Key Components of Legal Framework

• 1. Ownership and access to geothermal resources

• 1.1 What are the rules on ownership of geothermal resources? Can private parties hold ownership of geothermal resources?

  Geothermal resources are considered natural resources and are owned by the State. Article XII, Section 2 of the Philippine Constitution provides that all lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. Such state ownership of geothermal resources is reiterated in Section 3 of Republic Act (“R.A.”) No. 5092, and Section 19 (A) of Department of Energy (“DOE”) Department Circular No. DC2009-05-0008.    

  There are jurisprudence and opinions issued by the Philippine Department of Justice stating that a natural resource such as water, once taken from its natural source, cease to be a part of the natural resources of the country. Thus, geothermal resources, once extracted from their natural source, may be subject of ordinary commerce.

• 1.2 Who can grant access to geothermal resources, only state or also landowner?

  Since the State owns geothermal resources, only the State can grant access to geothermal resources.  Under R.A. No. 9513 (known as the Renewable Energy Act), the right to explore for, tap, or utilize geothermal resources may be obtained and exercised by means of a service agreement entered into with the government, through the DOE, over a period during which the developer has the exclusive right to a particular area for exploration and development.  

• 1.3 Is exploration/exploitation open to foreign investment?

  Yes. Under Article XII, Section 2, paragraph 4 of the Philippine Constitution, it is stated that the President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country, provided that in such agreements, the State shall promote the development and use of local scientific and technical resources. However, it appears to be that such law has not yet been passed (unless Presidential Decree (“P.D.”) No. 1442, which was enacted prior to the Philippine Constitution, is considered to be such law) and the absence of such law may pose an issue on the exploration/exploitation of geothermal resources by foreigners.

• 2. Involvement of administrative bodies

• 2.1 Which administrative bodies (ministry and/or governmental agencies) are involved in the licensing of geothermal resources, including licensing and developing?

  The DOE is the lead agency mandated to implement the provisions of R.A. No. 9513. As explained, the right to explore for, tap, or utilize geothermal resources may be obtained and exercised by means of a service agreement entered into with the government, through the DOE. Prior to the enactment of R.A. No. 9513, the service agreement for exploration, exploitation and development of geothermal resources was entered into with the government through the Bureau of Energy Development, pursuant to P.D. No. 1442.

• 2.2 Do administrative bodies assign any of their respective roles to a third party, including but not limited to a peer review, during the period of exploration, exploitation and/or production of geothermal resources?

  In general, the DOE does not assign its roles to third parties, although there is no law or regulation that prevents the DOE from subcontracting its responsibility. There are some functions of the DOE that are delegated to other government agencies.

  The Commission on Audit (“COA”) performs the review and audit of financial reports submitted by RE Developers to the DOE. Under the Philippine Constitution, the COA is mandated to examine, audit and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property owned or held in trust by, or pertaining to, the government.

• 2.3 Is there a government policy in place concerning geothermal resources? If so, what is the object and to what end?

  As provided in R.A. No. 9513, it is the declared policy of the State to: (a) accelerate the exploration and development of renewable energy resources such as geothermal and ocean energy sources, including hybrid systems, to achieve energy self-reliance, through the adoption of sustainable energy development strategies to reduce the country’s dependence on fossil fuels and thereby minimize the country’s exposure to price fluctuations in the international markets, the effects of which spiral down to almost all sectors of the economy; (b) increase the utilization of renewable energy by institutionalizing the development of national and local capabilities in the use of renewable energy systems, and promoting its efficient and cost-effective commercial application by providing fiscal and nonfiscal incentives; (c) encourage the development and utilization of renewable energy resources as tools to effectively prevent or reduce harmful emissions and thereby balance the goals of economic growth and development with the protection of health and the environment; and (d) establish the necessary infrastructure and mechanism to carry out the mandates specified in R.A. No. 9513 and other existing laws.

  P.D. 1442 also provides that: (i) it is necessary for the economic and industrial development of the Philippines to reduce our dependence on imported energy supplies and accelerate the development of geothermal resources, which has been identified as a viable and untapped economical source of energy; and (ii) it is the national interest to allow service contracts for financial, technical, management and other forms of assistance with qualified domestic and foreign entities, for the exploration, development, exploitation, or utilization of the Philippines’s geothermal resources.

