Congress has placed the franchise of National Grid Corp. of the Philippines (NGCP) under a microscope to ensure a more equitable tax and profit structure that benefits both the government and consumers, said Bicol Representative Joey Salceda, who chairs the House Committee on Ways and Means.
“The NGCP has been an intense point of controversy for far too long. It is time to resolve these controversies in the proper forum,” said Salceda in a statement. “The NGCP franchise was very explicit about what this forum is: Congress has the power to amend its franchise specifically when common good so requires.”
During a House committee hearing on Tuesday, Salceda said one of the pending proposals seeks to subject NGCP to the same tax obligations as other utilities, such as water distribution companies, instead of its current 3% franchise tax—a rate that is notably the lowest among similar entities.
Data presented at the hearing highlighted discrepancies in the tax treatment of various franchises. For instance, the Manila Jockey Club and HAPI Jockey Club are taxed at 8.5% of gross revenue, while both the Philippine Amusements and Gaming Corporation and Cebu Pacific are taxed at 5%.
Salceda pointed out that NGCP, unlike past and present owners of the national grid, is exempt from income tax “without any conditions on income.” He noted that former grid operators like the National Power Corp. was required to reinvest earnings into capital projects, while Transco was obligated to remit profits to the Power Sector Assets and Liabilities Management Corp.
Further, Salceda explained that NGCP’s profit is not capped by any legal framework. Instead, the rate of return is determined through a performance-based regulation system, which relies heavily on an accurate calculation of the weighted average cost of capital (WACC).
Salceda said his calculations suggest that the fair WACC for NGCP should be around 10.3%, closer to 10.71% arrived at by the Energy Regulatory Commission during its review of NGCP’s financial data for the 2016-2020 period in line with the determination of its power transmission rate.
However, NGCP’s actual WACC stands at 15.04%, inflated by the inclusion of unfinished projects in its asset base.
The ERC’s preliminary review revealed that NGCP’s approved revenue for the period 2016-2020 was P183.5 billion, compared to actual revenues of P387.8 billion—leading to excess earnings of P204.3 billion. Salceda proposed that the excess earnings be refunded to consumers in the form of rebates.
He pointed out, however, that it may be difficult to do that because NGCP has been declaring extra profit as dividend to its shareholders at an average rate of 87%.
In addition to tax and profit concerns, Salceda suggested that lawmakers also investigate potential violations of foreign ownership laws by NGCP, particularly in light of Chinese claims regarding their “right to run” the Philippine power grid.
