Philippine’s Biofuels law
By Abdel Aziz Dimapunong (Abdel Azish Dimapunung)
Chancellor, Islamic Banking Research Institute
The Philippine’s Biofuels Act of 2006 has been signed into law during the recently concluded Asean Summit that was held in the city of Cebu, Philippines. The law is now in effect after its required publication. With its effectivity, the Philippines is now committed by law to reduce dependence on imported fuels with due regard to the protection of public health, the environment, and natural ecosystems. Under Section 5 of the said law, it is now mandatory that all liquid fuels for motors and engines sold in the Philippines shall contain locally-sourced biofuels components. All diesel fuels in the local market shall contain at least one percent biodiesel. This will gradually increase as per the schedule under the law. When the requirement for biodiesel rises to 2 percent – all gasoline products will also have 5 percent bioethanol and the mixture will rise to 10 percent bioethanol by 2010. By this time, the local market for biofuels could reach about US$420 million. This is a captive market considering that it is mandatory under the law.
The Philippines imported 91.471 million barrels of crude oil last 2003 and 37.04 million of oil products. The country’s oil import bill last 2005 amounts to US$ 4.1 billion. According to Index Mundi the oil imports of the Philippines in year 2003 were recorded at 312,000 bbl/day. By definition, this entry is the total oil imported in barrels per day (bbl/day), including both crude oil and oil products.
The country’s largest suppliers of crude oil had been Saudi Arabia, the United Arab Emirates and Iran. There is no denying that Iran today is on the spotlight. The question looms, what if the USA and Britain and their alliances invade Iran?
Presently, the country eyes Venezuela and Kuwait for oil imports. According to Energy Secretary Raphael Lotilla, the government is eyeing to get part of its oil requirements from other sources to help ensure a stable supply (that could be the answer to the uncertainties in Iran).
The country wants to diversify sources of crude supply but it has to do this in cooperation with the refiners in the country. Government is not into refining so that imports of crude oil have to be in tandem with the schedule of refiners. The country has two refineries: one is being run by Petron Corp. in Bataan with a capacity of 180,000 barrels per day and the other one is in Batangas which is run by Pilipinas Shell Petroleum Corp. with a capacity of 110,000 bpd. Lotilla also said that the government will continue to pursue the idea of stockpiling oil, an issue that was taken up in the East Asia Summit. There is a plan to pursue the development of a 30 million barrel strategic stockpile program. Possible stockpiling sites include the Coastal Subic Bay Oil Terminal with about 500,000 to 600,000 barrels of idle storage capacity which can be converted as oil stockpile. The other site is the Nonoc Terminal in Surigao.
On the renewable energy, it is expected that biofuels will be used not only in the Philippines but in all of Asia. The big markets, China and Japan are also pushing for the promotion of biofuels. These are the two big markets for renewable energy. During the recently concluded East Asia Summit early last month the Cebu Declaration of East Asian Energy Security was signed. It calls for the adoption of measures to improve energy efficiency and reduce dependence on fossil fuels. The Declaration was signed by the leaders of the 10 member Asean, Australia, China, India, Japan, New Zealand and South Korea. The Declaration urges member countries to expand the development of biofuels and other sources of alternative energy. Japan need not be urged. It is on top of biofuels interest. In the last Summit, Japan unveiled its US$ 2 billion package to assist Asian nations develops energy saving technology and reduces the regions’ dependence on traditional fossil fuel. China likewise need not be exhorted. It is already ahead in financing five ethanol projects in the Philippines, including one that has a capacity of 150,000 liters of ethanol per day. It has already announced its involvement in the development of 40,000 hectares of land for ethanol, the produce of which will be exported to China.
According to a Press Release by one Grande M Dianaton, incumbent chairman of Amanah Islamic Bank, a Joint Venture Agreement has already been signed up by the bank with ERA Petroleum Company Limited of Hong Kong. The agreement covers investments to the Islamic Bank and forward sales of biofuels to China thru the ERA Petroleum Company. ERA Petroleum Company is represented by its president, Mr. Abdul Gaffoor Ashroff who happens to be former president of the Amanah Islamic Bank.
