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 small-
scale 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 one-half 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 OF SUCH PETROLEUM RESOURCES; TO
AUTHORIZE THE SECRETARY OF AGRICULTURE 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 non-
compliance 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.

Non-Exclusive 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 drilling; or any
combination of the said work, the following amounts:

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 fifty-
three 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 a 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. The Secretary of Agriculture and Natural
Resources may, after 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 a 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
ninety-five 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 gas-
oil 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

 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 vis-
a-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 energy conservation projects of industrial and commercial

establishments;

(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

PRESIDENTIAL DECREE No. 1067 December 31, 1976

A DECREE INSTITUTING A WATER CODE, THEREBY REVISING AND CONSOLIDATING THE

LAWS GOVERNING THE OWNERSHIP, APPROPRIATION, UTILIZATION, EXPLOITATION,
DEVELOPMENT, CONSERVATION AND PROTECTION OF WATER RESOURCES

WHEREAS, Article XIV, Section 8 of the New Constitution of the Philippines provides, inter alia, that
all waters of the Philippines belong to the State;

WHEREAS, existing water legislations are piece-meal and inadequate to cope with increasing
scarcity of water and changing patterns of water use;

WHEREAS, there is a need for a Water Code based on rational concepts or integrated and
multipurpose management of water resources and sufficiently flexible to adequately meet future
developments;

WHEREAS, water is vital to national development and it has become increasingly necessary for
government to intervene actively in improving the management of water resources;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the

powers in me vested by the Constitution, do hereby order and decree the enactment of the water
Code of the Philippines of 1976, as follows:

CHAPTER I
DECLARATION OF OBJECTIVES AND PRINCIPLES

Article 1. This Code shall be known as The Water Code of the Philippines.

Article 2. The objectives of this Code are:

(a) To establish the basic principles and framework relating to the appropriation, control and
conservation of water resources to achieve the optimum development and rational utilization
of these resources;

(b) To define the extent of the rights and obligations of water users and owners including the
protection and regulation of such rights;

(c) To adopt a basic law governing the ownership, appropriation, utilization, exploitation,
development, conservation and protection of water resources and rights to land related
thereto; and

(d) To identify the administrative agencies which will enforce this Code.

Article 3. The underlying principles of this code are:

(a) All waters belong to the State.

(b) All waters that belong to the State can not be the subject to acquisitive prescription.

(c) The State may allow the use or development of waters by administrative concession.
 (d) The utilization, exploitation, development, conservation and protection of water resources
shall be subject to the control and regulation of the government through the National Water
Resources Council, hereinafter referred to as the Council.

(e) Preference in the use and development of waters shall consider current usages and be
responsive to the changing needs of the country.

Article 4. Waters, as used in this Code, refers to water under the grounds, water above the ground,
water in the atmosphere and the waters of the sea within the territorial jurisdiction of the Philippines.

CHAPTER II
OWNERSHIP OF WATERS

Article 5. The following belong to the State:

(a) Rivers and their natural beds;

(b) Continuous or intermittent waters of springs and brooks running in their natural beds and
the beds themselves;

(c) Natural lakes and lagoons;

(d) All other categories of surface waters such as water flowing over lands, water from
rainfall whether natural, or artificial, and water from agriculture runoff, seepage and drainage;

(e) Atmospheric water;

(f) Subterranean or ground waters; and,

(g) Seawater.

Article 6. The following waters found on private lands belong to the State:

(a) Continuous or intermittent waters rising on such lands;

(b) Lakes and lagoons naturally occuring on such lands;

(c) Rain water falling on such lands;

(d) Subterranean or ground waters; and,

(e) Water in swamps and marshes.

The owner of the land where the water is found may use the same for domestic purposes without
securing a permit, provided that such use shall be registered, when required by the Council. The
Council, however, may regulate such when there is wastage, or in times of emergency.

Article 7. Subject to the provisions of this Code, any person who captures or collects water by
means of cisterns, tanks, or pools shall have exclusive control over such water and the right to
dispose of the same.
Article 8. Water legally appropriated shall be subject to the control of the appropriator from the
moment it reaches the appropriator's canal or aqueduct leading to the place where the water will be
used or stored and, thereafter, so long as it is being beneficially used for the purposes for which it
was appropriated.

CHAPTER III
APPROPRIATION OF WATERS

Article 9. Waters may be appropriated and used in accordance with the provisions of this Code.

Appropriation of water, as used in this Code, is the acquisition of rights over the use of waters or the
taking or diverting of waters from a natural source in the manner and for any purpose allowed by
law.

Article 10. Water may be appropriated for the following purposes:

(a) Domestic

(b) Municipal

(c) Irrigation

(d) Power generation

(e) Fisheries

(f) Livestock raising

(g) Industrial

(h) Recreational, and

(i) Other purposes

Use of water for domestic purposes is the utilization of water for drinking, washing, bathing, cooking
or other household needs, home gardens, and watering of lawns or domestic animals.

