Anti-Competitive Behavior. - No gas transmission utility, gas
distribution utility or supplier, or affiliate thereof, may engage in any anti-
competitive behavior or abuse of market power including, but not limited to:

(a) Cartelization which means any agreements, combination, or concerted
action by permit holders or operators to fix prices, restrict outputs or
divide markets, either by product or by areas, or allocate markets, either by
product or areas in restraint of trade or free competition, including any
contractual stipulation which prescribes pricing levels and profit margins;

(b) Predatory pricing which means selling or offering to sell natural gas at a

price below the seller's average variable cost for the purpose of destroying

competition or eliminating a competitor from entering the market. For this
purpose, the intent to destroy or eliminate competition must be clearly
proven as opposed to merely setting the price as a business decision; and

Unreasonable rise in price which means sudden and unexpected rise in

price imposed without clear justification. For this purpose, analysis of the

submission and result of investigation as required under Section 35 shall be
the basis for the determination of any violation of this provision.

(c)

SEC. 35. Functional and Structural Unbundling. - Downstream Natural Gas
Industry participant shall functionally and structurally unbundle its business
activities and rates in accordance with the particular sector as identified in
Section 7 hereof. The ERC shall issue the implementing guideline to ensure full
compliance of this provision.


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SEC. 36. Complaint and Investigation Procedures. - The ERC shall, within one
year from the effectively of this Act, promulgate rules and regulations providing
for a complaint and investigation procedure that, without limitation provides the
party alleged to have engaged in anti-competitive or abusive activities with notice
and an opportunity to be heard.

SEC. 37. Affiliated Suppliers. - In order to prevent anti-competitive conduct,
service contractors, gas transmission utilities and gas distribution utilities that
own or control affiliates that are suppliers shall conduct their 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.

As used herein, “affiliate” refers to any person or entity which, alone or together
with any other person or entity, directly or indirectly, through one or more
intermediaries, controls, or is controlled by another person or entity. As used
herein, “control” shall mean the power to direct or cause the direction of the
management policies of a person by- contract agency or otherwise.


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CHAPTER X
FINES AND PENALTIES

SEC. 38. Administrative Fines and Penalties. -

(a) The permit/ authority issued by the DOE under Chapter III Section 9 may be
suspended or revoked and/or the operator be imposed by a fine of Ten Thousand
Pesos (Php 10,000.00) by the DOE, per violation, of any provision under Chapter
VII Section 31 pursuant to the powers given to DOE under Chapter II Section 5 of
this Act. This is without prejudice as to other appropriate administrative fines and
penalties that the other relevant government agencies may impose to the
operator.

(b) The permit/ authority issued by the DOE under Chapter III Section 9 may be
suspended or revoked upon the recommendation by the ERC, and/or the
operator be imposed by a fine of Five Hundred Thousand Pesos (Php 500,000.00)
by the ERC per violation, of any provision under Chapter III Section 10 pursuant to
the powers given to ERC under Chapter II Section 6 of this Act. This is without
prejudice as to other appropriate administrative fines and penalties that the other
relevant government agencies may impose to the operator.

(c) Congress may, upon recommendation of the DOE, ERC or by other
Government agencies, as the case may be, revoke such franchise or privilege
granted to the party found in violation of the provisions of this Act.

SEC. 39. Criminal Fines and Penalties. - Appropriate fines and penalties
under existing penal laws shall apply to any criminal violation associated in the
implementation of this Act.


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CHAPTER XI
TRANSITORY PROVISIONS

SEC. 40. Existing Systems. - Natural Gas Facilities that have been
constructed prior to the Effectivity of this Act shall continue to be operated under
their existing Permits and comply only with additional requirements, if applicable.

Suppliers who have entered into GSPA with Customers and have delivered
indigenous or imported Natural Gas prior to the Effectivity of this Circular shall
continue to operate under said contracts subject to compliance to the additional
requirements in this Act.

SEC. 41. Pending Application. - All pending applications on any activity in
the Natural Gas Value Chain before the DOE shall be covered by this Act.

