Coverage, who may apply, and application basics
- Any person defined under Section 2(p) of these rules may apply for authority to construct and operate a mini-hydroelectric power plant, provided the applicant is not disqualified by law (Section 3, Rule I).
- Existing and operating permit holders that wish to avail of the incentives under Republic Act No. 7156 may have their operating contracts granted based on registration and payment of the application fee with the OEA, provided they register within six (6) months from the effectivity of these rules (Section 3, Rule I).
- Applications must be made in writing, verified, accomplished in two (2) copies, and must present jurisdictional facts including the applicant’s name and address and a brief project description (including how water will be used, amount of water needed, power to be generated, and the proposed construction place) (Section 4, Rule I).
Definitions and technical terms
- “Avoided cost” refers to the costs the affected grids would have incurred had NAPOCOR generated the equivalent electric power itself before disposing the power to third parties (Section 2(a), Rule I).
- “Capacity” refers to the electric load a generating unit or electrical apparatus is rated for by the manufacturer, usually measured in kilowatts (kw) (Section 2(b), Rule I).
- “Electric cooperative” refers to cooperatives duly authorized to supply electricity or empowered to supply electric service (Section 2(c), Rule I).
- “Electric utility” refers to an electric cooperative, a local government-owned utility, or a privately owned utility operating a grid within the NAPOCOR grids or other electric systems (Section 2(d), Rule I).
- “End-user” refers to a user of electricity generated by a mini-hydro power plant (Section 2(e), Rule I).
- “Feasibility study” refers to a study based on data specific to the site where the mini-hydro power plant will be erected (Section 2(f), Rule I).
- “Franchised area” refers to a geographical area franchised to an electric utility for electricity supply to end-users (Section 2(g), Rule I).
- “Grid operator” refers to any operator of interconnected transmission lines, substations, and generating plants of NAPOCOR or the concerned electric utility, as the case may be (Section 2(h), Rule I).
- “Hydroelectric power” refers to electric power produced by utilizing kinetic energy of falling or running water to turn a turbine generator (Section 2(i), Rule I).
- “Mini-hydroelectric power developer or developer” refers to any individual, cooperative, corporation, or association engaged in, or intending to engage in, construction, installation, and operation of a hydroelectric-power-generating plant with installed capacity not less than 101 kilowatts nor more than 10,000 kilowatts; an end-user may also be a developer (Section 2(j), Rule I).
- “Mini-hydroelectric power development” refers to construction and installation of a hydroelectric-power-generating plant and auxiliary facilities (including transmission, substation, and machine shop) with installed capacity not less than 101 kilowatts nor more than 10,000 kilowatts (Section 2(k), Rule I).
- “Mini-hydroelectric power plant” refers to a generating plant that (a) uses kinetic energy of falling or running water (run-of-river hydro plants) to turn a turbine generator producing electricity, and (b) has installed capacity not less than 101 kilowatts nor more than 10,000 kilowatts (Section 2(l), Rule I).
- “NAPOCOR” refers to the National Power Corporation created under R.A. 6395 (Section 2(m), Rule I).
- “OEA” means the Office of Energy Affairs (Section 2(n), Rule I).
- “Rate” refers to any price or tariff on sale or purchase of electric energy, usually measured in pesos per kilowatt-hour for energy payments and pesos per kilowatt for capacity payments (Section 2(o), Rule I).
- “Person” includes individuals not disqualified by law and Philippine corporations, partnerships, associations, or joint companies organized under Philippine laws where at least sixty percent (60%) of stock or paid-up capital belongs to Philippine citizens (Section 2(p), Rule I).
- “Water resource” refers to a surface water course where flow used by turbines is diverted and restituted to after passing the mini-hydro plant installations (Section 2(q), Rule I).
- “Wheeling” refers to electric energy transmission services extended by NAPOCOR or an electric utility to enable the mini-hydro developer to transmit power to another electric grid or end-user (Section 2(r), Rule I).
Application documents, fees, and financial indicators
- Each application must be accompanied by documents that reasonably establish prima facie the truth of factual allegations, including:
- a Certificate of Registration from the Securities and Exchange Commission, plus a copy of Articles of Incorporation or Certification from the Department of Trade and Industry for single proprietorships (Section 5(a), Rule I).
