Republic Act No.

7076

June 27, 1991

AN ACT CREATING A PEOPLE'S SMALL-SCALE MINING PROGRAM AND FOR OTHER

PURPOSES
Section 1. Title. This Act shall be known as the "People's Small-scale Mining Act of 1991."
Section 2. Declaration of Policy. It is hereby declared of the State to promote, develop, protect
and rationalize viable small-scale mining activities in order to generate more employment
opportunities and provide an equitable sharing of the nation's wealth and natural resources, giving
due regard to existing rights as herein provided.
Section 3. Definitions. For purposes of this Act, the following terms shall be defined as follows:
(a) "Mineralized areas" refer to areas with naturally occurring mineral deposits of gold, silver,
chromite, kaolin, silica, marble, gravel, clay and like mineral resources;
(b) "Small-scale mining" refers to mining activities which rely heavily on manual labor using
simple implement and methods and do not use explosives or heavy mining equipment;
(c) "Small-scale miners" refer to Filipino citizens who, individually or in the company of other
Filipino citizens, voluntarily form a cooperative duly licensed by the Department of
Environment and Natural Resources to engage, under the terms and conditions of a
contract, in the extraction or removal of minerals or ore-bearing materials from the ground;
(d) "Small-scale mining contract" refers to co-production, joint venture or mineral production
sharing agreement between the State and a small-scale mining contractor for the small-scale
utilization of a plot of mineral land;
(e) "Small-scale mining contractor" refers to an individual or a cooperative of small-scale
miners, registered with the Securities and Exchange Commission or other appropriate
government agency, which has entered into an agreement with the State for the small-scale
utilization of a plot of mineral land within a people's small-scale mining area;
(f) "Active mining area" refers to areas under actual exploration, development, exploitation or
commercial production as determined by the Secretary after the necessary field investigation
or verification including contiguous and geologically related areas belonging to the same
claimowner and/or under contract with an operator, but in no case to exceed the maximum
area allowed by law;
(g) "Existing mining right" refers to perfected and subsisting claim, lease, license or permit
covering a mineralized area prior to its declaration as a people's small-scale mining area;
(h) "Claimowner" refers to a holder of an existing mining right;

(i) "Processor" refers to a person issued a license to engage in the treatment of minerals or
ore-bearing materials such as by gravity concentration, leaching benefication, cyanidation,
cutting, sizing, polishing and other similar activities;
(j) "License" refers to the privilege granted to a person to legitimately pursue his occupation
as a small-scale miner or processor under this Act;
(k) "Mining plan" refers to a two-year program of activities and methodologies employed in
the extraction and production of minerals or ore-bearing materials, including the financial
plan and other resources in support thereof;
(l) "Director" refers to the regional executive director of the Department of Environment and
Natural Resources; and
(m) "Secretary" refers to the Secretary of the Department of Environment and Natural
Resources.
Section 4. People's Small-scale Mining Program. For the purpose of carrying out the declared
policy provided in Section 2 hereof, there is hereby established a People's Small-scale Mining
Program to be implemented by the Secretary of the Department of Environment and Natural
Resources, hereinafter called the Department, in coordination with other concerned government
agencies, designed to achieve an orderly, systematic and rational scheme for the small-scale
development and utilization of mineral resources in certain mineral areas in order to address the
social, economic, technical, and environmental connected with small-scale mining activities.
The People's Small-scale Mining Program shall include the following features:
(a) The identification, segregation and reservation of certain mineral lands as people's smallscale mining areas;
(b) The recognition of prior existing rights and productivity;
(c) The encouragement of the formation of cooperatives;
(d) The extension of technical and financial assistance, and other social services;
(e) The extension of assistance in processing and marketing;
(f) The generation of ancillary livelihood activities;
(g) The regulation of the small-scale mining industry with the view to encourage growth and
productivity; and
(h) The efficient collection of government revenue.

Section 5. Declaration of People's Small-scale Mining Areas. The Board is hereby authorized
to declare and set aside people's small-scale mining areas in sites onshore suitable for small-scale
mining, subject to review by the Secretary, immediately giving priority to areas already occupied and
actively mined by small-scale miners before August 1, 1987: provided, that such areas are not
considered as active mining areas: provided, further, that the minerals found therein are technically
and commercially suitable for small-scale mining activities: provided, finally, that the areas are not
covered by existing forest rights or reservations and have not been declared as tourist or marine
reserved, parks and wildlife reservations, unless their status as such is withdrawn by competent
authority.
Section 6. Future People's Small-scale Mining Areas. The following lands, when suitable for
small-scale mining, may be declared by the Board as people's small scale mining areas:
(a) Public lands not subject to any existing right;
(b) Public lands covered by existing mining rights which are not active mining areas; and
(c) Private lands, subject to certain rights and conditions, except those with substantial
improvements or in bona fide and regular use as a yard, stockyard, garden, plant nursery,
plantation, cemetery or burial site, or land situated within one hundred meters (100 m.) from
such cemetery or burial site, water reservoir or a separate parcel of land with an area of ten
thousand square meters (10,000 sq. m.) or less.
Section 7. Ancestral Lands. No ancestral land may be declared as a people's small-scale mining
area without the prior consent of the cultural communities concerned: provided, that, if ancestral
lands are declared as people's small-scale mining areas, the members of the cultural communities
therein shall be given priority in the awarding of small-scale mining contracts.
Section 8. Registration of Small-scale Miners. All persons undertaking small-scale mining
activities shall register as miners with the Board and may organize themselves into cooperatives in
order to qualify for the awarding of a people's small-scale mining contract.
Section 9. Award of People's Small-scale Mining Contracts. A people's small-scale mining
contract may be awarded by the Board to small-scale miners who have voluntarily organized and
have duly registered with the appropriate government agency as an individual miner or cooperative;
Provided, that only one (1) people's small-scale mining contract may be awarded at any one time to
a small-scale mining operations within one (1) year from the date of award: provided, further, that
priority shall be given or city where the small-scale mining area is located.
Applications for a contract shall be subject to a reasonable fee to be paid to the Department of
Environment and Natural Resources regional office having jurisdiction over the area.
Section 10. Extent of Contract Area. The Board shall determine the reasonable size and shape
of the contract area following the meridional block system established under Presidential Decree No.
463, as amended, otherwise known as the Mineral Resources Development Decree of 1974, but in
no case shall the area exceed twenty hectares (20 has.) per contractor and the depth or length of

the tunnel or adit not exceeding that recommended by the director taking into account the following
circumstances:
(a) Size of membership and capitalization of the cooperative;
(b) Size of mineralized area;
(c) Quantity of mineral deposits;
(d) Safety of miners;
(e) Environmental impact and other considerations; and
(f) Other related circumstances.
Section 11. Easement Rights. Upon the declaration of a people's small-scale mining area, the
director, in consultation with the operator, claimowner, landowner or lessor of an affected area, shall
determine the right of the small scale miners to existing facilities such as mining and logging roads,
private roads, port and communication facilities, processing plants which are necessary for the
effective implementation of the People's Small-scale Mining Program, subject to payment of
reasonable fees to the operator, claimowner, landowner or lessor.
Section 12. Rights Under a People's Small-scale Mining Contract. A people's small-scale
mining contract entitles the small-scale mining contractor to the right to mine, extract and dispose of
mineral ores for commercial purposes. In no case shall a small-scale mining contract be
subcontracted, assigned or otherwise transferred.
Section 13. Terms and Conditions of the Contract. A contract shall have a term of two (2)
years, renewable subject to verification by the Board for like periods as long as the contractor
complies with the provisions set forth in this Act, and confers upon the contractor the right to mine
within the contract area: provided, that the holder of a small-scale mining contract shall have the
following duties and obligations:
(a) Undertake mining activities only in accordance with a mining plan duly approved by the
Board;
(b) Abide by the Mines and Geosciences Bureau and the small-scale Mining Safety Rules
and Regulations;
(c) Comply with his obligations to the holder of an existing mining right;
(d) Pay all taxes, royalties or government production share as are now or may hereafter be
provided by law;
(e) Comply with pertinent rules and regulations on environmental protection and
conservation, particularly those on tree-cutting mineral-processing and pollution control;

(f) File under oath at the end of each month a detailed production and financial report to the
Board; and
(g) Assume responsibility for the safety of persons working in the mines.
Section 14. Rights of Claimowners. In case a site declared and set aside as a people's-scale
mining area is covered by an existing mining right, the claimowner and the small-scale miners
therein are encouraged to enter into a voluntary and acceptable contractual agreement with respect
to the small-scale utilization of the mineral values from the area under claim. In case of
disagreement, the claimowner shall be entitled to the following rights and privileges:
(a) Exemption from the performance of annual work obligations and payment of occupation
fees, rental, and real property taxes;
(b) Subject to the approval of the Board, free access to the contract area to conduct
metallurgical tests, explorations and other activities, provided such activities do not unduly
interfere with the operations of the small-scale miners; and
(c) Royalty equivalent to one and one half percent (1 1/2%) of the gross value of the metallic
mineral output or one percent (1%) of the gross value of the nonmetallic mineral output to be
paid to the claimowner: provided, that such rights and privileges shall be available only if he
is not delinquent and other performance of his annual work obligations and other
requirements for the last two (2) years prior to the effectivity of this Act.
Section 15. Rights of Private Landowners. The private landowner or lawful possessor shall be
notified of any plan or petition to declare his land as a people's small-scale mining area. Said
landowner may oppose such plan or petition in an appropriate proceeding and hearing conducted
before the Board.
If a private land is declared as a people's small-scale mining area, the owner and the small-scale
mining contractors are encouraged to enter into a voluntary and acceptable contractual agreement
for the small-scale utilization of the mineral values from the private land: provided, that the owner
shall in all cases be entitled to the payment of actual damages which he may suffer as a result of
such declaration: provided, further, that royalties paid to the owner shall in no case exceed one
percent (1%) of the gross value of the minerals recovered as royalty.
Section 16. Ownership of Milllings. The small-scale mining contractor shall be the owner of all
milllings produced from the contract area. He may sell thelings or have them processed in any
custom mill in the area: provided, that, if the small-scale mining contractor decide to sell its milllings,
the claimowner shall have a preemptive right to purchase said milllings at the prevailing market
price.
Section 17. Sale of Gold. All gold produced by small-scale miners in any mineral area shall be
sold to the Central Bank, or its duly authorized representatives, which shall buy it at prices
competitive with those prevailing in the world market regardless of volume or weight.

The Central Bank shall establish as many buying stations in gold-rush areas to fully service the
requirements of the small-scale minerals thereat.
Section 18. Custom Mills. The establishment and operation of safe and efficient customs mills to
process minerals or ore-bearing materials shall be limited to mineral processing zones duly
designated by the local government unit concerned upon recommendation of the Board.
In mining areas where the private sector is unable to establish custom mills, the Government shall
construct such custom mills upon the recommendation of the Board based on the viability of the
project.
The Board shall issue licenses for the operation of custom mills and other processing plants subject
to pollution control and safety standards.
The Department shall establish assay laboratories to cross-check the integrity of custom mills and to
render metallurgical and laboratory services to mines.
Custom mills shall be constituted as withholding agents for the royalties, production share or other
taxes due the Government.
Section 19. Government Share and Allotment. The revenue to be derived by the Government
from the operation of the mining program herein established shall be subject to the sharing provided
in the Local Government Code.
Section 20. People's Small-scale Mining Protection Fund. There is hereby created a People's
Small-scale Mining Protection Fund which shall be fifteen percent (15%) of the national
government's share due the Government which shall be used primarily for information dissemination
and training of small-scale miners on safety, health and environmental protection, and the
establishment of mine rescue and recovery teams including the procurement of rescue equipment
necessary in cases of emergencies such as landslides, tunnel collapse, or the like.
The fund shall also be made available to address the needs of the small-scale miners brought about
by accidents and/or fortuitous events.
Section 21. Rescission of Contracts and Administrative Fines. The noncompliance with the
terms and conditions of the contract or violation of the rules and regulations issued by the Secretary
pursuant to this Act, as well as the abandonment of the mining site by the contractor, shall constitute
a ground for the cancellation of the contracts and the ejectment from the people's small-scale mining
area of the contractor. In addition, the Secretary may impose fines against the violator in an amount
of not less than Twenty thousand pesos (P20,000.00) and not more than One hundred thousand
pesos (P100,000.00). Nonpayment of the fine imposed shall render the small-scale mining
contractor ineligible for other small-scale mining contracts.
Section 22. Reversion of People's Small-scale Mining Areas. The Secretary, upon
recommendation of the director, shall withdraw the status of the people's small-scale mining area

when it can no longer feasibly operated on a small-scale mining basis or when the safety, health and
environmental conditions warrant that the same shall revert to the State for proper disposition.
Section 23. Actual Occupation by Small-scale Miners. Small-scale miners who have been in
actual operation of mineral lands on or before August 1, 1987 as determined by the Board shall not
be dispossessed, ejected or removed from said areas: provided, that they comply with the provisions
of this Act.
Section 24. Provincial/City Mining Regulatory Board. There is hereby created under the direct
supervision and control of the Secretary a provincial/city mining regulatory board, herein called the
Board, which shall be the implementing agency of the Department, and shall exercise the following
powers and functions, subject to review by the Secretary:
(a) Declare and segregate existing gold-rush areas for small-scale mining;
(b) Reserve future gold and other mining areas for small-scale mining;
(c) Award contracts to small-scale miners;
(d) Formulate and implement rules and regulations related to small-scale mining;
(e) Settle disputes, conflicts or litigations over conflicting claims within a people's small-scale
mining area, an area that is declared a small-mining; and
(f) Perform such other functions as may be necessary to achieve the goals and objectives of
this Act.
Section 25. Composition of the Provincial/City Mining Regulatory Board. The Board shall be
composed of the Department of Environment and Natural Resources representative as Chairman;
and the representative of the governor or city mayor, as the representative of the governor or city
mayor, as the case may be, one (1) small scale mining representative, one (1) big-scale mining
representative, and the representative from a nongovernment organization who shall come from an
environmental group, as members.
The representatives from the private sector shall be nominated by their respective organizations and
appointed by the Department regional director. The Department shall provide the staff support to the
Board.
Section 26. Administrative Supervision over the People's Small-scale Mining Program. The
Secretary through his representative shall exercise direct supervision and control over the program
and activities of the small-scale miners within the people's small-scale mining area.
The Secretary shall within ninety (90) days from the effectivity of this Act promulgate rules and
regulations to effectively implement the provisions of the same. Priority shall be given to such rules
and regulations that will ensure the least disruption in the operations of the small-scale miners.

Section 27. Penal Sanctions. Violations of the provisions of this Act or of the rules and
regulations issued pursuant hereto shall be penalized with imprisonment of not less than six (6)
months nor more than six (6) years and shall include the confiscation and seizure of equipment,
tools and instruments.
Section 28. Repealing Clause. All laws, decrees, letters of instruction, executive orders, rules and
regulations, and other issuances, or parts thereof, in conflict or inconsistent with this Act are hereby
repealed or modified accordingly.
Section 29. Separability Clause. Any section or provision of this Act which may be declared
unconstitutional shall not affect the other sections or provisions hereof.
Section 30. Effectivity. This Act shall take effect fifteen (15) days after its publication in the Official
Gazette or in a national newspaper of general circulation.
Approved: June 27, 1991.

PRESIDENTIAL DECREE NO. 972

PROMULGATING AN ACT TO PROMOTE AN ACCELERATED
EXPLORATION, DEVELOPMENT, EXPLOITATION, PRODUCTION AND
UTILIZATION OF COAL

WHEREAS, the increasing cost of imported crude oil imposes an unduly

heavy demand on the country's international reserves thereby making it
imperative for the government to pursue actively the exploration,
development and exploitation of indigenous energy resources;

WHEREAS, while coal has been identified as a fossil fuel known to exist in
mineable quantities in the country which could provide a viable energy
source for some vital industries, large tracts of coalbearing lands have not
been explored and mined in a manner and to an extent adequate to meet
the needs of the economy;
WHEREAS, the proliferation of fragmented coal permits and leases has
prevented, or deterred, the adequate and speedy exploration, development,
exploitation and production of indigenous coal resources;
WHEREAS, to develop, achieve and implement a well-planned, systematic
and meaningful exploration, development, exploitation and production of
local coal resources, participation of the private sector with sufficient capital,
technical and managerial resources must be encouraged and the technical
and financial capabilities of the coal industry upgraded;
WHEREAS, hand in hand with an accelerated coal exploration, development,
exploitation and production program, it is essential that the market for
domestic coal production be developed by granting incentives to prospective
coal users to convert their facilities for coal utilization;
WHEREAS, to realize the above, it is necessary to amend and/or supplement
existing legislation relating to coal;
WHEREAS, Article XVII, Section 12 of the Constitution of the Philippines
provides in part that when the national interest so requires, the incumbent
President of the Philippines or the interim Prime Minister, may review all
contracts, concessions, permits or other forms of privileges for the
exploration, development, exploitation or utilization of natural resources
entered into, granted, issued or acquired before the ratification of
the Constitution;chan robles virtual law library
NOW, THEREFORE, I, FERDINAND E. MARCOS, by virtue of the powers
vested in me by the Constitution of the Philippines, do hereby decree and
declare as part of the law of the land the following:
SECTION 1. Short Title. This Act shall be known and may be cited as "The
Coal Development Act of 1976."
SECTION 2. Declaration of Policy. It is hereby declared to be the policy of
the state to immediately accelerate the exploration, development,
exploitation production and utilization of the country's coal resources. A coal
development program is therefore promulgated and established by this
Decree.

