Guidelines and Procedures on the Utilization of the Share of National Wealth Taxes, Royalties, Fees or Charges

October 31, 1995 DILG-DOE JOINT CIRCULAR NO. 01-95 TO : All Local Chief Executives, Sangguniang Bayan/Panlungsod/Panlalawigan Members Others Concerned Parties SUBJECT : Guidelines and Procedures on the Utilization of the Share of National Wealth Taxes, Royalties, Fees or Charges Purpose: This circular is issued to prescribe the guidelines and procedures to be followed by the host Local Government Unit (LGU) to implement the provisions of Republic Act (RA) 7160 otherwise known as the Local Government (LGC) of 1991 and its Implementing Rules and Regulations (IRR) specifically on Sections 289-294 of the LGC and Art. 388-392 of its IRR which provide for the utilization of the 80% of the net proceeds derived from either the one percent (1%) of the gross sales or receipts of the preceding fiscal year or forty percent (40%) of the national wealth taxes, royalties, fees or charges derived by any national government-owned or controlled corporation in the development and utilization of hydrothermal, geothermal and other sources of energy, whichever will produce a higher share for the local government unit, and forty percent (40%) of the gross collection derived by the national government from the preceding fiscal year from royalties and such other fees or charges and from its share in any co-production, joint venture or production sharing agreement in the utilization and development of national wealth within their territorial jurisdiction. Moreover, this Circular will provide the mechanics and options for the host LGU in the application of direct benefits to communities which shall be eighty percent (80%) of the proceeds derived from the national wealth taxes, royalties, fees or charges to be applied solely to lower the cost of electricity in the LGU where such a source of energy is located. SECTION 1. Definitions of Terms. 1.1 National Wealth refers to all natural resources situated within the Philippine territorial jurisdiction including lands of public domain, water, minerals, coal, petroleum, mineral oils, potential energy sources, gas and oil deposits, forest products, wildlife, flora and fauna, fishery and aquatic resources and all quarry products. 1.2 National Wealth Taxes, Royalties, any levy or tax, royalty, fee or charge derive Fees or Charges tax from the development and utilization of the natural wealth. 1.3 Host LGU refers to the local government unit (barangay, municipality, city or province) where the facility extracting national wealth is located. 1.4 Subsidy Scheme is a plan designed to extend directly to intended beneficiaries the amount of LGU's share in national wealth taxes, royalties, fees or charges for the reduction in the cost of electricity. 1.5 Non-subsidy Scheme is a plan utilizing a method or strategy with the end in view of lowering the cost of electricity per kWh or lowering the electric bill of the consumers within the particular area of the host LGU. 1.6 Electric Franchise Holder refers to a person, whether natural or juridical, who is privileged to operate, maintain and/or distribute electric power within a specified geographic area. 1.7 Mining Taxes refer to excise taxes imposed on the privilege to explore, develop and exploit mining resources. For internal revenue tax purposes, mining taxes shall refer only to the excise tax on mineral products imposed under Sec. 151 (a) of the National Internal Revenue Code, as amended by E.O. No. 273. 1.8 Geothermal sources refer to all geothermal fluids existing naturally or formed by the artificial introduction of fluids into naturally hot formations, heat energy in the earth, and any by-products derived from these. 1.9 Hydrothermal sources refer to natural streams, rivers or lakes that can be harnessed to provide the combination of adequate flow and heat essential for hydropower generation. SECTION 2. General Guidelines 2.1 REDUCTION OF COST OF ELECTRICITY To implement the provision under Section 294, Book II of the Local Government Code that "at least eighty percent (80%) of the proceeds derived from the development and utilization of hydrothermal, geothermal and other sources of energy shall be applied solely to lower the cost of electricity in the LGU where such source of energy is located," the following are the procedures, mechanics and guidelines to be adopted by the LGU which may either be a barangay, municipality/city or province entitled to such benefits: 2.1.1 Either one or a combination of two basic approaches can be employed in the implementation of reduction in cost of electricity, subsidy scheme and non-subsidy scheme. 