Villaraza Cruz Marcelo & Angangco

BIOFUELS ACT OF 2006

On 12 January 2007, President Gloria Macapagal-Arroyo signed into law Republic Act No. 9367, otherwise known as the “Biofuels Act of 2006”. The law was published in newspapers of general circulation on 22 January 2007 and took effect fifteen (15) days from such publication or on 06 February 2007.

The Biofuels Act of 2006 mandates that all liquid fuels for motors and engines sold in the Philippines shall contain locally-sourced biofuels components. Within three (3) months from the effectivity of the law, a minimum of 1% biodiesel by volume should be blended into all diesel engine fuels sold in the country and within two (2) years from the effectivity of the law, at least 5% bioethanol should comprise the total volume of gasoline fuel actually sold and distributed by every oil company in the Philippines.

To encourage investments in the production, distribution and use of locally-produced biofuels and the minimum mandated blends, the Biofuels Act of 2006 also provides for the following incentives, without prejudice to any applicable incentives and benefits under existing laws, rules and regulations:

Specific tax on local or imported biofuel component has been reduced to zero (0); The sale of raw material used in the production of biofuels is now exempt from payment of value-added tax; All water effluents used as liquid fertilizer and for other agri-purposes Are considered “reuse” and therefore exempt from wastewater charges; and Government Financial Institutions are mandated to accord high priority to extend financing to Filipino citizens or entities, at least 60% of the capital of which belongs to Philippine citizens, that shall engage in activities involving production, storage, handling and transport of biofuel, biofuel feedstock, including the blending of biofuels with petroleum. The Biofuels Act of 2006 also provides for the creation of the National Biofuel Board (“NBB”), which shall be comprised of the Secretary of the Department of Energy (“DOE”) as Chairman and the Secretaries of the Department of Trade and Industry, Department of Science and Technology, Department of Agriculture, Department of Finance and Department of Labor and Employment, and the administrators of the Philippine Coconut Administration and the Sugar Regulatory Administration, as members. The NBB is tasked to among others, monitor, implement and evaluate the National Biofuel Program to be prepared by the DOE, as well as to monitor the supply and utilization of biofuels and biofuel blends and recommend measures in case of shortage of the same.

The following acts are prohibited under the Biofuels Act of 2006, and commission of the same will make the violator liable for imprisonment, fine, confiscation of products, stoppage and suspension of business and/or administrative fines and penalties:

Diversion of biofuels (local or imported) to purposes other than those envisioned under the Biofuels Act of 2006; Sale of biofuel-blended gasoline or diesel that fails to comply with the minimum blend by volume; Distribution, sale and use of automotive fuel containing harmful additives at such concentration exceeding limits to be determined by the NBB; Non-compliance with established guidelines of the Philippine National Standard and the DOE adopted for the implementation of the Biofuels Act of 2006; and False labeling of gasoline, diesel, biofuels and biofuel-blended gasoline and diesel. The Biofuels Act of 2006 also expressly repealed Section 148 (d) of the Tax Reform Act of 1997 imposing excise tax on denatured alcohol.