Republic of the Philippines
VIOUSE OF REPRESENTATIVES
Quezon City. Metro Manila

FIFTEENTH (15™) CONGRESS:
First Regular Session

HOUSE BILL No. 4483,

Introduced by HON, RENE. LOPEZ RELAMPAGOS
1" District, Boho?

EXPLANATORY NOTE

This bill seeks to strengthen and reform the financial and economic governance. capacity
development and financial performance monitoring of government-owned or controlled
corporations,

Under the second sentence of Section 16, Art. XII (National Economy and Patnmony of
the 1987 Constitution), “Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and subject to the test of
Sconomie Viability.” As commented by the eminent Constitutionalist Fr. Joaquin G. Bernas. S-1.~
in his book. The 1987 Constitution of the Republic of the Philippines: A Commentan, (2009
edition. p. 1227), the “second sentence was added by the 1986 Constitutional Commission.”
The significant addition, however, is the phease “in the interest of the commun good and subject
to the test of economic viability.” The addition includes the ideas that they must chow capacity
wo fanclion efficiently in business and that they should not go into activities hich the private
Sector can do better. Moreover, economic viability is more than financial v'ability bt also
includes capability to make profit and generate benefits not quantifiable in financial yerms. (HL
RECORD 623-630: 1V RECORD 230-233 (Constitutional Commission]}

The Administrative Code of 1987 (Executive Order No. 292) refers a gov sermeni-owned
or controlled corporation (GOCC) “to any agency organized as a stock or non-stock corporalon.
vested wita functions relating to public needs whether governmental or proprictary in nature. and
owned by the Government directly or through its jnstrumentalities either wholly, or. whet
applicable us in the case of stock corporations. 10 the extent of at least fifty-one (51) percent of
its capital stock: Provided, That yovernment-owned or controlled corporations miay be further
categorized by the Department of the Budge. the Civil Service Commission ana the Commission
bon Audit for purposes of the exercise and cischarge of their respective powers. fumctions and
responsibilities with respeet to such corporations.”

‘fhe Asian Development Bank (ADB) - of which the Philippines is one ot ‘ts members io
dis Technical Assistance Report (Project Number: 39606, June 2006) entitled: Republic of the
Philippines: Government-Owned and Controlled Corporations Reform, stated, umong otfwrs, that
the Government of the Philippines (Government) requested technical assistance (TA) from the
ADB to improve the Government's monitoring and management of GOCCs. This is 4 priority
lundertaking that would help achieve fiscal consolidation, and the TA was consequently added (o
the ADE nonlending program of the country strategy and program for 2005-2007 The Fact-
Finding Mission was fielded on 15-19 November 2005 und agreement was reuched with the
Government on TA’s purpose, scope, implementation mechanisms and financing arrangements,



In the same TA Report, the following isspes were established (o which this representation
fully agrees:

a} Philippine GOCCs were created in one of three (3) ways: by special laws, by the
corporation code (Batas Pambansa Big. 68. as amended) or by judicial decisions. In general. the
mandate of individual GOCCs involves either socially-orienied responsibilities or the provision
of basic services. such as transport, water, power. housing and a stabilized food supply. They are
also engaged in developmental and pioneering activities, including financing, The Deparment
‘of Finance (DOF) estimates there are seven hundred thirty six (736) GOCCs. The definition of a
GOCC remains very complicated, as defined by legislative fiat, presidential decrees and
administrative orders. (Such as Republic of the Philippines, 1988. Rationalizing the Goverment
Corporate Sector. Administrative Order, Manila {AO 59, Series of 1988] ; and Presidential
Decree No. 2029, Series of 1986 on Acquired Assets. among others.)

The 736 GUCCs include (i) those ercated by judicial decision (¢.g., local water districts):
Giy assets sequestered during the Marcos administration; (iii) assets acquired by government
cosporations: and (iv) those created via legislative charters.

b) The DOF was charged with monitoring the financial performance of all GOCCs,
(Under Fxecutive Order 127-A3 [1987} and Administrative Order No. 163 [2001] } Effectiveiy.
however. only fourteen (14) corporations are closely monitored, due to their heavy dependence
‘on the national Government for finuncial support. either (i) directly through equity. subsidy: or
advances for debt servicing or (ii) indirectly through national Government guarantee of their
obligations. These 14 GOCCs also account for a substantial portion of the consofidated public
sector deticit. ‘Ihe 14 monitored GOCCs are Home Guaranty Corporation, Light Rail Transit
‘Authority. Local Water Utilities Administration, Manila Waterworks and Sewerage System.
National Development Corporation, National Electrification Administration. National Food:
Authority, National Housing Authority, National [rrigation Authority, National Power
Corporation [by virtue of the Electric Power Industry Reform Act, the Power Sector Assets and
Liabilities Management Corporation and the National Transmission Corporation are added (o the
list). Philippine Ecozone Authority. Philippine National Oil Corporation. Philippine National
Railway and Philippine Ports Authority.

in general, the DO's monitoring involves tracking of the financial performance of the
14 major corporations and their debt obligations. In addition. the DOF. through its Corporate
Alairs Group. reviews the financial viability of the GOCCs as well as their project. loan and
yuarantee proposals. The DOF is expanding its monitoring beyond the 14 major GOCCs to
include other corporations that may pose problems for the national Goverment.
The requests from the additional GOCCs for direct and indirect national Government support
form the basis for their financial performance monitoring. Inasmuch as the 140 major
corporations comprise the substantial portion of the assets and liabilities of the government
‘corporate sectors, the consolidated financial performance of these major corporations provides an
indication of the aggregate financial performance of the government corporate sector.
Notwithstanding, there remains a need for regular monitoring of government corporations
outside of the 14 major GOCCs.

