mplementing the Amendments to the Public Service Act (1)

Published 5 May 2023, The Daily Tribune

Foreign investors for public service

The Implementing Rules and Regulations on the Amendments of the Public Service Act or PSA IRR took effect on 04 April 2023. The National Economic and Development Authority released the PSA IRR on 20 March 2023 after an extensive review and consultations with the public, legislators, relevant administrative agencies, and other key stakeholders.

The PSA IRR was approved by 21 agencies, including the Philippine Competition Commission, Securities and Exchange Commission, Department of Labor and Employment, and the administrative agencies of public service sectors, including the Civil Aviation Authority, Land Transportation Franchising and Regulatory Board, and Department of Energy.

In accordance with Republic Act 11659 (the Amendment), the PSA IRR recognized that public utility is only a subset of public service. This distinction is critical to determine the scope of the 40 percent foreign equity restriction imposed by the Constitution on public utility.

Pursuant to the Amendment, the PSA IRR recognized that public utility is limited only to identified public service sectors. Under the Amendment, public utility refers only to public service that operates, manages, or controls for public use any of the following: (a) distribution of electricity; (b) transmission of electricity; (c) petroleum and petroleum products pipeline transmission systems; (d) water pipeline distribution systems and wastewater pipeline systems, including sewerage pipeline systems; (e) seaports; and (f) public utility vehicles.

Prior to the amendment, the Public Service Act and its implementing rules and regulations limited foreign equity to 40 percent for all public service. With the Amendment, the PSA IRR now clearly provides that the restriction applies to public utility only. Section 17(e) of the PSA IRR prohibits the sale of shares of stock to any alien that would result in a reduction of Filipino ownership to less than 60 percent for public utilities only.

Consistent with the Amendment, the PSA IRR clarified that public service, which is not classified as a public utility, shall be considered as a business affected by public interest. Consequently, the constitutional provisions on businesses affected by public interest shall apply to all public services. This includes the temporary takeover during times of national emergency (Section 17, Article XII of the Constitution) and transfer to public ownership in the interest of national welfare or defense (Section 18, Article XII of the Constitution).

The PSA IRR also provided guidance on other built-in mechanisms in the Amendment which were designed to safeguard Philippine interests. These safeguards include the authority of the President to recommend the classification of public service as a public utility, to prohibit or suspend investment in public service in the interest of national security, and to declare public service as critical infrastructure. These safeguards will be discussed in more detail in the following articles of this series.

(To be continued)

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