MEMO FOR : SKP

FROM : MPR
RE : Overview of CRN 8 (SBN 1233)
DATE : December 13, 2016

CRN 8
Title
“An Act
Creating the Coconut Farmers and Industry Trust Fund, Providing For
Its Management and Utilization, and For Other Purposes”
(Coconut Farmers and Industry Development Act)

Author(s):
Senators Pangilinan, Recto, Villar, Aquino IV, and Hontiveros

Sponsor: Senator Pangilinan

I. Subject Matter of the Bill

 The measure proposes a complete accounting and inventory of the

coconut levy assets as well as the creation of the Coconut Farmers
and Industry trust Fund for the development of the Industry and for
the benefit of coconut farmers and workers in the country.

II. Problem, Situation, or “Evil” Sought to be Addressed

 The rehabilitation and development of the coconut industry

III. How does the Bill intend to achieve this?

 Through the disposition of the Coco levy funds as well as the creation
of the Coconut Farmers and Industry Trust Fund.

IV. What is the current situation or rule?

 Substantial collections have been accumulated from the imposition of

the coco levy. By 1986, the coco levy funds have amounted to as
much as P9.7 Billion. After forty five (45) years since its
establishment, the Coco Levy Funds is now estimated to be worth
P100 Billion in aggregate market value, comprising various assets
and entities such as the Coconut Industry Investment Fund – Oil Mills
Group (CIIF-OMG), including its fourteen (14) holding companies,
 as well as the United Coconut Planters Bank (UCPB), United
Coconut Chemicals (Cocochem), United Coconut Planters
International (UCPI), United Coconut Planters Assurance
Corporation (Cocolife), and shares of stock in San Miguel
Corporation (SMC) that are owned by the CIIF-OMG Companies.

 With regard to the ownership issue of the Coco Levy funds, a partial
summary judgment of the Sandiganbayan on the case of Republic vs.
COCOFED, et.al (Civil Case No. 0033-F) dated May 7, 2004, states:

“The Motion for Partial Summary Judgment Re: Defendants CIIF

Companies, 14 Holding Companies, and Cocofed, et al.) filed by
Plaintiff is hereby GRANTED. Accordingly, the CIIF1 the 14
Holding Companies2, and the CIIF block of San Miguel Corporation
(SMC) shares of stock totalling 33,133,266 shares as of 1983 together
(sic) with dividends declared, paid and issued thereon as well as any
increments thereto, arising from, but not limited to, (sic) the exercise
of pre-emptive rights, are declared owned by the Government in trust
for all the coconut farmers and ordered reconveyed to the
government.

 In 2012, the P57 Billion SMC shares were turned over to the National
Treasury.

 On March 18, 2015, Executive Order Nos. 179 and 180 were issued
by then President Benigno S. Aquino III to provide for administrative
guidelines for the inventory and privatization of coco levy assets and
the use of the recovered funds from the SMC shares. The
implementations of these executive issuances, however, were put on
hold due to a Temporary Restraining Order (TRO) issued by the
Supreme Court during the same year.

1
Southern Coconut Oil Mills (SOLCOM); Cagayan de Oro Oil Co., Inc.
(CAGOIL); Iligan Coconut Industries, Inc. (ILICOCO); San Pablo Manufacturing
Corporation (SPMC); Granexport Manufacturing Corporation (GRANEX); and
Legaspi Oil Co., Inc. (LEGOIL),
2
Soriano Shares, Inc.; ACS Investors, Inc.; Roxas Shares, Inc.; Arc Investors, Inc.;
Toda Holdings, Inc.; AP Holdings, Inc.; Fernandez Holdings, Inc.; SMC Officers
Corps, Inc.; Te Deum Resources, Inc.; Anglo Ventures, Inc.; Randy Allied
Ventures, Inc.; Rock Steel Resources, Inc.; Valhalla Properties Ltd., Inc.; and First
Meridian Development, Inc.
V. Salient Features of the Bill

a. Declaration of Policy (Section 2) – consolidate the benefits due

to coconut farmers under various statutes, and to expedite the
delivery thereof.

