Gov't urged anew to resolve property tax on IPPs


Posted at Jan 19 2011 06:59 PM | Updated as of Jan 20 2011 07:45 AM

MANILA, Philippines- Independent power producers urged the government anew to resolve the issue of real property tax (RPT) charged by local government units, saying unstable policies would deter investments.

"We would need a stable investment regime. Most of the investors in the power sector are thinking of staying here for a long time and changes in policies brought about by changes in the LGU heads everytime there would be elections is definitely taking a big toll on the country's power sector development," said Philippine Independent Power Producers Association (PIPPA) president Ernesto Pangtangco.

Pangtangco's statement came amid plans of the Quezon provincial government to auction off the 600-megawatt Pagbilao coal-fired plant within January for non-payment of RPT.

The facility is operated by TeaM Energy Corp. of Japan under a build-operate-transfer (BOT) agreement with state-run National Power Corp. (Napocor). Napocor's contracted output with TeaM Energy was subsequently privatized by government to Therma Luzon Inc., a unit of Aboitiz Power Corp., last year.

TeaM Energy earlier said the tax delinquency should be addressed by Napocor, which assumed payment of the RPT under their Energy Conversion Agreement.

Napocor wanted exemption from the payment of the RPT citing Section 234 of the Local Government Code, which says "machinery and equipments that are actually, directly and exclusive used by government-owned or controlled corporations engaged in the generation and/or transmission of electric power from payment of RPT." It later entered into a compromise deal with LGUs to just pay RPT based on 10% of assessed value of assets.

Private firms like TeaM Energy were also previously meted a 2.5% RPT on just 10% of their power plants' book value.

Under the Local Government Code, LGUs can assess businesses with the RPT on land, buildings and improvements. RPT rates of private companies can run up to 2.5% of 80% of their facilities' value.

The Supreme Court, however, issued a decision that these firms, being private enterprises, should not benefit from low RPT rate even if they entered into BOT agreements with government-owned and -controlled corporations like Napocor.

Pantangco said that LGUs are pushing for higher RPT rates.

"The end result, it will redound to the cost of power. Now what is an acceptable compromise is something that has to be discussed with the LGUs," he said.

He took note of a looming power shortage and said the issue over RPT could worsen the situation.

"If government does not resolve [the] issue definitely no investor will come in," he said.

PIPPA estimated LGUs' RPT claims at P64 billion, inclusive of penalties, surcharges and interests as of January 2010 alone.