Charter of the Philippine National Oil Company

Senate Pus office af the Scoretary TWENTIETH CONGRESS OF THE ) REPUBLIC OF THE PHILIPPINES AUG -7 P1:18 First Regular Session SENATE RECEIVED BY: S.B. No. _ 1085 Introduced by Senator WIN GATCHALIAN AN ACT PROVIDING A NATIONAL ENERGY POLICY AND FRAMEWORK FOR GOVERNMENT-INITIATED PETROLEUM EXPLORATION AND DEVELOPMENT FURTHER AMENDING FOR THE PURPOSE THE CHARTER OF THE PHILIPPINE NATIONAL OIL COMPANY (PNOC), AS AMENDED EXPLANATORY NOTE Given the nature of petroleum exploration and development as a capital-intensive industry and its importance in achieving energy security and self-sufficiency, governments have historically played a major role in jumpstarting and developing the sector.1 This is evidenced by some of the most prominent oil companies being state owned national companies: Saudi Arabia's Saudi Aramco, China's China National Offshore Oil Corporation, Brazil's Petrobras, Indonesia's Pertamina, Vietnam's Petrovietnam, and Malaysia's Petronas. The Philippines has its own state owned national oil company - the Philippine National Oil Company (PNOC) which was created in 1973 to provide an adequate and stable supply of petroleum products to meet domestic requirement, and to promote the exploration and development of local petroleum sources.? However, during its almost 50 years in operation, the PNOC has engaged in various activities that are far removed from its original mandate, organizing and incorporating a total of eight subsidiary ' Page 5. The Role of National Oil Companies in the International Oil Market. United States Congressional Research Service. 21 August 2007. 2 Section 4, PD 334.

companies whose involvement range from developing geothermal resources to promoting energy efficiency programs.? Moreover, PNOC and its subsidiaries have faced problems arising from financial mismanagement. For example, PNOC Shipping and Transport Corporation, at the time of its dissolution in 2013, suffered an annual loss of Php 533.73 million, 4 while PNOC Alternative Fuels Corporation failed to remit a total of Php 121.60 million in unpaid dividends to the national government from 2013 to 2018.5 Currently, PNOC has focused its resources only on three companies: PNOC which acts as the holding company with current operations primarily focused on leasing real estate which includes the energy supply base, PNOC Exploration Corporation (PNOC EC) which is engaged in upstream operations with projects geared towards the exploration and development of the country's petroleum and coal resources, and PNOC Renewables Corporation (PNOC RC) which is involved in renewable energy projects. However, even these existing corporations are not exempt from financial challenges. To illustrate, as of the year ended December 31, 2023, PNOC EC has an outstanding receivable amounting to Php 644.816 million, while PNOC RC has continuously operated at a loss since 2013, with its total net loss until 2023 amounting to Php 433.042 million.? This proposed legislation thus seeks to address the challenges faced by PNOC by laying down a national energy policy and framework for government-initiated petroleum exploration and development. This policy will be implemented by the PNOC, refocusing the company's mandate exclusively to upstream petroleum operations. To do so, the company is empowered to invest in petroleum operation projects, both here and abroad, and is given the power to retain 50% of its annual net earnings for local petroleum exploration and development. Moreover, strict professional and technical qualifications on the members of its Board of Directors and officers have been ' These companies are: PNOC Shipping and Transport Corporation (PSTC) which was tasked to engage in the movement of oil products throughout the country; the PNOC Coal Corporation (PCC) which was mandated to engage in coal exploration and develooment activities: the PNOC Eneroy Develooment Corporation (PNOC EDe) which was mandated to engage in geothermal exploration and power plan Corporation (PPDC) which was eventually renamed to PNOC Alternative Fuels Corporation (PAFC) was tasked to engage in developing alternative sources of energy; the PNOC Development and Management operations and management, the PNOC Exploration Corporation (PNOC EC) which was tasked to engage in oil and gas exploration, utilization, and development; the PNOC Petrochemical Development Corporation (PDMC) which was mandated to engage in the development of key energy infrastructure such as refineries and pipelines; and the PNOC Renewables Corporation (PNOC RC) which was tasked to engage in the promotion and development of renewable energy and energy efficiency programs in the country. Execute Summary or 2014 Commission on Audit Annual Audit Keport for PNC Shipping and Iransport corporation § Executive Summary of 2019 Commission on Audit Annual Audit Report for PNOC Alternative Fuels Corporation • Page 41. Note 1. Notes to Financial Statements on Audit Annual Keport on PNoL eL Tor the year ended December 31, 2022 and 2023 Page 14. Note 3.3. Notes to Financial Statements. Commission on Audit Annual Audit Report on the PNOC RC for the years ended December 31, 2022 and 2023.

imposed. All these are with the end in view of achieving energy security and self- sufficiency. For these reasons, the immediate passage of this measure is sought. WEN GATCHALIAN

