Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
Second Regular Session

House sino. 5113

Introduced by Hon. ANGELO B. PALMONES

AN ACT
TO PROMOTE INVESTMENTS IN THE FORESTRY SECTOR

EXPLANATORY NOTE

The forestry sector had been a pillar of the Philippine economy. As late as 1975 the gross value
added (GVA) of the forestry sector was 1,265 or 1.85% of the GNP which was then 68.28 B
pesos. Since then the percentage share of the forestry sector in the GNP consistently decreased
and in 2008 it was only 0.09% of the GNP”.

There are several reasons for the decline in the economic importance of the forestry sector.
Primary reason is the decrease in the forestry resources. As the resources declined investments
in the sector also declined resulting to its current state of affairs. There are other factors
though that constrained investments in the sector. An FAO-sponsored study on the constraints
to investment in the forestry sector in the Philippines indicated several factors, among which

are”:

Corruption - The most pervasive form is what is taking place at check points. Check points for
the sector are installed to ferret out illegal logs, however it has become an instrument for
extortion. They are manned not only by DENR personnel but also from other agencies such as
the police, the military and from other agencies of government. Even if the logs and other
forest products are properly documented and legal, personnel manning the check points still
demands payment. Small-hold farmers transporting their plantation logs attest to the presence
of corruption at check points. Builders’ woodworks manufacturers from Region 2 (northeastern
provinces) attest that they have to come across at checkpoints when transporting their

' Forest Management Bureau, DENR. 2008. Philippine Forestry Statistics
? FAO. 2008. Creating Space for Private Sector Financing - Removing Constraints to Investments,


products to Metro Manila’. Other products such as vegetables, poultry or swine are also
subjected to extortion at the check points.

Shifting policies of the DENR ~ Allegedly, DENR changes policies with little or no consultation
with stakeholders. In 2004 when flash floods and landslides occurred in parts of Aurora and
Quezon provinces logging permits were cancelled in these two provinces and suspended for the
rest of the country’. Later, the suspension was lifted only for Caraga Region and Region 11 but
for the rest of the country the suspension remained”. On January 5, 2006 DENR issued a
Memorandum from the Secretary (DENR, 2006) canceling IFMA, ITPLA, SIFMA, and CBFMA
because of acute non-compliance of the terms and conditions of their tenure instruments. This
action of the DENR has brought to a stand still activities of the various tenure-holders including
pending plantation development and wood processing. Apparently, there was no consultation
done with the stakeholders prior to the issuance of the order. This unstable policy situation
discourages investments in the sector.

Confirmation from the National Commission for Indigenous People before a permit can be
issued - DENR cannot now issue any permit on any forest area without asking confirmation
from the National Commission of Indigenous Peoples (NCIP) because of the provisions of the
Indigenous Peoples’ Rights Act (IPRA) law that requires free and prior informed consent (FPIC)°
of indigenous people in areas claimed by them. NCIP has also to affirm that the subject area is
outside the claim of the IPs. This affirmation takes time and increases the duration of obtaining
a permit.

Limited incentives for sector investors — Investors in the forestry sector are provided incentives
that are provided for in the Omnibus Investment Code (EO No. 226). Forestry investments
particularly in plantation development have long gestation period before the investment start
to pay off. This requires innovative incentives to encourage investors in the sector.

LGU issuances disadvantageous to investors in the sector - The Local Government Code (RA
No. 7161, 1991) authorizes local governments to participate in the management of forestlands
within their jurisdiction such as in forest protection, management of small watersheds and
communal forest. However, LGUs see this as an authority to enact local ordinances imposing
duplicatory requirements for the implementation of forestry projects within their jurisdiction.

