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afs Republic of the Philippines
: 9 J DEPARTMENT OF ENERGY
ee

DEPARTMENT CIRCULAR NO, Dc2olu } 02-00!

eo

ADOPTING NEW MECHANISMS AND PROCEDURES IN THE REGISTRATION OF
ALL SUBCONTRACTS AND AGREEMENTS ENTERED INTO BY PETROLEUM

SERVICE CONTRACTORS UNDER PRESIDENTIAL DECREE NO. 87, AS AMENDED,

AND COAL OPERATING CONTRACT HOLDERS UNDER PRESIDENTIAL DECREE
NO. 972, AS AMENDED, AMENDING FOR THIS PURPOSH OFFICE OF ENERGY

AFFAIRS CIRCULAR NOS. 82-09-09, 82-0909A, 89-01-02 AND 89-08-09

WHEREAS, Section 5 (h) of Republic Act No. 7638 or the “Deyjartment of Energy Act of
1992”, as amended, states that the Department of Energy (DOE)|shall exercise supervision
and control over all government activities relative to energy projedts;

WHEREAS, Presidential Decree No. 1354, which imposes final indome tax on subcontractors
and alien employees of Petroleum Service Contractors and shbcontractors engaged in
petroleum operations in the Philippines mandates the registration of subcontracts with the
Bureau of Energy Development (BED);

WHEREAS, the Office of Energy Affairs (OEA) issued OEA Cirqular Nos. 82-09-09, 82-09-
09A and 89-08-09 mandating, for cost recovery purposes, the registration with the BED of all
subcontracts entered into by Coal Operating Contract (“COC”) |holders not later than 30
days from execution thereof; |

WHEREAS, the OEA (now the DOE) also issued OFA Circular No. 89-01-02 requiring the
submission of two (2) copies of subcontracts entered into by petrpleum Service Contractors
(the “Service Contractors”) under Presidential Decree No. (HD) 87, as amended, for
registration and approval by the BED not later than 60 days fromlexecution thereof, for cost
recovery purposes;

WHEREAS, it has been observed in actual practice that the |period prescribed in the
abovementioned Circulars within which to submit the subcohtracts are not sufficient
resulting in late submission especially since the Service Contiactors, in the interest of
economy and efficiency, have resorted to submitting these subcantracts in bulk, especially
those executed or entered into overseas; and |

WHEREAS, it is in the best interest of the Government and the Service Contractors/COC
holders to simplify and rationalize the registrat on/approval of the
subcontracts/agreements entered into under PD 87, as amended,|and PD 972, as amended,
by clarifying the procedures and lengthening the period with which to submit these
subcontracts to the DOE.

NOW, THEREFORE, for and in consideration of the foregoing premises and pursuant to
Section 5 (h) of Republic Act No. 7638, the following procedures and additional rules and

regulations are hereby issued for strict compliance by the Servjce Contractors and COC
holders:

Crengy Oemer, Mice Orive, Dornfacio Gioval y.
Tel. No.: 479-2900 Website: www.doe.gov.ph

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Section 1. Scope and Application. This Circular gove
subcontracts and agreements entered for Service Contra unde
COC holders under PD 972, as amended.

the registration of all
PD 87, as amended, and

Section 2. General Provisions. All Service Contractors and COC holders shall comply with

the following procedures:

a.

' “Regulations governing taxation of sub-contractors and alien individuals employ
contractors engaged in the Petroleum operations in the Philippines under Presidential [D
Presidential Decree Number 1354 (October 10, 1978)

All services covered by subcontracts or agr ts to be entered into by Service
Contractors and COC holders with their subcontractors and/or service providers
in pursuance of their SCs or COCs shall be included And incorporated in their
Work Program (WP) that is submitted to and approved by DOE;

All activities under the COC may be allowed to be sybcontracted except those
work/ activities related to coal mining, coal extraction and other activities related
to coal production which shall be performed (directly by the COC holder. To
ensure that all subcontracts for coal operations shall camply with this provision,
these subcontracts or agreements, subject to Section 2.d hereof, shall be submitted
for registration and approval prior to the actual implementation thereof;

Administrative contracts under PD 87, as amended, as|defined under Section 2.f
of Revenue Regulation No. 15-78!, need nat be rdgistered with the DOF,
However, a copy of each administrative contract hz
furnished the DOE for records purposes;

All subcontracts or agreements entered into by Service Contractors and COC
holders with subcontractors and/or service providers jon or after the effectivity
date of this Circular, which are sought to be cost recbvered under PD 87 and
PD 972, respectively, shall be submitted to DOE for regtstration not later than six
(6) months from the date of execution thereof: Provided, That for the purposes of
this Section, date of execution shall mean:

(i) the date of signing by all the parties of the subcontract or agreement if
all made on the same date, or

