The Board of Directors and Management of Aboitiz

Power Corporation hereby commit to the principles

and best practices contained in this Manual, and

acknowledge that the same may guide the attainment

of our corporate goals.

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Table of Contents

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This Manual shall institutionalize the principles of good corporate governance in the

entire organization.

The Board of Directors, Management, Employees, and Shareholders of Aboitiz Power

Corporation (hereinafter, APC) believe that corporate governance is a necessary

component of what constitutes sound strategic business management and will therefore

undertake every effort necessary to create awareness within the organization as soon as

possible.

To insure adherence to corporate principles and best practices, the Chairman of the

Board hereby designates as Compliance Officer the Corporate Secretary, who shall

hold, at minimum, the position of a Vice President or its equivalent. He shall have

direct reporting responsibilities to the Chairman of the Board.

He shall perform the following duties:

a) Monitor compliance with the provisions and requirements of this Manual;

b) Appear before the Securities and Exchange Commission upon summons on

similar matters that need to be clarified by the same;

c) Determine violations of the Manual and recommend penalties for violations

thereof for further review and approval of the Board;

d) Issue a certification every January 30

th

of the year on the extent of APC’s

compliance with this Manual for the completed year, explaining the reasons,

if any, for the latter’s deviation from the same; and

e) Identify, monitor and control compliance risks.

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The appointment of the Compliance Officer shall be immediately disclosed to the

Securities and Exchange Commission on Sec Form 17-C and to the Philippine

Stock Exchange. All correspondence relative to his functions as such shall be

addressed to the Compliance Officer.

Compliance with the principles of good corporate governance shall start with the

Board of Directors.

It shall be the Board’s responsibility to foster the long-term success of APC and

secure its sustained competitiveness in a manner consistent with its fiduciary

responsibility, which it shall exercise in the best interest of APC, its shareholders

and other stakeholders. The Board shall conduct itself with utmost honesty and

integrity in the discharge of its duties, functions and responsibilities.

A director’s office is the one of trust and confidence. A director shall act in a

manner characterized by transparency, accountability and fairness.

To insure a high standard of best practices for APC and its stakeholders, the

Board shall:

a) Install a process of selection to ensure a mix of competent directors and

officers.

Continuously determine APC’s purpose, its vision and mission and strategies to

carry out its objectives.

b) Ensure that APC complies with all relevant laws, regulations and codes of

best business practices;

c) Identify APC’s major and other stakeholders and formulate a clear policy on

communication or relating with them through an effective investor relations

program.

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d) Adopt a system of internal checks and balances;

e) Identify key risk areas and key performance indicators and monitor these

factors with due diligence;

f) Properly discharge Board functions by meeting regularly. Independent views

during Board meetings shall be given due consideration and all such

meetings shall be duly minuted; and

g) Keep Board authority within the powers of the institution as prescribed in the

Articles of Incorporation, By-Laws and in existing laws, rules and regulations.

A director shall comply with the following duties and responsibilities:

a) Conduct fair business transactions with APC and ensure that personal

interest does not bias Board decisions;

b) Devote time and attention necessary to properly discharge his duties and

responsibilities;

c) Act judiciously;

d) Exercise independent judgment;

e) Have a working knowledge of the statutory and regulatory requirements

affecting APC, including the contents of its Articles of Incorporation and By-

Laws, the requirements of the Commission, and where applicable, the

requirements of other regulatory agencies. The Corporate Information

Officer shall ensure that directors and officers shall be updated on their

corporate duties and responsibilities and on current relevant laws, rules and

jurisprudence, and best business practices.

f) Observe confidentiality;

g) Ensure the continuing soundness, effectiveness and adequacy of APC’s

control environment.

A member of the Board must be:

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a) a holder of at least one (1) share of stock of APC;

b) at least a college graduate or have sufficient experience in managing the

business to substitute for such formal education;

c) at least twenty one (21) years old;

d) proven to possess integrity and probity;

e) have no conflict of interest.

f) able to devote his time in fulfilling his duties and responsibilities as Director.

