DEFINING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS AND IDENTIFYING THEIR ROLE IN NATIONAL DEVELOPMENT.

• Number: Presidential Decree No. 2029
• Sections: 14

Preamble

WHEREAS, it is desirable that the participation of

government corporations, both collectively and individually, in the development

process be clarified and rationalized, taking into consideration inter alia the

significant primary role of private enterpise in the various economic sectors,

and therefore the importance of maintaining conditions of effective

competition;

WHEREAS, the Supreme Court has recently ruled that under the

Constitution, government-owned or controlled corporations include those created

by special laws as well as those through the Corporation Code;

WHEREAS, the identification of which government entities

shall be considered as government-owned or controlled corporations should now be

undertaken on a consistent and identical basis, so that the appropriate

service-wide supervisory agencies may be so guided;

WHEREAS, there is need to assure the flexibility of such

government corporations consistent with the need of public accountability by

providing for differential treatment for government corporations; and

WHEREAS, it is now necessary to promulgate an integrated

general statement of national policies on government-owned or controlled

corporations for purposes of providing the necessary conceptual and operational

guidelines on the appropriate role of the government corporate sector as a

whole;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the

Philippines, by virtue of the powers vested in me by the Constitution, do hereby

order and decree:

Section 1

SECTION 1. General policy. It is the policy of the

State that the corporate form of organization, utilized judiciously, is one of

the valid institutional forms through which the government may participate in

economic and social development.

It is recognized, nevertheless, that private enterprise shall play

the primary role in undertaking desirable economic activities, especially in the

production and distribution of goods and services. It is therefore also the

policy of the State to encourage the participation of and to avoid competition

with private enterprise in economic activities. For this purpose, the areas of

operation appropriate for the government corporate form shall be defined.

Section 2

SEC. 2. Definition. A government-owned or controlled,

corporation is a stock or a non-stock corporation, whether performing

governmental or proprietary functions, which is directly chartered by special

law or if organized under the general corporation law is owned or controlled by

the government directly, or indirectly through a parent corporation or

subsidiary corporation to the extent of at least a majority of its outstanding

capital stock or of its outstanding voting capital Stock;

Provided, that a corporation-organized under the general corporation

law under private ownership at least a majority of the shares of stock of which

were conveyed to a government corporation in satisfaction of debts incurred with

a government financial institution, whether by foreclosure or otherwise, or a

subsidiary corporation 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 enunciated policy of the government is required to be

disposed of to private ownership within a specified period of time, shall not be

considered a government-owned or controlled corporation before such disposition

and even if the ownership or control thereof is subsequently transferred to

another government-owned or controlled corporation ;

Provided, further, that a corporation created by special law which

is explicitly intended under that law for ultimate transfer to private ownership

under certain specified conditions shall be considered a government-owned or

controlled corporation, until it is transferred to private ownership; and

Provided, finally, that a corporation that is authorized to be

established by special law, but which is still required under that law to

register with the Securities and Exchange Commission in order to acquire a

juridical personality, shall not on the basis of the special law alone be

considered a government-owned or controlled corporation.

Section 3

SEC. 3. Types of corporations. For purposes of this

Decree, government-owned or controlled corporations, hereafter called government

corporations, may be classified as parent or subsidiary corporations. Other

corporations in which the government has equity interest may be classified as

acquired asset and affiliate corporations.

A parent corporations is one which is created by special law.

A subsidiary corporation is one created pursuant to law where at least a

majority of the outstanding capital stock or outstanding voting capital stock of

which is owned by parent government corporations and/or other government-owned

subsidiaries.

An acquired asset corporation is one organized under the general corporation

law (1) under private ownership at least a majority of the shares of stock of

which were conveyed to a government corporation in satisfaction of debts

incurred with a government financial institution, whether by foreclosure or

otherwise, or (2) as a subsidiary corporation 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 enunciated policy of the government

is required to be disposed of to private ownership within a specified period of

time.

An affiliate corporatical is one where total government ownership comprises

less than the majority of its outstanding capital stock and its outstanding

voting capital stock.

Section 4

SEC. 4. Exclusions from coverage. The following

corporations are not covered by this Decree: (a) acquired assets corporations

and (b) affiliate corporations; Provided, that nothing in this Section

shall be construed as an automatic exemption of this corporations from

compliance with reportorial requirements, which reports however when required

shall be coursed through the appropriate parents corporations; and Provided,

further, that where so required the fanancial statements of the acquired

assets and appropriate affiliate corporations shall be consolidated with the

financial statements of the parent corporation, together with its

subsidiaries.

Chartered universities, colleges, and schools, as well as municipal

corporations, which are nonetheless government corporations, are likewise not

covered by this Decree.

Section 5

SEC. 5. Criteria for ushir; the corporate form. The

use of the corporate form of enterprise shall be authorized only on the basis of

the following criteria:

Where there exists a demonstrated need for greater flexibility in its

operations, and which by the nature of the good or service to be

provided cannot be effectively undertaken by the regular line agency

form of organization; and

Where financial viability or the ability of the corporation to support its

operations from its own internal cash generation without operating losses at the

very least, and without any special privilege or assistance from the national

government can be reasonably expected.

The financial viability criterion shall not apply to those corporate

operations involving direct and explicit subsidy programs as authorized by law,

and where the subsidies involved are adequately funded by appropriate external

sources such as the General Fund.

The test of financial viability shall, when circumstances warrant, not be

applicable to civic, cultural, corporations which do not engage in activities

usually associated with economic gain, and which do not compete by and large

with the private sector.