5 Personal communication with manufacturers in Cagayan, Isabela and Nueva Vizcaya provinces, January 19-23,
2009

*DENR, 2004, Memorandum from the Secretary. Cancellation of all logging permits in Quezon Province and
suspension of all permits in the rest of the country. December 8, 2004

* DENR 2005, Memorandum from the Secretary. Lifting of December 8, 2004 suspension of timber harvesting in
Regions 11 and 13. March 7, 2005

° Free and prior informed consent (FPIC) means the consensus of all members of the ICC/IPs to be determined in
accordance with their respective customary laws and practices, free from any external manipulation, interference
and coercion, an obtained after fully disclosing the intent and scope of the activity, in a language and process
understandable to the community



As case in point is a province in Region 3 requiring industries with projects that are considered
environmentally critical or located within environmentally critical areas to obtain an
Environmental Compliance Certificate (ECC) from the Environmental Management Bureau
(EMB). In addition they have to obtain a Provincial Environmental Compliance Certificate (PECC)
from the office of the Governor’. Furthermore, the Provincial Government also directed the
Municipal/City Mayors of the province not to issue a Business/Mayor’s Permit to any business
without the required ECC issued by EMB and the PECC issued by the Governor.

This requirement duplicates the ECC issued by the EMB and what it does is only to lengthen the
process of obtaining a business permit not to mention the increase in the cost of obtaining the
permit. If the EMB issued the ECC there is no apparent reason why the Provincial Government
should not issue a similar permit.

The businesses covered by the Ordinance includes wood craft, furniture, private land timber
utilization, and environmental enhancement/improvement projects such as tree planting
projects in forests or sloping areas regardless of size.

In another case, the Governor of a Province issued an order banning the transport of Gmelina
(Gmelina arborea) logs out of the province. Farmers have contracted to sell their logs to pallet
manufacturers in a neighboring province. Because of this order from the Office of the
Governor, farmers could not sell their timber products. The purported reason for the issuance
of the ban was to ensure that local wood processor such as pallet manufacturers have sufficient
raw material supply. The Regional Director of DENR had to intervene for the lifting of the ban®.

Plantation logs are exempt from the payment of forest charges yet LGUs have been imposing
additional taxes on logs produced in their jurisdictions including plantation logs. This is an
additional burden especially to small-hold tree farmers and a disincentive to plantation
development.

Advance value added tax (VAT) - The Bureau of Internal Revenue (BIR) issued a memorandum
imposing the advance payment of the value added tax on logs, including plantation logs, prior
to transporting these logs’. To the large-scale log producers this may not present a problem, as
has been indicated by them, but to the small-hold tree farmers who normally do not have ready
cash to pay for these expenses, it becomes restrictive because they have to make the payment
prior to being paid for their logs.

7 Province of Zambales. 2007. Provincial Ordinance No. 2007-67. Amended Guidelines for Environmental
Regulations in the Province of Zambales, Superseding Provincial Ordinance No. 2005-17. Province of Zambales.
August 13, 2007

* Principe, E. 2007, (former Regional Director who has jurisdiction over the Province of Quezon), Personal
communication.

° Bureau of Internal Revenue, 2007. Revenue Regulations No. 13-2007. Prescribing the Rules on the Advance
Payment of Value Added Tax/Percentage Tax on the Transport of Naturally Grown and Planted Timber Products
October 15, 2007.


Access to capital - One constraint in investing in the sector is the absence of a window for
credit for the sector. When the Agrarian Reform Law was passed the Land Bank of the
Philippines (LBP) was established to facilitate the purchase by government of lands that are
subject for reform. With the country in dire need of timber for its industries the government
does not have a bank that caters to needs of investors in the sector.

Forest plantation trees that are fast growing take from 8 to 10 years to mature and ready for
harvest. This long gestation period discourages banks to provide credit to tree farmers because
such credit would require a grace period which is equivalent to the time it takes for the trees to.
mature. What is needed is a government bank dedicated to tree farming or plantation
development.

Investor protection - There is no investor protection on tree plantation development unlike in
the agriculture sector where there is crop protection insurance. The Philippines being in the
typhoon belt is visited by an average of 20 typhoons a year and the tree crops are at risk of
being destroyed by strong winds or by flash floods especially during the early stages of
plantation development.

This Act seeks to reduce if not eliminate the various constraints to investment in the forestry
sector with the expected results of improving the climate for investments in the sector thereby
paving way for the recovery of forestry in the Philippines and begin to become again a pillar of
the economy of the country which it occupied before. Its passage therefore is urgently
requested.