  R.A. No. 5092 further provides that all geothermal resources or occurrences of geothermal energy, natural gas and methane 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 of the Philippines belong to the State, inalienable and imprescriptible and their exploration for, tapping and utilization shall be governed by the provisions of law.

• 3. Allowed Exploitation

• 3.1 Is exploitation of resources subject to licensing? Do landowners have the right to exploit recourses without a license? If yes, to what extent?

  As mentioned, a service agreement with the government, through the DOE, is required in order to exploit geothermal resources. R.A. No. 5092 provides that ownership or right to use land where geothermal resources are found does not include ownership of, nor the right to explore for, tap, or utilize the geothermal energy in, on or under the surface of such land.

• 4. Role and voice of landowner or “project affected people” in the licensing procedure and land lease agreements

• 4.1 Does the landowner or any “project affected people” have a role in the process of granting a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  As a rule, the landowner does not have a role in the process for granting the service agreement. The DOE awards services agreements for the exploitation of geothermal resources through either of the two processes provided under DOE Department Circular No. DC2009-07-0011: (i) by direct negotiation with the DOE; or (ii) by open and competitive selection process, similar to a bidding process. In either of these, the landowner does not have any role or participation.

  Furthermore, P.D. No. 1442 provides that service contracts for the exploration and development of geothermal resources may cover private lands and that the right to enter private lands for the purpose of exploiting geothermal resources shall, in the absence of a voluntary agreement with the private landowner, be allowed by the courts subject to payment of reasonable compensation to the landowner.

  However, to the extent that the rights of Indigenous Cultural Communities/Indigenous Peoples (“ICCs/IPs”) may be affected, R.A. No. 8371, or the Indigenous Peoples’ Rights Act of 1997, provides that the “free and prior informed consent” of the ICCs/IPs concerned shall be required prior to the grant of any license, lease or permit for the exploitation of natural resources.

  Also, under R.A. No. 7160, or the Local Government Code of 1991, all national agencies and offices are required to conduct periodic consultations with appropriate local government units, nongovernmental and people's organizations, and other concerned sectors of the community before any project or program is implemented in their respective jurisdictions. Also, any project or program that may cause pollution, climatic change, loss of cropland, rangeland or forest cover, and extinction of animal or plant species requires (i) consultation with local government units, nongovernmental organizations, and other sectors concerned, and (ii) explaining the goals and objectives of the project or program, its impact upon the people and the community in terms of environmental or ecological balance, and the measures that will be undertaken to prevent or minimize the adverse effects thereof. Further, the prior approval or endorsement of the relevant Sanggunian, the local legislative body, must be obtained for the above projects or programs.

  Further, while the service agreement authorizes the developer to utilize the geothermal resources for purposes of power generation, the construction and operation of geothermal power plants require separate and various licenses.

  A person or entity seeking to operate a power plant or any other facility used in the generation of electricity must obtain a Certificate of Compliance (“COC”) from the Energy Regulatory Commission (“ERC”), pursuant to R.A. No. 9136, or the Electric Power Industry Reform Act (“EPIRA”). Under ERC Resolution No. 16-2014, among the requirements for a COC is an Environmental Compliance Certificate (“ECC”). In turn, pursuant to Department of Environment and Natural Resources (“DENR”) Administrative Order No. 2017-15, which implements Presidential Decree No. 1586, or the Philippine Environmental Impact Assessment System law, the application for an ECC requires public participation through the conduct of public consultation and hearing. The issues and concerns raised by the public, which, in general, includes the local government unit, residents and business in the areas where the proposed facilities will be constructed and operated, will be considered by the DENR in acting on the application for an ECC.

• 4.2 Will an opposition of a landowner or any “project affected people” have a bearing on the process of granting a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  As mentioned above, while the landowner generally does not play a role in the grant of the service agreement or license for the exploration, development and utilization of geothermal resources, the “free and prior informed consent” of the ICC/IP hosting or affected by the project must be obtained.

  Further, as explained above, consultation with the local government unit hosting or affected by a project, and the approval or endorsement of the relevant Sanggunian are required prior to the implementation of the project or program.