- a proposed Memorandum of Agreement between the applicant and NAPOCOR, the franchised electric utility, or other end-user, covering power purchase and use of existing lines and applicable wheeling fees (Section 5(b), Rule I).
- a comprehensive feasibility study proving technical, economic, financial, social, and administrative viability, including feasibility study activities such as:
- data collection and review of pre-feasibility studies and pertinent data and reports;
- a detailed program for survey and investigation works, including topographic survey enabling maps of sufficient scale (1:500) for layout, geologic mapping, drilling (if any), establishment of gauging station, and other necessary works;
- site inspection and field reconnaissance over time to confirm data and design;
- necessary hydrologic and hydraulic studies;
- plant operation and maintenance studies for optimization and determination of power and energy capability;
- determination of whether power/energy is marketable within the existing system or as an isolated facility;
- alternative layout/developments for optimization using topographic data;
- detailed layout and preliminary design establishing configuration of each structure;
- establishment of unit prices and preparation of detailed quantity and cost estimates;
- submission of Project Description under DENR guidelines incorporating measures to avoid or minimize adverse environmental effects, including a watershed development plan and LGU endorsement;
- construction schedule;
- economic and financial evaluation including sensitivity analysis;
- recommendation for additional investigation during detailed design and implementation if deemed necessary;
- a manual for operations prepared for all legal requirements for mini-hydro operation; and if power is sold to the grid, operation governed by dispatch rules assigned by the grid operator (Section 5(c), Rule I).
- a processing fee of one Peso (P1.00) per kilowatt estimated installed capacity (Section 5(d), Rule I).
- other papers and documents the OEA may require (Section 5(e), Rule I).
- The OEA uses the following financial indicators in determining the applicant’s financial capability:
- minimum working capital of at least Thirty-Five Thousand Pesos (P35,000.00) per kilowatt to support the first two (2) years of the project’s work program, plus capability to raise additional working capital of at least sixty percent (60%) of the estimated project cost to fund remaining works and plant subsequent operations (Section 6(a), Rule I).
- current ratio of 1.5:1 (Section 6(b), Rule I).
- debt equity ratio of 3:1 (Section 6(c), Rule I).
- other factors substantially establishing financial capability (Section 6(d), Rule I).
- The amounts in the minimum working capital requirement are adjusted in cases of extraordinary inflation of the Philippine Peso under Article 1250 of the Civil Code of the Philippines (Section 7, Rule I).
Defective application and curing period
- If an application is defective in form or substance or incomplete on certain data, the OEA must inform the applicant in writing within two (2) days, with notice that corrections/deficiencies must be supplied within fifteen (15) working days from receipt of the notice (Section 8(a), Rule I).
- If the applicant fails to submit the required corrections within the fifteen (15) working days, the application is deemed abandoned and the OEA must return it forthwith with all attached documents (Section 8(a), Rule I).
- The OEA may extend the cure period for good cause if the written request is made before expiration of the period sought to be extended (Section 8(a), Rule I).
Approval criteria, processing period, and authority terms
- The OEA guides its processing of applications using these criteria:
- the proposed mini-hydro project promotes public interest in a proper and suitable manner;
- the applicant is financially and technically capable of undertaking the project and meeting operational responsibilities;
- construction and operation will not result in closure or stoppage of existing water outlets, passageways, conduits, or similar water passages from the water source;
- requirements of public safety and Environmental Compliance Certificate are complied with;
- construction and operations generally promote and achieve the purposes of R.A. 7156 (Section 1, Rule II).
- The OEA must resolve the application within four (4) months from receipt, provided all documents and clearances contemplated in these rules are timely submitted and no objections are raised by concerned parties (Section 2(a), Rule II).
License issuance, contract execution, and revocation
- If the OEA approves an application, it issues a certificate of authority or license to construct and operate a mini-hydro power plant to the applicant (or the person in whose name the application was made) and executes an operating contract detailing rights and obligations between the OEA and the developer (Section 1, Rule III).
- The license is co-terminus with the mini-hydro operating contract term, which is 25 years, renewable for another 25 years, unless sooner revoked for cause (Section 2, Rule III).
- The OEA may revoke or cancel the license and operating contract on grounds including:
- failure of the licensee/contractor to comply with conditions and requirements under which the license was issued;
- violation by the licensee/contractor of provisions of the operating contract or R.A. 7156 (Section 3(a), Rule III).
