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Oe
GEG Republic of the Philippines
6 ©=Department of Energy

DEPARTMENT CIRCULAR NO. DC2017-_!| - 0012
a

RULES AND REGULATIONS GOVERNING THE PHILIPPINE DOWNSTREAM
NATURAL GAS INDUSTRY

Pursuant to Republic Act (RA) No. 7638, otherwise known as the “Department of
Energy Act of 1992”, creating the Philippine Department of Energy (DOE); Executive
Order (EO) No. 66, designating the DOE as the lead agency in developing the
Philippine Downstream Natural Gas Industry; Administrative Order No. 38, providing
for the Institutional Strengthening of the DOE; Department Circular No. 95-06-006,
entitled “Policy Guidelines on the Overall Development and Utilization of Natural Gas
in the Philippines”; Department Circular No. 2002-07-004, otherwise known as the
Rules of Practice and Procedures before the DOE, and Executive Order 30,
establishing the Energy Investment Coordinating Council to facilitate an efficient and
effective administration of Energy projects of National Significance and fasten the
implementation of the Philippine Energy Plan (PEP),” the DOE, in consultation with
appropriate government agencies and private stakeholders, hereby issues, adopts
and promulgates the following regulations.

PART |
GENERAL PROVISIONS

This Circular establishes the regulations to be followed with respect to siting, design,
construction, expansion, rehabilitation, modification, operation and maintenance of
the PDNGI Value Chain. The State shall ensure that the PDNGI Value Chain, from
its emerging state, will be developed into a mature market to gain greater energy
security and sustainability.

RULE 1. TITLE AND SCOPE
Section 1. Title

This Circular shall be known as the Philippine Downstream Natural Gas Regulation
(PDNGR).

Section 2. Scope

This PDNGR applies to the following:

a. Industry compliance to policies, rules, standards and best practices on areas of
siting, design, construction, expansion, modification, operation and maintenance
any Project necessary to the development of the PDNGI Value Chain;

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b. Industry compliance to policies, rules, standards and best practices on the
importation of LNG and the supply and transport of the following:

1. Imported LNG or liquefied Indigenous Natural Gas from the connection point
of the loading arm to the LNG Terminal, the Transmission System and the
Distribution System;

2. Indigenous Natural Gas after the point of sale up to the Customer; and

3. LNG from the filling connection of the storage specifically used for reticulation
or delivery up to the satellite LNG Terminal in the Philippines and foreign
market.

c. Industry compliance to policies, rules, standards and best practices on TPA;

d. Industry compliance to policies, rules, standards and best practices towards the
development of the Philippines as an LNG trading and transshipment hub for the
Asia-Pacific Region;

e. Overall monitoring and supervision of the activities of the PDNGI Value Chain.
RULE 2. DECLARATION OF POLICY

It is hereby declared the policy of the State to:

a. Provide a conducive environment through the issuance of policies, plans and
programs geared towards the promotion and development of the PDNGI Value
Chain where in all cases, the State shall ensure its safe, transparent, competitive
and environmentally friendly operation;

b. Ensure continued operation of currently operating gas-fired power plants after the
depletion of the Malampaya Natural Gas supply;

c. Promote Natural Gas as an energy fuel with tremendous potential to satisfy the
increasing local demand and that of the Asia-Pacific Region through the
development of the necessary infrastructure for LNG trading and transshipment
hub;

d. Promote the conversion of existing liquid fuel-operated machines and facilities to
Natural Gas use and allocation by the distribution utilities of power supply from
gas- fired power plants;

e. Ensure access and financial viability of the PDNGI Value Chain by liberalizing
entry under a system of competition, transparency and fair trade with the end
goal of attaining fair price for all stakeholders; and

f. Ensure compliance with International and Philippine Health, Safety, Security,

ironment (HSSE) standards and best practices to achieve and sustain safe
operation, high-quality service and consumer protection.

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RULE 3. RESPONSIBILITIES OF THE DOE

The DOE shall have the overall responsibility on the promotion and supervision of
the development and operation of the PDNGI Value Chain through:

a.