Seltate Office of the Suretarg TWENTIETH CONGRESS OF THE REPUBLIC OF THE PHILIPPINES First Regular Session AUG -7 P1:18 SENATE RECEIVED BY: 1085 S.B. No. _ Introduced by SEN. WIN GATCHALIAN AN ACT PROVIDING A NATIONAL ENERGY POLICY AND FRAMEWORK FOR GOVERNMENT-INITIATED PETROLEUM EXPLORATION AND DEVELOPMENT FURTHER AMENDING FOR THE PURPOSE THE CHARTER OF THE PHILIPPINE NATIONAL OIL COMPANY (PNOC), AS AMENDED Be it enacted by the Senate and the House of Representatives of the Philippines in Congress assembled:

Section 1. Sections 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, and 17

2 of Presidential Decree No. 334, as amended by Presidential Decree No. 334, and further amended by Presidential Decree No. 405, Presidential Decree No. 572, Presidential Decree No. 927, Presidential Decree No. 1516, Memorandum Order No. 18 Series of 1986, Executive Order No. 171 Series of 1987, and Republic Act No. 7638, is further amended to read as follows: "Section 1. Short Title. This ACT [decree] shall be known as the "Charter of the Philippine National Oil Company."

Section 2. Declaration of Policy. - It is the declared policy of the

State to promote industrial and over-all economic development through THE ADVANCEMENT OF ENERGY SECURITY AND ENERGY SELF-SUFFICIENCY, AND the effective and efficient

utilization of energy. In line with this policy, the establishment of an organized entity is necessary in order to assure adequate supply of [eil and oil products as well as power and] energy to all users and consequently enable the unimpeded and efficient growth of the economy.

Section. 3. Creation, Name, Domicile, and Term. - There is

hereby created a body corporate to be known as the Philippine National Oil Company, hereinafter referred to as the "[Company] PNOC", which shall undertake and transact the corporate business OF [relative primarily to oil or] petroleum operations land other energy resources exploitation as defined hereunder], and for that purpose, the [Company] PNOC shall have capacity to sue and be sued. ["Oil or Petroleum Operations" shall include [actual exploration, production, refining, tankerage and/or shipping, storage, transport, marketing, and related activities concerning oil and petroleum products. "Energy resources exploitation" shall include exploration, discovery, development, extraction, utilization, refining, processing, transport, and marketing of all forms of energy resources. "Energy resources" means any substance, mineral or otherwise, which by itself or in combination with other substances or after processing or refining or the application to it of technology emanates, gives off, generates or causes, the emanation of generation of heat or power or energy such as, but not limited to, petroleum or oil, coal, marsh gas, methane gas, geothermat sources of heat and power, uranium and other minerals and deposits.]

The principal office of the [Company] PNOC shall be determined by its Board of Directors. It may establish such offices, agencies, subsidiaries, branches, or correspondents in the Philippines or abroad as its business operations would require. The [Company] PNOC shall have a term of fifty (50) years from the issuance hereof, which shall be deemed renewed for an equal period unless sooner dissolved by law.

Section. 4. Purposes. The PRIMARY PURPOSE OF THE

Philippine National Oil Company (PNOC) shall BE have the following purposes: (a) To provide and maintain an adequate and stable supply of oil and petroleum products for the domestic requirement and for that purpose to engage in the transportation, storage, importation, exportation, refining, supply, sale and distribution of crude oil, refined, petroleum and petroleum based products, whether imported or produced by local refineries; (b)] To engage in the exploration, exploitation and development [operations] OF PETROLEUM AND UNDERTAKE ALL FORMS OF PETROLEUM OPERATIONS IN THE COUNTRY, and [other energy resources; (c)] To foster conditions relating to [oil or] petroleum operations [and other energy resources exploitation] conducive to a balanced and sustainable growth of the economy.[; (d) To undertake, by itself or otherwise, exploration, exploitation, and development of all energy resources of the country, including surveys and activities related thereto; (e) To undertake all other forms of petroleum or oil operations and other energy resources exploitation.]

SECTION 5. DEFINITION OF TERMS. - THE FOLLOWING

TERMS AS USED IN THIS ACT SHALL BE DEFINED AS: (A) DOWNSTREAM OIL INDUSTRY REFERS TO THE BUSINESS OF IMPORTING, EXPORTING, RE- EXPORTING, SHIPPING, TRANSPORTING, PROCESSING, REFINING, STORING, DISTRIBUTING, MARKETING AND/OR SELLING CRUDE OIL, GASOLINE, DIESEL, LIQUEFIED PETROLEUM GAS (LPG), KEROSENE, AND OTHER PETROLEUM PRODUCTS; (B) PETROLEUM REFERS TO THE NATURALLY OCCURRING MIXTURE OF COMPOUNDS OF HYDROGEN AND CARBON WITH A SMALL PROPORTION OF IMPURITIES AND SHALL INCLUDE ANY CRUDE MINERAL OIL, NATURAL GAS, HYDROGEN GAS, BITUMEN, ASPHALT, MINERAL WAX, AND ALL OTHER SIMILAR OR NATURALLY-ASSOCIATED SUBSTANCES, WITH THE EXCEPTION OF COAL, PEAT, BITUMINOUS SHALE OR OTHER STRATIFIED MINERAL FUEL DEPOSITS; (C) PETROLEUM BASE TERRITORY REFERS TO LAND, BUILDINGS, AND FACILITIES THAT ARE DIRECTLY RELATED AND NECESSARY TO PETROLEUM OPERATIONS. IT MAY INCLUDE: (1) DUTY-FREE PORTS ADEQUATE FOR THE USE OF VESSELS ENGAGED IN PETROLEUM OPERATIONS, (2) AIRPORTS SUFFICIENT FOR DIRECT SERVICE FLIGHTS, (3) TELECOMMUNICATIONS CENTER AND SHIP- TO-SHORE COMMUNICATIONS,

