Natural Gas Law: untapped relief

On Jan. 8, 2025, President Ferdinand Marcos, Jr. signed into law Republic Act (RA) 12120 establishing the Philippine Downstream National Gas Industry and creating a legal and regulatory framework to govern it.

The law encourages the exploration and use of indigenous natural gas to help achieve energy security for the Philippines. It promotes the entry of investors into an environment of competition, transparency, and fair trade.

It promotes the industry as a “safe, efficient, and cost-effective source of energy and an indispensable contributor to energy security.”

The law mandates that all industry facilities undergo an evaluation process for possible entitlement to incentives. These are incentives provided by the National Internal Revenue Code of 1997, as amended by the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.

Specifically, under the law, the sale and purchase of indigenous natural gas, aggregated gas, and power generated by facilities using indigenous natural gas and aggregated gas are exempt from value-added tax.

Last year, upon its passage, RA 12120 was already a crucial piece of legislation. At that time, it was deemed a priority measure because of our country’s drive to address climate change by reducing carbon emissions and promoting renewable energy (RE). Under the Philippine Energy Plan, the Philippines aims to have RE comprise 35% of the power generation mix by 2030, 50% by 2040, and more than 50% by 2050.

Today, the law takes on an even greater significance.

The war in the Middle East, the initial shock in oil prices, the failed peace talks, and the anticipated prolonged resolution have exerted pressure on Filipino households. The effects of the war are not only being felt by motorists who line up at gas stations. Rather, they are felt by everyone. Indeed, with the rise in transport costs come the corresponding effects on food prices and other basic goods.

At the same time, electricity rates are also moving upward. Distribution utilities have announced power rate adjustments this April, adding to the financial strain on households and businesses already managing higher day-to-day expenses.

It is imperative for the government to explore all opportunities that would soften the impact of these global events on the ordinary Filipino. To be fair, the Marcos Jr. administration has responded with urgency. For example, an Executive Order declaring a state of National Energy Emergency has been released, with the consequent mandate to the Energy department and related agencies to strengthen fuel resilience. We have also obtained fuel from other countries.

But undeniably, more has to be done.

Measures do not have to be new. We would also benefit much from using existing policies intended to cushion the impact of the crisis.

And RA 12120 — promoting the development of indigenous natural gas resources while ensuring that consumers benefit from more stable and potentially lower energy costs — is an example of an existing policy.

A key provision of the law is the exemption from value-added tax (VAT) on the purchase and sale of indigenous natural gas, as well as on electricity generated from such resources. By design, this measure is intended to translate into lower generation costs, which can help moderate electricity rates for consumers.

The law also makes clear that the exemption applies across various modes of transactions, including bilateral supply agreements and organized markets such as the wholesale electricity spot market (WESM).

In this context, the VAT exemption on indigenous natural gas serves as a practical and targeted measure to help cushion consumers from external shocks. Ensuring its consistent and timely application can contribute to easing the incremental burden on electricity users. The timely and effective implementation of its VAT exemption provision can help ensure that the intended benefits of the law are felt more directly by consumers.

The Implementing Rules and Regulations (IRR), issued through Department of Energy Circular No. DC2025-04-0005, have been in effect since April 2025. With the policy framework already established, there is now an opportunity to further advance its implementation so that its benefits can be more fully realized at the consumer level.

We should not remain in the realm of policy. What must be done now is for the Department of Energy, in coordination with other relevant institutions and industry stakeholders, to provide further clarity on implementation timelines and processes. Strengthening alignment across the sector will be key to ensuring that the policy is applied in a consistent and predictable manner.

Filipino consumers have already absorbed a series of cost increases driven by global developments. As such, the timely execution of existing consumer-oriented policies remains essential. Measures that are already grounded in law, such as those provided under Republic Act No. 12120, can play an important role in helping manage these pressures.

During a crisis, equally important as the ability to come up with innovative solutions is the facility to tap existing mechanisms and use them to address the issue at hand. In this case, the legal and policy foundations for natural gas are in place. We need only to ensure its effective implementation so that the intended benefits of these reforms are felt where they matter most.

In the end, we have to make sure we do not lose sight of who and what are truly important: Filipino households and businesses navigating an increasingly challenging economic and energy environment.