Tagging this particular issue as one major threat to the overall viability of the domestic power industry, Philippine Independent Power Producers Association, Inc. (PIPPA) president Ernesto B. Pantangco indicated that while the IPPs would be willing to advance the tax arrears being demanded by local government units (LGUs) hosting their projects; it is equally their primary concern that there is a definitive commitment from government that they shall be reimbursed.
Once again, the government is reminded that since most of the power projects are normally financed at 70 to 75-percent debt, this would raise serious issues with lenders, who will definitely not take the issue lightly; and for which automatic recourse would be for them to drag the Philippine government to arbitration — a scenario that could trigger buyout of the contracts.
"Remember that these facilities are mortgage to the creditors, so the moment you have a levy (imposed by LGus) on the machineries and equipment — that causes a major concern to creditors and could accelerate a default," the PIPPA president explained.
Under their Build-Operate-Transfer (BOT) contracts, the RPT payments are part of the legal obligations assumed by state-owned National Power Corporation (NPC) in the risk-sharing arrangements with project sponsors.
Pantangco disclosed that while the IPPs are now being arm-twisted by LGUs on the RPT arrears as NPC remains problematic with its fiscal position, it shall first be clarified with the private power investors on how the government finally settles this.
"It’s very clear in our contracts that this is for account of Napocor, all of the BOT contracts have a specific provision, where any imposition of new taxes will be for account of Napocor…the DoF right now controls Napocor, they admitted that this is a government liability of course the point really here is they’re asking the assistance of the IPPs to see how maybe we can advance the payment and then get reimbursed by Napocor sometime in the future," he stressed.
As a starting point, Pantangco noted that PIPPA is trying to piece together a proposed solution on an industry-wide basis; and this should first tackle with government at what assessment rate shall the RPT obligations of NPC contracted power projects be set at.
There have been contrasting points to either set the tax liability based on an assessment rate of 10 percent, which is supposedly employed for government-owned and controlled corporations which are counter parties in power projects, such as NPC, National Irrigation Administration and Philippine National Oil Company-Energy Development Corporation (PNOC-EDC); but LGUs wanted it computed at 40 to 80-percent assessment rates which is the level normally applied for industries as set out under the Local Government Code of 1991.
Given this dilemma, Pantangco noted among the first things to be settled among industry participants would be for them to decide on what assessment rates shall be applied on these RPT obligations.
"In principal, what we’re thinking of is that the IPPs will advance the payment and then get reimbursed by Napocor or Psalm (Power Sector Assets and Liabilities Management Corporation) in amortized payments. We have yet to come up with the rates, as the compromise is still subject to discussions. We just want to get this off our backs," he added.
It would be noted that some IPPs, like US firm CalEnergy was already forced to settle the RPT obligations for its Casecnan plant; while the others, like Mirant and Bauang Private Power Corporation, have pending cases in the courts.
