Republic of the Philippines Department of Energy Energy Center, Fort Bonifacio, Taguig City Metro Manila, Philippines GEOTHERMAL

RENEWABLE ENERGY (RE) SERVICE CONTRACT GRESC No. ___________

This Geothermal Renewable Energy (RE) Service Contract (hereinafter referred to as the Contract) made and entered into this ____ day of ___________, 20____ in _____________________ by and between: THE GOVERNMENT OF THE REPUBLIC OF THE

PHILIPPINES, hereinafter referred to as the Government, acting through the DEPARTMENT OF ENERGY, with principal office at Energy Center, Merritt Road, Fort Bonifacio, Taguig City 1201, Metro Manila, in this act represented by the Secretary of Energy, HONORABLE_______________________, hereinafter referred to as the DEPARTMENT; and __________________________, a corporation organized and existing under the laws of the Philippines, with principal office address at ____________________________, by in this act its represented as the RE DEVELOPER; In the implementation of this Contract, the Government shall act through and be represented by the DEPARTMENT. The DEPARTMENT and the RE DEVELOPER are hereinafter referred to individually as Party, and collectively as Parties. WITNESSETH; That WHEREAS, all Geothermal Resources in public and/or private lands in the Philippines, whether found in, on or under the surface of dry lands, creeks, rivers, lakes, or other submerged lands within the waters of the Philippines belong to the State, inalienable and imprescriptible, and their exploration, development and exploitation are governed by the provisions of Presidential Decree No.1442 (An Act To Promote The Exploration And Development Of Geothermal Resources), hereinafter called the PD No.1442" and Republic Act No. 9513 otherwise known as the Renewable Energy Law of 2008,
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______________________________________hereinafter referred to

hereinafter referred to as RA No. 9513; WHEREAS, under PD No.1442 and RA No. 9513, the Government may enter into Geothermal RE Service Contracts for the exploration, development and exploitation of geothermal Resources; WHEREAS, the RE DEVELOPER desires to enter into such Geothermal RE Service Contract for financial, technical, or other forms of assistance with the Government covering the Contract Area hereinafter defined; and WHEREAS, the RE DEVELOPER has agreed to furnish the necessary services, technology and financing for the Geothermal Operations hereinafter defined; NOW, THEREFORE, in view of the foregoing premises, the Parties hereby stipulate and agree to enter into this GEOTHERMAL RE SERVICE CONTRACT subject to the following terms and conditions:

SECTION I SCOPE 1.1 This Contract refers to Geothermal RE Service Contract entered into pursuant to Section 1 of the PD No. 1442 and Section 2 of the RA No. 9513 with all necessary services, technology and financing to be furnished by the RE DEVELOPER in accordance with the provisions herein contained. The RE DEVELOPER shall undertake and execute the Geothermal Operations contemplated herein under the full control and supervision of the DEPARTMENT in accordance with this Contract. 1.2 The RE DEVELOPER shall be responsible to the DEPARTMENT for the execution of the Geothermal Operations in accordance with the provisions of this Contract, and is hereby appointed and constituted the exclusive Party to conduct Geothermal Operations on behalf of the Government for the Contract Area. The DEPARTMENT shall have the right to require performance of any or all obligations of the RE DEVELOPER under this Contract against any or all of the companies comprising the RE DEVELOPER. 1.3 The RE DEVELOPER shall assume all financial risks under this Contract such that if no Geothermal Resources in Commercial Quantity is discovered and produced, the RE DEVELOPER shall not be entitled to reimbursement for any expense incurred in connection with this Contract.
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SECTION II DEFINITION OF TERMS The words and terms under this Contract, unless otherwise specified herein, shall have meaning in accordance with the following definitions: 2.1 Accounting Procedures - refers to the set of procedures, guidelines and arrangement between the Parties, as may be amended by the Parties from time to time, to govern the recording and proper entry of expenses, costs and income, attached as Annex B of this Contract. Additional Investments refers to investments of the RE DEVELOPER relating to improvements, modernization, or rehabilitation duly registered with the DEPARTMENT, which may or may not result in increased capacity, subject to the conditions to be determined by the DEPARTMENT, such as, but not limited to the following: a. Identification of the phases/stages of production scheduled for modernization/rehabilitation; and b. Improvements such as reduced production/operational costs, increased production/operational efficiency, and better product quality of the RE facilities. 2.3 Affiliate - means (a) a company in which the RE DEVELOPER holds directly or indirectly at least fifty percent (50%) of its outstanding shares entitled to vote; or (b) a company which holds directly or indirectly at least fifty percent (50%) of the RE DEVELOPERs outstanding shares entitled to vote; or (c) a company in which at least fifty percent (50%) of its shares outstanding and entitled to vote are owned by a company which owns directly or indirectly at least fifty percent (50%) of the shares outstanding and entitled to vote of the RE DEVELOPER. By-Product - means any non-condensable gases, mineral or minerals (exclusive of oil, hydrocarbon gas and helium) which are found in solution or inherently associated with geothermal fluids. Calendar Year - means a period of twelve (12) consecutive months commencing with January and ending on the following December 31, according to the Gregorian calendar. Commercial Operations - refers to the phase wherein the RE DEVELOPER has completed the commissioning and test operations and is able to sell or apply the produced energy and other by-products, as confirmed by the DEPARTMENT; Contract - refers to this Geothermal RE Service Contract. Contract Area - means, at any time, the area which is the subject of this Contract covering a total area of _______________ located in ________________________. The Contract Area is outlined and more particularly described in a map with its
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technical description attached herein as Annex A and made an integral part of this Contract. 2.9 Contract Year - means a period of twelve (12) consecutive months counted from the Effective Date of this Contract and, thereafter, from the anniversary of such Effective Date. Corporate Income Tax - refers to the tax imposed under the National Internal Revenue Code of the Philippines (NIRC), as amended by the Act, upon net taxable income. After availing of the Income Tax Holiday (ITH), the RE DEVELOPER shall be subject to a Corporate Income Tax Rate of ten percent (10%). Cost of Goods Sold refers to all business expenses directly incurred to produce the merchandise to bring them to their present location and use, consistent with Section 27, Paragraph A(7) of the NIRC of 1997, as amended by Republic Act No. 9337. Development Area - means an area within the Contract Area where the Geothermal Resource has been identified and delineated for development and production Date of Commencement of Commercial Production means the date of commencement of production of Geothermal Resources as jointly determined by the Parties in accordance with the provisions of Section VI hereof, after completion of development operations as provided in the Overall Development Program for the Geothermal Field. DEPARTMENT - means the Department of Energy of the Government, or its successor. Discovery - is the first proof that a geothermal prospect has been fully explored including exploratory drilling and that can be commercially developed and utilized for energy purposes. Effective Date - means the date of the execution of this Contract by the Parties. Expatriate Employee means an alien who is a permanent resident of a foreign country and is legally employed by the RE DEVELOPER or Sub-contractor(s) for the Geothermal Operations within the scope of this Contract. Filipino Personnel means any citizen of the Republic of the Philippines employed by the RE DEVELOPER and/or Sub-contractor(s) involved in Geothermal Operations under this Contract. Fiscal Year - means each period of twelve (12) consecutive months. Force Majeure - refers to events beyond the reasonable control of the affected Party. It also refers to earthquakes, typhoons, landslides, floods, or fires; war, hostilities, invasion, or acts of foreign enemies; insurrection, revolution,
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rebellion, or acts of terrorism; riot, commotion, disorder, or other civil disturbances; strikes, lockouts or other labor disturbances; accidents; only as to the RE DEVELOPER, any action or aggregation of actions or failure to act by the Government or its duly authorized agency; and, only as to the RE DEVELOPER, the adoption, enactment, interpretation, or application of laws, rules, regulations, judgments and orders by the Government or its duly authorized agencies or instrumentalities. 2.21 Foreign Exchange means any currency other than Philippine currency which is freely convertible into gold or other currencies eligible to form part of the countrys international reserves and is acceptable to both Parties. Generation Facility - refers to a facility for the production of electricity and/or thermal energy such as, but not limited to, steam, hot or cold water; Geothermal Field - is an area where the existence of Geothermal Resources has been proven. Geothermal Operations - shall include geothermal exploration, development and production. Geothermal exploration consists of surface exploration and subsurface exploration. Surface exploration deals primarily with reconnaissance to detailed activities, studies and geoscientific investigations. Subsurface exploration refers mainly to drilling activities for the purpose of making discovery and delineating the reservoir. Geothermal development refers to the drilling of appraisal, development and reinjection wells, and geoscientific activities related thereto for the purpose of exploiting the delineated Geothermal Reservoir. This includes the installation of wellhead equipment, collecting pipes and pressure vessels for steam extraction. Geothermal production is the set of activities which involves the actual extraction of geothermal fluid for commercial utilization, which may include the installation, operation, and maintenance of facilities to convert Geothermal Resources to electrical energy and the transmission of such electrical energy and/or other non-electrical uses. 2.25 Geothermal Reservoir - is a geologic environment where the geothermal fluid accumulates and circulates due to the combination of structural, stratigraphical, lithological, hydrological, and thermodynamic conditions. Geothermal Resources - shall refer to mineral resources, classified as renewable energy Resources, in the form of: a. b. c. d. 2.27 all products of geothermal processes, embracing indigenous steam, hot water, and hot brines; steam and other gases, hot water, and hot brines resulting from water, gas, or other fluids artificially introduced into geothermal formations; heat or associated energy found in geothermal formations; and any by-product derived from a, b and c above

