IPPs want property tax issue with LGUs resolved

MANILA, Philippines - Amid tax collection issues hounding the oil industry, local government units (LGUs) are now going after big power producers for an estimated P64 billion in real property taxes.

In a press briefing, Ernesto Pantangco, president of the Philippine Independent Power Producers Association (PIPPA), called on the government to resolve the real property tax issue once and for all.

Pantangco warned that LGUs have threatened not to issue business permits and take over the operations of power generation firms, which would not pay real property taxes.

But Pantangco said the issue on whether private plant owners or the National Power Corp. (Napocor) should shoulder such tax claims has not been threshed out.

“Unfortunately the issue on real property tax continues to be unresolved. We are urgently requesting that Finance Secretary Margarito Teves sit down with the various affected groups whether they are LGUs or independent power producers to try to arrive at a mutually acceptable solution to this issue. The joint foreign chambers, although I’m waiting to finalize that draft, have recommended that the issue (have) an urgent resolution,” Pantangco said.

He also raised concern that if the LGUs would make good their threat, this would definitely impact on power supply.

The PIPPA is composed of 25 power producers in the country, with a capacity of at least 50 megawatts each. It includes First Gen Corp., Aboitiz Power Corp., AES Corp., and TeaM Energy Corp.

According to Pantangco, since there is a provision in their contract with Napocor that the latter would shoulder the real property tax, they need an assurance from the state-owned power firm that it would pay back the IPPs.

 ”The assessment for Napocor alone is P19 billion. We computed for the whole industry, our estimates amount to P64 billion, inclusive of penalties and surcharges and interest. It’s significant, though we understand the LGUs’ need for funds, there must be some form of settlement. The IPPs are willing to cooperate on what is the best solution. Now that compromise is what is difficult to say,” he said.

Under build-operate-transfer (BOT) contracts with Napocor, the latter would shoulder the real property tax, but the power producers can advance the payments.

LGUs were previously charging Napocor 2.5 percent real property tax for the 10 percent of the assessed value of the property occupied by power plants.

But the LGUs later revised their computation, with the tax reaching up to 80 percent of the assessed value of the property.

“There were some attempts to come up with a compromise solution. There was even a time that we almost agreed to 30 percent, which was not finalized. When local governments began assessing at 80 percent it went through the courts, so we went to the Court of Tax Appeals and then it reached the Supreme Court (SC),” Pantangco said.

He said the issue became more complicated when the SC ruled that since ownership is the issue and since the private sector operates the assets, the private sector is liable for the tax.

“Now whether you can pass on the tax to Napocor because of the BOT contracts is a separate issue altogether. But ownership became the basis for the SC decision, and because of this ruling, the LGUs became aggressive in trying to collect the taxes,” he said.

At present, he said the LGUs “are flexible for as long as there is a significant upfront amount to be paid,” but Napocor has not made its commitment on the payments.

Pantangco cited the case of the Bauang Private Power Corp., owned by First Gen Corp. of the Lopezes.

The Bauang municipal government took over the operations of the company’s 225-MW power plant in La Union over unpaid real property taxes amounting to P1.866 billion.

Bauang has a BOT agreement with Napocor for 15 years starting 1995.