Use of water for municipal purposes is the utilization of water for supplying the water requirements of
the community.

Use of water for irrigation is the utilization of water for producing agricultural crops.

Use of water for power generation is the utilization of water for producing electrical or mechanical
power.

Use of water for fisheries is the utilization of water for the propagation and culture of fish as a
commercial enterprise.

Use of water for livestock raising is the utilization of water for large herds or flocks of animals raised
as a commercial enterprise.
Use of water for industrial purposes is the utilization of water in factories, industrial plants and mines,
including the use of water as an ingredient of a finished product.

Use of water for recreational purposes is the utilization of water for swimming pools, bath houses,
boating, water skiing, golf courses and other similar facilities in resorts and other places of
recreation.

Article 11. The State, for reasons of public policy, may declare waters not previously appropriated,
in whole or in part, exempt from appropriation for any or all purposes and, thereupon, such waters
may not be appropriated for those purposes.

Article 12. Waters appropriated for a particular purpose may be applied for another purpose only
upon prior approval of the Council and on condition that the new use does not unduly prejudice the
rights of other permittees, or require an increase in the volume of water.

Article 13. Except as otherwise herein provided, no person, including government instrumentalities
or government-owned or controlled corporations, shall appropriate water without a water right, which
shall be evidenced by a document known as a water permit.

Water right is the privilege granted by the government to appropriate and use water.

Article 14. Subject to the provisions of this Code concerning the control, protection, conservation,
and regulation of the appropriation and use of waters, any person may appropriate or use natural
bodies of water without securing a water permit for any of the following:

(a) Appropriation of water by means of handcarried receptacles; and

(b) Bathing or washing, watering or dipping of domestic or farm animals, and navigation of
watercrafts or transportation of logs and other objects by flotation.

Article 15. Only citizens of the Philippines, of legal age, as well as juridical persons, who are duly
qualified by law to exploit and develop water resources, may apply for water permits.

Article 16. Any person who desires to obtain a water permit shall file an application with the Council
who shall make known said application to the public for any protests.

In determining whether to grant or deny an application, the Council shall consider the following:
protests filed, if any; prior permits granted; the availability of water; the water supply needed for
beneficial use; possible adverse effects; land-use economics; and other relevant factors.

Upon approval of an application, a water permit shall be issued and recorded.

Article 17. The right to the use of water is deemed acquired as of the date of filing of the application
for a water permit in case of approved permits, or as of the date of actual use in a case where no
permit is required.

Article 18. All water permits granted shall be subject to conditions of beneficial use, adequate
standards of design and construction, and such other terms and conditions as may be imposed by
the Council.
Such permits shall specify the maximum amount of water which may be diverted or withdrawn, the
maximum rate of diversion or withdrawal, the time or times during the year when water may be
diverted or withdrawn, the points or points of diversion or location of wells, the place of use, the
purposes of which water may be used and such other requirements the Council deems desirable.

Article 19. Water rights may be leaded or transferred in whole or in part to another person with prior
approval of the Council, after due notice and hearing.

Article 20. The measure and limit of appropriation of water shall be beneficial use.

Beneficial use of water is the utilization of water in the right amount during the period that the water
is needed for producing the benefits for which the water is appropriated.

Article 21. Standards of beneficial use shall be prescribed by the council for the appropriator of
water for different purposes and conditions, and the use of waters which are appropriated shall be
measured and controlled in accordance therewith.

Excepting for domestic use, every appropriator of water shall maintain water control and measuring
devices, and keep records of water withdrawal. When required by the Council, all appropriators of
water shall furnish information on water use.

Article 22. Between two or more appropriators of water from the same sources of supply, priority in
time of appropriation shall give the better right, except that in times of emergency the use of water
for domestic and municipal purposes shall have a better right over all other uses; Provided, the
where water shortage is recurrent and the appropriator for municipal use has a lower priority in time
of appropriation, then it shall be his duty to find an alternative source of supply in accordance with
conditions prescribed by the Council.

Article 23. Priorities may be altered on grounds of greater beneficial use, multi-purpose use, and
other similar grounds after due notice and hearing, subject to payment of compensation is proper
cases.

Article 24. A water right shall be exercised in such a manner that the rights of third persons or of
other appropriators are not prejudiced thereby.

Article 25. A holder of water permit may demand the establishment of easements necessary for the
construction and maintenance of the works and facilities needed for the beneficial use of the waters
to be appropriated subject to the requirements of just compensation and to the following conditions:

(a) That he is the owner, lessee, mortgagee or one having real right over the land upon
which he proposes to use water; and

(b) That the proposed easement is the most convenient and the least onerous to the servient
estate.

Easements relating to the appropriation and use of waters may be modified by agreement of the
contracting parties provided the same is not contrary to law or prejudicial to third persons.