cc) Most GOCCs are incurring significant financial losses. Budgetary support ta the total
Government corporate sector (including goveroment financial institutions. social security
institutions and GOCCs providing goods and services 1 the public) amounted to P04 billion
during 2000-2004, In addition, indirect support. in the form of guarantees on GOCC obligations.
iy also in the billions of pesos. In the past years five (5) years, there has been a noticeable
increase in the aggregate deficit of the 14 monitored GOCCS, bringing their financ‘al viability
intw question, While the 14 monitored GOCCs' current and capital expenditures fluctuated
around 6% of GDP, revenues have fallen from 5% 10 4.1% of GDP over 2000-2004. increasing
the deficit of the monitored GOCCs from 0.6% to 1.8% of GDP over the same period. la 2004,



the monitored GOCCs' consolidated deficit vas P85.4 billion, a more than fourfold increase from
the 2000 level of P19.2 billion. The 2004 deficit is already about the same size as the potential
new revenues collected through the expanded value-added tax law. There are various reasons for
the ballooning GOCC deficits, including (i) failure to adjust tariff rates, (ii) large capital
requirements and Gi) operational and management inefficiencies. ‘The system used by the DOF
to report on and supervise the GOCCs needs to be reviewed to determine why the deficits
ballooned significantly in the past few years, and why the oversight mechanisms have failed to
reverse this tend. in the past 5 years. the National Power Corporation has contributed
tantly (o the overall deficit of GOCCs. Reforms under the Power Sector Development
mm supported by the ADB are ongoing to address this issue. Reforms specific tw the
National Power Corporation are not covered by this TA.

There is also a need to (i) examine she sources of the ballooning GOCC deficits. given
the diverse nature of the operations and services they provide; and (ii) find long-term solut
improve their viability as government corporations. and possibly suggest privatization programs
in some cases.

4) ‘The significant financial losses ef the GOCCs contribute 10 the public sector debt,
The contribution of the monitored GOCCs' debt stock to tolal public sector debt has beca high
and increasing over the past 5 years, from 39.9% of the total public sector debt in 2000 10 32.7%
in 2003, with a slight decline to 29.3% in 2004. The increasing need for deficit financing will
continue to put pressure on the GOCC debt stock to rise, which would in turn add 10 the already
high leveis of total public sector debt. The national Government’s combined outstanding debt
and estimated off-balance-sheet outstanding liabilities increased by P24 willion trom 1997 to
2003. According to a recent study, nearly half of the increase is attributable to GOCC activities.
both on-and off-balance sheet. (ADB 2005, Putting GOCCs on Sound Footing: the
Transformation Agenda, ADB Discussam Document. McKinsey & Company, 2 August 2005.)
This situation makes fiscal consolidation much more challenging for the Government. ADB's
Philippine country strategy and program for 2005-2007 acknowledges these challenges. and
make support for fiscal consolidation a priority. In this context. the Government has requested
ADB assistance to support GOCC reform.

e) The TA supports a core element of the Government's reform agenda. It complements
another ADB TA on debt and risk management as well as activities of other development
partners. including the World Bank, the Australian Agency for International Development and
the Linited States Agency for International Development. (ADB, 2005, Technicul Assistance to
the Republic of the Philippines for Debt and Risk Management, Manila [TA 4717-PHI, for
US$720,000.00, approved on 7 December 2005])

The World Bank is providing complementary support to the DOF for contingent fiability
management. The United States Agency for International Development is helping the DOF
Privatization Office prepare a comprehensive inventory of GOCC and Government assets and
develop guidelines for identilying and prioritizing assets and GOCCs for privatization. The
Australian Agency for International Development, through the Partnership for Lconomic
Governance Reforms facility, is supporting the DOF's program of governance for the GUCCs.
ADB has worked closely with development partners in the preparation of the TA. and will
continue to do so during the implementation process lo ensure an efficient and effective use of
resources, The DOF will manage the ongoing interventions and ensure that development
partners will coordinate their GOCC strengthening and reform efforts.

Last September 8, 2010, President Benigno S. Aquino HII issued Executive Order No. 7
“directing the rationalization of the compensation and position classification system in the
government-owned-and-controlled corporations {GOCCs) and government financial institutions
(Gis) and for other purposes.” Section 9 of said Executive Order No.7 imposes the moratorium
on increases in the rates of salaries and the grant of new increases in the rates of allowances.



incentives and other benefits, except salary adjustments pursuant to Executive Order No. 8011
dated June 17, 2009 and Executive Order No. 900 dated June 23, 2010. until specifically
authorized by the President. Section 1@ of the same Executive Order suspends the grant of
allowances. bonuses, incentives and other perks to members of the board of directors‘trustwxs of
GOCCs and GFls, except reasonable per diems, until December 31, 2010, pending the issuance
of new policies and guidelines on the compensation of these board of directors. On December
010. President Aquino issued Executive Order No. 19 extending the extension of suspension
of the grant of allowances, bonuses, incentives and other perks to members of the board of
directorstrustees of GOCCs and GFls, except reasonable per dicms, until January 31. 2011.
pending the issuance of new policies and guidelines on the compensation of said
directors‘trusiees.

The above issues raised by the ADB are confirmed by the Senate. In his opening
statement, Senator Franklin M. Drilon at the Senate Committee Hearing of Senate Bill No. 2566
{proposed “GOCC Governance Act of 2010") stated that:

“In the course of this Committee's inquiry pursuant 10
PSR No. 66 on the compensation in Goverament-Owned and -
Controlled Corporations (GOCCs), we confirmed that members of
the Board of Directors of certain GOCCs have allocated for their
benefit bonuses that went as high as the equivalent of twenty-six
(26) months, notwithstanding the poor financial condition of these
enterprises.”

It was also shown during the hearings that COA-
independent GOCC's such as the Manila Economic and Cultural
Office (MECO) established excessively generous retirement
schemes that granted P600. 000 for every year in service 10
Directors who have served at least two (2) years. Additionally.
‘Trustees of Pension Fund agencies have, throughout the years.
impudently received from investee corporations hundreds of
millions worth of stock option plans and profit share denominated
as Directors Fees. in clear violation of their fiduciary duty as
srustees of the pension fund.

This Committee was also informed by the Department of
Budget and Management (DBM) that most of the corporate
operating budgets (COB’s) of GOCC's which incidentally account
for one-third (1/3) of the national expenditures for salaries and
maintenance and other operating expenses, have not been dutifully
submitted to the DBM for review. In addition, we lamenied the
discovery that GOCC subsidiaries, which further drain public
funds, have been rashly created and local banks audaciously
purchased despile the absence of requisite approvals from
monitoring government agencies.

