Renewable Energy Act of 2008: Legal and Fiscal Implications to Philippine Geothermal Exploration and Development Atty. Fernando S. Peñarroyo Trustee, National Geothermal Association of the Philippines
Legal Framework pre-RE Law
- Philippine Constitution of 1987
- Presidential Decree No. 1442
Important Features of RE Law
Potential Issues and Risk Factors
All water, minerals, all forces of potential energy, and other natural resources are owned by the state. The exploration, development and utilization of these natural resources are under the full control and supervision of the State.
The State has the option of entering into co-production, joint venture or production sharing agreements with Philippine citizens of Philippine corporations or associations (at least 60% of the capital owned by Filipinos).
If an investor wishes to acquire the right to extract or develop natural resources, he must enter into an agreement with State. PD 1442 laid out the legal framework for geothermal energy agreements.
Presidential Decree 1442
Introduced production sharing in geothermal resource development
“ service contractor” shall furnish technical and financial services subject to direct supervision of the gov’t
Profit sharing of 60-40 of net proceeds
Cost recovery of 90% of gross income; capital expenditures depreciated over 10 years
35% income tax paid out of gov’t share
Other Important Laws Related to Geothermal Energy Development
Indigenous Peoples Rights Act (“IPRA”)
Environmental Impact Statement (“EIS”) System
Local Government Code of 1991
National Integrated Protected Area System (“NIPAS”) Law
Grants to indigenous cultural communities certain preferential rights to their ancestral domains and all resources found therein.
Royalty and right to benefits
No agreement shall be approved unless:
- There is prior certification from NCIP that area does not overlap ancestral domain or
- Prior free and informed consent has been obtained from the ICC/IP concerned
EIS System under Presidential Decree No. 1586
Project proponent of environmentally critical projects and projects within environmentally critical areas must obtain an environmental compliance certificate prior to commencement
EMB/DENR as lead agency
DAO 2003-30 Implementing Rules and Regulations
Local Government Code
Geothermal energy exploration proponents are required to conduct consultations with legislative councils of LGUs concerned
E.R. No. 1-94 prescribed direct benefits to LGUs hosting energy resource development projects and/or energy generating facilities within their territorial jurisdiction. Generation facility shall allocate one centavo per kilowatt-hour of the electricity sales as direct benefits to host LGU.
Survey of energy resources in protected areas solely for data gathering
Exploitation and utilization of energy resources found within NIPAS allowed only through passage of law by Congress
Renewable Energy Law
Signed on 15 December 2008
Implementing Rules and Regulations issued by DOE Secretary on 23 May 2009 (DOE Circular No. DC2009-05-0008)
First open and competitive selection process for awarding Geothermal RE Service Contracts on 23 Oct. 2009 under DC2009-07-0011.
DOE granted 21 GRESC under RE Law
Important Features of RE Law
Definition of geothermal as mineral resource paving the way for the entry of 100% foreign ownership
Declaration of RE sector as a priority investment sector that will regularly form part of the Philippine investment priority plan to qualify for fiscal incentives
Provision allowing ECCs to be issued from the appropriate DENR regional office
Institutionalize LGU share
Geothermal Defined as Minerals
Exception to the nationality requirement: The Constitution authorizes the President to enter into agreements with foreign-owned corporations involving either financial or technical assistance, for large- scale exploration, development and utilization of minerals, petroleum and other mineral oils.
Renewable Portfolio Standard
RE Law provides for establishment of an RPS system requiring electricity suppliers to source a certain amount of their energy supply from RE resources.
The National Renewable Energy Board shall set the minimum percentage of generation from eligible sources and determine to which sector RPS shall be imposed on a per grid basis.
RPS will also be complemented by a feed-in tariff system but geothermal energy has been excluded.
Seven (7) years income tax holiday, corp. tax rate of 10% after 7 year ITH
Duty-free importation of RE machinery, equipment and materials
1.5 % Special Realty Tax Rates on Equipment and Machinery on original cost
Net operating loss carryover (NOLCO)
Zero percent VAT rate
Tax exemption on carbon credits
100% tax credit on VAT and custom duties on domestic capital equipment and services
Tax incentives to manufacturers, fabricators and suppliers of locally produced RE equipment
Exemption from Universal Charge
Financial assistance from Gov’t Financial Institutions
Integrated geothermal operation: 1.5% based on gross income from sale of electricity
Steamfield dev’t and production only: 1.5% based on gross income from sale of geothermal steam
Geothermal power plant only: 1.5% based on gross income from sale of electricity
Gov’t share distribution: 60% national gov’t and 40% LGU paid directly on a quarterly basis
Shortcomings of RE Law
No provisions that will facilitate the acquisition by RE developers of auxiliary rights like timber rights, water rights, easement rights and entry into private lands and concession areas - complicated approval and permitting process
Geothermal resource development in protected areas
Potential Issues with LGU
Law is silent on whether LGU consent is needed for exploration
Local government veto/moratorium on geothermal exploration and development
Integration of geothermal energy development into local development land use and resources use plans
Potential Issues on Gov’t Share
National government should develop a transparent system of accounting for and allocation of sharing of revenues and taxes with LGUs.
Expedite and streamline the release of LGU share on revenues and taxes through a simplified process with timeframe requirements to lessen local opposition to geothermal projects.
Potential Issues with IPRA
Lack of clear cut rules on how to arrive at a decision making process of IPs
Preferential rights of IPs
RE Law is silent on share of ICCs on geothermal revenue
Foreign equity ownership
Availability of geo-scientific information and professionals
Area status and clearance, conflict with other land use
Procedural efficiency and clarity between DOE and DENR
Opposition by NGOs – Rules of Procedure for Environmental Cases
About the Lecturer
BS Geo, Bachelor of Laws (UP), Master of Laws (Univ. of Melbourne)
Managing Partner, Manalo Puno Law
Trustee and Secretary, Philippine Mineral Exploration Association
Trustee, National Geothermal Association of the Philippines
Director, Clean Rock Renewable Energy Resources Corp. (Natib and Daklan areas)