Article 26. Where water shortage is recurrent, the use of the water pursuant to a permit may, in the
interest of equitable distribution of the benefits among legal appropriators, reduce after due notice
and hearing.
Article 27. Water users shall bear the diminution of any water supply due to natural causes or force
majeure.

Article 28. Water permits shall continue to be valid as long as water is beneficially used; however, it
maybe suspended on the grounds of non-compliance with approved plans and specifications or
schedules of water distribution; use of water for a purpose other than that for which it was granted;
non-payment of water charges; wastage; failure to keep records of water diversion, when required;
and violation of any term or condition of any permit or rules and regulations promulgated by the
Council.

Temporary permits may be issued for the appropriation and use of water for short periods under
special circumstances.

Article 29. Water permits may be revoked after due notice and hearing on grounds of non-use;
gross violation of the conditions imposed in the permit; unauthorized sale of water; willful failure or
refusal to comply with rules and regulations of any lawful order; pollution, public nuisance or acts
detrimental to public health and safety; when the appropriator is found to be disqualified under the
law to exploit and develop natural resources of the Philippines; when, in the case, of irrigation, the
land is converted to non-agricultural purposes; and other similar grounds.

Article 30. All water permits are subject to modification or cancellation by the council, after due
notice and hearing, in favor of a project of greater beneficial use or for multi-purpose development,
and a water permittee who suffers thereby shall be duly compensated by the entity or person in
whose favor the cancellation was made.

CHAPTER IV
UTILIZATION OF WATERS

Article 31. Preference in the development of water resources shall consider security of the State,
multiple use, beneficial effects, adverse effects and costs of development.

Article 32. The utilization of subterranean or ground water shall be coordinated with that of surface
waters such as rivers, streams, springs and lakes, so that a superior right in one not adversely
affected by an inferior right in the other.

For this purpose the Council shall promulgate rules and regulations and declare the existence of
control areas for the coordinated development, protection, and utilization of subterranean or ground
water and surface waters.

Control area is an area of land where subterranean or ground water and surface water are so
interrelated that withdrawal and use in one similarly affects the other. The boundary of a control area
may be altered from time to time, as circumstances warrant.

Article 33. Water contained in open canals, aqueducts or reservoirs of private persons may be used
by any person for domestic purpose or for watering plants as long as the water is withdrawn by
manual methods without checking the stream or damaging the canal, aqueduct or reservoir;
Provided, That this right may be restricted by the owner should it result in loss or injury to him.

Article 34. A water permittee or appropriator may use any watercourse to convey water to another
point in the watercourse for the purpose stated in a permit and such water may be diverted or
recaptured at that point by said permittee in the same amount less allowance for normal losses in
transit.

Article 35. Works for the storage, diversion, distribution and utilization of water resources shall
contain adequate provision for the prevention and control of diseases that may be induced or spread
by such works when required by the Council.

Article 36. When the reuse of waste water is feasible, it shall be limited as much as possible, to
such uses other than direct human consumption. No person or agency shall distribute such water for
public consumption until it is demonstrated that such consumption will not adversely affect the health
and safety of the public.

Article 37. In the construction and operation of hydraulic works, due consideration shall be given to
the preservation of scenic places and historical relics and, in addition to the provisions of existing
laws, no works that would required the destruction or removal of such places or relics shall be
undertaken without showing that the distribution or removal is necessary and unaviodable.

Article 38. Authority for the construction of dams, bridges and other structures across of which may
interfere with the flow of navigable or flotable waterways shall first be secured from the Department
of Public Works, Transportation and Communications.

Article 39. Except in cases of emergency to save life or property, the construction or repair of the
following works shall be undertaken only after the plans and specifications therefor, as may be
required by the Council, are approved by the proper government agency; dams for the diversion or
storage of water; structures for the use of water power, installations for the utilization of
subterranean or ground water and other structures for utilization of water resources.

Article 40. No excavation for the purpose of emission of a hot spring or for the enlargement of the
existing opening thereof shall be made without prior permit.

Any person or agency who intends to develop a hot spring for human consumption must first obtain
a permit from the Department of Health.

Article 41. No person shall develop a stream, lake, or spring for recreational purposes without first
securing a permit from the Council.

Article 42. Unless-otherwise ordered by the President of the Philippines and only in time of national
calamity or emergency, no person shall induce or restrain rainfall by any method such as cloud
seeding without a permit from the proper government emergency.

Article 43. No person shall raise or lower the water level of a river stream, lake, lagoon, or marsh
nor drain the same without a permit.

Article 44. Drainage systems shall be so constructed that their outlets are rivers, lakes, the sea,
natural bodies of water, or such other water course as may be approved by the proper government
agency.

Article 45. When a drainage channel is constructed by a number of persons for their common
benefit, the cost of construction and maintenance of the channel shall be borne by each in proportion
to the benefits drived.
Article 46. When artificial means are employed to drain water from higher to lower land, the owner
of the higher land shall select the routes and methods of drainage that will cause the minimum
damage to the lower lands, subject to the requirements of just compensation.