(ii) if a subcontract or agreement is signed on di
signing by the last party to sign;

erent dates, the date of

Subcontracts or agreements shall be submitted in two (3) original or certified true
copies. Subcontracts executed pursuant to PD 87, as ame

provision regarding the deductions, withholding and remi
tax imposed in relation to Section 1 of PD 1354, from the gross income paid by
Service Contractor to the subcontractor. If by the rjature of the subcontract
and/or agreement, the contract value and the applicable tax to be withheld or

q by service contractors and sub-
cree No. 87, as provided under

Section 2.f “Administrative contracts” refer to contracts entered into by |the service] contractor with domestic entities or

individuals relating to the administrative operation of the service contractor's local gffia
administrative contracts are those covering janitorial services, lease of office space, staff te
maintenance service thereof and other contracts of similar nature.”

in the Philippines. Examples of
ses, office cars and office equistment,

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paid is contingent or not yet determinable at
Contractor shall submit related documents

time pf registration, the Service
evidencing compliance with the

deduction, withholding and remittance of final income|tax under PD 1354, within

six (6) months from the end of the calendar year that
conduct of audit by the Compliance Division Finan

tax is paid or prior to the
cial|Services (“CD-FS”);

f. Subcontract or agreement which provides petroleum ahd/or coal as payment for
the services of the subcontractor shall be deemed if excess of the authority

granted by DOE to Service Contractors and
hereby prohibited.

COC hglders, and accordingly is

Section 3. Administrative Procedures. The subcontracts or agreements shall be reviewed,

evaluated and registered in the following manner:

a. The subcontracts or agreements shall be submitted|to the Records Division,

Administrative Services for records purposes;

b. The Records Division shall immediately endo

these subcontracts or
au (ERDB) for evaluation

to determine whether the subcontracts/agreements relate to petroleum/coal

operations and that these are incorporated
particular SC or COC;

64

d. Furthermore, administrative contracts shall be
not they comply with Section 2.c hereof;

In addition, all subcontracts or agreements under PD
evaluated whether they comply with Section 2.b hereo

in the approved WPB under the

, as amended, shall be

evaluated by the ERDB whether or

e. All other contracts, agreements and other expenses pot specified herein shall

comply with applicable provisions of the Service

Accounting Procedures;

mtract or COC and its

f. The ERDB shall thereafter forward the subcontracts |to the Legal Services for

review and evaluation to determine whether the
holders comply with the pertinent provisions of

approval of the registration thereof.

Section 4. Registration Procedure. In case the et ora
provisions of this Circular, it shall be endorsed by the

registration and a copy thereof furnished to the CD-FS.

ice Contractors or COC
is Circular prior to the

Legal Services to the ERDB for
reafter} a registration notice shall

be sent to the Service Contractor or COC holder by the ERDB sta g that the subcontract or

agreement has been registered in the DOE.

In instances where the subcontract or agreement is submitted beyond the prescribed period
in Section 2.d of this Circular, the registration thereof shall only bejallowed upon payment of
the penalty as provided under Section 7 hereof. The ERDB shall forthwith inform the Service

Contractor or COC holder of the amount to be paid and
shall be made,

period Within which the payment

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Section 5. Nature of Subcontract. The registration of the subcontfact or agreement shall not
be construed either as an assignment or transfer of rights and |responsibilities under the
Service Contract or COC. The Service Contractor and COC holdef shall be fully responsible
to the DOE for the work obligations and commitments nder th¢ Service Contract or COC.
In addition, the Service Contractor and COC holder shall be responsible for the general
safety, security and compliance to environmental rules and regulations, among others.

Section 6. Existing Subcontract/Agreement. All existing subcontracts or agreements entered
into by Service Contractors and COC holders with subcontractor and/or service providers
pursuant to the provisions of PD 87, as amended, and PD 972] as amended, prior to the
effectivity of this Circular shall be registered with the DOE within} a period of six (6) months
from effectivity of this Circular, otherwise the application for r¢gistration thereof shall be
automatically denied.

Section 7, Penalty Provision. In the event that the subcontratts and/or agreement are
submitted beyond the prescribed period under this Circular, co -recovery may be allowed
subject to prior payment of a penalty in the amount of Ten Thotsand Pesos (P 10,000) per
subcontract and/or agreement. Failure to pay the penalty within|a period of sixty (60) days
from notice thereof shall result to the disallowance of| the related expenditures as cost
recovery.

Section 8. Separability Clause. If any provision of this Circular is| declared unconstitutional,
the remainder or the provisions not affected shall remain valid an¢ subsisting.

Section 9. Repealing Clause. All circulars, orders, letters of| instructions or issuances
contrary to or inconsistent with this Circular are hereby repealed, modified or amended
accordingly.

Section 10. Effectivity. This Circular shall take effect fifteen (15) days after its publication in
at least two (2) newspapers of general circulation.

Issued at the Energy Center, Rizal Drive, Bonifacio Global City, Taguig City.

CARL ERICHO L. PETILLA
ectetary
o8e Bie Canale

1h REPLYQO PLS CITE:

SOE

" J P-14004927 :'
MANNA
AUG 01 2014