  With respect to the operation of a power plant, securing the COC requires an ECC, which in turn requires the conduct of public consultation and hearing. The issues and concerns raised by the public are considered by the DENR in acting on the application for an ECC.

• 4.3 Are the terms of land lease agreements regulated and if so, (i) what is a general timeframe of land lease agreements and (ii) what are the obligations for decommissioning at the end of the term?

  The terms and conditions of lease of private lands are generally not regulated.

  However, under the Civil Code of the Philippines, the term of a lease of private lands cannot exceed ninety-nine years. Further, a lease of a private land by a foreign national or entity can be for a term of 25 years and may be renewed for another 25 years. R.A. No. 7652, or the Philippine Investors’ Lease Act, allows the long-term lease of private lands by foreign investors for a maximum lease term of 50 years, renewable for another 25 years, subject to certain terms and conditions. A lease under the Investors’ Lease Act is required to be registered with the Philippine Department of Trade and Industry.

  Land lease agreements for public lands are regulated by the Public Land Act and other related laws and their implementing regulations. The lease period would depend on the classification of the lease but can be up to 25 years, renewable for another 25 years. Only Philippine nationals, but not foreign nationals, may lease public lands.

  The decommissioning obligations at the end of the term in a lease of private land depends on the lease contract executed by the lessor (which is usually a private person) and the lessee. For lease of private land where the lessor is the government, ownership of the improvements on the land will typically belong to the government at no cost to the government. Also, the site is required to be restored or physically and environmentally safe.

• 5. Criteria for granting of a license

• 5.1 Which documents need to be submitted and what is the criteria for obtaining a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  DOE Department Circular No. 2009-07-0011 states that any person, natural or juridical, local or foreign, may, subject to the limits herein set, apply for service agreements.

  (i) In general, the applicant for a service agreement with the government must be a Filipino or, if a corporation, must be a Filipino corporation. At least 60% of the capitalization of a corporation must be owned by Filipinos and duly registered with the Securities and Exchange Commission (“SEC”).

  (ii) Consistent with Article XII, Section 2, of the Philippine Constitution and applicable laws, any foreign-owned corporation duly authorized to operate in the Philippines may apply for service agreement in the nature of a financial or technical assistance agreement for large-scale exploration, development or utilization of geothermal resources.

  Apart from documentary requirements proving the requisite legal capacity, the applicant must possess the necessary technical capability to undertake obligations under the service contract in terms of:

  1. proven track record or experience in the technical and specialized aspects of the project;
  2. viable work program illustrating the minimum expenditure commitments as well as “environmental protection/conservation and social acceptability plans;”
  3. experience and technical expertise of key personnel; and
  4. sufficient equipment to be used for operations either held in ownership by the RE applicant or by way of lease.

  The applicant must also submit to the DOE proof that it possesses adequate financial capacity to sustain the needs of the proposed project.

  From exploration to exploitation, the developer must submit a declaration of commerciality, which the DOE must confirm.

  For the construction and operation of geothermal power plants, the ERC requires the submission of documents proving that the applicant possesses the technical and financial capability to construct and operate the power plant. Among the technical requirements to be submitted to the ERC in an application for a COC are:

  1. Certificate of technical requirements compliance issued by the National Grid Corporation of the Philippines (“NGCP”) confirming that the capability to operate within the applicant’s registered parameters and its capability to meet the requirements of the Philippine Grid Code; and
  2. Certification issued by the NGCP attesting to the applicant’s compliance with approved connection scheme provided in the Grid Impact Study, Facility Study, Connection Agreement, and Transmission Service Agreement (if applicable).

• 6. Duration of Licenses and Renewal

• 6.1 What is the maximum duration of a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  Service agreements for the exploration, development and utilization of geothermal resources have a term of not exceeding twenty-five (25) years, renewable for not more than twenty-five (25) years. The total period of the service contract should not exceed fifty (50) years. For the operation of geothermal power plants, COCs have a term of five (5) years. A COC is renewable at least six (6) months prior to its expiration.

• 7. Terms of License

• 7.1 What are the general terms of the license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) exploration drilling and other drilling,
     (iv) power plant (generation license)?