As

. Anti-C

The evaluation of applications for the issuance of authority to Operator, namely a
Notice to Proceed (NTP), a Permit to Construct, Expand, Rehabilitate and Modify
(PCERM) and a Permit to Operate and Maintain (POM) Downstream Natural Gas
Facilities;

The issuance, among others, of Acknowledgement to Import (ATI) LNG and
Acknowledgement to Supply and Transport (AST) Natural Gas;

The issuance of directives to qualified Government Agencies, in their capacities
as investing arms, to spearhead the development of the PDNGI Value Chain
when the DOE deems it imperative to catalyze its development within a given
timeline;

The implementation of the industry compliance to Philippine or International
Standards on Natural Gas product, Downstream Natural Gas Facilities and
practices;

The creation of a Downstream Natural Gas Review and Evaluation Committee
(DNG-REC) which shall evaluate and recommend, for the approval of the
Secretary, applications referred to in the Permit Application Guideline, including
the conduct of downstream inspection and monitoring activities in coordination
with a Philippine Inter-Agency Health, Safety, Security and Environment
Inspection and Monitoring Team (PIA-HSSE IMT), and the creation of Technical
Committees (TC) which shall formulate applicable standards. The PIA-HSSE IMT
and the TC shall be chaired both by the DOE;

The recommendation of the DNG-REC to concerned Heads of Agencies the
approvals of Memorandum of Agreement or Joint Circular whenever necessary to
implement DOE responsibilities; and

The implementation all other necessary measures allowed under existing laws,
rules and regulations.

RULE 4. DEFINITION OF TERMS

used in this Circular, the following terms shall mean as follows:

Affiliate - means any corporation that directly or indirectly, through one or more
intermediaries (subsidiaries or affiliates), is controlled by, or is under the common
control of another corporation, which thereby becomes its parent corporation;

petitive Acts — refer to any of the acts prohibited under the Philippine
petition Act (RA10667):

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c. Applicant — refers to:
1. any local and/or foreign individual company; or
2. incorporated joint venture company; or
3. the designated member of an unincorporated joint venture or consortium

which is authorized for the purpose of engaging in a Project, and wishes to
secure any Permit under this Circular;

d. Applicant Group — refers to (1) the Applicant's shareholders, and/or (2) their
respective Parent Company;

e. Capacity — means the maximum capacity of the Natural Gas Facility to provide
the services for which that Natural Gas Facility is developed, expressed in normal
cubic meters per time unit or in energy unit per time;

f. Control - means the power of a parent company to direct or govern the financial
and operating policies of an enterprise so as to obtain benefits from its activities.
Control is presumed to exist when the parent owns, directly or indirectly through
its subsidiaries or affiliates, more than one-half (1/2) of the voting power of an
enterprise unless, in exceptional circumstances, it can clearly be demonstrated
that such ownership does not constitute control. Control also exists even when
the parent owns one-half (1/2) or less of the voting power of an enterprise when
there is power:

1. over more than one-half (1/2) of the voting rights by virtue of an agreement
with investors;

2. to direct or govern the financial and operating policies of the enterprise under
a statute or an agreement;

3. to appoint or remove the majority of the members of the board of directors or
equivalent governing body; or

4. to cast the majority votes at meetings of the board of directors or equivalent
governing body.

g. Customer - refers to a Person who purchases Natural Gas for resale or final use;

h. Department of Energy or “DOE” - refers to the government agency created
pursuant to Republic Act No. 7638;

i. Deregulation - refers to the removal of Government price control;

Distrib tion Pipeline — refers to a pipeline that forms part of a Distribution System
i ding the Spur lines;

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k. Distribution System - refers generally to the pipeline and its related facilities used to
transport Natural Gas extending between the last delivery points of the
Transmission System to the last connection point to the Customer;

|. Downstream Natural Gas Facility - means the facilities referred to in Rule 6
including the pipeline and its related facilities used to transport Indigenous Natural
Gas after the point of sale up to the last connection point to the Customers;

m. Energy Regulatory Commission or “ERC” — refers to the regulatory agency created
by RA 9136;

n. Financial Closing — means generally to the stage of negotiation where a legally
binding financial commitment actually exists to provide funding for a Project and all
conditions have already been met to permit the mobilization of funds;

o. Force Majeure - means any event or circumstance not within the reasonable
control of a party including, without limiting the generality of the nature of those
events or circumstances, any of the following events or circumstances:

1. acts of God including earthquakes, floods, washouts, landslides, lightning,
storms and similar causes;

2. strikes, lockouts, or other industrial disturbances;

3. inability to access land or the inability to use land due to latent or soil
conditions;

4. acts of the enemy, terrorists, wars, blockades or insurrections, riots and other
civil disturbances;

5. fire or explosion including radioactive and toxic explosions;
6. epidemic or quarantine;

7. order of any court or tribunal or the order, act, or omission or failure to act of
any government or governmental authority having jurisdiction; and

8. failure of Government Agencies to act and/or issue the necessary permits or
clearances, without fault of the Operator.

p. Franchise - refers to the right, privilege and authority issued by Congress in favor
of any Person to engage in the transmission or distribution of Natural Gas;

q. Gas Sales and Purchase Agreement or “GSPA’” - refers to a contract or agreement
for the delivery and sale of Indigenous Natural Gas or imported Natural Gas by and
between seller and buyer;

r. Goverriment Agency — refers to any government or governmental, semi-
rnmental, administrative, monetary, fiscal or judicial body, department,