Finally, there are other issues that are tangent to the subject
at hand: (1) the often ridiculed politicized appointment of less than
qualified individuals to policy-making posts in GOCCs; (2) the
clamor for the abolition of non-performing and obsolete public
enterprises: (3) poor corporate governance cnvitonment; and (4)
weak oversight system, On the basis of the datz gathered in the
course of our hearings conducted by this Committee in aid of
legislation, pursuant to PSR No. 66, we have filed Senate Bill No
2566 (or the proposed GOCC Gavemanee Act), which seeks to



address these concerns by introducing reforms im this sector of
governance.”

Among. the purposes of the bill is the improvement of corporate governance in GUCCs
by (a) setting a just and cquitable compensation system at reasonable levels that tikes imo
account the results of operations of GOCCs and offers enough incentives to altract the best
talents to manage these enterprises; (b) introducing a transparent process lor the selection of
board members that ensures qualifications and expertise: (c} creating a more effective oversight
mechanism through the GOCC Council for Govemance (GCG); and (d) introducing a
perlormance evaluation system to help assess and evaluate the effectiveness and efficiency of
GOCCs, enabling the GCG to make recommendations, when necessary, for their reorganization.
streamlining, merger, abolition or privatization. These recommendations will be submitted to the
President, who shall be vested with the celeyated authority bused on a set of reasonable
standards, to undertake the reorganization of the GOUCS.

The weltare of the employees in GOCCs wilt be protected and cven advanced as the bill
ensures that no diminution of their salaries will be allowed. Through this measure. itis our hope
that the GOCCs will become a significant tool for economic development instead of a burden
upon the government's resources.

This bill adopts some provisions of SB No. 2566 of Sen. Franklin Drilon and is a
counterpart of said SB No. 2566. The instant bill will effectively address the above issues rais od
by the ADB on the GOCC’s problematic govemance, effectiveness and efficiency due to
weaknesses in the instituional and regulatory frameworks, low capacity and inadequate
coordination of GOCCs working on the same sector and resulting ia most GOCCs incurring
financial losses. which had to be covered by the budget directly (e.g. subsidies) or indirectly ¢e.2.
credit guarantees). This bill will also address the rationalization and position classification
system in the GOCCS and GFls where there must be uransparency, accountability and prudence
in government spending as they are the core governance policies of the present administration
including the need 10 strengthen the supervision over the compensation levels of GOCCs and
GEls. in order to control the grant of excessive salaries, allowances, incentives and other
benefits.

Hopetuully, SB 2566 and the instant bill which are same-subject bills will be passed by
both chambers of Congress.

In view of the foregoing, the immediate passage of this bill is earnestly requested.

ry

RENE|L- he AAMPAGOS


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City, Metro Manila

Fifteenth Congress
First Regular Session

E483

HOUSE BILL NO.

Introduced by HON. RENE LOPEZ RELAMPAGOS
1 District, Bohol

AN ACT
TO STRENGTHEN AND REFORM THE FINANCIAL AND ECONOMIC
GOVERNANCE, CAPACITY DEVELOPMENT AND FINANCIAI. PERFORMANCE
MONITORING OF GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS
AND FOR OTHER PURPOSES

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

SECTION 1, Title. - This Act shal! be known as the “Government - Owned or
Controlled Corporation (GOCC) Governance Reform Act.”

CHAPTER
Genera! Provisions

SEC. 2, FINDING!

The Congress finds the following:

(1) Sometime in the first quarter of 2006, the Philippine government requested technical
assistance (TA) from the Asian Development Bank (ADB) - of which the Philippines is onc of
its members - 10 improve its monitoring and management of GOCCs. This is a priority
undertaking that would help achieve fiscal consolidation, and the TA was consequently added to
the ADB nonlending program of the country strategy and program for 2005-2007. The primary
objective of the TA is te support the government's fiscal consolidation through retorms in the
nionitoring and financial performance of the GOCCs. The technical assistance covered the (1)
identification of areas for improvement in the operations of GOCCs to enhance their financial
performance and reduce their dependence om the national goverment; (ii) development of
evaluation criteria. targets and guidelines for GOCCs; and (iii) strengthening of financial
performance review and monitoring of the GOCCs as well as the improvement of the
Department of Finance's (DOF) data banking system for the GOCCs.

(2) In the ADB ‘TA’s report (Project Number: 39606, June 2006) entitled: Republic of the
Philippines: Government - Owned and - Controlled Corporations Reform, the following issues
were raised:

a) Philippine GOCCs were created in one of three (3) ways: by special laws. by the
corporation code or by judicial decisions. In general, the mandate of individual GOCCs
involves either socially-oriented responsibilities or the provision of basic services. such


as transport, water, power. housing and stabilized food supply. They are also engaged in
developmental and pioneering activities, including financing.

b) The DOF estimates that there are seven hundred thirty six (736) GOCCs. The
definition of a GOCC remains very complicated, as defined by Iegislative tiat.
presidential decrees and administrative orders.

) The 736 GOCCs include (i) those created by judicial decision (e.g. local water
districts). (i) assets sequestered during the Marcos administration. (iii) assets acquired
by government corporations; and (iv) these created via legislative charters,

d) The DOF was charged with monitoring the financial performance of all GOCCs under
Executive Order 1270A3 {1987 and Administrative Order No. 163 [2001]. Effectively.
however, only fourteen (14) corporations are closely monitored due to their heavy
dependence on the national government tor financial support, either (i) directly through
equity. subsidy or advances for debt servicing or (ii) indirectly through national
government guarantee for their obligations. These 14 GOCCs account for a substantia}
portion of the consolidated public sector deficit, The 14 monitored GUCCs are Home
Guaranty Corporation, Light Rail Transit Authority, Local Water District Administration,
Manila Waterworks and Sewerage System, Nationai Development Corporation, National
Electeification Administration, National Food Authority, National Housing Authority.
National Irrigation Authority. National Power Corporation (by virtue of the Electric
Power Indusiry Reform Act, the Power Sector Assets and Liabilities. Management
Corporation and the National Transmission Corporation are added to the list), Philippine
Feazene Authority, Philippine National Oil Corporation, Philippine National Railway
and Philippine Ports Authority.

©) In general, the DOF"s monitoring involves tracking of the financial performance of
the [4 major corporations and their debt obligations. In addition, the DOF. through its
Corporate A(Tairs Group, reviews the financial viability of the GOCCs as well as their
project, loan and guarantee proposals. The DOF is expanding its monitoring beyond the
14 major GOCCs to include other corporations that may pose problems for the national
government.