  A service contract, in general, gives the RE Developer the exclusive right to explore, develop or utilize geothermal areas on, in or under a particular contract area, including the right to conduct exploration drilling and other drilling activities. The service contract provides for the rights and obligations of the RE Developer, benefits to host communities and local government units, dispute resolution mechanism, grounds for suspension and termination, and assignability or transferability of the contract. Among the obligations of an RE Developer are compliance with all its work and financial commitment in carrying out it operations, payment of government share and taxes, and submission of financial and technical reports to the DOE. The government, through the President, may also enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State must promote the development and use of local scientific and technical resources.

  A COC authorizes a power generation company to operate a power plant and other facilities used in generation of electricity. A generation company holding a COC must comply with, among other things, (i) technical and operational standards set under the Philippine Grid Code and Philippine Distribution Code, and the systems requirements set by the National Transmission Corporation and NGCP, (ii) environmental laws and standards, (iii) reportorial requirements of the DOE and ERC, and (iv) obligations to host communities and local government units.

• 7.2 Are exploration license holders granted pre-emptive rights with regards to exploitation or do exploration licenses automatically convert into exploitation licenses if the resource has been substantiated? If so, are there any conditions?

  A service contract is divided into two (2) stages:

  1. Pre-development stage – this involves the preliminary assessment and feasibility up to the financial closing of the project; and
  2. Development/commercial stage – this involves the development, production or utilization of resources, including the construction and installation of relevant facilities up to the operation phase of the facilities.

  The developer will apply for the conversion of the contract, prior to its expiration, from Pre-development stage to Development/Commercial stage by submitting a declaration of commerciality, which the DOE will confirm. This signifies that the developer is now ready to exploit the geothermal resources.

  Upon application for conversion, DOE will examine the technical and financial aspects of the project and determine whether the project is viable or feasible. Thus, if based on DOE‘s determination the project does not appear to be viable or feasible, the DOE will not issue the declaration of commerciality.

• 7.3 Is an exploitation license included in a power plant license or are these licenses separate?

  As discussed, separate and various licenses and permits are required for the construction and operation of power plants.  Such licenses and permits are separate and distinct from the service agreement for the exploration, development and utilization of geothermal resources.

• 7.4 Are there any encumbrances in place for the licence holder to keep a license, once granted?

  Consistent with the principle that the State owns all geothermal resources and that only the State can grant access to these resources, the license holder has the obligation to maintain its license to explore, exploit, and develop geothermal resources and to comply with the terms and conditions of the license; otherwise, it will lose its license and not have the right to continue performing any of the foregoing activities.

• 8. Termination and revision of licenses

• 8.1 What actions by the license holder would warrant revision of exploration-, exploitation- and power plant (generation) licenses?

  A service agreement and a COC are subject to suspension or termination by the DOE and ERC, respectively, generally for failure of the license holder to comply with the terms and conditions of the license.

• 8.2 Does the license granting authority license have the power to revoke or terminate licenses? If yes, what actions of the license holder would warrant the termination of the license?
     (i) exploration license,
     (ii) exploitation license,
     (iii) power plant (generation license)?

  Yes. The DOE has the power to suspend and terminate a service agreement, after due notice to the RE Developer. The grounds for suspension include, among others:

  1. Non-compliance with the approved work program and any of its obligations under the service contract;
  2. Non-compliance with the technical design standards adopted by the DOE;
  3. Non-observance of environmental regulations imposed by the DENR; 
  4. Non-payment of financial obligations agreed upon under the contract; and
  5. Non-remittance of government share.

  The ERC may also revoke a COC, after due notice and hearing, for the power generation company’s failure to comply with the terms and conditions of the COC and other rules and regulations.

• 8.3 Can the license granting authority set forth conditions into licenses which provide for (i) stricter terms and conditions of licensees or (ii) more lenient terms and conditions for licensees, when such terms and conditions (whether stricter or more lenient) are not otherwise provided for by law?

  Under R.A. No. 9513, the DOE is granted the power to implement the provision of the law. Thus, the DOE is empowered to issue the rules and regulations implementing R.A. No. 9513, including the guidelines governing the issuance, management, monitoring and evaluation of service agreements.