The joint venture agreement is now finalized under the name of Biodix Biodiesel J.V. Work is underway to register Biodix with appropriate government agencies in the Philippines.
The Islamic Bank has also an agreement with Pacific Development Company of Hong Kong for promotion of its biofuels in Japan. Furthermore the bank is also negotiating with a group of investors from the oil-rich Dubai. This negotiation is course through the Amanah Islamic Bank representative office in California, U.S.A. under the direction of one of the banks directors, Mr. Manuel Peyton Maliwanag.
Is the Philippines ready to supply 10 percent bioethanol in relation to all gasoline products by year 2010? To some businessmen, this is just a pipe dream. But to the Amanah Islamic Bank, this could be a reality. This is the issue that is being addressed by the Islamic Bank. According to Grande Dianaton, incumbent chairman, the Bank has been making the preparations for the last five years. The production of biofuels, both bioethanol and Biodiesel are basically within the sphere of agro-industrial technology. As an agriculturist, “that is my line” Dianaton said. He added: “In terms of availability of suitable agricultural land, the Islamic Bank and the Filipino Muslim Chamber of Agriculture had already signed a Memo Agreement for one million hectares. The chamber of Agriculture is an association of agricultural landowners in the Autonomous Region of Muslim Mindanao. Dianaton goes on to say: “About six hundred thousand hectares had already been surveyed by our project counterpart from California, USA. Our international marketing for a forward sales contract for biofuels had already been finalized with our counterpart in Hong Kong.”
Below is a copy of the Philippines Biofuels Act of 2006.
Biofuels Act of 2006
CONGRESS OF THE REPUBLIC OF THE PHILIPPINES
THIRTEENTH CONGRESS
Third Regular Session
AN ACT TO DIRECT THE USE OF BIOFUELS, ESTABLISHING FOR THIS PURPOSE THE BIOFUEL PROGRAM, APPROPRIATING FUNDS THEREFOR, AND FOR OTHER PURPOSES
Be it enacted by the Senate and the House of Representatives of the Philippines in Congress assembled:
SECTION 1. Short Title. – This Act shall be known as the “Biofuels Act of 2006.”
SEC. 2. Declaration of Policy. – It is hereby declared the policy of the State to reduce dependence on imported fuels with due regard to the protection of public health, the environment, and natural ecosystems consistent with the country’s sustainable economic growth that would expand opportunities for livelihood by mandating the use of biofuels as a measure to: a) develop and utilize indigenous renewable and sustainably-sourced clean energy sources to reduce dependence on imported oil; b) mitigate toxic and greenhouse gas (GHG) emissions; c) increase rural employment and income; and d) ensure the availability of alternative and renewable clean energy without any detriment to the natural ecosystem, biodiversity and food reserves of the country.
SEC. 3. Definition of Terms. As used in this Act, the following terms shall be taken to mean as follows: a) AFTA – shall refer to the ASEAN Free Trade Agreement initiated by the Association of Southeast Asian Nations; b) Alternative Fuel Vehicles – shall refer to vehicles that use alternative fuels such as biodiesel, bioethanol, natural gas, electricity, hydrogen and automotive LPG, instead of gasoline and diesel; c) Bioethanol – shall refer to ethanol (C2H5OH) produced from feedstock, and other biomass; d) Biodiesel – shall refer to Fatty Acid Methyl Ester (FAME) or mono-alkyl esters derived from vegetable oils or animal fats and other biomass-derived oils that shall be technically proven and approved by the DOE for use in diesel engines, with quality specifications in accordance with the Philippine National Standards (PNS); e) Bioethanol Fuel – shall refer to hydrous or anhydrous bioethanol suitably denatured for use as motor fuel, with quality specifications in accordance with the PNS; f) Biofuel – shall refer to bioethanol and biodiesel and other fuels made from biomass and primarily used for motive, thermal and power generation, with quality specifications in accordance with the PNS; g) Biomass – shall refer to any organic matter, particularly cellulosic or ligno-cellulosic matter, which is available on a renewable or recurring basis, including trees, crops and associated residues, plant fiber, poultry litter and other animal wastes, industrial wastes, and the biodegradable component of solid waste; h) DA – shall refer to the Department of Agriculture created under Executive Order No. 116, as amended; i) DOE– shall