2.22

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Geothermal Resources in Commercial Quantity - means Geothermal Resources

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which can be economically developed and produced as determined by the RE DEVELOPER and approved by the DEPARTMENT, after taking into consideration the location of the Geothermal Resources, the depths and number of wells required to be drilled, and the facilities and technologies needed to produce such Geothermal Resources that has been discovered. 2.28 2.29 Government - means the Government of the Republic of the Philippines. Government Share - refers to the amount due the National Government and Local Government Units from the exploration, development and utilization of RE resources. The Government Share on existing and new geothermal development projects shall be equal to one and a half percent (1.5%) of gross income. For purposes of determining the government share, the gross income of the RE DEVELOPER shall include the proceeds resulting from the sale of RE produced and such other income incidental to and arising from RE generation, transmission, and sale of electric power. Gross Income refers to income derived from business shall be equivalent to gross sales less sales returns, discounts and allowances, and Cost of Goods Sold, as prescribed in the National Internal Revenue Code (NIRC) of 1997, as amended by Republic Act No. 9337, which is more particularly described in Annex B; Net Book Value refers, for purposes of special realty tax rates under the Act, to the amount determined by applying normal depreciation on the Original Cost based on the estimated useful life. Original Cost refers to the lower of: a. the tangible cost of construction of the Generation Facility component of the operations, or of any improvement thereon, regardless of any subsequent transfer of ownership of such Generation Facility; or b. the assessed value prevailing at the time the Act took into effect or at the time of the completion of the Generation Facility after the effectivity of the Act, as the case may be, and in any case assessed at a maximum level of eighty percent (80%); 2.33 Overall Development Program means a plan prepared by the RE DEVELOPER for the development of a Geothermal Field which has been reviewed and approved by the DEPARTMENT and such plans shall include, but shall not be limited to, power generating capacity, development well pattern, master design, production profile, economic analysis and time schedule of the development operations. Production Area means that portion of the Contract Area where Geothermal Resources in Commercial Quantity are delineated by the RE DEVELOPER with the approval of the DEPARTMENT. The Production Area shall include areas for fluid collection and reinjection system, power plant, transmission facilities and other purposes necessary for production operations. 2.35 Project - refers to the RE DEVELOPERs particular Geothermal Operations
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within the Contract Area. 2.36 Proprietary Information - refers to information from which the owner derives independent economic value, actual or potential, not being generally known to, and not being ascertainable through proper means, by the public and disclosure of which would result in competitive harm to, or jeopardize the commercial position of the owner; Provided, that the owner has taken measures to keep such information confidential. RE Contract shall mean this Contract. RE DEVELOPER - means the RE DEVELOPER specified in the introduction of Parties hereto, including assignees in accordance with Section XVI hereof. Subcontractor means any person or entity contracted by the RE DEVELOPER to provide goods or services for the purpose of this Contract. Third Party means any individual or entity except the DEPARTMENT and the RE DEVELOPER. Work Program means all types of plans and programs and related activities formulated for the performance of the Geothermal Operations, including plans for exploration, development and production.