WAREHOUSES AND LOGISTICAL CENTERS (4) FOR THE STORAGE OF PETROLEUM DRILLING AND PETROLEUM WELL SUPPLIES, FABRICATION OF OFFSHORE AND ONSHORE DRILLING COMPONENTS, AND CONDUCT OF MECHANICAL REPAIR AND THE LIKE, AND (5) SPACES FOR THE OFFICE, HABITATION AND RECREATIONAL REQUIREMENTS OF PERSONNEL ENGAGED IN PETROLEUM OPERATIONS AND THEIR IMMEDIATE DEPENDENTS; AND (D) PETROLEUM OPERATIONS SHALL REFER TO ACTIVITIES INVOLVING THE EXPLORATION, DISCOVERY, AND EXTRACTION OF PETROLEUM WITHIN OR OUTSIDE THE PHILIPPINES THROUGH DRILLING AND PRESSURE, OR SUCTION, OR THE LIKE, AND ALL OTHER OPERATIONS INCIDENTAL THERETO INCLUDING THE TRANSPORTATION, STORAGE, HANDLING, AND MARKETING OF EXTRACTED PETROLEUM, BUT EXCLUDING THE ACTIVITIES IN THE DOWNSTREAM OIL INDUSTRY; Section [516. Powers and Functions of [the Company] PNOC. - [*/The [Company] PNOC shall have the following powers and functions: (a) To undertake AND ENGAGE IN, by itself or otherwise, PETROLEUM OPERATIONS PRIMARILY IN THE COUNTRY AND SECONDARILY ABROAD, WHICH INCLUDES exploration, exploitation, and development of all areas of [eil or] petroleum deposits in the country, including surveys and activities related thereto;

(B) TO DIRECTLY EXPLORE FOR AND PRODUCE INDIGENOUS PETROLEUM FOR THE GOVERNMENT PURSUANT TO SECTION 4 OF PRESIDENTIAL DECREE NO. 87 OTHERWISE KNOWN AS THE OIL EXPLORATION AND DEVELOPMENT ACT OF 1972 AS AMENDED; (C) TO UNDERTAKE ALL THE POWERS, FUNCTIONS, AND RESPONSIBILITIES OF THE PETROLEUM BOARD PURSUANT TO PRESIDENTIAL DECREE NO. 87 AS AMENDED; (Le] D) To establish, maintain, control, and direct in any area within the national territory as it may deem appropriate, a petroleum [and energy] base territory WHICH INCLUDES [and construct, install or maintain therein] CONSTRUCTING, INSTALLING, OR MAINTAINING duty-free ports adequate for the use of vessels engaged in offshore [eil] PETROLEUM drilling operations, airports sufficient for direct service flights, telecommunications center, and ship-to-shore communications facilities, [provide electric power and fresh water supply,] and perform such other acts as it may deem necessary and advantageous or convenient to [such] PETROLEUM operations; ([E] E) To lease, at reasonable rates, to private domestic entities or persons such portion or portions of the petroleum [and energy] base TERRITORY WHICH INCLUDES G including] facilities necessary for warehousing, logistical centers for the storage of [eil] PETROLEUM drilling and [eit] PETROLEUM well supplies, fabrication of offshore drilling components and structure, mechanical repair facilities and the like [il, AND spaces for the office, habitation and recreational requirements of personnel

directly engaged in offshore [eil] PETROLEUM drilling and in manning the various logistical support operations and their immediate dependents: PROVIDED, THAT THE LEASED PORTIONS OF THE PETROLEUM BASE TERRITORY SHALL BE EXCLUSIVELY UTILIZED FOR PETROLEUM OPERATIONS; ([G] F) To undertake all other forms of petroleum [or oH] operations CONSISTENT WITH THIS ACT land other energy resources exploitations]; ([e] G) To enter into contracts, with or without public bidding, with any person or entity, domestic or foreign, and with governments for the undertaking of the varied aspects of [eil or] petroleum operationS, [and energy resources exploitation] including the acquisition, by way of purchase, lease, or rent, or other deferred payment arrangements of equipment and /or raw materials and supplies, as well as for services connected therewith under such term and conditions as it may deem proper and seasonable; ([f] H) To borrow money from local and foreign sources as may be necessary for its PETROLEUM operations; ([g] I) [Any provision of law to the contrary notwithstanding, including but not limited to Section 13 of Act 1459, as amended, [t]To invest its funds as it may deem proper and necessary in any activity related to PETROLEUM OPERATIONS PRIMARILY IN THE COUNTRY AND SECONDARILY ABROAD [its purposes], [including] AND in any bonds, [or] securities, OR FINANCIAL INSTRUMENTS issued and guaranteed by the Government of the Philippines, and the [Company] PNOC may organize and incorporate subsidiary corporations for [the] THIS purpose. The capital stock of corporations organized and incorporated by the [Company] PNOC may

