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Pursuant to Energy Regulations No. 1-94 implementing Section 5(i) of Republic Act No. 7638 (Department of Energy Act of 1992), the Department of Energy (DOE) adopts the following guidelines and procedures for the granting to the host local government unit (host LGU) financial benefits established under E.R. 1-94, as follows: electrification fund, development and livelihood fund; and reforestation, watershed management, health and/or government enhancement fund.

SECTION 1. General Guidelines - All energy resource developers and power producers covered by Section 3 of E.R. 1-94 (Scope of Application) shall be guided by the following:

a. The effectivity of the grant of financial benefits, which shall be equivalent to one centavo per kilowatt-hour (kwh) of the total electricity sales of the energy-generating facility, shall be on 27 June 1994.

b. The electrification fund, the development and livelihood fund, and the reforestation, watershed management, health and/or environment enhancement fund shall be kept in separate trust accounts in accordance with a Memorandum of Agreement to be entered into by and between the DOE and the energy resource developer and/or power producer.

c. The financial benefits shall be based on electricity sales proceeds derived from the commercial operation of the energy generating facility, calculated in accordance with the power producer's regular billing cycle.

To provide a uniform basis for calculating the financial benefits for purposes of initially establishing the trust accounts, the electricity sales proceeds derived from the nearest full billing month shall be applied whenever the period of operation constitutes a fraction of a billing month. Thus, the initial trust accounts for 1994 shall be reckoned on the full billing month nearest to 27 June 1994, i.e. 25 June - 24 July 1994.

d. Interest earned from the trust accounts shall be for the benefit of the trust.

e. The administration of the funds shall be undertaken by any of the following:

1. the National Power Corporation (NPC), the Philippine National Oil Company (PNOC), and other Government-Owned and Controlled Corporations (GOCCs) that may be engaged in energy resource development projects and operation of energy generating facilities, for their respective energy generating projects/facilities and with respect to the development and livelihood, and reforestation, watershed management, health and/or environment enhancement funds; and

2. the DOE, through its Financial Management Services, for and on behalf of energy generating projects/facilities owned and/or operated by private entities. The DOE shall also administer the electrification funds accruing from the NPC, PNOC and other GOCCs.

   The funds can only be utilized to finance projects and work programs duly endorsed by the host LGU and can only be defrayed for actual costs authorized under projects and work programs duly approved by the DOE through the Energy Industry Administration Bureau (EIAB).

SECTION 2. Establishment of Trust Accounts - For purposes of establishing trust accounts for financial benefits accruing in 1994 and 1995, the energy resource developer and power producer shall be guided by the following procedures:

a. Within thirty (30) days after the effectivity of this Circular, the power producer shall submit to the EIAB separate Electricity Sales and Financial Benefits Report pertaining to the periods 27 June - 31 December 1994 and 1 January - 30 September 1995. This report shall contain the following data:

1. Actual generation, station service/own use, system loss, and electricity sales in kilowatt-hours (kWh) for the period;

2. Accrued benefits due to the host LGU derived from (1);

3. Details of benefits and/or financial assistance advanced to the host LGU, if any; and

4. Such other information which the DOE may deem necessary for review and audit purposes.

b. In addition in complying with Sec. 2 (a), the power producer shall submit a joint undertaking with the concerned energy developer or private sector participant showing their respective fund contributions in any of the following cases:

1. Geothermal resource development projects/power plants and hydro development projects/power plants which are integral to each other and therefore, the pertinent host LGU shall be entitled to one set of benefits.

2. Energy-generating projects/facilities which are implemented/operated through private sector participation via the Build-Operate-Transfer, Rehabilitate-Operate-Lease or other variants of these private power schemes.

c. Review of the Electricity Sales and Financial Benefits Report shall be made by the Financial Management Services (FMS) and Compliance Division of the DOE, in coordination with the EIAB.

d. Within thirty (30) days after the effectivity of this Circular, the energy resource developer and the power producer shall establish separate trust accounts for the electrification fund, the development and livelihood fund, and the reforestation, watershed management, health and/or environment enhancement fund which shall correspond to the accrued benefits of the host LGU for the period 27 June 1994 - 30 September 1995. The trust shall be established in any of the following government depository banks: Development Bank of the Philippines; Philippine National Bank; or Land Bank of the Philippines.

Funds to be administered by the DOE including all funds accruing from energy generating facilities owned and/or operated by private entities and electrication funds accruing from the NPC, PNOC and other GOCCs shall be deposited in trust accounts in the name of the Department, as provided in a Memorandum of Agreement to be executed for the purpose by and between the DOE and such concerned energy resource developers and power producers.

e. Within ten (10) days after establishment of the trust accounts, the energy resource developer and the power producer shall submit to the FMS copies of documents as proof of establishment of said trust accounts, subject to further verification thereof by the FMS.

SECTION 3. Administration of Funds -

a. For purposes of maintaining the funds in the respective trust accounts, the energy resource developer/power producer shall henceforth deposit to the trust accounts, on a quarterly basis, financial benefits accruing from a billing quarter, i.e. three full billing months within the given quarter.

The energy resource developer and/or power producer shall make the deposits not later than thirty (30) days after the given quarter, and shall forthwith submit the proper documentation thereof to the FMS.

b. The mechanism for crediting advances or incurred costs against the financial benefits shall be implemented by the DOE in accordance with the provisions of Section 6 of E.R. 1-94. For this purpose, any of the following may be undertaken:

1. The energy resource developer or power producer which has advanced benefits and/or financial assistance to the host LGU may request the DOE in writing to certify that the grant of said benefits and/or financial assistance complies with Section 5 (i) of RA 7638 and to credit such benefits against the financial benefits required under E.R. 1-94. Such request shall include the requirements prescribed under Annex D hereof.

