PHILIPPINES: An Introduction to Projects, Infrastructure & Energy

Projects, Infrastructure and Energy Under Philippine Law

Throughout 2023, the Philippines has seen a steady increase in economic activity and foreign direct investment, a significant portion of which can be attributed to the relaxation of foreign ownership limitations in leading industries as a result of the recent amendment of the Public Service Act. As the country gears toward closing the year strong, both legislators and regulatory agencies are looking ahead and aiming to develop measures that will continue to spur sustainable economic growth in the country, for the betterment of Filipinos and investors alike.

Infrastructure flagship projects 

In June 2023, the Bangko Sentral ng Pilipinas (BSP – the country’s central bank) published a feature on the Infrastructure Flagship Projects (IFPs) for 2023 and beyond, highlighting the various priority infrastructure projects under the “Build Better More” programme of President Ferdinand Marcos, Jr., with a total estimated cost of USD150.9 billion. The IFPs identified by the BSP span a wide range of projects, including health infrastructure; agriculture; physical connectivity/transportation; water; digital connectivity; and power and energy.

The IFPs include:

- the construction or expansion of major expressways, including the North Luzon Expressway, the South Luzon Expressway, the Cavite-Laguna Expressway, the Southeast Metro Manila Expressway and the C5 South Link Expressway);

- the operation and maintenance of the Metro Manila Subway Project;

- the establishment of the Subic Clark Railway and North-South Commuter Railway System; and

- the improved operation and maintenance of the Ninoy Aquino International Airport via the mode of solicited public-private partnership.

This collection of major projects seeks to address urgent infrastructure needs of national significance, and will ensure steady economic growth under this administration and beyond.

Investment opportunities in renewable energy

In line with the issuance of Department Circular (DC) No 2022-11-0034 issued by the Department of Energy (DOE), which removed the restriction for a Renewable Energy (RE) Service/Operating Contract to be awarded only to Filipinos or corporations at least 60% owned by Filipinos, the Philippines has seen a steady uptick of foreign investors looking to establish their presence in the Philippine market in order to secure RE contracts with the DOE.

Under Philippine law, RE developers must obtain an RE contract with the government through the DOE in order to have the exclusive right to explore, develop or utilise a particular RE area. The RE contract is a service agreement between the government, through the President or the DOE, and the RE developer for an appropriate period during which the RE developer shall have the exclusive right to explore, develop or utilise a particular RE area.

The relevant RE contracts include the Wind Energy Service Contract and the Solar Energy Operating Contract for RE projects utilising wind energy and solar energy, respectively.

Recent trends in energy  

Rooftop solar  

Rooftop solar has emerged as a popular choice for both commercial and residential consumers, pursuant to which the DOE has begun preparation of draft rules to govern the country’s Expanded Roof-Mounted Solar Programme (ERSP) (the “Draft ERSP Rules”). The Draft ERSP Rules seek to prescribe guidelines for all roof-mounted solar energy generating facilities with a capacity above 100 kWp, for own use consumption and/or export energy to the host distribution utility (DU) or to the grid, applicable to both on-grid and off-grid areas. The Draft ERSP Rules prescribe the possible business models for Roof-Mounted Solar Facilities, and likewise impose specific obligations on interested parties (the DOE, Transmission Network Providers and DUs, among others) in relation to the implementation of the ERSP. At the time of writing, the Draft ERSP Rules have yet to be finalised and/or published for effectivity.

Offshore wind  

The DOE recently called for comments on the draft “Revised Omnibus Guidelines Governing the Award and Administration of Renewable Energy Contracts and the Registration of Renewable Energy Developers”, specifically applicable to both onshore and offshore wind energy projects (the “Draft Circular”). This is in line with DOE Department Circular No DC2023-06-0020 dated 16 June 2023, which integrated offshore wind projects within the coverage of the Energy Virtual One-Stop Shop (EVOSS) platform aimed at streamlining the service contract application and award process.