be subscribed in whole or in a part by the [Company] PNOC. Where the [Company] PNOC has a controlling interest of not less than fifty-one percent (51%) of the issued and outstanding capital stock, of such subsidiaries, the securities, including shares of capital stock, issued by the subsidiaries and corporations owned and/or controlled by it, as well as the sale of and/or subscription to such securities and shares of capital stock shall be exempt from registration, licensing or other requirements imposed under the Securities Act (C. A. No. 83, as amended) any other law, decree, order or regulation[:]; ([h} J) To purchase, hold alienate, mortgage, pledge or otherwise dispose of the shares of the capital stock of, or any bond, security of other corporations or associations of this or any other country; and while the owner of said stock, to exercise all the rights of ownership, including the right to vote thereon: PROVIDED, THAT SUCH CORPORATIONS OR ASSOCIATIONS ARE ENGAGED IN PETROLEUM OPERATIONS PRIMARILY IN THE COUNTRY, AND SECONDARILY ABROAD; [i) To hold lands and acquire rights over mineral lands in excess of the areas permitted to private corporations, associations and persons by statute; j) To engage in export and import business of oil or petroleum and its derivatives, as well as in related activities;] (k) To acquire assets, real or personal, or interest therein, and encumber or otherwise dispose the same as it may deem proper and necessary in the conduct of its business; (l) Subject to existing regulations, if it deems necessary, to establish and maintain [such] A communication system, whether by radio, telegraph, or any other manner, without the need of a separate franchise therefor: [-] PROVIDED,

THAT SUCH COMMUNICATION SYSTEM SHALL BE EXCLUSIVELY UTILIZED FOR PETROLEUM OPERATIONS; (m) To determine its organizational structure, and the number and salaries of its officer and employees: [-] PROVIDED, THAT ITS ORGANIZATIONAL STRUCTURE, NUMBER, AND SALARIES OF ITS OFFICERS AND EMPLOYEES SHALL BE SUBJECT TO THE PROVISIONS OF SECTION 13 OF THIS ACT; (n) To establish and maintain offices, branches, agencies, subsidiaries, correspondents, or other units anywhere as " may be needed by the [Company] PNOC and reorganize or abolish the same as it may deem proper: [-] PROVIDED, THAT SUCH OFFICES, BRANCHES, AGENCIES, SUBSIDIARIES, CORRESPONDENTS, OR UNITS ARE DIRECTLY ENGAGED IN AND NECESSARY FOR PETROLEUM OPERATIONS, OR ORGANIZED AND INCORPORATED PURSUANT TO

SECTION 6(I) OF THIS ACT;

(o) To exercise the right of eminent domain as may be necessary for the purpose for which the [Company] PNOC is created; [=] (p) Subject to payment of the proper amount, to enter private lands for the purpose of conducting geological or geophysical studies in connection with petroleum OPERATIONS I, mineral and other energy resources, exploration and exploitation]; (q) To acquire easement over public and private lands necessary for the purpose of carrying out any work essential to [its] petroleum operationS [and energy resources exploitation], subject to payment of just compensation;

To CONDUCT RESEARCH AND STUDIES ON (r) PETROLEUM OPERATIONS, PRIMARILY IN THE COUNTRY, AND SECONDARILY ABROAD, AND establish and maintain a technical educational system for the sustained development of the necessary manpower to manage and operate its affairs and business; (S) TO RETAIN AT LEAST FIFTY PERCENT (50%) OF ITS ANNUAL NET EARNINGS: PROVIDED, THAT THE ENTIRE RETAINED ANNUAL NET EARNINGS SHALL BE EXCLUSIVELY UTILIZED FOR PETROLEUM OPERATIONS IN THE COUNTRY; ([s] T) To adopt a code of by-laws to complement this charter; ([t] U) To adopt and use a corporate seal which shall be judicially noticed; ([u] V) To perform such acts and exercise such functions as may be necessary for the attainment of the purposes and objectives herein specified; AND ([v] W) To perform such other functions as may be provided by law. Section [6]7. Governing Body. - The [Company] PNOC shall be governed by a Board of Directors, hereinafter referred to as the "Board" which shall be composed of nine (9) members, to be appointed by the President of the Philippines: PROVIDED, THAT THE CHAIRPERSON OF THE BOARD AND THE BOARD OF DIRECTORS OF ALL OF THE PNOC'S SUBSIDIARY CORPORATIONS SHALL BE THE SECRETARY OF THE DEPARTMENT OF ENERGY WHO SHALL SERVE AS SUCH IN EX OFFICIO CAPACITY. [The members of the Board shall serve for a term of three (3) years or until their successors shall have been appointed and qualified. In case of any vacancy in the

