The State continuously recognizes the role of the private sector, both domestic and foreign, as one of the main amplifier for national growth and development. The State aims to encourage private enterprise and expand the base of foreign investment in the country. With this goal in mind, Philippines has to ensure effective regulation of public services; provide reasonable rate of return to public services; and rationalize foreign equity restrictions by clearly defining the term “public utilities”; and finally institute processes for the protection of national security. Preliminarily, the Amendments of the Public Service Act lifts the foreign ownership limit.
Last March 20, 2023, the National Economic and Development Authority (NEDA) released the Implementing Rules and Regulations of Republic Act No. 11659 or the Amendments to the Public Service Act (PSA). Taking effect on April 4, 2023, the Amendments to the PSA shall remove the restrictions on key public services by liberalizing full foreign ownership of businesses in major industries such as airports, railways, expressways, and telecommunications. Prior to the amendment, the term “public utility” was so encompassing and broad to include all key industries, therefore limiting foreign ownership in such industries to 40 percent. This Amendment opens the door to foreign companies to invest in these public service utilities, notwithstanding the safeguards provided.
With this development, only public service utilities such as electricity transmission and distribution, water and wastewater pipeline distribution system including sewerage, petroleum and petroleum products pipeline transmission systems, seaports, and public utility vehicles remain subject to the 60-40 percent foreign equity limitation. Other critical infrastructures having impact on national security, including telecommunications and other vital services may be included in this standard upon NEDA recommendation to the President, motu proprio or upon request of the relevant Administrative Agency. In relation to this, there shall be no imposition of nationality requirements on the public service not classified as public utility under its jurisdiction or supervision.
Despite the liberalization, this amendment, does not take away the certification requirement mandated to all public service industries. Subject to the provisions of C.A. No. 146, and such other applicable laws, no public service shall operate in the Philippines without a valid certificate or authorization from the relevant Administrative Agency, to the effect that the operation of said service and the authorization to do business will promote the public interest in a proper and suitable manner. The only exception is when a legislative franchise expressly does not require any.
The amendments also provide a safeguard to protect the state from national security concerns that may arise through any proposed merger or acquisition, or any investment in a public service. Subsequently, the President after the review, evaluation and recommendation of the relevant government department or Administrative Agency may suspend or prohibit any proposed merger or acquisition transaction, or any investment in a public service that effectively results in the grant of control, whether direct or indirect, to a foreigner or a foreign corporation. In reviewing such investments, the following has to be taken into consideration: (a) impact on national security; (b) Applicability of other Philippine laws and Policies; (c) Implication of any national security risk arising from the investment of the Philippine economy and community (d) Whether the investment will affect the ability of the Philippine to protect its strategic and security interest; ( e) Nature, history and previous business transactions of the investor and any filed cases against the same, in their country of origin, or in any other country or state that the investor is involved with.
Starting April 4, 2023, foreign government or foreign state-owned enterprises; an entity controlled by a foreign government or foreign state-owned enterprises; and an entity acting on behalf of a foreign government or foreign state-owned enterprises are prohibited from making any investment or owning capital in any public service classified as public utility or critical infrastructure. This provision shall not, however, undermine the reciprocity principle provided by foreign law, treaty, or international agreement.
Finally, the application and implementation of these amendments shall not impair vested rights or obligations of contracts existing prior to April 4 and following the old PSA. These Amendments shall not impair current and subsisting concession agreements and other similar contracts of juridical persons with government agencies or GOCCs covering activities classified as public services until its termination.
Photo/illustration: credits to Minnesota Public Utilities Commission, https://mn.gov/puc/about-us/