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SECTION III EFFECTIVITY This Contract shall come into effect on the Effective Date.

SECTION IV TERM 4.1 The pre development stage under this Contract shall be two (2) years, extendible for two (2) years and further extendible for one (1) year from the Effective Date provided that the RE DEVELOPER (a) has not been in default in its exploration, financial and other work commitments and obligations; and (b) has provided a Work Program for the extension period acceptable to the DEPARTMENT after which time this Contract shall automatically terminate unless Discovery has been made before the end of the fifth (5th) year. 4.2 Where Geothermal Resources in Commercial Quantity is discovered during the pre development stage or any extension thereof, this Contract shall, as to any Production Area delineated pursuant to Section V, remain in force for the remainder of a period of twenty five (25) years reckoned from the Effective Date. Provided, that if the RE DEVELOPER has not been in default in its obligations under this Contract, the DEPARTMENT may grant an additional extension of
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twenty five (25) years, provided further that the total term of this Contract shall not exceed fifty (50) years from Effective Date.

SECTION V EXCLUSION OF AREAS 5.1 On or before the end of year 2 of the pre-development stage, the RE DEVELOPER shall surrender twenty-five (25%) percent of the initial Contract Area. 5.2 On or before the end of the pre-development stage, the RE DEVELOPER shall surrender an additional area equal to twenty-five (25%) percent of the initial Contract Area. 5.3 In the event the RE DEVELOPER has delineated any Production Area, as approved by the DEPARTMENT, pursuant to Section 7.1 (d), the extent of such Production Area shall be deducted from the initial Contract Area for the purpose of determining the size of the area that must be surrendered pursuant to Sections 5.1 and 5.2 above. 5.4 If Geothermal Resources In Commercial Quantity is discovered during the predevelopment stage or any extension thereof, the RE DEVELOPER may retain only twelve and one-half percent (12-1/2%) of the initial Contract Area for further exploration and development, in addition to the delineated Production Area/s. Provided, that the RE DEVELOPER shall provide an annual Work Program and corresponding budget for the area to be retained that is acceptable to the DEPARTMENT. Failure of the RE DEVELOPER to implement the Work Program as approved by the DEPARTMENT in any Contract Year will cause the automatic surrender of the retained area to the DEPARTMENT. Provided further, that the RE DEVELOPER shall pay after exploration period as annual rentals to the DEPARTMENT on such twelve and one-half percent (12-1/2%) retained area of Forty Pesos (PhP40.00) per hectare or fraction thereof; and Provided finally, that such rentals shall be offset by the amount spent by the RE DEVELOPER for exploration on such retained area during the Contract Year. Failure of the RE DEVELOPER to implement the Work Program, as approved by the DEPARTMENT, in the twelve and a half percent (12-1/2%) retention area in any Contract Year will cause the automatic surrender of the retained area to the DEPARTMENT. 5.5 The RE DEVELOPER shall have the right, within at least thirty (30) days to submit written notice to the DEPARTMENT, to surrender or abandon the entire Contract Area without liability or cost and be relieved from any work and
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expenditure commitments thereon; Provided, that if the RE DEVELOPER surrenders or abandons the entire Contract Area prior to satisfying its minimum work and expenditure commitments for any of the Contract Year, it shall pay the DEPARTMENT the amount it should have spent, but did not, for predevelopment work during the concerned unfinished Contract Year as specified under Section VII. The performance guarantee posted by the RE DEVELOPER, in accordance with Section 8.1(i) of this Contract, shall be answerable for any such deficiency. 5.6 The RE DEVELOPER shall have the right, within at least thirty (30) days, to submit written notice to the DEPARTMENT, to surrender or abandon any portion of the Contract Area. Any portion surrendered shall be credited against that portion of the Contract Area, which the RE DEVELOPER is next required to surrender under the provisions of Sections 5.1 and 5.2 hereof. 5.7 With respect to the exclusion of areas referred to in Sections 5.1, 5.2, 5.3 and 5.4, the RE DEVELOPER shall give at least thirty (30) days prior notice to the DEPARTMENT of the area to be surrendered or retained. The Contract Area retained shall be of such size and shape as will not prejudice the conduct of Geothermal Operations thereon.

SECTION VI MINIMUM WORK COMMITMENT AND MINIMUM EXPECTED PREDEVELOPMENT EXPENDITURES 6.1 The RE DEVELOPER shall fulfill the minimum work program and corresponding financial commitment during the first two(2) years of the Contract in accordance with the following provisions: a) During the first contract year of the pre-development stage covering the Contract, the RE DEVELOPER shall perform _______________________ with expected equivalent total minimum expenditures of _______________________________________. b) During the second contract year of the pre-development stage, the RE DEVELOPER shall perform __________________________ with expected equivalent total minimum expenditures of ____________________________________________. The aforesaid commitment wells of the pre-development stage shall reach the primary
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reservoir targets proposed by the RE DEVELOPER as approved by the DEPARTMENT. In the event any commitment well fails to reach the primary reservoir targets due to operational constraints as agreed by the Parties, the RE DEVELOPER shall be deemed to have fulfilled such commitment well. 6.2 Before the end of each contract year of the pre-development stage, the RE DEVELOPER has the following options in accordance with the terms of this Contract to: a) proceed and continue exploration upon prior approval by the DEPARTMENT; or b) conduct only appraisal Work Program in the Geothermal Resources discoveries and/or development operations as approved by the DEPARTMENT, provided that the minimum obligations during the current contract year have been fulfilled and the areas under Section V hereof have been relinquished; or c) terminate the Contract. The RE DEVELOPER shall notify the DEPARTMENT in writing of its option at least thirty (30) days before the end of each contract year. 6.3 If the RE DEVELOPER fails to comply with work obligations in each contract year entered into, it shall pay to the DEPARTMENT the amount it should have spent but did not, in direct prosecution of its work obligations. If the RE DEVELOPER elects to terminate the Contract before the end of each contract year entered into and there are unfulfilled work obligations, the RE DEVELOPER shall pay the value of the unfulfilled balance of the minimum exploration work commitment for the contract year entered into in U.S. Dollars after it has been converted into a cash equivalent using the method provided in Annex B Accounting Procedures hereto. Should the RE DEVELOPER fail to pay the assessed financial deficiency within the period prescribed by the DEPARTMENT, the DEPARTMENT may cause the cancellation of this Contract and enforce the collection thereof against the performance guarantee posted by the RE DEVELOPER. However, if the minimum work commitment for the contract year is fulfilled while its expected corresponding minimum expenditures are not fulfilled, the unspent part shall be deemed as a saving and shall not be paid to the DEPARTMENT. 6.4 Subject to the approval of the DEPARTMENT, the RE DEVELOPER may commence any pre-development activities earlier than scheduled provided that the work commitments for the preceding contract year have been fulfilled. If the
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pre-development work actually fulfilled by RE DEVELOPER exceeds the minimum work commitment for the said contract year the excess part may be credited against the minimum work commitment for the next pre-development contract year.