CHAPTER XII
FINAL PROVISIONS

SEC. 42. Implementing Rules and Regulations. - The DOE shall, in consultation
with the ERC, appropriate RELEVANT government agencies such as the ERC,
DENR, DOTR, PPA, BO! and BOC, the Downstream Natural Gas Industry
participants, nongovernmental organizations and end-users, promulgate the
implementing rules and regulations (IRR) within six months from the effectivity of
this Act.

SEC. 43. Natural Gas Oversight Commission. - Upon the effectivity of this Act.
Acongressional commission, hereinafter referred to as the "Natural Gas Oversight
Commission", is hereby constituted. The Natural Gas Oversight Commission shall
be composed of ten (10) members, with the chairmen of the Committee on
Energy of the Senate and the House of Representatives and four additional
members from each House, to be designated by the Senate President and the
Speaker of the House of Representatives, respectively. The minority shall be


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entitled to pro rata representation but shall have at least one representative in
the Natural Gas Oversight Commission.
(a) The Natural Gas Oversight Commission shall, in aid of legislation, perform
the following functions, among others;
(b) Set the guidelines and overall framework to monitor the proper
implementation of this Act;
(c) Look into the appropriateness of creating a single independent regulatory
body when the conditions prevailing so require;
(d) Conduct a periodic review of this Act at least once every three years;
(e) Determine inherent weaknesses in the law and recommend necessary
remedial legislation or executive measures;
(f) Approve the budget for the programs of the Natural Gas;
(g) Oversight Commission and all disbursements therefrom, including
compensation of all personnel;
(h) Submit periodic reports to the President of the Philippines and Congress;
and
(i) Perform such other powers and functions as may be necessary to attain
its objectives.

To carry out its powers and functions, expenses shall be charged against the
current appropriations of the Senate and shall thereafter be included in the
annual General Appropriations Act.

The Natural Gas Oversight Commission shall adopt its internal rules of procedure;
conduct hearings and receive testimonies, reports and technical advice; invite or
summon by subpoena ad testificandum any public official, private individual or
any other person to testify before it, or require any person by subpoena duces
tecum to produce before it such records, reports, documents or other materials

as it may require; and generally require all the powers necessary to attain the
purposes for which it is created. The Natural Gas Oversight Commission shall be
assisted by a secretariat to be composed of personnel who may be seconded from
the Senate and the House of Representatives and may retain consultants. The
secretariat shall be headed by an executive director who has sufficient


background and competence on the policies and issues relating to the
Downstream Natural Gas Industry reforms as provided in this Act.

SEC. 44. Appropriations. — The initial amount of Ten Million pesos (Php
10,000,000) annually for the first five (5) years of the implementation of this Act
is hereby appropriated out of the Malampaya Fund to support the organizational
strengthening and capacity building of the DOE Oil Industry Management Bureau,
Natural Gas Management Division (DOE OIMB-NGMD). Thereafter, the same shall
be included in the regular budget based on the existing requirements of the unit
implementing the Act. Furthermore, and subject to existing rules and regulations,
the DOE is hereby authorized to create offices and appoint personnel thereto as
may be necessary to efficiently and effectively perform its functions as stipulated
in this Act.

SEC. 45. Assignment/Transfer of Interest. - Assignment or transfer of
interest of the Permit shall be allowed only upon prior written approval of the
DOE based on acceptable reasons and compliance by the Operator and/ or
assumption by the assignee of all obligations and upon meeting the minimum
legal, technical and financial qualifications of the transferee;

SEC. 46. Consultation and Arbitration. - All Parties shall make their best
efforts to amicably settle any dispute arising from the performance or
interpretation of any provision of this Act;

SEC. 47. Separability Clause. — \f 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. 48. Non-retroactivity, Applicability and Repealing Clause. - The
provisions of Republic Act No. 387, otherwise known as the "Petroleum Act of
1949", as amended, Presidential Decree No. 87, Republic Act No. 8997, and all
other laws, decrees, executive orders, rules and regulations, circulars and other


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issuances inconsistent with the provisions of this Act are hereby- repealed or
modified accordingly.

SEC. 49. Effectivity Clause. - This Act shall take effect on the fifteenth (15th)
day following its publication in the Official Gazette and in at least two national

newspapers of general circulation.

Approved,