Article 47. When the use, conveyance or storage of waters results in damage to another, the person
responsible for the damage shall pay compensation.

Article 48. When a water resources project interferes with the access of landowner to a portion of
his property or with the conveyance of irrigation or drainage water, the person or agency
constructing the project shall bear the cost of construction and maintenance of the bridges, flumes
and other structures necessary for maintaining access, irrigation, or drainage, in addition to paying
compensation for land and incidental damages.

Article 49. Any person having an easement for an aqueduct may enter upon the servient land for
the purpose of cleaning, repairing or replacing the aqueduct or the removal of obstructions
therefrom.

Article 50. Lower estates are obliged to receive the waters which naturally and without the
intervention of man flow from the higher estate, as well as the stone or earth which they carry with
them.

The owner of the lower estate can not construct works which will impede this natural flow, unless he
provides an alternative method of drainage; neither can the owner of the higher estate make works
which will increase this natural flow.

Article 51. The banks of rivers and streams and the shores of the seas and lakes throughout their
entire length and within a zone of three (3) meters in urban areas, twenty (20) meters in agricultural
areas and forty (40) meters in forest areas, along their margins are subject to the easement of public
use in the interest of recreation, navigation, floatage, fishing and salvage. No person shall be
allowed to stay in this zone longer than what is necessary for recreation, navigation, floatage, fishing
or salvage or to build structures of any kind.

Article 52. The establishment, extent, form, and conditions of easements of water not expressly
determined by the provisions of this Code shall be governed by the provisions of the Civil Code.

CHAPTER V
CONTROL OF WATERS

Article 53. To promote the best interest and the coordinated protection of flood plain lands, the
Secretary of Public Works, Transportation and Communications may declare flood control areas and
promulgate guidelines for governing flood plain management plans in these areas.

Article 54. In declared flood control areas, rules and regulations may be promulgated to prohibit or
control activities that may damage or cause deterioration or lakes and dikes, obstruct the flow of
water, change the natural flow of the river, increase flood losses or aggravate flood problems.

Article 55. The government may construct necessary flood control structures in declared flood
control areas, and for this purpose it shall have a legal easement as wide as may be needed along
and adjacent to the river bank and outside of the bed or channel of the river.
Article 56. River beds, sand bars and tidal flats may not be cultivated except upon prior permission
from the Secretary of the Department of Public Works, Transportation and Communication and such
permission shall not be granted where such cultivation obstructs the flow of water or increase flood
levels so as to cause damage to other areas.

Article 57. Any person may erect levees or revetments to protect his property from flood,
encroachment by the river or change in the course of the river, provided that such constructions
does not cause damage to the property of another.

Article 58. When a river or stream suddenly changes its course to traverse private lands, the owners
of the affected lands may not compel the government to restore the river to its former bed; nor can
they restrain the government from taking steps to revert the river or stream to its former course. The
owners of the land thus affected are not entitled to compensation for any damage sustained thereby.
However, the former owners of the new bed shall be the owners of the abandoned bed in proportion
to the area lost by each.

The owners of the affected lands may undertake to return the river or stream to its old bed at their
own expense; Provided, That a permit therefor is secured from the Secretary of Public Works,
Transportation and Communication and work pertaining thereto are commenced within two years
from the change in the course of the river or stream.

Article 59. Rivers, lakes and lagoons may, upon the recommendation of the Philippines Coast
Guard, be declared navigable either in whole or in part.

Article 60. The rafting of logs and other objects on rivers and lakes which are flotable may be
controlled or prohibited during designated season of the year with due regard to the needs of
irrigation and domestic water supply and other uses of water.

Article 61. The impounding of water in ponds or reservoirs may be prohibited by the Council upon
consultation with the Department of Health if it is dangerous to public health, or it may order that
such pond or reservoir be drained if such is necessary for the protection of public health.

Article 62. Waters of a stream may be stored in a reservoir by a permittee in such amount as will not
prejudice the right of any permittee downstream. Whoever operates the reservoir shall, when
required, release water for minimum stream flow.

All reservoir operations shall be subject to rules and regulations issued by the Council or any proper
government agency.

Article 63. The operator of a dam for the storage of water may be required to employ an engineer
possessing qualifications prescribed for the proper operations, maintenance and administration of
the dam.

Article 64. The Council shall approve the manner, location, depth, and spacing in which borings for
subterranean or ground water may be made, determine the requirements for the registration of every
boring or alteration to existing borings as well as other control measures for the exploitation of
subterranean or ground water resources, and in coordination with the Professional Regulation
Commission prescribe the qualifications of those who would drill such borings.

No person shall drill a well without prior permission from the Council.
Article 65. Water from one river basin may be transferred to another river basin only with approval
of the Council. In considering any request for such transfer, the Council shall take into account the
full costs of the transfer, the benefits that would accrue to the basin of origin without the transfer, the
benefits would accrue to the receiving basin on account of the transfer, alternative schemes for
supplying water to the receiving basin, and other relevant factors.

