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Development of Philippine Natural Gas Industry under R.A. 12120

Republic Act No. (“RA”) 12120 aims to develop the Philippine Downstream Natural Gas Industry and boost the role of natural gas in the nation’s energy mix by promoting it as a safe, efficient, and cost-effective energy source, essential to ensuring energy security.

Similarly, RA No. 12120 provides a framework of incentives to encourage investment in the Philippine natural gas industry. It facilitates the entry of investors through a regime founded on competition, transparency, and fair trade, and ensures responsive policy support, all of which is geared toward achieving affordable energy prices, in accordance with RA No. 7638, or the Department of Energy Act of 1992.

Furthermore, the enactment of this law is expected to support the country in meeting the growing domestic demand for fuel and in positioning the Philippines as a strategic hub for Liquefied Natural Gas (“LNG”) trading and transshipment in the Asia-Pacific region.

Scope of the law

The law applies to the following:

  1. Permitting of siting, construction, operation and maintenance, expansion, modification, rehabilitation, decommissioning, and abandonment of Philippine Downstream Natural Gas Industry (“PDNGI”) Facilities for Own-Use or Third-Party Access.
  2. Accreditation of Participants in the trade of natural gas, including but not limited to the purchase, supply, aggregation, bunkering, reselling, and export of natural gas, and any other activities related to the PDNGI. 

Powers of the Department of Energy (“DOE”)

The law grants the DOE several powers, which are, among others, to:

  1. Approve or issue permits, accreditation, and acknowledgement notification of import/export of natural gas;
  2. Prepare the PDNG Dev Plan, based on modeling, considering forecasted demand, supply, and uses of natural gas in the country, taking into account the plans submitted by PDNGI Permit Holders and Participants, after open discussions and consultations with relevant government agencies and public and private stakeholders, within two (2) years from the effectivity of this Act. The PDNG Dev Plan shall be reviewed and updated every three (3) years after its adoption;
  3. Establish standards on gas quality, facility, and a code of practice for the PDNGI, in coordination with relevant government agencies. For this purpose, a Technical Committee (TC) shall be created to develop and promulgate the applicable PNS for the PDNGI. The TC shall be co-chaired by the DOE and the Department of Trade and Industry-Bureau of Philippine Standards (DTI-BPS);
  4. Enforce PDNGI compliance with the standards, in coordination with relevant government agencies, through the issuance of technical regulations implementing the standards, review of reports, and conduct of onsite inspections; and
  5. Issue the PDNG Transmission Code, PDNG Distribution Code, the PLSR Terminal Code, and the TPA Code within two (2) years from the effectivity of the IRR of this Act, in consultation with other concerned government agencies and the PDNGI stakeholders

Types of Permits

There are two (2) types of permits which may be issued by the DOE: (1) Own-Use; and (2) Third Party Access (“TPA”).

Own-Use permit holders are required to use its entire capacity exclusively for its own use and shall not be allowed to enter into TPA arrangements, unless approved by the DOE.

TPA permit holders are required to use its entire capacity exclusively for TPA and shall not be allowed to utilize any such capacity for Own-Use, unless approved by the DOE.

Incentives

R.A. No. 12120 grants incentives to all PDNGI Facilities as certified by the DOE in recognition of the substantial investments needed for the development, construction, lease, operation and/or maintenance of, and conversion to natural gas facilities. They shall undergo an evaluation process for possible inclusion in and entitlement to incentives under the Strategic Investment Priority Plan (“SIPP”), subject to the Tax Incentives provided under the National Internal Revenue Code of 1997 (“NIRC”), as amended by R.A. No. 11534, otherwise known as the “Corporate Recovery and Tax Incentives for Enterprises Act”, and any amendments thereto.

Moreover, the law provides that the purchase and sale of indigenous natural gas, aggregated gas, and power generated by generation facilities using indigenous natural gas and aggregated gas are exempted from Value-Added Tax (“VAT”) as long as the exemption from VAT for aggregated gas is only to the extent of the amount of indigenous natural gas attributed to be in the aggregated gas.

This VAT Exemption includes the following:

  1. Purchase and sale of indigenous natural gas and aggregated gas by an aggregator, reseller, supplier, person authorized by the ERC to operate facilities used in the generation of electricity, or an end-user; and 
  2. Purchase and sale of electricity or ancillary services produced by a generation facility using indigenous natural gas and/or aggregated gas by a person authorized to:
    1. operate facilities used in the generation of electricity or ancillary services;
    2. sell, broker, market, or aggregate electricity to end-users;
    3. consolidate electric power demand of end-users for the purpose of purchasing and reselling electricity on a group basis;
    4. engage in the distribution of electricity; or 
    5. procure or provide ancillary services. 

These shall encompass all forms of purchase and sale transactions, including but not limited to supply agreements; duly authorized markets such as the Wholesale Electricity Spot Market or the Ancillary Reserves Market; financial gas contracts; Natural Gas Sales and Purchase Agreements (NGSPAs); and other recognized mechanisms or modalities.

Penalties

Any violation of R.A. No. 12120 may result in:

  1. Suspension or revocation of any permit, accreditation, or other approvals issued by the DOE;
  2. Fines ranging from Fifty thousand pesos (P50,000.00) to Five million pesos (P5,000,000.00) per violation, without prejudice to other administrative penalties imposed by other administrative agencies; 
  3. Applicable administrative penalty for Section 39 shall be pursuant to R.A. No. 10667, otherwise known as the Philippine Competition Act; and
  4. Criminal fines and penalties.

RA 12120 shall take effect fifteen (15) days after its publication in the Official Gazette. The law was uploaded to the Official Gazette website on January 9, 2025.