SECTION VII RIGHTS AND OBLIGATION OF RE DEVELOPER 7.1 The RE DEVELOPER shall have the following obligations: a) Perform all Geothermal Operations in accordance with the Work Program and provide all necessary services, technology, and financing in connection therewith; b) Be subject to the provisions of applicable laws relating to labor, health, safety, environment ecology and indigenous peoples rights; c) Provide environment guarantee fund as required under existing environmental regulations to adequately cover/answer for any operational incidents which may cause pollution and/or damage to the environment; d) Upon discovery of Geothermal Resources in quantities that may be commercial as determined jointly by the DEPARTMENT and the RE DEVELOPER, delineate the reservoir in consultation with the DEPARTMENT in a prudent and diligent manner and in accordance with good geothermal field practices within six (6) months or such additional period as the RE DEVELOPER demonstrates to be needed. If after such delineation, it is determined that the reservoir contains Geothermal Resources in Commercial Quantity, the area so delineated shall constitute a Production Area; e) Once a Production Area has been established, the RE DEVELOPER shall operate the Production Area in accordance with accepted good geothermal industry practices and pursuant to an efficient and economic program of operation, using modern and scientific methods to enable maximum economic production of Geothermal Resources. The RE DEVELOPER shall use its best efforts to avoid hazards to life, health and property, pollution of air, land and waters; f) Allow representatives authorized by the DEPARTMENT, at all reasonable times upon prior written notice, full access to accounts, books, and record relating to Geothermal Operations hereunder for tax and other fiscal purposes; g) Provide reasonable transportation, meals, and hotel / housing accommodations for the DEPARTMENT personnels monitoring activities to be arranged and paid for by the RE DEVELOPER with prior notice of 5 working days; h) Give priority in employment to qualified personnel (as determined by the RE DEVELOPER) in the municipalities or provinces where the Geothermal
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Operations are located; i) Within sixty (60) days after the Effective Date of this Contract or succeeding Contract Year to post a bond or any other guarantee of sufficient amount but not less than the minimum expenditure commitment for that particular Contract Year of the production period, in favor of the Government from DEPARTMENT-accredited insurance and surety companies and with surety or sureties satisfactory to the DEPARTMENT, conditioned upon the faithful performance by the RE DEVELOPER of any or all of the commitments and obligations under and pursuant to this Contract. Upon the request of the RE DEVELOPER, the amount of a guarantee or a bond for each Contract Year may be subsequently reduced based on the RE DEVELOPERs performance of its work and expenditure commitments. j) Include in the Overall Development Program, submitted to the DEPARTMENT for approval, a provision for abandonment and payment of abandonment costs. It shall provide that beginning on the Date of Commencement of Commercial Production the estimated abandonment and decommissioning cost of the Geothermal Fields and related facilities in the Contract Area shall be determined ( with annual reviews and adjustments thereafter) annually. In this regard, the RE DEVELOPER shall be responsible in the proper abandonment and rehabilitation of all sites affected by its Geothermal Operations. For this purpose, the RE DEVELOPER shall establish a sinking fund sufficient to cover proper abandonment of wells and rehabilitation of abandoned areas. The amount of contribution to the sinking fund shall take into consideration any other insurance or guarantee fund established or imposed by law or by any government agency for such similar purpose. k) Apply the appropriate and advanced technology and financial experience in performing the Geothermal Operations reasonably, economically and efficiently in accordance with internationally accepted geothermal industry practices; l) Submit a five (5) year Work Program upon Discovery of Geothermal Resource in Commercial Quantity and every five (5) years thereafter provided that the RE DEVELOPER may revise the same at any time within the relevant period, subject to the approval of the DEPARTMENT, which approval shall not be unreasonably withheld; m) Be responsible for procurement of installations, equipment and supplies and enter into subcontracts related to the Geothermal Operations, in accordance with the approved Work Program and budget; n) Maintain complete and accurate accounting records of all the costs and expenditures for the Geothermal Operations in accordance with the provisions of Annex B (Accounting Procedures) hereto and to secure the accounting books of accounts in good order; o) Make necessary preparation for regular meetings of Parties, and to submit in advance to the Parties necessary information related to the matters to be reviewed and approved by the Parties;
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p) Give preference to local companies/ agencies in entering into subcontracts on projects or services which are required in the Geothermal Operations but are not carried out by the RE DEVELOPER, provided that these companies/agencies are competitive and the services required are locally available; q) Inform all sub-contractor/s which render services for the Geothermal Operations and all the Expatriate Employees of the operator and of Subcontractors who are engaged in the Geothermal Operations in the Philippines that they shall be subject to the laws and decrees of the Government, and other rules and regulations of the DEPARTMENT; r) Report regularly to the DEPARTMENT its work accomplishment and actual expenditure relative to Section VI hereof; s) Handle the information, samples or reports in accordance with the following provisions: i. Provide the DEPARTMENT with various information and data in accordance with Section VIII and Section XIV hereof; Furnish the DEPARTMENT promptly with geological and other information, data and reports relative to the Geothermal Operations except for proprietary techniques used in developing said information, data and reports. ii. Furnish the DEPARTMENT in a timely manner with reports on safety, environmental protection and accidents related to the Geothermal Operations and financial reports prepared in accordance with the provisions of Annex B (Accounting Procedures) hereto; and iii. Furnish the DEPARTMENT with the following: (a) procurement plans for equipment and materials, inquiries offers, orders and service contracts, etc.; (b) manuals, technical specifications, design criteria, design documents (including design drawings), construction records and information, consumption statistics, equipment inventory spare parts inventory, etc. ; (c) technical investigation and cost analysis reports; (d) representative sample (cutting and core) of any deep exploratory well activity within the Contract Area upon submission of drilling completion report; (e) other information relating to the Geothermal Operations already acquired by the RE DEVELOPER in the performance of this Contract. t) Abide by the laws and decrees of the Government and other rules and regulations of the DEPARTMENT with respect to environmental protection and safety of the Geothermal Operations and shall endeavor in accordance with the internationally accepted geothermal industry practices to: i. prevent the damage and destruction to the natural environment;
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ii. control blowouts promptly and prevent or avoid waste or loss of Geothermal Resources discovered in or produced from the Contract Area; iii. avoid activities that would adversely affect existing Geothermal Reservoir or other Geothermal Fluid-bearing formation; and iv. prevent damage and destruction to crops, buildings, and other installations. u) Maintain detailed technical records and accounts of Geothermal Operations; v) Conduct coordination meetings with the DEPARTMENT; w) Conform to the Government regulations regarding, among others, safety, non-interference with the rights of other geothermal, mineral, and natural resources operators; x) Maintain all meters and measuring equipment in good order and, upon proper notification from an inspection group, allow access to these as well as to the exploration and production sites to inspectors authorized by the DEPARTMENT; y) Be subject to Philippine Income Tax under the provisions of the National Internal Revenue Code, as amended; z) The RE DEVELOPER, acting as reasonably prudent operator following internationally accepted geothermal industry practices, shall at all time exert best efforts to ensure the performance of its obligations hereunder; aa) Be responsible in securing the geothermal facilities including wells, pipelines, power facilities and all other equipment installed which are necessary for the Geothermal Operations. bb) Refrain from issuing press releases, media statements and interviews on any geothermal Discovery, estimated geothermal reserves and any well drilling operations, tests, and/or results except with prior consent of the DEPARTMENT. The DEPARTMENT shall have the exclusive right to make any such press releases or interviews on the mentioned activities/information; cc) Organize Information, Education, and Communication (IEC) Campaign on benefits to host communities and Local Government Unit(s) where the Project is located pursuant to Section 18 of the DEPARTMENTs Circular No. DC2009-07-0011; 7.2 The RE DEVELOPER shall have the following rights: a) To be granted fiscal and non-fiscal incentives and privileges under the Act, the IRR, and all other existing laws which are not otherwise modified or repealed by the Act; b) Receive assistance from the DEPARTMENT, viz.: i. In obtaining all applicable fiscal and non-fiscal incentives, including registration with the Board of Investments;
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ii.

