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ADMINISTRATIVE ORDER NO. 59
ADMINISTRATIVE ORDER NO. 59 -
RATIONALIZING THE GOVERNMENT CORPORATE SECTOR
WHEREAS, there is need to improve the
efficiency of government-owned and controlled corporations and their
subsidiaries in order to promote economy, efficiency and effectiveness
in the delivery of public services;
WHEREAS, in the past there was an excessive proliferation of
government-owned and controlled corporations without clear delineation
of the grounds for government activities in corporate form and without
adequate supervision and control; and
WHEREAS, there was a discouragement of private initiative on account of
undue government competition, and because of the lack of oversight
mechanisms, the financial performance and productivity of government
corporations, in the aggregate, were below desirable levels.
NOW, THEREFORE, I, CORAZON C. AQUINO, President of the Philippines, by
virtue of the powers vested in me by law, do hereby order:
ARTICLE
I
General Principles and Guidelines
Section 1. Policy Orientation. — Pursuant to the
policy under existing laws to rationalize the government corporate
sector, this Administrative Order shall (1) provide the principles and
standards to be followed in the creation, management, administration,
supervision and liquidation of government-owned and controlled
corporations, (2) define the guidelines in determining the areas or
activities of government in which the corporate form shall be utilized,
and (3) set down policy measures to improve the organizational and
functional capabilities of government corporations.
Sec. 2. Definition of Terms. — As used in this
Administrative Order, the following terms shall mean:
(a) Government-owned and/or controlled corporation,
hereinafter referred to as GOCC or government corporation, is a
corporation which is created by special law or organized under the
Corporation Code in which the Government, directly or indirectly, has
ownership of the majority of the capital or has voting control;
Provided, That an acquired asset corporation as defined in the next
paragraph shall not be considered as GOCC or government
corporation.
(b) Acquired asset corporation is a corporation (1)
which is under private ownership, the voting or outstanding shares of
which (i) were conveyed to the government or to a government agency,
instrumentality or corporation in satisfaction of debts whether by
foreclosure or otherwise, or (ii) were duly acquired by the government
through final judgment in a sequestration proceeding; or (2) which is a
subsidiary of a government corporation organized exclusively to own and
manage, or lease, or operate specific physical assets acquired by a
government financial institution in satisfaction of debts incurred
therewith, and which in any case by law or by enunciated policy is
required to be disposed of to private ownership within a specified
period of time.
Sec. 3. Guidelines for Government
Participation/Intervention. — The Government may participate, intervene
in areas or activities primarily reserved for the private sector on the
basis of the following guidelines:
(a) The Government recognizes the primary role of the
private sector in undertaking desirable economic activities.
Accordingly, it shall avoid engaging in activities that are in
competition with the private sector.
(b) The Government may participate/intervene (i) when
the goods and service to be provided are vital to society and the
private sector is unwilling or unable to provide the same or expand its
capacity to meet market demand, or (ii) when intervention in free
market operations is justified by the need to create a bias in favor of
disadvantaged sectors of society.
(c) Whenever Government participation/intervention is
justified, the corporate form shall be utilized only when any of the
following conditions exist: (a) when the nature of the goods or
services to be produced or the market environment under which the
activities are to be carried out dictates a need for operations to be
undertaken under procedures less restrictive than those prescribed
standard government regulations applicable to bureaus and other regular
line agencies of Government; (b) when it is the intent to limit the
liability of Government to its direct equity exposure in the activity
or operation; or (c) when the GOCC so established is reasonably
expected to be financially self-sustaining.
Sec. 4. Provision of Adequate Operational
Flexibility. — Government corporations shall be provided with adequate
operational flexibility in order to function properly and efficiently,
especially under conditions of market competition. Such flexibility
shall nevertheless be consistent with the requirements of public
accountability.
Sec. 5. Differential Treatment. — To implement the
concept of adequate operational flexibility, GOCCs shall, subject to
existing laws, be accorded differential treatment by the various
service-wide agencies, such as the Department of Budget and Management
(DBM) and the National Economic and Development Authority (NEDA), in
the exercise of their respective powers and functions. Such agencies
shall distinguish corporate organizational and procurement practices
from those of bureaus and regular line agencies of
government.
In the formulation of differential treatment, GOCCs may be classified
into functional or sectoral groupings. For this purpose, the Government
Corporate Monitoring and Coordinating Committee (GCMCC) as
reconstituted under Executive Order No. 236 dated July 22, 1987 shall,
in consultation with the various service-wide agencies, coordinate the
classification of GOCCs according to functional and sectoral groupings.
