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| Republic of the Philippines
Department of Energy
(Kagawaran ng Enerhiya)

BAGONG PILIPINAS

DEPARTMENT CIRCULAR NO. DC 2zZ5—a9- SDH

GUIDELINES FOR THE PRIORITIZATION IN THE PROCUREMENT ako
UTILIZATION OF INDIGENOUS NATURAL GAS

WHEREAS, Section 2, Article XI! of the 1987 Constitution provides that the
exploration, development, and utilization of natural resources shall be under the*full
control and supervision of the State;

WHEREAS, Republic Act (RA) No. 7638, otherwise known as the “Department of
Energy (DOE) Act of 1992,” as amended, declares it as a policy of the State to ensure
a continuous, adequate, and economic supply of energy with the end in view of
ultimately achieving self-reliance in the country’s energy requirements through the
integrated and intensive exploration, production, management, and development of
the country’s indigenous energy resources, and through the judicious conservation,
renewal and efficient utilization of energy to keep pace with the country's growth and
economic development and taking into consideration the active participation of the
private sector in the various areas of energy resource development; and to rationalize,
integrate, and coordinate the various programs of the Government towards self-
sufficiency and enhanced productivity in power and energy without sacrificing
ecological concerns;

WHEREAS, RA No. 7638, as amended, mandates the DOE, among others, to: (i)
formulate policies for the planning and implementation of a comprehensive program
for the efficient supply and economical use of energy consistent with the approved
national economic plan and with the policies on environmental protection and
conservation and maintenance of ecological balance, and provide a mechanism for
the integration, rationalization, and coordination of the various energy programs of the
Government; and (ii) develop and update annually the existing Philippine Energy Plan,
which shall provide for an integrated and comprehensive exploration, development,
utilization, distribution, and conservation of energy resources, with preferential bias for
environment-friendly, indigenous, and low-cost sources of energy;

WHEREAS, Section 2, Presidential Decree No. 87, as amended, otherwise known as
the “Oil Exploration and Development Act of 1972,” declares it to be the policy of the
State to hasten the discovery and production of indigenous petroleum through the
utilization of government and/or private resources, local and foreign, under the
arrangements embodied in this Act;

WHEREAS, RA No. 12120, or the “Philippine Natural Gas Industry Development Act,”
declares it as a policy of the State, among others, to: (i) promote and hasten the
exploration and development of indigenous natural gas resources and facilities, and
prioritize the use of indigenous over imported natural gas to help attain greater energy
security without impairment of contracts, (ii) promote the entry of investors under a
system of competition, transparency and fair trade, and by providing responsive policy
support, with the end goal of attaining low cost energy prices pursuant to RA No. 7638,
as amended, (iii) promote the role of natural gas as an additional energy source and
a transition fuel to variable renewable energy by creating a legal and regulatory

Energy Center, Rizal Drive cor. 34th Street, Bonifacio Global City, Taguig City, Philippines 1632
Tel. No. (Trunkline) (632) 8479-2900
Website: http://www.doe.gov.ph; E-mail: infocenter@doe.gov.ph

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Guidelines for the Prioritization in the Procurement and Utilization of Indigenous Natural Gas

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framework that will govern the promotion and development of the Philippine
Downstream Natural Gas Industry Act, and (iv) ensure transparent and low-cost
pricing of natural gas, including rates for its storage, regasification, transmission, and
distribution, in a regime of open and fair competition, with full public accountability that
shall promote greater operational and economic efficiency and enhanced
competitiveness in the global market;

WHEREAS, Section 23 of RA No. 12120 provides that the “xxx xxx Procurement and
utilization of indigenous natural gas, including without limitation, by gas-fired power
plants, shall be prioritized over imported natural gas: Provided, That it is consistent
with the State's policy of ensuring energy security and consumer welfare. An
indigenous natural gas supplier and aggregator shall provide fair and open access to
its natural gas supply in non-discriminatory and transparent manner through physical
supply, administrative or financial contracts, or any other arrangements allowed by the
DOE. xxx xxx;”

WHEREAS, Section 17 of RA No. 12120 mandates the DOE to “determine and
designate the aggregator/s and issue the applicable policies to implement
aggregation, adhering to the principles of economies of scale, as well as energy
transparency, competitive pricing, security and reliability, and consumer welfare. xxx,”

WHEREAS, there is a need to establish a clear framework to ensure the prioritization
of indigenous natural gas through competitive, market driven pricing, while continuing
to attract imported natural gas as a viable business investment in the Philippines;

NOW, THEREFORE, in consideration of the foregoing premises, the DOE hereby
issues, adopts, and promulgates the following guidelines:

Section 1. Guiding Principles on the Prioritization of Indigenous Natural Gas
Over Imported Natural Gas. — The goverment shall endeavor to provide a
conducive industry environment for the exploration, development and utilization of
indigenous natural gas, guided by the following principles:

a. Energy Security — Prioritized utilization of indigenous natural gas shall
contribute to the country’s energy security, providing a reliable local supply that
will reduce the country’s vulnerability to global disruptions and address future
energy demands;

b. Consumer Welfare — Prioritized utilization of indigenous natural gas shall
provide a secure supply of electricity, as well as other non-power applications,
minimizing costs attributed to long-distance transportation and distribution
thereby ensuring reduced prices of by-products, particularly electricity; and

c. Promotion of Exploration and Development of Indigenous Resources —
Prioritized utilization of indigenous natural gas shall promote and hasten the
exploration and development of indigenous natural gas resources and facilities
and shall help attain greater energy security without impairment of contracts.

Section 2. Procurement and Utilization of Indigenous Natural Gas. — Procurement
and utilization of indigenous natural gas, including without limitation, by gas-fired

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power plants, shall be prioritized over imported natural gas. All users of natural gas
shall first utilize available quantities of indigenous natural gas.