In securing access to lands and/or offshore areas within the Contract Area where geothermal energy resources shall be harnessed; and

iii. In securing permits from government entities related to the project; c) Exclusive right for the construction of a geothermal power plant in the Contract Area; d) Exemption, upon approval by the DEPARTMENT, from laws, regulations and/or ordinances restricting the exportation of machinery, equipment, spare parts and materials which are imported solely for RE DEVELOPERs Geothermal Operations when no longer needed therefore; e) Right to enter into an agreement for the disposition of the Geothermal Resources produced from the Contract Area with any Third Party; f) Entry, upon the sole approval of the DEPARTMENT, which approval shall not be unreasonably withheld, of alien technical and specialized Personnel (including the immediate members of their families), who may exercise their professions solely for the Geothermal Operations of the RE DEVELOPER; Provided, That if the employment or connection of such alien with the RE DEVELOPER ceases, the applicable laws and regulations on immigration shall apply to him and his immediate family; Provided further, That Filipinos shall be given preference to positions for which they have adequate training and experience (as determined by the RE DEVELOPER); Provided finally, That the RE DEVELOPER shall adopt and implement a training program for Filipinos along technical or specialized lines, in accordance with the provisions of Section XVII hereof; g) Have at all times the right of ingress to and egress from the Contract Area and to and from facilities wherever located; h) Have free and unimpeded use of Geothermal Resource within the Contract Area including Additional Investments therein relative to its Geothermal Operations, in regard of which the GOVERNMENT shall ensure that rights, privileges and other authorizations it may grant to Third Parties will not defeat or impair such use; i) Subject to regulations of the Bangko Sentral ng Pilipinas, be entitled to: i. repatriate over a reasonable period the capital investment and all costs and expenses actually spent on or brought into the country in Foreign Exchange or other assets and registered with the Bangko Sentral ng Pilipinas; ii. retain abroad all Foreign Exchange representing proceeds arising from exports accruing to the RE DEVELOPER and/or its designated Operator over and above: (a) the Foreign Exchange to be converted into pesos in an amount sufficient to cover the costs of the Geothermal Operations payable in Philippine currency; and, (b) revenues due to the Government on such Geothermal Resources; iii. convert into Foreign Exchange and remit abroad at prevailing rates no less favorable to the RE DEVELOPER than those available to any other purchaser of foreign currencies, any excess balances of the RE DEVELOPERs peso earnings from Geothermal Operations and sale over
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and above the current working capital they require; and iv. convert Foreign Exchange into Philippine currency for all purposes in connection with its Geothermal Operations at prevailing rates no less favorable to the RE DEVELOPER than those available to any other purchaser of such currency; j) Exemption from publication requirements under Republic Act No. 5455; and the provisions of Republic Act No. 6173 with respect to the exploration, production, sale or disposition of Geothermal Resources discovered and produced in the Philippines.

