September 3, 1979

LETTER OF INSTRUCTIONS NO. 926

WHEREAS, it is the declared policy of the State to promote the rapid integrated development and growth of the coconut and other palm oils industry in all its aspects and to ensure that the coconut farmers become direct participants in, and beneficiaries of, such growth and development;

WHEREAS, the coconut industry is one of the major earners of foreign exchange for the country and, therefore, its continued survival, growth and development is vital to the national economy;

WHEREAS, a major sector of the coconut industry, the coconut oil milling industry, is presently in a state of financial distress brought about, among others, by:

a) The overcapacity of the existing coconut oil mills;

b) The cutthroat competition for copra;

c) The inefficient and uneconomic flow of copra supply from island to island without regard to the respective locations of the coconut oil mills; aisa dc

d) The resultant poor competitive position of Philippine copra, coconut oil and their by-products in the international market for fats and oils;

WHEREAS, the state of financial distress of the coconut oil milling industry is of such serious nature that most, if not all, of the persons or entities engaged in the business of coconut oil milling will be rendered insolvent to the ultimate prejudice of the coconut farmers, in particular, and of the country, as a whole;

WHEREAS, extensive studies indicate that the most feasible and practicable solution to the problems confronting the coconut oil milling industry is for the account farmers and the oil millers to pool their resources and coordinate their copra selling and buying, oil milling and marketing efforts, and thereby realize optimum benefits resulting from economies of scale; cd i

WHEREAS, the appropriate vehicle to implement such a cooperative endeavor is a private domestic corporation jointly owned or controlled by the coconut farmers and the oil millers;

WHEREAS, the coconut farmers, through the Philippine Coconut Producers Federation (COCOFED), and entities owning/controlling a substantial portion of the country's entire copra milling capacity have signified their willingness and determination to join in such cooperative endeavor, with a private domestic corporation as the vehicle therefor;

WHEREAS, it is to the national interest that the Government provide concrete assistance and support to the cooperative endeavor;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President/Prime Minister of the Philippines, by virtue of the powers vested in me by the casia

SECTION 1. Declaration of National Policy It is hereby declared to be the policy of the State to rationalized the coconut oil milling industry and insure its survival, viability and stability and thereby assure the consuming countries of an adequate and continuous supply, at fair and reasonable prices, of copra, coconut oil and their by-products; that this policy can be expeditiously and efficiently realized by the pooling of the resources and the coordination of the copra buying and selling, oil milling and marketing efforts of both the coconut farmers and the oil millers in order that the optimum benefits resulting from economies of scale may be realized; and that the most appropriate vehicle for such pooling and coordination is a joint venture company between the coconut farmers and the oil millers.

SECTION 2. Organization of the Cooperative Endeavor. The Bank acquired for the benefit of the coconut farmers pursuant to the provisions of cdtai

a) The coconut farmers shall own or control at least fifty percent (50%) of the outstanding voting capital stock of the private corporation thru the CIIF and/or corporations owned or controlled by the coconut farmers thru the CIIF;

b) The private corporation authorized to be organized and the bank acquired for the benefit of the coconut farmers shall determine which of the domestic coconut mills are in a position to better promote and successfully pursue the objectives of the cooperative endeavor ("Participating Mills") and shall enter into appropriate contracts with such domestic coconut mills for their participation either as an operating mill and/or affiliate or subsidiary under such terms and conditions as said corporation and bank may deem beneficial and necessary to carry out the intent and purpose of the contemplated cooperative endeavor; and

c) The private corporation authorized to be organized and the Participating Mills shall be entitled Government support and assistance upon certification by the bank acquired to the benefit of the coconut farmers that the said private corporation owns or controls, either directly or indirectly, or under such contractual arrangements as it may deem necessary and beneficial, coconut mills with an aggregate capacity of at least 6,000 metric tons per day of copra.

SECTION 3. Prohibitions No government agency or instrumentality shall hereafter authorize, approve or grant any permit or license to establish, import and/or operate any coconut oil mill in addition to those now in operation in the country. In the event that there is a need to establish a new coconut oil mill, or to expand the capacity of an existing mill, or to relocate an existing mill, or to upgrade the efficiencies of an existing mill in order to fully and economically exploit the available copra in a particular locality or region and/or prevent the uneconomical and wasteful flow of the supply of copra from one island to another, the private corporation authorized to be organized shall have the priority to establish and operate such new mill, or to expand the capacity, upgrade the efficiency or relocate the mills owned or controlled by it or by any mill certified by it as a Participating Mill. aisa dc

SECTION 4. Financial Borrowings All financial borrowings of the private corporation authorized to be organized as well as of any Participating Mill to finance their respective capital expenditures including purchase of spare parts and inventories shall be expeditiously and promptly approved, and such borrowings more hereby declared exempt from restrictions/limitations: on simple borrower's limitations; and on loans to corporations with interlocking directors, officers, stockholders, related interests and subsidiaries and affiliates, it being understood that such lendings are in effect made to the coconut industry as whole and not to any particular individual or entity. cdt

SECTION 5. Rediscounting Negotiable instruments issued by the private corporation authorized to be organized or, by a Participating Mill, as the case may be, to finance its inventories shall be eligible for rediscounting with the Central Bank at the most preferred rates, and such discounting facilities shall be available to them promptly to minimize carrying costs for their inventories.

SECTION 6. Foreign Exchange Allocation Upon certification by the bank acquired for the benefit of the coconut farmers under

SECTION 7. Financial Assistance All government or controlled financial institutions, including, but not limited to, the Philippine National Bank, the Development Bank of the Philippines and the National Investment and Development Corporation, which have outstanding defaulted loans in favor of any Participating Mill certified to as such by the private corporation authorized to be organized shall extend the maturity of such loan(s), at preferential interests rates, for such period(s) and under such terms and conditions as may be necessary and appropriate under the circumstances, including, but not limited to, the waiver of surcharges, attorney's fees, penalties and similar charges, as would assure the viability and stability of the private corporation authorized to be organized. cd

SECTION 8. Coordinating Agency The Philippine Coconut Authority acting thru its Chairman is hereby directed and ordered:

a) To act as the coordinating agency and insure that the Government assistance and support herein ordered to be given to the cooperative endeavor of the coconut farmers and the oil millers are fully extended and promptly complied with; and

b) To study and recommend, for approval of the President, additional feasible measures which would further insure the survival, development, growth and success of the coconut oil milling industry, which measures may include, but not limited to, the channeling of all exports of copra and/or coconut oil and their by-products through the private corporation authorized to be organized.

DONE in the City of Manila, this 3rd day of September, in the year of Our Lord, Nineteen Hundred and Seventy-Nine. aisa dc