Board, the same shall be filled by the President of the Philippines for the unexpired term.] [No person shall be appointed as member of the board unless he is a natural born citizen of the Philippines, at least thirty five (35) years of age, and of established integrity. The Chairman of the Board, who shall be the chief executive officer of the Company, as well as the President of the Company shall be appointed by the President of the Philippines. The other efficers of the Company shall be appointed by the Board.] THE APPOINTMENT, REMOVAL, AND TERM OF OFFICE OF THE MEMBERS OF THE BOARD, EXCLUDING THE CHAIRPERSON, SHALL BE GOVERNED BY SECTIONS 15, 16, AND 17 OF REPUBLIC ACT NO. 10149, OTHERWISE KNOWN AS THE GOCC GOVERNANCE ACT OF 2011: PROVIDED, THEY SHALL LIKEWISE POSSESS THE FOLLOWING QUALIFICATIONS: (A) A NATURAL BORN CITIZEN OF THE PHILIPPINES; (B) AT LEAST THIRTY-FIVE (35) YEARS OF AGE; (C) AT LEAST TEN (10) YEARS OF CUMULATIVE EXPERIENCE IN ANY OF THE FOLLOWING FIELDS: PETROLEUM OPERATIONS, ENERGY, LAW, ECONOMICS, FINANCE, OR ENGINEERING; AND (D) OF RECOGNIZED GOOD MORAL CHARACTER, INTEGRITY, PROBITY, INDEPENDENCE, AND COMPETENCE. THE DUTIES AND RESPONSIBILITIES OF THE MEMBERS OF THE BOARD SHALL BE GOVERNED BY SECTIONS 19, 20, 21, AND 22, OF REPUBLIC ACT NO. 10149: PROVIDED,

THAT IN ADDITION TO THE FOREGOING PROVISIONS, THE MEMBERS OF THE BOARD SHALL: (A) UPON APPOINTMENT, DIVEST THROUGH SALE OR LEGAL DISPOSITION ANY AND ALL INTERESTS FROM ANY PETROLEUM OPERATIONS OR DOWNSTREAM OIL INDUSTRY BUSINESS; (B) UPON APPOINTMENT, RELINQUISH ANY EXISTING EMPLOYMENT, CONSULTANCY, OR ANY CONNECTION WITH, AND ANY PECUNIARY INTEREST IN ANY PETROLEUM OPERATIONS OR DOWNSTREAM OIL INDUSTRY BUSINESS; (C) PUBLICLY DISCLOSE ANNUALLY ANY RELATIVE BY CONSANGUINITY OR AFFINITY WITHIN THE FOURTH CIVIL DEGREE WHO HAS A PREVIOUS OR EXISTING EMPLOYMENT, CONSULTANCY, CONNECTION WITH, OR PECUNIARY INTEREST IN ANY ENERGY COMPANY; (D) ACT IN THE BEST INTEREST OF THE PNOC WITH THE COUNTRY'S ENERGY SECURITY AND ENERGY SELF-SUFFICIENCY AS THE UTMOST OBJECTIVE; (E) EXERCISE OBJECTIVE AND INDEPENDENT JUDGMENT, AND EXTRAORDINARY DILIGENCE AND SKILL IN THE PERFORMANCE OF THEIR DUTIES; ESTABLISH CONCRETE POLICIES AND SPECIFIC (F) PROCEDURES TO ENSURE THE HIGHEST STANDARDS OF ETHICS, PROFESSIONALISM, TRANSPARENCY, AND ACCOUNTABILITY OF THE MEMBERS OF THE BOARD, AND THE OFFICERS AND EMPLOYEES OF THE PNOC, (G) ENSURE THAT THE OPERATIONS OF THE PNOC'S SUBSIDIARY CORPORATIONS REMAIN

CONSISTENT WITH THE MANDATE OF THE PNOC AS PROVIDED IN THIS ACT; (H) APPOINT, DISCIPLINE, AND REMOVE THE MEMBERS OF THE BOARD OF DIRECTORS AND THE PRESIDENTS OF THE PNOC'S SUBSIDIARY CORPORATIONS; AND (I) RECOMMEND A SHORTLIST OF QUALIFIED CANDIDATES FOR THE PNOC PRESIDENT TO THE PRESIDENT OF THE PHILIPPINES: PROVIDED, THAT THE CANDIDATES SHALL POSSESS THE FOLLOWING QUALIFICATIONS: (1) AT LEAST THIRTY-FIVE (35) YEARS OF AGE; (2) AT LEAST TEN (10) YEARS OF CUMULATIVE EXPERIENCE IN ANY OF THE FOLLOWING FIELDS: PETROLEUM OPERATIONS, ENERGY, FINANCE, OR LAW, ECONOMICS, ENGINEERING; (3) PROVEN TRACK RECORD AND EXPERIENCE IN MANAGING COMPANIES IN THE PRIVATE OR PUBLIC SECTOR; AND (4) OF RECOGNIZED GOOD MORAL CHARACTER, INTEGRITY, PROBITY, INDEPENDENCE, AND COMPETENCE. AND THE COMPENSATION AND ALLOWANCES, LIABILITIES OF THE MEMBERS OF THE BOARD SHALL BE GOVERNED BY SECTIONS 23 AND 24 OF REPUBLIC ACT NO. 10149. Section [778. Capital Stock. - The [company] PNOC shall have a capital stock divided into ten million no-par shares to be subscribed, paid for and voted as follows:

(a) Two million shares of stock shall be originally subscribed and paid for by the Republic of the Philippines at an original issue value of P50 per share. (b) The remaining eight million shares of stock may be subscribed and paid for by the Republic of the Philippines or by government financial institutions at values to be determined by the Board, but in no cases less than the original issued value above stated to the Republic of the Philippines. The voting power pertaining to shares of stock subscribed by the government of the Republic of the Philippines shall be vested in by the President of the Philippines or in such person or persons as he may designate. The voting power pertaining to shares of stock subscribed by the government institutions shall be vested in them. Section [819. Duties and Responsibilities of the [Chairman] CHAIRPERSON of the Board and THE PNOC President. - The [Chairman] CHAIRPERSON of the Board [and the President] SHALL HAVE THE FOLLOWING DUTIES AND RESPONSIBILITIES: (a) SET, IN COORDINATION WITH THE BOARD, THE GENERAL POLICY DIRECTION FOR THE PNOC AND ITS SUBSIDIARY CORPORATIONS; CONVENE THE BOARD FOR REGULAR AND SPECIAL (b) MEETINGS; (c) PREPARE THE AGENDA FOR THE REGULAR AND SPECIAL MEETINGS OF THE BOARD; (d) RECOMMEND TO THE PRESIDENT THE REORGANIZATION OF THE BOARD AS MAY BE DEEMED NECESSARY; AND

(e) [e]Exercise such powers and perform such duties as may be provided in the By-Laws [or as may be vested in them by the Board]. IN ADDITION TO THE PROVISIONS UNDER SECTIONS 18 AND 22 OF REPUBLIC ACT NO. 10149, THE PNOC PRESIDENT SHALL: (a) UPON APPOINTMENT, DIVEST THROUGH SALE OR LEGAL DISPOSITION ANY AND ALL INTERESTS FROM ANY PETROLEUM OPERATIONS OR DOWNSTREAM OIL INDUSTRY BUSINESS; (b) UPON APPOINTMENT, RELINQUISH ANY EXISTING EMPLOYMENT, CONSULTANCY, OR ANY CONNECTION WITH, AND ANY PECUNIARY INTEREST IN ANY PETROLEUM OPERATIONS OR DOWNSTREAM OIL INDUSTRY BUSINESS; (c) PUBLICLY DISCLOSE ANNUALLY ANY RELATIVE BY CONSANGUINITY OR AFFINITY WITHIN THE FOURTH CIVIL DEGREE WHO HAS A PREVIOUS OR EXISTING EMPLOYMENT, CONSULTANCY, CONNECTION WITH, OR PECUNIARY INTEREST IN ANY ENERGY COMPANY; (d) SERVE AS THE CHIEF EXECUTIVE OFFICER OF THE PNOC; (e) EXECUTE, ADMINISTER, AND IMPLEMENT THE GENERAL POLICY DIRECTION AND SPECIFIC MEASURES APPROVED BY THE BOARD; DIRECT AND SUPERVISE THE OPERATIONS AND (f) ADMINISTRATION OF THE PNOC; (g) SUBMIT FOR CONSIDERATION BY THE BOARD SUCH POLICIES AND MEASURES NECESSARY TO

CARRY OUT THE PURPOSES AND OBJECTIVES OF THIS ACT; (h) REPRESENT THE PNOC IN ALL DEALINGS WITH THIRD PARTIES: PROVIDED, THAT THE REQUISITE AUTHORITY HAS BEEN ISSUED BY THE BOARD; AND (i) EXERCISE SUCH OTHER POWERS AND DUTIES PROVIDED IN THE BY-LAWS AND VESTED UPON BY THE BOARD. Section [9]10. Issuance of Bonds. - The {Company] PNOC, upon the recommendation of the Secretary of Finance and with the approval of the President, is hereby authorized to issue bonds or other securities, whether tax-exempt or not, which may be guaranteed by the government, to finance its [oil or] petroleum operations. Section [10]11. General Counsel. - The [Secretary of Justice or thel Solicitor General shall perform the duties of General Counsel of the Company. [Any] SUBJECT TO APPLICABLE [provision of] laws, [to the contrary notwithstanding, the Secretary of Justice of] the Solicitor General and such personnel as may be necessary to assist him in the performance of his duties and responsibilities [shall] MAY receive such allowances as shall be fixed by the Board. Section. [11]12. Auditor. - Any provision of law to the contrary notwithstanding, the Commission on Audit shall appoint L, subject to the approval of the Board,] a representative who shall be the Auditor of THE PNOC [the Company] and such personnel as may be necessary to assist said representative in the performance of [his] duties. [The salaries of the Auditor and his staff shall be approved by the Board. The auditors of corporations owned of