  On the other hand, under R.A. No. 9136, the ERC is the agency vested with the power to issue COCs to power generation companies. The COC stipulates all obligations of a generation company consistent with the EPIRA, its implementing rules, and such other operating guidelines as ERC may establish. Under the implementing rules and regulations of the EPIRA, the ERC is given the power to establish and publish the standards and requirements for issuance of a COC. 

  Nonetheless, under Philippine Law, the DOE and ERC, as license granting authorities, are bound by the terms of the law enacted by Congress. This is so because the law cannot be broadened by a mere administrative issuance. It is axiomatic that an administrative agency cannot amend an act of Congress. (Nasipit Lumber Company, Inc. v. National Wages and Productivity Commission, G.R. NO. 113097, April 27, 1998)

  For as long as the guidelines or conditions imposed by the DOE or the ERC are within the bounds of the law, they are valid. However, when the implementing guidelines exceed the limitations set by the law, such guidelines become subject to challenge.

• 8.4 What remedies does the License granting authority have in order to enforce compliance to the terms and conditions of a license, other than by revoking the license?

  Under R.A. No. 9513, the DOE is empowered to impose administrative fines and penalties for any violation of the provisions of R.A. No. 9513, its implementing rules and regulations, and other issuances. Similarly, under the EPIRA, the ERC is given the authority to impose fines or penalties for any non-compliance with or breach of EPIRA, its implementing rules and regulations, and other issuances of the ERC.

• 9. Regulatory and information obligation

• 9.1 Briefly outline the surveillance carried out by the regulatory authorities during the license period, e.g. with regards to reporting duties and/or on-site visits.

  Governmental surveillance is primarily carried out by an Evaluation and Monitoring Team (created under DOE Department Order No. 2013-12-0021) composed of a chairperson, a vice chairperson and 3 other members. The team must, among others:

  1. Conduct the evaluation and monitoring of service contracts based on the requirements provided under the relevant contract and schedules prescribed by the DOE; and 
  2. Submit appropriate reports to the Review and Evaluation Committee for further review and endorsement by the Secretary of the DOE.

  Under the regulations, during the pre-development stage there shall be a mid-term and end-term monitoring and evaluation, while during the development/commercial stage, monitoring shall be based on the schedules indicated in the duly approved work plan.

• 9.2 Which information is required to be submitted to regulatory authorities during the license period for the holder of a license for:
     (i) exploration,
     (ii) exploitation,
     (iii) power plant (generation license)?

  Under existing rules, RE Developers with service agreements with the government are required to submit technical and financial reports in the format prescribed by the DOE including, but not limited to, the following:

  1. Annual Progress Report — the annual progress report is submitted not later than two (2) months prior to the end of each contract year and shall contain the summary of all the activities, e., exploration, drilling or infrastructure development, with relevant comments and recommendation on any technical findings;
  2. Procurement Plan — the procurement plan is designed according to the approved work obligations containing an itemized list of equipment, materials and supplies to be procured with corresponding estimated costs. It shall be submitted not later than one (1) month from the approval of the work program or work plan or revision thereof, as the case may be;
  3. Quarterly Progress Report — the quarterly progress report is submitted not later than one (1) month from the end of each Contract Quarter and shall contain the work and financial accomplishment under the work program or work plan;
  4. Monthly Generation Report; and
  5. Other technical data and reports relevant to the Geothermal Resources, when necessary as determined by the DOE.

  Power generation companies with COCs are likewise obliged to submit the following, among other things, to the ERC:

  1. Generation Company Management Report, which shall contain reports on (i) capacity utilization electricity dispatch, sales volume, and unscheduled downtime during the period, (ii) bilateral agreements entered during the period, (iii) energy revenues during the period, and (iv) other required technical information;
  2. A written disclosure of an event which results in a material change concerning and potentially affecting the company’s ownership, management, operations, financial condition and performance; and
  3. Financial reports, including audited financial statements, audit opinion, and statement of management’s responsibility on the financial statements.

• 10. Power purchase agreements

• 10.1 Are general terms and conditions, such as duration of Power Purchase Agreements regulated? If no, are there any soft law or general recommendations in place in your jurisdiction?