Any person:

a) finally convicted judicially of an offense involving moral turpitude or

fraudulent act or transgressions;

b) finally found by the Commission or a court or other administrative body to

have willfully violated, or willfully aided, abetted, counseled, induced or

procured the violation of, any provision of the Securities Regulation Code,

the Corporation Code, or any other law administered by the Commission or

Bangko Sentral ng Pilipinas, or any rule, regulation or order of the

Commission or Bangko Sentral ng Pilipinas;

c) judicially declared to be insolvent;

d) finally found guilty by a foreign court or equivalent financial regulatory

authority of acts, violations or misconduct similar to any of the acts,

violations or misconduct listed in the forgoing paragraphs; and

e) Convicted by final judgment of an offense punishable by imprisonment for a

period exceeding six (6) years, or a violation of the Corporation Code,

committed within five (5) years prior to the date of his election or

appointment.

Any of the following shall be a ground for the temporary disqualification of a

director:

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a) Refusal to fully disclose the extent of his business interest as required under

the Securities Regulation Code and its Implementing Rules and Regulations.

This disqualification shall be in effect as long as his refusal persists.

b) Absence or non-participation for whatever reason for more than fifty percent

(50%) of all meetings, both regular and special, of the Board of Directors

during his incumbency, on any twelve (12) month period during said

incumbency. This disqualification applies for purposes of the succeeding

election;

c) Dismissal from directorship in another listed corporation for cause. This

disqualification shall be in effect until he has cleared himself of any

involvement in the alleged irregularity;

d) Being under preventive suspension by APC.

e) If the independent director becomes an officer or employee of APC he shall

be automatically disqualified from being an independent director.

f) Conviction that has not yet become final referred to in the grounds for the

disqualification of directors.

The Board of Directors are selected and elected to serve the organization

according to the procedures set forth in the By-Laws, with particular care in

regard to an officers’ ability to perform duties and responsibilities as specified in

this Manual.

The Board follows a screening process and evaluates its Directors and Officers

based on:

a) background

b) skills and characteristics

c) ability to act in good faith in the interest of APC and its stakeholders

d) capacity to provide business continuity

e) possession of a keen understanding of the business

f) qualifications and standing as specified in this Manual

The Board may select or appoint its own members recommended by the

Nomination Committee. It may appoint members of senior management as a

Director. The invitation to join the Board is extended by the Board itself.

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The Board does not believe it should establish term limits. Instead, a review of

each Director’s continuation on the Board is done annually.

The Board shall consider the following guidelines in the determination of

the number of the directorships for the Board:

(i.)

The nature of the business of APC;

(ii.) Age of the director;

(iii.) Number of directorship/active memberships and officerships in

other corporations or organizations; and

(iv.) Possible conflict of interest.

The optimum number of directorships a Director shall hold shall be

related to the capacity of a Director to perform his duties diligently in

general.

The Chief Executive Officer and other executive directors shall submit

themselves to a low inactive limit on membership in other corporate

Boards. The same low limit shall apply to independent, non-executive

directors who serve as full-time executives in other corporations. In any

case, the capacity of directors to serve with diligence shall not be

compromised.

At all times Directors have a duty to avoid conflicts of interest. Thus, a

director must not do anything for and on behalf of APC where his

motivation and loyalties would be divided in that his own self-interest, or

someone connected or related to him, may be given equal or higher

stature to that of APC. Directors have a duty to account to APC any

profits or gains he may have had as a result of such, and in consequence

thereof, APC may exercise certain rights against the director for acting in

circumstances such as conflict of interest.

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To aid in complying with the principles of good corporate governance, the Board shall constitute

Committees.

a) The Board may create a Nomination Committee which shall have at least three (3)

voting (one of whom must be independent) and one (1) non-voting Director in the

person of the HR Director/Manager.

b) It shall pre-screen and shortlist all candidates nominated to become a member of the

board of directors in accordance with the procedures, qualifications, disqualifications

and guidelines specified in this Manual.

c) In consultation with APC’s executive committee, re-define the role, duties and

responsibilities of the Chief Executive Officer by integrating

the dynamic requirements of the business as a going concern and future expansionary

prospects within the realm of good corporate governance at all times.

a) Composition

The Board may create a Compensation and Remuneration Committee, which

shall be composed of at least three (3) members, one of whom may be an

independent director.

b) Policy on Executive Remuneration

APC rewards its individual Directors and Officers based on ability to execute his

duties and responsibilities. It is APC’s philosophy to reward based on individual

performance. Performance is evaluated and compensation is reviewed on an

annual basis. APC ensures that it pays its directors and officers competitively by

comparing rates with other Philippine-based companies through a market salary

survey. Changes in Board compensation, if any, should come at the suggestion

of the Committee for Remuneration but with full discussion and concurrence by

the Board.

c) Duties and Responsibilities of the Remuneration Committee

(i.)

