Implementing the amendments to the Public Service Act (4)

Published 15 May 2023, The Daily Tribune

National Security Review

The Public Service Act was amended by Republic Act 11659 (the “Amendment”) to allow full foreign ownership for public services that are not classified as public utilities. Nonetheless, if foreign investment in public service would be a threat to national security, the president may suspend or prohibit such transactions.

For this purpose, the relevant government department or Administrative Agency is required to conduct a national security review and evaluation, which shall serve as a basis to recommend the prohibition or suspension of the investment transaction to the President. The Implementing Rules and Regulations of the Amendment prescribes the factors and processes that should be complied in the conduct of the national security review.

Section 36 of PSA IRR provides that investment transactions that satisfies both conditions shall be subject to national security review:

  1. Any proposed merger or acquisition transaction, or investment in a public service entity that will effectively result in the grant of control, whether direct or indirect, to a foreigner or a foreign corporation, or a foreign government; and
  2. The proposed merger or acquisition transaction, or investment in a public service has national security implications, which include, among others, public services which (i) have performed top secret, secret or confidential contracts, (ii) are critical infrastructure or public service that utilizes military or defense-related items, chemical and biological weapons, nuclear or missile technology or similar items, or has access to personal information of defense, security and intelligence personnel, (iii) located in geographical areas critical to national security.

PSA IRR furthermore laid down the following criteria that must be taken into consideration when reviewing investments:
a) Impact on national security;
b) Applicability of other Philippine laws and policies;
c) Implication of any national security risk arising from the investment on the Philippine economy and community;
d) Whether the investment will affect the ability of the Philippines to protect its strategic and security threats; and
e) Nature, history and previous business transactions of the investor and any filed cases against the same, in their country of origin, or in any other country or state that the investor is involved in.

The relevant government department or Administrative Agency may conduct the national security review motu proprio or upon voluntary declaration of the parties to the proposed investment transaction.

The relevant government department or Administrative Agency will conduct an initial risk assessment within 30 calendar days from the acceptance of the voluntary declaration or upon receipt of the relevant documents in case of a motu proprio review. In the absence of any finding of national threat, the parties shall be informed to proceed with the transaction.

Within 60 days from the issuance determining the presence of national security threat, the relevant government department or Administrative Agency shall conduct a comprehensive national security review and submit the recommendation to the president. The Philippine Competition Commission shall be informed and consulted on all matters relating to mergers and acquisitions. Other relevant agencies may also be consulted during the review.

Based on the recommendation of the relevant government department or Administrative Agency from the comprehensive national security review, the President may, within 60 calendar days from receipt of such recommendation, suspend or prohibit the investment transaction.

The conduct of the national security review, together with the foreign investment restrictions on public service and other powers granted to the president, are safeguards built into the Amendment to countercheck the country’s efforts to boost market competitiveness and innovation with the country’s need to protect public safety and national security. It is hoped that the issuance of the PSA IRR has clarified the implementation of the Amendment and would prompt the infusion of the needed global capital, ideas, and technology to our public service.

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