Published 12 May 2023, The Daily Tribune

Critical infrastructure

In the previous article, I discussed the authority granted to the President to reclassify, and the mandate to Administrative Agencies to monitor the performance of a public service to ensure the quality of services provided to the public.

As a safeguard to national interest, Republic Act 11659 (the Amendment) imposes foreign equity restrictions on public services which are deemed vital or critical to the country’s national security.

The Amendment imposes a 50 percent foreign equity restriction on “critical infrastructure”. This is defined as “any public service which owns, uses, or operates systems and assets, whether physical or virtual, so vital to the Republic of the Philippines that the incapacity or destruction of such systems or assets would have a detrimental impact on national security, including telecommunications and other such vital services as may be declared by the President of the Philippines.”

Unlike a public utility, the Amendment allows full foreign ownership of critical infrastructure if the country of the foreign investor accords reciprocity to Philippine nationals. The Amendment further provides that such reciprocity may be satisfied according to rights of similar value in other economic sectors.

The Implementing Rules and Regulations of the Amendment or PSA IRR clarifies this reciprocity requirement. Section 45(b) of the PSA IRR provides that the reciprocity requirement is deemed satisfied if:

a. Philippine nationals are allowed to own more than 50 percent of capital stock in any activity related to agriculture, industry, and services in the home country of the foreign national; or

b. If the home country of the foreign national allows Philippine nationals to invest the same value of capital in any economic activity related to agriculture, industry, and services.

The documentary evidence to support reciprocity may include the following:

a. A copy of the official publication of the law and/or other government issuances granting rights and privileges to Philippine nationals attested to by the foreign government officer having legal custody of the record, or his deputy; or
b. Relevant documents granting rights and privileges to Philippine nationals to invest in the country of the foreign investor and certified in accordance with the Apostille Convention or consularized by the Philippine embassy having jurisdiction in the home country of the foreign investor.

The PSA IRR further clarifies that the reciprocity requirement applies to investments made after a public service has been declared critical infrastructure.

Currently, only the telecommunication service sector is classified as critical infrastructure. The President is authorized, by issuing an executive order, to declare other public services as critical infrastructure.

The National Economic and Development Authority or NEDA may also recommend to the President, motu proprio, or upon request of the relevant Administrative Agency, the classification of public service as critical infrastructure. In the course of its review to determine its recommendation, the PSA IRR requires NEDA to consider whether the operation of such systems or assets is so vital to the country that the incapacity or destruction of such would (a) impair the country’s ability to secure the territorial integrity; or (b) adversely affect the safety, security, and well-being of the public. NEDA is also required to consult with the relevant stakeholders, and agencies in the national security sector, as part of its review process.

The Amendment also imposes other restrictions on foreign investments in other public service sectors, whether classified as a critical investment or otherwise, in the interest of national security. The national security review will be discussed in the next article of this series.

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