On March 21, 2022, President Rodrigo R. Duterte signed Republic Act No. 11659 into law. The law amends the decades-old Commonwealth Act No. 146, otherwise known as the Public Service Act (PSA), which was passed in 1936.
The PSA defines “public service” to include every person that owns, operates, manages or controls in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, wharf, dock, and those who provide gas, electric light, heat and power, water supply and power, petroleum, sewerage system, wire or wireless communications systems, among others.
The 1987 Philippine Constitution provides that no franchise for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under Philippine law that are at least 60% owned by Filipino citizens.
With the amendments, the PSA now limits the scope of a public utility to persons who operate, manage and control for public use any of the following: (i) electricity distribution; (ii) electricity transmission; (iii) petroleum and petroleum products pipelines transmissions systems; (iv) water pipeline distribution systems and wastewater pipeline systems, including sewerage pipeline systems; (v) seaports; and (vi) public utility vehicles.
Significantly, the amendment further provides that “[n]o person shall be deemed to be a public utility unless otherwise subsequently provided by law.” This means that only those persons that fall within the definition of a public utility are subject to the foreign ownership restrictions on public utilities under the 1987 Philippine Constitution as public utilities are only those enumerated in the PSA. The amendments also appear to suggest that those previously considered public utilities under law or jurisprudence are no longer subject to foreign ownership restrictions, as the word “subsequently” is used to qualify the provision.
The same can be said for those that fall under the definition a public service, but not a public utility, as the PSA now expressly provides that “[n]otwithstanding any law to the contrary, nationality requirements shall not be imposed by the relevant administrative agencies on any public service not classified as a public utility.” Hence, despite still being subject to regulation by the relevant administrative agency (e.g., National Telecommunications Commission for telecommunications, Civil Aviation Authority of the Philippines for aviation) those public services which are not public utilities by definition can now be 100% foreign owned.
While the amendments to the PSA are envisioned to pave the way for more foreign investment in various Philippine industries, it also appears to have balanced the liberalization of the ownership of certain industries and the protection of critical businesses by introducing protective mechanisms against foreign control of public services.
The PSA has introduced the concept of “critical infrastructure”, which is “any public service that owns, uses, or operates systems and assets, whether physical or virtual” that are so vital to the Philippines that the incapacity or destruction of such systems would have a detrimental effect on national security, including telecommunications and such other vital services as nay be declared by the President of the Philippines”.
The amendments provide for a prohibition against foreign state-owned enterprises from owning capital in any public service classified as “critical infrastructure”. Nonetheless, the prohibition only applies to investments made after the effectivity of the amendments. Foreign state-owned enterprises that own capital prior to the effectivity cannot invest in additional capital of a public service upon the effectivity of the amendments. However, sovereign wealth funds and independent pension funds of states may collectively own up to 30% of the capital of such public services.
Foreign nationals shall not be allowed to own more than 50% of the capital of entities engaged in the operation and management of critical infrastructure unless the country of said foreigner grants reciprocity to Filipinos by law or treaty.
The amendments also provide that the employment of foreign nationals by public service entities will only be allowed if it can be shown that there is a nonavailability of Philippine nationals who are competent, willing, and able to take on the job desired, unless otherwise provided by law, or by any international agreement.
The relevant administrative agencies are given six (6) months from the effectivity of Republic Act No. 11659 to issue implementing rules and regulations, which will further institutionalize the amendments to the PSA.