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aa.

bb.

cc.

commission, authority, tribunal, agency or entity, and any bureau of the Republic of
the Philippines;

Importer - refers to any Person registered with the DOE and engaged to import
LNG into the Philippines;

Importer and Supplier Accreditation Guideline — refers to the Guideline issued by
the DOE under Section 3 (b) of Rule 6 of this Circular and attached hereto as
Annex C;

Indigenous Natural Gas — means Natural Gas produced from fields within the
entitlement or territorial jurisdiction of the Republic of the Philippines;

Insurance - refers generally to a risk-transfer mechanism that ensures full or partial
financial compensation for the loss or damage caused by event(s) beyond the
control of the insured party wherein, compensation is normally proportionate to the
loss incurred;

. Landed Cost — refers to the cost of imported LNG upon delivery to the Philippines,

which consist generally of the total of FOB, insurance, freight cost, currency
conversion, custom duties, taxes, port related fees and other applicable fees;

Liquefied Natural Gas or “LNG” - refers to Natural Gas which has been liquefied by
cooling at a cryogenic temperature;

Maritime Agencies — refers to Government Agencies having jurisdiction over the
administration of maritime related matters;

Natural Gas - refers to gas obtained from boreholes and wells consisting primarily
of a mixture of methane, ethane, propane and butane with small amounts of
heavier hydrocarbons and some impurities, notably nitrogen and complex sulphur
compounds and water, carbon dioxide and hydrogen sulphide which may exist in
the feed gas but are removed before liquefaction;

Operator — refers to a natural or juridical Person who is granted a Permit by the
DOE to engage in the siting, design, construction, expansion, rehabilitation,
modification, operation and maintenance of Natural Gas Facilities;

Operator and Facility Registry and Reportorial Requirements Guideline — refers to
the Guideline issued by the DOE under Section 3 (b) of Rule 6 of this Circular and
attached hereto as Annex B;

Parent Corporation — refers to the respective controlling corporation of each of the
shareholders of the Applicant;

. Person — refers to a natural person or a juridical entity such as a partnership, joint

venture, asSociation, corporation, or a Government Agency;

it— means a permit referred to under Section 1 of Rule 6;

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ff.

Permit Application Guideline — refers to the guideline issued by the DOE under
Section 1 of Rule 6 of this Circular and attached hereto as Annex A;

gg. Petroleum Service Contractor — refers to a holder of a Petroleum Service Contract

hh.

ij.

kk.

nn.

oo.

pp.

duly issued by the DOE pursuant to PD 87, as amended;

Philippine and Internationally Accepted Standards — refers to those internationally
recognized practices, methods and acts which would ordinarily be expected from
an experienced and competent operator of Natural Gas Facilities in the Philippines
under comparable conditions and consistent with applicable laws in the Philippines
at the relevant time;

Philippine Downstream Natural Gas Industry Value Chain or “PDNGI” Value Chain
— refers to the Downstream Natural Gas Facilities and the operations or activities
related thereto which involve LNG importation, storage, regasification, transmission
and distribution to Customers including the pipeline and its related facilities used to
transport Indigenous Natural Gas and the operations or activities related thereto
after the point of sale up to the last connection point to the Customers;

Pipeline — means Transmission Pipeline or Distribution Pipeline;

Project — refers to the siting, design, construction, expansion, rehabilitation,
modification, operation and maintenance of any Downstream Natural Gas Facility
of the PDNGI Value Chain;

Public Utility — refers to a business or service engaged in regularly supplying the
public with some commodity or service of public consequence which cannot be
denied to anyone who is willing to pay for it or as may be defined as such by
applicable Philippine law and jurisprudence;

. Supplier - refers to any Person registered with the DOE and engaged to trade and

supply Natural Gas to Customers;

Tariff - refers to the payment on the utilization of the capacity and use of other
services offered by the Operator of the LNG-related facilities, Transmission System
and Distribution System;

Third Party Access or “TPA” - means a transparent and non-discriminatory access
and utilization by third party users of the excess capacity and other services offered
by the Operator of the LNG Terminal, Transmission System and Distribution
System subject to defined governing rules, terms and conditions;

Tolling Fee — is composed of (1) capacity payments, (2) operating expenses, (3)
taxes, and (4) other incidental costs used for receiving, storage and regasification
of LNG into Natural Gas form usable as fuel and its delivery to the Customer or
buyer;

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rr. Transshipment — refers to the act of taking cargo out of one ship and loading it in
another, or the transfer of goods from the vessel stipulated in the freight contract to
another vessel, before the place of destination named in the contract has been
reached; and

ss. Transmission Pipeline — refers to pipeline that forms part of a Transmission
System.