() The requests from the additional GOCCs for direct and indirect national government
support form the basis for their financial performance monitoring. Inasmuch as the 14
major corporations comprise the substantial portion of the assets and liabilities of the
government corporate sectors, the consolidated financial performance of these major
corporations provides an indication of the aggregate financial performance of the
government corporate sector. Notwithstanding, there remains a need tor regular
monitoring of government corporations outside of the 14 major GOCCs.

(g) Most GOCCs are incurring significant financial losses. Budgetary support to the
total government corporate sector including government financial institutions. social
sceurity institutions and GOCCs providing goods and services to the public amounted to
P80.4 billion during 2004. In addition, indirect support in the form of guarantecs oa
GOCC obligations, is also in the billions of pesos.

(h) In the past five (5) years, there has been a noticeable increase in the aggregate deficit
of the 14 monitored GOCCs bringing their financial viability into question. While the 14
monitored GOCCs' current and capital expenditures flucmated around 6% of GDP.
revenues have fallen from 5% to 4.1% of GDP during 2000-2004, increasing the deficit
of the monitored GOCCs consolidated deficit to P85.4 billion, a more than fourtold
increase from the 2000 level of P19.2 billion. ‘The 2004 deficit is already about the same
size as the potential new revenues collected through the expanded value-added tax law,



(i) There are various reasons for the ballooning GOCC deficits, including ¢i) failure to
adjust tariff rates, (ii) large capital requirements and (iii) operational and management
inefficiencies, The system used by the DOF to report on and supervise the GOCCS needs
to be reviewed to determine why the deficits ballooned significantly in the past few years
and why the oversight mechanisms have failed to reverse this trend. In the past 5 years,
the National Power Corporation has contributed significantly to the overall deficit of the
GOCCs. Reforms under the Power Sector Development Program supported by the ADB
are ongoing to address this issue. Reforms specific (0 the National Power Corporation
are nol covered by this TA.

) There is also a need to {i} examine the sources of the ballooning GOCE deficits.
given the diverse nature of their operations and the services they provide and (ii> find
fong-term solutions to improve their viability as government corporations. and possibly 10
suggest privatization programs in some cases.

(k) The significant financial losses of the GOCCs contribute to the public sector debt
The contribution of the monitored GOCCS* debt stock to total public sector debt has been
high and increasing over the past 5 years, from 30.9% to the total public sector debt in
2000 to 32.7% in 2003, with a slight decline to 29.3% in 2004. The increasing need tor
deficit financing will continue to put pressure on the GOCC debt stock tw rise. which
would in tum add to the already high levels of total public sector debt. The national
vovernment’s combined outstanding debt and estimated off-balance-sheet outstanding,
liabilities increased by 2.4 willion from 1997 10 2003. According to a recent study.
nearly half of the increase is attributable to GOCC activities, both on-and off-balance
sheet. The situation makes fiscal consolidation much morc challenging for the
yovernment. ADB's Philippine county strategy and program for 2005-2007
acknowledges these challenges and makes support for fiscal consolidation a priority. In
this context, the government has requested ADB assistance to support GOCC reforms,

SECTION 3. Definition of Terms. -

U1) “Affiliate” refers to a corporation fifty percent (50%) of less of the voting stock of which is
owned or controlled, directly or indirectly, by the government-owned or controlled corporation.

(2) “Appointive Director” refers to:

a} in the case of government - owned or controlled corporation created by a special law
or charter, ail members of its Board of Directors/Trustees/Commmissioners who are not €x-
officio members thereof; and

b) In the case of government - owned of controlled corporation created under the
Corporation Code of the Philippines, members. ofits Board of
Directors Trustees/Commissioners whor the Government of the Philippines is entitied to
nominate, to the extent of ils percentage sharcholdings in such government-owned or
controlled corporation.

(3) ~Board of Directors/Trustees/Commissioners” or “Board” refers to the goveri
exercises the corporate powers of a government-owned or controlled corporation.

body that

(4) “Charter Statemer
corporation's mission,

* refers to the statement of the government-owned or controlled
jon, objectives and core values.

(5) “Charwred GOCC” refers to a government-owned or controlled corporation. including
government financial institutions. created and vested with functions by a special law.



(6) “Chie? Executive Officer” refers to the President or the General Manager or the
‘Administrator of a government-owned or controll=i corporation who possesses the proper Career
Enecutive Service Officer (CLSO} rank conferred by the President of the Philippines.

(7) “Corporate Governance” refers (0 a set of principles and standards derived from law.
regulation and proper corporate practices that enables the corporation to attract financial and
human capital. perform efficiently, thereby generating long-term and desirable economic valuc
for the State.

{8} “Department” refers to an executive department created by law for the lunctional
distribution of the work of the President of the Philippines.

(9) “Fit and Proper Rule” refers to the standard for determining whether a member of the Board
of Directors/T'rustees/Commissioners or Chief Executive Officer as defined under paragraph (6)
‘of this Section is fit and proper to hold a position in a govemment-owned or controlled
corporation, which shall include but not limited to, standards on integrity, experience. education,
raining and competence.

(10) “Government Agency” refers to any of the various units of the Government of the Republic
‘of the Philippines, including a department, bureau, office, instrumentality or government-owned
or vontrolled corporation or a local government or a distinct unit therein.

anized

needs whether

(11) “Government-Owned or Controlled Corporation (GOCC)" refers to any agency
as a stock or non-stock corporation, vested with functions relating to pul
xovernmental ot proprietary in nature and owned by the Government directly or through its
instrumentalities either wholly or where applicable as in the case of stock corporations. to the
extent of at feast fitty-one percent (51%) of its capital stock.

(42) “Non-chartered GOCC” refers to a GOCC organized and operating under Batas Pambansa
Bilung 68 or The Corporation Code of the Phitippines.

(13) “Officer” refers to a person in the corporation. whose duties, not being of a clerical in
nature. involves the exercise of discretion in the performance of functions such as to manage the
day to day operations of the GOCC as provided in its charter or by-laws, such as but not limited
to. the Chief Exceutive Officer, President, Vice President, General Manager, Treasurer and
Corporate Secretary.

(14) “Performance Scorecards” refer to a governance and management tool consisting of a set of
measures, fargets and initiatives that facilitate the achievement of breakthrough results and
performance through the effective and efficient monitoring and coordination and the strategic
‘objects of the GOCC.

