This is the general position among the private power producers as recent rulings of the Court of Tax Appeals (CTA) tossed to the IPPs the responsibility of paying the real property taxes (RPT) assessed on their power facilities; until such time that the physical infrastructure are turned over to the government.

It would be noted that majority of the contracted IPPs of the state-owned National Power Corporation (NPC) are backed up by sovereign guarantees of the Republic of the Philippines. The contractual arrangements sealed with NPC are either in the form of power purchase or energy conversion agreements.

In the case of the 215-megawatt Bauang power project of First Private Power Corporation in La Union, its assessed RPT payments already reached P1.2 billion, inclusive of interests. The 700-MW Pagbilao power station of Mirant Philippines Corporation in Quezon, on the other hand, is being demanded to remit to its host local government unit aggregate tax arrears of P3.594 billion computed from 1994 until September 2004.

In separate rulings of the CTA on said cases, it was universally stipulated that it was the private power producers who claim ownership of the facilities; and not NPC, because at present they are the ones directly manning the operations of the plants; thus, they are the party-in-interest to be levied the RPTs due to their host LGUs.

This argument, however, does not sit well with the IPPs, as they noted that under their Build-Operate-Transfer (BOT) contracts with the national government, through the NPC, or other government owned and controlled corporations (GOCCs) like the National Irrigation Administration (NIA) and the Philippine National Oil Company-Energy Development Corporation (PNOCEDC), "the contracting government agency shall be responsible for the payment of all real property taxes due to the local government units."

The IPPs opine that any "material change in the contract terms" could merit arbitration proceedings that can be initiated by any of the affected counterparties.

The assumption of the local taxes by the GOCCs has been aligned as tax incentives to the investors in power plant operations at that time when the country was suffering from a crippling power crisis that put its economy in shambles and messed up the Filipino consumers’ rights over sustainable service of electricity.

Prior to the BOT Law (Republic Act 7718), which was enacted in 1994, the Local Government Code of 1991 under Section 193, explicitly stated "the withdrawal of exemptions from payment of real property tax previously granted to, or were being enjoyed by any person whether natural or juridical," including GOCCs, at the time that the Code took effect.

Despite the general withdrawal of exemptions by the LGC, however, Section 234 of the same law specifically provides "that machineries and equipments that are actually, directly or exclusively used by local water districts and GOCCs engaged in the supply and distribution and/or generation and transmission of electric power is exempt from real property tax."

It was further prescribed that the assessment level applied to certain special classes of property under Section 216 and 218 of the LGC, which includes all lands, buildings and other improvements, owned and used by GOCCs rendering special public services in the generation and transmission of electric power should only be 10 percent of the fair market value of the machinery/equipment; as also subsequently upheld by a legal opinion issued by the Department of Justice.

Jurisprudence, as could be gleaned from a Supreme Court ruling in the case of Batangas Power Corporation of Enron Power Development Corporation versus Batangas City, rendered that the assumption by NPC of tax liabilities pursuant to a BOT contract agreed upon after the LGC took effect is valid.

In spite of these statutes, however, NPC avers that it can continue to claim an exemption from real property taxes on machinery and equipment; and have advised the IPPs not to pay; or if they would prefer to do so, they should pay at their own peril; which could mean that they face the danger of not being reimbursed at all of their RPT payments by the concerned GOCCs.