SECTION 3. Coal Development Program. The country shall be divided into

coal regions and exploration and exploitation programs shall be instituted
and implemented pursuant to this Decree.
These programs shall be geared towards the promotion and development of
the necessary technical and financial capability to undertake a work program
to effectively explore exploit coal resources.
In recognition, however, of the social constraints that may be encountered in
effecting the establishment of coal units in regions where there is high
concentration of small coal miners, a special coal program shall be
formulated and implemented in coordination with the appropriate
government agency/agencies to meet the particular needs of such regions.
chan robles virtual law library
SECTION 4. Government to Undertake Coal Exploration Development and
Production. The Government, through the Energy Development Board, its
successors or assigns, shall undertake by itself the active exploration,
development and production of coal resources. It may also execute coal
operating contracts as hereafter defined. The active exploration and
exploitation of coal resources by the Government or through coal operating
contracts may cover public lands, any unreserved or unappropriated coal
bearing lands, claims located and recorded by private parties areas covered
by valid and subsisting coal revocable permits, coal leases and other existing
rights granted by the Government for the exploration and exploitation of coal
lands, government mineral reservations, coal areas/mines whose leases or
permits are presently owned or operated or held by government-owned or
controlled corporations and coal mineable areas operated or held by
government agencies.
SECTION 5. Blocking System. The Energy Development Board shall establish
coal regions delimiting its extent and boundaries after taking into
consideration the various coal bearing lands of the Philippines. Each coal
region shall be divided into meridional blocks or quadrangles of two minutes
(2') of latitude and one and one-half minutes (1-1/2) of longitude, each block
containing an area of one thousand (1,000) hectares, more or less, the
boundaries thereof to coincide with the full two minutes and one and onehalf minutes of latitude and longitude, respectively, based on the Philippine
Coast and Geodetic Survey Map, scale of 1:50,000.chan robles virtual law
library
SECTION 6. Coal Contract Area. In conformity with the blocking system
herein established, the Energy Development Board shall determine in each
coal region what areas, are available for coal operating contracts. In opening
such contract areas, the Energy Development Board may resort to either of
the following alternative procedures:

a. By offering an area or areas for bids, specifying the minimum

requirements and conditions in accordance with this Decree: or
b. By negotiating with a qualified party for a coal operating contract under
the terms and conditions provided in this Decree.
No person shall be entitled to more than fifteen (15) blocks of coal lands in
any one coal region.
SECTION 7. Existing Permittees/Leaseholders. All valid and subsisting
holders of coal revocable permits, coal leases and other existing rights
granted by the government for the exploration and exploitation of coal lands
or the operators thereof duly approved by the appropriate government
agency, shall be given preference in the grant of coal operating contract over
the area covered by their permits, leases or other rights subjects to
their compliance with the following conditions and guidelines:
a. Those whose areas fall within a block as described in Section 5 hereof shall
organize or consolidate themselves into a coal unit, singly or jointly with
valid and subsisting holders of coal revocable permits, coal leases and other
existing coal rights or the duly approved operator thereof, of contiguous
blocks provided that a coal unit shall not be entitled to more than fifteen (15)
blocks of coal lands in any coal region.
b. Consolidation of areas into coal unit which shall require approval by the
Energy Development Board must be completed within a period of six (6)
months from the effectivity of this Decree.
c. In order to qualify for consolidation into coal units, permittees,
leaseholders or operators must have complied with the requirements of their
existing permits, leases and/or rights as defined under existing laws, rules
and regulations.
d. Members of the coal unit shall agree on the form, terms and extent of
participation of its individual members. All holders of valid and subsisting
coal revocable permits, coal leases and other existing rights granted by the
government for the exploration, development and exploitation of coal lands
shall be given percentage interest in the unit or payments out of production
under such terms and conditions as may be agreed by the members of the
unit and approved by the Energy Development Board.
e. A coal unit shall enter into a coal operating contract as hereafter provided
within six (6) months from its formation.
Coal revocable permits, coal leases and other existing rights granted by the
government for the exploration and exploitation of coal lands shall be

deemed automatically canceled and the area covered thereby shall revert
back to the State for failure of the holders or the qualified operators thereof
for any cause whatsoever to consolidate their areas into coal units or secure
a coal operating contract within the period specified in this section.
SECTION 8. Coal Operating Contract. Each coal operating contract herein
authorized shall, subject to the approval of the President, be executed by the
Energy Development Board.chan robles virtual law library
In a coal operating contract, service, technology and financing are furnished
by the operator for which it shall be entitled to the stipulated fee and
reimbursement of operating expenses. Accordingly, the operator must be
technically competent and financially capable as determined by the Energy
Development Board to undertake the coal operations as required in the
contract.
SECTION 9. Obligations of Operator in Coal Operating Contract. The
operator under a coal operating contract shall undertake, manage and
execute the coal operations which shall include:
a. The examination and investigation of lands supposed to contain coal, by
detailed surface geologic mapping, core drilling, trenching, test pitting and
other appropriate means, for the purpose of probing the presence of coal
deposits and the extent thereof;
b. Steps necessary to reach the coal deposits so that can be mined, including
but not limited to shaft sinking and tunneling; and
c. The extraction and utilization of coal deposits.
The Government shall oversee the management of operation contemplated
in the coal operating contract and in this connection, shall require the
operator to:
a. Provide all the necessary service and technology;
b. Provide the requisite financing;
c. Perform the work obligations and program prescribed in the coal operating
contract which shall be less than those prescribed in this Decree;
d. Operate the area on behalf of the Government in accordance with good
coal mining practices using modern methods appropriate for the geological
conditions of the area to enable maximum economic production of coal,
avoiding hazards to life, health and property, avoiding pollution of air, land
and waters, and pursuant to an efficient and economic program of operation

e. Furnish the Energy Development Board promptly with all information, data
and reports which it may require;chan robles virtual law library
f. Maintain detailed technical records and account of its expenditures;
g. Maintain detailed technical records and account of safety demarcation
of agreement acreage and work areas, non-interference with the rights of the
other petroleum, mineral and natural resources operators;
h. Maintain all necessary equipment in good order and allow access to these
as well as to the exploration, development and production sites and
operations to inspectors authorized by the Energy Development Board;
i. Allow representatives authorized by the Energy Development Board full
access to their accounts, books and records for tax and other fiscal
purposes;
On the other hand, the Energy Development Board shall:
a. On behalf of the Government, reimburse the operator for all operating
expenses not exceeding seventy per cent (70%) of the gross proceeds from
production in any year: Provided,that if in any year, the operating expenses
exceed seventy per cent (70%) of the gross proceeds from production, then
the unrecovered expenses shall be recovered from the operating of
succeeding years. Operating expenses means the total expenditures for coal
operating incurred by the operator as provided in a coal operating contract;
b. Pay the operator a fee, the net amount of which shall not exceed forty per
cent (40%) of the balance of the gross income after deducting all operating
expenses;
c. Reimburse operating expenses and pay the operator's fee in such form
and manner as provided for in the coal operating contract.
SECTION 10. Additional Fee. All valid and subsisting holders of coal
revocable permits, coal leases and other existing rights granted by the
government for the exploration and exploitation of coal lands or the duly
qualified operators thereof who have organized their area into a coal unit
may, subject to conditions imposed by the Energy Development Board, be
granted in the coal operating contract, in addition to the face provided
in Paragraph 2 of Section 9, a special allowance, the amount of which shall
not exceed thirty per cent (30%) of the balance of the gross income after
deducting all operating expenses.
Coal operating contracts entered into with Philippine citizens or corporations
except those already covered under the preceding paragraph, shall be

granted a special allowance, the amount of which shall not exceed twenty
per cent (20%) of the balance of the gross income after deducting all
operating expenses: Provided, that coal operating contracts in which
Philippine citizens or corporations have a minimum participating interest of
fifteen per cent (15%) in the contract area, may subject to
reasonable conditions imposed by the Energy Development Board, be
granted a special allowance not exceeding ten per cent (10%) of the balance
of the gross income after deducting all operating expenses.chan robles
virtual law library
For the purpose of this section, a Philippine corporation means a corporation
organized under Philippine laws at least sixty per cent (60%) of the capital of
which, including the voting shares, is owned and held by citizens of the
Philippines.
SECTION 11. Minimum Terms and Conditions. In addition to those elsewhere
provided in this Decree, every coal operating contract executed in pursuance
hereof shall contain the following minimum terms and conditions:
a. Every operator shall be obliged to spend in direct prosecution of
exploration work not less than the amounts provided for in the coal operating
contract and these amounts shall not be less than the total obtained by
multiplying the number of coal blocks or fraction thereof covered by the
contract by One Million Pesos (P1,000,000.00) per block annually:Provided,
that if the area or a portion thereof is suitable for open pit mining as
determined jointly by the operator and the Energy Development Board, the
minimum expenditure requirement herein provided may be reduced up to
Two Hundred Thousand Pesos (P200,000.00) per block annually. From the
time coal reserves in commercial quantity have been determined jointly by
the operator and the Energy Development Board, the operator shall
undertake development and production of the contract area within the period
agreed upon in the contract and shall be obliged to spend in the
development and production of the contract area an amount which shall be
determined by negotiation between the operator and the Energy
Development Board taking into account factors such as measured reserves,
quality of coal, mining method and location and accessibility to
market: Provided, further, that if during any contract year the operator shall
spend more than the amount of money required to be spent, the excess may
be credited against the money required to be spent by the operator during
the succeeding years, except excess expenditures for exploration cannot be
credited
against
financial
commitment
for
development
and
production: Provided, further, that should the operator fail to comply with the
work obligations provided for in the coal operating contract, it shall pay to
the Government the amount it should have spent but did not in direct
prosecution of its work obligations: Provided, finally, that except in case of
open pit mining, the operator shall drill at least thirty (30) holes per blocks

and a minimum footage of exploratory holes before the end of the

exploration period as may be specified in the coal operating contract.
b.The exploration period under every coal operating contract shall be for two
(2) years. If the operator has complied with its exploration work obligations,
the exploration period may be extended for another two (2) years. The
coal operating contract shall lapse unless coal of commercial quantity is
measured during the exploration period or at the end thereof in any area
covered by the coal operating contract. If coal of commercial quantity is
measured, the coal operating contract shall remain in force for development
and production during the balance of the exploration period and/or for an
additional period ranging from ten (10) to twenty (20) years, thereafter
renewable for a series of three (3)-year periods not exceeding twelve (12)
years under such terms and conditions as may be agreed upon by the
parties.
c. All materials, equipment, plants and other installations erected or placed
on the exploration and/or production area of a movable nature by the
operator shall become properties of the Energy Development Board if not
removed therefrom within one (1) year after the termination of the coal
operating contract.
d. The operator shall be subject to the provisions of laws of general
application relating to labor, health, safety and ecology insofar as they are
not in conflict with the provisions otherwise contained in this Decree.
SECTION 12. Full Disclosure of Interest in Coal Operating Contract. Interest
held in the coal operating contract by domestic mining companies and/or the
latter's stockholders may be allowed to any extent after full disclosure
thereof and approved by the Energy Development Board.chan robles virtual
law librarySECTION 13. Arbitration. The Energy Development Board may
stipulate in a coal operating contract executed under this Decree that
disputes in the implementation thereof between the Government and the
operator may be settled by arbitration.
SECTION 14. Performance Guarantee. In order to guarantee compliance
with the obligations of the operator executed under this Decree, the operator
shall post a bond or other guarantee of sufficient amount in favor of the
Government and with surety or sureties satisfactory to the Energy
Development Board, conditioned upon the faithful performance by the
operator of any or all of the obligations under and pursuant to said coal
operating contracts.chan robles virtual law library
SECTION 15. Transfer and Assignment. The rights and obligations under a
coal operating contract executed under this Decree shall not be transferred
or assigned without the prior approval of the Energy Development Board:

Provided, that such transfer or assignment may be made only to a qualified

person possessing the resources and capability to continue the mining
operation of the coal operating contract and that the operator has complied
with all the obligations of the coal operating contract.
SECTION 16. Incentives to Operators. The provisions of any law to the
contrary notwithstanding, a contract executed under this Decree may
provide that the operator shall have the following incentives:
a. Exemption from all taxes except income tax;
b. Exemption from payment of tariff duties and compensating tax on
importation of machinery and equipment and spare parts and materials
required for the coal operations subject to the following conditions:chan
robles virtual law library
1. that machinery, equipment, spare parts and materials of
comparable price and quality are not manufactured in the Philippines;
2. that the same are directly and actually needed and will be
used exclusively by the operator in its operations or in operation for it
by a contractor;
3. that they are covered by shipping documents in the name of
the operator to whom the shipment will be delivered directly by
the customs authorities; and
4. that prior approval of the Energy Development Board was obtained
by the operator before the importation of such machinery,
equipment, spare parts and materials, which approval shall not be
unreasonably withheld: Provided, however, that the operator or its
contractor may not sell, transfer, or dispose of the machinery,
equipment, spare parts and materials without the prior approval of the
Energy Development Board and payment of taxes and duties
thereon: Provided, further, that should the operator or its contractor
sell, transfer, or dispose of these machinery, equipment, spare parts or
materials without the prior approval of the Energy Development Board,
it shall pay twice the amount of the taxes and duties
thereon: Provided,finally, that the Energy Development Board shall
allow and approved the sale, transfer or disposition of the said items
without tax if made:
a. to another operator under a coal operating contract;
b. for reasons of technical obsolescence; or
c. for purposes of replacement to improve and/or expand the operation
under the coal operating contract.

c. Accelerated Depreciation. At the option of the taxpayer and in

accordance with the procedures established by the Bureau of Internal
Revenue, fixed assets owned by the coal units in the performance of its coal
operating contract may be:
d. Foreign Loans and Contracts. The right to remit at the prevailing
exchange rate at the time of remittance of such sum as may be necessary to
cover principal and interest of foreign loans and foreign obligations arising
from technological assistance contracts relating to the performance of the
coal operating contract, subject to Central Bank regulations.chan robles
virtual law library.
e. Preference in Grant of Government Loans. Government financial
institutions such as the Development Bank of the Philippines, the Philippine
National Bank, the Government Service Insurance System, the Social
Security System, the Land Bank of the Philippines and other government
institutions as are now engaged or may hereafter engage in financing on
investment operations shall, in accordance with and to the extent allowed by
the enabling provisions of their respective charters or applicable laws, accord
high priority to applications for financial assistance submitted by operators in
the performance of coal operating contracts, whether such financial
assistance be in the form of equity participation in preferred, common or
preferred convertible shares of stock, or in loans and guarantee, and shall
facilitate the processing thereof and the release of the funds therefor.
However, financial assistance under this paragraph shall be extended only to
operators which are Philippine nationals as the term is defined under
Republic Act No. 5186, as amended.
f. Entry upon the sole approval of the Energy Development Board which
shall not be unreasonably withheld of alien technical and specialized
personnel (including the immediate members of their families) who may
exercise their profession only for the operation of the operator as prescribed
in its coal operating contract with the government under this
Decree: Provided, that if the employment or connection of any such alien
with the operator ceases, the applicable laws and regulations on immigration
shall apply to him and his immediate family: Provided, further, that Filipinos
shall be given preference to positions for which they have adequate training,
and: Provided, finally, that the operator shall adopt and implement a training
program for Filipinos along technical or specialized lines, which program shall
be reported to the Energy Development Board.
SECTION 17. Incentives to Coal Users. The following incentives shall be
granted to enterprises/industries which will convert their existing oil fired
plants facilities to make the same adaptable for coal burning:

a. Tax Exemption on Imported Capital Equipment. Within seven (7) years

from the date of approval of the plan for conversion of existing oil fired
plants and facilities to make the same adaptable for coal burning, the
importation of machinery and equipment, and spare parts shipped with such
machinery and equipment necessary to implement their program of
conversion shall not be subject to tariff and customs duties and
compensating tax: Provided, that said machinery, equipment and spare parts
are:
1. Not manufactured in the Philippines in reasonable quantity and quality
at reasonable prices;
2. Directly and actually needed and will be used exclusively in the
implementation of the conversion of existing plants to coal burning;
3. Covered by shipping documents in the name of the enterprise to
whom the shipment will be delivered directly by customs authorities;
4. Prior approval, before importation of such machinery, equipment
and spare parts was obtained. If imported machinery, equipment and
spare parts are sold, transferred or otherwise disposed of without
the required prior approval, the importer shall pay twice the amount of
the tax and duty thereon. However, the sale, transfer or disposition of
the said items shall be allowed and approved without tax and duty if
made to another company for use in:
a. Converting its existing plants to coal burning subject to the same
conditions and limitations as herein provided;
b. For reasons of technical obsolescence; or
c. For replacement of equipment to improve and/or expand the operations of
the enterprise.
For
replacement
of
modernization
of
existing
facilities
of
subject enterprises/industries which will be utilized partly or entirely in
the conversion of coal burning, in lieu of an exemption from payment of
tariff duties and taxes, it shall be granted deferment in the payment of such
taxes and duties for a period of not exceeding ten (10) years after posting
the appropriate bond as may be required by the Secretary of Finance.

b. Tax Credit on Domestic Capital Equipment. Within seven (7) years from
the date of approval of the plan for conversion of existing oil fired plants, and
facilities to make the same adaptable for coal burning, a tax credit
equivalent to one hundred per cent (100%) of the value of the compensating
tax and customs duties that would have been paid on machinery, equipment
and spare parts necessary to implement the program of conversion had

these items been imported, shall be given to the industry with a program of
conversion to coal burning that purchases said machinery, equipment and
spare parts from a domestic manufacturer: Provided,
1. That said machinery, equipment and spare parts are directly
andactually needed and will be used exclusively in the implementation
of the conversion of its existing plants to coal burning;
2. That the prior approval was was obtained for the purchase of
the machinery, equipment and spare parts. If the machinery,
equipment and spare parts are sold, transferred or otherwise disposed
of without the required prior government approval, the purchaser shall
pay twice the amount of the tax credit given to it. However, the sale,
transfer or disposition of the said items shall be allowed and approved
without tax if made:
a. To another company for use in its approved program of conversion to coal
burning subject to the same conditions and limitations as herein provided;
b. For reasons of technical obsolescence; or
c. For purposes of replacement to improve and/or expand the operation of
the enterprise.