The DBM shall, to the extent possible, observe the applicable industry
standards in the promulgation of budget circulars and regulations.
Towards this end, the DBM shall endeavor to streamline its operations
with respect to GOCCs.
The NEDA shall likewise formulate policies providing for differential
treatment for infrastructure contracts and major procurement of
equipment and the like by GOCCs, such policies to be made in the
context of comparable appropriate industry practices and
standards.
Nothing in this Section shall be construed as in any way diminishing or
limiting the responsibilities and accountabilities of GOCCs and their
respective officers.
Sec. 6. Non-Preferential Treatment. — The
Government shall observe the following policy measures and limitations,
with respect to government corporations:
(a) The Government shall see to it that government
corporations observe judicious restraint in the exercise of their
quasi-judicial, adjudicatory authority or regulatory functions,
especially in areas where they compete with the private sector, to
allow the latter to operate under a regime of less restrictions and to
encourage fair competition; except when the performance of regulatory
functions is absolutely necessary in the pursuit of the national
interest and security.
(b) To avoid undue or unfair competition, government
corporations operating in a particular sector or industry shall be
subjected to rules and regulations applicable to their private sector
counterparts.
(c) Government agencies and entities which have the
discretion to grant competitive advantages and benefits to GOCCs,
shall, as a general rule, avoid the granting of such advantages and
benefits especially to GOCCs which directly or indirectly compete with
private sector. The advantages and benefits mentioned hereof include
Government guarantees for debts incurred and special privileges such as
partial or full exemption from the payment of taxes, duties, imposts,
and other charges. This rule shall not apply when the government
corporation concerned is organized solely for cultural, educational,
civic or scientific purposes.
The above limitations shall, however, be without prejudice to the
Government providing financial assistance to government corporations in
the form of equity contributions, or loans and advances which when
extended shall preferably be under terms not more favorable than those
obtaining in the market; Provided, that the Government may grant
subsidies to GOCCs if any of the following conditions exists: (a) when
the subsidy is justified by the need to create a bias in favor of
disadvantaged sectors of society; or (b) when a fortuitous event,
although temporary in nature, will affect the operational viability of
a GOCC.
In like manner, government corporations shall not be subject to undue
constraints or limitations not imposed on their private counterparts in
their respective areas of operation.
ARTICLE
II
Guidelines for Departmental
Supervision
Sec. 7. Continuance of the Attachment Relationship
Between Corporations and Departments or Their Equivalent Bodies. — The
operational relationship between GOCCs and Departments or bodies to
which they are attached and which are responsible for overseeing them
shall be observed in accordance with the provisions of existing
laws.
Sec. 8. Departmental Supervision of Attached
Government Corporations. — When GOCCs are attached to a Department or
other equivalent bodies, the latter shall ipso facto be responsible for
ensuring that the policies and programs of such GOCCs, such as their
budgets and operations, as well as their production, financial and
other corporate targets, and disposition of profits, are consistent
with sectoral policies and programs.
All Departments and government bodies with attached GOCCs, shall:
(a) Enforce Departmental oversight of GOCCs,
particularly over those incurring losses or are unable to service their
obligations, through the examination, review and concurrence of their
operating and capital budgets, as well as to ensure compliance with
performance targets as agreed upon with the GCMCC.
(b) Conduct management audit of any GOCC reasonably
believed to have been mismanaged upon prima facie showing of such
mismanagement and take such action as may be appropriate under the
circumstances; and
(c) See to it that aspects of corporate operations in
which the Commission on Audit has significant audit findings or
opinions are looked into.
Sec. 9. Role of the Department in Corporate
Decision-Making. — The greatest possible degree of autonomy in
decision-making at the operational level shall be accorded attached
GOCCs. In implementing the attachment relationship, the role of the
Department in corporate decision-making shall be limited to: (a)
ensuring that proposed corporate plans and programs are congruent with
its own sectoral objectives and priorities; (b) determining the
implications of such proposed plans and programs on those of other
GOCCs attached to the Department; (c) reviewing the assumptions given
and calculations made in justifying the viability of such proposed
plans and programs and passing upon the targets proposed to be
achieved; (d) monitoring the operating results and financial
performance of the attached corporation on a periodic basis to ensure
that agreed targets are being faithfully pursued, without prejudice to
GCMCC's monitoring, performance evaluation and other related functions.