b. Coco Levy Funds (Section 3, Definition of terms) - shall refer to

various funds generated from levies, taxes, charges, and other
fees exacted or imposed pursuant to or in connection with the
sale of copra rececada or its equivalent in other coconut
products, and collected for the most part from coconut farmers,
planters, millers, refiners, processors, exporters, desiccators and
other end-users of copra rececada or its equivalent in other
coconut products. Specifically, the term shall refer to any or all
of the following:

 The Coconut Investment Fund

 The Coconut Consumers Stabilization Fund/ Coconut
Industry Stabilization Fund
 Coconut Industry Development Fund
 Coconut Reserve Fund

c. Accounting, Inventory, and Audit of Coco Levy Assets (Section

4) – the Presidential Commission on Good Governance (PCGG)
shall conduct a complete accounting and inventory of the
Coconut Levy Assets within thirty (30) days from the effectivity
of the bill.

The Commission on Audit (COA) shall audit the accounting and

inventory prepared by the PCGG to determine its completeness,
reasonableness of asset valuation, and to trace the flow of the
funds. The COA shall submit its audit report and inventory of
the complete list of Coconut Levy Assets to the Coconut
Farmers and Industry Trust Committee (“Committee”). The
Committee shall then publish the same in two (2) newspapers of
general circulation.

d. Reconveyance of Coconut Levy Assets (Section 5) - immediately

upon the effectivity of the measure, the PCGG and/or any
government agency or person having any Coconut Levy Assets in
its/his administration, authority, custody, or control, shall:
 o Reconvey title to the Republic of the Philippines over the
Coconut Levy Assets;

o Deliver all stock certificated and other evidence of ownership to

the Bureau of Treasury (BTr) for safekeeping; and

o Transfer all cash Coconut Levy Assets to the Trust Fund.

e. Coconut Farmers and Industry Trust Fund (Section 6) – the Trust

Fund shall be perpetually maintained and used exclusively for the
benefit of the coconut farmers and for the development of the
coconut industry.

Capitalization of the Trust Fund (Section 7)

Initial Trust Principal – includes the following:

o Proceeds from the redemption of the converted SMC shares;

o Dividends declared, paid, or issued on the converted SMC

shares, and all income or interest derived therefrom as of the
effectivity of the proposed measure; and

o Any other cash Coconut Levy Asset held by the BTr as a special
account

The Trust Fund shall thereafter be augmented with all proceeds of

the privatization/disposition of the Coconut Levy Assets remitted
directly thereto by the Privatization and Management Office
(PMO).

No portion of the Trust Fund shall accrue to the general fund of the
National Government.

Management and Investment of the Trust Fund (Section 8)

The Committee shall prudently manage and invest the trust

principal, adhering to the principles of safety, capital preservation,
growth, and liquidity.

The Committee shall also promulgate the necessary Investment

Guidelines and shall tap the services of the BTr and other fund
managers in implementing the same.
 The BTr shall invest all cash Coconut Levy Assets under its
administration in government securities that will provide the best
possible return for the Trust Fund - immediately upon the
effectivity of the proposed measure, and until such time that the
Committee had promulgated said Investment Guidelines and
appointed managers for the Trust Fund.

Utilization of the Trust Fund Principle and Income (Section 9)

Initial Implementation: the amount not exceeding ten percent (10%)

of the initial Trust Principal may be disbursed by the Committee
within two (2) years commencing from the approval of the Coconut
Farmers and Industry Development Plan by the President (pending
the accrual or availability of the Trust Fund income).

Succeeding Implementation: thereafter, only the Trust Fund income

accruing during the immediately preceding year can be used to fund
programs and projects that have been identified in the plan.

Note: All fund releases approved by the Committee shall be

released directly to the implementing agencies.

Depository of the Trust Fund (Section 10)

The BTr shall be designated as the depository of the Trust Fund. It

shall:

o hold and account the Trust Fund in the manner set forth by the
Committee;
o release funds directly to the implementing agencies upon the
instruction of the Committee;
o act as a fund manager of the investments of the Trust Fund with
the authority and accountability as that of a private fund
manager when so appointed by the Committee; and
o perform other tasks as may be mandated by the Committee.

f. Coconut Farmers and Industry Development Plan (“Plan”):