Net Operating Lose Carryover. A net operating loss incurred in any of

the first ten (10) years after the start of the implementation of the coal
conversion program may be carried over as a deduction from taxable
income for the six (6) years immediately following the year of such
loss. The entire amount of the loss shall be carried over to the first of
the (6) taxable years following the loss, and any portion of such loss
which exceeds the taxable income of such first year shall be deducted
in like manner from the taxable income of the next remaining five (5)
years. The net operating loss shall be computed in accordance with the
provision of the National Internal Revenue Code, any provision of this
Decree to the contrary notwithstanding, except that income not
taxable either in whole or in part under this or other laws shall be
included in the gross income.
Capital Gains Tax Exemption. Exemption from income tax on the
proceeds of the gains realized from the sale, disposition or transfer of
capital assets which are sold or disposed of as a result of the
conversion of facilities to a coal burning plant:Provided, that such sale,
disposition or transfer are registered with the Bureau of Internal
Revenue: Provided, however,that the gains realized from the subject
sale, disposition or transfer of capital assets are invested in new issues
of capital stock of an enterprise registered under the Investment
Incentives Act, as amended, and other allied incentives laws:

Provided, further, that the shares of stock representing the investment

are not disposed of, transferred, assigned, or conveyed for a period of
seven (7) years from the date the investment was made:
and, Provided, finally, that if such shares of stock are disposed of
within the said period of seven (7) years, all taxes due on the gains
realized from the original transfer, sale, or disposition of the capital
assets shall become immediately due and payable.chan robles virtual
law library
Accelerated Depreciation. At the option of the taxpayer and in
accordance with the procedure established by the Bureau of Internal
Revenue, fixed assets used by the industry in carrying out the program
of conversion to coal burning may be:
1. Depreciated to the extent of not more than twice as fast as
normal rate of depreciation or depreciated at normal rate of
depreciation if expected life is ten (10) years or less; or
2. Depreciated over any number of years between five (5) years
and expected life if the latter is more than ten (10) years, and
the depreciation thereon allowed as a deduction from taxable
income:
Provided, that the taxpayer notifies the Bureau of Internal
Revenue at the beginning of the depreciation period which
depreciation rate allowed by this section will be used by it.
Foreign Loans and Contracts. The right to remit at the prevailing
exchange rate at the time of remittance such sum as may be
necessary to cover interest and principal of foreign loan and foreign
obligations arising from technological assistance contracts relating to
the implementation of the program of conversion to coal burning
subject to Central Bank regulation.
Preference in Grant of Government Loans. Government financial
institutions such as the Development Bank of the Philippines, the
Philippine National Bank, the Government Service Insurance System,
the Social Security System, the Land Bank of the Philippines and such
other government institutions as are now engaged or may hereafter
engage in financing of investment operations shall, in accordance with
and to the extent allowed by the enabling provisions of their respective
charters or applicable laws, accord high priority to application for
financial assistance submitted by enterprises/industries requiring
funding to implement the program of conversion to coal
burning, whether such financial assistance be in the form of equity
participation in preferred, common or preferred convertible shares of
stock, or in loans and guarantee, and shall facilitate the processing
thereof and the release of the funds therefore; However, financial
assistance shall be extended only under this paragraph to industry
converting to coal burning which is a Philippine national as this term is
defined under Republic Act No. 5186, as amended.

The foregoing incentives to enterprises/industries which will convert

their existing oil fired plants and facilities to make the same adaptable for
coal burning shall be administered and implemented by the Board of
Investments created under Republic Act No. 5186, also known as the
Investment Incentives Act, as amended. The Board of Investments shall have
the power to process and approved, under such terms and conditions as it
may deem necessary, plans for conversion to coal burning and applications
for availment of the foregoing incentives. It shall promulgate such rules and
regulations as may be necessary to implement the intent and provisions of
this section.
SECTION 18. Implementing Agency. Except as otherwise provided in Section
17 hereof, the Energy Development Board, created pursuant to Presidential
Decree No. 910, in addition to the powers, duties and functions under
existing laws, shall be charged with carrying out the provisions of this Decree
and shall be vested with the authority to promulgate rules and regulations
implementing thereof.
SECTION 19. Separability Clause. Should any provision of this Decree be
held unconstitutional, no other provision hereof shall be affected thereby.
SECTION 20. Repealing Clause. The provisions of Presidential Decree No.
463, otherwise known as the "Mineral Resources Development Decree of
1974" and other laws insofar as they deal, relate or affect the exploration,
exploitation and administration of coal lands are hereby repealed.
Furthermore, all laws, decrees, executive orders, administrative orders, rules,
and regulations, or parts thereof in conflict or inconsistent with any provision
of
this
Decree
are
hereby
repealed,
revoked,
modified
or
amended accordingly.
SECTION 21. Effectivity. This Decree shall take effect immediately upon
approval.
Done in the City of Manila, this 28th day of July, in the year of Our Lord,
nineteen hundred and seventy-six.

Govt urged to
amend Small Scale
Mining Act
PH said to be losing precious metals to smuggling, bad mining practices
By: Daxim L. Lucas / @inquirerdotnet
Philippine Daily Inquirer / 05:04 AM March 26, 2014

MANILA, PhilippinesA pro-business think tank involved in

environmental issues on Tuesday called for revisions to the law
governing small-scale mining, saying that better regulation would
help the industry develop.
In a statement, the Philippine Business for Environmental
Stewardship (PBEST) said amendments to Republic Act No. 7076, also
known as the Peoples Small Scale Mining Act of 1991, would also
ensure environmental protection and mine safety.
According to PBEST convenor Carlos Primo David, the small-scale
mining industry has a role to play in both subsistence mining and the
development of mining as a municipal or barangay (village) scale
industry.
ADVERTISEMENT

At the same time, he said, unregulated small-scale mining poses

dangers to the miners themselves, as well as the broader
environment.
Rampant illegal small-scale mining activities is a serious
environmental risk in areas where these activities are being
tolerated, David said. Illegal mining operators have been known to

ignore environmental regulations and even employ child labor in the

most hazardous conditions.
Geologically, there are mineral resources, such as small nickel laterite
deposits, thin or boxwork gold veins, alluvial gold panning, clay and
gemstones, that may only be economically feasible to develop at a
smaller scale.
David cited data from Mining and Geosciences Bureau showing that
small-scale mining produces about half of the countrys gold output
and is the biggest source of gold reserves of the Bangko Sentral ng
Pilipinas.
But we are losing this much-needed asset to irresponsible mining
practices and smuggling, he said.
The PBEST convenor explained that local communities would directly
benefit from a properly regulated mining industry in terms of taxes
worth millions of pesos, which could be channeled to badly needed
infrastructure, health services and education.
Leaving small-scale mining to illegal operators will mean hundreds of
millions of pesos in unpaid taxes, the unnecessary loss of lives and
permanent damage to the environment, he said.
RA 7076 and its accompanying implementing rules and regulations
contained the necessary provisions pertaining to small-scale mining.
The law also promotes small-scale mining and provides guidelines for
environmental protection and mine safety.
According to PBEST, there are certain provisions in RA 7076 that can
be improved or replaced in order to make small-scale mining
operations compliant with the law and ensure environmental
protection.

Governing bodies, such as provincial, municipal or city mining

regulatory boards, may not be able to perform the necessary
environmental monitoring. Also, they may not be empowered with
the necessary police powers and enough jurisdiction to regulate
small-scale operations.
David also pointed out that Presidential Decree 1899 granted
authority to LGUs to issue small-scale mining permits. But it is the
Provincial or City Mining Regulatory Board that has the power, under
RA 7076, to oversee the operations.
This has led to conflict and confusion, and must be resolved with
finality with the repeal of PD 1899, he added.
We shall actively push for these reforms in both houses of Congress
and with the relevant government agencies, David said.
PBEST works in partnership with the business sector, academe and
civil society to promote developmental policies and advocate good
governance to ensure responsible stewardship of the environment
as a requisite in the operations of all industries.

Republic Act No. 387

AN ACT
TO

PROMOTE

THE

EXPLORATION,

DEVELOPMENT,

EXPLOITATION, AND UTILIZATION OF THE PETROLEUM

RESOURCES OF THE PHILIPPINES; TO ENCOURAGE THE

CONSERVATION
AUTHORIZE

OF

SUCH

PETROLEUM

THE SECRETARY

OF

RESOURCES;

AGRICULTURE

TO
AND

NATURAL RESOURCES TO CREATE AN ADMINISTRATION UNIT

AND A TECHNICAL BOARD IN THE BUREAU OF MINES; TO
APPROPRIATE

FUNDS

THEREFOR;

AND

FOR

OTHER

PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines

in Congress assembled:

CHAPTER I

GENERAL PROVISIONS

ARTICLE 1. Short Title of Act. The short title of this Act shall be
Petroleum Act of 1949.

ART. 2. Definition of Terms. When used in this Act, the following terms
shall, unless the context otherwise indicates, have the following respective
meanings:

(a)

Petroleum shall include any mineral oil, hydrocarbon gas,

bitumen, asphalt, mineral wax, and all other similar or naturally
associated substances; with the exception of coal, peat, bituminous
shale, and/or other stratified mineral fuel deposits.

(b)

Crude oil means oil in its natural state before the same has been
refined or otherwise treated, but excluding water and foreign
substances.

(c)

Natural gas means gas obtained from boreholes and wells and
consisting primarily of hydrocarbon.

(d)

Government means the Government of the Philippines.

(e)

State means the Republic of the Philippines.

(f)

Permittee, concessionaire or contractor means a person to

whom a permit, concession, or contract, as the case may be, has been
granted or awarded under the provisions of this Act, his successors
and assigns.

(g)

Person includes a natural person, corporation, or partnership.

(h)

A barrel is equivalent to 158.98 liters or 42 U.S. gallons.

(i)

All measurements of distances, width, length, areas, depth and

volume, and weight shall be in the metric system.

(j)

Words in singular shall include the plural, and vice versa.

ART. 3. State ownership.

All natural deposits or occurrences of

petroleum or natural gas in public and/or private lands in the Philippines,

whether found in, on or under the surface of dry lands, creeks, rivers,
lakes, or other submerged lands within the territorial waters or on the
continental shelf, or its analogue in an archipelago, seaward from the
shores of the Philippines which are not within the territories of other
countries, belong to the State, inalienably and imprescriptibly.

ART. 4. Title to Land. The ownership or the right to the use of lands for
agricultural, industrial, commercial, residential, mining, or for any
purpose other than for petroleum exploration, development or exploitation
does not include the ownership of, nor the right to explore for, exploit, or

utilize the petroleum or natural gas deposits in, on or under the surface of
such land.

ART. 5. Granting of Petroleum Rights. The right to explore for, develop,

exploit or utilize the petroleum resources described in article three hereof
may only be granted to duly qualified persons by means of concessions in
accordance with the provisions of this Act. The Government, however,
reserves the right to undertake such work either by itself or through its
instrumentalities, or through competent persons qualified to undertake
such work as independent contractor or contractors under a contract of
service executed for the Republic of the Philippines by the President and
approved by the Congress of the Philippines in accordance with the
provisions of article thirteen of this Act.

Exploration or exploitation rights may be exclusive within certain areas;

but no exclusive rights may be granted for refining or transportation.

ART. 6. Granting of Concession is Discretionary With the Government.

The granting of concession under this Act is discretionary with the
Government, except in the cases mentioned in article eleven hereof, where,
upon the fulfillment of the formalities and requirements of this Act, the
granting thereof is obligatory upon the Government.

ART. 7. Petroleum Operation a Public Utility. Everything relating to the

exploration for and exploitation of petroleum which may exist naturally or
below the surface of the earth, and everything relating to the manufacture,
refining, storage, or transportation by special methods of petroleum as
provided for in this Act, is hereby declared to be of public utility.

ART. 8. Concessionaire Assumes Risks. Concessions referred to in this

Act shall be granted at the complete risk of the interested party. The
Government does not guarantee the existence of petroleum or undertake,
in any case, title warranty.

ART. 9. Ownership Not Conferred.

Exploration and Exploitation

Concessions do not confer upon the concessionaire the ownership over the
petroleum lands and petroleum deposits, but only the right to explore for,
develop, exploit, and utilize them for the period and under the conditions
determined by this Act.

CHAPTER II

CONCESSIONS

ART. 10. Kinds of Concessions. Concessions may be any of the following

kinds and have the following respective objects:

(a)

Non-Exclusive Exploration Permit, which grants to the permittee

the non-exclusive right to conduct geological or geophysical
exploration on specified areas.

(b)

Exploration Concession, which grants to the concessionaire the

exclusive right to explore for petroleum within specified areas.

(c)

Exploitation Concession, which grants to the concessionaire the

exclusive right to develop petroleum production within the specified
areas.

(d)

Refining Concession, which grants to the concessionaire the right to

manufacture or refine petroleum, or to extract its derivatives.

(e)

Pipe Line Concession, which grants to the concessionaire the right

to provide and operate pipe line systems for transporting petroleum.

ART. 11. Obligatory Concessions. Subject to the fulfillment of the

formalities and requirements provided for in this Act, the granting of the
following concessions shall be obligatory upon the Government:

(a)

Exploitation Concession, to the holder of an Exploration Concession,

for such parcels as he may select for exploitation and to the holders
of

Petroleum

Drilling

Leases

issued

under

the Petroleum

Act Numbered Twenty-nine hundred and thirty-two, or of petroleum

mining claims located and held under the Act of Congress of July
first, nineteen hundred and two, which are existing and in force at
the time of the enactment of this Act, when said holders shall apply
to have the same governed by the provisions of this Act, and be given
the privileges granted thereby;

(b)

Refining Concession and/or Pipe Line Concession, to the holder of an

Exploitation Concession, when the manufacturing or transportation
is directly related, although not necessarily restricted, to the
Exploitation Concession; and

(c)

Refining Concession, to the holder of a Pipe Line Concession, or Pipe

Line Concession to the holder of a Refining Concession, when the two
concessions are directly, although not restrictively, related.

The foregoing, however, shall not apply in the case of any concessionaire
who is in arrears in any payments due the Government arising out of or in
connection with any petroleum concession, lease, or mining claim, until

such arrears have been paid, or, if in dispute, until a cash or surety bond
has been posted, sufficient to cover all arrears in dispute.

The rights and obligations conferred by concessions which are obligatory

under this article are to be regarded as following from the initial
concessions which, under the provisions of this Act, include the right to
receive such subsequent concessions.

ART. 12. Designation of Petroleum Regions. For purposes of this Act,

the Secretary of Agriculture and Natural Resources, after due study of the
different prospective petroleum lands of the Philippines, may divide them
into a number of prospective petroleum regions, delimiting their extent
and boundaries, and issuing the order and notice establishing such
regions.

ART. 13. Petroleum Reservation.

Upon the recommendation of

the Secretary of Agriculture and Natural Resources, the President of the

Philippines may

set

apart

petroleum

reservations,

and

shall,

by

proclamation, declare the establishment of such reservations and the

boundaries thereof.

The Government may explore, develop, and exploit such petroleum

reservation either by itself or through its instrumentalities, or through

competent persons under a contract of service, in accordance with article

five of this Act. Proposals by qualified persons to carry out such work for
the Government as independent contractor or contractors shall be filed
with the Director of Mines who shall forward the same with his findings
and recommendations to the Secretary of Agriculture and Natural
Resources who, in turn, shall submit the same with his recommendations
to the President of the Philippines. The President is hereby authorized to
take such necessary action as he may deem proper on such proposals and
for this purpose, may execute the necessary contract or contracts for and in
behalf of the Government. In the event such contract is executed, the
same shall be submitted to the Congress of the Philippines for its
approval.

No petroleum reservation may be established over any areas covered by

application for Exploration or Exploitation Concession already filed or
granted. If at any time after the establishment of a petroleum reservation,
the Secretary

of

Agriculture

and

Natural

Resources,

after

due

investigation, should find it to the best interest of the Government, that

any area within the reservation should be opened to Exploration or
Exploitation Concession under the provisions of this Act, such area or
areas may be recommended to be released from the reservation and
declared open to Exploration or Exploitation Concession under this Act by
an executive proclamation of the President concurred in by a joint
resolution of the Congress of the Philippines.

ART. 14. Free Areas. All lands within the territorial limits of the
Philippines including those submerged beneath seas, bays, lakes, rivers,
lagoons, or the territorial waters, or on the continental shelf, or its
analogue in an archipelago, but which are not within the National Reserve
Areas, or Petroleum Reservations, or covered by valid and existing
Exploration or Exploitation Concession, or Petroleum Drilling Leases
acquired under the Petroleum Act (Act No. 2932), or of petroleum mining
claims located and held under the Act of Congress of July first, nineteen
hundred and two, as amended, are called Free Areas and as such are open
to application for Exploration Concession by any duly qualified person.
Application for said areas shall be filed with the Director of Mines in
accordance with the provisions of article twenty-eight of this Act.

