VAT exemption on payments to genset providers pushed

MANILA, Philippines–A legislator has proposed the exemption from value-added tax (VAT) the government payment to any company that provides power using generator sets (gensets) to ease the effects of the looming energy shortage next summer.

During the 13th CEO Forum of the Semiconductor and Electronics Industries in the Philippines Foundation Inc. yesterday, Rep. Reynaldo V. Umali (second district, Oriental Mindoro) told the audience that it would be “unfair” for the private sector, particularly the companies that would offer assistance through gensets, to be slapped with VAT when they would not earn any income from sharing their resources.

“There should be VAT exemption for whatever is going to be paid by the government to those who would allow their gensets to be used,” said Umali, who chairs the House committee on energy.

The lawmaker later explained that the exemption he was proposing was not for the VAT paid on the importation of generator set units.

“The exemption is for the service that they will offer when the ILP [Interruptible Load Program] is stopped. When they produce power as required under the ILP, we’ll have to exempt that from VAT,” he said.

Umali noted that a company implementing the ILP usually bills the government the increment from using generator sets.

“When you use gensets, your true cost of power is P14 versus P5 if you will rely on the grid. That increment will have to be paid for by the government, and that should be exempt from VAT,” Umali said.

The legislator said this proposal would form part of the joint Congressional resolution seeking emergency powers for the President in order to avert a power crisis.

In the same forum, company officials aired their concerns over the impending energy crunch, saying that the instability of supply and the continuing increase in prices may hamper the growth of electronics and semiconductor firms.

HGST Philippines president and general manager Chandramogan Anamirthan noted that a few seconds of interruption could easily set back a firm’s production for weeks.

Only a few seconds of power fluctuation will necessitate the restart of the whole factory, which may take about 18 to 24 hours to do so, Anamirthan added.

HGST is producing 1 million units a day, “and to recover that will take two weeks of additional buffers—it’s that hard to cover,” Anamirthan explained during the Seipi forum. “Power is the most important for us because, for a few minutes of interruption, the impact would be a number of days.”

But Energy Secretary Carlos Jericho L. Petilla was quick to assure forum participants that the government would continue to explore other measures that would ensure the stability of power supply in the country, with the help and cooperation of the private sector.

But he admitted that the government could no longer bank on an earlier proposal to procure gensets as a way to augment supply next year—when the shortage is expected to range between 600 megawatts (MW) to 1,200 MW.

To effectively avert the expected shortfall, the generators should be in place by February—something that the government can no longer do, said Petilla.

For now, the Department of Energy (DOE) is banking on the Interruptible Load Program (ILP) and the energy conservation measures to alleviate supply.

Under the ILP, participating customers would allow distribution utilities to either cut off or reduce the electricity being supplied to them, particularly during peak periods of the day. During these hours, “deloaded” customers are expected to use their own power generating sets. Later, these customers will be compensated.

But for the government to procure power from the private sector through the ILP, the protocol dictates that the grid must be first placed on red alert, which means that there will be insufficient power supply due to the unexpected nature of the unplanned outages of certain power plants.

“We are looking for a way that the government will be allowed to contract under ILP even without red alert, or even on yellow. We need to inject additional capacity even before (the red alert) happens. But who’s going to bear the cost of additional power? The government can absorb this cost so that (the electricity rates) paid for by the captive customers will remain the same,” Petilla explained.

The DOE, for its part, is coming up with a number of energy conservation measures that will have to be followed by government agencies, he added.

Petilla thus sought for the help and cooperation of the private sector in this area because, while the government can readily impose such measures across all agencies and bureaus, the DOE cannot do so with private companies.