Definition and role of government-owned corporations

Policy and purpose

The State declares that the corporate form of organization, used judiciously, is a valid institutional form through which government may participate in economic and social development (Section 1).
Private enterprise must play the primary role in undertaking desirable economic activities, especially in the production and distribution of goods and services (Section 1).
The State encourages government participation in economic activities and avoids competition with private enterprise by defining areas of operation appropriate for the government corporate form (Section 1).
The decree provides for integrated national policies to guide the appropriate role of the government corporate sector as a whole, including conceptual and operational guidelines (WHEREAS clauses and Section 1).

Core definitions and coverage

A government-owned or controlled corporation is a stock or non-stock corporation performing governmental or proprietary functions (Section 2).
It is a government-owned or controlled corporation if it is:
- directly chartered by special law, or
- organized under the general corporation law and owned or controlled by the government directly, or indirectly through a parent corporation or subsidiary corporation to the extent of at least a majority of its outstanding capital stock or outstanding voting capital stock (Section 2).
A corporation organized under the general corporation law under private ownership where at least a majority of shares conveyed to a government corporation are:
- in satisfaction of debts incurred with a government financial institution, by foreclosure or otherwise,
- and government policy requires disposition to private ownership within a specified period of time,
  is not considered a government-owned or controlled corporation before such disposition, even if ownership or control is subsequently transferred to another government-owned or controlled corporation (Section 2).
A corporation created by special law that is explicitly intended to be ultimately transferred to private ownership under specified conditions remains a government-owned or controlled corporation until transferred (Section 2).
A corporation authorized to be established by special law but required to register with the Securities and Exchange Commission to acquire juridical personality is not considered a government-owned or controlled corporation on the basis of the special law alone (Section 2).
For classification purposes, government-owned or controlled corporations (“government corporations”) may be classified as parent, subsidiary, acquired asset, and affiliate corporations (Section 3).
A parent corporation is one created by special law (Section 3).
A subsidiary corporation is one created pursuant to law where at least a majority of outstanding capital stock or outstanding voting capital stock is owned by parent government corporations and/or other government-owned subsidiaries (Section 3).
An acquired asset corporation is one organized under the general corporation law under private ownership where at least a majority of shares were conveyed to a government corporation in satisfaction of debts with a government financial institution, or as a subsidiary of a government corporation organized exclusively to own, manage, lease, or operate specific physical assets acquired in satisfaction of debts, and required by government policy to be disposed of to private ownership within a specified period of time (Section 3).
An affiliate corporation is one where total government ownership comprises less than the majority of outstanding capital stock and outstanding voting capital stock (Section 3).
The following corporations are excluded from coverage of the decree:
- acquired asset corporations, and
- affiliate corporations (Section 4).
The decree does not exempt excluded corporations from reportorial requirements; required reports must be coursed through the appropriate parent corporation(s) (Section 4).
Where required, the financial statements of acquired asset and appropriate affiliate corporations must be consolidated with the financial statements of the parent corporation, together with its subsidiaries (Section 4).
Chartered universities, colleges, and schools, and municipal corporations, though government corporations, are not covered by the decree (Section 4).

Criteria for using the corporate form

The use of the corporate form of enterprise is authorized only based on criteria stated in Section 5 (Section 5).
Authorization is tied to a demonstrated need for greater flexibility where, by the nature of the good or service, it cannot be effectively undertaken by the regular line agency form of organization (Section 5).
Authorization is also tied to financial viability: the corporation must be able to support operations from its own internal cash generation without operating losses, and without special privilege or assistance from the national government, at least at the baseline required by the decree (Section 5).
The financial viability criterion does not apply to corporate operations involving direct and explicit subsidy programs authorized by law where subsidies are adequately funded by appropriate external sources such as the General Fund (Section 5).
The financial viability test is not applicable, when circumstances warrant, to civic, cultural corporations that do not engage in activities usually associated with economic gain and do not compete by and large with the private sector (Section 5).