ART. 15. National Reserve Areas. Areas which have been included in
any Exploration or Exploitation Concession but which have been
subsequently given up by the concessionaire voluntarily or in accordance
with the requirement of articles fifty and fifty-three of this Act; or areas
covered by Exploration or Exploitation Concession which have expired or
have been canceled; or areas which have been included within any of the
two kinds of concession but which are found to be in excess the maximum
areas allowed by this Act for such concessions, are called National Reserve
Areas, and as such may be applied either for Exploration or Exploitation
Concession by duly qualified persons only after theSecretary of Agriculture
and Natural Resources shall have first announced by means of notices
published in the Official Gazette and in one daily English newspaper of
general circulation published in the City of Manila, at least once a month
for three consecutive months, that said lands duly described are ready for

disposition and that application therefore may be filed within a certain

date fixed in the notice. Application for such areas shall be filed with
the Director of Mines in accordance with article twenty-eight of this Act,
and the concession may be granted by the Secretary of Agriculture and
Natural Resources in favor of the applicant whose offer shall be found best
to serve the interest of the Government.

ART.

16. Lands

covered

by

concessions

are

subject

to

public

easements. All lands covered by concessions granted under this Act shall
be subject to public easements established or recognized by existing or
future laws.

ART. 17. Operations of Concessionaire Subject to Existing Mining Rights.

The operations of the concessionaire under the provisions of this Act
shall be subject to existing mining rights, grants, permits, leases, and
concessions in respect of substances other than petroleum and to existing
petroleum rights, grants, leases, or concessions.

ART. 18. Right of Government to Establish Reservations or Grant Rights.

Concessions granted under this Act are subject to the right of the
Government to establish reservations other than petroleum reservations,
to grant mining rights, permits, leases, and concessions in respect of
substances other than petroleum, and to grant rights other than mining
rights in, on, or under any of the lands covered by the concession granted

under this Act, provided that the rights of the petroleum concessionaire to
search, prospect, and drill for, produce, extract, transport, store, process,
and treat petroleum on, under, and from, said lands, and the other rights
granted to him under this Act are not impaired or unreasonably interfered
with.

ART. 19. Additional Benefits to the Government in Certain Cases. In the

disposition of the National Reserve Areas and in case of conflicts of
applications for concessions, theSecretary of Agriculture and Natural
Resources may require additional benefits to the Government over and
above the minimum requirements provided for in this Act.

These

additional benefits may include, but shall not be restricted to, bonuses or
cash payments made singly or on installments over a period of time; or
increased royalty on the quantity of oil produced; or undertakings in
addition to those required by law for the promotion of education, public
health, social welfare and amelioration, and other public services; or
increased work obligations on the concession.

ART. 20. Right to Enter Private Land. Exploration and exploitation

concessionaires are granted the right to enter upon private lands covered
by their concessions for the purpose of conducting geological or geophysical
studies, with the right to use all instruments and apparatus necessary to
carry out such studies, subject to the obligations to indemnify the owner or
legal occupant of the land for all material damage suffered by the property,
its annexes or appurtenances as a result of such studies, provided that in

no case shall the occupancy of private buildings, yards or gardens be

authorized against the will of their owner.

In the event that the right granted in this article shall be denied by the
owner of the private land or by its legal occupant, the concessionaire may
apply for and, upon posting such bond as may be fixed and approved by the
Court of First Instance of the province where the land is situated, the
court shall issue an order allowing such right pending the final
determination of the proper amount that shall be paid by the
concessionaire to the landowner or legal occupant.

ART. 21. Easements over Private Land. When easements of temporary

occupancy over private lands are needed by a concessionaire for the
purpose of carrying out any work essential to his operations under the
provisions of this Act, he may enter into the necessary agreement with the
owner or legal occupant of such private lands. If no agreement could be
reached, or if the owner or legal occupant refuses to grant such easement,
or in general, when any obstacle of whatever nature exists to the
immediate and certain acquisition of the necessary surface area, or of any
right indispensable to the concessionaire for the purpose of the concession,
the Court of First Instance of the province where the land is situated shall,
upon application of the concessionaire and posting of the necessary bond,
grant to the said concessionaire authority to use and occupy the land
needed by him in his operations, pending final determination of the case
which shall include among others the reasonable value or rental of the

land to be occupied and the compensation for any resulting damage that
the landowner or legal occupant may suffer as a result of such occupation.

When the occupation of a private land is needed by the concessionaire in

connection with his concession, for the purpose of constructing,
maintaining,

operating,

and

drilling

oil

wells,

tanks,

reservoirs,

waterways, pipe lines, roads, railroads, tram lines, telephone and

telegraph lines, airfields, radio stations, powerhouses, transmission lines,
pumping stations, wharves, piers, and terminals, which are hereby
declared to be for public use or benefit, the right of eminent domain may be
exercised by the Government through the concessionaire, in accordance
with the applicable laws on the matter.

In all cases of voluntary agreement between the concessionaire and a

private landowner, as referred to in this article, a copy thereof shall be
furnished to the Secretary of Agriculture and Natural Resources.

For the purpose of this article the necessity of the work will be presumed
in the cases of well drilling and auxiliary works, construction of pipe lines,
tanks, pumping plants, power systems, warehouses, shops, and means of
transport and communication.

ART. 22. Easement over Public Land. When easement or right of

temporary occupancy over public land is needed by a concessionaire for the
purpose of carrying out any work essential to his operations under this
Act, such right may be granted by the Secretary of Agriculture and
Natural Resources with due regard to prior rights of third parties and
subject to applicable laws and regulations.

The presumption of necessity stated in article twenty-one applies likewise

in this case.

ART. 23. Use of Water, Timber and Clay. Concessionaires under this Act
may utilize for any of the work to which his concession relates, timber,
water, and clay from any public lands within such concession, all subject to
existing prior rights thereto, to the regulations issued under this Act and
to other laws and regulations on the matter.

ART. 24. General Obligations.

Work corresponding to concession

granted under this Act shall be commenced with reasonable promptness

and prosecuted with reasonable diligence in accordance with good oil field
practice; provided, that in the case of Exploration or Exploitation
Concession, the performances of the corresponding work, in compliance
with the provisions of this article, successively in various areas included in
the concession, in accordance with an efficient and economic program
determined by the concessionaire and submitted to the Secretary of

Agriculture and Natural Resources will be construed as reasonable

diligence in regard to the total area included in such concession;
conforming with accepted good practices in connection with modern and
scientific methods of exploration, drilling, equipping and operating wells to
enable maximum economic production of petroleum; avoiding hazards to
life, health and property; avoiding the pollution of the air, and of public or
private land or waters.

Non-compliance with the provisions of this article may be the cause of the
imposition of penalties under the provisions of this or other laws; or of
court action to compel compliance therewith; and continued noncompliance shall constitute cause for cancellation of the concession.

ART. 25. Submission of Information and Reports by the Concessionaires.

Concessionaires shall submit to the Secretary of Agriculture and Natural
Resources all information that the latter may require from time to time,
particularly but not limited to, reports on the results of geological and
geophysical examinations including a complete history of each well
formation record; electric logs, and result of all tests; production reports
showing all pertinent production data, etc., in the form and manner and at
intervals prescribed by the regulations.

ART. 26. Employment of Filipinos. Concessionaires under this Act are

obligated to give preference to Philippine citizens in all types of

employment within the country, insofar as such citizens are qualified to

perform the corresponding work with reasonable efficiency and without
hazard to the safety of the operations; and are obligated likewise to
maintain effective programs of training and advancement commensurate
with the demonstrated abilities of such citizens to perform satisfactorily
the various types of operations involved in working the concession. The
concessionaires, however, shall not be hindered from using employees of
their own selection and without restriction for executive or technical work
and for all other work which, in their judgment, and with the approval of
the Director of Mines, requires highly specialized training or long
experience.

Each concessionaire shall submit to the Government annual report giving

statistical and descriptive information relevant to the provisions of this
article, as provided in the Regulations, and shall be obligated to
demonstrate to the satisfaction of the Secretary of Agriculture and Natural
Resources, upon request, that these provisions are being complied with. In
the event that, in the opinion of the Secretary of Agriculture and Natural
Resources, such provisions are not complied with, he is empowered to
require the concessionaire to take such steps as may be necessary to effect
such compliance; without prejudice, however, to the right of the
concessionaire under the exception provided in the last sentence of the first
paragraph of this article.

ART. 27. Force Majeure. Failure on the part of the concessionaire to

fulfill any of the terms and conditions provided by this Act or its

regulations or by other relevant laws shall not be deemed a breach of such

obligation on the part of the concessionaire in so far as such failure results
from force majeure, including the act of God, war, insurrection, riot, civil
commotion, strike, tide, storm, flood, lightning, explosion, fire earthquake,
and any other happening which the concessionaire could not reasonably
prevent or control or avoid.

ART. 28. Application for Concession. Application for concession under

this Act shall be filed with the Director of Mines who shall examine and
pass upon the same as well as upon the qualifications of the applicant. If
he finds the application in order and the applicant duly qualified, he shall
forward

the

said

application,

together

with

his

findings

and

recommendations thereon, to the Secretary of Agriculture and Natural

Resources who may, unless otherwise provided for in this Act, publish a
notice thereof at least once a week for three consecutive weeks in
the Official Gazette and in any newspaper of general circulation, published
in English in the City of Manila.

At any time during the period of publication of the said notice, an adverse
claim stating the nature and grounds thereof, may be filed with
the Director of Mines. If no adverse claim is filed within the said period of
publication, it shall be conclusively presumed that no such adverse claim
exists and thereafter no objection from third parties to the granting of the
concession shall be heard; and the contract of concession shall be executed
by the Secretary of Agriculture and Natural Resources for the Republic of
the Philippines, and the concessionaire, in accordance with existing laws

and regulations for the conveyance of leasehold rights, which contract of

concession shall state definitely the principal rights and obligations of the
parties concerned.

ART. 29. Disposition of Adverse Claims. Adverse claims based upon

applications filed at any time after the first date of publication of the notice
mentioned in article twenty-eight shall not be considered. Adverse claims
based upon conflict of applications shall be disposed of in accordance with
the provisions of article thirty hereof. Adverse claims based upon other
grounds shall be decided by the Secretary of Agriculture and Natural
Resources.

ART. 30. Disposition of Applications in Conflict. In case an adverse

claim is filed in accordance with article twenty-eight of this Act, covering
areas in conflict and the adverse claimant is found to be duly qualified to
apply for concession under this Act, the Director of Mines shall inform the
applicant and the adverse claimant of the existence of such conflict and of
any additional benefits to the Government which the Secretary of
Agriculture and Natural Resources may require in accordance with the
provisions of article nineteen of this Act, whereupon each of them shall,
within sixty days from the date of the receipt of such information, submit
to the Director of Mines an amended application stating therein such
additional benefits to the Government as he may desire to offer for the
area in conflict. The Secretary of Agriculture and Natural Resources may
accept such application which, in his opinion, will best serve the national

interest. The right of any aggrieved party to appeal to the courts as in

ordinary cases is hereby recognized.

ART. 31. Qualifications of Applicants. Applicants for concessions under

this Act shall have the following qualifications:

In case of an individual, he shall be a citizen of the Philippines, be of legal

age, and have the capacity to contract obligations.

In case of an association of individuals, it shall be either a partnership or a

corporation duly organized and constituted under the laws of the
Philippines, at least sixty per centum of the capital of which is and shall at
all times be owned and held by citizens of the Philippines.

During the effectivity and subject to the provisions of the ordinance

appended to the Constitution of the Philippines, citizens of the United
States and all forms of business enterprises owned and controlled, directly
or indirectly, by citizens of the United States shall enjoy the same rights
and obligations under the provisions of this Act in the same manner as to,
and under the same conditions imposed upon, citizens of the Philippines or
corporations or associations owned or controlled by citizens of the
Philippines.

Any applicant shall present satisfactory evidence showing that sufficient

finance,

organization,

resources,

technical

competence,

and

skills

necessary to conduct the operations to be undertaken under the concession

being applied for, in a manner which is in accordance with the best method
known to the industry, are available to such applicant.

ART. 32. Officials and Employees of the Government Disqualified.

Officials and employees of the executive branch of the Government
connected with the administration and disposition of mineral resources,
including petroleum, shall not be allowed, directly or indirectly during
their incumbency and for five years thereafter, to apply or acquire
concessions, or to be interested, in anywise, in any application filed, or
concession acquired, under this Act.

CHAPTER III

NON-EXCLUSIVE EXPLORATION PERMIT

ART. 33. Who may Apply. Any person legally qualified to acquire
concession under the provisions of this Act may, upon application, acquire
a permit for a non-exclusive right to undertake surface geological or
geophysical investigations within Free Areas as defined in article fourteen
of this Act, subject to the provisions of article thirty-five and thirty-six of
this Act and the Regulations.

ART. 34. Application for Non-Exclusive Exploration Permit. Application

for Non-Exclusive Exploration Permit shall be filed with the Director of
Mines who shall examine and pass upon the application and qualifications
of the applicant. He shall forward the same with his findings and
recommendation to the Secretary of Agriculture and Natural Resources for
his final action. The applicant shall pay an application fee of one hundred
pesos in the manner prescribed by the Regulations. In the event that no
concession is granted corresponding to such application, the sum paid
shall be returned to the applicant less such amount as corresponds to the
expenses incurred by the Government in connection with the consideration
of the application, as determined by the Regulations.

ART. 35. Entry Upon Private Property. Right to enter upon or to occupy
private property in connection with the Non-Exclusive Exploration Permit
must be secured from the owner or legal occupant thereof.

ART. 36. Right Conveyed Under Non-Exclusive Exploration Permit. NonExclusive Exploration Permit issued under this Act conveys no right for
the permittee to make any exploratory drilling, nor carry any priority or
preferential right to the area it covers so as to entitle the permittee to
exclusive Exploration or Exploitation Concession, but is intended only to
permit geological and/or geophysical exploration, preparatory to making
application for exclusive Exploration Concession.

The permittee shall inform the Secretary of Agriculture and Natural

Resources prior to undertaking any exploratory work as to the general
nature of the work proposed to be done, the size of the parties to be put in
the field, and the areas to be covered by such work. He shall submit at the
end of every six months a report on the result of the geological and/or
geophysical surveys conducted by him.

ART. 37. Term of Non-Exclusive Exploration Permit. The Non-Exclusive

Exploration Permit shall be for a term of not exceeding two years,
renewable for another two years, at the discretion of the Secretary of
Agriculture and Natural Resources.

CHAPTER IV

EXPLORATION CONCESSION

ART. 38. Definition of Exploration. The term Exploration means all

work that have for their object the discovery of petroleum, including, but
not restricted to, surveying and mapping, aerial photography, surface
geology, geophysical investigations, testing of subsurface conditions by
means of borings or structural drillings, and all such auxiliary work as are
useful in connection with such operations.

Test wells drilled for exploratory purposes may be of such size and type
suitable for oil production, but the actual production of oil is not included
in the term Exploration, except that oil found during exploration may be
freely used by the concessionaire in his operations for exploration purposes
only within the same concession.

ART. 39. Application for Exploration Concession.

Application for

Exploration Concession shall be filed with the Director of Mines in

accordance with the provisions of article twenty-eight of this Act. The
Regulations shall prescribe the form and contents of application for
Exploration Concession.

ART. 40. Map and Technical Descriptions. A map of the block desired to
be explored shall accompany the application for Exploration Concession.
This map shall be prepared in accordance with the Regulations, and shall
show the location of the block with regard to the municipalities and
province or provinces in which it is located, the four corners of the block in
case it is rectangular, or the natural boundaries thereof in case the block
adjoins rivers, creeks, lakes, or shore lines, or the extension or projections
thereof into these bodies of water in case the block is, in whole or in part,
on submerged lands.

The location of the block shall be plotted on Coast and Geodetic Survey or
Army base map, and shall show, among others, the topographic features of
the area. The map shall be submitted together with the technical
description of the corner markings and the metes and bounds or distances
and bearings of the sides of the block. The technical description and map
shall also indicate the bearings and distances of the tie line from some
known reference location monument to one corner, preferably Number 1, of
the block, in such a way that the block desired can be plotted from such tie
line and descriptions on the Progress or Index Map of the Bureau of Mines,
where all areas applied for shall be plotted to show the relative positions of
such areas.

The boundaries of the block desired shall be well-established on the

ground by placing permanent and conspicuous monuments, posts or
mounds of earth on the corners, so that at any time, the block can be
identified, and later be tied to accurate surveys. The bearings and
distances of the block applied for exploration shall be sufficiently accurate
so that the approximate area of the block can be computed from the given
bearings and distances on the sides.

ART. 41. Application Fee for Exploration Concession.

When an

application for an Exploration Concession is filed, the applicant shall pay

an application fee of one thousand pesos in the manner prescribed by the
Regulations. In the event that no concession is granted corresponding to
such application, the sum paid shall be returned to the applicant less such
amount as corresponds to the expenses incurred by the Government in

connection with the consideration of the application as determined by the

Regulations.

ART. 42. Areas Available for Exploration Concessions. Exploration

Concessions may be granted on any lands within the Free, and National
Reserve, Areas which are not covered by valid and existing Exploration or
Exploitation Concessions, or by Petroleum Drilling Leases acquired under
the Petroleum Act (Act No. 2932), or by petroleum mining claims located
and held under the Act of Congress of July first, nineteen hundred and
two, as amended.

ART.

43. Size and

Shape

of Exploration

Blocks.

Exploration

Concessions may be granted in lots or blocks as compact as possible, and

rectangular in shape except when contiguous with the sea, bays, lakes,
rivers, lagoons, roads, or with other concessions already granted which are
of irregular boundaries.

