Bureau of Local Government Finance Opinion

October 21, 2002 BUREAU OF LOCAL GOVERNMENT FINANCE OPINION Mr . Al P . Calica City Prosecutor Acting City Legal Officer City of Kidapawan Dear Mr. Calica : This refers to your letter dated May 22, 2001, requesting reconsideration of this Bureau's opinion dated March 2, 2001, that the Philippine National Oil Company (PNOC) is exempt from real property tax with respect to the 701-hectare Mt. Apo geothermal contract area. In our March 2, 2001 opinion, we declared that PNOC is exempt from real property tax with respect to the Mt. Apo geothermal contract area, notwithstanding the provisions of the Local Government Code of 1991 (LGC), for the reason that " the withdrawal of exemption provisions under Section 234 and the repealing clause of Section 534(f) of the Local Government Code of 1991, could not prevail over those exemptions existing or arising out of perfected contracts . Otherwise, the violation of the non-impairment of contracts contemplated under the 1987 Constitution arises ." We are, however, persuaded by your argument that there would be no violation of the non-impairment of contracts clause of the Constitution in the present case should the situation contemplated in our March 2, 2001 opinion arise. We note that the Service Contract between the Department of Energy (DOE) and PNOC-EDC relative to the Mt. Apo geothermal contract area was entered into on March 24, 1992, after the enactment of the LGC. Thus, we consider our March 2, 2001 opinion on that respect. We note further the other arguments in your letter putting forward that PNOC-EDC is not exempt from paying real property taxes. Nevertheless, the present circumstances constrain us to find that PNOC-EDC is not liable for real property tax on the 701-hectare Mt. Apo geothermal contract area. We noted that the Service Contract reveals that the Philippine Government remains the owner of the said property, which means that PNOC-EDC becomes liable to pay for real property tax thereon only if it has beneficial use of the same ( Sec . 234 (a) of the LGC ). In this respect, we defer to the Department of Energy's position to the effect that beneficial use of the Mt. Apo geothermal contract area remains with the Philippine Government. In the March 3, 1998 letter of DOE Undersecretary Ben-hur Salcedo to PNOC (quoted in BLGF Regional Director Palanggalan's 2nd Indorsement dated May 28, 1998), it stated that " the geothermal contract area has remained with the government . PNOC-EDC is merely developing the area for the government, and is therefore not liable for the payment of the realty tax under Section 234 (a) of the Local Government Code ." We wish to point out that this Department has, on a previous occasion, asked the Department of Justice for its opinion on whether or not PNOC-EDC has beneficial use of the geothermal contract area in Bicol but the Department of Justice declined to render an opinion. In view of the foregoing, we defer to DOE'S position that PNOC-EDC does not have beneficial use of the Mt. Apo geothermal contract area and, thus, PNOC-EDC is not liable to pay real property tax thereon. In sum, we find that in determining whether PNOC-EDC is liable for real property tax on the Mt. Apo geothermal contract area, the issue of whether or not PNOC-EDC has beneficial use of the said property takes precedence. Under present circumstances, we defer to DOE's position that beneficial use of the Mt. Apo geothermal contract area remains with the Philippine Government and, consequently, we opine that PNOC-EDC is not liable to pay real property tax on the said property. TIcAaH Please be guided accordingly. Very truly yours, (SGD.) MA. PRESENTACION R. MONTESA Executive Director