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

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. 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.

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.

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.

1. A parent corporations is one which is created by special law.
2. 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.
3. 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.
4. 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.

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.

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:

1. 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
2. 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.

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.

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.

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.

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.

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.

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.

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.

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