The Plan shall:

o Set the directions and policies for the development and

rehabilitation of the coconut industry;
 o Define the roles and contribution of Coconut Levy Assets to
support said rehabilitation and development, which shall serve
as basis in the retention or privatization/disposition of any or all
of the Coconut Levy Assets;

o Include a National program for coconut productivity and social

protection mechanism that will directly benefit coconut
workers, farm workers, and their families.3

o Provide criteria for targeting beneficiaries, the indicators in

determining the attainment of its objectives, and the mechanism
for monitoring and evaluation of the impact of the different
components of the program.

o Provide an indicative funding requirement or allocation for the

implementation of programs and projects to be funded by the
initial Trust Fund principal and the Trust Fund Income, which
funding shall be itemized on a project-to-project basis.4

o Note: programs relative to planting, re-planting, fertilization,

research and development, market promotion, farm-to-market
roads, and direct lending shall be funded through regular
appropriations.

The following shall be considered in the formulation of the Plan:

o increased farm productivity and incomes of coconut farmers;

o establishment of coconut-based enterprises;

3
Under the measure, the Committee is authorized to validate the reliability and
completeness of the coconut farmer’s registry of the Philippine Coconut Authority
(PCA) form which the beneficiaries shall be identified.
4
For projects which are recurring, or to be implemented on a regular basis, the
allocation shall indicate the annual fund that may be required to implement said
project; and for projects that are to be implemented or concluded within a period of
time, the allocation shall indicate the total fund that may be required for the
implementation of the whole project, itemized according to the stages of said
project.
 o rehabilitation and modernization of the coconut industry
towards global competitiveness; and

o poverty alleviation and social equity.

Agencies involved in the preparation of the Plan; ad hoc committee

(Section 11)

Chairman: Director General of the NEDA

i. National Economic and Development Authority;

ii. Department of Agriculture;
iii. Department of Agrarian Reform;
iv. Department of Interior and Local Government;
v. Department of Public Works and Highways;
vi. Department of Social Welfare and Development;
vii. Department of Trade and Industry;
viii. Philippine Coconut Authority;
ix. Commission on Higher Education;
x. National Anti-Poverty Commission;
xi. Three (3) Representatives from coconut farmers organizations,
one each from Luzon, Visayas, and Mindanao; and
xii. One (1) representative from industry associations

g. Coconut Farmers and Industry Trust Committee (Section 12):

o Composition (11 members):

 Chairman – Secretary of Finance

 Co Chairman – Secretary of Agriculture

Members:
 NEDA Director-General
 Secretary of the Department of Trade and Industry
 Administrator of the Philippine Coconut Authority
 Six (6) representatives from the coconut farmers sector
(two each from Luzon, Visayas, and Mindanao,
respectively)

o Attached to the office of the President and shall have the

following powers and functions, among others:
 i. Supervise, coordinate and monitor the implementation of the
Plan;

ii. Formulate and amend the Investment Guidelines, provided

that no funds shall be invested in Prohibited Investments;5

iii. Appoint fund managers as it deems necessary to manage the

investments of the Trust Fund;

iv. Approve disbursements from the initial Trust Fund Principal

and the Trust Fund Income, including the funding for (i) the
operation of the Committee which shall not exceed Forty
Million Pesos (P40,000,000.00) on the first year and not
more than three percent (3%) of the Trust Fund for every
year thereafter;

v. Exercise on behalf of the National Government all rights and

incidents of ownership to the Coconut Levy Assets;

vi. Identify all portions of the Coconut Levy Assets for

privatization or disposition and arrange for their transfer to
the PMO for the same purposes pursuant to the directions
and policies set in the Plan;

vii. Approve, or disapprove, on behalf of the National

Government and without need of any further approval by, or
other action from any other government institution or
agency, the sale, disposition or dissolution of such assets,
which sale or disposition shall be conducted by the PMO;

viii. Determine transfer values and related valuations at which

the Coconut Levy Assets shall be transferred and conveyed
to the PMO pursuant to the mandate of the proposed
measure and upon reasonable consultation with the COA or
a third-parry appraiser; and6

5
‘Prohibited Investments" shall refer to any of the following; direct investments
into companies, private placements and direct lending, derivative instruments,
margin purchases, short sales, and investments in real estate.
6
Provided, that any valuation approved by the Committee for purposes of the
transfer to the PMO shall not be deemed a condonation , waiver, ex
 ix. Submit to the President and the Congress a report (on a
semi-annual basis) on the status of disposition of the
Coconut Levy Assets, which shall include a description of
the individual assets as disposed of, their purchasers, the
consideration received, and the agreed terms of payment.