Sec. 10. Departmental Representation in Corporate
Governing Boards. — Unless otherwise provided by law, a Department to
which a GOCC is attached shall have a representative in the Board of
Directors of the attached GOCC to provide a two-way flow of timely,
relevant and accurate information between the Department and the
attached GOCC on all matters necessary for effectively coordinating the
plans and programs of the GOCC with the policies and objectives of the
Department.
Sec. 11. Authority/Powers of Department Secretary
Over Attached GOCCs. — To the extent consistent with existing laws, the
Secretary to whose Department a GOCC is attached shall have the
following responsibilities:
(1) Recommend to the President the appointment of the
members of the board, including the chairman;
(2) Recommend to the President the appointment of the
full-time chief executive officer of the GOCC who may come from among
the members of the board;
(3) Recommend to the President the removal and the
suspension of any member of the board of directors or Chief Executive
Officer;
(4) Set overall objectives of the GOCC by the
issuance of general guidelines to the board of directors;
(5) Require reports and data from the board of
directors or the chief executive officer regarding the GOCC's
performance;
(6) Approve the annual report, budget proposals, and
modifications of the articles of incorporation or by-laws; and
(7) Exercise such rights as are normally enjoyed by
stockholders or members of a GOCC, except that visitorial power is
limited to financial transactions of the GOCC.
The Secretary shall not, however, intervene in any particular action
taken by the board of directors, the chief executive officer, or other
subordinate personnel of the GOCC.
Sec. 12. Monitoring of Performance. — The
Department shall monitor periodically, as part of its routine
supervisory function, the operating results and financial performance
of the corporation for the purpose of insuring that both objectives and
execution of the corporate plans and programs are being effectively
pursued and implemented. For this purpose, the Department shall, among
others, require the GOCC to render periodic reports on the progress of
plans and programs, including the audit of the annual financial
statements of the GOCC as well as other types of audit examination in
appropriate cases as hereafter provided. The periodic monitoring and
performance results and the recommendations and actions taken thereon,
shall be submitted to the GCMCC as inputs for the latter's discharge of
its inter-departmental coordinative and performance evaluation function
of the GOCC operations. Such monitoring by the Department shall be
without prejudice to the GCMCC requiring data and information at such
periodic intervals as it may deem necessary for its own special
purposes.
ARTICLE
III
Inter-Departmental Coordination,
Monitoring and Evaluation of Government Corporate Operations
Sec. 13. Central Inter-Departmental Body. — The
GCMCC as reconstituted under Executive Order No. 236 shall serve as the
central inter-departmental body for all GOCCs which the President deems
should be monitored.
Sec. 14. Performance Criteria and Evaluation. —
Pursuant to Executive Order No. 236 and its implementing guidelines,
operationally meaningful financial and economic performance criteria
shall be formulated in order that corporate management may be fully
aware of the standards and targets by which their operations will be
assessed.
Such performance criteria shall include both those which are applicable
to GOCCs in general and those which are specific to each GOCC or group
of similar GOCCs and shall be translated into appropriate quantitative
multi-year performance targets which shall be agreed upon by the GCMCC,
the concerned GOCC and the Department to which the GOCC is attached.
Sec. 15. Role of Service-Wide Agencies. — All
service-wide agencies dealing with and affecting the operations of
GOCCs shall continue to exercise their respective present functions,
but shall however observe the policies and guidelines herein provided
to the extent that they are not inconsistent with their duties and
responsibilities as provided for in specific laws.
ARTICLE
IV
Proposals, Recommendations and
Studies on the Government Corporate Sector
Sec. 16. Role of the GCMCC in the Review of
Studies and Proposals Pertaining to the Government Corporate Sector. —
The GCMCC shall review and evaluate all proposals, recommendations and
studies pertaining to the government corporate sector before they are
submitted to the President. The GCMCC, in coordination with other
concerned agencies, shall take cognizance of such matters related to
the general powers of the corporation, the composition, powers and
functions of the board, the powers and functions of the chairman of the
board and the chief executive officer, including their relationship,
the basic organizational structure, borrowing powers and limitations,
standard accounting systems and other related matters. Such proposals
and recommendations, whenever feasible, shall be accomplished through
the issuance of pertinent executive orders, rules, regulations and
procedures by the concerned government agency, or whenever applicable,
by the GOCCs themselves.