2.1.2 In selecting the scheme to be adopted, the LGU must consider the intended impact that must be synchronized with the LGU's development plans and shall depend on the magnitude of the national wealth share from taxes, royalties, fees or charges and the number of consumer or volume of power consumed. 2.2 SUBSIDY SCHEME Under this scheme, proceeds from share in the national wealth will be directly utilized to subsidize cost of power used by consumers of host LGUs. This scheme may take the form of the following which the host LGU may choose from: 2.2.1 Subsidy Per Consumer an equal or pre-determined level or rate of subsidy per qualified consumer: 2.2.1.a. All consumer types 2.2.1.b. Residential consumers only 2.2.1.c. Other preferred types of consumer combinations such as: commercial/industrial, public buildings, irrigation/communal water system, street lights, etc 2.2.2 Subsidy of Power Consumption amount of subsidy on magnitude of power consumption of qualified consumers: 2.2.2.a. All consumer types 2.2.2.b. Residential consumers only 2.2.2.c. Other preferred types of consumer combinations Moreover, the host LGU can utilize along with either of the above options/schemes, the following auxiliary options: a. With or without ceiling (amount or consumption); b. Graduated discount rates (per kWh per level of consumption) or per consumer type. Please refer to Annexes A and B for formulae and sample computations. 2.3 NON-SUBSIDY SCHEME: The host LGU can initiate and adopt non-subsidy schemes that can lower the cost of electricity of consumers in the area. The benefits may take the form of but not limited to the reduction of electricity losses through technical upgrading and rehabilitation of distribution lines, use of energy saving devices, etc.. The host LGU shall submit its proposal to the National Electrification Administration (NEA). NEA shall then submit its findings to DOE for approval. The said proposal shall indicate the strategies to be employed, resources required and the projected benefits in terms of reduction in cost of electricity. 2.4 The host LGU shall, through a resolution of its sanggunian body, manifest the scheme/s to be adopted. It may utilize different schemes or combination of schemes each year as it may deem necessary or applicable subject to public information and consultation. 2.5 Close coordination between the LGU, electric franchise holder, the DOE and its attached agencies must be maintained in order to facilitate subsidy computation and effective implementation of the benefits. SECTION 3. Payment of Subsidy. Payment of subsidy to qualified consumer shall be effected through the following: a. reimbursement by the LGU directly to qualified consumers; b. through the electric franchise holder which shall directly deduct the amount of subsidy computed from the qualified consumers' bills to be served. In the instance where the LGU opts to course the payment and extension of subsidy directly through the electric franchise holder operating within the area, a memorandum of agreement (MOA) shall be executed between the LGU and the electric franchise holder. The MOA shall specify, among others, the scheme adopted by the host LGU, procedures and frequency of remittance of the national wealth tax, royalty, fee or charge to the franchise holder for allocation to qualified consumers, incremental service charges to be imposed by the electric franchise holder to the LGU, and the effectivity and terms of duration of the MOA. When the remittance of the allocated share of the LGU exceeds the total subsidy extended for the duration specified in the MOA, the electric franchise holder shall revert back the excess remittance to the specific fund of the concerned host LGU. In no case shall the total subsidy extended exceeds the allocated share of the LGU national wealth tax, royalty, fee or charge. SECTION 4. Information Dissemination. The host LGU, in coordination with the electric franchise holder and concerned government agencies, shall hold a public forum/consultation to solicit support and productive proposals from the community on the scheme/s to be adopted or implemented for the accelerated development of their area. SECTION 5. Technical Support. The electric franchise holder and concerned agencies shall provide the necessary assistance and support to the host LGU for the effective implementation of the distribution of national wealth tax, royalty, fee or charge. SECTION 6. Monitoring For purposes of determining the host LGU's compliance with the provisions of these guidelines, the DOE in coordination with DILG, through its field offices, shall monitor the implementation of the above-cited provisions of the