  As a rule, the terms and conditions of Power Purchase Agreements (“PPAs”) are not regulated.  However, PPAs wherein the off-taker is a distribution utility are subject to the approval by the ERC. There is also a general prohibition on anti-competitive behavior, especially where the off-taker is a contestable customer, or one who has a choice of a supplier of electricity based on a threshold average monthly peak demand as determined by the ERC.

• 10.2 What is the permitted or general duration of PPA's?

  The duration of PPAs is subject to stipulation by the parties. However, the duration of a PPA where the off-taker is a contestable customer is two (2) years.

• 10.3 Are public and/or national regulatory authorities involved in any way in forming the terms of PPA's, either directly or indirectly?

  As discussed above, a PPA where the off-taker is a distribution utility is subject to approval by the ERC.  There is also a general prohibition on anti-competitive behavior, especially in PPAs where the off-takers are contestable customers.

• 11. Incentives

• 11.1 Is there any governmental support or funding available for exploration activities?

  Under the R.A. No. 9513, a Renewable Energy Trust Fund was created, which is administered by the DOE and which shall be used exclusively to (i) finance the research, development, demonstration, and promotion of the widespread and productive use of renewable energy systems, (ii) support the development and operation of new renewable energy resources, (iii) conduct nationwide resource and market assessments studies for power and non-power applications of renewable energy systems, (iv) propagate knowledge on renewable energy, and (v) fund other activities necessary or incidental to the attainment of the objectives of the law.

  Further, government financial institutions are mandated to provide preferential packages for the developments, utilization and commercialization of renewable energy projects duly recommended and endorsed by the DOE.

• 11.2 Are there any incentives offered by the government or local authorities for utilization of geothermal energy? If yes, in what form (e.g. tax and/or feed-in tariffs) and what are the maximum amounts permitted?

  Under R.A. No. 9513, the following incentives are granted to developers:

  1. Tax incentives;
  2. Cash incentive of renewable energy developers for missionary electrification;
  3. Exemption from the universal charge;
  4. Option in payment of transmission charges; and
  5. Preferential financial assistance from government financial institutions. 

  The following are the tax incentives under R.A. No. 9513:

  1. Income tax holiday for a period of 7 years from commercial operations;
  2. Duty-free importation of machinery, equipment, and materials within the first 10 years from issuance of the certification to the developer;
  3. Special realty tax rates on equipment and machinery;
  4. Net Operating Loss Carry-Over (“NOLCO”) from the start of commercial operations and for a period of 7 consecutive years immediately following the year of loss;
  5. Corporate tax rate of 10% on net taxable income (in lieu of the regular 30% corporate income tax rate);
  6. Accelerated depreciation for plant, machinery and equipment;
  7. Zero Percent Value-Added Tax rate on the sale of fuel or power generated;
  8. Tax exemption of from the sale of carbon emission credits; and
  9. Tax credit on certain purchases of domestic capital equipment and services.

  The government share on renewable energy development projects is equal to one percent (1%) of the gross income of RE Developer resulting from the sale of renewable energy produced and such other income incidental to and arising from the renewable energy generation, transmission, and sale of electric power except for indigenous geothermal energy, which shall be at one and a half percent (1.5%) of gross income. Previously, a service contractor for geothermal resources is paid a fee not exceeding forty percent (40%) of the balance of the gross value of the geothermal resources after deducting the necessary expenses incurred in the geothermal operations.  

  R.A. No. 9513 also provides for a feed-in tariff. However, this incentive is not available to developers of geothermal resources.

• 11.3 What requirements must the project fulfil in order to be eligible to receive such incentives?

  The developer should be registered with the DOE and the Board of Investments (“BOI”). To qualify for BOI registration, the proposed activity must be in the Investments Priority Plan (“IPP”). In this regard, renewable energy development has been declared a priority investment that will regularly form part of the annual IPP.

  The requirements for the DOE registration (for a certificate of endorsement to BOI) are the following:

  1. Request letter addressed to the Secretary of the DOE;
  2. Developer’s company profile; and
  3. Project profile which must include the financial statements, total project cost and assumptions, selling price, target market, technology used, and the process of generating energy.