refer to the Department of Energy created under Republic Act No. 7638, as amended; j) DOLE – shall refer to the Department of Labor and Employment created under Executive Order No. 126, as amended; k) DENR – shall refer to the Department of Environment and Natural Resources created under Executive Order No. 192, as amended; l) Diesel – shall refer to refined petroleum distillate, which may contain small amount of hydrocarbon or non-hydrocarbon additives to improve ignition quality or other characteristics, suitable for compression ignition engine and other suitable types of engine with quality specifications in accordance with the PNS; m) DOF – shall refer to the Department of Finance created under Administrative Order Nos. 127 and 127-A; n) DOST – shall refer to the Department of Science and Technology created under Republic Act No. 2067; o) DOTC – shall refer to the Department of Transportation and Communication created under Executive Order No. 125-A, as amended; p) DTI – shall refer to the Department of Trade and Industry created under Executive Order No. 133; q) Feedstock – shall refer to organic sources such as molasses, sugarcane, cassava, coconut, jatropha, sweet sorghum or other biomass used in the production of biofuels; r) Gasoline – shall refer to volatile mixture of liquid hydrocarbon, generally containing small amount of additives, suitable for use as a fuel in spark-ignition internal combustion engine with quality specifications in accordance with the PNS; s) Motor fuel – shall refer to all volatile and inflammable liquids and gas produced, blended or compounded for the purpose of, or which are suitable or practicable for, operating motor vehicles; t) MTBE – shall refer to Methyl Tertiary Butyl Ether; u) NBB or Board – shall refer to the National Biofuel Board created under Section 8 of this Act; v) Oil Company – shall refer to any entity that distributes and sells petroleum fuel products; w) Oxygenate – shall refer to substances, which, when added to gasoline, increase the amount of oxygen in that gasoline blend; x) PNS – shall refer to the Philippine National Standards; consistent with Section 26 of R.A. No. 8749, otherwise known as the “Philippine Clean Air Act of 1999”; y) Renewable Energy Sources – shall refer to energy sources that do not have an upper limit on the total quantity to be used. Such resources are renewable on a regular basis. z) WTO – shall refer to the World Trade Organization.
SEC. 4. Phasing Out of the Use of Harmful Gasoline Additives and/or Oxygenates. – Within six months from the effectivity of this Act, the DOE, according to duly accepted international standards, shall gradually phase out the use of harmful gasoline additives such as, but not limited to, methyl tertiary butyl ether (MTBE).
SEC. 5. Mandatory Use of Biofuels. – Pursuant to the above policy, it is hereby enacted that all liquid fuels for motors and engines sold in the Philippines shall contain locally-sourced biofuels components as follows:
5.1 Within two (2) years from the effectivity of this Act, at least five percent (5%) bioethanol shall comprise the annual total volume of gasoline fuel actually sold and distributed by each and every oil company in the country, subject to the requirement that all bioethanol blended gasoline shall contain a minimum of five percent (5%) bioethanol fuel by volume: Provided, That the ethanol blend conforms to PNS.
5.2 Within four (4) years from the effectivity of this Act, the NBB created under this Act is empowered to determine the feasibility and thereafter recommend to DOE to mandate a minimum of ten (10%) percent blend of bioethanol by volume into all gasoline fuel distributed and sold by each and every oil company in the country. In the event of supply shortage of locally-produced bioethanol during the four-year period, oil companies shall be allowed to import bioethanol but only to the extent of the shortage as may be determined by the NBB.
5.3 In lieu of the effectivity of this Act, immediately within three (3) months upon the signing which shall be promulgated upon the approval of this Act of the IRR, a minimum of one percent (1%) Biodiesel by volume shall be blended into all diesel engine fuels sold in the country: Provided that the Biodiesel blend conforms to PNS for biodiesel. Within two (2) years from effectivity of this Act, the NBB created under this Act is empowered to determine the feasibility and thereafter recommend to DOE to mandate a total of two percent (2%) blend of biodiesel by volume subject to domestic supply and availability of locally-sourced biodiesel component.
