Compromise averts auction of Pagbilao power plant

By Mia M. Gonzalez and Paul Isla, Business Mirror

Posted at Jan 19 2011 11:34 PM | Updated as of Jan 21 2011 02:15 AM

MANILA, Philippines - Malacañang and the Quezon provincial government on Jan. 19 agreed to work out a compromise on the real-estate tax accountabilities of the state-run Pagbilao power plant, thus averting its scheduled auction on January 26.

The agreement was reached during a phone conversation between President Aquino and Quezon Gov. David Suarez in the presence of members of the Cabinet economic cluster.

The power plant owes Quezon province P6 billion in real-estate taxes.

The municipal treasurer of Pagbilao town recently issued a warrant of levy for the nonpayment of the taxes.

“We’ve averted any kind of concern,” Secretary Ricky Carandang of the Presidential Communications Development and Strategic Planning Office (PCDSPO) told reporters after the meeting.

Carandang said the President spoke to Suarez for 10 minutes, then passed the phone to Executive Secretary Paquito Ochoa Jr. “to begin working out the details” on a compromise settlement. This settlement aims to save the government from having to pay Quezon province the amount owed, plus penalties and interest.

“The details of the compromise have yet to be worked out but the broad strokes of it are that the province of Quezon will receive funds,” he said.

Carandang said that aside from Ochoa, the President also told Finance Secretary Cesar Purisima, Energy Secretary Rene Almendras and Interior Secretary Jesse Robredo to help out.

He said Quezon province has a number of priority projects “so these will receive funds; in exchange, the government’s tax liability will be extinguished.”

Carandang said that had the auction pushed through, it would have “massively” undermined investor faith in the Philippines.

Suarez earlier gave an ultimatum to Pagbilao power plant owner, Team Energy, to settle its back tax to avert the public auction of the 735-megawatt coal-fired plant, set on January 26.

Earlier on Wednesday, Almendras told reporters that his department met with officials of the Departments of Finance (DOF) and of Interior and Local Government (DILG) and the Office of the President (OP) to find a way to resolve the tax row.

The Philippine Independent Power Producers Association (Pippa) urged the government to resolve the issue, which it said would eventually affect foreign and local investor appetite in the local power sector.

“If the government does not resolve the issue, definitely no investor will come in as this creates uncertainty,” Ernesto Pantangco, Pippa president, said.

Team Energy Corp. operates the plant, while AboitizPower Corp.’s arm Therma Luzon Inc. sells and administers the electricity output of the Pagbilao plant.

The Pagbilao was built under a Build, Operate and Transfer agreement between Team Energy Corp. and the National Power Corp. (Napocor), where the latter agreed to assume all obligations to pay the real-property taxes for the Pagbilao power plant.

But Napocor later claimed it was exempt from paying real-property tax. It quoted Section 234(c) of the Local Government Code as basis for claiming exemption.

The section exempts machineries and equipment that are actually, directly and exclusively used by government-owned or -controlled corporations engaged in the generation and/or transmission of electric power from payment of real-property taxes.

But the Supreme Court denied Napocor’s claim and ordered Team Energy to pay the real-property taxes on the Pagbilao plant, when it promulgated the case of Napocor against Quezon province and Pagbilao town last year.

Upon orders of the Supreme Court, the municipal treasurer of Pagbilao taxed the Pagbilao plant.

In a disclosure to the Philippine Stock Exchange, AboitizPower said Team Energy informed Therma Luzon that the municipal treasurer of Pagbilao denied its request for the suspension of the auction set on January 26.