Section 6

SEC. 6. Ministry representation on governing

boards. Any provision of existing law to the contrary notwithstanding, a

minister or his equivalent who is by law designated as ex-officio chairman or

member of the governing board of a government corporation may designate a senior

official of his ministry to sit in his stead; Provided, that where a

minister is ex-officio chairman, his representative shall be a deputy minister;

Provided, however, that in the case of ex-officio members of the

Monetary Board, the provisions of the Central Bank charter on the designation of

alternates shall continue to apply.

Section 7

SEC. 7. 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.

Operational flexibility for this purpose shall mean the ability of the

corporation to act promptly on its own on individual transactions or matters,

without need for further prior clearance from supervisory authority external to

the corporation, provided such actions are within the purview of their

respective charters, explicit general policies, program, and guidelines,

including budgetary constraints provided by external supervising

authorities.

Section 8

SEC. 8. Differential treatment. To implement the concept of

greater flexibility, government corporations in general shall be accorded

differential treatment which is more consistent with corporate organizational

requirements as distinguished from regular government agencies, with respect to

the exercise by the various service-wide agencies, such as the Civil Service

Commission, the Commission on Audit, and the Office of Budget and Management, of

their respective jurisdiction. The establishment of such differential treatment

shall be guided by comporable and appropriate industry practices and

standards.

For the purpose of this provision, government corporations into a private

corporation, and (3) sustained satisfactory financial and economic performance

indicative of continuing financial viability. Such agreed classifications may be

used as a basis for further rifferentials treatment among the different

categories of government corporations.

The Commission on Audit shall observe the applicable industry standards in

the promulgation of appropriate accounting and auditing regulations, and towards

this end shall ensure that government corporations establish and adopt

accounting and auditing systems and standards which are consistent with the

appropriate and applicable guidelines of the Commission on Audit, and which in

any case shall be as uniform as possible and shall conform with law and with

generally accepted accounting principles and sound auditing practices. The

policy of the withdrawal of resident auditors shall be fully implemented;

Provided, that adequate support shall be provided the

Commission on Audit for the exercise of its audit function over government

corporations, which support shall come from reasonable audit services charges

levied by it on the individual government corporations, and supplemented as

necessary from budgetary appropriations.

The audit of government corporations by the Commission on Audit shall not

preclude government corporations from engaging the services of private auditing

firms; Provided, however, that even if the services of the latter are

availed of, the audit report of the Commission on Audit shall serve as the

report for purposes of compliance with audit requirements as required of

government corporations under applicable law.

The Civil Service Commission shall be guided by comparable industry practices

and shall develop appropriate standards in its personnel policies pertaining to

selection, movement, training, discipline and related matters.

The Office of Budget and Management through the Office of Compensation and

Position Classification shall formulate compensation and position classification

policies which shall endeavor to make the government corporate salary scales

competitive with, those for similar situated industry personnel.

Nothing in this Section and in Section 9 hereinbelow shall be construed as in

any way diminishing or limiting the responsibilities and accountabilities of

government corporations and their corporate officials.

Section 9

SEC. 9. Government corporations with significant minority

private equity. Government corporations at least twenty percent of the

outstanding voting capital stock of which is privately owned shall, as a general

rule, be accorded the greatest possible flexibility in the application of the

regulations of the various service-wide agencies.

Issues concerning terms and conditions of employment for such corporations

shall be referred by the Civil Service Commission to the Ministry of Labor and

Employment, which shall act upon such matters in accordance with applicable

law.

Such corporations may engage the services of private external auditors, and

the Commission on Audit may, at its option and with respect to its financial

audit function, review the private external audit.

The personnel of such corporations shall net be subject to the position

classification and. compensation rules and regulations of the Office of Budget

and Management.

Section 10

SEC. 10. Transitory Provisions. The President shall

organize an appropriate Committee, the composition of which shall include the

Commission on Audit, the Civil Service Commission, and the Office of Budget and

Management, as well as adequate representation of the Ministries; and which

Committee shall, in consultation with the government corporate sector,

immediately take steps to review and revise their policies and regulations in

accordance with the standards of differential treatment provided

herein, including the preparation of draft amendatory legislation as may be

necessary, as well as to classify government corporations as provided

in Section 8 of this Decree. The proposed revisions and classifications shall be

submitted for Presidential review not later than two years after the issuance of

this Decree.

The revised policies and regulations shall provide for a reasonable period of

time for their effectivity; Provided, however, that the status quo

shall be maintained for a period of two years with respect to government

corporations existing at the time of the issuance of this Decree which had been

previously deemed excluded from the definition of a government-owned or

controlled corporation insofar as the application of existing policies and

regulations of the Commission on Audit, the Civil Service Commission, and/or the

Office of Compensation and Position Classification of the Office of Budget and

Management are concerned; Provided, however, that any

provision of existing law to the contrary notwithstanding, all chartered

government corporations shall be immediately subject to the audit jurisdiction

of the Commission on Audit. The President may, at his discretion, institute such

changes or otherwise modify the conditions of the status quo.

Collective bargaining agreements existing at the time of the issuance of this

Decree in those corporations previously deemed excluded from the coverage of the

definition of government corporations, including renewals made during the status

quo, shall continue to be in full force and effect until their expiration.

Section 11

SEC. 11. Separability Clause. The provisions of

this Decree are declared to be separable and if any provision or the application

thereof is held invalid or unconstitutional, the validity of other provisions

shall not be affected.

Section 12

SEC. 12. Repealing Clause. All laws, decrees,

orders, proclamations, rules, regulations or parts thereof which are

inconsistent with any of the provisions of this Decree are hereby repealed or

modified accordingly.

Section 13

SEC. 13. Effectivity Clause. This Decree 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.

(Sgd.) FERDINAND E. MARCOS

President of the

Philippines

By the President:

(Sgd.) JUAN C. TUVERA

Presidential Executive

Assistant