Each block or lot shall not be more than one hundred thousand hectares
nor less than twenty thousand hectares in area, and in no case shall the
long dimension of the rectangle be more than five times the short
dimension.

ART. 44. Maximum Exploration Area a Person May Acquire. No person

shall be entitled to more than five hundred thousand hectares of
exploration areas in any one petroleum region established in accordance
with the provisions of article twelve of this Act, nor more than one million
hectares in the whole territory of the Philippines.

ART. 45. Rights Conveyed Under Exploration Concession.

The

Exploration Concession conveys upon the concessionaire, his heirs and

assigns, from the date of the granting of the concession, and during the
exploration period and any extension thereof, the exclusive right to explore
the block granted, to do geological and geophysical work, to open test pits,
to conduct drilling operations, and to do such other work related to
exploration.

ART. 46. Term of Exploration Concession. The initial term of an

Exploration Concession shall be not more than four years counted from the
date of its issuance: Provided, however, That if the concessionaire has
complied with the provisions of this Act and the Regulations and with the
terms and conditions contained in the contract of concession, theSecretary
of Agriculture and Natural Resources may grant an extension of the same
for a term of three years, for its entire area or for any part thereof, upon
application of the concessionaire made prior to the expiration of the
original term. If during the said first extension, the concessionaire has
also complied with the provisions of this Act and the Regulations and the
terms

and

conditions

contained

in

the

contract

of

concession.

The Secretary of Agriculture and Natural Resources may, upon application

of the concessionaire made prior to the expiration of the first extension,

grant, a further extension of the said concession for its entire area or for
any part thereof, for another term of three years, making the total term for
Exploration Concession not more than ten years.

The extension shall be granted under the same terms and conditions as
those contained in the original concession, subject, however, to the
provisions of articles forty-seven and forty-nine of this Act.

No further renewal shall be allowed to any exploration concessionaire at

the end of ten years from the date of the original concession.

ART. 47. Exploration Work Obligations. At the beginning of each

calendar year during the life of the concession, the concessionaire shall
submit to the Director of Mines, a program of exploration work to be
undertaken by the concessionaire with his concession during that year.

He is obligated to spend in the direct prosecution of exploration work

within his concession, such as topographic, or geological reconnaissance;
mapping or cross sectioning, geophysical surveys by magnetometer,
gravimeter

or

seismograph;

core

or

exploratory

combination of the said work, the following amounts:

drilling;

or

any

Initial term:

First year Not less than fifty centavos per hectare per year, or fraction
thereof.

Second year Not less than one peso per hectare per year, or fraction
thereof.

Third year Not less than one peso and fifty centavos per hectare per year,
or fraction thereof.

Fourth year Not less than two pesos per hectare per year, or fraction
thereof.

First extension:

Fifth to seventh year Not less than two pesos and fifty centavos per hectare
per year, or fraction thereof.

Second extension:

Eight to tenth year Not less than three pesos per hectare per year, or
fraction thereof.

The cost of delivered materials or equipment used in the exploration work

shall be considered as proper expenditures for such work.

The

concessionaire shall give satisfactory evidence to the Government of such

expenditures in accordance with the Regulations.

Any amount actually spent for exploration work in excess of the minimum
amount required for any year or years may be carried forward and credited
to exploration work obligations required for the succeeding years during
the existence of the concession.

For failure to comply with the minimum work obligations in any one year
as herein above stipulated, the concessionaire shall pay to the Government
the difference between the minimum amount required and that actually
spent for any year. Continued failure to perform the necessary exploration
work within the area covered by the concession shall. In addition to the
above penalty, result in the cancellation of the concession as provided for
in this Act.

In order to guarantee faithful compliance with the required exploration

work, a bond of sufficient amount to be fixed by the Regulation, shall be
posted by the concessionaire.

ART. 48. Work Obligations on Two or More Exploration Blocks Within Any
One Petroleum Region. In case two exploration blocks are held by the
same concessionaire which are adjoining to each other in any one
petroleum region, the total amount of work obligations for exploration
required for the initial term of four years, for the two adjoining blocks, may
be spent within any one of the two adjoining blocks or any portion thereof
as if they are covered by a single concession.

The total amount of work obligations required to be spent annually during

the first and second extensions under article forty-seven of this Act on any
two or more exploration blocks, whether adjoining or not, then existing and
held by a concessionaire for the first and second extensions within any
established petroleum region, may be spent within any one or more of the
said blocks or any portion thereof.

ART. 49. Annual Exploration Tax. Each holder of an Exploration

Concession shall pay during the whole period of such concession and its
extension or extensions if any, an annual exploration tax as follows:

Initial term:

First year Not less than five centavos per hectare per year, or fraction
thereof.

Second and third year Not less than seven and one-half centavos per
hectare per year, or fraction thereof.

Fourth year Not less than ten centavos per hectare per year, or fraction
thereof.

First extension:

Fifth to seventh year Ten centavos per hectare per year, or fraction thereof.

Second extension:

Eighth to tenth year Twelve and one-half centavos per hectare per year, or
fraction thereof.

ART. 50. Renunciation of Areas Covered by Exploration Concession. The

holder of an Exploration Concession may, at any time, renounce the whole
or any part of the total area covered by his concession: Provided, That, in
case of partial renunciation, the portion retained shall be not less than
twenty thousand hectares, unless the same is contiguous to another
exploration block or blocks held by the same concessionaire, in which case,
the total area of all the contiguous blocks thus retained for exploration
shall be not less than twenty thousand hectares.

CHAPTER V

EXPLOITATION CONCESSION

ART. 51. Definition of Exploitation. Exploitation means all work

within the area embraced by an Exploitation Concession that have for
their object the production of petroleum within such area, including, but
not restricted to, drilling and operating wells, providing and operating
pumping and storage facilities; pipe lines and other such work and
facilities as are useful for the purpose of making petroleum available for
sale, manufacture or refining within or for shipment from such area; but
does not include any operation which is a part of manufacturing or
refining, or any work outside such area which are a part of a pipe line or
other special transportation system.

ART. 52. Application for Exploitation Concession.

Application for

Exploitation Concession shall be filed with the Director of Mines in

accordance with the provisions of article twenty-eight of this Act. The
Regulations shall prescribe the form and contents of application for
Exploitation Concession.

ART. 53. Application for Exploitation Concession Covering Areas Within

Exploration Concession. An exploration concessionaire, at any time
during the life of his concession, including any extension thereof, may
select for exploitation purposes one or more parcels from the area covered
by his Exploration Concession. Upon application and fulfillment of all the
requirements of this Act, and provided that the total area of such parcel or
parcels so selected from any one exploration block shall not exceed one-half
of the area of such block, an Exploitation Concession covering such parcel
or parcels, shall be granted to such applicant. Such parcels may be
selected by the applicant anywhere within the exploration block, whether
contiguously or separately.

Provided, That all the requirements of this Act and the Regulations have
been complied with, an application for Exploitation Concession filed as
provided for in this article shall, pending the issuance of an Exploitation
Concession covering the areas for which application has been made,
operate to confer upon the Concessionaire all the rights and obligations
which

are

conferred

by

this

Act

through

an

Exploitation

Concession: Provided, further, That an Exploitation Concession may also

be granted to any person who without being a holder of Exploration
Concession discovers and registers with the Bureau of Mines in accordance
with article sixty-five hereof any natural deposit or seep or natural gas
emanation.

ART. 54. Map of the Exploitation Areas. In the exercise of the right of
exploration, the concessionaire shall prepare at any time during the
exploration period, or during extensions, if there by any, the general map
of the respective exploration block, showing the exploitation parcel or
parcels he may have selected, in preparation to obtaining the Exploitation
Concession. This map shall be prepared from an accurate transit and
chain survey or from an aerial photographic survey, or the combination of
both, and shall be prepared in accordance with existing regulations
governing such kinds of survey issued by the Director of Mines, and shall
show the location of the boundary monuments of the exploration block and
of the different exploitation parcel or parcels within the block and the area
and true bearings and distances of the sides thereof. Copies of this map
shall accompany the application for Exploitation Concession.

ART. 55. Application Fee for Exploitation Concession.

When an

application for an Exploitation Concession is filed, the applicant shall pay

an application fee of two thousand pesos, in the manner prescribed by the
Regulations. In the event that no concession is granted corresponding to
such application the sum paid shall be returned to the applicant less such
amount as corresponds to the expenses incurred by the Government in

connection with the consideration of the application as determined by the

Regulations.

ART. 56. Areas Available for Exploitation. Areas covered by Exploration

Concession held by the applicant, subject to the provisions of article fiftythree of this Act, and areas within the National Reserve, are available for
exploitation.

ART. 57. Size and Shape of Exploitation Concession. The Exploitation

Concession shall be granted in parcels or parcels, rectangular in shape as
much as possible, except when contiguous with the seas, bays, lakes,
rivers, lagoons, roads, or with other existing concessions of irregular
boundaries; or when otherwise approved by the Secretary of Agriculture
and Natural Resources.

The total area of the exploitation parcel or parcels which may be acquired
under a single concession shall not be more than fifty thousand hectares
nor less than ten thousand hectares, and in no case shall the greater
dimension of the rectangle be more than five times the other, nor shall the
total area of the parcel or parcels to be covered by the Exploitation
Concession exceed one-half of the total area of the exploration block.

ART. 58. Maximum Exploitation Area That May be Acquired. No person

shall be allowed to hold more than two hundred and fifty thousand
hectares of exploitation area in any one petroleum region, nor more than
five hundred thousand hectares in the whole territory of the Philippines.

ART.

59. Rights

Conveyed

Ender

Exploitation

Concession.

An

exploitation concessionaire, his heirs and assigns, has the exclusive right,
during the term of the concession, to drill within the boundaries projected
vertically downward of the parcel or parcels covered by his concession, to
extract within the boundaries thereof the substances referred to in this
Act, to utilize them once they are extracted, and to do all acts authorized
within the scope of exploitation, as defined in article fifty-one of this Act,
subject to the provisions of this Act and the Regulations that may be
issued by the Secretary of Agriculture and Natural Resources regarding
conservation, prevention of waste, and other pertinent matter.

In case roads and/or bridges are constructed by the concessionaire in

connection with the operation of his exploitation concession, the same shall
be available for public use except when otherwise agreed upon between the
Secretary of Agriculture and Natural Resources and the concessionaire.

ART. 60. Exploitation Work Obligations. At the beginning of each

calendar year during the life of the concession, the concessionaire shall
submit to the Director of Mines, a program of exploitation work proposed

to be undertaken by the concessionaire within his concession during that

year.

The concessionaire shall commence drilling operations within one year

from the date the Exploitation Concession is granted within the area
covered by the concession and shall continue diligently such drilling
operations in accordance with good oil field practice. He shall be obligated
to develop and bring into production the exploitation area granted to him
and any discovery areas that he may find, and to continue such
development and production until at least the domestic consumption
requirements of petroleum in the Philippines, determined in consultation
with the Secretary of Agriculture and Natural Resources, are met by the
total net production from all sources of indigenous production in the
Philippines, if the petroleum deposit discovered by the concessionaire shall
permit such development in accordance with good petroleum engineering
practice.

ART. 61. Exploitation Work Obligations in Two or More Exploitation

Concessions in the Same Petroleum Region. A person holding two or
more Exploitation Concessions in the same petroleum region, may be
permitted to concentrate the exploitation work obligations required for all
the Exploitation Concessions held by him in the same petroleum region,
within any one of his Exploitation Concession, as long as the drilling
operations are diligently conducted with a creditable expenditure and in
accordance

with

drilling

program: Provided,

however, That

no

Exploitation Concession shall remain for a period of more than five

consecutive years without drilling operations. Such work may be credited

only upon prior written approval of the Secretary of Agriculture and
Natural Resources.

ART. 62. Production Operations. Once production is established in an

Exploitation Concession, production operations on the concession may not
be suspended for more than six months without prior written approval of
the Secretary of Agriculture and Natural Resources.

Suspension of

operations shall in no case be authorized for more than two years at any
one time, except in case of force meager.

ART. 63. Existing Petroleum Drilling Leases and petroleum mining claims
may come under the provisions of this Act. Holders of Petroleum Drilling
Leases under the provisions of the Petroleum Act (Act No. 2932) and of
petroleum mining claims located and held under the provisions of the Act
of Congress of July first, nineteen hundred and two, as amended, may
surrender their rights thereto by filing applications with the Secretary of
Agriculture and Natural Resources for Exploitation Concessions under the
provisions of this Act, and the latter may, upon receipt of such
applications, grant Exploitation Concessions covering the same, subject to
all the conditions, obligations, and privileges provided for under this Act.

ART. 64. Annual Exploitation Tax. Each holder of an Exploitation

Concession shall pay throughout the life of such concession, in the manner
prescribed by the Regulations, an exploitation tax as follows:

During the first five-year period, not less than fifty centavos per hectare
per year, or fraction thereof.

During the second five-year period, not less than one peso per hectare per
year, or fraction thereof.

During the third five-year period, not less than one peso and fifty centavos
per hectare per year, or fraction thereof.

During the fourth five-year period, not less than three pesos per hectare
per year, or fraction thereof.

During the fifty five-year period, not less than five pesos per hectare per
year, or fraction thereof.

Thereafter, during the period or periods of its renewal, if any, not less than
five pesos per hectare per year or fraction thereof, unless modified by
the Secretary of Agriculture and Natural Resources.

ART. 65. Royalty.

Exploitation concessionaires shall pay to the

Government a royalty which shall not be less than twelve and one-half per
cent of the petroleum produced and saved, less that consumed in the
operations of the concessionaire in the working of such Exploitation
Concession: Provided, That natural gas returned to the formation shall
not be subjected to royalty.

The royalty paid to the Government on petroleum or natural gas produced

from the date commercial production is started, from well or wells within
the radius of one kilometer from any discovered, located, registered and
verified petroleum natural deposit or seep or natural gas emanation, shall
be deducted by ten per cent thereof, which deduction shall be due and
payable to the discoverer of the said natural deposit or seep or gas
emanation: Provided, That the petroleum natural deposit or seep or gas
emanation is not covered by another discovery previously registered in
the Bureau of Mines: And provided, further, That the discovery and
location are made and registered prior to the date of the granting of an
Exploration or Exploitation Concession, covering the area where such
petroleum natural deposit or seep or gas emanation was discovered.

The discoverer shall mark the point of discovery with prominent and
permanent object and with a placard stating the name of the discovery, the
name of the discoverer, and the date of discovery and location, within a
period of thirty days from the date of the discovery or, if discovered before
the approval of this Act, within thirty days after such approval.

Declaration of discovery and location describing specifically the facts and

circumstances of the discovery, and containing such other matters as may
be required by the Director of Mines, shall be prepared under oath by the
locator or discoverer who shall register the same in the office of the Bureau
of Mines, Manila, within ninety days from the date of location.
The Director of Mines shall register such declaration upon payment of the
registration fee of ten pesos and submittal of a sample of the oil or natural
gas discovered. All discoveries not duly declared and registered within the
period herein set forth, shall be considered as having been abandoned by
the discoverer.

The rights acquired by the discoverer shall be based on actual discovery,

followed by registration within the period provided for in this article. The
rights of the discoverer to his discovery shall expire ten years after the
date of registration: Provided, however, That if within the said period an
Exploration or Exploitation Concession is granted covering the oil seeps or
natural deposits or natural gas emanations discovered, the rights of the
discoverer shall be deemed to continue from the date the Exploration or
Exploitation Concession is granted until ten years from the date

commercial production is first started from any well or wells within the
discovery area.

ART. 66. Exploitation Tax Credited Against Royalty. All exploitation

taxes to which any concessionaire shall be liable under article sixty-four of
this Act, during any year on any or all Exploitation Concessions held by
him in the same petroleum region, shall be credited against the total
royalty payments on all the petroleum produced by the concessionaire from
any or all the Exploitation Concessions held by him within the same
petroleum region and paid by such concessionaire in the same
year: Provided, That, such deduction shall apply only to amounts due for
exploitation tax in excess of fifty centavos per hectare per year.

For the purpose of computing the deduction due under this article, the
value of any royalty paid in kind shall be converted to cash as provided for
in article sixty-eight.

ART. 67. Manner for Payment of Royalty. Royalty may be paid either
wholly or partly in kind, or wholly or partly in cash, at the election of
the Secretary of Agriculture and Natural Resources, but such election
shall not be changed during any quarter for which it has once been made,
nor shall it be changed for any succeeding quarter without written notice
to the concessionaire at least thirty days prior to the commencement of
such quarter.

When the Secretary of Agriculture and Natural Resources elects to receive

the royalty wholly or partly in kind, the concessionaire shall make delivery
thereof at the place of production or at any established receiving and
storage station on the transportation system which is employed by the
concessionaire for the transportation of his own petroleum or similar kind,
as elected by the Secretary of Agriculture and Natural Resources.

When the Secretary of Agriculture and Natural Resources elects to receive

the royalty in cash, the same shall be paid quarterly in advance, and the
amount of royalty to be paid in any quarter shall be determined by the
petroleum production during the next preceding quarter. The procedure
for determining the amount of royalty due and the payment of such
royalty, except as specified in this Act, shall be fixed by the Regulations.

ART. 68. Liquidation of Royalty in Cash. When the Secretary of

Agriculture and Natural Resources elects to have the royalty paid in cash,
as provided for in article sixty- seven of this Act, the market value of the
petroleum at the place of its production shall be used for the calculation of
the amount due; and it shall be determined by taking as a basis the
average price of petroleum of the same quality, during the preceding
quarter, in the governing market or markets as specified in the
Regulations; and deducting from such average price the cost of
transportation from the place of production to such markets; and

deducting also the cost of any processing or treatment which is necessary

to make the petroleum suitable for such transportation.