SEC. 6. Incentive Scheme. – To encourage investments in the production, distribution and use of locally-produced biofuels at and above the minimum mandated blends, and without prejudice to enjoying applicable incentives and benefits under existing laws, rules and regulations, the following additional incentives are hereby provided under this Act.
a) Specific tax. The specific tax on local or imported biofuels component, per liter of volume shall be zero (0). The gasoline and diesel fuel component shall remain subject to the prevailing specific tax rates.
b) Value Added Tax The sale of raw material used in the production of biofuels such as, but not limited to, coconut, jatropha, sugarcane, cassava, corn, and sweet sorghum shall be exempt from the value added tax.
c) Water Effluents All water effluents, such as but not limited to distillery slops from the production of biofuels used as liquid fertilizer and for other agricultural purposes are considered “reuse”, and are therefore, exempt from wastewater charges under the system provided under Section 13 of R.A. No. 9275, also known as the Philippine Clean Water Act: Provided, however, That such application shall be in accordance with the guidelines issued pursuant to R.A. No. 9275, subject to the monitoring and evaluation by DENR and approved by DA.
d) Financial Assistance Government financial institutions, such as the Development Bank of the Philippines, Land Bank of the Philippines, Quedancor and other government institutions providing financial services, shall in accordance with and to the extent allowed by the enabling provisions of their respective charters or applicable laws, accord high priority to extend financing to Filipino citizens or entities, at least sixty percent (60%) of the capital stock of which belongs to citizens of the Philippines that shall engage in activities involving production, storage, handling and transport of biofuel and biofuel feedstock, including the blending of biofuels with petroleum, as certified by the DOE.
SEC. 7. Powers and Functions of the Department of Energy. -In addition to its existing powers and functions, the DOE is hereby mandated to take appropriate and necessary actions to implement the provisions of this Act. In pursuance thereof, it shall within three (3) months from the effectivity of this Act:
a) Formulate the Implementing Rules and Regulations under Section 15 of this Act;
b) Prepare the Philippine Biofuel Program consistent with the Philippine Energy Plan and taking into consideration the DOE’s existing biofuels program;
c) Establish technical fuel quality standards for biofuels and biofuel-blended gasoline and diesel which comply with the PNS;
d) Establish guidelines for the transport, storage and handling of biofuels;
e) Impose fines and penalties against persons or entities found to have committed any of the prohibited acts under Section 12 (b) to (e) of this Act;
f) Stop the sale of biofuels and biofuel-blended gasoline and diesel that are not in conformity with the specifications provided for under Section 5 of this Act, the PNS and corresponding issuances of the Department; and
g) Conduct an information campaign to promote the use of biofuels.
SEC. 8. Creation of the National Biofuel Board (NBB). -The National Biofuel Board is hereby created. It shall be composed of the Secretary of the Department of Energy or his designated Undersecretary as Chairman and the Secretaries or the designated undersecretaries of the
Department of Trade and Industry (DTI), Department of Science and Technology (DOST), Department of Agriculture (DA), Department of Finance (DOF) and Department of Labor and Employment (DOLE), Philippine Coconut Authority (PCA), Sugar Regulatory Authority. The DOE Secretary or his designated Undersecretary, in his capacity as Chairperson, shall, within one (1) month from the effectivity of this Act, convene the NBB.
The Board shall be assisted by a Technical Secretariat attached to the Office of the Secretary or the Office of the Undersecretary of the DOE as the case maybe. It shall be headed by a Director to be appointed by the Board. The number of staff of the Technical Secretariat and the corresponding positions shall be determined by the Board, subject to approval by the Department of Budget and Management (DBM) and existing civil service rules and regulations.