Adopted

iELO B. PALMONES
Repkesentative, AGHAM Party List


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
Second Regular Session

House Bittno. 5113

Introduced by Hon. ANGELO B. PALMONES

AN ACT
TO PROMOTE INVESTMENTS IN THE FORESTRY SECTOR

Be enacted by the Senate and the House of Representatives of the Philippines in
Congress Assembled:

SECTION 1. Title - This Act shall be known as the “Investment Act of the Forestry Sector of
2011”.

SECTION 2. Basic Policy- It is the policy of the State as embodied in the Constitution to
“protect and advance the right of the people to a balanced and healthful ecology in accord with
the rhythm and harmony of nature”. As such the State shall provide opportunities and support
for the development of the environment through forest rehabilitation and restoration of the
natural forest. It shall also support the development of commercial plantations including agro-
forestry to meet the needs of the country for wood and non-wood forest products in terms of
supportive policies, institutions, regulations and incentives.

SECTION 3. Objectives — It is the objective of this Act to promote investments in the forestry
sector through the establishment of institutions to support commercial forest plantations and
efficient processing of forest products, provision of incentives and the rationalization and
effective implementation of stable forest policies. It is also the objectives of this Act to make
the Philippines self-sufficient in wood and forest products.

It is also the objectives of this Act to make the forestry sector an instrument for poverty
reduction and improve livelihood opportunities particularly the people in the uplands.

SECTION 4, Capacity Building for Local Communities and Local Government Units — To ensure
the success in the implementation of plantation development it is imperative that
implementers be capacitated. The DENR shall identify the training needs of local communities
and LGUs and develop the instruments for the training and cause the conduct the training. The


training implementation shall be in coordination with the Department of Interior and Local
Government (DILG), in particular the DILG Local Government Academy.

SECTION 5. Research and Development (R & D) — The latest technology in forest plantation and
agro-forestry development as well as forest products utilization and processing shall be applied
to corresponding endeavors in forest development. To continuously improve the technologies,
research and development shall be promoted and supported. The Ecosystems Research and
Development Bureau (ERDB) of the Department of Environment and Natural Resources (DENR),
the Forest Products Research and Development Institute (FPRDI) of the Department of Science
and Technology (DOST) as well as state universities and colleges (SUCs) with capabilities and
competence for forestry research and development shall be responsible for generating new
technologies needed by the sector. The R & D components shall include policy, economic,
social, cultural and marketing. Technology transfer shall also be undertaken by these
institutions to plantation development enterprises and forest products processing industry.

SECTION 6. Production of High Quality Planting Materials - The DENR shall ensure the
production of high quality planting materials since the success of reforestation and plantation
development hinges among other things in the use of high quality planting materials. R & D
shall be directed to generate technologies that will improve the quality of planting materials.

SECTION 7. Forestry Development Bank of the Philippines — There is hereby established a
national bank, to be known as the Forestry Development Bank of the Philippines (FOBP) that
caters to the needs and requirements for funds of commercial plantation developers as wells as
those of the forest products industries. For this purpose, the Philippine Government shall
allocate from the funds of the National Treasury Fifty Billion Pesos (PSO B) as seed capital.

SECTION 8. Philippine Forest Plantations Insurance Corporation — There shall be established a
Philippine Forest Plantations Insurance Corporation that will provide insurance protection to
plantation developers and investors. The Corporation shall establish its rules and procedures on
insuring forest plantations, including agro-forest plantations. The Corporation shall be under
the DENR for administrative and supervision purposes. The Corporation shall be appropriated
P50 Billion pesos from the national treasury as start-up capital.

SECTION 9. Incentives for Private Plantation Development - The government shall encourage
the development of private plantations including agro-forestry especially those established in
private lands by providing incentives. Among the incentives to be provided are:

1. Free from payment of rent for the use of government lands for commercial
plantation and agro-forestry development for the first plantation rotation but
not longer than 12, which ever comes first;

2. Forest plantations in private lands shall not require a cutting permit for
harvesting nor shall it need a transport permit for as long as the plantation is
registered with the Community Environment and Natural Resources Office
(CENRO) of the DENR. All that is required is for the plantation owner to inform


the CENRO that the plantations will be harvested in a given date including the
estimated volume that will be harvested. Inventory of the plantation prior to
harvest shall not be required. CENROs are obligated to approve and enter into
their book of registry application for registration for plantations in private lands.

