On 21 March 2022, President Rodrigo R. Duterte signed into law Republic Act No. 11659 ("Amended PSA"), amending Commonwealth Act No. 146 or the Public Service Act. The Amended PSA aims to strengthen the regulation of public services and processes for the protection of national security, but also ensure a reasonable rate of return for these public services. The Amended PSA removes foreign equity restrictions for some entities by limiting the scope of what are considered as "public utilities".
Under the Amended PSA, "public utilities" refer to public services that operate, manage, or control for public use any of the following: (i) distribution of electricity; (ii) transmission of electricity; (iii) petroleum and petroleum products pipeline transmission systems; (iv) water pipeline distribution systems and wastewater pipeline systems, including sewerage pipeline systems; (v) seaports; and (vi) public utility vehicles.
Expressly excluded from the definition of "public utilities" are (i) petroleum pipeline systems which are incidental to the operations of a distinct business, and (ii) transport vehicles accredited with and operating through transport network corporations.
The change introduced by the Amended PSA implies that public services falling outside the above definition (e.g. telecommunications, shipping, air carriers, railways, and subways) are no longer required to comply with the Filipino equity requirement (i.e. 60% ownership) for public utilities under Article XII of the 1987 Philippine Constitution. This is intended to attract much needed foreign direct investment and shore up competition in some industries which have long been virtually reserved to Filipinos.
Despite these changes, the Amended PSA still prohibits foreign nationals from owning more than 50% of the capital of entities engaged in the operation and management of "critical infrastructure", unless the country of such foreign national affords reciprocity to Filipino nationals.
"Critical infrastructure" refers to any public service which owns, uses, or operates systems and assets, whether physical or virtual, so vital to the country that the incapacity or destruction of such systems or assets would have a detrimental impact on national security. This includes telecommunications and other such vital services as may be declared by the President.
In addition, entities controlled by or acting on behalf of foreign governments or foreign state-owned enterprises are prohibited from (i) investing in any public utility or critical infrastructure unless such investments were already made before the passage of the Amended PSA, and (ii) investing additional capital. However, sovereign wealth funds and independent pension funds of states are allowed to collectively own up to a maximum of 30% of the capital of such public services.
Lastly, the Amended PSA authorises the President to suspend or prohibit any proposed merger, acquisition, or investment in public services which grants the foreigner or foreign corporation a controlling stake, when such transaction will affect national security.
The Amended PSA shall take effect after 15 days following its publication on 7 April 2022 in the Official Gazette. That 15-day period ends on 22 April 2022. The National Economic Development Authority, in collaboration with other government agencies, shall promulgate rules and regulations to implement the Amended PSA within six months from 7 April 2022, namely by 7 October 2022.