SEC. 9. Powers and Functions of the NBB. – The NBB shall have the following powers and functions:
a) Monitor the implementation of, and evaluate for further expansion,
the National Biofuel Program prepared by the DOE pursuant to Section 7 (b) of this Act;
b) Monitor the supply and utilization of biofuels and biofuel-blends and
recommend appropriate measures in cases of shortage of feedstock
supply for approval of the Secretary of DOE. For this purpose:
1. The NBB is empowered to require all entities engaged in the production, blending and distribution of biofuels to submit reports of their actual and projected sales and inventory of biofuels, in a format to be prescribed for this purpose; and
2. The NBB shall determine availability of locally-sourced biofuels and recommend to DOE the appropriate level or percentage of locally-sourced biofuels to the total annual volume of gasoline and diesel sold and distributed in the country.
c) Review and recommend to DOE the adjustment in the minimum mandated biofuel blends subject to the availability of locally-sourced biofuels: Provided That the minimum blend may be decreased only within the first four (4) years from the effectivity of this Act. Thereafter, the minimum blends of five percent (5%) and one percent (1%) for bioethanol and biodiesel, respectively, shall not be decreased;
d) Recommend to DOE a program that will ensure the availability of alternative fuel technology for vehicles, engines and parts in consonance with the mandated minimum biofuel-blends, and to maximize the utilization of biofuels, including other biofuels.
e) Recommend to DOE the use of biofuel-blends in air transport taking into account safety and technical viability; and
f) Recommend specific actions to be executed by the DOE and other appropriate government agencies concerning the implementation of the National Biofuel Program, including its economic, technical, environment and social impact.
SEC. 10. Security of domestic sugar supply – Any provision of this Act to the contrary notwithstanding, the SRA, pursuant to its mandate shall, at all times, ensure that the supply of sugar is sufficient to meet the domestic demand and that the price of sugar is stable. To this end, the SRA shall recommend and the proper agencies shall undertake the importation of sugar whenever necessary and shall make appropriate adjustments to the minimum access volume parameters for sugar in the Tariff and Customs Code.
SEC. 11. Role of Government Agencies. – To ensure the effective implementation of the National Biofuel Program, concerned agencies shall perform the following functions:
a) The DOF shall monitor the production and importation of biofuels through the BIR and the BOC;
b) The DOST and the DA shall coordinate in identifying and developing viable feedstock for the production of biofuels;
c) The DOST through the Philippine Council for Industry and Energy Research and Development (PCIERD) shall develop and implement a research and development program supporting a sustainable improvement in biofuel production and utilization technology. It shall also publish and promote related technologies developed locally and abroad.
d) The DA through its relevant agencies shall:
(1) Within three (3) months from the effectivity of this Act, develop a
national program for the production of crops for use as feedstock
supply. For this purpose, the Administrators of the Sugar Regulatory
Administration (SRA) and the Philippine Coconut Authority, and other
DA-attached agencies shall, within their authority, develop and
implement policies supporting the Philippine Biofuel Program and
submit the same to the Secretary of the Department of Agriculture for
consideration;
(2) Ensure increased productivity and sustainable supply of biofuel
feedstocks. It shall institute a program that would guarantee that a
sufficient and reliable supply of feedstocks is allocated for biofuel
production;
(3) Publish information on available and suitable areas for cultivation
and production of such crops;
e) The Department of Labor and Employment shall:
a. Promote gainful livelihood opportunities and facilitate productive
employment through effective employment services and regulation;
b. Ensure the access of workers to productive resources and social
protection coverage; and
c. Recommend plans, policies and programs that will enhance the social
impact of the Philippines’ Biofuel Program.
f) The Tariff Commission, in coordination with the appropriate
government agencies, shall create and classify a tariff line for biofuels
and biofuel- blends in consideration of WTO and AFTA agreements.
g) The Local Government Units (LGUs) shall assist the DOE in
monitoring the distribution, sale and use of biofuels and biofuel-blends.