Establish a formal and transparent procedure for developing a

policy on executive remuneration and for fixing the remuneration

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packages of corporate officers and directors, and provide oversight

over remuneration of senior management and other key personnel

ensuring that compensation is consistent with APC’s culture,

strategy and control environment.

(ii.) Designate the amount of remuneration, which shall be in a

sufficient level to attract and retain directors and officers who are

needed to run APC successfully.

(iii.) Establish a formal and transparent procedure for developing a

policy on executive remuneration and for fixing the remuneration

packages of individual directors, if any, and officers.

(iv.) Develop a form on Full Business Interest Disclosure as part of the

pre-employment requirements for all incoming officers, which

among others compel all officers to declare under the penalty of

perjury all their existing business interests or shareholdings that

may directly or indirectly conflict in their performance of duties

once hired.

(v.) Disallow any director to decide his or her own remuneration.

(vi.) Provide in APC’s required reports, a clear, concise and

understandable disclosure of compensation of its executive officers

for the previous fiscal year and the ensuing year.

(vii.) Review the existing Human Resources Development or Personnel

Handbook, to strengthen provisions on conflict of interest, salaries

and benefits policies, promotion and career advancement directives

and compliance or personnel concerned with all statutory

requirements that must be periodically met in their respective

posts.

a) Composition

The Audit Committee shall be composed of at least three (3) members of the

Board, one (1) of whom shall be an independent director. Each member shall

have adequate understanding, familiarity and competence at most of APC’s

financial management systems and environment.

b) Duties and Responsibilities

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i.)

Check all financial reports against its compliance with both the

internal financial management handbook and pertinent accounting

standards, including regulatory requirements.

ii.)

Perform oversight financial management functions, specifically in

the areas of managing credit, market, liquidity, operational, legal

and other risks of APC, and crisis management.

iii.) Pre-approve all audit plans, scope and frequency one (1) month

before the conduct of an external audit.

iv.) Perform direct interface functions with the internal and external

auditors.

v.)

Elevate to international standards the accounting and auditing

processes, practices and methodologies, and develop the following

in relation to this reform:

a. A definitive timetable, congruent with that required by

law, within which the accounting system of APC will

be 100% International Accounting Standard (IAS)

compliant.

b. An accountability statement that will specifically

identify officers and/or personnel directly responsible

for the accomplishment of such task.

vi.) Develop a transparent financial management system that will

ensure the integrity of internal control activities throughout APC

through a step-by-step procedures and policies handbook that will

be used by the entire organization.

c) General Audit Policy

i.)

It is the policy of APC to maintain a corporate audit function as one

means of providing management with information to better

manage and control the operations of the Aboitiz Power Group, for

which the management is responsible.

ii.)

It is the Corporate Audit Team’s (CAT) policy to operate in

compliance with guidelines approved by the Audit Committee and

ratified by the Board.

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iii.) Corporate Auditing is an independent appraisal function assigned

with the responsibility to examine and evaluate all activities of

APC, its affiliates, and subsidiaries as a service to management.

iv.) APC has in place an independent internal audit function performed

by the CAT, through which its Board, senior management, and

stockholders are provided with reasonable assurance that its key

organizational and procedural controls are effective, appropriate,

and complied with.

v.)

CAT shall report to the Audit Committee.

vi.) The minimum internal control mechanisms for management’s

operational responsibility shall center on the CEO, being ultimately

accountable for APC’s organizational and procedural controls.

vii.) The scope and particulars of APC’s system of effective

organizational and procedural controls is based on the following

factors:

1. the nature and complexity of APC’s business and the

business culture;

2. the volume, size and complexity of transactions;

3. the degree of risk;

4. the degree of centralization and delegation of authority;

5. the extent and effectiveness of information technology;

6. the extent of regulatory compliance.

d. Policy with regard to the External Auditor

i.)

An external auditor enables an environment of good corporate

governance as reflected in the financial records and reports of APC.

An external auditor shall be selected and appointed by the

stockholders upon recommendation of the Audit Committee.

ii)

The reasons for the resignation, dismissal or cessation from service

and the date thereof of an external auditor shall be reported in

APC’s annual and current reports. This report shall include a

discussion of any disagreement with the former external auditor on

any matter of accounting principles or practices, financial statement

disclosure or auditing scope or procedure.

