WSG Article: Philippines Amends Public Service Act, Limits the Definition of “Public Utility” and Lifts Foreign Equity Restrictions on Various Industries

Philippines Amends Public Service Act, Limits the Definition of “Public Utility” and Lifts Foreign Equity Restrictions on Various Industries

April, 2022 - Segolene Leffy

Republic Act No. 11659 (“RA 11659”) or “An Act Amending Commonwealth Act No. 146 otherwise known as the Public Service Act” as amended, was signed into law by President Rodrigo Duterte on 21 March 2022. The amendment of the Public Service Act was made pursuant to the State’s policy of encouraging private enterprise and expanding the base of investment in the country, with the goal of providing efficient, reliable, and affordable services to all.

The significant amendments brought about by RA 11659 are as follows:

Foreign equity restriction remains on public utilities

Under Sec. 11, Article XII of the 1987 Philippine Constitution, no franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least sixty percent (60%) of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years.

With the passage of RA 11659, the term “public utility” has been limited to public service that operates, manages, or controls for public use any of the following:

Distribution of Electricity;
Transmission of Electricity;
Petroleum and petroleum products pipeline transmission systems;
Water pipeline distribution systems and wastewater pipeline systems, including sewerage pipeline systems;
Seaports; and
Public utility vehicles.

All concessionaires, joint ventures, and other similar entities that wholly operate, manage, or control for public use the aforementioned sectors shall be treated as public utilities as well.

Power of the President to classify a public service as public utility

Upon the recommendation of the National Economic Development Authority (“NEDA”), the President may recommend to Congress the classification of a public service as a public utility on the basis of the following criteria:

The person or juridical entity regularly supplies, transmits, and distributes to the public through a network, a commodity or service of public consequence;
The commodity or service is a natural monopoly that needs to be regulated when the common good so requires. For this purpose, natural monopoly exists when the market demand for a commodity or service can be supplied by a single entity at a lower cost than by two or more entities;
The commodity or service is necessary for the maintenance of life and occupation of the public; and
The commodity or service is obligated to provide adequate services to the public on demand.

Suspension or revocation of certificates issued pursuant to RA 11659

The responsible administrative agencies may suspend or revoke any certificate issued under the provisions of RA 11659 when the holder has failed, for three (3) consecutive years, the annual performance audit conducted by an independent evaluation team in accordance with the metrics to be set by the administrative agencies.

Increase in penalties for violation of RA 11659

In case of the violation or failure to comply with the terms and conditions of any certificate or any order, decision, or regulation of the responsible administrative agencies, a fine not lower than P5,000.00 but not exceeding P2,000,000.00 per day shall be imposed, for every day during which such default or violation continues.

Any person (whether natural or juridical) which shall commit or cause another to commit prohibited acts, or shall fail, or cause the failure to perform the required acts, will be punished of a fine not exceeding P2,000,000.00 or imprisonment not lower than six (6) years and one (1) day and not higher than twelve (12) years, or both, at the discretion of the court.

For those who will refuse to answer any lawful inquiry of the Commission or produce the needed documents, despite of subpoena, a fine not exceeding P30,000.00 or imprisonment not exceeding six (6) months, or both shall be imposed at the discretion of the court.

Power of the President to suspend or prohibit the transaction or investment

In the interest of national security, the President, after review, evaluation, and recommendation of the relevant government department or administrative agency, may within sixty (60) days from the receipt of such recommendation, 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, of the public service enterprise to a foreigner or a foreign corporation.

Investment of foreign governments, foreign state-owned enterprises

Any entity controlled by or acting on behalf of a foreign government or foreign state-owned enterprises shall be prohibited from owning capital in any public service classified as public utility or critical infrastructure, provided that the prohibition shall only apply to investments made after the effectivity of RA 11659. Further, foreign state-owned enterprises which own capital prior to the effectivity of RA 11569 are prohibited from investing in additional capital upon the effectivity of RA 11569. Notwithstanding the immediately preceding clause, the sovereign wealth funds and independent pension funds of each state may collectively own up to thirty percent (30%) of the capital of such public service.

In the interest of national security, an entity controlled by or acting on behalf of the foreign government or foreign-owned enterprises shall not make any data or information disclosure, nor extend any assistance, support, or cooperation to any foreign government, instrumentalities, or agents.

The NEDA shall promulgate rules and regulations to implement the provisions of this section.

Ownership and employment of foreign nationals

Foreign nationals shall not be allowed to own more than fifty percent (50%) of the capital of entities engaged in the operation and management of critical infrastructure unless the country of such foreign national accords reciprocity to Philippine nationals as may be provided by foreign law, treaty, or international agreement. Reciprocity may be satisfied by according rights of similar value in other economic sectors. The NEDA shall promulgate rules and regulations for this purpose.

Unless otherwise provided by law or by any international agreement, a public service shall employ a foreign national only after the determination of non-availability of a Philippine national who is competent, able, and willing to perform the services for which the foreign national is desired.

Any foreign national seeking admission to the Philippines for employment purposes and any public service which desires to engage a foreign national for employment in the Philippines must obtain an employment permit pursuant to the Labor Code of the Philippines.
It must be noted that nothing in RA 11659 shall be interpreted to diminish, limit, or restrict the authority of Congress from granting franchises to public services, including public utilities, and other activities, as may be provided by law. Any franchise or certificate necessary for the operation of a public service shall be granted by Congress unless otherwise previously delegated by law to the relevant administrative agencies.

No franchise, certificate, concession, or authorization granted by the appropriate administrative agencies pursuant to RA 11659 shall be exclusive in character, exceed fifty (50) years, and granted except under the condition that it shall be subject to amendment, alteration, or repeal by Congress when the public interest so requires.

The full text of RA 11659 may be accessed here.

The information provided here is for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.