(15) “President” roters to the President of the Republic of the Philippines.

(16) “Related Corporation” refers to a subsidiary or affiliate of a GOCC.

(17) “Secretary” refers to the person vested with the authority and responsibility to exercise the
mandate of the Department under the Executive Branch, for the discharge of its powers and
functions. and who shall have supervision and control of the Department.

(18) “Strategy Map” refers to an integrated set of strategic choices or objectives drawn by the
governing body, the successful execution of which results in the achievement of the GOCC
mission. vision and objectives in relation (o the purpose for which it is created.



(19) “Subsidiary” refers to a corporation more than fifty percent (50%) of its voting stock is
owned or controlled, directly or indirectly through one or more intermediaries, by the GOCC.

SECTION 4. Coverage. - This act snafl be applicabl
classification but shall exclude the Bangko Sentral ng Pi
mandated agency.

eto all GOCCs regardless of
nas being 4 constitutionally-

CHAPTER

The Governance Council for Government-Owned or Controlled
Corporations (“GCG”)

SECTION 5. Creation of Governance Council for Governmeat-Ow ned or
Controlled Corporations. - An advisory. monitoring, recommendatory and policy-cnforcing.
body to be known as the Governance Council for Government-Owned Or Controlled
Corporations. hereinafter referred to as the GCG and attached to the Office of the President «f°
the Philippines. is hereby created. The GCG shall be constituted by the President within thirty
(G0) days from the effectivity of this Act.

SECTION 6, Composition of the GCG. - The GCG shall be composed of five (5)
snembers with the Secretary of the Department of Finance (DOF) as ex-officio Chairman. the
Secretary of the Department of Budget and Management (DBM) and the Director-General of the
National Economic Development Authority (NEDA) as ex-officio members and nwo @)
representatives from the private sector.

The two (2) representatives from the private sector shall be appointed by the President.
upon the joint recommendation of the DOF. DBM and NEDA from a list of at least five ©)
sominecs, They must be natural born citizens of the Philippines with recognized competence in
the arvas of corporate governance, policy administration, business management. human
resources management, financial management, economics and other related fields. ‘They shall
serve as GCG members for a period of three (3) years, with reappointment upon the discretion of
the President: Provided, That of the representatives [rom the private sector first appointed. one
(4) shall serve for two (2) years and one (1) shall serve for three (3) years. and thereafter every
representative so appointed shall serve for three (3) years.

SECTION 7. Powers and Functions of the GCG. -. The GCG shall have the
following powers and functions:

(1) Adopt within ninety (90) days from its constitution, an ownership and operations manual
governing GOCCs. Said manual shall be consistent with the Medium ‘Term Philippine
Development Plan which shall include:

a) Objectives of State ownership;

b) Role of national government in the governance of GOCCS:

¢} Modes of implementation of the awnership policy:

4) Guidelines on the monitoring of the operations of ali GOCCs
including their Related Corporations. These shall include
Strategy Maps, Charter Statements, Performance Commitments
and such other mechanisms:

e) The roles, relationships and responsibilities of the State, the
government agencies to which the GOCC is attached, and
the GOCC;

£) Disclosure and transparency requirements;

x) Code of Ethics of the Corporate Directors and Officers;

h) Creation of board committees and similar oversight bodies:



i) Integrated corporate reporting system;

j) Statement of the social responsibilities of the GOCC; and

k) Such other matters as the GCG may deem proper to include in
the ownership policy.

(2) Identify the necessary skills, qualifications. training, responsibilities and accountabilities
required for Appointive Directors/TrusteewCommissioners and recommend to the President a
shortlist of suitable and qualified candidates for Appointive Directors;

(3) Make key recommendations on the following:

a) Improving Corporate Governance through (a) further clarifying/emphasizing the role
of the government as mainly that of the “owner” and (b) updating charters of key GOCCs
which, by and large are outdated. This is essential to minimize external political as well
as bureaucratic interventions and to ensure that the mandates of concermed GUCCS are
currentrelevant and conflicting and multiple objectives are minimized, [n case a GOCC
is required to provide a particular “social service,” it should be so recognized and funded
in a transparent manner and (c} rationalize the structure and composition of the Board of
Directors/Trustees/Commissioners to ensure adequate outside representation of technical
professionals and stakeholders and also, to introduce a transparent process for the
selection of board members that ensures qualifications and expertise, possibly theough the
establishment of an independent professional body: and

b) Rationalization of GOCC Portfolio. The government has a long standing policy under
Proclamation 50 defining under what circumstances a corporation should be in the public
sector. In line with this policy, a GOCC should be disposed off if it does not have a clear
rationale on the basis of a careful analysis of its social and /or public good role. In his
case. it is important to differentiate between the need to provide a public good and who
should provide it. The driving force behind this decision should be the goverament’s
already stated policy to have a GOCC only in cases where the private sector is not able or
willing to provide such goods or services. If full cost recovery is not possible. subsidies
can be provided but to the extent possible, actual delivery of goods and services should
be lett to the private sector in order to minimize cost to the government by leveraging the
private sector's flexible and efficient operating capacity. The government should
expedite the privatization/disposal program for the GOCCs that have been selected for
disposal for quite some tim

(4) Conduct periodic study, evaluation and assessment of the financial performance and
operations of the GOCCs, receive, and in appropriate cases, require reports on the operations and
management of the GOCCs, including but not limited to, the managemeat of the assets. finances
and liabilities of the GOCCs;

(5) Determine the magnitude of existing goverment exposure te the OGCC. in tens of
budgetary support and guarantee exposure;

{6) Determine potential government exposure and the increasing involvement of the GOCE in
private sector activities;

(7) Perform an in-depth review of the organization, operations policies and procedures of the
GOCC in order to identify gaps, weaknesses and recommendations that will have immediate
financial impact on the GOCC. These impacts include improvements in its financial pesition
and reduction. if not total elimination, of its dependence on direct or indirect financial support
trom the national government, without need for legislation, immediate major government policy
shifts or sector reforms:



(8) Make specific recommendations and/or actions on operational efficicney. inventory
management and control, asset and liability manazement, finan! i restructuring and other issues:
that have substantial impact on the financial position of the GOCC. The recommendations vill
include identification of performance criteria. targets and the corresponding incentive and or
reward and penalty mechanisms to arrive at a workable performance contract between the GOCC
und the oversight agency;