SEC. 12. Prohibited Acts. – The following acts shall be prohibited: a) Diversion of biofuels, whether locally produced or imported, to purposes other than those envisioned in this Act; b) Sale of biofuel-blended gasoline or diesel that fails to comply with the minimum biofuel-blend by volume in violation of the requirement under Section 5 of the Act; c) Distribution, sale and use of automotive fuel containing harmful additives and/or oxygenates at such concentration exceeding the limits to be determined by the NBB; d) Non-compliance with the PNS related to biofuels and established guidelines of the DOE adopted for the implementation of this Act; and e) False labeling of gasoline, diesel, biofuels and biofuel-blended gasoline and diesel.
SEC. 13. Penal Provisions. – Any person, who willfully aids or abets in the commission of a crime prohibited herein or who causes the commission of any such act by another shall be liable in the same manner as the principal. In the case of association, partnership or corporations, the penalty shall be imposed on the partner, president, chief operating officer, chief executive officer, directors or officers, responsible for the violation. The commission of an act enumerated in Section 12, upon conviction thereof, shall suffer the penalty of one (1) year to five (5) years imprisonment and a fine ranging from a minimum of One million pesos (P1,000,000.00) to Five million pesos (P5,000,000.00). In addition, the DOE shall confiscate any amount of such products that fail to comply with the requirements of Sections 4 and 5 of this Act, and implementing issuances of the DOE. The DOE shall determine the appropriate process and the manner of disposal and utilization of the confiscated products. The DOE is also empowered to stop the operation of businesses for refusal to comply with any order or instruction of the DOE Secretary in the exercise of his functions under this Act. Further, the DOE is empowered to impose administrative fines and penalties for any violation of the provisions of this Act, implementing rules and regulations and other issuances relative to this Act.
SEC. 14. Appropriations. – Such sums as may be necessary for the initial implementation of this Act shall be taken from the current appropriations of the DOE. Thereafter, the fund necessary to carry out the provisions of this Act shall be included in the annual General Appropriations Act.
SEC. 15. Implementing Rules and Regulations. – The DOE, in consultation with the NBB, the stakeholders and other agencies concerned, shall within three (3) months from the effectivity of this Act, promulgate the implementing rules and regulations of this Act: Provided, That prior to its effectivity, the draft of the implementing rules and regulations shall be posted at the DOE website for at least one (1) month, and shall be published in at least two (2) newspapers of general circulation.
SEC. 16. Congressional Oversight Committee. – Upon the effectivity of this Act, a congressional committee, hereinafter referred to as the Biofuels Oversight Committee is hereby constituted. The Biofuels Oversight Committee shall be composed of fourteen members, with the chairmen of the Committees on Energy of both Houses of Congress as co-chairmen of the oversight committee. The chairmen of the committees on Agriculture and Trade and Industry shall be ex-officio members. An additional four (4) members from each House, to be designated by the senate President and the Speaker of the House of Representatives, respectively. The minority shall be entitled to pro-rata representation but shall have at least one (1) representative in the Biofuels Oversight Committee.
SEC. 17. Benefits of Biofuel Workers. – This Act shall not in anyway result in the forfeiture or diminution of the existing benefits enjoyed by the sugar workers as prescribed under R.A. No. 6982, or the Sugar Amelioration Act of 1991, in case sugarcane shall be used as feedstock. The NBB shall establish a mechanism similar to that provided under the Sugar Amelioration Act of 1991 for the benefit of other biofuel workers.
SEC. 18. Special Clause. – This Act shall not be interpreted as prejudicial to clean development mechanism (CDM) projects that cause carbon dioxide (CO2) and greenhouse gases (GHG) emission reductions by means of biofuels use.
SEC. 19. Repealing Clause. – The provisions of Section 148 (d) of R.A. No. 8424, otherwise known as Tax Reform Act of 1997; and all other laws, presidential decrees or issuances, executive orders, presidential proclamations, rules and regulations or parts thereof inconsistent with the provisions of this Act, are hereby repealed, modified or amended accordingly.
SEC. 20. Separability Clause. – If any provision of this Act is declared unconstitutional, the same shall not affect the validity and effectivity of the other provisions hereof.
SEC. 21. Effectivity. – This Act shall take effect fifteen (15) days after its publication in at least two (2) newspapers of general circulation.
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