CHAPTER VI
CONSERVATION AND PROTECTION OF WATERS AND WATERSHEDS AND RELATED LAND
RESOURCES

Article 66. After due notice and hearing when warranted by circumstances, minimum stream flows
for rivers and streams, and minimum water levels for lakes may be established by the Council under
such conditions as may be necessary for the protection of the environment, control of pollution,
navigation, prevention of salt damage, and general public use.

Article 67. Any watershed or any area of land adjacent to any surface water or overlying any ground
water may declared by the Department of Natural Resources as protected area Rules and
regulations may be promulgated by such Department to prohibit or control such activities by the
owners or occupants thereof within the protected area which may damage or cause the deterioration
of the surface water or ground water or interfere with the investigation, use, control, protection,
management or administration of such waters.

Article 68. It shall be the duty of any person in control of a well to prevent the water from flowing on
the surface of the land, or into any surface water, or any porous stratum under neath the surface
without being beneficially used.

Article 69. It shall be the duty of any person in control of a well containing water with minerals or
other substances injurious to man, animals, agriculture, and vegetation to prevent such waters from
flowing on the surface of the land or into any surface water or into any other aquifer or porous
stratum.

Article 70. No person shall utilize an existing well or pond or spread waters for recharging
substerranean or ground water supplies without prior permission of the Council.

Article 71. To promote better water conservation and usage for irrigation purposes, the merger of
irrigation associations and the appropriation of waters by associations instead of by individuals shall
be encouraged.

No water permit shall be granted to an individual when his water requirement can be supplied
through an irrigation association.

Article 72. In the consideration of a proposed water resource project, due regard shall be given to
ecological changes resulting from the construction of the project in order to balance the needs of
development and the protection of the environment.

Article 73. The conservation of fish and wildlife shall receive proper consideration and shall be
coordinated with other features of water resources development programs to insure that fish and
wildlife values receive equal attention with other project purposes.
Article 74. Swamps and marshes which are owned by the State and which primary value for
waterfowl propagation or other wildlife purposes may be reserved and protected from drainage
operation and development.

Article 75. No person shall, without prior permission from the National Pollution Control
Commission, build any works that may produce dangerous or noxious substances or perform any
act which may result in the introduction of sewage, industrial waste, or any pollutant into any source
of water supply.

Water pollution is the impairment of the quality of water beyond a certain standard. This standard
may vary according to the use of the water and shall be set by the National Pollution Control
Commission.

Article 76. The establishment of cemeteries and waste disposal areas that may affect the source of
a water supply or a reservoir for domestic or municipal use shall be subject to the rules and
regulations promulgated by the Department of Health.

Article 77. Tailings from mining operations and sediments from placer mining shall not be dumped
into rivers and waterways without prior permission from the Council upon recommendation by the
National Pollution Control Commission.

Article 78. The application of agricultural fertilizers and pesticides may be prohibited or regulated by
the National Pollution Control Commission in the areas where such application may cause pollution
of a source of water supply.

CHAPTER VII
ADMINISTRATION OF WATERS AND ENFORCEMENT OF THE PROVISIONS OF THIS CODE

Article 79. The Administration and enforcement of the provisions of this Code, including the granting
of permits and the imposition of penalties for administrative violations hereof, are hereby vested in
the Council, and except in regard to those functions which under this Code are specifically conferred
upon other agencies of the government, the Council is hereby empowered to make all decisions and
determinations provided for in this Code.

Article 80. The Council may deputize any official or agency of the government to perform any of its
specific functions or activities.

Article 81. The Council shall provide a continuing program for data collection, research and
manpower development needed for the appropriation, utilization, exploitation, conservation, and
protection of the water resources of the country.

Article 82. In the implementation of the provisions of this code, the Council shall promulgate the
necessary rules and regulations which may provide for penalties consisting of a fine not exceeding
One Thousand Pesos (P1,000.00) and/or suspension or revocation of the water permit or other right
to the use of water. Violations of such rules and regulations may be administratively dealt with by the
Council.

Such rules and regulations prescribed by any government agency that pertain to the utilization,
exploitation, development, control, conservation, or protection of water resources shall, if the Council
so requires, be subject to its approval.
Article 83. The Council is hereby authorized to impose and collect reasonable fees or charges for
water resources development from water appropriators, except when it is for purely domestic
purposes.

Article 84. The Council and other agencies authorized to enforce this Code are empowered to enter
upon private lands, with previous notice to the owner, for the purpose of conducting surveys and
hydrologic investigations, and to perform such other acts as are necessary in carrying out their
functions including the power to exercise the right of eminent domain.

Article 85. No program or project involving the appropriation, utilization, exploitation, development,
control, conservation, or protection of water resources may be undertaken without prior approval of
the Council, except those which the Council may, in its discretion, exempt.

The Council may require consultation with the public prior to the implementation of certain water
resources development projects.