2. The energy resource developer or power producer which has incurred costs to comply with environmental standards imposed under DENR Administrative Order Nos. 14 and 14A and which such other stricter emission, safety, health or environmental standards that may be imposed by any government agency in the future may request the DOE in writing to deduct such costs from the financial benefits. Such requests shall include the requirements prescribed under Annex D hereof.

c. Funds disbursement shall be consistent with the pertinent provisions of laws, rules on government spending and P.D. 1445 with respect to post-audit requirements of the Commission on Audit.

SECTION 4. Project Implementation -

a. Within sixty (60) days after the effectivity of this Circular, the energy resource developer and power producer shall, after consultation with appropriate government agencies, submit to the EIAB a list of beneficiaries entitled to the financial benefits, which shall comprise all barangays, municipalities, cities and provinces hosting their respective energy resource and/or energy generating facilities.

b. For electrification projects, the power producer shall coordinate the development of any missionary electrification program with the relevant franchise holder or public service cooperative (PSC) established for the purpose, after consultation with the host LGU. Project proposals recommended for implementation by any rural electric cooperative or PSC shall be directly transmitted to the National Electrification Administration (NEA), through its Technical Service Department, for review and approval. The NEA shall make the appropriate endorsement of approved project proposals to the EIAB and thereafter, project implementation shall proceed as prescribed under Sec. 4 (f) (2) hereof.

c. For projects and work programs on development and livelihood, reforestation, watershed management, health and/or environment enhancement, the energy resource developer and power producer shall submit to the EIAB for approval project proposals which shall be duly endorsed by the host LGU through a resolution passed by its sanggunian.

Consistent with Sec. 6 (f) of E.R. 1-94, review of proposed work programs ion reforestation, watershed management, health and/or environment enhancement shall be done in consultation and close coordination with the Department of Environment and Natural Resources (DENR), the Department of Health, relevant water districts and other concerned parties. Such work programs shall be duly endorsed by local DENR officials such as the CENRO for municipal/barangay projects, the PENRO for provincial projects and the RED for regional and/or reservation manager designated by law for the area.

d. The amount of financial benefits accruing to the pertinent fund in any given year shall be used as basis in the preparation of project proposals.

e. Any project should be able to demonstrate the potential for enhancing progress, the provision of a decent source of livelihood , or the upliftment of the community's general condition of living. Provided, that, the basic infrastructure component of any such proposal shall constitute impact projects directly associated with electrification, development and livelihood, and reforestation, watershed management, health and/or environment enhancement. Project proposals shall include the requirements prescribed under Annexes A, B, C^* hereof.

f. Evaluation of project proposals shall be completed by the EIAB within thirty (30) days from receipt of a complete proposal. Once the proposal is deemed beneficial to the host LGU, project implementation shall proceed in any of the following manner:

1. For projects which will utilize NPC, PNOC, or GOCC- administered funds, the DOE shall issue a Notice to Proceed authorizing the implementation of the project. Project implementation by NPC and PNOC shall be governed by procedures consistent with the guidelines for DOE- administered funds under Sec. 4 (1) (2). The NPC and PNOC, however, shall be directly responsible for the disbursement of the pertinent fund.

2. For projects which will utilize DOE- administered funds, Memoranda of Agreement (MOA) to effect project implementation and funds commitment shall be forged between the DOE and the concerned host LGU. The DOE shall then make the necessary funds allocation and shall forthwith release the project funds directly to the concerned host LGU or relevant project implementor. Additional projects that may be undertaken by the concerned host LGU may be effected through amendments in the original MOA.

3. For electrification projects, a Tripartite Agreement shall be forged between the DOE, NEA and the concerned host LGU to effect project implementation. The DOE shall then make the necessary funds allocation and shall forthwith release the project funds directly to the NEA which shall be responsible for funds disbursement.

SECTION 5. Grant of Financial Benefits During Pre-Operating Stage -

a. During construction or pre-operating stage, the energy resource developer and the power producer may advance benefits and/or financial assistance to the host LGU subject to the procedures on project implementation set forth in this Circular.

b. Upon commencement of the energy generating facility's commercial operation, the power producer shall forthwith advise the EIAB in writing. Accordingly, the energy resource developer and/or power producer shall be subject to the requirements for establishing and maintaining trust accounts set forth in this Circular.

The trust accounts shall be established not later than thirty (30) days after the initial full billing quarter of commercial operations.

SECTION 8. Review and Audit -

A. For review and audit purposes, a detailed statement of the sources and uses of funds shall be submitted to the DOE by all energy resource developers and power producers within thirty (30) days after the end of every semester in any given year.

In the case of projects utilizing DOE- administered funds, concerned host LGUs or project implementors authorized to directly implement projects and NEA (in the case of electrification projects) shall likewise render a report on their uses of funds every six months during the entire implementation period of the project.

b. The FMS shall undertake the audit within six (6) month period following the end of every semester and shall render a report of its audit findings to the energy resource developer and power producer within sixty (60) days after the conduct of audit.

This Circular shall take effect fifteen (15) days after publication in two (2) national newspapers of general circulation.

Adopted: 8 Nov. 1995

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^* Text available at Office of the National Administrative Register, U.P. Law Complex, Diliman, Q.C.