Ruling hits local councils hard


  • Nation
  • Friday, 17 Sep 2004

BY CHELSEA L.Y. NG

EXCLUSIVE 

PUTRAJAYA: Local councils with electricity-producing plants in their areas are set to lose millions of ringgit in assessment payment following a landmark judgment by the Federal Court yesterday. 

However, electricity giant Tenaga Nasional Bhd (TNB) and independent power producers are likely to save millions of ringgit as a result of the judgment. 

The ruling decided that electricity is similar to a manufactured article. 

It also said all machinery that produces power should be excluded when assessing the gross annual rent value of a power plant.  

The judgment by Chief Judge of Malaya Justice Haidar Mohd Noor, read out by deputy registrar S. Kalyana Kumar yesterday, was the result of an appeal by the Seberang Prai Municipal Council against a High Court judgment ruling in favour of TNB. 

Following yesterday’s ruling by the country’s highest court, TNB is expected to pay only about RM250,000 instead of RM2mil to the council and save 88% of the annual payable rate for the substation in Seberang Prai for 1996. 

In the run-up to the judgement, TNB had agreed that the local council had the right to impose a 35% assessment rate on the value of the plant but disputed the value saying the inclusion of the extensive machinery (constituting more than 80% of the plant) raised the value of the building too high. 

The local council, however, had said that according to the Local Government Act 1976, the machinery was deemed part of the building and, therefore, should be included in the assessment of the value of the building. 

TNB countered that the same Act also said that all machinery used to produce articles or goods and all machinery that is moveable should be excluded from the assessment of the value of the building. 

Yesterday, the country’s top court agreed with the High Court’s judgment in June last year that electricity was a product made by the plant and that the machinery was moveable. 

It is learnt that the legal team of TNB and its solicitor, Bakar & Partners, were of the view that the rating liability of the corporation as a private ratepayer should be effective from Sept 1, 1990 – the date of its incorporation. 

An estimate of TNB’s savings for the period from 1991 until last year for that particular substation came up to about RM23mil.  

According to TNB’s annual report, there are seven thermal power plants in the country such as the one in Seberang Prai. 

In the 24-page judgment made available to The Star, Justice Haidar said the power station TNB built in Seberang Prai was like a factory, which produced electricity as goods. 

“The enhanced value given to the holding from the presence of such machinery shall not be taken into consideration for the purpose of estimating the annual value of any holding,” he said. 

The Bench, comprising Justice Haidar and Federal Court judges Justices Siti Norma Yaakob and P.S. Gill, dismissed the council’s appeal with costs. 

The panel had, on Oct 27, last year, granted leave to the council to appeal on three questions of law, namely whether: 

  • ELECTRICITY is an article for the purpose of determining the annual value of a power station; 

  • THE machinery referred to in the proviso to the definition of “annual value” refers to machinery that is not integrated with the land and/or building; and 

  • THE generating plant and machinery present in a power station are structures within the definition of “building” in the Act and therefore to be considered when determining the annual value of the power station.  


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