  The certificate of endorsement is then submitted to the BOI for registration together with the following:

  1. Accomplished BOI-registration application form;
  2. Project Study/Report;
  3. SEC registration certificate, articles of incorporation, by-laws;
  4. Financial Statements and Income Tax Returns for the past 3 years or for the number of years the applicant has been in operation if less than 3 years; and 
  5. Board resolution authorizing the registration.

• 11.4 Are the incentives subject to recovery in any instances?

  R.A. No. 9513 does not generally provide for any recovery mechanisms for the above-mentioned incentives. However, if the developer avails of the duty-free importation of machinery, equipment and materials and subsequently sells the machinery, equipment and materials to another person (specially a person who is not registered as a renewable energy developer), the appropriate taxes and duties must be paid.

• 11.5 In the case of production of electricity from geothermal, are there any incentives/rewards for utilizing the geothermal energy for other than producing electricity, such as waste heat?

  None.

• 12. Participation and authority of indigenous people

• 12.1 Are the rights of indigenous peoples in connection to geothermal resources regulated?

  There are no specific rules that apply to indigenous people insofar as geothermal resources are concerned. As previously mentioned, the “free and prior informed consent” of the indigenous people is required if the geothermal resources that will be exploited are found in an area reserved for indigenous people.

• 12.2 To what extent are indigenous municipalities involved in the process of granting licenses?

  Indigenous people are effectively involved in the process of getting the licenses since they must give their “free and prior informed consent”. Certain laws and regulations prescribe the procedure for getting such consent, which requires consultation of the indigenous people and the execution of an agreement where the consent given will be manifested.

• 13. Alteration of law and regulation

• 13.1 What are the principles regarding retroactivity of laws and regulations, can changes in such rules affect license holders?

  The prevailing rule under the Civil Code of the Philippines is that laws shall have no retroactive effect, unless the contrary is provided. Nevertheless, and despite the non-impairment of contracts provision under the Philippine Constitution, Philippine jurisprudence provides that a license may validly be revoked pursuant to a law that is given retroactive effect provided only that the law was enacted pursuant to the police power of the State.  

• 14. Taxation and capital controls

• 14.1 How does taxation in the sector affect license holders?

  Tax incentives and the other fiscal grants are intended to provide the license holders with the most favourable business climate for the industry, thereby attracting the interest and encouraging participation of the private sector as well as foreign investors.

• 14.2 Please describe and provide information on the applicable tax rate and resource tax.

  As explained above, RE Developers are entitled to income tax holiday for a period of 7 years from commercial operations. Thereafter, the RE Developer will be subject to corporate tax rate of 10% on net taxable income, in lieu of the regular 30% corporate income tax rate.

• 14.3 Is the sale of energy subject to VAT?

  The sale of electricity is subject to VAT under Republic Act No. 9136. However, pursuant to Section 108 (B) (7) of Republic Act No. 9337, sale of power generated through renewable sources of energy is subject to VAT at zero percent (0%).

• 14.4 Is VAT refundable and what is the procedure for VAT refunding?

  Since the VAT rate is 0%, there is technically no VAT to pass on to the buyer of electricity generated from renewable resources.

  With regard to the refund of Input VAT, R.A. No. 9337 allows a VAT-registered person whose sales are zero-rated to apply for the issuance of a tax credit certificate or refund of input tax attributable to such sales. The claim must be filed with the Bureau of Internal Revenue within two (2) years after the close of the quarter when the sales were made.

• 14.5 Is the flow of foreign capital restricted with capital controls? If so, briefly describe the nature of such controls.

  No.

• 15. Environmental Impact Assessment

• 15.1 What demands are there regarding environmental impact assessment prior to exploration, exploitation and or production of geothermal energy?

  Under R.A. No. 9513, all renewable energy explorations, development, utilization, and renewable energy systems operations must be conducted in accordance with existing environmental regulations as prescribed by the DENR and/or any other concerned government agency.