SECTION VIII WORK PROGRAM AND BUDGET 8.1 The Two-Year Work Program and budget for Pre-development Stage shall set forth the Geothermal Operations which the RE DEVELOPER proposes to carry out from the Effective Date until end of the second Contract Year. Before the end of 10th month of the last Contract Year of the Work Program, and should extension of Contract is warranted, the RE DEVELOPER shall submit and present to the DEPARTMENT for review and approval of its Work Program and budget for the next two (2) or one (1) Contract Years, as the case may be. Within forty-five (45) days following the receipt of the annual Work Program and budget, the DEPARTMENT shall notify the RE DEVELOPER in writing of its approval or suggest modifications thereto with its detailed reasons. If the DEPARTMENT requests any modifications on the aforesaid annual Work Program and budget, the Parties shall promptly hold meetings to discuss modifications and all suggested modifications will be respectively considered by the RE DEVELOPER. Any modifications agreed upon by the Parties shall be effected immediately. In case the DEPARTMENT fails to act on the proposed annual Work Program and budget within forty-five (45) days from receipt, the proposed annual Work Program and budget shall be deemed to have been approved by the DEPARTMENT. The RE DEVELOPER shall perform the Geothermal Operations in accordance with the approved or modified Work Program and budget. 8.3 The RE DEVELOPER may, in accordance with the following provisions, incur excess expenditures or expenditures outside the budget in carrying out the Work Program and budget, provided that the objectives in the approved Work Program and budget are not changed. a) In carrying out an approved budget for a single item, such as the drilling of well, the RE DEVELOPER may, if necessary, incur excess expenditures of not
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8.2

more than ten percent (10%) of the budgeted amount. The RE DEVELOPER shall inform the DEPARTMENT in writing of such possible excess of aggregate amount ten (10) days prior to incurring such expenditures and explain the need for such expenditures. b) For the efficient performance of the Geothermal Operations, the RE DEVELOPER shall immediately inform the DEPARTMENT through any means of communication for undertaking certain cases of emergency works which are not included in the Work Program and budget even without the DEPARTMENTs prior approval. However the RE DEVELOPER shall submit to the DEPARTMENT a written report on such emergency works within fifteen (15) days after such expenditures are incurred. c) In the event that the aggregate of excess expenditures under Section 8.3(a) herein and expenditures under Section 8.3(b) herein in a Calendar Year cause the total expenditures of that Calendar Year to exceed the approved annual budget, such excess shall not exceed five percent (5%) of the approved annual budget for that Calendar Year. If the aforesaid excess is expected to be in excess of five percent (5%) of the annual budget, the RE DEVELOPER shall present its reasons therefore to the DEPARTMENT in writing and also meet with the DEPARTMENT to discuss the expenditures for approval prior to incurring such expenditures.

SECTION IX GOVERNMENT SHARE 9.1 The RE DEVELOPER shall pay the Government Share equivalent to one and a half percent (1.5%) of the Gross Income from the sale of geothermal steam produced and such other income incidental to and arising from generation, transmission, and sale of electric power generated from geothermal energy within the Contract Area in accordance with Accounting Procedures attached hereto as Annex B.

9.2

The RE DEVELOPER shall within sixty (60) days following the end of each calendar quarter remit to the DEPARTMENT an amount equal to one and a half percent (1.5%) of the Gross Income. Provided, that any unremitted amount shall carry an interest of ten percent (10%) per annum reckoned from the day immediately following end of the calendar quarter. The RE DEVELOPER shall account for its Gross Income in accordance with Annex B.

9.3

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SECTION X INCOME TAXES 10.1 The RE DEVELOPER shall be liable each taxable year for Corporate Income Tax on its net taxable income from Geothermal Operations in accordance with the provisions of the Act and as determined under the provisions of the NIRC, as amended by RA 9337. The RE DEVELOPER shall pay a Corporate Income Tax of 10% after availment of income tax holiday pursuant to the Act.

10.2

SECTION XI PAYMENTS BY RE DEVELOPER 11.1 All payments made by the RE DEVELOPER under this Contract shall be made directly to the DEPARTMENT. All such payments shall be translated at the applicable exchange rates as defined in the Accounting Procedures attached hereto as Annex B. 11.2 In consideration of the execution of this Contract, the RE DEVELOPER shall pay the DEPARTMENT signature bonus in the amount of Five Hundred Thousand Pesos (PhP 500,000).

SECTION XII ASSETS AND EQUIPMENT 12.1 The RE DEVELOPER shall acquire for the Geothermal Operations, only such assets and equipment as are reasonably estimated to be required in carrying out the Geothermal Operations and approved in the Work Program and budget. 12.2 The RE DEVELOPER may also utilize in the Geothermal Operations, equipment owned and made available by the RE DEVELOPER. Charges to the Geothermal Operations account for the use of such equipment shall be made as provided in Annex B (Accounting Procedures) hereto. 12.3 All materials, equipment, plants and other installations erected or placed on the Contract Area by the RE DEVELOPER shall remain the property of the RE DEVELOPER throughout the term of this Contract and after termination thereof.
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The RE DEVELOPER shall be given one (1) year to remove the steamfield facilities, otherwise shall be vested in the Government.

12.4

The ownership of all data, records, samples, and other technical data obtained in the course of performing the Geothermal Operations shall be vested to the DEPARTMENT.

SECTION XIII TECHNICAL DATA AND REPORTS SUBMISSION 13.1 All technical data and reports, except for proprietary techniques used in developing such technical data and reports, must be submitted by the RE DEVELOPER to the DEPARTMENT within sixty (60) days after such technical data and reports become available. The technical data and reports to be submitted by the RE DEVELOPER shall include, but not limited to, the following: a) Annual Progress Report (containing the summary of all the activities, i.e. exploration, drilling or infrastructure development, done within the year with relevant comments and recommendation on any technical findings). b) Drilling Completion Report and Well Testing Completion Report (exploratory, production or reinjection drilling). c) i. Evaluation Reports: Reconnaissance survey of the geothermal area (includes physiography, petrology and stratigraphy, regional and local structural features, volcanomagmatic history, hydrology, physico-chemical characteristic of thermal manifestation and other relevant technical information, accompanied with maps and pertinent figures) ii. 1. Detailed Geoscientific Survey Geological, structural and hydrological report of the prospect (accompanied with maps and pertinent figures). Geophysical report of the resistivity, gravity, magnetic and other geophysical survey done in the area, with geophysical maps and cross sections including raw and processed data.
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2.

3.