3. Free from payment of forest charges and other form of fees or taxes that local

government units may impose;

Plantation logs shall not be subjected to inspection in check points;

Plantation developers can access development loans from the Forestry

Development Bank of the Philippir

6. Insurance coverage of plantations and plantation development equipment by
the Philippine Forest Plantations Insurance Corporation

7. Tax free importation of plantation development equipment

8. Expenses incurred shall be allowed as deductible expenses for income tax
purposes subject to the provisions of the National Internal Revenue Code of
1997, as amended. Provided, That the deduction shall only apply to the taxable
period when the expenses were incurred;

9. Expenses incurred in the development and operation of a forest plantation prior
to the commercial harvest shall be regarded as ordinary and necessary expenses
or as capital expenditure;

10. The Board of Investments (BO!) shall classify forest plantations and agro-forestry
as pioneer and preferred areas of investment under its annual priority plan
subject to the pertinent rules and regulations;

11. The plantation developer shall be given priority to access credit assistance being
granted by Government-owned, -controlled and/or -supported financial
institutions;

12. Plantations shall be accepted as collateral for loans in government owned or
controlled banks.

13. For tenured-developer, upon the premature termination of the agreement at no
fault of the holder, all depreciable permanent and semi-permanent
improvements such as roads, buildings, and nurseries including the planted and
standing trees and other forest crops introduced and to be retained in the area
shall be properly evaluated and the holder shall be entitled to a fair
compensation thereof, the amount of which shall be mutually agreed upon by
both the Department and the tenure-holder and in case of disagreement
between them, by arbitration through a mutually acceptable and impartial third
party adjudicator;

14. Plantation logs, lumber and other finished wood products and plantation-grown
non-wood may be exported without restrictions in volume

15. Processors of wood and non-wood forest products may import tax-free
processing equipment

ve

SECTION 10. Tax on Commercial Plantation Timber and Other Forest Products —To encourage
investors in plantation development to continue to invest in the sector, LGUs are hereby


banned from imposing fees and charges in whatever form or name on plantation logs and other
planted forest products.

SECTION 11. Payment of Advanced Value Added Tax ~ Plantation owners with less than 500 ha
in aggregate total area of plantations shall be exempted from payment of Advanced Value
Added Tax (VAT) under the Bureau of Internal Revenue (BIR) Revenue Regulations No. 13-2007.
The VAT shall be paid only after logs have been delivered and payment received by plantation
owners.

SECTION 12. Duplicatory Requirements for Environmental Compliance Certificate and Other
Similar Requirements from Local Government Units — Local Government Units (LGUs) are
hereby prohibited to issue ordinances and similar issuances requiring plantation owners and
forest products processors requirements which the national government is already requiring
such investors such as the environmental compliance certificate (ECC)

SECTION 13, Free and Prior Informed Consent of Indigenous Peoples ~ The free and prior
informed consent (FPIC) of indigenous peoples (IPs) shall be issued by the IPs through the
National Commission of Indigenous Peoples (NCIP) within 30 day from filing of request for the
FPIC. Failure of the NCIP to issue the FPIC within 30 days shall be construed as approval of the
request.

SECTION 14. Oversight Committee — There shall be established a joint Oversight Committee in
Congress to monitor and assess the accomplishments and progress in the implementation of
this Act. DENR shall provide yearly reports on the progress of the implementation of this Act, or
as often as the Oversight Committee requires.

SECTION 15. Implementing Rules and Regulations — The DENR in consultation with concerned
agencies of government and the private sector shall formulate the implementing rules and
regulations within 90 days after the approval of this Act.

SECTION 16. Separability clause — If any section or provision of this Act shall be declared
invalid or unconstitutional, such shall not invalidate any other section or provision of this Act.

SECTION 17. Repealing Clause — All laws, decrees, executive orders, rules and regulations or
parts thereof which are in conflict or inconsistent with the provisions of this Act are hereby
repealed or modified accordingly.

SECTION 18. Effectivity — This Act shall take effect thirty (30) days following its full publication
in the Official Gazette or two (2) major daily newspaper of general circulation.

Approved