PART Il
COVERED FACILITY
RULE 5. DOWNSTREAM NATURAL GAS FACILITY

This Circular shall cover the regulation of the following facilities of the PDNGI Value
Chain.

Section 1. LNG Terminal

a. Jetty and Unloading/Loading arms;

b. Cryogenic Pipelines;

c. Storage Tanks;

d. Send out system;

e. Low and High Pressure Pumps;

f. Boil-Off Gas (BOG) compressors and re-condensers;
g. Vaporizers;

h. Metering; and

i. Other relevant components.

Section 2. Pipelines

a. Transmission;

b. Distribution (including Spur lines); and

c. Other relevant components.

Section 3. Transmission and/or Distribution-Related Facilities

a. Processing plants;

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b. Facilities for pipeline interconnections and metering;

c. Natural Gas Refilling Stations; and

d. Other relevant components.

Section 4. Indigenous Natural Gas Facility

This Circular shall cover the regulation of pipelines and their related facilities used to

transport Indigenous Natural Gas after the point of sale up to the last connection point
to the Customers

PART Ill
REGULATIONS AND STANDARDS
RULE 6. PERMITS
No Person, natural or juridical, shall construct, expand, rehabilitate, modify, operate or
maintain a Downstream Natural Gas Facility unless that Person is authorized to do so
by a Permit issued under this Circular.

Section 1. Permits

For purposes of this Circular, the following Permits shall be issued in accordance with
the Permit Application Guideline:

a. Notice to Proceed (NTP);

b. Permit to Construct, Expand, Rehabilitate, Modify (PCERM); and

c. Permit to Operate and Maintain (POM).
Section 1.1 Guiding Principles for Evaluation
In order to meet the PDNGI Value Chain development, the DOE shall utilize a
specific method of accepting applications for Project with due consideration for
objectivity and transparency in the conduct of evaluation, recommendation and

issuance of Permits.

The DNG-REC will recommend the issuance of Permits, for the approval of the
Secretary, after compliance to the following considerations:

a. The proposed Project is consistent with the declaration of policies in this
Circular; ~~

b. The Applicant has complied with the complete submission of the legal, technical
nd financial documentations as set out in the Permit Application Guideline;

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c. The proposed Project shall be technically and financially viable by ensuring,
among others, that there is:

1. sufficient market for Natural Gas to justify the construction of the
Downstream Natural Gas Facility;

2. sufficient supply of imported LNG or Indigenous Natural Gas; and

3. clear source of funding for the construction, expansion, rehabilitation,
modification, operation and maintenance of the proposed Natural Gas
Facility.

d. The proposed Project shall not result to any Anti-Competitive Act.
Section 1.2 Periods and Application Procedures for the Issuance of Permit

The periods and application procedures for the issuance of Permits are provided
for in guideline no. 6 of the Permit Application Guideline.

Request for any extension on the periods granted for NTP and PCERM shall be
allowed by the DNG-REC with the approval of the DOE Secretary but only in case
of Force Majeure subject to the following conditions:

a. That the Operator shall notify the DNG-REC in writing, with details and proof of
the existence of the cause of the force majeure and the actions taken to resolve
it, within thirty (30) days from the knowledge of its existence or occurrence; and

b. That the Operator satisfies the DNG-REC and the DOE Secretary of its
proposed work program and funding commitments to warrant the extension.

The Operator shall then be given an extended period equivalent to the approved
amended work program supporting the extension.

Section 1.3 Modification

The DNG-REC may recommend, for the approval of the DOE Secretary, the
modification of any condition of any Permit upon application by the Operator but
subject to applicable provisions of this Circular and its annexed guidelines.

Section 2. Natural Gas Supply

a. The existing Philippine laws and rules governing the Upstream Natural Gas Sector
allow the Government the option to sell directly or otherwise authorize a petroleum
service contractor to sell its share in the production of Indigenous Natural Gas. For
this purpose, the DOE Secretary or his/her authorized representative may consider
the evaluatior’ and recommendation of the joint Upstream Conventional Resource

and the subsequent approval of the gas sale and purchase agreement; and

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b. The Operator of the LNG Terminal shall ensure the accommodation of both
Liquefied Indigenous Natural Gas and imported Liquefied Natural Gas. The DOE
shall support and ensure the implementation of any plans to upgrade the terminal
and its ancillary facilities into a hub for international trading and Transshipment.