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iii.) The external auditor of APC shall not at the same time provide the

services of an internal auditor to the same client. APC shall ensure

that other non-audit work shall not be in conflict with the functions

of the external auditor.

iv.) APC’s external auditor shall be rotated or the handling partner

shall be changed every five (5) years or earlier.

v.) If an external auditor believes that the statements made in APC’s

annual report, information statement or proxy statement filed

during his engagement is incorrect or incomplete, he shall present

his views in said reports.

a) Composition

Composition – The Investor Relations Committee shall be composed of three (3)

members, one of whom shall be a Director.

b) Duties and Responsibilities

1. To ensure that all shareholders have access to officially disclosed corporate

and relevant information by way of the following media:

(i.)

Official disclosure statements submitted to the Philippine Stock

Exchange and the Securities & Exchange Commission

(ii.) The investor relations and media sections of APC’s corporate

website

(iii.) Press releases

(iv.) Annual reports and other materials to shareholders

(v.) On-line electronic mail containing regular interim and other

published materials to stockholders

(vi.) Investor/stockholder’s meetings with key people in APC

(vii.) Written communications

2.

To handle investor and stockholder queries by coordinating with

departments

with

primary

information

and

to

ensure

that

investors/stockholders have easy and direct access to officially designated

spokespersons for clarifying information, issues and for conveying concerns.

3. To secure feedback from investors & stockholders by way of:

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(i.)

Regular formal research and surveys

(i.)

Informal meetings and get-togethers

a) The Corporate Secretary is an officer of APC.

b) The Corporate Secretary’s loyalty to the mission, vision and specific business

objectives of the corporate entity come with his duties.

c) The Corporate Secretary shall be a Filipino citizen.

d) Considering his varied functions and duties, he must possess administrative

and interpersonal skills, as well as financial and accounting skills.

The Corporate Secretary:

a) Gathers and analyzes all documents, records and other information essential

to the conduct of his duties and responsibilities to APC.

b) Is ultimately responsible for compliance with governmental reportorial

requirements with the Securities and Exchange Commission, and with the

Philippine Stock Exchange, among others

c) As to Board meetings, gets a complete schedule thereof at least for the current

year and puts the Board on notice, a reasonable period before every meeting.

He also prepares and issues the agenda in consultation with senior

management.

d) Assists the Board in making business judgments in good faith and in the

performance of their responsibilities and obligations.

e) Attends all Board meetings and personally prepares the minutes of such

meetings.

f) Submits to the Commission, at the end of every fiscal year, an annual

certification as to the attendance of the directors during Board meetings.

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This manual shall be available for inspection by any stockholder of APC at

reasonable hours on business days.

All directors, executives, division and department heads are tasked to ensure the

thorough dissemination of this Manual to all employees and related third parties,

and to likewise enjoin compliance in the process.

An adequate number of printed copies of this Manual must be reproduced

under the supervision of HRD, with a minimum of at least one (1) hard copy of

the Manual per department.

If necessary, funds shall be allocated by the CFO or its equivalent officer for the purpose

of conducting an orientation program or workshop to operationalize this Manual.

A director shall, before assuming duties as such, be required to attend a seminar on

corporate governance, which may be conducted by a duly recognized private or

government entity.

A. The reports of disclosures required under this Manual shall be prepared and

submitted to the Commission by the responsible Committee or officer through

APC’s Compliance Officer.

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B. All material information shall be publicly disclosed. Such information shall include

earnings results, acquisition or disposal of assets, board changes, related party

transactions, shareholdings of directors and changes to ownership.

C. Other information that shall always be disclosed as required by law includes

remuneration (including stock options) of all directors and senior management

corporate strategy.

D. All disclosed information shall be released via the approved stock exchange

procedure for APC announcements and other required reports.

E. The Board shall commit at all times to fully disclose material information dealings.

It shall cause the filing of all required information for the interest of the

stakeholders.

APC recognizes that the most cogent proof of good corporate governance is that which

is visible to the eyes of its investors. Therefore, the following provisions are issued for

the guidance of all internal and external parties concerned, as a governance covenant

between APC and all its investors:

The Board shall be committed to respect the following rights of the stockholders:

(i.)

Shareholders shall have the right to elect, remove and replace

directors and vote on certain corporate acts in accordance with the

Corporation Code.

(ii.) Cumulative voting shall be used in the election of directors.

(iii.) A director shall not be removed without cause if it will deny

minority shareholders representation in the Board.