To the extent practicable, the GCMCC, other government agencies, and
GOCCs shall be guided by the following principles in implementing the
provisions of this Section :
(1) Governing Boards. A GOCC shall be governed by a
Board of Directors or equivalent body composed of an appropriate number
of members to be appointed by the President of the Philippines upon the
recommendation of the Secretary to whose Department the GOCC is
attached. The Chairman of the board shall likewise be appointed by the
President upon the recommendation of the Secretary.
(2) Powers and Functions of the Board. Insofar as it
is not inconsistent with the charter of a given GOCC, the Board of
Directors or equivalent body shall have the following powers and
functions:
(a) Formulate policies necessary for the attainment
of the purposes and objectives for which the corporation has been
organized and assure consistency with the overall objectives
established by the Secretary for the GOCC as well as compliance with
guidelines issued by the GCMCC;
(b) Adopt by-laws consistent with existing laws and
amend, repeal or alter such by-laws, subject to the approval of the
Secretary;
(c) Promulgate rules and regulations governing the
manner in which the general business of the GOCC is to be exercised;
(d) Pass upon and approve the appointment of the
principal officers of the GOCC as nominated by the Chief Executive;
(e) Determine the organizational structure of the
corporation and create such positions as may be necessary for the
economical, effective and efficient discharge of its functions and
responsibilities;
(f) Pass upon and approve, subject to the final
action of the Secretary and the GCMCC, where appropriate, the annual
and supplemental budgets, including corporate plans and annual and
medium-term investments, submitted to it by the Chief Executive;
(g) Pass upon and approve all borrowings of the GOCC;
(h) Pass upon and approve management contracts, major
procurement contracts as well as agreements to dispose of significant
assets, and disposition of profits;
(i) Render annual reports, including reports on
subsidiaries, and such special reports as may be required by the
President of the Philippines, the legislature, and other government
supervising agencies;
(j) Adopt rules and procedures and fix the time and
place for holding meetings; and
(k) Exercise such other powers and perform such other
functions as may be required by law.
(3) Board Meetings and Compensation. The Board of
Directors or equivalent body shall convene as frequently as is
necessary to discharge its responsibilities properly, but shall meet at
least once a month. The members of the board or their respective
alternates shall receive such per diems, allowances and other
emoluments as the board may determine in accordance with the standards
and guidelines formulated by the GCMCC.
(4) Chief Executive and Other Officers of the GOCC. A
GOCC shall have a President, General Manager, or Managing Director as
the case may be, as its Chief Executive Officer who shall be appointed
by the President of the Philippines upon recommendation of the
Secretary from among the board members. He shall serve on a full-time
basis for a fixed term or as provided in the charter unless sooner
removed for cause or by reason of incapacity. The Chief Executive
Officer shall be of good moral character, of unquestionable integrity
and responsibility, and shall be of recognized competence in the area
of activity of the corporation.
No person can be a chief executive officer of more than one GOCC,
except in the case of subsidiary of a GOCC of which he is already the
chief executive officer.
The Chief Executive Officer shall be assisted by such other officers as
may be necessary for the efficient operations of the corporation.
The salary and emoluments of the Chief Executive Officer of the GOCC
shall be fixed by the board or equivalent body, subject to the
standards and guidelines of the GCMCC. The salary and emoluments of the
other principal officers of the corporation shall be determined by the
Chief Executive Officer, subject to the board's approval and in
accordance with the standards and guidelines of the GCMCC.
(5) Powers and Functions of the Chief Executive
Officer. The Chief Executive Officer shall have the following powers
and functions:
(a) Execute, administer and implement the policies
and measures approved by the board;
(b) Direct and manage the affairs and business of the
GOCC;
(c) Submit within a specified number of days after
the close of the calendar year an annual report to the board and such
other reports as may be required;
(d) Submit to the board, in line with the national
budget cycle, an annual budget and such supplemental budgets as may be
necessary for its consideration and approval;
(e) Represent the GOCC in all dealings with other
offices, agencies and instrumentalities of the Government and with all
persons and entities, both public or private, domestic or foreign;
(f) Appoint, with the approval of the board, and
discipline for cause in accordance with civil service laws, rules and
regulations, the subordinate officers and personnel of the
corporation;
(g) Transfer officers and personnel as the exigencies
of the service may require without need of prior approval by the board
and in accordance with existing rules and regulations;
(h) Delegate authority, in whole or in part, to
subordinate officers and personnel of the GOCC; provided that the
authority to delegate has had the prior approval of the board; and
(i) Perform such other duties as may be assigned to
him by the board.