Temperature gradient drilling and heat flow measurement report (if any), accompanied with heat flow map and computation of the total heat budget of the prospect. Resources Assessment Report (based on the interpreted geological, geochemical, geophysical and thermal gradient measurement results, accompanied with maps and pertinent figures). Geochemistry of the geothermal system of the prospect, including the chemical analysis of the collected water samples, measurement of water level and temperature in existing wells, in streams and in hot and cold springs. Exploration Drilling Report Petrology, well stratigraphy, borehole geology and subsurface geological report of the well (with well location, core and drill cutting samples and other pertinent well data). Geochemistry of the well (discussing the downhole temperature, discharge test result, type and nature of the discharging fluid and capacity of the well, accompanied with location map and pertinent figures). Geophysical and lithological report of the well Resources Evaluation Report (containing synthesized results of the surface prospecting and drilling studies used in the modeling of the reservoir with its geometry, boundary and characteristics, accompanied with maps, cross sections, diagrams and other pertinent figures). Resources Development and Management Plan (includes plan on the location and number of wells to be drilled, either reinjection or production, location of FCDS, power plants and pertinent infrastructures) Environmental Impact Statement Report

4.

5.

iii. 1.

2.

3. iv.

v.

vi.

SECTION XIV CONFIDENTIALITY 14.1 All documents, information, data and reports generated during Geothermal Operations under this Contract which is herein referred as Confidential Information shall be kept confidential, pursuant to this Section XIV for the duration of the Contract, except in cases as provided for in Sections 14.2, 14.3 and 14.4 hereof. 14.2 Without the written consent of the DEPARTMENT, no company comprising the RE DEVELOPER or any assignee shall disclose the Confidential Information to
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any Third Party and to any Affiliate not directly connected with the implementation of the Contract except the Third Parties and Affiliates in Section herein, and no Party shall otherwise transfer, present, sell or publish it in any way within the confidentiality periods. However, the DEPARTMENT has the right to furnish the following original information and data or interpretation thereon with respect to the Contract Area to any Third Parties: a) raw and/or processed data and information generated and held by the RE DEVELOPER for over two (2) years; and b) interpretations of information and data generated and held by the RE DEVELOPER for over five (5) years. 14.3 The RE DEVELOPER may, furnish necessary Confidential Information to the following Third Parties and Affiliates a) Banks or other credit institutions from which finance is sought by any party to the Contract for the implementation of the Contract; b) Third Parties and Affiliates which provide services for the Geothermal Operations, including Subcontractors and other service contractors; and c) A prospective assignee or assignees to whom rights and obligations under the Contract are intended to be assigned. 14.4 Subject to the DEPARTMENT approval all necessary Confidential Information may be furnished by the RE DEVELOPER to governments and stock exchanges in accordance with the laws of the relevant countries. 14.5 The RE DEVELOPER when furnishing Confidential Information to Third Parties and Affiliates as mentioned in Section 14.3 shall require them to assume the confidentiality obligations as set forth herein.

SECTION XV CONSULTATION AND ARBITRATION 15.1 Dispute, if any, arising between the DEPARTMENT and the RE DEVELOPER relating to this Contract or the interpretation and performance of any of the causes of this Contract, and which cannot be settled amicably, shall be settled by
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arbitration upon written demand of either Party, within thirty (30) days from receipt of such demand. The DEPARTMENT and the RE DEVELOPER shall each appoint an arbitrator and so advise the other Party and the two arbitrators appointed by the Parties will appoint a third arbitrator. If either Party fails to appoint an arbitrator within thirty (30) days after receipt of a written request of the other Party to do so, such arbitrator shall, at the request of the other Party, be appointed in accordance with the laws of the Republic of the Philippines. If the first two arbitrators appointed as aforesaid, fail to agree within thirty (30) days following the appointment of the second arbitrator, the third arbitrator shall be appointed, at the request of either Party, in accordance with the laws of the Republic of the Philippines. If an arbitrator fails or is unable to act, his successor will be appointed in the same manner as the arbitrator whom he succeeds. Unless the Parties agree otherwise, the Philippines shall be the venue of the arbitration proceedings. 15.2 The decision of the majority of the arbitrators shall be final and binding upon the Parties. Judgment upon the award rendered may be entered in any court having jurisdiction or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be. 15.3 Except as provided in this Section, arbitration shall be conducted in accordance with the laws of the Rules of Arbitration of the International Chamber of Commerce, then in effect. 15.4 The right to arbitrate disputes under this Contract shall survive the termination or cancellation of this Contract.

SECTION XVI ASSIGNMENTS AND AUTHORIZATION 16.1 The RE DEVELOPER may assign part or all of its rights and/or obligations under this Contract to its Affiliate with prior notice to the DEPARTMENT and in accordance with the following provisions: a) The RE DEVELOPER shall submit to the DEPARTMENT copies of a
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written agreement on the corresponding part of its rights and/or obligations to be assigned; b) The RE DEVELOPER shall guarantee in writing to the DEPARTMENT the performance of the assigned obligations; and c) No such assignment shall interfere with the performance of the Geothermal Operations. 16.2 The RE DEVELOPER may assign part or all of its rights and/or obligations under the Contract to any Third Party, provided that such assignment shall be approved by the DEPARTMENT in advance and provided further that such approval shall not be unreasonably withheld. SECTION XVII EMPLOYMENT AND TRAINING OF PHILIPPINE PERSONNEL 17.1 The RE DEVELOPER agrees to employ qualified Filipino personnel in the Geothermal Operations and, after commercial production commences, will undertake, upon prior approval of the DEPARTMENT, the schooling and training of Filipino Personnel for labor and staff position, including administrative, technical and executive management positions. The RE DEVELOPER shall undertake upon approval of the DEPARTMENT a program of training assistance for the DEPARTMENTs personnel. 17.2 The RE DEVELOPER as directed by the DEPARTMENT shall provide assistance in kind in the amount of Five Hundred Thousand Pesos (PhP 500,000.00). 17.3 The RE DEVELOPER shall provide assistance for training programs, conference seminars and other similar activities for the DEPARTMENTs personnel with a total training commitment of Fifteen Thousand United States Dollars (US$ 15,000.00) per year cumulative during pre development stage and Forty Thousand United States Dollars (US$ 40,000.00) per year cumulative during the development stage. The RE DEVELOPER shall pay the unutilized amount of the training commitment prior to the expiry or termination of this Contract. Training and institutional development assistance in the amount of Five Hundred Thousand Pesos (PhP 500,000.00) will be granted to the residents as determined by the host province in the form of scholarship as directed by the DEPARTMENT under its geothermal energy development program in any State University.
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SECTION XVIII STABILIZATION 18.1 Rights and obligations under this Contract shall be deemed as essential considerations for the conclusion hereof and shall not be unilaterally changed or impaired. 18.2 This Contract shall not be annulled, amended or modified in any respect except by the mutual consent in writing of the Parties hereto. 18.3 The RE DEVELOPERs rights under this Contract shall not be impaired and its obligations shall not be increased by: (1) any change in Philippine laws or regulations; or, (2) any change in the manner of implementing any existing laws or regulations; or (3) any introduction of new laws or regulations; or (4) any cancellation of existing laws or regulations.