(9) Identify key legislation, major policy shifis and sector reforms needed in the medium term
for GOCC development and effectivene:

(20) Review the mandates of the GOCC. of its roles as providers of public goods vis the
roles of the national and local government or private sector. and the necessary dispositive
actions, as applicable:

(11) Evaluate the performance and determine the relevance of the GOCC, and recommend to the
President. tbe reorganization. merging, streamlining, abolition or privatization of the GOCC. For
this purpose. the GCG shall be guided by the following:

a) The fanctions or purpose for which the GOCC was created are no longer celevant to
the State or no longer consistent with the national development policy of the Suate:

b) The GOCCS' functions or purpose duplicate or unnecessarily overlap with funetions.
programs, activitics or projects already provided by a government agency, or

©) The GOCC is not producing the desired outcomes or nv longer achieving the
objectives and purposes for which it was originally designed and implemented, and/or not
cost efficient and does not generate the level of social, physical und economic retums vis-
aevis the resource inputs.

Upon determination by the GCG that it is to the best interest of the State that a GOCC
should be reorganized. merged, streamlined, abolished or privatized, it shall muke_ its
recommendation to the President. ‘The President may. upon confirmation of the findings of the
GCG, onder the Gling of a bill ta be certified by the Office of the President for the organization.
merging. streamlining, abolition or privatization of such GOCC.

Any such reorganization, merger, streamlining, abolition or privatization must be
completed on or betore June 30, 2015;

(12) Conduct compensation studies, develop and recommend to the President a compciitive
compensation and remuneration system which shall attract and retain talent, at the sume time
allowing the GOCC to be financially sound and sustainable;

113) Provide technical advice and assistance to the government agencies to which the
are attached in selling performance objectives and targets for the GOCCs and in monitoring
GOCCs performance vis-a-vis set objectives and targets;

(14) Coordinate and monitor the operations of GOCCs, ensuring alignment and consistency with
the national development policies and programs. It shall meet at least quarterly to:

a) Review Strategy Maps and Performance Scorecards of all GOCCs:
by Review and assess existing performance-related policies including the compensation

and/or remuneration of the Board of Directors/Trustees/Commissioners and Offices and
recommend appropriate revisions and actions: and


c) Prepare performance reports of the GOCCs for submission to the President:

(15) Prepare a semi-annual progress report to be submitted to the President and Congress. In
report. the GCG will provide its performance assessment ‘of the GOCCs and recommend clear
and specific actions. Within one hundred twenty (120) days from the close of the calendar year,
the GCG shall prepare an annual report on the performance of the GOCCs and submit it w the
President and the Congress;

(16) Review proposals by government agencies for the creation of a GOCC or Related
Corporation under the Corporation Code of the Phitippines. and recommend to the President the
appraval or disapproval of the same; and

(17) Review the functions of each of the GOCC and, upon determination that there is a conDict
between the regulitory and commercial functions of a GOCC, recommend to the President and
fo the wovernment agency to which such GOCC is attached. a plan of action to ensure that the
commercial functions of the GOCC do not conflict with such regulatory functions.

SECTION 8. Remuneration of Members of the GCG. - The members of the GCG
shall not receive any compensation or remuneration for their services as such. but may receive
Feasonable por diems for actual attendance in meetings of the GCG and reimbursement for actual
and reasonable expenses in relation 10 their atlendance of GCG meetings. discharge of their
Functions or in carrying out the objectives of the GCG: Provided, That per diems payable to the
members of the GCG shall be approved by the President

SECTION 9, The GCG Seeretariat. - fhe GCG shall maintain a full-tinne technical
secretariat in the Office of the President. Within ninety days (90) days trom the cfiectivity of
this Act. the GCG shal} present Lo the President the staffing requirement, organizational structure
and budget requirements of the GCG Secretariat.

SECTION 10, Managing Director. - The management of the GCG Seeretariat shall be
sested in the Managing Director who shall be a aatural born citizen of the Philippines with
known integrity, independence and recognized competence in the areas of corporate governance
policy administration, business management, human resources management andor financial
managemenv/business economics and who has not been convicted of any act involving violation
of the Corporation Code of the Philippines. Securities Regulation Code, Presidential Decree No
902. as amended or any other crime or offense involving moral turpitude.

The Managing Director shall be appointed by the President [rom a short list of at least
five ( 3) nominees, upon the recommendation of the GCG.

The Managing Director shalt be a career executive service officer (CESO) with CESO |
rank equivalent to a cabinet department undersecretary: Provided, Thar the Managing Director
Shall receive a salary of not less than Salary Grade 30 under Republic Act No. 6758. as
‘amended. otherwise known as the Salary Standardization Law and such allowances and bonuses
fas may be determined by the GCG and approved by the President, giving due consideration 1
his overall performance and the performance of the GCG_

SECTION 11, Powers and Duties of the Managing Director, - The Managing
Director shall have the following powers and duties:

(I) Direct and nianage the day-to-day affairs and business of the GCG Secretariat. subject to the
comtrul and supervision of the GCG;

(2) Attend all mectings of the GCG and participsse in its deliberations;


(3) With the approval of the GCG, determine the staffing pattem and number of personnel uf the
GCG Secretaria, fix their salaries and other emoluments, and define their powers and dul
subject to the laws, rules and regulations administered and enforced by the Civil Service
Commission and the Carcer Executive Service Board in accordance with Presidential Decroe No.
L:

(4) Recommend the appointment, removal, suspension or other disciplinary action for cause. of
any employee of the GCG Secretariat for the approval of the GCG; and

45) Perform such other duties as may be delegated or assigned to him by the GCG trom time
time,

SECTION 12. Compensation and Position Classification System. - The GCG, alter
conducting a comprehensive compensation study. shall develop a Compensation and Position
Classification System which shall consist of classes of positions grouped into such categories as
the GCG may determine, subject to the approval of the President upon the favorable
recommendation of the Civil Service Commission, Department of Budget and Management and
the Career Executive Service Board in accordance with Presidential Decree No. 1.

