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