controlled by the Company who shall be reputable accounting and auditing firms shall be appointed by their respective boards-of directors.] Section [12]13. Appointment, COMPENSATION, Control, and Discipline of Personnel. - Any provision of law to the contrary notwithstanding, the Board, upon recommendation of the President of THE PNOC [the Companyl, shall appoint THE PNOC'S [the] officers [and employees of the Company] and THAT OF its [subsidiaries] SUBSIDIARY CORPORATIONS; fix their compensation, allowances and benefits, their working hours and such other conditions of employment as it may deem proper; grant them leaves of absence under such regulations as it may promulgate; discipline or remove them for cause; and establish and maintain a recruitment and merit system for the [Company] PNOC and its SUBSIDIARY CORPORATIONS [affiliates and subsidiaries]: PROVIDED, THAT THE APPOINTMENT, COMPENSATION, ALLOWANCES AND BENEFITS, WORKING HOURS, DISCIPINE AND REMOVAL, AND OTHER EMPLOYMENT CONDITIONS OF EMPLOYEES OF THE PNOC'S SUBSIDIARY CORPORATIONS SHALL BE DETERMINED BY THEIR BOARD OF DIRECTORS, UPON RECOMMENDATION OF THEIR PRESIDENT; PROVIDED FURTHER, THAT THE PROVISIONS OF THIS SECTION SHALL BE IMPLEMENTED IN ACCORDANCE WITH REPUBLIC ACT NO. 10149. THE EMPLOYEES OF THE PNOC SHALL BE ENTITLED TO ALL RETIREMENT AND INSURANCE BENEFITS AS WELL AS LEAVE PRIVILEGES OF GOVERNMENT EMPLOYEES: PROVIDED, THAT THE PNOC'S SUBSIDIARY CORPORATIONS SHALL NOT BE SUBJECT TO THE

PROVISIONS OF THE GOVERNMENT SERVICE AND INSURANCE SYSTEM, AS PROVIDED UNDER COMMONWEALTH ACT NO. 186 OTHERWISE KNOWN AS GOVERNMENT SERVICE INSURANCE ACT, AS AMENDED. Section [13]14. Loans. - The [Company] PNOC is hereby authorized to contract loans, credits, any convertible foreign currency or capital goods, and indebtedness from time to time from foreign governments, or any international financial institutions or fund sources, or any other entities, on such terms and conditions it shall deem appropriate for the accomplishment of its purposes, and to enter into and execute agreements and other documents specifying such terms and conditions. The Republic of the Philippines, through the President of the Philippines, or [his] THE duly authorized representative, may guarantee, absolutely and unconditionally, as primary obligor and not as surety merely, the payment of the loans, credits and indebtedness issued up to the amount herein authorized, which may be over and above the amount which the President of the Philippines is authorized to guarantee under Republic Act NO. 6142 [Numbered Sixty One Hundred Forty-Twol, as amended, as well as the performance of all or any of the obligations undertaken by the [Company] PNOC in the territory of the Republic of the Philippines pursuant to loan agreements entered into with foreign governments or any international financial institutions or fund sources. Section [14]15. Government Financial Institutions Guarantees. - The provision of any law to the contrary notwithstanding, any financial institution owned or controlled by the Government of the Republic of the Philippines, other than the Central Bank,

Government Service and Insurance System, and the Social Security System, is hereby empowered to guarantee acceptance credits, loans, transactions, undertakings, or obligations of any kind which may be incurred by the [Company] PNOC, whether directly or indirectly, in favor of any person, association or entity, whether domestic or foreign. Section [15]16. Privileges and Incentives. - The [Company] PNOC shall be entitled to all the incentives and privileges granted by law to private enterprises engaged in petroleum [or oil] operations. In addition, the [Company] PNOC shall be exempt from all taxes, duties, fees, imposts, and all other charged imposed directly or indirectly by the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities:L;] Provided, That [the Company affiliate] THE PNOC'S SUBSIDIARY corporations [as provided in Section 13 hereof, as amended,] shall be exempt only from all taxes, duties, fees, imposts, and all other charges imposed directly or indirectly by the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities, on importations of aircrafts, vessels, tankers, barges, and other floating structures, including any machinery, engines, motors, equipment, spare parts and materials thereof. Other government offices and other government-owned or controlled corporations shall extend whatever assistance may be needed by the [Company] PNOC or any of its SUBSIDIARY CORPORATIONS [affiliates and subsidiaries], including the details of its officials and employees to the [Company] PNOC or any of its subsidiaries on full time or part time basis under

