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Philippine Re Law Of 2008


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Philippine Re Law Of 2008

  1. 1. 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
  2. 2. Presentation Outline <ul><li>Legal Framework pre-RE Law </li></ul><ul><li>- Philippine Constitution of 1987 </li></ul><ul><li>- Presidential Decree No. 1442 </li></ul><ul><li>Important Features of RE Law </li></ul><ul><li>Potential Issues and Risk Factors </li></ul>
  3. 3. Constitution <ul><li>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. </li></ul>
  4. 4. Constitution <ul><li>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). </li></ul><ul><li>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. </li></ul>
  5. 5. Presidential Decree 1442 <ul><li>Introduced production sharing in geothermal resource development </li></ul><ul><li>“ service contractor” shall furnish technical and financial services subject to direct supervision of the gov’t </li></ul><ul><li>Profit sharing of 60-40 of net proceeds </li></ul><ul><li>Cost recovery of 90% of gross income; capital expenditures depreciated over 10 years </li></ul><ul><li>35% income tax paid out of gov’t share </li></ul>
  6. 6. Other Important Laws Related to Geothermal Energy Development <ul><li>Indigenous Peoples Rights Act (“IPRA”) </li></ul><ul><li>Environmental Impact Statement (“EIS”) System </li></ul><ul><li>Local Government Code of 1991 </li></ul><ul><li>National Integrated Protected Area System (“NIPAS”) Law </li></ul>
  7. 7. IPRA <ul><li>Grants to indigenous cultural communities certain preferential rights to their ancestral domains and all resources found therein. </li></ul><ul><li>Royalty and right to benefits </li></ul><ul><li>No agreement shall be approved unless: </li></ul><ul><li>- There is prior certification from NCIP that area does not overlap ancestral domain or </li></ul><ul><li>- Prior free and informed consent has been obtained from the ICC/IP concerned </li></ul>
  8. 8. EIS System under Presidential Decree No. 1586 <ul><li>Project proponent of environmentally critical projects and projects within environmentally critical areas must obtain an environmental compliance certificate prior to commencement </li></ul><ul><li>EMB/DENR as lead agency </li></ul><ul><li>DAO 2003-30 Implementing Rules and Regulations </li></ul>
  9. 9. Local Government Code <ul><li>Geothermal energy exploration proponents are required to conduct consultations with legislative councils of LGUs concerned </li></ul><ul><li>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. </li></ul>
  10. 10. NIPAS Law <ul><li>Survey of energy resources in protected areas solely for data gathering </li></ul><ul><li>Exploitation and utilization of energy resources found within NIPAS allowed only through passage of law by Congress </li></ul>
  11. 11. Renewable Energy Law <ul><li>Signed on 15 December 2008 </li></ul><ul><li>Implementing Rules and Regulations issued by DOE Secretary on 23 May 2009 (DOE Circular No. DC2009-05-0008) </li></ul><ul><li>First open and competitive selection process for awarding Geothermal RE Service Contracts on 23 Oct. 2009 under DC2009-07-0011. </li></ul><ul><li>DOE granted 21 GRESC under RE Law </li></ul>
  12. 12. Important Features of RE Law <ul><li>Definition of geothermal as mineral resource paving the way for the entry of 100% foreign ownership </li></ul><ul><li>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 </li></ul><ul><li>Provision allowing ECCs to be issued from the appropriate DENR regional office </li></ul><ul><li>Institutionalize LGU share </li></ul>
  13. 13. Geothermal Defined as Minerals <ul><li>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. </li></ul>
  14. 14. Renewable Portfolio Standard <ul><li>RE Law provides for establishment of an RPS system requiring electricity suppliers to source a certain amount of their energy supply from RE resources. </li></ul><ul><li>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. </li></ul><ul><li>RPS will also be complemented by a feed-in tariff system but geothermal energy has been excluded. </li></ul>
  15. 15. Fiscal Incentives <ul><li>Seven (7) years income tax holiday, corp. tax rate of 10% after 7 year ITH </li></ul><ul><li>Duty-free importation of RE machinery, equipment and materials </li></ul><ul><li>1.5 % Special Realty Tax Rates on Equipment and Machinery on original cost </li></ul><ul><li>Net operating loss carryover (NOLCO) </li></ul><ul><li>Accelerated Depreciation </li></ul><ul><li>Zero percent VAT rate </li></ul>
  16. 16. Fiscal Incentives <ul><li>Tax exemption on carbon credits </li></ul><ul><li>100% tax credit on VAT and custom duties on domestic capital equipment and services </li></ul><ul><li>Tax incentives to manufacturers, fabricators and suppliers of locally produced RE equipment </li></ul><ul><li>Exemption from Universal Charge </li></ul><ul><li>Financial assistance from Gov’t Financial Institutions </li></ul>
  17. 17. Government Share <ul><li>Integrated geothermal operation: 1.5% based on gross income from sale of electricity </li></ul><ul><li>Steamfield dev’t and production only: 1.5% based on gross income from sale of geothermal steam </li></ul><ul><li>Geothermal power plant only: 1.5% based on gross income from sale of electricity </li></ul><ul><li>Gov’t share distribution: 60% national gov’t and 40% LGU paid directly on a quarterly basis </li></ul>
  18. 18. Shortcomings of RE Law <ul><li>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 </li></ul><ul><li>Geothermal resource development in protected areas </li></ul>
  19. 19. Potential Issues with LGU <ul><li>Law is silent on whether LGU consent is needed for exploration </li></ul><ul><li>Local government veto/moratorium on geothermal exploration and development </li></ul><ul><li>Integration of geothermal energy development into local development land use and resources use plans </li></ul>
  20. 20. Potential Issues on Gov’t Share <ul><li>National government should develop a transparent system of accounting for and allocation of sharing of revenues and taxes with LGUs. </li></ul><ul><li>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. </li></ul>
  21. 21. Potential Issues with IPRA <ul><li>Lack of clear cut rules on how to arrive at a decision making process of IPs </li></ul><ul><li>Preferential rights of IPs </li></ul><ul><li>RE Law is silent on share of ICCs on geothermal revenue </li></ul>
  22. 22. Risk Factors <ul><li>Foreign equity ownership </li></ul><ul><li>Availability of geo-scientific information and professionals </li></ul><ul><li>Area status and clearance, conflict with other land use </li></ul><ul><li>Surface/land Ownership </li></ul><ul><li>Procedural efficiency and clarity between DOE and DENR </li></ul><ul><li>Opposition by NGOs – Rules of Procedure for Environmental Cases </li></ul>
  23. 23. About the Lecturer <ul><li>BS Geo, Bachelor of Laws (UP), Master of Laws (Univ. of Melbourne) </li></ul><ul><li>Managing Partner, Manalo Puno Law </li></ul><ul><li>Trustee and Secretary, Philippine Mineral Exploration Association </li></ul><ul><li>Trustee, National Geothermal Association of the Philippines </li></ul><ul><li>Director, Clean Rock Renewable Energy Resources Corp. (Natib and Daklan areas) </li></ul><ul><li>Professorial Lecturer, UP and De La Salle-FEU </li></ul>