Governance and operational flexibility

A provision of existing law that is contrary is overridden: a minister (or equivalent) who is by law designated as ex-officio chairman or member of a government corporation’s governing board may designate a senior official of the ministry to sit in his stead (Section 6).
If the minister is ex-officio chairman, the representative must be a deputy minister (Section 6).
For ex-officio members of the Monetary Board, the Central Bank charter’s rules on designation of alternates continue to apply (Section 6).
Government corporations must be provided adequate operational flexibility to function properly and efficiently, especially under conditions of market competition, while remaining consistent with public accountability (Section 7).
“Operational flexibility” means the corporation’s ability to act promptly on its own on individual transactions or matters without need for further prior clearance from supervisory authority external to the corporation (Section 7).
Such prompt action must be within the corporation’s charter and within explicit general policies, program and guidelines, including budgetary constraints imposed by external supervising authorities (Section 7).
Government corporations in general must receive differential treatment that aligns more closely with corporate organizational requirements than with regular government agencies, through the exercise of jurisdiction by service-wide agencies (Section 8).
Differential treatment must be guided by comparable and appropriate industry practices and standards (Section 8).
The Commission on Audit must apply applicable industry standards when issuing accounting and auditing regulations and must ensure that government corporations establish and adopt accounting and auditing systems and standards consistent with applicable Commission on Audit guidelines, as uniform as possible, conforming with law and generally accepted accounting principles and sound auditing practices (Section 8).
The policy on the withdrawal of resident auditors must be fully implemented (Section 8).
The Commission on Audit must be supported in exercising its audit function through reasonable audit service charges levied on individual government corporations, supplemented as necessary by budgetary appropriations (Section 8).
Commission on Audit auditing of government corporations does not prevent government corporations from engaging private auditing firms, but the Commission on Audit audit report serves as the report for compliance with audit requirements under applicable law (Section 8).
The Civil Service Commission must be guided by comparable industry practices and must develop appropriate standards for personnel policies on selection, movement, training, discipline, and related matters (Section 8).
The Office of Budget and Management (through the Office of Compensation and Position Classification) must formulate compensation and position classification policies aiming to make government corporate salary scales competitive with those for similar industry personnel (Section 8).
Nothing in Section 8 and Section 9 diminishes or limits the responsibilities and accountabilities of government corporations and their corporate officials (Section 8).

Differential treatment for key equity structures

Government corporations with at least twenty percent of the outstanding voting capital stock privately owned must, as a general rule, be accorded the greatest possible flexibility in applying regulations of various service-wide agencies (Section 9).
Employment terms and conditions for such corporations must be referred by the Civil Service Commission to the Ministry of Labor and Employment, which acts on such matters under applicable law (Section 9).
Such corporations may engage the services of private external auditors (Section 9).
The Commission on Audit may, at its option and with respect to its financial audit function, review the private external audit (Section 9).
Personnel of such corporations are not subject to the position classification and compensation rules and regulations of the Office of Budget and Management (Section 9).

Transitional implementation and timing

The President must organize an appropriate Committee including the Commission on Audit, the Civil Service Commission, and the Office of Budget and Management, with adequate representation of the ministries (Section 10).
The Committee must consult with the government corporate sector and immediately take steps to review and revise policies and regulations in accordance with differential treatment standards, including preparing draft amendatory legislation as necessary, and classifying government corporations as provided in Section 8 (Section 10).
Revised policies and classifications must be submitted to the President for review not later than two years after February 04, 1986 (Section 10).
The revised policies and regulations must provide a reasonable period of time for their effectivity (Section 10).
The status quo must be maintained for two years with respect to government corporations existing at the time of issuance that were previously deemed excluded from the definition of government-owned or controlled corporations, insofar as application of existing Commission on Audit, Civil Service Commission, and/or Office of Budget and Management compensation and position classification policies are concerned (Section 10).
Notwithstanding any existing law to the contrary, all chartered government corporations must be subject to the audit jurisdiction of the Commission on Audit immediately (Section 10).
The President may, at discretion, institute changes or modify conditions of the status quo (Section 10).
Collective bargaining agreements existing at issuance in corporations previously deemed excluded from coverage must continue in full force and effect until expiration, including renewals made during the status quo (Section 10).

Final clauses: separability, repeal, effectivity

Separability: If any provision or the application of any provision is held invalid or unconstitutional, the validity of other provisions is not affected (Section 11).
Repealing clause: All laws, decrees, orders, proclamations, rules, regulations, or parts inconsistent with any provision of the decree are repealed or modified accordingly (Section 12).
Effectivity clause: The decree takes effect immediately (Section 13).