Section 3. Accreditation, Registry and Reportorial Requirements of PDNGI Value
Chain Participants

a. Importer and supplier complying with the Importer and Supplier Accreditation
Guideline shall be issued an Accreditation Certificate (LNG-IAC) and shall be
qualified thereafter to apply with the OIMB for the issuance of an
Acknowledgement to Import LNG (ATI-LNG) and Acknowledgement to Supply and
Transport Natural Gas (AST-NG) consistent to the application; and

b. The Operators, their facilities and activities shall be registered and the required
reportorial requirements shall be submitted to the OIMB for proper supervision and
monitoring in accordance with the Operator and Facility Registry and Reportorial
Requirements Guideline.

Section 4. Application Fee

The Applicant shall pay the DOE a non-refundable fee for the processing and
evaluation of its application as provided in the latest DOE Approved Schedule of Fees
and Charges.

Section 5. Confidential Information

The DOE shall not use confidential or commercially sensitive information for purposes
other than those provided herein and shall protect and limit the disclosure of
confidential or commercially sensitive information unless allowed by the Operator: or
when required by law, rules and regulations.

Section 6. Rules of Practice

Any legal proceeding relative to the application, interpretation and implementation of
this PDNGR before the DOE shall be in accordance to the Department Circular No.
DC2002-07-004, otherwise known as the Rules of Practice and Procedure before the
Department of Energy. The Rules of Court shall apply in suppletory manner.

Rule 7. FRANCHISE REQUIREMENT

Section 1. Transmission and Distribution Pipeline as Public Utility

Transmission and/or Distribution Pipelines functioning as Public Utility shall require a
congressional franchise and certificate of public necessity and convenience or similar
ive authorization.

.*

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Section 2. Public Utility Pipeline Service Pricing

The DOE in coordination with ERC shall be responsible in the fixing and regulating of
rates or schedule of prices for the use of Transmission and/or Distribution Pipelines
functioning as Public Utility. The principle of full recovery of prudent and reasonable
costs incurred, including a reasonable return on rate base that is consistent with the
encouragement of private investment and goal of developing the PONGI Value Chain,
or such other principles that will promote the determination of just and reasonable
rates shall be applied.

Section 3. Ownership Requirement of a Public Utility

A Congressional Franchise as a Public Utility must only be granted to Persons
complying with Article XII, Section 11 of the 1987 Philippine Constitution.

Rule 8. THIRD PARTY ACCESS

Section 1. Third Party Access Guiding Principles

Excess Capacity of the LNG Terminal, Transmission System, Distribution System and
other services offered by the Operator shall be available on a transparent and non-
discriminatory access by third party users.

The TPA guidelines to be subsequently issued by the DOE shall be based on the
following principles:

a. Encourages competition which drives efficiencies and lowers costs and price to
consumer;

b. Supports foreign and local investments in energy supply and infrastructure which is
otherwise prevented by actions of incumbent monopolistic companies;

c. Promotes diverse and sustainable sources of energy and enhance security of
supply;

d. Introduces safe and measurable standards of service and practices;

e. The Operator shall comply with an open and sufficient consultation process on both
existing and potential third party users to discuss the available excess capacity and
other available services; and

f. For the purpose of ensuring transparency, the Operator shall comply with the
release and publication of the access terms and conditions;

Section 2. Available Excess Capacity

Third P Access obligations shall apply to the available and uncommitted excess
ity of the LNG Terminal, Transmission System and Distribution System.

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To ensure safe and reliable operation, the Operator shall determine, subject to the
review and recommendation of the DNG-REC and approval of the DOE Secretary, the
maximum and excess capacity of the Natural Gas Facilities offered to third parties.
The Operator shall allocate such excess capacity based on, but not limited to, the
following criteria as they pertain to the Third Party User:

a. Proposed contract price and terms;

b. Credit-worthiness;

c. Existence of off-take facility; and

d. Ability to meet fuel specification parameters of the LNG facility.

Non- availment by any Third Party User of the excess capacity so allocated and
offered shall not be a ground for the denial or cancellation of any Permit under this
Circular.

Section 3. Infrastructure Development Period

a. To encourage initial capital investment in new infrastructure that is critical for
developing a viable Downstream Natural Gas Industry, an_ Infrastructure
Development Period shall be considered and determined, during which the
Operator shall be exempted from Third Party Access; and

b. This provision shall also apply to significant increases of capacity in existing
Natural Gas Facilities and to any modification of such facilities to enable the
development of new sources of gas supply and new gas markets. The exemption
may cover all or parts of the new Natural Gas Facility, the existing facilities with
significantly increased capacity or the modification of the existing facilities.