Article 86. When plans and specifications of a hydraulic structure are submitted for approval, the
government agency whose functions embrace the type of project for which the structure is intended,
shall review the plans and specifications and recommended to the Council proper action thereon and
the latter shall approve the same only when they are inconformity with the requirements of this Code
and the rules and regulations promulgated by the Council. Notwithstanding such approval, neither
the engineer who drew up the plans and specifications of the hydraulic structure, nor the constructor
who built it, shall be relieved of his liability for damages in case of failure thereof by reason of defect
in plans and specifications, or failure due to defect in construction, within ten (10) years from the
completion of the structure.

Any action recover such damages must be brought within five (5) years following such failure.

Article 87. The Council or its duly authorized representatives, in the exercise of its power to
investigate and decide cases brought to its cognizance, shall have the power to administer oaths,
compel the attendance of witnesses by subpoena and the production of relevant documents by
subpoena duces tecum.

Non-compliance of violation of such orders or subpoena and subpoena duces tecum shall be
punished in the same manner as indirect contempt of an inferior court upon application by the
aggrieved party with the proper Court of First Instance in accordance with the provisions of Rules 71
of the Rules of the Court.

Article 88. The Council shall have original jurisdiction over all disputes to relating to appropriation,
utilization, exploitation, development, control, conservation and protection of waters within the
meaning and context of the provisions of this Code.

The decisions of the Council on water rights controversies shall be immediately executory and the
enforcement thereof may be suspended only when a bond, in a amount fixed by the Council to
answer for damages occasioned by the suspension or stay of execution, shall have been filed by the
appealing party, unless the suspension is virtue of an order of a competent court.

All dispute shall be decided within sixty (60) days after the parties submit the same for decision or
resolution.
The Council shall have the power to issue writs of execution and enforce its decisions with the
assistance of local or national police agencies.

Article 89. The decisions of the Council on water rights controversies may be appealed to the Court
of First Instance of the province where the subject matter of the controversy is situated within fifteen
(15) days from the date the party appealing receives a copy of the decision, on any of the following
grounds; (1) grave abuse of discretion; (2) question of law; and (3) questions of fact and law.

CHAPTER VIII
PENAL PROVISIONS

Article 90. The following acts shall be penalized by suspension or revocation of the violator's water
permit or other right to the use of water and/or a fine of not exceeding One Thousand Pesos
(P1,000.00), in the discretion of the Council:

(a)Appropriation of subterranean or ground water for domestic use by an overlying

landowner without registration required by the Council.

(b) Non-observance of any standard of beneficial use of water.

(c) Failure of the appropriator to keep a record of water withdrawal, when required.

(d) Failure to comply with any of the terms or conditions in a water permit or a water rights
grant.

(e) Unauthorized use of water for a purpose other than that for which a right or permit was
granted.

(f) Construction or repair of any hydraulic work or structure without duly approved plans and
specifications, when required.

(g) Failure to install a regulating and measuring device for the control of the volume of water
appropriated, when required.

(h) Unauthorized sale, lease, or transfer of water and/or water rights.

(i) Failure to provide adequate facilities to prevent or control diseases when required by the
Council in the construction of any work for the storage, diversion, distribution and utilization
of water.

(j) Drilling of a well without permission of the Council.

(k) Utilization of an existing well or ponding or spreading of water for recharging

subterranean or ground water supplies without permission of the Council.

(l) Violation of or non-compliance with any order, rules, or regulations of the Council.

(m) Illegal taking or diversion of water in an open canal, aqueduct or reservoir.

(n) Malicious destruction of hydraulic works or structure valued at not exceeding P5,000.00.
Article 91. A. A fine of not exceeding Three Thousand Pesos (P3,000.00) or imprisonment for not
more than three (3) years, or both such fine and imprisonment, in the discretion of the Court, shall be
imposed upon any person who commits any of the following acts:

1. Appropriation of water without a water permit, unless such person is expressly

exempted from securing a permit by the provisions of this Code.

2. Unauthorized obstruction of an irrigation canal.

3. Cultivation of a river bed, sand bar or tidal flat without permission.

4. Malicious destruction of hydraulic works or structure valued at not exceeding

Twenty-Five Thousand Pesos (P25,000.00).

B. A fine exceeding Three Thousand Pesos P3,000.00) but not more than Six Thousand
Pesos P6,000.00) or imprisonment exceeding three (3) years but not more than six (6) years,
or both such fine and imprisonment in the discretion of the Court, shall be imposed on any
person who commits any of the following acts:

1. Distribution for public consumption of water which adversely affects the health and
safety of the public.

2. Excavation or enlargement of the opening of a hot spring without permission.

3. Unauthorized obstruction of a river or waterway, or occupancy of a river bank or

seashore without permission.

4. Establishment of a cemetery or a waste disposal area near a source of water

supply or reservoir for domestic municipal use without permission.