For this purpose the cost of transportation shall include all actual costs
inherent therein, such as freight according to the usual tariffs, port fees,
storage costs, pumping costs, and the costs of operating and maintaining
the facilities provided expressly for such transportation.

Similarly the cost of processing or treatment shall include all actual costs
inherent therein, such as for chemicals, stabilization, compression, and the
cost of operating and maintaining the facilities provided expressly for such
processing or treatment.

The Secretary of Agriculture and Natural Resources is empowered to enter

into agreement with the concessionaire for the purpose of determining the
market value of petroleum and the deductions to be allowed in computing
the market value at the place of production, for the purpose set forth in
this article.

ART. 69. Acceptance of Royalty Payments. Within sixty days following

the end of each month during which the royalty has been paid in kind, or
following the end of each quarter in which royalty has been paid in cash,
the Secretary of Agriculture and Natural Resources shall notify the

concessionaire in writing that such payment is accepted in full discharge of

the corresponding obligations as fixed by this Act; or that such is not the
case for certain stated reasons, in which latter case the procedure fixed in
the Regulations shall be followed for the purpose of making any necessary
corrections.

Failure of the SSecretary of Agriculture and Natural

Resources to thus notify the concessionaire of objection to the royalty

payments made, within the foregoing time limits, shall be construed as
acceptance by the Secretary of Agriculture and Natural Resources of such
payments.

Acceptance of royalty payments as provided for in this article shall be

deemed irrevocable.

ART. 70. Field Storage Tanks and Storage. Exploitation concessionaire

is obligated to construct and maintain at, or in the vicinity of, the place or
places of production, storage tanks of sufficient capacity to operate the
producing field or fields in accordance with good oil field practice.

The holder of such concession is under obligation to store, for a period not
in excess of thirty days, such royalty in kind, free of expense to the
Government. Should the Government have no adequate facilities for the
handling and/or storage of such petroleum after said period, the
concessionaire shall supply facilities for the handling and/or storage of the
same for a reasonable charge, which period and charge shall be as

mutually agreed upon between the Secretary of Agriculture and Natural

Resources and the concessionaire in advance: Provided, That, in no event
shall the concessionaire be required to store beyond such thirty days more
than one hundred thousand barrels of such petroleum at any one time, nor
of any petroleum other than that produced within the area held by the
concessionaire.

ART. 71. Exploitation Concessionaire May be obliged to Refine Crude Oil

in the Philippines.
Resources may,

after

The Secretary of Agriculture and Natural

due

investigation,

require

an

exploitation

concessionaire to refine part or all of the crude oil produced in his

concession, in any refinery established in the Philippines in accordance
with the provisions of this Act: Provided, That, there is such refinery with
sufficient capacity and adequate facilities to handle such crude oil in
accordance with good refining practice: And provided, further, That the
quantity of such crude oil of the concessionaire that may be required to be
refined in the Philippines in relation to the total net production from his
concession shall not exceed the proportional amount that the total
domestic requirements bear to the total net production from all indigenous
sources in the Philippines.

ART. 72. Term of Exploitation Concession. The term of an Exploitation

Concession shall not exceed twenty-five years counted from the date of its
issuance, renewable for another twenty-five years at the option of and upon
application of the concessionaire made prior to the expiration of the
original term.

ART. 73. Renunciation of areas covered by Exploitation Concession. The

holder of an Exploitation Concession may, at any time, renounce the whole
or

any

part

of

the

total

area

covered

by

his

Exploitation

Concession: Provided, That, in case of partial renunciation, the area of the

parcel or parcels whether contiguous or not retained for exploitation shall
be not less than ten thousand hectares.

CHAPTER VI

REFINING CONCESSION

ART. 74. Definition of Refining.

The term Refining means the

processing or treating of petroleum by chemical or physical means for the

purpose of making or separating marketable products; not including,
however, such operations, separate from the foregoing, as gas compression,
removal of noxious gases, crude oil stabilization or treatment for emulsion,
or any other operation which has as its principal aim the avoidance of
hazard or loss, or which is incidental to production or to transportation.

ART. 75. Application for Refining Concession. Application for Refining

Concession shall be filed with the Director of Mines in accordance with
article twenty-eight of this Act.

When the granting of a Refining Concession is obligatory upon the

Government by reason of the provisions of article eleven of this Act, and
provided that the requirements of this Act and of the Regulations have
been complied with, an application for Refining Concession filed as
provided in article twenty-eight shall operate to confer upon the
concessionaire all the rights and obligations which are conferred by this
Act through such concession, pending the execution of the contract of
concession. The Secretary of Agriculture and Natural Resources may, in
his discretion, grant a Refining Concession to any person duly qualified
under the provisions of this Act even though he is not a holder of an
Exploitation Concession. Likewise a refining concession may be granted to
any person who, without being a holder of an Exploitation Concession
discovers and registers with the Bureau of Mines under the provision of
article sixty-five hereof, any natural deposit of oil or seep or emanation of
gas.

ART. 76. Refining Application Fee. When an application for a Refining

Concession is filed, the applicant shall pay an application fee of two
thousand pesos, in the manner prescribed by the Regulations. In the event
that no concession is granted corresponding to such application, the sum
paid shall be returned to the applicant less such amount as corresponds to
the expenses incurred by the Government in connection with the
consideration of the application as determined by the Regulations.

ART. 77. Rights Conveyed Under Refining Concession.

Refining

Concession confers upon the concessionaire the non-exclusive right to

provide facilities for the manufacture of, and to manufacture, petroleum
products, subject to the provisions of this Act; and to carry out such
auxiliary works and operations as are essential to the successful conduct of
the undertaking, such as, but not limited to, the generation of steam and
electricity; the treatment and use of water; the production or regeneration
of chemicals used in manufacturing; the fabrication and filling of
containers; the erection of shops, warehouses, and other buildings; the
construction and operation of communication systems and roads within
and for access to the works; and the provision and operation of facilities for
receiving, storing, and shipping materials or products and for their
transportation within or between parts of the works to which the
concession relates.

It shall be understood that all auxiliary works and operations and the
products thereof to which the rights provided in this article apply, shall be
for the exclusive use of the concessionaire in the operation of his
concession or concessions subject to the limitations set forth in article
seventy-eight hereof: Provided, however, That all roads and bridges
constructed by the concessionaire except those within the compound of the
refinery, shall be available for public use, except when otherwise agreed
upon between the Secretary of Agriculture and Natural Resources and the
concessionaire.

ART. 78. Utilization of Refining Capacity. The holder of a Refining

Concession shall have the preferential right to utilize his installations for
the refining or manufacture of petroleum produced by him from his
concession, but is obligated to utilize any remaining capacity for the
refining or manufacture, pro rata, of such other petroleum as may be
offered by others for refining or manufacture, and to charge without
discrimination such rates as may have been approved by the Secretary of
Agriculture and Natural Resources.

When a refining concessionaire is also an exploitation concessionaire,

the Secretary of Agriculture and Natural Resources may require that the
royalty in kind due to the Government from the same concessionaire, or an
equivalent amount of petroleum of the Government from other sources, be
refined or manufactured, pro rata, with that owned by the refining
concessionaire, up to the capacity of the installation; and in all cases
petroleum owned by the Government shall have priority over all other
petroleum for the utilization of the refining or manufacturing capacity in
excess of that required to refine or manufacture petroleum owned by the
refining concessionaire.

Procedure for the determination of refining rates and the conditions

governing the refining of petroleum other than that owned by the refining
concessionaire shall conform to the Regulations.

ART. 79. Petroleum Produced Under This Act Shall be Given Refinery
Preference. Any established refinery may be required by the Secretary of
Agriculture and Natural Resources to refine crude petroleum produced in
the Philippines in preference over any imported crude petroleum.

ART. 80. Term of Refining Concession.

The term of a Refining

Concession shall not exceed twenty-five years counted from the date of its
issuance, renewable for another twenty-five years, upon application of the
concessionaire filed prior to the expiration of the original term.

ART. 81. Right to Establish a Refinery May be Ceded But Concessionaire

May be Required to Establish a Refinery Under Certain Conditions. An
exploitation concessionaire may assign, transfer, or cede his right to
establish a refinery in the Philippines granted him under article eleven of
this Act in favor of any person qualified under the provisions of this Act,
upon prior written permission of the Secretary of Agriculture and Natural
Resources.

However,

the Secretary

of

Agriculture

and

Natural

Resources may, after due study of the economic and technical problems
involved on the part of the exploitation concessionaire and of the need of
the

Philippines

for

suitable

refinery,

require

an

exploitation

concessionaire, after he shall have developed a recoverable petroleum

reserve of one hundred forty million barrels or more in any one or more of
his concessions granted under this Act, capable of maintaining a
production rate of ten thousand barrels a day for at least fifteen years, to
establish in the Philippines a refinery of a capacity which shall be not less
than ten thousand barrels per day.

ART. 82. Renunciation of Refining Concession. Any Refining Concession

may be renounced at any time, except when the undertaking to build a
refinery is imposed upon an Exploitation Concessionaire under the
provisions of articles nineteen and eighty-one of this Act, in which case,
the renunciation shall be subject to the prior written approval of
theSecretary of Agriculture and Natural Resources.

Renunciation extinguishes all rights granted by the concession, but does

not relieve the concessionaire from making any payments due to the
Government.

CHAPTER VII

PIPE LINE CONCESSION

ART. 83. Application for Pipe Line Concession. Application for Pipe Line
Concession shall be filed with the Director of Mines in accordance with
article twenty-eight of this Act.

When the granting of a Pipe Line Concession is obligatory upon the

Government by reason of the provisions of article eleven, and provided,
that all the requirements of this Act and of the Regulations have been
complied with, an application filed shall operate to confer upon the
concessionaire all the rights and obligations which are conferred by this
Act through such a concession, pending the execution of the contract of
concession.

Pipe Line Concession may also be granted to any person legally qualified
under this Act, who is not a holder of an Exploitation or Refining
Concession, upon his filing with theDirector of Mines an application
therefor.

ART. 84. Pipe Line Application Fee. When an application for a Pipe Line
Concession is filed, the applicant shall pay an application fee of two
thousand pesos, in the manner prescribed by the Regulations. In the event
that no concession is granted corresponding to such application, the sum
shall be returned to the applicant less such amount as corresponds to the
expenses

incurred

by

the

Government

in

connection

with

the

consideration, as determined by the Regulations.

ART. 85. Rights Conveyed Under Pipe Line Concession. A pipe line
concessionaire acquires the non-exclusive right to transport petroleum, by
means of, and through, a pipe line or system of pipe lines, between the
sources of production and/or refining and the places defined in the Pipe
Line Concession, in accordance with the provisions of this Act and the
Regulations.

This concession right includes the construction and operation of pipe lines,
pumping or compressing stations, storage tanks, gas tanks, power plants,
shops, storehouses and other buildings, water supply and communication
systems, roads, and such other equipment or facilities as may be needed
for the purpose of the concession.

All such auxiliary works and operations and the products thereof shall be
for the exclusive use of the concessionaire in the operation of his
concession: Provided, however, That all roads and bridges constructed by

the concessionaire, except as may otherwise be agreed upon between

the Secretary

of

Agriculture

and

Natural

Resources and

the

concessionaire, shall be available for public use.

ART. 86. Pipe Line Concessionaire as Common Carrier. A pipe line

concessionaire shall have the preferential right to utilize his installations
for the transportation of petroleum owned by him, but is obligated to
utilize

any

remaining

transportation

capacity pro

rata for

the

transportation of such other petroleum as may be offered by others for

transport, and to charge without discrimination such rates as may have
been approved by the Secretary of Agriculture and Natural Resources.

When the pipe line concessionaire is also an exploitation concessionaire,

the Secretary of Agriculture and Natural Resources may require that the
royalty in kind of the Government received from the same concessionaire,
be transported, pro rata, with that owned by the concessionaire from the
same concession; and in all cases the petroleum of the Government shall
have priority over all other petroleum in the utilization of the excess
capacity of the pipe line over that required to transport petroleum owned
by the pipe line concessionaire.

Procedure for the determination of pipe line transportation rates and the
conditions governing the transportation of petroleum other than that
owned by the concessionaire shall conform to the Regulations.

ART. 87. Term of Pipe Line Concession. The term of a Pipe Line
Concession shall not exceed twenty-five years counted from the date of its
issuance, renewable for another twenty-five years, upon application of the
concessionaire filed prior to the expiration of the original term.

ART. 88. Renunciation of Pipe Line Concession.

Any Pipe Line

Concession may be renounced at any time, except when the undertaking to

build a pipe line is imposed upon an Exploitation Concessionaire under the
provisions of article nineteen of this Act, in which case, the renunciation
shall be subject to the prior written approval of the Secretary of
Agriculture and Natural Resources.

Renunciation extinguishes all rights granted by the concession, but does

not relieve the concessionaire from making any payments due to the
Government.

CHAPTER VIII

PENALTIES AND EXTINCTION OF RIGHTS

ART. 89. Cancellation of Concession for Falsehood or Omission in

Application. The statements made in the application or made in support
thereof, shall be considered as conditions and essential parts of the
concession that may be granted by virtue of such application, and any
falsehood in those statements or omission of facts which may alter, change,
or affect, substantially the facts set forth in said statements may cause the
cancellation of the lease granted.

ART. 90. Other Causes for Cancellation of Concession. (a) Exploration

Concessions may be canceled under any of the following causes:

(1)

For failure of the concessionaire to perform the work

obligations required by article forty-seven of this Act for two
consecutive years; and

(2)

For failure to pay for two consecutive years the exploration tax
due thereon, as required by article forty-nine of this Act.

(b)

Exploitation Concessions may be canceled under any of the following

causes:

(1)

For failure of the concessionaire to perform the exploitation

work obligations as required under the provisions of articles
sixty and sixty-one of this Act, for two consecutive years;

(2)

For suspending production operations for more than six

months without prior written approval of the Secretary of
Agriculture and Natural Resources as provided for in article
sixty-two of this Act;

(3)

For failure to pay for two consecutive years the annual

exploitation tax due thereon, as required by article sixty-four
of this Act;

(4)

For failure to deliver or pay to the Government its royalty

within one year from the date such royalty becomes due.

(c)

Refining and Pipe Line Concessions may be canceled for failure of

the concessionaire to begin the construction of a refinery and pipe
line, as the case may be, within one year from the date of the
issuance of such concessions.

ART. 91. Procedure for Cancellation. Before any concession is canceled

for cause or caused mentioned in this Act, the concessionaire shall first be
notified in writing of such cause or causes, and shall be given an
opportunity to be heard, and to show cause why the concession shall not be
canceled. If upon investigation, the Secretary of Agriculture and Natural
Resources shall find the concessionaire to be in default, the latter shall be
given an opportunity to correct such default. If the concessionaire shall
continue to be so in default for a period of ninety days from the date of the
decision finding him in default, the concession may be canceled in an order
to that effect, copy of which shall be furnished to the concessionaire, and
which order shall become final forty-five days from receipt thereof, unless
the concessionaire decides to take advantage of the provisions of article
one hundred seven of this Act, in which case the concession shall continue
to be in force until, and if, a competent court decides otherwise.

ART. 92. Extinction of Rights. Rights acquired by virtue of a concession

granted under this Act shall become extinguished upon the expiration of
its term including the extensions or renewals thereof, if any, or upon the
cancellation or renunciation of such concession.

In the event of such extinction of rights, any sum payable to the

Government by the concessionaire and then unpaid shall become due and
payable forthwith, the property of the concessionaire shall be disposed of
in accordance with the provisions of article ninety-three of this Act, and
the concession contract shall be surrendered to the Secretary of
Agriculture and Natural Resources.

ART. 93. Title to Areas, Property, and Equipment After Renunciation,

Cancellation, or Expiration of a Concession. (a) Upon the renunciation,
cancellation, or expiration of an Exploration or Exploitation Concession,
the area covered thereby shall automatically become part of the National
Reserve.

(b)

Upon the renunciation, cancellation, or expiration of an Exploration

Concession, or of an Exploitation Concession within the first term of
twenty-five years or within the first fifteen years of its renewal, if
any, as provided for in this Act, the title rights to all apparatus,
materials, equipment, supplies and other personal properties, all
works, buildings and other facilities and structures which the
concessionaire places on the land under the terms of the concession,
including but not limited to drilling pipe, warehouse stocks,
automotive, aviation and marine equipment, shall remain vested in
the concessionaire, and the concessionaire shall have the right to
remove and export the same at any time within one year counted
from the date the concessionaire shall cease to retain the right to use
the lands subject to the concession on which the said property is
located: Provided, however, That the Government shall acquire title
to all properties not so revoked at the end of the said one-year
period: Provided, further,That the Government shall have the
exclusive right of option, but not the obligation, to buy from the
concessionaire any or all of the properties which the concessionaire
has the right to remove under this paragraph within ninety days

from

the

date

the

concession

is

renounced,

canceled

or

terminated: And provided, finally, That the concessionaire shall

maintain said properties, pending decision of the Government to
purchase the same, in as good condition as the condition of said
properties on the date of the said renunciation, cancellation or
termination of the concession, ordinary wear and tear and damage
caused by circumstances beyond the control of the concessionaire
excepted.

The price of the said properties shall be fixed by

agreement between the parties but in case of any disagreement as to

the price, the same shall be submitted to a board of appraisal of
three members to be appointed, one, by the Secretary of Agriculture
and Natural Resources, another by the concessionaire and the third,
by the two appraisers appointed by the two parties, which board
shall determine the price to be paid by the Government for the said
properties. Roads, bridges, airports, wharves, and casings in the
ground shall become the property of the Government without any
permanent.