The Draft Circular generally governs the application for and award and administration of RE contracts, and extends its application to Offshore Wind Energy Service Contracts (OWESCs), which are issued and awarded by the DOE for the exploration, development and/or utilisation of wind energy in offshore areas, including estuaries and other bodies of water. The Draft Circular allows both Filipinos and foreign nationals (natural and juridical persons) to apply for OWESCs, provided that they are authorised in their articles of incorporation to engage in the exploration, development and utilisation of offshore wind resources. It also provides for the modes of awarding the OWESCs – ie, via an open and competitive selection process, or by direct application, subject to specific procedural guidelines.

Re-application and the submission of documentary requirements for OWESC applicants shall be processed through the EVOSS system, with a successful evaluation of such application leading to the issuance of a Certificate of Authority and signing of the OWESC.

Notably, for existing offshore wind projects that were in operation prior to the effectivity of the Draft Circular, the contract holder shall convert the service contract by applying for an OWESC within one year from effectivity of the Draft Circular, with the period of the OWESC being the balance of the contract term remaining under the existing and valid service/operating contract. At the time of writing, the Draft Circular has not yet been finalised.

The implementation of offshore wind projects is actively sought in this jurisdiction to make use of the country’s archipelagic geography, which is well suited to offshore wind, and also to reduce the demand for land use in view of the country’s limited land resources (most of which are dedicated to agriculture).

Electric vehicles (EVs) 

With the rise of EVs as a sustainable mode of transportation, Congress passed Republic Act No 11697 (or the “Electric Vehicle Industry Act”) to govern the manufacture, importation, trade and utilisation, and regulation of EVs, charging stations and related equipment in the Philippines. In particular, the law provides for the Comprehensive Roadmap for the EV Industry (CREVI), which is a national development plan that seeks to accelerate the development, commercialisation and utilisation of EVs, under the supervision of the DOE as the primary agency tasked with the regulation and promotion of adoption of EVs.

As a means of industry development for EVs, specific entities (including cargo logistics companies, food delivery companies and utility companies) are required to have a minimum 5% of their fleet as EVs within the timeframe indicated in the CREVI. Furthermore, private and public buildings and establishments constructed after the effectivity of the Electric Vehicle Industry Act are required to designate dedicated parking slots for the exclusive use of EVs and, as may be determined by the CREVI, to install charging stations for the dedicated parking slots. The law likewise provides for both fiscal and non-fiscal incentives for the manufacture, importation and utilisation of EVs, which includes priority Land Transportation Office registration/renewal and exemption from the number-coding scheme for EV users.

Developments in mining 

Since the lifting of the nine-year moratorium on new mineral agreements imposed in 2012, the Philippines has seen a steady rise in foreign investment interest in Financial and Technical Assistance Agreements (FTAAs) for the large-scale exploration, development and utilisation of minerals as authorised under the 1987 Constitution. Furthermore, Department of Environment and Natural Resources (DENR) Administrative Order (AO) No 2021-40 lifted the 2017 ban on the use of the open-pit method of mining for the extraction of copper, gold, silver and/or complex ores in the country. Under DENR AO No 2017-10, “open pit mining” is defined as “the process of mining any near-surface deposit by means of a surface pit excavated using one or more horizontal benches”.

Under the 1987 Constitution and the Mining Act, the types of mining agreements include Mineral Production Sharing Agreements (MPSAs) and FTAAs. An MPSA must be executed with a Filipino citizen or corporation whose capital is at least 60% Filipino-owned, while an FTAA may be signed with a 100% foreign-owned corporation. An FTAA shall have a term not exceeding 25 years from the date of execution thereof, and shall be renewable for another term under such terms and conditions as may be provided for by law and mutually agreed upon by the parties.

Corollary to an FTAA, mineral exploration is regulated by the DENR through the issuance of:

- Exploration Permits, which allow qualified persons to undertake exploration activities for mineral resources in certain areas open to mining in the country; and

- Environmental Compliance Certificates, specifically on the basis of mining projects being classified as Environmentally Critical Projects under prevailing DENR regulations.