5. Constructing, without prior permission of the government agency concerned,

works that produce dangerous or noxious substances, or performing acts that result
in the introduction of sewage, industrial waste, or any substance that pollutes a
source of water supply.

6. Dumping mine tailings and sediments into rivers of waterways without permission.

7. Malicious destruction of hydraulic works or structure valued more than Twenty-

Five Thousand Pesos (P25,000.00) but at not exceeding One Hundred Thousand
Peso (100,000.00).

C. A fine exceeding Six Thousand Pesos (P6,000.00) but not more than Ten Thousand
Pesos (P10,000.00) or imprisonment exceeding six (6) years but not more than twelve (12)
years, or both such fine and imprisonment, in the discretion of the Court, shall be imposed
upon any person who commits any of the following acts:

1. Misrepresentation of citizenship in order to qualify for water permit.

2. Malicious destruction of a hydraulic works or structure, valued at more than One

Hundred Thousand Pesos (P100,000.00).
Article 92. If the offense is committed by a corporation, trust, firm, partnership, association or any
other juridical person, the penalty shall be imposed upon the President, General Manager, and other
guilty officer or officers of such corporation, trust firm, partnership, association or entity, without
prejudice to the filing of a civil action against said juridical person. If the offender is an alien, he shall
be deported after serving his sentence, without further proceedings.

After final judgment of conviction, the Court upon petition of the prosecution attorney in the same
proceedings, and after due hearing, may, when the public interest so requires, order suspension of
or dissolution of such corporation, trust, firm, partnership, association or juridical person.

Article 93. All actions for offenses punishable under Article 91 of this Code shall be brought before
the proper court.

Article 94. Actions for offenses punishable under this Code by a fine of not more than Three
Thousand Pesos (P3,000.00) or by an imprisonment of not more than three (3) years, or both such
fine and imprisonment, shall prescribe in five (5) years; those punishable by a fine exceeding Three
Thousand Pesos (P3,000.00) but not more than Six Thousand Pesos (P6,000.00) or an
imprisonment exceeding three (3) years but not more than six (6) years, or both such fine and
imprisonment, shall prescribe in seven (7) years; and those punishable by a fine exceeding Six
Thousand Pesos (P6,000.00) but not more than Ten Thousand Pesos (P10,000.00) or an
imprisonment exceeding six (6) years but not more than twelve (12) years, or both such fine and
imprisonment, shall prescribe in ten (10) years.

CHAPTER IX
TRANSITORY AND FINAL PROVISIONS

Article 95. Within two (2) years from the promulgation of this Code, all claims for a right to use water
existing on or before December 31, 1974 shall be registered with the Council which shall confirm
said rights in accordance with the provisions of this Code, and shall set their respective priorities.

When priority in time of appropriation from a certain source of supply cannot be determined, the
order of preference in the use of the waters shall be as follows:

(a) Domestic and municipal use

(b) Irrigation

(c) Power generation

(d) Fisheries

(e) Livestock raising

(f) Industrial use, and

(g) Other uses.

Any claim not registered within said period shall be considered waived and the use of the water
deemed abandoned, and the water shall thereupon be available for disposition as unappropriated
waters in accordance with the provisions of this Code.
Article 96. No vested or acquired right to the use of water can arise from acts or omissions which
are against the law or which infringe upon the rights of others.

Article 97. Acts and contract under the regime of old laws, if they are valid in accordance therewith,
shall be respected, subject to the limitations established in this Code. Any modification or extension
of these acts and contracts after the promulgation of this Code, shall be subject to the provisions
hereof.

Article 98. Interim rules and regulations promulgated by the Council shall continue to have binding
force and effect, when not in conflict with the provisions of this Code.

Article 99. If any provision or part of this Code, or the application thereof to any person or
circumstance, is declared unconstitutional or invalid for any reason, the other provisions or parts
therein shall not be affected.

Article 100. The following laws, parts and/or provisions of laws are hereby repealed:

(a) The provisions of the Spanish Law on Waters of August 3, 1866, the Civil Code of Spain
of 1889 and the Civil Code of the Philippines (R.A. 386) on ownership of waters, easements
relating to waters, use of public waters and acquisitive prescription on the use of waters,
which are inconsistent with the provisions of this Code;

(b) The provisions of R.A. 6395, otherwise known as the Revised Charter of National Power
Corporation, particularly section 3, paragraph (f), and section 12, insofar as they relate to the
appropriation of waters and the grant thereof;

(c) The provisions of Act No. 2152, as amended, otherwise known as the Irrigation Act,
section 3, paragraphs (k) and (m) of P.D. No. 813, R.A. 2056; Section 90, C.A. 137; and,

(d) All Decree, Laws, Acts, parts of Acts, rules of Court, executive orders, and administrative
regulations which are contrary to or inconsistent with the provisions of this Code.

Article 101. This Code shall take effect upon its promulgation.

