What’s this, a PPA on farmers?

Manila was reeling from tripled electricity rates in May when the National Irrigation Administration received a notice from CE Casecnan Water and Energy Co. You owe us tax reimbursements of P1.7 billion from 1995 to 2000, the independent power producer told Administrator Jesus Paras, or something to that effect. Per our contract, you should’ve paid us two to seven years ago. Since you didn’t, it’s now our option to collect in the form of higher delivery fees for irrigation water for the next 20 years.

But don’t worry, we shall charge you the equivalent of only $0.00043 for every $1 million that you owe us. Pay up, or else...

Paras smelled a rat. Casecnan was one of five IPPs reported to be charging consumers for unused electricity. Why was it now offering to levy only so much for water? He called in Government Corporate Counsel Amado Valdez to analyze the notice. A quick computation showed that the 20-year increase would total P27.1 billion for a supposed P1.7-billion debt – to be paid by farmers. "This is like PPA (purchased power adjustment)," remarkedValdez, "but this time on the farmers."

Valdez studied further the contract of Casecnan to build and operate a dam-cum-hydroelectric plant for NIA and Napocor. By the time he was through, he was blowing the whistle on what could have been a fast one.

To begin with, Casecnan was exempted from taxes. As a pioneer enterprise certified by the Board of Investments, it enjoys incentives like tax-free income, sales and purchases, and duty-free imports of equipment and parts.

It was, on paper, for a lofty NIA venture struck on June 26, 1995. Casecnan was to dam 800 million cubic meters of water from Nueva Vizcaya river, pipe it through a 26-kilometer-long tunnel under the Sierra Madres onto the Pantabangan reservoir, to irrigate Central Luzon farms and in the process generate electricity for Napocor. Construction began on Nov. 27, 1995, with target completion exactly four years later. From then on, Casecnan would operate the irrigation-power complex for 20 years, with NIA paying for water and power delivery out of collections from farmers.

Harvests would have risen, towns would have lighted up.

Its tax-exempt status notwithstanding, Casecnan’s contract states that, upon payment of any tax or duty, it immediately must send to NIA proof of such payment. NIA, for its part, must decide in a month whether to reimburse it outright or convert it into higher water-electricity delivery fees based on agreed escalating rates. If NIA opts for the former, it must pay within a year; if the latter, over the 20-year operating contract.

All went well during the first five years. Casecnan did not hit NIA for any refund. Early in 2001, however, Casecnan sent a bill for a whopping reimbursement of P1,679,139,412.27, supposedly for 1995-2000:

* P696,881,523 in value -added tax,

* P73,106,525.15 in expanded withholding tax,

* P772,110,851.60 in final tax on bond interests,

* P92,510,756.25 in documentary stamps,

* P39,581,649.75 in registration and filing fees, and

* P4,948,106.27 in import duties.

It added up to an equivalent of $45,640,980.05. Casecnan said it was not interested in a cash refund, but an increase in its delivery fee according to the agreed schedule.

Not so fast, said Valdez, the chief lawyer of all government firms.

Casecnan blew its chance for refund by billing NIA for the taxes five years after the fact. That is, Valdez wondered, if it paid at all. NIA must check first with the finance department, BIR, Customs and BOI.

Valdez took a closer look at the bill and crossed out the items one by one. He advised NIA to ignore the claim for VAT refund since Casecnan is exempt from it to begin with. So with the Customs duties on equipment imports. Casecnan also cannot claim for expanded taxes and final taxes on bond interests that it remitted to the government since it merely acted as withholding and collecting agent. The registration and filing fees, plus the corresponding documentary stamps, are part of Casecnan’s organizational and preoperating expenses, thus deductible from its gross income that is again tax-exempt and for which it can get a certificate of tax credit.

No way were such amounts to be converted into P27.1 billion in delivery fees that would make up almost half of irrigation costs, Valdez said. It would negate the very purpose of the project to bring cheap water and electricity to Central Luzon farms.

Too bad for Casecnan, Valdez discovered that it not only was unentitled to the P1.7-billion refund or P27.1-billion fee increase, but actually owed NIA $5.7 million (P290.7 million in today’s pesos) in damages for failing to finish the construction on the specified date. Its contract stipulates a penalty of $5,500 for each day’s delay in the "target completion date" and a stiffer $13,500 for each day’s delay in the "guaranteed completion date."

Casecnan had argued that it was all NIA’s fault. The agency did not install meters in time to measure the water and electric energy. The meters were of no consequence, Valdez ruled. With its construction incomplete, Casecnan could not deliver deliver water or power, so there was nothing for NIA to measure in the first place.

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Reader Orlando Paragua of Sta. Ana, Manila, writes:

In Gotcha, 13 July 2002, you asked who was it who said something about working for someone.

That was Elbert Hubbard, the American author who defined Loyalty thus: "If you work for a man, in heaven’s name work for him, speak well of him and stand by the institutions that he represents. Remember – an ounce of loyalty is worth a pound of cleverness. If you must growl, condemn and eternally find fault, why, resign your position and when you are on the outside, damn to your heart’s content. But as long as you are part of the institution do not condemn it; if you do, the first high wind that comes along will blow you away and you’ll probably never know why."

Please print this in full to teach those gripers who are "in" good manners and right conduct. We used to have this subject in school. It is said that the best test of civilization is not the census nor the size of cities nor the crops, no, but the kind of men the country turns out.

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