Developer rights, obligations, and operating requirements
- The operating contract must contain the following rights and privileges of the developer:
- full exemption from income taxes levied by the National Government for seven (7) years from the start of commercial operations (Section 4(a), Rule III).
- exemption within seven (7) years from awarding from payment of tariff duties and value-added tax on importations of machinery and equipment (including control and communication equipment), subject to conditions:
- the items are not manufactured domestically in reasonable quantity and quality at reasonable prices;
- the items are directly and actually needed and used exclusively in construction and impounding of water, transformation into energy, and transmission of electric energy to the point of use; and
- the items are covered by shipping documents in the name of the registered developer delivered directly by customs authorities;
- prior OEA approval is required before importation (Section 4(b), Rule III).
- a tax credit equal to 100% of the value of value-added tax and customs duties that would have been paid if domestic capital equipment items were imported, conditioned on:
- sale by the domestic manufacturer within seven (7) years from the contract’s issuance/awarding;
- direct need and exclusive use by the developer;
- OEA approval obtained by the local manufacturer (Section 4(c), Rule III).
- special realty tax rates on equipment and machinery not exceeding two and a half percent (2.5%) of original cost (Section 4(d), Rule III).
- exemption from the ten percent (10%) value-added tax on gross receipts derived from sale of electric power whether wheeled through the NAPOCOR grid or through existing electric utility lines (Section 4(e), Rule III).
- The operating contract must contain these developer obligations:
- perform mini-hydropower operations and provide necessary services, technology, and financing; commence construction within twelve (12) months from awarding; allow extension for another twelve (12) months for justifiable reasons as determined by the OEA (Section 4(Obligations)(a), Rule III).
- secure and comply with legal requirements related to construction and be subject to general laws on labor, health, safety, and ecology (Section 4(Obligations)(b), Rule III).
- develop and operate using accepted good mini-hydro field practices with modern and scientific methods for maximum economic production and hazard avoidance; safeguard the watershed area against illegal logging and forest destruction; assist DENR enforcement and watershed rehabilitation (Section 4(Obligations)(c), Rule III).
- promptly furnish the OEA mini-hydro power information, data, and reports related to operations (excluding proprietary techniques); report socio-economic project/programs implemented in the site/community (Section 4(Obligations)(d), Rule III).
- maintain detailed financial and technical records and accounts (Section 4(Obligations)(e), Rule III).
- conform to safety and demarkation regulations and noninterference with other operations (including irrigation, geothermal, coal mining, housing development, access roads); negotiate acquisition of private property affected by the project and establish easements for dam, access roads, and related structures/facilities; observe construction methods and techniques that do not hamper or disrupt other infrastructures upstream/downstream/nearby; and if existing water outlets, passageways, connections, conduits, apertures, or similar facilities will be closed or stopped, restore or re-engineer them at developer’s account/expense so users/appropriators are not permanently deprived (Section 4(Obligations)(f), Rule III).
- keep all meters and measuring equipment in good order; allow access to these, and allow access to development sites and operations, for OEA authorized inspectors (Section 4(Obligations)(g), Rule III).
- operate and maintain the plant/system at maximum efficiency as possible and promote highest possible production; submit to the OEA a quarterly report on electricity generated (Section 4(Obligations)(h), Rule III).
- negotiate interconnection with NAPOCOR, the local electric cooperative grid, or electric utilities and furnish the OEA with a copy of the sales contract with the buyer; first offer to sell electric power to NAPOCOR, franchised private electric utilities, or electric cooperatives; install protective devices required for safe and unperturbed operations of the interconnected local network (Section 4(Obligations)(i), Rule III).
- allow OEA inspection during and after construction and provide documents for monitoring and planning (Section 4(Obligations)(j), Rule III).
- maintain hygiene and sanitation at the project site; dispose properly in garbage pits; store acids, oils, and grease properly and prevent environmental contamination (Section 4(Obligations)(k), Rule III).
- seek OEA approval for any major change in the work program (Section 4(Obligations)(l), Rule III).
- allow Bureau of Internal Revenue officials and authorized OEA representatives full access to accounts, books, and records relating to operations at reasonable times for tax and other fiscal operations (Section 4(Obligations)(m), Rule III).