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All stockholders shall have pre-emptive rights, unless the same is denied in the

articles of incorporation or an amendment thereto, and in documents signed by

such shareholders. They shall have the right to subscribe to the capital stock of

APC. The Articles of Incorporation shall lay down the specific rights and powers

of shareholders with respect to the particular shares they hold, all of which shall

be protected by law so long as they shall not be in conflict with the Corporation

Code.

All shareholders shall be allowed to inspect corporate books and records

including minutes of Board meetings and stock registries in accordance with the

Corporation Code and shall be furnished with annual reports, including financial

statements, without cost or restrictions.

(i.)

The Shareholders shall be provided, upon request, with periodic

reports which disclose personal and professional information about

the directors and officers and certain other matters such as their

holdings of APC’s shares, dealings with APC, relationships among

directors and key officers, and the aggregate compensation of

directors and officers.

(ii.) The minority shareholders shall be granted the right to propose the

holding of a meeting, and the right to propose items in the agenda

of the meeting, provided the items are for legitimate business

purposes.

(iii.) The minority shareholders shall have access to any and all

information relating to matters for which the management is

accountable for and to those relating to matters for which the

management shall include such information and, if not included,

then the minority shareholders shall be allowed to propose to

include such matters in the agenda of stockholders’ meeting, being

within the definition of “legitimate purposes”.

(i.)

Shareholders shall have the right to receive dividends subject to the

discretion of the Board.

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(ii.) APC shall be compelled to declare dividends when its retained

earnings shall be in excess of 100% of its paid-in capital stock,

except: a) when justified by definite corporate expansion projects or

programs approved by the Board or b) when APC is prohibited

under any loan agreement with any financial institution or creditor,

whether local or foreign, from declaring dividends without its

consent, and such consent has not been secured; or c) when it can

be clearly shown that such retention is necessary under special

circumstances obtaining in APC, such as when there is a need for

special reserve for probable contingencies.

The shareholders shall have appraisal right or the right to dissent and demand

payment of the fair value of their shares in the manner provided for under

Section 82 of the Corporation Code of the Philippines, under any of the following

circumstances:

(i.)

In case any amendment to the articles of incorporation has the

effect of changing or restricting the rights of any stockholders or

class of shares, or of authorizing preferences in any respect superior

to those of outstanding shares of any class, or of extending or

shortening the term of corporate existence;

(ii.) In case of sale, lease, exchange, transfer, mortgage, pledge or other

disposition of all or substantially all of the corporate property and

assets as provided in the Corporation Code; and

(iii.) In case of merger or consolidation.

It shall be the duty of the directors to promote shareholder rights, remove

impediments to the exercise of shareholders’ rights and allow possibilities

to seek redress for violation of their rights. They shall encourage the

exercise of shareholders’ voting rights and the solution of collective action

problems through appropriate mechanisms. They shall be instrumental in

removing excessive costs and other administrative or practical

impediments to shareholders participating in meetings and/or voting in

person. The directors shall pave the way for the electronic filing and

distribution of shareholder information necessary to make informed

decisions subject to legal constraints.

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A. Each Committee shall report regularly to the Board of Directors.

B. The Compliance Officer shall establish an evaluation system to determine and

measure compliance with this Manual. Any violation thereof shall subject the

responsible officer or employee to the penalty provided under Part 8 of this Manual.

C. The establishment of such evaluation system, including the features thereof, shall be

disclosed in APC’s annual report (SEC Form 17-A) or in such form of report that is

applicable to APC. The adoption of such performance evaluation system must be

covered by a Board approval.

D. This Manual shall be subject to annual review unless the Board amends the same

frequency.

E. All business processes and practices being performed within any department or

business unit of APC that are not consistent with any portion of this manual shall be

revoked unless upgraded to the compliant extent.

A. To strictly observe and implement the provisions of this manual, the following

penalties shall be imposed, after notice and hearing, on APC’s directors, officers,

staff, subsidiaries and affiliates and their respective directors, officers and staff in

case of violation of any of the provision of this Manual:

1. In the case of a first violation, the subject person shall be reprimanded.

2. Suspension from office shall be imposed in the case of a second violation.

The duration of the suspension shall depend on the gravity of the violation.

3. For a third violation, the maximum penalty of removal from office shall be

imposed.

B. The commission of a third violation of this manual by any member of the board of

APC or its subsidiaries and affiliates shall be a sufficient cause for removal from

directorship.

C. The Compliance Officer shall be responsible for determining violation/s through

notice and hearing and shall recommend to the Chairman of the Board the

imposable penalty for such violation, for further review and approval of the Board.

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Certified Correct:

Chairman of the Board

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