arrangements satisfactory to the [Company] PNOC or any of its subsidiaries and the other government office or corporation concerned. Said officials and employees, as well as the directors of the company l PNOC and its SUBSIDIARY CORPORATIONS [affiliates and subsidiaries], may receive allowances and other emoluments, IN ACCORDANCE WITH THE PROVISIONS OF SECTION 13 OF THIS ACT. [notwithstanding the provision of any law to the contrary.] Section [16]17. Appropriations AND BUDGETARY REQUIREMENTS. - For the initial funding requirements of the Company] PNOC, the sum of Two Hundred Million Pesos is hereby set aside and appropriated from the General Funds, not otherwise appropriated. THE ANNUAL BUDGET OF THE PNOC SHALL BE SUBMITTED TO CONGRESS FOR APPROVAL. Section [17]17-A. Reports AND CONGRESSIONAL OVERSIGHT. - THE JOINT CONGRESSIONAL ENERGY COMMISSION (JCEC) CREATED UNDER REPUBLIC ACT NO. 9136, OTHERWISE KNOWN AS THE ELECTRIC POWER INDUSTRY REFORM ACT OF 2001, AND RENAMED UNDER REPUBLIC ACT NO. 11285, OTHERWISE KNOWN AS THE ENERGY EFFICIENCY AND CONSERVATION ACT, SHALL EXERCISE OVERSIGHT POWERS OVER THE IMPLEMENTATION OF THIS ACT. IN ADDITION TO THE DISCLOSURE REQUIREMENTS PROVIDED UNDER REPUBLIC ACT NO. 10149, the [Company] PNOC shall, within three months after the end of every fiscal year, submit TO THE HOUSE OF REPRESENTATIVES AND THE SENATE OF THE PHILIPPINES AND UPLOAD ON THE ITS WEBSITE its annual

report [to the President. It shall likewise submit such periodic of ether reports as may be required of it from time to time."]

SECTION 17-B. TRANSITORY PROVISIONS. - THE PNOC

SHALL WIND DOWN ALL FUNCTIONS, ACTIVITIES, RESPONSIBILITIES, PERSONNEL, PROPERTIES, ASSETS, AND LIABILITIES WHICH ARE INCONSISTENT WITH THE PROVISIONS OF THIS ACT WITHIN THREE (3) YEARS FROM ITS EFFECTIVITY, INCLUDING SUBSIDIARY CORPORATIONS WHOSE FUNCTIONS, ACTIVITIES, RESPONSIBILITIES, PERSONNEL, PROPERTIES, ASSETS, AND LIABILITIES ARE INCONSISTENT HERETO. ALL REGULAR EMPLOYEES TRANSFERRED TO THE PNOC SHALL NOT SUFFER ANY LOSS OF SENIORITY OR RANK, OR DECREASE IN EMOLUMENTS: PROVIDED, THAT ANY EMPLOYEE WHO CANNOT BE ACCOMMODATED SHALL BE GIVEN ALL THE BENEFITS AS MAY BE PROVIDED UNDER EXISTING LAWS, RULES, AND REGULATIONS."

Section 2. Separability Clause. - Should any provision of this Act be held

unconstitutional, no other provision hereof shall be affected thereby.

Section 3. Repealing and Amendatory Clause. - The following are hereby

repealed: Presidential Decree No. 334 entitled Creating The Philippine National Oil Company, Defining Its Powers And Functions, Providing Funds Therefor, And For Other Purposes; Presidential Decree No. 405 entitled Amending The Charter Of The Philippine National Oil Company, As provided for in Presidential Decree No. 334 dated November 9, 1973, and for other purposes; Presidential Decree No. 572 entitied Further Amending The Charter Of The Philippine National Oil Company (PNOC), as provided for in Presidential Decree No. 334, as amended, and for other purposes; Presidential Decree No. 927 entitled Further Amending the Charter of the Philippine

National Oil Company (PNOC) as provided for in Presidential Decree No. 334, as 2 amended, and for other purposes; Presidential Decree No. 1516 entitled Further 3 Amending The Charter Of The Philippine National Oil Company as Provided for in 4 Presidential Decree No. 334, as amended; Memorandum Order No. 18, Series of 1986 5 entitled Modifying Presidential Decree No. 334 Creating The Philippine National Oil 6 Company, Defining Its Powers And Functions, Providing Funs therefor, and for other 7 purposes; Executive Order No. 171 entitled Amending Certain Provisions of 8 Presidential Decree No. 334, as amended and Executive Order No. 131. The following laws are hereby amended: Republic Act No. 7638 otherwise 10 known as the Department of Energy Act of 1992, Republic Act No. 7656 otherwise known As An Act Requiring Government-Owned Or Controlled Corporations to Declare Dividends Under Certain Conditions to the National Government And For Other Purposes, and Presidential Decree No. 87 as amended. All other laws, presidential decrees, ordinances, rules, regulations, and any other issuance or parts thereof, which are inconsistent with this act, are hereby amended, modified, or repealed accordingly.

Section 4. Effectivity. - This Act shall take effect fifteen (15) days after its

publication in at least two (2) newspapers of general circulation. Approved,