- be subject to Philippine income tax after seven (7) years of commercial operation, and furnish the OEA a copy of the official receipt covering privilege tax paid with supporting documents required for tax credit applications on domestic capital equipment procured in the Philippines (Section 4(Obligations)(n), Rule III).
- give priority in employment to Philippine nationals: employ qualified Filipino personnel for operations; after commercial production commences, undertake schooling and training of Filipino personnel (administrative, technical, executive management positions) upon prior OEA approval; include training costs for the developer’s own employment in operating expenses; bear training costs for OEA personnel on a basis agreed by the OEA and developer; and ensure employment of alien technical/specialized personnel (including immediate family members) is not unreasonably withheld if they exercise professions solely for the mini-hydro operations; implement technology transfer by assigning at least one (1) understudy for each alien technical/specialized personnel (Section 4(Obligations)(o), Rule III).
- post a bond or other guarantee in favor of the OEA with sureties satisfactory to the OEA, conditioned on faithful performance of all obligations under the contract, within sixty (60) days after the contract’s effective date (Section 4(Obligations)(p), Rule III).
OEA monitoring, authority as attorney-in-fact, and suspension
- The OEA verifies and monitors the standards applied by the developer and ascertains whether construction and operation conform to approved design and optimum safety/electricity generation standards (Section 5, Rule III).
- The OEA appoints the developer as its attorney-in-fact and grants authority to negotiate and conclude agreements and make payments for the use of surface rights, rights-of-way, and similar rights for the developer’s account to enable ingress/egress into the contract area and perform mini-hydro operations, and for purposes necessary or proper in connection with the contract (Section 6, Rule III).
- Any failure or delay attributable to force majeure excuses performance to the extent attributable; if operations are delayed/curtailed/prevented, the time for rights and obligations extends for the equal duration of the delay (Section 7(a), Rule III).
- If force majeure delays, curtails, or prevents operations for a continuous period of three (3) months, the operating contract may be terminated by either party at any time that the force majeure exists (Section 7(a), Rule III).
- Force majeure includes Acts of God, unavoidable accidents, acts of war or conditions attributable to war (declared or undeclared), riots, insurrections, strikes, lockouts, other similar labor disturbances, floods, and storms; the affected party must notify the other in writing of the cause and both parties must take all reasonably within their power measures to remove the cause (Section 7(a), Rule III).
Nonexclusive development and permit
- Development of less than fifty percent (50%) of the mini-hydropower potential of the proposed site is nonexclusive (Section 1, Rule IV).
- The OEA may grant development of the site to full power potential to any qualified developer after thorough technical and economic review, with:
- a first option granted to the original developer; and
- if the original developer forfeits the option to pursue full power potential development, reimbursement by the successor-developer for the original developer’s investment value based on:
- the declared value of the development for real estate tax purposes over the immediately preceding three (3) years; or
- if the declared value differs over that period, the average value thereof (Section 1, Rule IV).
- The OEA may issue a nonexclusive permit on a first-come-first-served basis to conduct a three-month reconnaisance study on mini-hydropower potential of an area (Section 2(a), Rule IV).
Electricity purchase, transmission, and rates
- NAPOCOR must purchase the maximum electricity generated by the mini-hydroelectric power plant if the plant cannot be connected with any other electric utilities or end-users (Section 1, Rule V).
- NAPOCOR and other electric utilities must allow the mini-hydro developer to deliver generated electricity to the developer’s customers through existing lines under terms mutually agreed upon; if no agreement is reached, terms are set by the OEA (Section 2(a), Rule V).
- The developer’s rates for purchase of electricity from NAPOCOR and other electric utilities must be at a price agreed by the parties based on the avoided cost of NAPOCOR or the utility (Section 3(a), Rule V).
- If new transmission facilities are required to bring power from the mini-hydropower plant to third parties, the developer must negotiate with NAPOCOR or the electric utility for possible sharing of the cost of facility construction (Section 4, Rule V).
Conflict jurisdiction and dispute handling
- All conflicts or disputes arising from implementation of R.A. 7156 and the provisions of these rules—except those arising from debtor-creditor relations—are under the jurisdiction of the OEA (Rule VI, Section 1).