Code. The DILG, in coordination with the DOE, shall, within thirty (30) days from the approval of these guidelines, devise a monitoring format and procedures to be followed by LGUs. DOE shall be furnished with a copy of the report within fifteen (15) days from the date of the reporting period. SECTION 7. Boundary Disputes. All boundary disputes shall be the concern of the local government units through their local sanggunian. SECTION 8. Penal Provision. The utilization of the 80% of the national wealth tax shall be guided by the provisions of RA 7160 and its Implementing Rules and Regulations and this joint circular. SECTION 9. Repealing Clause. All pertinent issuances, circulars and memoranda inconsistent with this Circular are hereby amended or repealed accordingly. SECTION 10. Effectivity This circular shall take effect immediately. RAFAEL M. ALUNAN III FRANCISCO L. VIRAY Secretary of Interior and Secretary Local Government Department of Energy ANNEX A SUBSIDY PER CONSUMER DATA REQUIREMENT: 1) Number of consumer per consumer type (Residential, Commercial, Industrial, Public Bldgs., Street Lights, etc) 2) Amount of share in national wealth tax for distribution to consumers ILLUSTRATION: DATA ASSUMPTIONS: A. TYPE OF CONSUMER NUMBER Residential (Rn) 100 Commercial (Cn) 10 Industrial (In) 1 Public Buildings (Pn) 2 Street Lights (Sn) 15 TOTAL 128 B. National Wealth Tax (NWT) P 50,000 COMPUTATIONS: 1. ALL CONSUMER TYPES SUBSIDY (S) = NWT Tn = 50,000 128 = 390.63 per consumer* 2. COMBINATION : Residential, Public Buildings, Street Lights only SUBSIDY (S) = NWT Rn + Pn + Sn = 50,000 100 + 2 + 15 = 50,000 117 = 427.35 per consumer* 3. ALL CONSUMERS BUT WITH AUXILIARY OPTION THAT AMOUNT OF SUBSIDY PER CONSUMER MUST BE LOWER BY 35% THAN RESIDENTIAL, PUBLIC BLDGS., AND STREET LIGHTS. NWT SUBSIDY (S) = Rn + Pn + Sn +[(Cn + In) x (1-.35)] = 50,000 100 + 2 + 15 + [(10 +1) X .65] = 50,000 117 + 7.15 = 50,000 124.15 = 402.74 per residential, public bldgs. & street lights consumer* SUBSIDY FOR EACH COMMERCIAL & INDUSTRIAL CONSUMER: = 402.74 x (1 - 0.35) = 402.74 x 0.65 = 261.78* 4. ALL CONSUMERS BUT WITH AUXILIARY OPTION THAT COMMERCIAL AND INDUSTRIAL CONSUMERS SUBSIDY MUST BE P100.00 ONLY SUBSIDY (S) = NWT ((Cn + 1n) x 100.00) Rn + Pn + Sn = 50,000 ((10 + 1) x 100) 100 + 2 + 15 = 50,000 1,100 117 48,900 117 = 471.95 per residential, public bldgs. & street lights consumer NOTE : The 35% mentioned in #3 and P100.00 in #4 are variables that can be changed depending on intended objective of the LGU. * maximum amount of subsidy that could be extended to each consumer, can still be limited to a ceiling desired especially if share per consumer is too big depending on LGU objective (i.e., avoid waste in energy consumption) ANNEX B SUBSIDY PER POWER CONSUMPTION DATA REQUIREMENT: 1) Total kwh consumption for each consumer type 2) Amount of share in national wealth tax for distribution to consumers 3) Rate per kwh (Rkwh) ILLUSTRATION: DATA ASSUMPTIONS: A. TYPE OF CONSUMER NUMBER Residential (Rk) 5,000 Commercial (Ck) 1,500 Industrial (Ik) 3,000 Public Buildings (Pk) 700 Street Lights (Sk) 900 TOTAL CONSUMPTION (Tk) 11,100 B. National Wealth Tax (NWT) P35,000 C. Rate per kwh (RKwh) P3.50 COMPUTATIONS: 1. ALL CONSUMER TYPES SUBSIDY (S) = NWT Tk = 35,000 11,100 = 3.1532 per kwh SUBSIDY PER CONSUMER = Compute subsidy per kwh consumption OR IF SUBSIDY PER KWH IS MORE THAN THE RATE : SUBSIDY PER CONSUMER = Rate per kwh (Rkwh) x kwh consumption 2. COMBINATION : Residential, Public Buildings, Street Lights SUBSIDY (S) = NWT Rk + Pk + Sk = 35,000 5,000 + 700 +900 = 35,000 6,600 = 5.3030 per kwh In this case, computer subsidy is more than the rate, thus to compute subsidy per consumer: SUBSIDY PER CONSUMER = Rate per kwh (Rkwh) x Kwh consumption ALL CONSUMERS BUT WITH AUXILIARY OPTION THAT CONSUMPTION IN EXCESS OF 200 KWH PER MONTH IS NOT ELIGIBLE FOR SUBSIDY: ADDITIONAL DATA REQUIREMENT: Actual Kwh Consumption of all consumers consuming equal or less than 200 kwh. DATA ASSUMPTIONS. Total Kwh Consumption of consumers consuming equal to or less than 200 kwh is 7,800 kwh distributed as follows: Rk 5,000 Ck 1,200 Ik Pk 700 Sk 900 Tk 7,800 NWT SUBSIDY (S) = Tk 35,000 = 7,800 = 4.4872 per kwh In this case, computed subsidy is more than the rate, thus to compute subsidy per consumer: SUBSIDY PER CONSUMER = Rate per kwh (Rkwh) x Kwh consumption NOTE: Auxiliary option of having a ceiling of 200 kwh per months is discretionary, other figures could be designed based or fitted to consumption pattern of consumers in the concerned area or based on intended effect to prevailing consumption pattern. 