Legal opinion states  lack of PEA promulgated rules harmless on power purchase deal but…

Legal opinion states lack of PEA promulgated rules harmless on power purchase deal but…

  31 Oct 2018

The Attorney General’s Office issued two separate legal opinions on Palau’s Power Purchase Agreement (PPA) with French company Engie Eps stating that although the Palau Energy Administration’s (PEA) lack of promulgated regulation is harmless to the validity of the contract, exempting any independent power producer from tax, however, is prohibited by law.

The Senate’s refusal to sign the resolution that will ratify the PPA due to unmet terms prompted the Office of the President to seek the legal opinion of the Attorney General’s Office, particularly on the two of the main concerns raised by the Senate that question the validity of the contract entered into by PPUC with Engie Eps despite the lack of promulgated regulation by PEA, the regulatory body for PPUC, including tax exemption given to Engie Eps.

PEA, under the 37 PNC § 408 (a) requires the PPUC to request for its approval before entering into any “major business negotiations”.

Under the law, PEA has been given the power to fully regulate production, purchase or sale of energy in the country but questions are raised by the Senate as no set of regulations has been promulgated yet by agency by which the PPUC should act on.

The AG’s legal opinion laid down that although there is no existing regulation yet that will guide PEA to permit the entering of contract negotiations, the law was substantially complied.

“The Courts will hold that the law was substantially complied with and any procedural defect flowing from the failure to issue regulations on such preliminary matter as permission to enter into negotiation of a contract would be harmless or inconsequential to the validity of the contract, especially as the ultimate decision to finalize the contract rests with the PEA,” the legal opinion dated October 18 reads.

The same legal opinion explained that PPUC has followed the law because it first secured the approval of the PEA before entering into the PPA negotiations with Engie Eps and also notified the President of Palau and the national congress on the subject.

It also noted that subsection b of 37 PNC § 408 only applies to the approval to “enter into negotiations” and “not the finalization and entering into the contract.”

“There is no requirement of regulations for how ‘final’ approval is to be conducted or provided by PEA in subsection b,” it reads.

Meanwhile, the separate legal opinion by the office of the AG dated October 25 revealed that 37 PNC § 403 prohibits tax exemptions for independent power producers but the language of the said law makes that limited only to Chapter 4 of Title 37, hence, prompting the office of the AG to conclude that independent power producer might qualify for tax breaks or exemptions in other chapters of Title 37.

It cited that other entity or independent power producer might qualify for tax exemptions or tax breaks through Title 40 or other titles that provide tax exemptions, if any.

However, in spite of that, the AG found that there are no other provisions of the law that would “seem” to provide or prohibit local tax exemption for independent power producer.

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