New EO significantly cuts PSALM’s tax payments

Published August 1, 2020, 10:00 PM

by Myrna M. Velasco

An Executive Order that was recently issued by the Office of the President will significantly pare the taxes that state-run Power Sector Assets and Liabilities Management Corporation (PSALM) will be settling under its remaining build-operate-transfer (BOT) contracts with independent power producers (IPPs).

In particular, PSALM President Irene Joy Besido-Garcia noted that the company’s assessed tax payments of P1.060 billion for 2019 had been radically reduced to P198.05 million.

And from that RPT dues shouldered by the government-owned firm owing to the IPP deals transferred under its charge from National Power Corporation (NPC), the cutback had been as much as P861.49 million.

Given that scale of savings, Garcia indicated “the amount can be utilized by PSALM for the payment of other maturing obligations assumed from NPC.”

EO 117 primarily trims to 15-percent the assessment rate for the real property taxes (RPT) to be paid by PSALM under the BOT deals – it was a decline from previously at 80-percent. The facilities subjected to the assessment rates include property, machinery and equipment used for the production of electricity by the IPPs.

“With the recently issued EO 117, the RPT to be paid by PSALM for 2019 is reduced to an amount equivalent to an assessment level of 15-percent of the fair market value of such property, machinery and equipment depreciated at a rate of 2.0-percent per year, less any amount already paid,” the government-run firm explained.

It further noted “all interests and penalties on such deficiency RPT are condoned,” and “all RPT payments already made over and above the reduced RPT shall be applied to RPT for the succeeding years.”

The IPP contracts covered by the EO include those on the Ilijan natural gas-fired power facility; Pagbilao, Sual and Mindanao coal plants; and the San Roque hydroelectric power plant.

The BOT contracts had been entered into by government-owned and controlled corporations, such as NPC and the National Irrigation Administration (NIA), so they could corner investments for power projects needed to solve an extreme power crisis in the 1990s.

Part of the investment-sweetener offered to the IPP-investors then will be for the government, through NPC with the imprimatur of the Department of Finance, to assume the tax payments relating to the

facilities they set up.

And since these power projects were sited in various parts of the country, the devolved function of the host-local government units (LGUs) under the Local Government Code (LGC) allowed them to come up with their respective assessments as to the level of taxes that shall be levied to the IPPs; hence, the confusion and disparities that ensued.

The tug-of-war on the RPT assessment rates lingered for decades – with LGUs preferring higher assessment rates of 40 to 80-percent; thus, the lower 15-percent assessment rate prescribed under EO 117 is seen as the long-wished for solution so this dilemma of the power producers can finally be put to rest.

The original counterparty in the IPP deals had been state-run NPC, but as prescribed under the Electric Power Industry Reform Act (EPIRA), such obligations had been transferred to PSALM because of the divestment of the former’s power assets.