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No performance audit since 2009: Salceda wants ERC to conduct audit, mandate improvements in NGCP after transmission-related blackouts, or face phase-out of preferential tax treatment

May 15th, 2023

House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) is calling on the Energy Regulatory Commission to exercise its powers under Republic Act No. 9511 or the franchise of the National Grid Corporation of the Philippines (NGCP) to mandate performance improvements in the transmission company following blackouts caused by delays and damage in the company’s transmission lines.

“We have given the NGCP a lot of privileges on the promise of good performance. Instead, it has earned between 39 to 52 percent in net profit since it started operating in 2009. Meanwhile, at any given year, capital expenditures and concession fee payments have only reached 38 percent of revenues. Once the concession fee is fully paid in 2029, you will see them make even bigger profits.”

“And yet, you have incidents like the Bolo-Masinloc 230 kilovolt (kV) Line 2 tripping last week, causing the grid to lose some 1,350 MW in power. Obviously, we should not allow incidents as massive as this – an even that rendered two entire power plants useless.”

“Allegedly a lightning strike caused the tripping, and while they had contingencies, but there were issues of compatibility with NGCP customers. In simple terms, the contingency was not a contingency. This was a mistake that could have been avoided if the NGCP were not so complacent about its monopoly.”

Performance audit necessary after August 2023

In response to issues with the grid operator, Salceda is calling for the ERC to audit the NGCP for performance by August 2023, when major projects are supposed to be completed after deadline extensions.

“The NGCP is supposed to complete the Bataan-Hermosa line, the Cebu-Negros-Panay connection, and the Mindanao-Visayas interconnection by August 2023. I strongly urge an audit by the ERC by then. If not, we in Congress will do it.”

“But ERC audit is more direct, because there is a very explicit provision in the NGCP franchise that they can use to act on audit findings.”

Section 3 of the NGCP franchise states that “it shall be the duty of the Grantee, its successors or assigns, whenever required to do so by the Energy Regulatory Commission (ERC) or its legal successor, to modify, improve and change such system or facilities in such manner and to such extent as the progress in science and improvements in the electric power services may reasonably require.”

“So, the findings of the performance audit can be used to mandate stronger standards for performance on the NGCP.”

NGCP tax perks questioned

Salceda also questioned the need to continue NGCP’s special tax rate “considering the extreme profitability and their laxity of performance.”

“They are one of the few entities in the country taxed at a 3% on gross rate. Not even the best exporters have that. In terms of national income taxes foregone, you are looking at a foregone revenue of around 4-5 billion every year. That does not include foregone VAT on the national side, and foregone local business taxes on the local side.”

“So, if a performance audit finds that the NGCP has not, in fact, met its obligations – and has itself to blame – then I will invoke the power of Congress to amend the franchise as it sees fit, and move for a franchise tax that is at least closer to the normal 5% on gross revenues. I would even think moving to a net-income-based regime, as normal corporations are in, would be even better. That would incentivize NGCP to make capital expenditures,” Salceda, who heads the powerful House tax committee, added.

While the NGCP franchise is valid for 50 years, it was granted “under the condition that it shall be subject to amendment, alteration, or repeal by Congress when the common good so requires,” according to Section 2 of Republic Act No. 9511.

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