Purchase of imported natural gas shall be in accordance with the provisions of
Department Circular No. DC2025-04-0005, also known as the Implementing Rules
and Regulations of RA No. 12120.

Section 3. Guidelines on the Pricing of Indigenous Natural Gas. — The
procurement, delivery and pricing of natural gas from indigenous production facilities
shall be upon the agreement of the contracting parties, subject to the following
parameters:

a. The pricing formula shall include an index or indices to the international market
price of either crude oil, liquefied natural gas (LNG) and/or liquid fuel.

b. The pricing formula shall include the following mechanisms:
i. Six (6) Month Averaging of the Indices; and
ii. Quarterly Price Adjustments

When the above pricing formula results in a price for indigenous natural gas higher
than the six (6) month weighted average of the landed cost of imported liquefied
natural gas purchased from the spot market, including all relevant taxes and
regasification costs, users of natural gas shall have the option to temporarily purchase
imported liquefied natural gas, in lieu of indigenous natural gas, for a period not more
than three (3) consecutive months, subject to any contractual obligations under their
respective gas sales agreement/s. The DOE shall evaluate and review the temporary
purchase of imported liquefied natural gas with due regard to the government's share
in the production of indigenous natural gas.

Section 4. Aggregation. — Aggregation refers to the procurement of indigenous
natural gas, combining it with imported LNG, and selling the aggregated gas to gas
buyers in the Philippines or abroad, by entities known as aggregators, as determined
and designated by the DOE.

The DOE shall declare the need for aggregation and issue the necessary guidelines
to regulate the development of aggregation, the requirements to be an aggregator, the
minimum percentage of indigenous natural gas for aggregation, and the pricing
mechanism for aggregated gas.

The need for aggregation and the subsequent issuances to implement the same shall
be based on the following: (a) the availability of supply of indigenous natural gas, (b)
existing market conditions, and (c) the projected benefit to the consuming public, to
ensure reliability, efficiency, affordability, and sustainability in natural gas procurement
and distribution.

Section 5. Creation, Composition, and Functions, of the Indigenous Gas
Prioritization - Review and Evaluation Committee (IGP-REC). — These guidelines
authorize the creation of the IGP-REC, which shall be composed of the following:

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Chair : Supervising Undersecretary, Energy Resource Development
Bureau (ERDB) and Oil Industry Management Bureau
(OIMB), or as otherwise designated by the DOE Secretary

Vice Chair : Supervising Assistant Secretary, ERDB and OIMB, or as
otherwise designated by the DOE Secretary

Members : Director, ERDB
Director, OIMB

Director, Legal Services

The IGP-REC shall perform the following functions:

(a) Review and evaluate the pricing methodology adopted by supplier(s), and, if
applicable, recommend to the DOE Secretary whether such methodology is in
compliance with Section 3 hereof,

(ob) Address any clarification that may be raised by the DOE Secretary in
connection with the pricing methodology that has been reviewed and evaluated;
and

(c) Implement all other necessary measures allowed under this Department
Circular.

Section 6. IGP-REC Technical Working Group / Secretariat. — These guidelines
authorize the creation of the IGP-REC Technical Working Group / Secretariat that will
provide technical and administrative support to the IGP-REC in the discharge of its
responsibilities, which shall be composed of the following:

Head : Assistant Director, ERDB
Members : Petroleum Resources Development Division

Natural Gas Management Division
Upstream Conventional Energy Legal Services Division
Downstream Conventional Energy Legal Services Division

Section 7. Fair and Open Access. — An indigenous natural gas supplier and/or
aggregator shall provide fair and open access to its natural gas supply in a non-
discriminatory and transparent manner through physical supply, administrative or
financial contracts, or any other arrangements allowed by the DOE.

Pursuant to Section 23 of RA No. 12120, and subject to the rules that will be
promulgated on the prioritization of electricity from indigenous natural gas, an
indigenous natural gas supplier shall:

a. Offer its gas at a uniform price to all qualified or prospective gas customers.
Upon acceptance of such offer, the available gas shall be allocated on a pro-
rata basis according to the respective power generation capacities of the

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purchasing customers, under transparent and competitive terms, and with due
regard to technical and operational considerations; and

b. Provide open access to midstream infrastructure to all gas customers.

Section 8. Applicability and Transition. — Unless otherwise provided, the policy
stated herein shall apply only to the available capacities of existing indigenous natural
gas producers as of the date of the effectivity of this Circular.

Section 9. Penal Provision. — Any violation of the provisions of this Circular shall be
subject to the applicable penalties and sanctions under Section 57, Rule IX of
Department Circular No. DC2025-04-0005, also known as the Implementing Rules
and Regulations of RA No. 12120.

This is without prejudice to the authority of the Energy Regulatory Commission
pursuant to RA No. 9136, as amended, on the organization, operation, and regulation
of the power industry, and such other powers as may be conferred upon it under
applicable laws, as well as the powers of other government agencies.

Section 10. Separability. — if for any reason, any section or provision of this Circular
is declared invalid or unconstitutional, the other provisions not affected thereby shall
remain valid and subsisting.

Section 11. Repealing Clause. — All other previous issuances, rules, and regulations
inconsistent with the provisions of this Circular are likewise repealed or amended
accordingly.

Section 12. Effectivity. — This Circular shall take effect immediately upon its
publication in two (2) newspapers of general circulation or in the Official Gazette.

A copy of this Circular shall be fumished to the University of the Philippines Law
Center-Office of National Administrative Register (UPLC-ONAR).

Issued at Energy Center, Rizal Drive, Bonifacio Global City, Taguig City on

SEP { 995 2025.