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LETTER OF INSTRUCTIONS
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LETTER OF INSTRUCTIONS NO. 1520 -
PRESCRIBING GUIDELINES FOR THE RATIONALIZATION OF THE GOVERNMENT
CORPORATE SECTOR |
The Heads of Ministries and Other Agencies
The Heads of Government-Owned or Controlled
Corporations
All Others Concerned
WHEREAS, Presidential Decree No. 2029 has recognized the role of the government corporate sector, and prescribed the criteria for the use by the government of the corporate form;
WHEREAS, government-owned or controlled corporations, hereafter referred to as government corporations, are important participating institutions in national development, especially where greater flexibility is required so that government action may be more promptly responsive;
WHEREAS, it is necessary that the limited resources of government be utilized as efficiently, as effectively, and as economically as possible to further national development and to support the economic recovery program, for which the judicious use of the corporate form of organization is critical;
WHEREAS, specific guidelines are necessary to assure the effective implementation of the above-cited Presidential Decree;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the Constitution, do hereby ordain the following:
SECTION 1. Purposes. — This Letter of Instructions provides guidelines for the rationalization of the government corporate sector by defining the areas of operation in which the corporate form may be used, as well as prescribing policy measures to achieve such rationalization.
Sec. 2. Areas of operation for government
corporations. — The government utilize the corporate form to undertake
the following economic activities, without prejudice to the alternative
options of using regular line agencies, or coursing such activities
through the private sector.
(a)
Those which by their nature are most efficiently and effectively
operated as monopolies, whether by the government or the private
sector, whether in a particular given geographic area or nationwide,
more specifically, public utilities and large-scale infrastructure
activities generally involving large immovable and relatively
indivisible physical capital requirements:
(1)
Power generation;
(2) Railroads;
(3) Telephone
services;
(4) The supply
of potable water to built-up urban settlements; and
(5)
Large-scale gravity irrigation facilities:
(1)
Public utilities and infrastructure activities where competitive
ventures may nevertheless be possible, such as airlines, and
small-scale irrigation and power generation;
(2)
Large-scale income-redistribution undertakings primarily designed to
benefit low income households, such as the procurement or distribution
of rice and corn, and the provision of low-cost housing;
(3) Those
which are highly strategic in character or of great national security
significance, the operation of which would have wide-raging economic
implications and which activities are usually undertaken to provide
countervailing market competition as a means of correcting or
offsetting socially undesirable market developments in areas of
strategic or national security significance, such as in banking, steel,
or petroleum; and
(4) Those
requiring very large and physically indivisible capital investments,
entailing long and highly uncertain gestation periods, which the
private sector is unwilling to undertake.
All government corporations covered by this issuance, including those in existence, shall conform to the financial viability requirement which is defined to mean the ability of the corporation to support its operation from its own internal cash generation without operating losses from the national government can be reasonably expected, suitable steps shall be taken to withdraw government corporations from operating in those areas which are not embraced in the above-enumerated areas of operation.
Sec. 3. Exclusion from the coverage of the LOI. The following corporations are not covered by this LOI and shall be the subject of a separate policy enunciation: (a) chartered universities, colleges, and schools, (b) municipal corporations, and (c) civic, cultural, educational, scientific, and other similar government corporations which do not engage in activities usually associated with economic gain, and which do not compete by and large with the private sector.
Sec. 4. Policy measures. The government shall
observe the following policy measures and limitations, with respect to
government corporations:
(a)
Avoidance of regulatory authority. The corporate form shall be used for
undertaking, regulatory functions unless absolutely necessary.
Furthermore, government corporations that are engaged in activities in
direct competition with private firms shall not possess any regulatory
powers over such private enterprises. In any case, a government
corporation shall not be vested with quasi-judicial or adjudicatory
authority.
(b) Avoidance
of special privileges and benefits. Government corporations, especially
those in areas which complete directly with private sector
counterparts, shall not as a general rule be entitled to undue
competitive advantages and benefits, including automatic government
guarantees for debts, incurred, special privileges such as partial or
full exemption from the payment of taxes, duties, imposts, and other
charges, and automatic sources of income for which no direct service or
benefits, are rendered to the payers of the sources of income.
This limitation shall, however,
be without prejudice to the government providing financial assistance
to government corporations in the form of equity contributions, or
loans preferably under terms not more favorable than those obtaining in
the market, or support for subsidy or stabilization programs, in
appropriate cases.
In like manner, government
corporations should not be subject to undue constraints or limitations
not imposed on their counterparts in their respective areas of
operation.
Equity contributions of the
national government to the government corporation shall consider the
need for a reasonable return on such equity, and cash dividends of
government corporations, whenever declared, shall accrue to the
national government in proportion to its equity participation.
A government corporation should
be able to function satisfactorily on the basis of income realized as a
result of the sale of a good produced or a service rendered. The
government corporate form shall be avoided if its financial viability
substantially depends upon the automatic receipt of income in the form
of involuntary charges imposed by the government or by the corporation,
for which no corresponding service is rendered directly to the payer of
the charges.