(c)

In case of renunciation, cancellation or termination of the

Exploitation Concession after the fifteenth year from the date of the
renewal, if any, of the concession, all the property mentioned in the
preceding paragraph shall become the property of the Government
without payment or indemnification to the concessionaire.

(d)

The above provisions do not apply to any refinery built by the

concessionaire as said refinery shall continue to be the exclusive

property of the owner thereof even after the termination of the

concession: Provided, That roads and bridges constructed by the
concessionaire shall become the property of the Government.

CHAPTER IX

OFFICIALS IN CHARGE AND DUTIES

ART. 94. The Secretary of Agriculture and Natural Resources as Executive

Officer. The Secretary of Agriculture and Natural Resources shall be the
executive officer charged with carrying out the provisions of this Act,
through the Director of Mines who shall act under his immediate
supervision and control.

As such executive officer, the Secretary of

Agriculture and Natural Resources shall be vested with the authority to

prescribe rules and regulations and issue orders which he may find
necessary to effectuate the provisions and purposes of this Act.

ART. 95. Authority of Secretary of Agriculture and Natural Resources to

Create Necessary Offices. The Secretary of Agriculture and Natural
Resources is authorized to create an Administration Unit and a Technical
Board, both under the Director of Mines.

The Administration Unit shall be under the supervision and control of

the Director of Mines and shall be charged with the administration of
petroleum lands, the preparation of forms and regulations, the settlement
of disputes, and the enforcement of the provisions of this Act with the
advice of the Technical Board.

The Technical Board shall consist of at least one petroleum engineer and
one petroleum geologist, with the Director of Mines ex-officio chairman
thereof. The said Board shall have, among others, the following functions:

(a)

To act in an advisory or consultative capacity on different

technological matters relative to the administration and disposition
of petroleum lands under this Act, and on petroleum operation and
industry;

(b)

To look into the qualifications of applicants for concessions under

this Act;

(c)

To recommend whether or not lands within the National Reserve

Areas shall be offered for concession and in case it is so offered, to
study all applications for concessions within said areas with a view
to determining the relative merits thereof and to submit to
the Secretary of Agriculture and Natural Resources its findings and
recommendations thereon;

(d)

To determine the relative merits of the conflicting applications for

concessions covering lands within Free Areas;

(e)

To check on the performances of concessionaires and to determine

whether the obligations imposed by this Act and the Regulations
promulgated thereunder are being complied with;

(f)

To determine the maximum efficient rate of withdrawal from each

well or oil field;

(g)

To supervise production operations to insure conservation of

reservoir energy and the optimum recovery from the petroleum
deposits in the different oil fields;

(h)

In general, to study ways and means to insure the efficient

administration of petroleum lands and the effective enforcement of
the provisions of this Act and the Regulations;

(i)

To keep and maintain a complete record as possible on all phases of

exploration, development and production of petroleum in the

Philippines, including but not limited to geological and geophysical

data, well and production records, petroleum engineering studies,
computation of petroleum reserve and to prepare therefrom such
reports, articles, and bulletins as may be deemed necessary for the
proper information of the Government and/or the public.

ART. 96. Funds for Salaries and Expenses. For the expenses, including
salaries and wages of the personnel, of the Administration Unit and of the
Technical Board authorized to be created in accordance with article ninetyfive of this Act, a sum of two hundred thousand pesos is hereby
appropriated from the funds of the National Treasury not otherwise
appropriated.

Hereafter the same shall be included in the General

Appropriations Act.

CHAPTER X

FINAL PROVISIONS

ART. 97. Bond for Performance. Prior to the issuance of a concession,

except the Non-Exclusive Exploration Permit, the concessionaire shall post
a bond in favor of the Government in the sum to be fixed by the
Regulations and with surety or sureties satisfactory to the Secretary of
Agriculture and Natural Resources, conditioned upon the faithful
performance by the concessionaire of any or all of his obligations under the
concession.

ART. 98. Share of Private Landowners. In case an Exploration or

Exploitation Concession covers, in whole or in part, private lands title to
which has been finally adjudicated by a court of competent jurisdiction, the
exploration or exploitation tax due to the Government for the area of such
private lands, shall be reduced by ten per cent of the same, which
reduction shall be the landowners share. In the case of lands title to
which has not been finally adjudicated all the exploration and exploitation
tax for said areas due to the Government shall be paid to the Collector of
Internal Revenue or his duly authorized deputy, subject to the rule and
regulations of the Bureau of Internal Revenue. In any case, the right of
private owner to recover ten per cent share when and if his title shall have
been finally adjudicated in his favor shall be respected and for such
purpose the Government shall hold the same until such title has been so
finally adjudicated.

ART. 99. National Emergency Measures. Concessions granted under

this Act shall be subject to the rights of the Government, in case of and
during the period of war or national emergency, to pass such lawful
measures, as it may consider necessary, requisitioning for its use and/or
restricting the sale or disposal of all products produced under the terms of
the concessions and/or interfering with the free movement thereof, upon
just compensation paid to the concessionaires.

ART. 100. Disposition of Substances Other Than Petroleum. In the event

that substances other than petroleum, as defined in article two, should
occur naturally and be produced with petroleum, the exploitation
concessionaire

may

separate

such

other

substances

at

his

own

expense: Provided, That in the event that any such other substances be
sold, the value thereof shall be taken into account in fixing the value of
petroleum for the purpose of liquidating royalty in cash as provided in
article

sixty-eight: And

provided,

further,That

if

the Secretary

of

Agriculture and Natural Resources elects to receive such other substances

in kind the concessionaire shall, upon request of the Secretary of
Agriculture and Natural Resources, separate and deliver to the
Government such substances through the facilities of the concessionaire
and at the expense of the Government.

ART. 101. Helium Rights Reserved. The Government reserves the right
to take all helium from any gas produced by the concessionaire and the
right to erect, maintain, and operate on lands covered by the concession,
all reduction works and other equipment necessary for the extraction of
helium.

The Secretary of Agriculture and Natural Resourcesshall

prescribe the necessary rules and regulations governing the delivery to the
Government of gas containing helium for the extraction thereof.

ART. 102. Work Obligations, Taxes, Royalties Not to be Changed. Work

obligations, special taxes and royalties which are fixed by the provisions of
this Act or by the concession for any of the kinds of concessions to which
this Act relates, are considered as inherent on such concessions after they

are granted, and shall not be increased or deceased during the life of the
concession to which they apply; nor shall any other special taxes or levies
be applied to such concessions, nor shall concessionaires under this Act be
subject to any provincial, municipal, or other local taxes or levies; nor shall
any sales tax be charged on any petroleum produced from the concession or
portion thereof, manufactured by the concessionaire and used in the
working of his concession. All such concessionaires, however, shall be
subject to such taxes as are of general application, in addition to taxes and
other levies specifically provided in this Act.

ART. 103. Customs Duties. During the first five years following the
granting of any concession, the concessionaire may import free of customs
duty, all equipment, machinery, material, instruments, supplies and
accessories.

No exemption shall be allowed on goods imported by the concessionaire for

his personal use or that of any others; nor for sale or for re-export; and if
any goods on which exemption has been allowed be thus used or disposed
of, the concessionaire is obliged to make a report to the Secretary of
Agriculture and Natural Resources to that effect and to pay such import
duty as is due.

ART. 104. No Export tax to be Imposed. No export tax shall be levied

upon petroleum produced from concessions granted under this Act.

ART. 105. Compulsory Collection.

In the event of failure by a

concessionaire to pay any tax or royalty due under the provisions of this
Act within six months of the date upon which they are due, the
Government may resort to compulsory collection under the provisions of
applicable laws.

ART. 106. Inspection of Operations and Examination of Books and

Accounts. The Secretary of Agriculture and Natural Resources and
the Director of Mines shall have authority to send their delegates or
representatives to inspect any operations of the concessionaire at all
reasonable times and to examine all the books and accounts pertaining to
operations or conditions related to payment of taxes and royalties under
this Act, and to carry out any other inspections authorized by law.

The concessionaire shall furnish to such delegates or representatives all

technical and accounting data specified in the Regulations, and shall give
them ample facilities and assistance to discharge their duties as such
representatives and inspectors.

For the purpose of enabling proper examination as provided for in this

article, each concessionaire shall be obligated to retain within the country
all original records or original carbon copies thereof which are essential for
the purpose of determining the amount of taxes and royalties due to the

Government, except as may be agreed upon between theSecretary of

Agriculture and Natural Resources and the concessionaire.

ART. 107. Settlement of Disputes by Agreement. For the purpose of

settling or terminating any controversy arising out of the provisions of this
Act, other than those arising out of conflict of applications, the Secretary of
Agriculture and Natural Resources is authorized, to enter into agreement
with any petroleum concessionaire, and in case of their failure to come to
such

an

agreement,

the Secretary

of

Agriculture

and

Natural

Resources shall render his decision thereon, from which decision the
concessionaire adversely affected thereby, may bring the matter to the
court of competent jurisdiction within forty-five days from the date of his
receipt of a copy of said decision. Failure to take such action within the
said period, shall make such decision final and binding upon the
concessionaire.

Such agreement between the Secretary of Agriculture and Natural

Resources and a concessionaire may be reached either with or without the
intervention of arbitrators selected by the parties to the controversy.

ART. 108. Definition of Waste. The term waste shall specifically

include among other things the following:

(a)

The operation of any petroleum well or wells with an inefficient gasoil ratio.

(b)

The drowning with water of any stratum or part thereof capable of

producing oil or gas, or both oil and gas, in paying quantities.

(c)

Permitting any natural gas well to burn wastefully.

(d)

Physical waste or loss incident to, or resulting from, so drilling,

equipping, locating, spacing, or operating well or wells as to reduce
or tend to reduce the total ultimate recovery of crude petroleum oil
or natural gas from any pool.

(e)

Waste or loss incident to, or resulting from, the unnecessary,

inefficient, excessive or improper use of the reservoir energy,
including the gas energy or water drive, in any well or pool.

(f)

Surface waste or surface loss, including the storage either

permanent or temporary of crude petroleum or the placing of any
product thereof, in open pits or earthen storage, and all other forms
of surface waste or surface loss, including unnecessary or excessive

surface losses, or destruction without beneficial use, either of crude

petroleum or of natural gas.

(g)

The production of crude petroleum or natural gas in excess of

transportation or market facilities or reasonable market demand.

ART.

109. Prevention of Waste.

All

concessionaires, operators,

contractors, or drillers, pipe line companies, petroleum refining companies,

or gas distributing companies, drilling for or producing petroleum or
petroleum products, or piping petroleum for any purpose, shall use every
possible precaution in accordance with the most improved methods to stop
and prevent waste of petroleum or natural gas in drilling and producing
operations, storage or in piping or distributing, and shall not wastefully
utilize petroleum or natural gas or allow same to leak or escape from
natural reservoirs, wells, tanks, containers, or pipes.

ART. 110. Rules and Regulations Regarding Conservation of Petroleum.

Rules and regulations may be issued which shall require concessionaires to
utilize in their exploration and exploitation operations the latest and most
improved methods and devices to prevent waste in petroleum as well as to
prevent oil, oil-field brine or other oil-field contamination from causing
pollution or otherwise damaging streams, surface or underground water
supply, and valuable mineral deposits. The Secretary of Agriculture and
Natural Resourcesmay also issue orders which shall control the rate of

production from any well in the interest of conservation of the petroleum

resources.

ART. 111. Applications Filed Prior to Approval of This Act. Applications

for geological exploration, petroleum drilling lease, concession, or contract
of service, presented prior to the promulgation of this Act to the Philippine
Oil Commission, the Secretary of Agriculture and Natural Resources, or
the Director of Mines, which applications have not been granted, or if
granted, had already expired, or are no longer in effect at the time this Act
becomes effective, shall remain without effect.

ART. 112. Transfer and Assignment. Holder of concessions under this

Act shall not, without previous written approval of the Secretary of
Agriculture and Natural Resources, transfer or assign in whole or in part,
their rights on their concessions; provided that no such transfer or
assignment shall be made to a person who is not qualified to acquire or
hold concession under this Act, or who shall hold a total area under
exploration or exploitation concessions, including that being transferred or
assigned to him, of more than the maximum areas allowed under this Act.

ART. 113. Partial Invalidity. If any clause, sentence, provision or article

of this Act should for any reason be held to be invalid or unconstitutional,
it shall not affect in anywise the remaining parts of this Act and such
remaining parts shall remain in full force and effect.

ART. 114. Repeal of Laws, Rules and Regulations. All acts, laws, rules
and regulations inconsistent with any of the provisions of this Act are
hereby repealed.

ART. 115. Effective date. This Act shall take effect upon its approval.

Approved, June 18, 1949

REPUBLIC OF THE PHILIPPINES

CONGRESS OF THE PHILIPPINES

REPUBLIC ACT NO. 7638

AN ACT CREATING THE DEPARTMENT OF ENERGY, RATIONALIZING THE

ORGANIZATION AND FUNCTIONS OF GOVERNMENT AGENCIES RELATED TO
ENERGY, AND FOR OTHER PURPOSES
CHAPTER I
General Provisions
SECTION 1. Short Title. This Act shall be known as the Department of Energy Act
of 1992.
SECTION 2. Declaration of Policy. It is hereby declared the policy of the State: (a)
to ensure a continuous, adequate, and economic supply of energy with the end in view
of ultimately achieving self-reliance in the countrys energy requirements through the
integrated and intensive exploration, production, management, and development of the
countrys indigenous energy resources, and through the judicious conservation,
renewal, and efficient utilization of energy to keep pace with the countrys growth and
economic development and taking into consideration the active participation of the

private sector in the various areas on energy resource development; and (b) to
rationalize, integrate, and coordinate the various programs of the Government towards
self-sufficiency and enhanced productivity in power energy without sacrificing ecological
concerns.
SECTION 3. Definition of Terms. (a) Energy projects shall mean activities or
projects relative to the exploration, extraction, production, importation-exportation,
processing, transportation, marketing, distribution, utilization, conservation, stockpiling,
or storage of all forms of energy products and resources.
(b) Board shall mean the Energy Regulatory Board.
SECTION 4. Department of Energy. To carry out the above-declared policy, there is
hereby created the Department of Energy, hereinafter referred to as the Department,
which shall prepare, integrate, coordinate, supervise, and control all plans, programs,
projects, and activities of the Government relative to energy exploration, development,
utilization, distribution, and conservation.
SECTION 5. Powers and Functions. The Department shall have the following
powers and functions:
(a) Formulate policies for the planning and implementation of a comprehensive program
for the efficient supply and economical use of energy consistent with the approved
national economic plan and with the policies on environmental protection and
conservation and maintenance of ecological balance, and provide a mechanism for the
integration, rationalization, and coordination of the various energy programs of the
Government;
(b) Develop and update the existing Philippine energy program which shall provide for
an integrated and comprehensive exploration, development, utilization, distribution, and
conservation of energy resources, with preferential bias for environment-friendly,
indigenous, and low-cost sources of energy. The program shall include a policy direction
towards the privatization of government agencies related to energy, deregulation of the
power and energy industry, and reduction of dependency on oil-fired plants. Said
program shall be updated within nine (9) months from the effectivity of this Act and
submitted to Congress within ten (10) days from its completion and not later than the
fifteenth day of September every year thereafter;
(c) Establish and administer programs for the exploration, transportation, marketing,
distribution, utilization, conservation, stockpiling, and storage of energy resources of all
forms, whether conventional or nonconventional;

(d) Exercise supervision and control over all government activities relative to energy
projects in order to attain the goals embodied in Section 2 of this Act;
(e) Regulate private sector activities relative to energy projects as provided for under
existing laws: Provided, That the Department shall endeavor to provide for an
environment conducive to free and active private sector participation and investment in
all energy activities.
At the end of four (4) years from the effectivity of this Act, the Department shall, upon
approval of the President, institute the programs and timetable of deregulation of
appropriate energy projects and activities of the energy industry;
(f) Assess the requirements of, determine priorities for, provide direction to, and
disseminate information resulting from energy research and development programs for
the optimal development of various forms of energy production and utilization
technologies;
(g) Formulate and implement programs, including a system of providing incentives and
penalties, for the judicious and efficient use of energy in all energy-consisting sectors of
the economy;
(h) Formulate and implement a program for the accelerated development of
nonconventional energy systems and the promotion and commercialization of its
applications;
(i) Devise ways and means of giving direct benefit to the province, city, or municipality,
especially the community and people affected, and equitable preferential benefit to the
region that hosts the energy resource and/or the energy-generating facility: Provided,
however, That the other provinces, cities, municipalities, or regions shall not be deprived
of their energy requirements;
(j) Encourage private enterprises engaged in energy projects, including corporations,
cooperatives, and similar collective organizations, to broaden the base of their
ownership and thereby encourage the widest public ownership of energy-oriented
corporations;
(k) Formulate such rules and regulations as may be necessary to implement the
objectives of this Act; and
(l) Exercise such other powers as may be necessary or incidental to attain the
objectives of this Act.