(6) Loans. A GOCC, when authorized under its charter
to contract loans from domestic or foreign institutions or to issue
bonds to carry out the purpose for which it was organized, may incur
such indebtedness only after its board of directors or any equivalent
body has deemed it necessary. Such board or equivalent body shall, by
resolution, declare and state the purpose of the proposed debt and the
terms and conditions under which it shall be incurred; Provided, That
the GOCC's level of indebtedness shall be subject to the guidelines
issued by the Department of Finance.
(7) Reports. A GOCC shall, within five (5) months
after the end of every calendar year, submit its annual report to the
President through the Secretary of the Department to which it is
attached. It shall likewise submit such periodic and other reports as
may be required of it from time to time especially with respect to
progress made with regard to parent GOCC's supervision over
subsidiaries as spelled out in the following Section .
(8) Supervisory Authority of Parent Corporations Over
Subsidiaries. A parent GOCC shall be responsible for the activities and
performance of its subsidiaries. It may, as appropriate, exercise
supervisory and coordinative authority over the latter through the
following means, among others:
(a) Membership representation in the governing boards
of the subsidiaries and, in appropriate cases, determination of the
composition of such membership, subject to the approval of the
Secretary to whose Department the GOCC is attached;
(b) Retention of financial control over the
subsidiaries by reserving the right to appoint the financial officers
of such subsidiaries;
(c) Assignment of its principal officials (such as
assistant general managers) as liaison officers to the subsidiaries who
shall be responsible for monitoring on a periodic basis the highlights
and progress of activities of the subsidiaries for the purpose of
having an overview of financial operations but not control over their
day-to-day operations;
(d) Requirement of periodic reports on the progress
of activities and financial operations of subsidiaries;
(e) Holding of regular meetings with the officers of
the subsidiary corporations to discuss the progress of operations,
particularly relative to the status of the achievement of targets; and
(f) Holding of an annual planning conference to have
a year-end assessment of performance and to present plans for the
coming year.
ARTICLE
V
Creation, Acquisition and
Dissolution of Government Corporations
Sec. 17. Role of the GCMCC in Evaluating Proposals
to Create, Acquire and Dissolve Government Corporations. — Restraint
shall be exercised in the creation or acquisition of corporations by
the Government. Accordingly, all proposals for the acquisition,
creation and dissolution of government corporations initiated and
endorsed by any executive agency, office or instrumentality of the
Government shall, in each case, be subject to the review and evaluation
of the GCMCC in accordance with appropriate criteria established under
this Administrative Order before they are submitted to the President.
The GCMCC shall advise the President regarding proposed government
corporations to be created by the legislature. All proposals to acquire
a government corporation, including proposals to establish subsidiary
corporations, shall be submitted to the President for decision/approval.
The conversion into equity of loans previously extended by a GOCC to a
privately owned corporation organized under the Corporation Code, which
conversion will result in majority ownership or control by said GOCC in
said debtor corporation, shall require the prior approval of the
President upon recommendation of the GCMCC.
In reviewing and evaluating a proposal to dissolve a government
corporation, the following shall be considered by the GCMCC:
(a) The corporate life of the GOCC as specified under
its Charter;
(b) The fulfillment of the objectives for which the
GOCC was created;
(c) The financial, economic and social viability of
the GOCC; and
(d) The GOCC's role in developing the sector in which
it operates.
Sec. 18. Dissolution of Acquired Asset
Corporations. — All executive agencies, offices, and instrumentalities
shall take steps to dissolve any acquired asset corporation which has
not been disposed of to the private sector within five (5) years from
the date of the decision to dissolve the corporation. The chief
executive officer of such corporation shall, within sixty (60) days
from the lapse of the five-year period, submit to the proper
authorities the legal instruments necessary for its dissolution in
accordance with law, unless a specific exemption or extension is
granted by the President.
The chief executive officer who, by fault or negligence, fails to
submit such instruments as herein prescribed may be subject to
applicable sanctions, under appropriate laws, together with such
persons who participate in the same fault or negligence.
ARTICLE
VI
Effectivity
Sec. 19. This Administrative Order shall take
effect immediately upon approval.
Done in the City of Manila,
this 16th day of February, in the year of Our Lord, nineteen hundred
and eighty-eight.
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