h. Privatization of the Coconut Levy Assets (Section 19) – the

Committee shall determine the Coconut Levy Assets which need to
be privatized and which should be retained by the National
Government to support the coconut farmers and the development of
the coconut industry. For this purpose, the Committee shall be
guided by the following standards:

o The functions or purposes for which the entity was created are
no longer relevant to the State or no longer consistent with the
national development policy of the State;

o the functions or purposes of the entity duplicate or unnecessarily

overlap with functions, programs, activities or projects already
provided by another agency;

o the entity is not producing the desired outcomes, or is no longer

achieving the objectives for which it was originally designed
and implemented;

o the entity is dormant or non-operational; and

o the function, purpose, or nature or operations of any group of

entities requires consolidation under a holding company.

i. Additional mandate of the Privatization and Management Office

(PMO) in addition to its powers and duties under Executive Order
No. 323, s. 2000:7

o It shall take title to and possession of, conserve, provisionally

manage, and dispose of the Coconut Levy Assets which have
been identified for privatization and disposition, for and in
behalf of the government;

7
Executive Order No. 323 – Constituting an Inter-Agency Privatization Council
and Creating a Privatization and Management
 o Execute and deliver, on behalf of the national government,
deeds of sale, contracts, trust instruments, and other legally
operative documents as may be necessary or appropriate to
convey title to, take possession of, and conserve such assets;

o Engage external expertise as may be necessary for the fulfilment

of its tasks under the proposed measure; and

o Adopt internal rules and regulations in relation to the marketing

and disposition of the Coconut Levy Assets.

*Note: However, any and all sales and other modes of privatization or
disposition shall not be considered final unless approved or ratified by
the Committee.

j. Remittance of the Proceeds of Privatization – all proceeds or receipts

from the sale of Coconut Levy Assets shall be remitted to the Trust
Fund, except:

o Portions thereof for reimbursable custodianship and operational

expenses; or

o Such amount approved by the Committee to be retained by the

PMO.
http://www.youtube.com/watch?v=KMU0tzLwhbE
h. Congressional Oversight – the Congressional Oversight Committee
on Agricultural and Fisheries Modernization (COCAFM) shall
exercise oversight on the implementation of this Act.

VI. Related Constitutional Provisions and Concepts, Treaties, Laws,

Rules, and Regulations

1. 1987 Constitution
Article II (Declaration of State Principles and Policies)
Section 10 – Promotion of Social Justice
Section 18 – The State affirms labor as a primary social economic
force. It shall protect the rights of workers and promote their
welfare.
 Section 21 – the State shall promote comprehensive rural
development and agrarian reform.
Article XIII (Agrarian and Natural Resources)
Section 5 - The State shall provide support to agriculture through
appropriate technology and research, and adequate financial
production, marketing, and other support services.
2. Republic Act No. 6260 (An Act Instituting a Coconut Investment
Fund and Creating a Coconut Investment Company for the
Administration Thereof), June 19, 1971.8

3. Presidential Decree No. 276 - established the Coconut Consumers

Stabilization Fund (CCSF) and declared the proceeds of the CCSF
levy as trust fund to be utilized to subsidize the sale of coconut-based
products, thus stabilizing the price of edible oil.

4. Presidential Decree No. 582 – created the Coconut Industry

Development Fund (CIDF) to finance the operation of a hybrid
coconut seed farm.

5. Presidential Decree No. 775 - authorized PCA to utilize the CCSF

and the CIDF collections to acquire a commercial bank and deposit
the CCSF levy collections in said bank, interest free, the deposit
withdrawable only when the bank has attained a certain level of
sufficiency in its equity capital.

8
under Section 8 thereof, the Coconut Investment Fund (CIF) was to be sourced from a PhP 0.55 levy on the sale
of every 100 kilogram of copra. Of the PhP 0.55 levy of which the copra seller was, or ought to be,
issued COCOFUND receipts, PhP 0.02 was placed at the disposition of COCOFED, the national association of
coconut producers declared by the Philippine Coconut Administration (PHILCOA) - now PCA - as having the largest
membership