Rule 9. PROMOTION OF COMPETITION AND NATURAL GAS RETAIL PRICING
Section 1. Guiding Principle

a. The commercial operations of the activities in the PNRI shall be competitive,
transparent and primarily governed by market forces;

b. Agreements, decisions and concerted practices by a Person or Persons to fix
prices and/or fix output are prohibited;

c. Other practices and/or conduct by a Person or Persons that undermine, restrict or
distort competition are likewise prohibited; and

t with the applicable provisions of laws, findings and recommendations of
ilippine Competition Commission (PCC), the DOE Secretary shall adopt
asures and/or corresponding remedies to maintain competition.

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Section 2. Cross-Ownership

Cross-ownership from the Natural Gas Facilities, their operations, importation and
supply of Natural Gas to Customers, shall be allowed for operational and financial
feasibility considerations. In all cases, the State shall apply the provisions of this
Circular and other applicable laws and regulations concerning the ownership and
operation of businesses affected with public interest and prohibition of monopolies and
combinations in restraint of trade.

Section 3. Natural Gas Retail Pricing

The retail price of Natural Gas converted from LNG shall be deregulated, except
operation of facility considered as Public Utility, but shall be unbundled to the extent of
reflecting the following basic pricing components: (1) Landed Cost of the Natural Gas
and (2) Tolling Fee.

Rule 10. STANDARDS OF FACILITY, PRODUCT AND SAFETY PRACTICE

A. FACILITY
Section 1. Standards

Downstream Natural Gas Facilities must be predicated on their high quality and
efficient service, stringent safety systems and overall attention to detail in design, solid
construction and best operational practices. Regulations shall focus on its consistency
to both applicable Philippine and Internationally Accepted Standards in the Natural
Gas industry.

Section 2. Critical Safety Conditions of the LNG Ships

a. The Operator of the LNG Terminal and the Maritime Agencies shall require a
certification from the LNG vessel operator that the LNG vessel design,
construction, and operations complied with international standards and codes
relating to fitness to travel, hull requirements, cargo containment,
pressure/temperature controls, safety systems, fire protection, and crew training,
among other issues.

Marine quality assurance for LNG carriers is provided through the process of
vetting, which assesses ship quality against a known standard to determine its
acceptance for use. Vetting is conducted by shipping companies using employees
or independent contractors on their own ships as well as chartered ships;

b. LNG ship unloading to the LNG receiving facility shall be equipped with redundant
safety Systag-on emergency shutdown, quick release, containment and rescue;

and
we

c. Ship ust have a comprehensive security plan which shall provide preventive,
detéction, alert and rescue system.

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Section 3. Critical Safety Conditions of the Facility

Generally, multiple layers of protection are created by critical safety conditions, all of
which are integrated with a combination of industry standards and regulatory
compliance. Industry standards are written to guide industry and enable public officials
to efficiently evaluate safety, security, and environmental impacts of LNG facilities.
Regulatory compliance should ensure transparency and accountability in the public
domain.

The following requirements for primary containment, secondary containment,
safeguard systems, separation distance, industry standards/regulatory compliance,
operational safety and accident, damage and discontinuation of operation standards,
shall be applied across the PDNGI Value Chain, from production, liquefaction, and
shipping, to storage and re-gasification:

a. Primary Containment

Employing suitable materials for storage tanks and other equipment and
appropriate engineering design throughout the PDNGI Value Chain is the most
important safety requirement for the industry in order to contain the LNG.

b. Secondary Containment

This second layer of protection ensures that if leaks or spills occur, the LNG can be
contained and isolated. For onshore installations, dikes and berms should surround
liquid storage tanks to capture the product in case of a spill. In some installations, a
reinforced concrete tank should surround the inner tank that normally holds the
LNG. Secondary containment systems are designed to exceed the volume of the
storage tank. Double and full containment systems for onshore storage tanks may
eliminate the need for dikes and berms.

c. Safeguard Systems

In the third layer of protection, the goal is to minimize the release of LNG and
mitigate the effects in case of a release. At this level of safety protection, LNG
operations use systems such as gas, liquid and fire detection to rapidly identify any
breach in containment including use of remote and automatic shut off systems to
minimize leaks and spills in case of failures. Operational systems (procedures,
training and emergency response) supplement in the prevention and mitigation of
hazards. Regular maintenance of these systems is vital to ensure their reliability.

d. Separation Distance

Regulations have always required that LNG facilities be sited at a safe distance
from adjacent industrial, communities and other public areas. Safety zones are to
be established by the Operator around LNG ships while underway in Philippine
waters afd while moored. The safe distances or exclusion zones are based on
LNG /vapor dispersion data, and thermal radiation contours and _ other
considerations as specified in regulations used by the Operator.

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e.

Industry Standards/Regulatory Compliance

No systems are complete without appropriate operating and maintenance
procedures being in place and with insurance that these are adhered to, and that
the relevant personnel are appropriately trained. Organizations such as the Society
of International Gas Tanker and Terminal Operators (SIGTTO), Gas Processors
Association (GPA) and National Fire Protection Association (NFPA) produce
guidance which comes from industry best practices.

