DOJ Opinion No. 121, s. 1988

DOJ OPINION NO. 121 , s. 1988 June 14, 1988 Hon. Rainerio O. Reyes Secretary, Department of Transportation and Communications and Chairman, GMCC Manila Sir : This reference to your request for opinion regarding the application to the National Power Corporation (NPC) and the National Electrification Administration (NEA) of Section 17 of Executive Order No. 518 (also known as the Corporate Budget Executive Order of 1979) which requires government-owned or controlled corporations to declare at least five percent of net earnings of each year as cash dividends. prcd You state that in accordance with Section 17 of Executive Order No. 518, you enjoined government-owned or controlled corporations (GOCC's) to declare cash dividends. Such action was one of the reforms committed by the Philippine Government to the International Monetary Fund (IMF) under the 1987-88 Stand-by Agreement. You state further that in the enforcement of said Executive Order, NEA and NPC claim that their respective charters explicitly provide for profit distribution and therefore they should not be required to declare said dividends; and that the Chairman of the Commission on Audit in his 2nd Indorsement dated August 17, 1987 has referred this matter to the Chairman of the Government Corporate Monitoring and Coordinating Committee (GCMCC) for administrative determination because Section 14 of Presidential Decree no. 219 does not appear to categorically exempt NEA from the requirement of cash dividend declaration. Hence, the instant request. Specifically, your query is whether NEA and NPC can be required to declare cash dividends from its yearly earnings. Section 17 of Executive Order No. 518, reads as follows: "Sec. 17. Cash Dividends . Each corporation shall declare at least five percent of net earnings of each year as its dividends; Provided, That cash dividends accruing to the National Government shall be received by the Treasury and recorded as income of the General Fund; Provided, Further, That the fraction of net earnings that shall be declared by a corporation as cash dividends may be changed by the President/Prime Minister upon recommendation of the Minister of Finance; Provided, Finally, That this Section shall not apply to the Government Service Insurance Systems the Social Security System, and those government-owned or controlled corporations whose profit distribution is provided for by their respective charters or by special law." From the aforequoted provision of law, it is mandatory for corporations to declare 5% cash dividends out of their earnings. The only corporations exempted from this mandate are GSIS, SSS and government-owned or controlled corporations whose profit distribution is provided for by their respective charters or by special law. Resolution of the query would therefore hinge on whether profit distribution is provided for in the NEA and NPC charters. NEA's and NPC's claims for exemption are anchored on the following provisions of their charters which, respectively, read as follows: "Sec. 14. Exemption from All Taxes, Duties, Fees, Imposts and Other Charges by Government Instrumentalities . The NEA shall devote all its returns from its capital investments as well as excess revenues from its operation to attain its objectives. . . ." (P.D. No. 269, NEA Charter.) "Sec.Non-profit Charter of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and Other Charges by Government and Government Instrumentalities. The corporation shall be non-profit and shall devote all its returns from its capital investments, as well as excess revenues from its operation, for expansion. . . ." (R.A. No. 6395, NPC Charter.) prcd It is believed that the abovequoted section on fund use contained in the NEA charter while couched in general terms, is a profit distribution provision. Thus, NEA's mandate "to devote all the funds to attain its objectives" is clearly spelled out in its Charter, i.e. "total electrification of the Philippines on an area coverage basis" (Section 2, P.D. No. 269). For this purpose, NEA is authorized, empowered and directed to promote, encourage and assist public service entities, particularly cooperatives, to the end of achieving the objectives of making service throughout the nation on an area coverage as rapidly as possible (Section 14, ibid .). Surely, distribution of any portion of its funds in the form of cash dividends would not be in furthermore of its objectives and could contravene the provision of its charter. In view of these considerations, it is our opinion that NEA is exempted from the requirement in Section 17 of E.O. No. 518 that government corporations must declare as cash dividends at least five percent of its net earnings per year. As regards the NPC, aside from the fact that NPC cannot be made to declare cash dividends without detracting from its nature as a non-profit corporation, Section 13 of R.A. No. 6395 is quite specific in directing that the corporation shall devote all its returns from its capital investments, as well as excess revenues from its operation for expansion. Therefore, it is also exempted from the five percent dividend declaration requirement of Section 17, of E.O. No. 518. Please be guided accordingly. Very truly yours, (SGD.) SEDFREY A. ORDOEZ Secretary of Justice