4. ALL CONSUMERS BUT WITH AUXILIARY OPTION THAT AT SPECIFIED LEVELS OF CONSUMPTION, DIFFERENT LEVELS OF DISCOUNTS ARE ALLOWED: ADDITIONAL DATA REQUIREMENT: Range of power consumption Frequency distribution (kwh) of all consumers' consumption at each range Discount rate for each range DATA ASSUMPTIONS: Pre-determined Discount Rate at each Range set, but no discount for >200 Kwh Range of Monthly Kwh Discount Actual Kwh Consumption Rate (%) Consumption (R1) 0 50 (D1) 100 (K1) 9,400 (R2) 51 100 (D2) 75 (K2) 12,800 (R3) 101 200 (D3) 50 (K3) 10,650 (R4) 201 & above (D4) 0 (K4) 13,250 46,100 NWT (K1 x Rkwh) SUBSIDY S) = (K2 x D2 + (K3 x D3) 35,000 (9,400 x 3.50) = (12.800 x.75) + (10,650 x .50) = 36,000 - 32,900 9,600 + 5,325 = 2,100 14,925 = 0.140% per kwh SUBSIDY FOR EACH KWH: 0 50 KWH = P 3.50 x 100% = P3.50 51 100 KWH = P0.1407 x 75% = P0.1055 101 200 KWH = P0.147 x 50% = P0.07035 SUBSIDY FOR R1 (0 50 KWH) = 9,400 KWH x P3.50 x 100% = 32,900 SUBSIDY FOR R2 (51 100 KWH) = 12,800 KWH x P0.01055 = 1,361 SUBSIDY FOR R3 (101 200 KWH) = 10,650 KWH x P0.07035 = 749 35,000 NOTE: Range of monthly kwh consumption, discount rates and level of consumption set for availment of subsidy (in this case, the 200 kwh) are variables depending on the discretion of the LGU. December 06, 1995 SEC. RAFAEL ALUNAN Department of Interior and Local Government PNCC Bldg., EDSA corner Reliance St. Mandaluyong City, Metro Manila Dear Secretary Alunan: We are transmitting herewith the revised DILG-DOE Circular for your approval. The comments of your Legal Services as well as the DOE are incorporated in the proposed guidelines and procedures for the utilization of the share of national wealth taxes, royalties, fees, or charges. We would appreciate receiving the Circular at the soonest possible time. Very truly yours, FRANCISCO L. VIRAY Secretary October 04, 1995 MEMORANDUM FROM THE PRESIDENT To : SECRETARY, DEPARTMENT OF THE INTERIOR AND LOCAL GOVERNMENT SECRETARY, DEPARTMENT OF ENERGY PRESIDENT, NATIONAL POWER CORPORATION ADMINISTRATOR, NATIONAL ELECTRIFICATION ADMINISTRATION Subject : FORMULATION OF THE MECHANICS ON THE USE OF THE PROCEEDS FROM THE DEVELOPMENT AND UTILIZATION OF ENERGY RESOURCES FOR LOWERING OF THE POWER RATES IN HOST COMMUNITIES. Pursuant to the recommendations of the Summit on Electricity Wholesaling and Retailing held on 4 October 1995, you are hereby directed to jointly formulate, in coordination with other concerned agencies and Local Government Units, the mechanics on the use of the proceeds from the development/utilization of energy resources for lowering of the power rates in the host communities, as provided in Section 294 of the Local Government Code and Article 391 of its Implementing Rules and Regulations. Submit to my Office, through the Executive Secretary, copy furnished Head, Presidential Management Staff, the above mechanics, on or before 31 October 1995. For compliance. December 15, 1995 MEMORANDUM FOR : SECRETARY RAFAEL M. ALUNAN III THRU : UNDERSECRETARY SIMEON R. VENTURA FROM : DIRECTOR TERESITA M. MISTAL REFERENCE : Memorandum from the President Fidel V. Ramos dated Oct. 4, 1995 re: Formulation of the mechanics on the use of the proceeds from the development and utilization of energy resources for lowering the power rates in host communities. Sec. 294 of the Local Government Code which provides that the proceeds from the share of LGUs from national wealth taxes, fees and royalties shall be appropriated by their respective sanggunian to finance local development and livelihood projects: Provided, however, that at least 80% of the proceeds shall be applied solely to lower the cost of electricity in the LGU where the source of energy is located. Background : This guidelines and procedures was formulated thru various consultative meetings of the Task Force on Benefits (Sec. 294 LGC). The first final document was then referred to our office for signature but was sent back to the DOE for revision. Incorporated in this final copy is our Legal Office's comments and recommendation relative to the settlement of boundary disputes. Content : "Guidelines and Procedures for the Utilization of the share of National Wealth Taxes, Royalties, Fees or other Charges" The said guidelines and procedures was already signed by Secretary Francisco L. Viray, Department of Energy. Action Required: For your signature, Sir. December 29, 1995 Director TERESITA M. BORRA Department of Energy Fort Bonifacio, Metro Manila Dear Director Borra: Attached is a zerox copy of the signed Joint Circular on the Guidelines in the Sharing of the Utilization of National Wealth. We have retained the original copy at the DILG. For your information, Very truly yours, TERESITA M. MISTAL Director and Chairman, OSC Secretariat