  DENR Administrative Order No. 2003-30, implementing P.D. No. 1586 and providing for the Environmental Impact Statement system, mandates all agencies and instrumentalities of the national government, including government-owned and controlled corporations, as well as private corporations, firms, and entities to submit an Environmental Impact Statement and secure the issuance of an Environmental Compliance Certificate as both a pre-requisite and a continuing requirement for project planning, construction, and operation of Environmentally Critical Projects or projects in or affecting Environmentally Critical Areas.

• 16. Other regulatory requirements or permits needed

• 16.1 What other licenses are needed in order to commence exploration, exploitation and/or production with geothermal energy?

  There are numerous permits needed in order to commence exploration, exploitation and/or production with geothermal energy.  These include the following:

  1. ECC from the DENR; 
  2. Certification from the National Commission on Indigenous Peoples that the area does not overlap with ancestral domains or that the free, prior and informed consent of the affected indigenous peoples has been secured; and
  3. Favorable endorsement by the sanggunians (or legislative bodies) of affected local government units.

• 16.2 Which other regulatory requirements are in place, including but not limited to the need to provide insurances or guarantees, in connection with the commencing or continuing of exploration, exploitation and/or production of geothermal energy?

  Within sixty (60) days from the effectivity date of a service agreement, and at the start of every contract year thereafter, the RE Developer shall post a bond or any other guarantee of sufficient amount but not less than the minimum expenditures commitment for the corresponding year.

• 17. Legislation

• 17.1 Have there been any recent amendments to the legislation for licensing, exploration and/or exploitation of geothermal energy in the last 15 years? If so, have these amendments made a noticeable impact on the increase or decrease of production of electricity from geothermal resources?

  Yes, R.A. No. 9513. However, there was no noticeable impact on the increase or decrease of production of electricity from geothermal resources.

• 17.2 Have any other factors made a strong impact on the production of electricity from geothermal in the last 15 years? If so, for what reasons.

  There is none. Note, however, that Section 1 of P.D. No. 1442, which provides that the maximum share of the service contractor cannot exceed forty percent of the balance of the gross value of the geothermal operations after deducting the necessary expenses incurred in the operations was expressly repealed by R.A. No. 9513. Under R.A. No. 9513, the government share on existing and new RE development projects is equal to one percent (1%) of the gross income of RE Developers resulting from the sale of renewable energy produced and such other income incidental to and arising from the renewable energy generation, transmission, and sale of electric power except for indigenous geothermal energy, which is at one and a half percent (1.5%) of gross income.

• 17.3 Is there a specific legislation in place regarding geothermal extraction?

  P.D. No. 1442 is the specific law that promotes the exploration and development of geothermal resources, and which provides, among other things, for the privileges of service contractors or RE Developers.

• 18. Alternative or cascade use of resources

• 18.1 When applying for a licence, is it possible to apply for one license or authorization, which provides for multiple or cascade use of the resource, e.g. direct and indirect utilization (generation of electricity, district heating and cooling)?

  Yes, only one license (i.e., a service agreement) is needed for the exploration, development, and utilization of the intended geothermal resources. The construction and operation of geothermal power plants, however, require a COC from the ERC.

• 18.2 Could mineral extraction from geothermal fluid be included under such cascade usage clauses?

  Under R.A. No. 7942, or the Philippine Mining Act of 1995, mineral extraction requires a license or permit (i.e., a mineral agreement) from government, issued through the DENR. A mineral agreement grants the contractor the exclusive right to conduct mining operations and to extract all mineral resources found in the contract area.

• 18.3 What possibilities does a license holder have to expand operation in order to seek further revenue based on secondary resources?

  The RE Developer may conduct further technical research on renewable energy projects for the development of sustainable power and non-power renewable energy systems.

• 19. Water rights

• 19.1 Once an exploitation license has been granted for the operation of a power plant, along with access to fresh water for power plant operation, can the licence allow for sales and distribution of fresh water to local communities?

  While P.D. 1067, or the Water Code of the Philippines, and its implementing rules and regulations do not specifically provide that the water permit issued by the National Water Resources Board (“NWRB”) will be used solely for power generation purposes, the rules provide that unauthorized sale of water is a ground for revocation of the water permit. Thus, unless the water permit from the NWRB specifically states that the RE Developer or power generation company is authorized to sell and distribute water, said entities may not do so.