Safety Standard

In order to maintain HSSE best practices, policies and regulations in the operation
of the Natural Gas Facility, all operators shall comply with the Philippine and
Internationally Accepted Safety Standards and best practices on areas of design
and construction, management system, operation system, maintenance system,
personnel development and training community health and safety preparedness
and emergency response.

Accident, Damage and Discontinuation of Operations

Should there be an accident, damage or discharges of Natural Gas or hazardous
materials or substances from the Natural Gas Facility, the Operator, in addition to
the obligations stated above, shall promptly inform the DOE Secretary, DNG-REC
Chair and the Director of the Oil Industry Management Bureau (OIMB), and submit
a preliminary report to the DOE within forty eight (48) hours containing relevant
information on the initial assessment of the incident and the emergency response
taken.

Within seven (7) days from the submission of the preliminary report, the Operator
shall submit a comprehensive and detailed report to the DOE Secretary, DNG-REC
Chair and the Director of OIMB and the members of the PIA-HSSE-IMT containing
its official findings on the damage to the Natural Gas Facility and its corresponding
environment and all other relevant information on the steps taken to resolve and
address the cause of the incident.

Should the Operator and the DOE, in coordination with the PIA-HSSE-IMT,
determine that a condition exists in any segment of the Natural Gas Facility which
may endanger life or property, the affected segment or facility shall be taken out of
operation and proper remedial action shall be taken to prevent further damage and
apply subsequent repair or replacement measures. In all these stages, the
Operator shall submit a complete report and documentation to the DOE.

Section 4. Critical Safety Conditions of the Pipelines and the Transmission

and/or Distribution Related Facilities

ion to the compliance requirement of the safety conditions under Section 3 of
0, the following conditions shall further apply:

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Impact on Public Infrastructure

The Operator shall ensure technical and regulatory compatibility to that of other
public infrastructures with proper consultation, coordination and permitting done
with other Government Agencies responsible for any bridges, roads, harbors,
streams, rivers and coastal waterways that will be affected by the Pipeline projects.

. Pipeline Testing

No Pipeline testing shall be done without the presence and proper coordination
with the DNG-REC in coordination with PIA-HHSE-IMT.

All certificates for hydrostatic tests referred to in this section and all radiographs or
ultrasonic testing results of pipeline welds shall at all times be readily available to a
DOE inspector or its authorized representative and shall not be destroyed or
otherwise disposed of except with the permission in writing from the DOE.

Signage

In the interest of public safety and welfare, signs or markers shall be erected and
maintained in strategic locations. Operator shall advise concerned local
government units (LGUs) and appropriate government agencies about :the
existence of the pipeline related facilities within their respective jurisdiction and
shall provide such LGUs and appropriate government agencies detailed maps of
their Pipeline routes.

B. PRODUCT

Section 1. Quality

The Operator shall maintain the quality of gas supply to Customers in accordance with
the Philippine or Internationally Accepted Standards and ensure that delivery of
Indigenous or imported LNG must always pass the purification requirements from
associated compounds unnecessary or damaging to the LNG regasification facility.

Section 2. Measurement of Natural Gas

Unless otherwise approved by the DOE, the Natural Gas will be measured according
to the relevant standards as developed and maintained by the Organization for
Standardization (ISO) and in particular:

a.

The volume of Natural Gas will be measured in cubic meters under standard
conditions specified in Section 3 below and all reporting will be in units of standard
cubic meter (SCM);-and

The aa of Natural Gas will be measured in Joules and all reporting will

be in joules (J) with a quantity prefix, such as megajoules (MJ), terajoules (TJ),
petajoules (PJ), etc., as appropriate.

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Section 3. Standard Conditions

Standard conditions for the purpose of this Circular shall mean the conditions of
Natural Gas at a temperature of 15.5 degrees Celsius (°C) (288.15°Kelvin) and an
absolute pressure of 0.101325 megapascals (Mpa) or 1013.25 millibars.

C. SAFETY PRACTICE

Submission of HSSE Management Systems, management and employee structure,
manpower complement, qualification and competency / training development program
and mitigation plans to address the risks at ALARP levels in the following areas:

a.

b.

Environmental Risk Assessment and Management Plan;
Occupational Health and Safety Risk Assessment and Management Plan;

Facility Security Risk Assessment and Management Plan; and

. Disaster/ Emergency Preparedness and Response Plan.