Ihe GCG may recommend. upon the favorable endorsement of the Civil Service
Commission, Department of Budget and Manayement and the Career Executive Service Bourd in
accordance with Presidential Decree No. | and subject to the approval of the President.
additional allowances or bonuses for certain position titles, giving due consideration to the
necessity for such allowances and the good performance of the GOCC.

The following principles shall govern the Compensation and Position C‘assification
System subject fo the laws, Tules and regulations administered and enforced by the Civil Service
Commission, Department of Budget and Management and the Career Executive Service Board in
accordance with Presidential Decree No. 1:

(1) All GOCC personnel shall be paid just and equitable wages. Pay distinctions shalt take into
consideration work distinctions provided that the rato of compensation between those uccupying
higher ranks and those in Jower ranks should be maintained at equitable levels. ving duc
consideration to higher percentage of increases to lower level posilions and lower percentage
increases to higher level positions;

(2) Basic compensation for all personne! in the GOCC shall generally be comparable with those
in the private sector doing comparable work and must be in accordance with prevailing taws on
minimum wages. The total compensation provided for GOCC personnel shall be maintained al a
reasonable level with duc regard to the national budget; and

(3) A review of the GOCC compensation rates, taking into account the performance of the
GOCC. its overall contribution to the national economy and the possible erosion in purchasing
power duc to inflation and other factors, shall be conducted periodically.

The Compensation and Position Classifica‘ion System to be developed and reeommended
by the GCG subject to the Jaws, rules and 1egulations administered and enforced by the Civil
Service Commission, Department of Budget and Management and the Career Executive Service
Board in accordance with Presidential Decree No. { and as approved by the Presideot shall apply
1 all positions, on full or part-time hasis, now existing or later created in the GOCC: Provided.
That in no case shall there be any diminution in the salaries of incumbent employees of GOCCs
who are covered hy Republig Act’No. 6758, as amended, uppn the implementation of the
Compensation and Position Classification System for GOCCs.



No GOCC shall be exempt from the coverage of the Compensation and Position
tion System developed by the GCG under this Act.

CHAPTER 1
Reorganization of Government - Owned or Controtled Corporations

SECTION 13. Number of Directors/Trustees/Commissioners. - The present number
of Directors/Trustees/Commissioners provided in the charter of the GOCCs shall be maintained.
but in no case shall the total number of irectors/Trustecs/Commissioners exceed nine (9)
members.

SECTION 14, Appointment of the Board of Directors/Trustees/Commissione
An Appointive Director/Trustee/Commissioner shall be appointed by the President of the
Philippines from a short list prepared by the GCG.

The GCG shall formulate its cules and criteria in the selection and nomination of
prospective appointees: Provided, however, That all nominees included in the list submitted by
the GCG 10 the President shal] meet the Fit and Proper Rule as defined under this Act and such
other qualifications as the GCG may determine taking into consideration the unique requirements
of each GOCC, No person who is not included in the short list prepared by the GCG may
become an Appointive Director: Provided, That the GCG shall ensure that the short fist shall
exceed by at least filly percent (50%) of the number of directors/trustees/commissioners to be
appointed: Provided. further, That in the event that the President does not see fit to appoint any
of the nominees included in the short list, he shall require the GCG to submit additional
nominees.

SECTION 15. Term of Office. - The respective charter of each GOCCs to the contrary
notwithstanding, the term of office of each Appointive Director shall be ene (1) year. An
Appointive Dircetor may be nominated by the GCG for re-appointment by the President only if,
he or she oblains 2 performance score of above average or its equivalent or higher in the
immediately preceding year of his or her tenure as Appointive Director bused on the performance
criteria for Appointive Directors for the GOCC. Of the Appointive Directors first appointed
under this Act, at least one-third (1/3) shall serve for three (3) years; at least one-third (1/3) for
two (2) years and the remaining Appointive Dirzctors shall serve for one (1) year. Therealter.
every Appointive Director so appointed shall serve for one (1) year.

Appointment to any vacancy shail be only for the unexpired term of the predecessor. ‘The
appointment of a director to fill such vacancy shafl be in accordance with the manner provided in
Section 14 of this Act.

Any provision of law to the contrary notwithstanding, ail incumbent Chie! Executive
Officers as defined in this Act and members of the Board of GOCCs shall, upon approval of this
‘Act. have a term of office until July 1, 2011 or until their successors sball have becn appointed.
or unless sooner replaced by the President,

SECTION 16. The Chief Executive Officer of the GOCC, - The Chicf Fxecutive
Otficer (CEO) oF tbe highest-ranking officer provided in the charters of the GOCCs. shall be
elected annually by the members of the Board from among its ranks: Provided. That ny CEO
Shall be elected unless he or she possesses the proper career execulive service officer (CFSO}
rank in accordance with Presidential Decree No. 1 as duly certified by the Carcer Executive
Service Board. The CEO shall be subject to the disciplinary powers of the Bourd and may be
removed by the Board for cause.



SECTION 17. Requisites for the Creation of a new GOCC or Related Corporation
Cader the Corporation Code, - A government cgency secking lo establish a GOCC or Related
Corporation under the Corporation: ‘Code of the Philippines shall, before registering the same
with the Securities and Exchange Commission {SEC), first obtained the appro” ah of the President
for the creation of such GOCC or Related Corporation. The SEC shail not register the articles of
incorporation and by-laws of a proposed GOCC or Related Corporation, unless the application
jor registration is accompanied by an endorsement from the GCG stating that the President has
approved the same.

CHAPTER IV

Board of Directors/Trustees/Commissioners/Officers
Of Government-Owned or Controlled Corporations

SECTION 18. Coverage. - The duties, obligations, responsibilities and standards of
care provided under this Chapter shall be applicable to ali members of the Board of
Directors‘Trustees/Commissioners and Officers of GOCCs now existing or created afier the
elfectivity of this Act. These duties, obligations and responsibilities shall be in addition to the
powers and functions provided in the individual charters or articles of incorporation and by-laws
of their respective GOCCs.

SECTION 19. Fiduciary Duties of the Members of the Board and Officers. - As
fiduciaries of the State, members of the Board of Directors/Trustces/Commissioners and Officers
‘of GOCCS have the legal obligation and duty to always act in the best interest of the GOCC, with
utmost yood faith in all its dealings with the properties and monies of the GOCC.

