Amended Public Service Act: A win for the economy
The country is on its way to becoming more competitive, at least when we talk about foreign direct investments. The Amended Public Service Act is certainly one step towards that goal.
In March 2022, President Rodrigo Duterte signed into law Republic Act No. 11659, otherwise known as the Amended Public Service Act (PSA), a move that would further liberalize the Philippine economy.
The highlight of the amendment is the new definition of what a public utility is.
A public utility is a public service that operates, manages, or controls for public use either the distribution or transmission of electricity, the petroleum and petroleum products pipeline transmission systems, the water pipeline distribution systems and wastewater pipeline systems such as sewerage pipeline systems, seaports, or public utility vehicles. As such, all companies engaged in these services are subject to the 40% foreign ownership limit.
The amended law also introduced critical infrastructure, which refers to 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 would have a detrimental impact on national security, including telecommunications (telco) and other such vital services as may be declared by the president of the Philippines.
Under the amendment, telco shall refer to any process which enables a telco entity to relay and receive voice, data, electronic messages, written or printed matter, fixed or moving pictures, words, music, visible or audible signals, or any control signals of any design and for any purpose by wire, radio, or other electromagnetic, spectral, optical, or technological means.
Excluded in the definition are passive telecommunications tower infrastructure and components, such as, but not limited to, poles, fiber ducts, dark fiber cables, and passive telco tower infrastructure as defined by Department of Information and Communications Technology (DICT), and value-added services, as defined in R.A. No. 7925, or the Public Telecommunications Policy Act, as amended.
- These industries are no longer considered public utilities: telecommunications, domestic shipping, railways, subways, expressways, tollways, airlines, and airports.
- Foreign nationals cannot own more than 50% of capital in public services engaged in the operation and management of critical infrastructure, unless their country accords reciprocity by allowing the same to Philippine nationals, or providing rights of similar value in other economic sectors.
- Foreign state-owned enterprises are prohibited from owning capital in any public service classified as a public utility or critical infrastructure. This will not affect existing telcos but no additional investments are allowed.
- The President has the authority to suspend or prohibit proposed mergers, acquisitions, or investments in public services that result in giving control to foreign investors.
The exclusion of the said industries from the definition of public utility removes the 40% foreign ownership limit. Initially, the amendment of this law was seen to have significant implications for the telecommunications sector. However, given the details of the amendment, foreign ownership in this sector can only go above 50% if the foreign investor’s home country grants reciprocity to Filipinos.
Regardless, the signing of the amendment is a welcome development for easing the country’s FDI restrictiveness (see Figure 1) which appears to be the highest in the region as of 2020. The law will also enhance competition and attract more investments in the country, particularly in industries where the foreign ownership limit has been removed.
Ultimately, this will help accelerate economic recovery and benefit all Filipinos.
The Philippines can attract more foreign direct investment with less restrictive regulations and laws.
JOBELLE LANTIN is currently a Research Officer under the Portfolio Strategy and Advisory Division of Trust Banking Group and a former portfolio officer for retail clients. She is a strong advocate of financial literacy and inclusion. Outside of work, she likes trying out different kinds of wines and has started her journey towards acquiring her Wine & Spirit Education Trust (WSET) certifications in order to gain skills in identifying wines and their respective tastes accurately.