(c) Standard
features common to all government corporations. Those organizational
managerial and financial aspects common to all government corporations
shall be standardized to the fullest extent possible, covering matters
such as 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, the formulation of
multi-year corporate plans consisting with the national and sectoral
development plans borrowing powers and limitations, standard accounting
systems and other related matters.
Government corporations shall
coordinate with the appropriate service-wide agencies in the design and
adoption of such accounting systems.
(d) Limited
liabilities. Except as may be specifically provided in the respective
charters of the individual government corporations concerned, or in
existing special laws, or as assumed by the national government under
foreign loan agreements pursuant to law, the liability of the national
government for the obligations of a government corporation, and the
liability of a parent corporation for the obligations of its
subsidiaries, shall be limited to the extent of their respective equity
participation or contribution in such government corporations or their
subsidiaries.
(e) Duplicate
or overlapping functions and clientele. Government corporations shall
not perform similar or identical functions and services to the same
clientele nor should they be in direct competition with one another. In
existing cases, the overlapping or duplicative function shall be
explicitly assigned to a particular corporation as its primary if not
exclusive responsibility.
(f) Management
and supervision of government corporations. To ensure public
accountability, there shall be effective supervision, coordination, and
monitoring of government corporations, consistent with the requirements
of corporate flexibility. The management of the government corporation
shall be carried out by its board of directors and its chief executive
officer.
The chief executive officer of
the corporation shall be responsible for the implementation of policies
and programs approved by the board of directors.
The board of directors of the
corporation shall provide policy and program direction, and shall serve
as the approving authority for operational programs prepared by the
chief executive officer.
The role of the ministry in the
supervision of its attached government corporations is reaffirmed to
mean essentially for purposes of ensuring consistency of corporate
operations and programs with sectoral policies and programs, undertaken
through appropriate coordination and monitoring within the sector, and
is generally limited to the attached corporations. In cases where the
nature of corporate operations impinges upon the areas of
responsibility of several ministries, the boards of such corporations
should include representatives from the several ministries.
The role of supra-ministerial
supervision of government corporations is generally concerned with
overall monitoring and coordination of the government corporate sector
involving inter-ministerial and inter-sectoral issues, and is not meant
to replace the basic responsibilities of ministerial supervision. Such
overall supervision, coordination, and monitoring, as well as control
where so authorized, is to be exercised under the leadership of the
Prime Minister.
Adequate procedures shall be
adopted for the evaluation, control monitoring of the various forms of
national government support to government corporations, including the
extension of government guarantees, the provision of equity and
budgetary support. The delineation of ministerial and supra-ministerial
supervision shall in no manner restrict the overall authority of the
President with respect to supervision and control.
(g)
Performance criteria and evaluation. Operationally meaningful financial
and economic performance criteria shall be formulated and agreed upon
by the government corporations, the respective ministries and similar
entities to which they are attached, and such other entities which may
exercise overall supervision and/or coordination over government
corporations, 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 government corporations in
general and those which are specific to each corporation or group of
similar corporations; and shall be translated into appropriate
quantitative multi-year performance targets to be aimed to by each
government corporation.
Sec. 5. Restraint on the creation or acquisition of government corporations established through the Corporation Code. Restraint shall be exercised in the creation or acquisition of government subsidiary corporations established through Corporation Code. The creation of a new government corporation, other than by special law, shall not be undertaken without prior clearance in each individual case by the President, or the Prime Minister as may be duly authorized by the President. The creation of corporate entities through the Corporation Code by regular line agencies, including ministries and their equivalents through their officials as original incorporators, shall not be allowed.
The Securities and Exchange Commission and the heads of the government corporations concerned shall ensure compliance with the foregoing provisions. In this connection, the Securities and Exchange Commission shall require the submission of the written approval by the President or the Prime Minister as prescribed in this Section before giving due course to the application for registration of a corporation under the Corporation Code which is sought to be (a) established by a government-owned or controlled corporations, or (b) organized by individual government officials acting in their official capacities or on behalf of their agencies or corporation.
The conversion into equity of loans previously extended by a government financial institution to a privately owned corporation organized pursuant to the Corporation Code, which conversion will result in majority ownership by the lender government financial institution in the said debtor corporation, shall likewise require the prior approval of the President or, where authorized by the President, by the Prime Minister.
Sec. 6. Observance and implementation of policy
measures. All heads of government corporations as well as the heads of
the ministries and similar entities to which they are attached shall
ensure that their programs, operations and structures conform to the
policies set forth herein, within five years from the date of
effectivity of this issuance. Nothing in this Section shall, however,
preclude the disposition of any government corporation at an earlier
time as may be determined by appropriate authorities.
Any new government corporation created, whether by special law or
through the Corporation Code, adhere to the principles and policies
enunciated herein.
In the ongoing review of government corporations pursuant to Letter of
Instructions No. 1454, the policies enunciated in Presidential Decree
No. 2029 and in this Letter of Instructions more particularly with
respect to (1) financial viability and (2) areas of operation shall be
observed and implemented to the fullest extent.
Sec. 7. This Letter of Instruction shall take
effect immediately.
Done in the City of Manila,
this 4th day of February in the year of Our Lord, Nineteen Hundred and
Eighty-Six.
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