The members of the Board and Officers of GOCCs shall:
(1) Act with utmost and undivided loyalty to the GOCC;

(2) Act with due care, extraordinary diligence, skill and good faith in the conduct of the business
of the GOCC,

(3) Avoid conflicts of interest and declare any interest they may have in any particular matter or
transaction before the Board;

(4) Apply sound business principles to ensure the financial soundness of the GOCC: and

(5) Elect and/or employ only Officers who are fit and proper to hold such office with due regard
to their qualifications, competence, experience and integrity.

Where a member of the Board or an Officer, by virtue of his office, acquires or reccives
for himself a benefit or profit, of whatever kind or nature, including but not limited to. the
acquisition of shares in corporations where the GOCC has an interest, using the properties of the
GOCC for their own benefit, receiving commission on contracts from the GOCCS assets or
raking advantage of corporate opportunities of the GOCC, all such profits or benefits shall be
subject to restitution under Section 25 of this Act, without prejudice to any administrative. civil
or criminal action against the members of the Board of Directors/Trustces/Commissioners or
Officers. This provision shail be applicable notwithstanding the fact that such member of the
Board or Officer risked his own funds or money ia the venture.

SECTION 20. Trustee Relation to the Properties, Interests and Monies of the
GOCC. - Except for the reasonable per diem received for actual attendance in board meetings
and the reimbursement for actual and reasonable travelling and transportation expenses and



bonuses within the limits authorized by the GCG and approved by the President. any and all
realized profits and/or benefits, including but not limited to. the share in the profits, bonuses of
members of the Board or Officers in excess of that authorized by the GCG and approved by the:
President. stock options, dividends and other similar offers or grants trom corporations where the
GOCC is a stockholder or investor, and any benefit from the performance of members of the
Board or Officers of hc Corporation acting for and in behalf of the GOCC io dealing with its
properties and investments in other corporations, management of subsidiaries and other interest,
are to be held in trust and shall be accounted for and tum over by such member of the Board or
Oificer to the GOCC they represent,

SECTION 21, Care, Diligence and Skill in the Conduct of the Business of the
GOCE. - The members of the Board and the Officers as defined in this Act must exercise
extraordinary diligence in the conduct of the business and in dealing with the funds and
properties of the GOCC. Such degree of diligence requires the utmost diligence of a very
cautious persun with due regard for all the circumstances.

SECTION 22. Fit and Proper Rule. - Ali members of the Board, the Chief t-xecutive
Officer and Officer as defined under this Act shall be qualified by the “fit and proper” rule be
determined by the GCG in consultation and coordination with the relevant government agencics
to which the GOCC is attached and approved by the President.

To maintain the quality of management of the GOCCs, the GCG, in coordination with the
relevant government agencies such as, but aot limited to, the Civil Service Commission and
Careet Service Executive Service Board. shall. subject to the approval of the President.
prescribe. pass upon and review the qualifications and disqualifications of individuals appointed
as directors‘trustees/commissioners or elected as officers of the GOCC and shall disqualify those
found unfit,

In determining whether an individual is fit and proper to hold the position of a
director‘trustee/commissioner or officer of the GOCC, due regard shall be given 1o his integrity.
experience, education. training, qualification and competence.

SECTION 23. Power of the Board of Directors/Trustces/Commissioners to
Disciptine or Remove Officers of GOCC. - Subject to laws, rules and regulations administered
and enforced by the Civil Service Commission and the Office of the Ombudsman. the Board
shalt have the authority to discipline the Chief Executive Officer, the officers and employees of
the GOCC or order their suspension or removal from office. upon a majority vote of the
members of the Board who actually took part in the investigation and deliberation thereof.

CTION 24. Limits to Per Diems, Allowances and Bonuses. - the charters of cach
of the GOCCs to the contrary notwithstanding, the members of the Board of
Directors/Trustees/Commissioners of the GOCCs shall not receive any compensation nor be
enfitled to retirement benefits as such directors. They shail, however, be entitled to 1 mable
per diems tor actual attendance in Board meetings which shal] not be held for more than two (2)
times per month: Provided, That the per diem is authorized under the charter of the GOCC
Provided. further, That such Directors/Trustees/Commissioners may be entitled to bonuses
subject to the approval of the President equivalent to not more than two (2} months salary of the
CEO of the GOCC, based on the individual and the GOCC’s performance: Provided. finally,
That any: bonus in excess of this limit shall be subject to the approval of the President,

In case of GOCCs organized solely for the promotion of social welfare and common
good without regard to profit, the total yearly per diems, allowances and bonuses in the
ageregate which the members of the Board of such GOCCs may receive shall be determined by
the President based on the achievement of such GOCC of its performance targets.


SECTION 25. Restitution. - Upon the determination and report of the Commission on
‘Audit that properties or monies belonging to the GOCC are in the possession of a member of ic
Board or Officer without authority, or that profits are earned by the member of the Board or
Onticer in violation of his/her fiduciary duty. or the aggregate per diems, allowances and bonuses
teceived in a particular year are in excess of the limits provided under this Act. the member of
the Board or Officer receiving such properties or monies shall return the same to the GOCC
without the necessity of demand and without prejudice to the administrative, civit and criminal
action that shall be filed against such directorAtrustee/commissioncr or oflicer of the said GOCC.

CHAPTER V
Miscellaneous Provisions

SECTION 26. Appropriations. - The amount of TEN MILLION PLSOS
(P10.000,000.00) is initially appropriated for the creation and operations of the GCG. to be
sourced trom the Contingent Fund of the President. Subsequent appropriations shall be similarly
sourced

SECTION 27. Suppletory Application of the Corporation Code and Charters of the
GOCCs. - The provisions of the Corporation Code of the Philippines and the provisions of the
charters of the relevant GOCC, insofar as they are not inconsistent with the provisions of thi
Act, shall apply suppietorily to GOCCs.

SECTION 28, Repealing Clause. - Afl laws, decrees. executive orders. presidential
decrees. rules and regulations or parts thereof contrary to or inconsistent with the provisions of
this Act are hereby repealed or modified accordingly.

SECTION 29. Sepurability Clause. - If for any reasons, any part or provision of this
Act is declared invalid or unconstitutional, the remaining parts or provisions not allected thereby
shall remain in full force and effect.

SECTION 30. Effectivity. - This Act shall take effect after fificen (15) days following
its publication in the Official Gazette or in two (2) national newspapers of general circulation.

Approved,