ACHIEVING
PARITY BETWEEN ROYALTIES ON THE EXPLOITATION OF INDIGENOUS ENERGY SOURCES AND
DUTIES ON IMPORTED ENERGY FUELS PURSUANT TO SECTION 35 OF
REPUBLIC
ACT NO. 9136 OTHERWISE KNOWN AS THE “ELECTRIC POWER
INDUSTRY REFORM ACT OF 2001”
WHEREAS,
Presidential
Decrees No. 87,
972 and
1442
were issued to promote the discovery and development of the country’s
indigenous energy resources through the utilization of government and private
resources, in power generation in order to reduce the country’s dependence on
imported energy;
WHEREAS,
Presidential
Decrees No. 87,
972 and
1442
were issued to promote the discovery and development of the country’s indigenous
energy resources through the utilization of government and private resources,
local and private resources, local and foreign, under the arrangements embodied
under said Presidential Decrees;
WHEREAS, under existing service
contracts for the exploitation of geothermal and petroleum resources, a
production sharing scheme has been provided whereby the Service contractor is
entitled to 40% of the net proceeds from the sale of the energy resource and
the government is entitled to receive 60% of the net proceeds;
WHEREAS, the aforementioned
production sharing scheme under a service contract arrangement has created
inequalities between the rate of Royalty on the exploitation of indigenous
energy sources and the duties on imported energy sources thereby affecting the
competitiveness of energy from indigenous sources with imported energy fuels;
WHEREAS, under existing service
contracts for the exploitation of coal, a production sharing scheme has been
provided whereby the Service Contractor is entitled to 70% of the net proceeds
sale of the energy resource and the government is entitled to receive 30% of
the net proceeds. Thus, the existing
Royalty on local coal is lower than the duty on imported coal;
WHEREAS, Section 35 of
Republic Act No. 9136 (R.A. 9136) mandates the President of
the Philippines to reduce the royalties, returns and taxes collected for the
exploitation of all indigenous energy sources, including but not limited to,
natural gas and geothermal steam, so as to effect parity of tax treatment with
the existing rates for imported coal, crude oil, bunker fuel and other imported
fuels;
WHEREAS, under existing laws, the
rates of taxes on the exploitation of indigenous energy sources and imported energy
fuels on a per fuel type basis are equal;
WHEREAS, paragraph 2 of Section
35 of
R.A. 9136 mandates that the reduction of Royalty
shall ultimately benefit the end-users using indigenous energy sources and
toward this end, the
Energy Regulatory
Commission (ERC) shall reduce the rates of electricity from all indigenous
energy sources;
WHEREAS, the
Department of Finance (DOF) and the
Department of Energy (DOE) recommend the
issuance of this Executive Order;
NOW, THEREFORE, I, GLORIA
MACAPAGAL ARROYO, President of the
SECTION 1. Reduction of Royalty. – For purposes of this Executive Order,
“Royalty” shall refer to government share net of income tax under service
contract arrangements pursuant to
Presidential Decrees No.
87,
972 and
1442.
SEC. 2. Effective Reduction of Royalty. – To achieve parity between the Royalty on
indigenous energy sources and duties on imported energy fuels, the Royalty on
the exploitation and development of indigenous energy sources shall effectively
be reduced for natural gas and geothermal energy in accordance with he
following formula:
Tax
Equalization = [Tax Burden per kWh on Indigenous] – [Tax Burden per kWh on
Imported Energy Fuel]
Where:
Tax
Burden (P/kWh) on the Indigenous = [Royalty in pesos + Excise Tax in pesos]
divided by Σ of Electricity Sales per plant in kWh;
Tax
Burden (P/kWh) on Imported Fuel = [Duty in pesos per kWh] + [Excise Tax in
pesos per kWh];
Provided,
That [Tax Burden per kWh on Indigenous] > [Tax Burden per kWh on Imported
Fuel].
Indigenous
Natural Gas and Geothermal Energy shall be benchmarked with the appropriate
imported energy source as determined by the
DOF
and the
DOE.
Considering that the existing Royalty on local coal shall remain.
SEC. 3. Reduction in the Price if Indigenous
Energy Used for Electricity.
– Pursuant to Section 35 of
R.A. 9136, the
ERC shall reduce the rates of power from all
indigenous energy sources to reflect the reduction in Royalty, thus ensuring
lower rates for end-users of indigenous energy sources.
SEC. 4. Universal Charge for Tax Equalization. – The Universal Charge collected pursuant to
Section 34(c) of
R.A. 9136 shall be used to achieve
parity between the Royalty on indigenous energy sources and duties on imported
energy fuels. Service contractors shall
continue to pay to the government the full amount of Royalty under the existing
service contracts. If the cost of the
Royalty is passed on by the Service Contractor to the Qualified Generation
Company, the Qualified Generation Company shall be entitled to claim from the
Universal Charge the amount not exceeding the Tax Equalization: Provided,
however, That the cost of power passed on by the Qualified Generation
Company to the Distribution Utilities shall be reduced by the amount of Tax
Equalization: Provided further, That the claim for reimbursement shall
pertain only to indigenous energy sources actually used for power generation.
The administrative guidelines for
this Executive Order shall provide the details for its implementation.
SEC. 5. Monitoring and Compliance. – The Qualified Generation Companies and
Distribution Utilities shall implement the effective rate reduction mandated by
the
ERC.
For this purpose, the
ERC shall
strictly monitor the sale of electricity by generation companies and
distribution companies. The
ERC shall require generation companies and
distribution utilities to submit all information necessary for
ERC and
DOE
to undertake its monitoring function including information on the sales to
distributors/suppliers of power from all indigenous energy sources and the
amount of reduction in the cost of power attributable to the Tax
Equalization.
SEC. 6. Periodic Review and Evaluation. – The
DOF
and the
DOE shall conduct a periodic
review and evaluation of the price of fuel, electricity sales, royalty, tariff
sales, and other relevant factors for the purpose of periodic adjustment of Tax
Equalization, if such periodic adjustment is necessary. The result of the review shall be submitted
to the
ERC.
SEC. 7. Administrative Guidelines. – The
DOF
and the
DOE, in consultation with the
ERC and the other concerned agencies, shall
adopt administrative guidelines for this Executive order.
SEC.
8. Repealing Clause. – All orders, issuance, rules and regulations
or parts thereof, which are inconsistent with this Executive Order, are hereby
repealed or modified accordingly.
SEC. 9. Effectivity. – This Executive Order shall take effect
fifteen (15) days from the date of its publication in two (2) newspapers of
general circulation.
Done in the City of
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