CHAPTER II
The Department Proper
SECTION 6. Composition. The Department Proper shall be composed of the Office
of the Secretary and the Offices of the Undersecretaries and Assistant Secretaries, and
the bureaus and services of the Department.
SECTION 7. Office of the Secretary. The Office of the Secretary shall consist of the
Secretary and his immediate staff.
SECTION 8. The Secretary. The Secretary shall be appointed by the President,
subject to confirmation by the Commission on Appointments.
No officer, external auditor, accountant, or legal counsel of any private company or
enterprise primarily engaged in the energy industry shall be eligible for appointment as
Secretary within two (2) years from his retirement, resignation, or separation therefrom.
The Secretary shall have the following functions:
(a) Establish policies and standards for the effective, efficient and economical operation
of the Department in accordance with the programs of the Government;
(b) Exercise direct supervision and control over all functions and activities of the
Department, as well as all its officers and personnel;
(c) Devise a program of international information on the geological and contractual
conditions obtaining in the Philippines for oil and gas exploration in order to advance the
industry;
(d) Create regional offices and such other service units and divisions as may be
necessary;
(e) Create regional or separate grids as may be necessary or beneficial; and
(f) Perform such other functions as may be necessary or proper to attain the objectives
of this Act.
The Secretary shall be an ex officio member of the Board of the National Economic and
Development Authority (NEDA). He shall also be a member of the NEDAs Committee
on Infrastructure (INFRACOM) and the Investment Coordinating Council (ICC). For this
purpose, the provisions of Executive Order No. 292, otherwise known as the

Administrative Code of 1987, relative to the creation and organization of the NEDA and
its component agencies and offices are hereby modified accordingly.
The Secretary shall also be a member of the body authorized to formulate, prescribe, or
amend the necessary guidelines for the financing, construction, operation, and
maintenance of infrastructure projects by the private sector, under Republic Act No.
6957, otherwise known as the Build-Operate-Transfer Law.
SECTION 9. The Undersecretaries. The Secretary shall be assisted by three (3)
Undersecretaries who shall be appointed by the President upon the recommendation of
the Secretary. They shall have the powers and functions as provided for in Section 10,
Chapter 2, Book IV of the Administrative Code of 1987.
The Offices of the Undersecretaries shall consist of the Undersecretaries and their
respective immediate staff.
SECTION 10. Assistant Secretaries. The Secretary shall also be assisted by three
(3) Assistant Secretaries, one (1) for operations, one (1) for policy and programs, and
another for administrative services. The Assistant Secretaries shall be appointed by the
President upon the recommendation of the Secretary.
SECTION 11. Qualifications. No person shall be appointed Secretary,
Undersecretary, or Assistant Secretary of the Department unless he is a citizen and
resident of the Philippines, of good moral character, and of proven competence in any of
the following fields: (a) energy or utility economics; (b) public administration; (c) physical
or engineering sciences; (d) management; or (e) law.
SECTION 12. Bureaus and Services. Subject to the power of the Secretary, with
the approval of the President, to reorganize, restructure, and redefine the functions of
the bureaus and services for the effective discharge of the powers and functions of the
Department under this Act, the Department shall have the following bureaus and
services: Energy Resource Development Bureau; Energy Utilization Management
Bureau; Energy Industry Administration Bureau; Energy Planning and Monitoring
Bureau; and Administrative Support Services.
The bureaus and services shall have the following powers and functions:
(a) Energy Resource Development Bureau (1) Assist in the formulation and
implementation of policies to develop and increase the domestic supply of local energy
resources like fossil fuels, nuclear fuels, and geothermal resources;

(2) Assist in the formulation of sectoral programs and plans relative to the exploration,
development, and extraction of local energy resources and implement, monitor, and
regularly review said programs;
(3) Conduct energy research and studies in support of the aforementioned activities;
(4) Provide consultative training and advisory services to practitioners and institutions in
the areas of regulated activities; and
(5) Assist in the formulation of financial and fiscal policies, rules, guidelines, and
requirements relative to the operations of service contractors and implement and
enforce said policies.
(b) Energy Utilization Management Bureau (1) Assist in the formulation and
implementation of policies for the efficient and economical transformation, conversion,
processing, refining, marketing, distribution, transportation, and storage of petroleum,
coal, natural gas, geothermal, and other nonconventional energy resources such as
wind, solar, biomass, and others; and ensure their efficient and judicious utilization;
(2) Monitor sectoral energy consumption and conduct energy audits, technical training,
energy management advisory services, and technology application projects on efficient
energy utilization;
(3) Develop, promote, and commercialize applications of biomass, solar, small hydro,
wind, wood, and charcoal and other nonconventional energy systems including new and
more efficient and economical transformation, conversion, processing, refining,
marketing, distribution, transportation, and storage technologies for conventional energy
resources;
(4) Assist in the formulation of an integrated rural energy program to effectively address
the needs of rural development and environmental programs and implement, monitor,
and regularly review said program;
(5) Assist in the formulation of an operational plan for the allocation of oil, fuel, and
energy sources in the event of the declaration of critically low-energy supply provided
for in Section 25 of this Act;
(6) Provide information on energy technology and develop middle-and long-term energy
technology development strategies in cooperation with the Department of Science and
Technology;

(7) Monitor the implementation of energy projects in coordination with the Department of
Environment and Natural Resources to ensure compliance with prescribed
environmental standards;
(8) Recommend appropriate courses of action to resolve major issues which may
impede energy project siting or result in adverse environmental impact;
(9) Require industrial, commercial, and transport establishments to collect or cause the
collection of waste oil for recycling as fuel or lubricating oil; and
(10) Develop and implement a continuing energy conservation program designed to
optimize energy utilization, including a nationwide information campaign on energy
conservation.
(c) Energy Industry Administration Bureau. (1) Assist in the formulation of regulatory
policies to encourage and guide the operations of both government and private entities
involved in energy resource supply activities such as independent power production,
electricity distribution, as well as the importation, exportation, stockpiling, storage,
shipping, transportation, refinement, processing, marketing, and distribution of all forms
of energy and energy products, whether conventional or nonconventional;
(2) Draw up plans to cope with contingencies of energy supply interruptions; and
(3) Assist in the formulation of financial and fiscal policies, rules, guidelines, and
requirements relative to the operations of entities involved in the supply of energy
resources such as oil companies, petroleum product dealers, coal importing and
distributing companies, natural gas distributing companies, independent power
producers, and all other entities involved in conventional energy supply activities and
implement and enforce said policies.
(d) Energy Planning and Monitoring Bureau (1) Assist in the development and
updating of an integrated energy plan for the short-, medium-, and long-term periods to
provide a comprehensive assessment on the demand scenarios and supply options as
well as the impacts of energy policies on the economy, poverty, and environment;
(2) Develop and maintain a centralized, comprehensive, and unified data and
information program to ensure the efficient collection, evaluation, analysis, and
dissemination of data and information on reserves of various energy resources,
production, demand, development technology, and related economic and statistical
information which are required for policy formulation, program planning, and
implementation;

(3) Supervise, coordinate, and integrate the formulation, monitoring, and review of
programs and plans for energy supply development such as power development, local
energy resource development and production, and energy importation;
(4) Regularly review and analyze past and current patterns of energy consumption visa-vis growth and development performance of the countrys various economic sectors to
evaluate current and foreseeable trends in energy demand; and conduct energy supply
demand balancing studies to define energy supply and utilization strategies, estimate
the resources required, and assess the energy programs economic, environmental,
social, and political impact;
(5) Assure the incorporation of national environmental goals in the formulation and
implementation of energy programs, and to advance the goals of restoring, protecting,
and enhancing environmental quality; and assuring public health and safety; and
(6) Conduct studies on international energy issues that have a direct impact on supply
and utilization of energy and provide technical advice on international negotiations
involving energy resources and technologies.
(e) Administrative Support Services. The Administrative Support Services shall be
composed of the Office of the Legal Counsel and the Financial and Management
Services.
The Office of the Legal Counsel shall be responsible for providing legal advice and
services on all policies, programs, and operational matters of the Department. It shall
provide legal counseling services in cases where the Department is a party and shall
also handle administrative cases against any personnel of the Department and submit
recommendations pertaining to them.
The Financial and Management Services, which shall consist of the Human Resources
Management Division, General Services Divisions, and the Financial Management
Division, shall be responsible for providing the Department with services relative to
personnel information, records, supplies, equipment, collection and disbursements,
security and custodial works. It shall also be responsible for providing the Department
with staff advice and assistance on budgetary, financial, and management improvement
matters.
CHAPTER III
Attached Agencies and Corporations

SECTION 13. Attached Agencies and Corporations. The Philippine National Oil
Company (PNOC), the National Power Corporation (NPC), and the National
Electrification Administration (NEA) are hereby placed under the supervision of the
Department, but shall continue to perform their respective functions insofar as they are
not inconsistent with the provisions of this Act. Their annual budget shall be submitted
to Congress for approval. The Secretary shall, in a concurrent capacity, be the ex officio
chairman of the respective boards of the PNOC, NPC, and NEA, unless otherwise
directed by the President: Provided, That in no case shall the Secretary be the chief
executive officer or chief operating officer of the said agencies or their subsidiaries, any
law to the contrary notwithstanding.
To this end, Section 6, paragraph (3) of Presidential Decree No. 927 and Section 8 of
Presidential Decree No. 334, providing that the Chairman of the PNOC shall also be the
president and chief executive officer thereof, are accordingly repealed.
The Secretary may recommend to the President the reorganization of the boards of
directors of the PNOC, NPC, and NEA.
SECTION 14. Council of Advisers on Energy Affairs. A council of advisers on
energy affairs consisting of five (5) members and appointed from the industry, labor, and
consumer sectors shall advise the President on the overall energy program, especially
on private sector initiatives and proposals.
The President shall convene the council within thirty (30) days upon approval of this Act.
CHAPTER IV
Transitory Provisions
SECTION 15. Abolition of Agencies. The Office of Energy Affairs and the Energy
Coordinating Council are hereby abolished subject to Section 17 of this Act.
SECTION 16. Transfer of Powers and Functions. The powers and functions of the
Energy Coordinating Council and the Office of Energy Affairs are hereby transferred to
the Department.
The foregoing transfer of powers and functions shall include all applicable funds and
appropriations, records, equipment, property, and personnel as may be necessary.
The same shall apply to agencies and government units which have not been abolished
but whose functions have been transferred to the Department.

As the successor-in-office of the Office of Energy Affairs, the Department shall

administer the activities of the Technology Transfer for Energy Management (TTEM)
project. For this purpose, the Department shall continue the utilization of all funds,
monies, interests, reflows, and properties outstanding and accruing from the TTEM
project upon its termination for the following purposes:
(a) To finance
establishments;

energy

conservation

projects

of

industrial

and

commercial

(b) To monitor implemented sub-projects and document the actual energy savings
generated; and
(c) To disseminate information on implemented sub-projects through case studies and
seminars/workshops so as to encourage replication by other industrial and commercial
establishments.
SECTION 17. Transfer of Rights, Assets, and Liabilities. The Department shall, by
virtue of this Act, be subrogated to all the rights and assume all the liabilities of the
Office of Energy Affairs, the Energy Coordinating Council, and all other agencies, or
government units whose functions and powers have been transferred to the
Department, and all their funds, records, property, assets, equipment, and such
personnel as necessary, including the unexpended appropriations and/or allocations.
All contracts and liabilities of said offices, agencies, and government units are hereby
transferred to and assumed by the Department and shall be acted upon in accordance
with the Auditing Code and other pertinent laws, rules, and regulations: Provided, That
the officers and employees of said offices, agencies, and government units shall
continue in a holdover capacity until such time as the new officers and employees of the
Department shall have been duly appointed pursuant to the provisions of this Act.
SECTION 18. Rationalization or Transfer of Functions of Attached or Related
Agencies. The non-price regulatory jurisdiction, powers and functions of the Energy
Regulatory Board as provided for in Section 3 of Executive Order No. 172 are hereby
transferred to the Department.
The foregoing transfer of powers and functions shall include all applicable funds and
appropriations, records, equipment, property, and such personnel as may be necessary:
Provided, That only such amount of funds and appropriations of the Board as well as
only the personnel thereof which are completely or primarily involved in the exercise by
said Board of its non-price regulatory powers and functions shall be affected by such
transfer.

The power of the NPC to determine, fix, and prescribe the rates being charged to its
customers under Section 4 of the Republic Act No. 6395, as amended, as well as the
power of electric cooperatives to fix rates under Section 16(o), Chapter II of Presidential
Decree No. 269, as amended, are hereby transferred to the Energy Regulatory Board.
The Board shall exercise its new powers only after due notice and hearing and under
the same procedure provided for in Executive Order No. 172.
SECTION 19. Structure and Staffing Pattern. The organizational framework and
staffing pattern of the Department shall be prescribed and approved by the Secretary
within sixty (60) days after the approval of this Act and the authorized positions created
therein shall be filled by regular appointments by the President or the Secretary as the
case may be: Provided, That, in the filling of positions created, preference shall be given
to the personnel of the Office of Energy Affairs, the Energy Coordinating Council, and
the Energy Regulatory Board: Provided, however, That such individuals comply with the
qualification standards set by the Civil Service Commission for the positions that they
shall be appointed to: Provided, finally, That, if such individuals possess the same
qualifications, seniority shall be given priority.
SECTION 20. Separation from Service. Employees separated from the service as a
result of this reorganization shall, within six (6) months from their separation from the
service, receive the retirement benefits to which they may be entitled under existing
laws, rules, and regulations.
CHAPTER V
Appropriations
SECTION 21. Appropriations. Such sums as may be necessary for the
implementation of this Act shall be taken from the current fiscal year appropriations of
the Office of Energy Affairs, the Office of Energy Affairs special fund created under
Section 8 of Presidential Decree No. 910, and such amounts as the President of the
Philippines may allocate from other resources in accordance with law: Provided, That
the total amount shall not exceed Three hundred million pesos (P300,000,000).
Thereafter, the amount needed for the operation and maintenance of the Department
shall be included in the annual General Appropriations Act.
Subject to existing rules and regulations, the funds and monies collected or which
otherwise come into the possession of the Department and its bureaus from fees,
surcharges, fines, and penalties which the Department and its bureaus may impose and
collect under this Act, as well as an amount to be determined at the beginning of every
calendar year representing twenty percent (20%) of the outstanding balance of the

funds and monies forming part of the special fund under Section 8 of Presidential
Decree No. 910, shall be disbursed for expenses necessary for the effective discharge
of the powers and functions of the Department under this Act.
CHAPTER VI
Miscellaneous Provisions
SECTION 22. Disclosure and Divestment of Financial Interest. Before
assumption of office, the Secretary of the Department, the Undersecretaries, and the
Assistant Secretaries shall submit to the Civil Service Commission a list of all
companies, partnerships, or business enterprises, including nonprofit organizations, in
which they or any immediate member of their families within the second degree of
consanguinity or affinity have any form of financial interest or employment relationship,
including consultancy: Provided, however, That all other forms of employment
relationship held by the heads of the offices of the Department shall be immediately
terminated upon assumption of office.
Within thirty (30) days thereafter, complete divestment of financial interests in any
institution, firm, or company which fall under the supervisory or regulatory jurisdiction of
the Department shall be made: Provided, however, That, in cases where confirmation of
appointments by the Commission on Appointments is required, the divestment
mandated herein shall be complied with within thirty (30) days after such confirmation.
The divestment provided in the preceding paragraph shall likewise apply to the
members of the immediate family within the second degree of consanguinity having
interest in any institution or activity which falls under the regulatory jurisdiction or
supervision of the Department and the attached agencies.
SECTION 23. Relationship with Other Government Departments. The
Department and its priority projects shall enjoy preferential attention from the
Department of Environment and Natural Resources relative to the exploration,
development, exploitation, and extraction of petroleum, coal, and geothermal resources,
and in the matter of providing technical support necessary for the establishment of
power-generating plants.
Upon request of the Department or any of its bureaus, all government agencies with
functions relative to the approval of the projects of the Department or its duly authorized
and endorsed entities, whether government or private, shall act upon and resolve the
matter within ten (10) calendar days. Toward this end, the Secretary, with the approval

of the President, may establish an interagency secretariat for the purpose of expediting
the approval of said projects.
SECTION 24. Visitorial Powers. The Secretary of the Department or his
representatives shall have visitorial and examining authority over nongovernment
entities with contracts for the exploration, development, or utilization of the natural
resources for energy purposes in order to determine the share of the Government in the
revenue or product thereof, and to ascertain all funds collectible and products due the
Government, and that all such funds collectible and products due the Government, have
actually been collected or delivered.
During such examination, the nongovernment entity concerned shall produce all the
reports, records, books of accounts, and other papers that may be required.
The refusal by any such nongovernment entity to allow an examination of its books of
accounts and pertinent records or its concealment of any material information
concerning its financial status shall be a breach of its contract with the Government and
shall constitute a legal ground for the cancellation thereof.
SECTION 25. Contingency Powers. In time of critically low-energy supply or
imminent danger thereof, the President may, upon the determination and
recommendation of the Secretary, issue a declaration of the same. Thereafter, the
Secretary is hereby authorized to implement the fuel and energy allocation plan
provided for in Section 12 (b)(5) of this Act, and to formulate and implement other
measures for the conservation of energy including, but not limited to, power or fuel
rationing, load curtailment, and restrictions on the use of government vehicles and
resources.
SECTION 26. Repealing Clause. All laws, presidential decrees, executive orders,
and rules and regulations, or parts thereof, inconsistent with the provisions of this Act
are hereby repealed or modified accordingly.
However, in no case are the provisions of Republic Act No. 6969 repealed, amended, or
modified by the provisions of this Act.
SECTION 27. Separability Clause. If, for any reason, any section or provision of this
Act is held unconstitutional or invalid, the other sections or provisions hereof shall not
be affected thereby.
SECTION 28. Effectivity Clause. This Act shall take effect after its complete
publication in at least two (2) national newspapers of general circulation.

Approved: December 9, 1992