SUNDAY, 03 APRIL 2011 18:39 JOEL R. SAN JUAN / REPORTER
THE Department of Justice (DOJ) has indicated that President Aquino may condone the more than P6-billion real-property taxes that the Quezon provincial government is seeking to collect from Team Energy, owner and operator of the 735-megawatt Pagbilao coal power plant.
In a four-page legal opinion, Justice Secretary Leila de Lima agreed with the position of Finance Secretary Cesar Purisima that under Section 277 of the Local Government Code, the President may condone or reduce the real-property tax, including interest for any year in any province or municipality within Metro Manila.
“The subject provision of the Local Government Code is clear and categorical as to the power of the President to condone or reduce real property tax and interest such that there is no longer room for interpretation—only applications,” de Lima said.
Purisima sought the confirmation of the Department of Finance’s stance following the warrant of levy issued by the province of Quezon on the machineries and equipment of the Pagbilao power plant being operated by Team Energy in order to collect unpaid real property taxes and interest totaling to P6.1 billion and the supposed auction sale of the said equipment last March 9.
Purisima noted that should the auction sale proceed, it would trigger provisions in the Energy Conversion Agreement between Team Energy and Power Sector Assets and Liabilities Management (PSALM) which would eventually require the government to pay the former all the fees it would have earned until the end of the cooperation period in 2025 which is estimated to be up to P101 billion.
The finance department also alleged that an auction sale could likewise trigger large financial obligations for both Psalm and Thermal Luzon Inc., the administrator of the energy actually generated by the Pagbilao plant.
This, according to Purisima, would jeopardize the government’s plans to continue the privatization of power-generating plants, especially the remaining plants of independent power producers.
He said this would also have some impact on other public infrastructure projects which are facing similar issues such as the North Luzon Expressway operated by Manila North Tollway Corp. and the national electric transmission grid, owned by the National Transmission Corp and operated by National Grid Corp.
De Lima noted that the power of the President to condone or reduce real-property tax and interests is subject only to the limitation that it is exercises “when public interest so requires.”
“Otherwise stated, when the general welfare is at stake, the President may legally and effectively exercise the powers granted him under Section 277 of the Local Government Code,” the DOJ chief said.
“The exercise of this power requires no concurrent action from either or both of the other two branches of government as the Code itself expressly recognized the existence of said executive power,” she added.
The bidding of the said coal facility was originally scheduled last Jan. 26 but did not push through after President Aquino and Quezon province Gov. David Suarez agreed to come up with a compromise involving the P6.1 real-property tax liabilities of Team Energy, the consortium that bought out Mirant Philippines Inc. and coowned by Japanese firms Marubeni Corp. and Tokyo Electric Power Corp.
The Supreme Court, in a ruling last year, denied the bid of the state-run National Power Corp. (Napocor) to stop the Quezon provincial government from collecting real property taxes on the power plant and machineries, saying that it has no legal standing to seek tax exemption for the taxes due to Mirant.
Under the build-operate-transfer (BOT) contract with the government, Napocor should have assumed all obligations to pay the real-property taxes on the Pagbilao facility.
Napocor, however, insisted that it is the beneficial owner of the subject machineries, thus, it is entitled to tax exemptions provided under Section 234 of the Local Government Code.
The said provision exempt from payment for the real property tax “all machineries and equipment that are actually, directly, and exclusively used by local water districts and government-owned or-controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power.”
However, the court held that contrary to Napocor’s argument, a Build-Operate-Transfer (BOT) agreement “is not a mere financing agreement.”
The court noted that in Tatad v. Garcia, it held that under the BOT contract agreements, private investors are considered the owners of the facility or machinery concerned.
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