SECTION XIX HEALTH, SAFETY AND ENVIRONMENTAL PROTECTION 19.1 In the performance of the Geothermal Operations, the RE DEVELOPER shall be subject to the Philippine laws, decrees and regulations on environmental protection, indigenous people rights and safety promulgated by the Government and endeavor to make its best efforts to prevent pollution and damage to the atmosphere, oceans, rivers, lakes, harbors and land, and secure the safety and health of the operating personnel. The RE DEVELOPER shall use all reasonable endeavors as are applicable to eliminate promptly any pollution occurring in the performance of the Geothermal Operations and minimize its consequences. 19.2 When the Government assigns any person to inspect for environmental protection and safety within the scope of the Geothermal Operations according to relevant laws, decrees, rules and regulations, The RE DEVELOPER shall provide such reasonable facilities and assistance as are applicable to enable the inspectors to carry out such inspection smoothly. The RE DEVELOPER shall be given reasonable notice of all such inspections.

SECTION XX

BOOKS OF ACCOUNTS AND AUDITS

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20.1

The RE DEVELOPER shall be responsible for keeping complete books of accounts, in Philippine currency denomination, reflecting all transactions in connection with Geothermal Operations in accordance with the Accounting Procedures attached hereto as Annex B. The DEPARTMENT shall have the right to inspect and audit the RE DEVELOPERs books of accounts directly relating to this Contract for any Calendar Year within twenty-four (24) months following the end of each Calendar Year. Any such audit shall be completed within twelve (12) months after its commencement. Any exceptions must be made to the RE DEVELOPER in writing within ninety (90) days following the completion of such audit. If the DEPARTMENT fails to give such written exception within such time, then the RE DEVELOPERs books of accounts and statements for such Calendar Year shall be established as correct and final for all purposes. The DEPARTMENT, upon at least fifteen (15) calendar days advance written notice to the RE DEVELOPER, is entitled to access during reasonable hours without affecting Geothermal Operations all relevant joint accounts, records, files and other information and may inspect such sites and facilities as necessary. If the DEPARTMENT notifies the RE DEVELOPER of an exception to the RE DEVELOPERs books of accounts within the period specified in Section 20.2 above, the RE DEVELOPER shall within ninety (90) days from receipt of written exception from the DEPARTMENT, question its validity, otherwise, the same shall become final and binding on the RE DEVELOPER. If the Parties are not able to agree on the exceptions or adjustments after ninety (90) days from the date of receipt of the RE DEVELOPERSs response to the DEPARYMENTs exception report, the parties shall resolve the dispute in accordance with the Section on Arbitration. SECTION XXI OTHER PROVISIONS

20.2

20.3

20.4

21.1

Any notice required or given by either Party to the other Party shall be in writing and shall be effective when a copy thereof is handed to or served upon the Partys duly designated representative or the person in charge of the office or place of business, or when sent by registered mail, notice shall be effective upon actual receipt by the addressee, but if he fails to claim his mail from the post office within five (5) days from the date of the first notice of the postmaster, service shall take effect at the expiration of such time. All such notices shall be addressed, as follows: To the DEPARTMENT ____________________________ The Director Renewable Energy Management Bureau Department of Energy Merritt Road,
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Fort Bonifacio Taguig City, Metro Manila, Philippines 1201 Telefax: (632) 840-2068 To the RE DEVELOPER ____________________________ ____________________________ ___________________________ ___________________________ ___________________________ ___________________________ Telefax ____________________ Telephone Nos. ______________ Any Party may substitute or change such address on written notice thereof to the other Party. 21.2 The laws of the Republic of the Philippines shall govern and apply to this

Contract 21.3 The obligations under this Contract maybe suspended based on the following conditions: a) Any failure or delay on the part of either Party in the performance of its obligations or duties hereunder shall be excused to the extent attributable to Force Majeure. b) If Geothermal Operations are delayed, curtailed or prevented by such causes, then the time for enjoying the rights and carrying out the obligations hereunder shall be extended for a period equal to the period thus involved; Provided, however, that if Geothermal Operations are delayed, curtailed or prevented by Force Majeure for a continuous period of three (3) months, this Contract may thereafter be terminated by either Party at anytime that the Force Majeure condition still exists. c) Force Majeure shall include Acts of God, unavoidable accidents, acts of war or conditions arising out of or attributable to war (declared or undeclared), riots, insurrections, strikes, lockouts, and other similar labor disturbances, floods and storms. d) The Party whose ability to perform its obligations is so affected shall notify the other Party thereof in writing stating the cause and both Parties shall do all reasonably within their power to remove such cause
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21.4

Steam Pricing should be approved by the DEPARTMENT based on market price

or arms length negotiation with the Third Party.

SECTION XXII TERMINATION 22.1 The DEPARTMENT shall have the power to terminate this Contract after due notice in the event the RE DEVELOPER, without justifiable cause, commit any of the following: a) failure to fulfill its work obligation in any Contract Year of pre development or development stage; b) non-remittance of the government share; c) failure to implement safety and environmental protection measures required by the DEPARTMENT; d) non-submission of the reportorial requirements; e) non-payment of the financial obligations agreed upon under this Contract; f) non-compliance of obligations under the Renewable Portfolio Standards Rules (as such term is used in the IRR and Guidelines), as applicable, g) non-compliance with internationally-accepted renewable energy technical design standards adopted by the DOE, h) tampering or plagiarizing of technical design, feasibility study, generation and operation reports; or i) failure to post a bond or any other guarantee within the period agreed upon provided for in Section 7.1 (i). IN WITNESS WHEREOF, the Parties hereto have executed this Contract as of the day and year first above written.

GOVERNMENT OF THE REPUBLIC OF THE PHILIPPINES THROUGH THE DEPARTMENT OF ENERGY By: __________________________________ __________________________________ By:

HONORABLE ______________________

___________________________________

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