Done in the City of Manila, this 31st day of December, Nineteen Hundred and Seventy-Six.
OVERVIEW

GENERAL DESCRIPTION OF THE COUNTRY

The Philippines is comprised of 7,110 islands with a land area of about

300,000 square kilometers. The country has a total of 96,000 square
kilometers of agricultural land which is about 32% of the total land area. These
lands are utilized for plantation of palay, corn, fruit, trees, root crops,
vegetables, coconut, sugar cane and others.

July, 2004 census of Philippine population is 86.2 million and projected to

reach 100 million in 14 years. The current population growth rate is 2.71% or
3 persons born per minute. Existing settlement patterns show that 48.05% of
the population live in urban areas while the rest in rural areas.

There are about 85,000 manufacturing industries in the Philippines, with Metro
Manila as the prime industrial region. Accounting for about 52% of the total
manufacturing establishments. These establishments are classified into thirty
(30) major industrial groups. Food manufacturing constitutes the biggest
number of manufacturing establishments in the country.

With the rapid increase in population, urbanization, and industrialization

reduce the quality of Philippine waters, especially in densely populated areas
and regions of industrial and agricultural activities. The discharge of domestic
and industrial wastewater and agricultural runoff has caused extensive
pollution of the receiving water-bodies. This effluent is in the form of raw
sewage, detergents, fertilizer, heavy metals, chemical products, oils, and even
solid waste. Each of these pollutants has a different noxious effect that
influences human livelihood and translates into economic costs.

The adverse impact of water pollution costs the economy an estimated

Php67 Billion annually (more than US$1.3 Billion). The government continues
its fight against worsening water pollution by espousing and including among
its priorities, environment policies, legislation, and decrees that address the
growing need to control water pollution. In the last few years, the government
has employed economic instruments such as pollution fines and
environmental taxes.

Access to clean and adequate water remains an acute seasonal problem in

urban and coastal areas in the Philippines. The National Capital Region
(Metro Manila), Central Luzon, Southern Tagalog, and Central Visayas are the
four urban critical regions in terms of water quality and quantity. The
Governments monitoring data indicates:
 Just over a third or 36 percent of the countrys river systems are
classified as sources of public water supply:
Up to 58 percent of groundwater sampled is contaminated with coliform
and needs treatment;
Approximately 31 percent of illness monitored for a five-year period
were caused by water-borne sources; and
Many areas are experiencing a shortage of water supply during the dry
season.

Nearly 2.2 million metric tons of of organic pollution are produced annually by
domestic (48 percent), agricultural (37 percent), and industrial (15 percent)
sectors. In the four water-critical regions, water pollution is dominated by
domestic and industrial sources. Untreated wastewater affects health by
spreading disease-causing bacteria and viruses, makes water unfit for
drinking and recreational use, threatens biodiversity, and deteriorates overall
quality of life. Known diseases caused by poor water include gastro-enteritis,
diarrhea, typhoid, cholera, dysentery, hepatitis, and more recently, severe
acute respiratory syndrome (SARS). The number of water-related health
outbreaks including deaths reported in newspapers is going up. However,
awareness regarding the need for improved sanitation and water pollution
control, reflected by the willingness-to-pay and connection to a sewerage
system where they are easily available, is very low.

The annual economic losses caused by water pollution are estimated at

Php67 Billion (US$1.3 billion). These include Php3 billion for health, Php17
billion for fisheries production, and Php47 for tourism. Losses due to
environmental damage in pollution, the Philippines has many water-related
laws, but their enforcement is weak and beset with problems that include:
inadequate resources, poor database, and weak cooperation among different
agencies and Local Government Units (LGUs). A Clean Water Act is now
being deliberated in the Congress.

There is considerable under-investment by the Government in sanitation and

sewerage, indicating a low spending priority, though ranked as a high priority
in the Philippines Agenda 21 of 1996. Only seven percent of the countrys
total population is connected to sewer systems and only a few households
have acceptable effluent from on-site sanitation facilities. Estimates show that
over a 10-year period, the country will need to invest Php250 billion (nearly
US$ billion) in physical infrastructure. While LGUs recognize emerging water
quality problems, they are constrained by high investment and operating
costs, limited willingness-to-pay, restricted space available in the low-income
urban areas where sewage is disposed of indiscriminately. Some of the
Government budget, which is directed mostly towards water supply (97
percent of the total), needs to be diverted to sewerage and sanitation.
Individuals are not yet aware and willing to pay for these services and
Government incentives are justified in the short-term for the larger community-
wide benefits.

Related Presentation:Programmes of MWSS and Concessionaries on Sewerage and Sanitation

Water Resources

The country is endowed with rich natural resources, including water, which are
essential for the countrys economic development and in meeting its
Millennium Development Goals (MDGs). Water resources of the Philippines
include inland freshwater (rivers, lakes, and groundwater), and marine (bay,
coastal, and oceanic waters). Overall, there is sufficient water but not enough
in highly populated areas, especially during dry season.

Source: Philippines: Environment Monitor 2003