RULE 11. RESPONSIBILITIES OF THE OPERATOR

Align all its goals and objectives to the accomplishment of the declared policies of
this Circular;

. Be directly responsible for the construction and operation by providing the

necessary services, technology and financing, either by itself or through its duly
authorized subcontractors, without entitlement from the Philippine Government to
any reimbursement of any expense incurred;

Comply with applicable Philippine laws and regulations relating to tax, labor, health,
safety, indigenous people's rights, environment and specially protected areas and
ecology;

Comply with the regulatory obligations, maintenance of complete records and
submission of all reportorial requirements and other documents as maybe required
by the DOE under the authority of this Circular and its implementing Guidelines;

Implement the Natural Gas Facility strictly adhering to the scope and limits of the
Permit and Operate in accordance to the Philippine and Internationally Accepted
Standards;

Provide Insurance Policy pursuant to Section 1 of Rule 15;

Submit an abandonment plan and establish a corresponding sinking fund pursuant
to Section 2 of Rule 15;

Abide by the requirements of assignment or transfer of interest pursuant to Section
ule 15;

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Facilitate the necessary preparations based on a valid order, and allow examiners
of the Bureau of Internal Revenue and Bureau of Customs entry, to the facility
premises and full access to accounts, books, and records for tax and other fiscal
purposes, in accordance with BIR and Customs rules and procedures;

Facilitate the necessary preparations, based on a valid order, and allow DOE, PIA-
HSSE IMT and other Government Agencies, entry to facility premises and full
access to operational records for inspection and monitoring activities in accordance
with the rules and procedures of such government agencies;

Give preference to qualified local talents for hiring and local companies/agencies in
entering into subcontracts on projects or services which are required in the
constructions or operations;

Hold the DOE, its officers and employees, and PIA-HSSE IMT free from all claims,
demands or actions arising out of its failure to comply with laws, regulations,
standards, contracts, and permits in connection but not limited to accidents,
damages or injuries; and

. Participate in regular operational meeting with the DNG-REC and in the

development, issuance and review of plans, protocols, standards and codes
applicable to the Natural Gas Facility.

RULE 12. DOWNSTREAM NATURAL GAS REVIEW AND EVALUATION
COMMITTEE

This Circular authorizes the creation of a Downstream Natural Gas Review and
Evaluation Committee (DNG-REC) which shall perform the following functions:

a.

Examines, evaluates, and reviews the legal, technical and financial capabilities of
Applicants and recommends to the Secretary the issuance of Downstream Natural
Gas Permits, namely NTP, PCERMs and POMs;

Recommends to the Secretary the issuance of directives to qualified Government
Agencies in their capacities as investing arms to spearhead the development of the
PDNGI Value Chain in case it is imperative to catalyze its development within the
timeline given;

Recommends to the Secretary the issuance of standards and policies on facility,
product and practice to ensure safety, quality, efficiency and economy;

Supervises and monitors the progress of construction and operation of
Downstream Natural Gas Facilities and authorizes conduct of inspection and
monitoring activities in coordination with the Philippine Inter-Agency Health, Safety,
Security and Environment Inspection and Monitoring Team (PIA-HSSE IMT);

Permits, policies and programs endorsed for the Secretary's execution and

, Peri p any inquiry that maybe raised by the Secretary in connection to the

appfoval:;

of

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f. Recommends for approval of the Secretary and in coordination with the ERC the
applicable rates or schedule of prices for the use of Transmission and/or
Distribution Pipelines;

g. Resolves issues in relation to the legal, technical and financial Capabilities of
Applicants; and

h. Implements all other necessary measures allowed under existing laws, rules and
regulations.

PART IV

TRANSITORY PROVISIONS
RULE 13. EXISTING SYSTEMS

Natural Gas Facilities that have been constructed prior to the Effectivity of this Circular
shall continue to be operated under their existing Permits and comply with additional
requirements, if applicable, under this Circular.

Suppliers who have entered into GSPAs with Customers and have delivered
Indigenous Natural Gas or imported Natural Gas prior to the Effectivity of this Circular
shall continue to operate under said contracts subject to compliance to the additional
requirements in this Circular.

RULE 14. PENDING APPLICATIONS

All pending applications under the PDNGI Value Chain before the DOE shall be
covered by this Circular.

PART V

FINAL PROVISIONS

RULE 15. INSURANCE, ABANDONEMENT AND DECOMMISSIONING AND
ASSIGNMENT OF INTEREST

Section 1. Insurance

The Operator shall secure an Insurance policy to be provided to the DOE within sixty

(60) days from date of issuance of PCERM and POM, respectively, to adequately

cover/answer any identified potential damage to the environment, lives and/or

property, in-accordance with existing laws, rules and regulations based on the

environméntal (land, air, water and people) impact identification, prevention and

mitigation assessment and the seismic, geologic, oceanographic, atmospheric and
va

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