Amended PSA to take effect in April

By Luisa Maria Jacinta C. Jocson, Reporter

A LAW that allows full foreign ownership in more public services such as telecommunications, airlines, and railways will finally take effect in April, the National Economic and Development Authority (NEDA) said.

The NEDA on Monday released the implementing rules and regulations (IRR) for Republic Act No. 11647, which amends the 85-year-old Public Service Act (PSA), a year after it was signed by then-President Rodrigo R. Duterte into law.

The rules will take effect on April 4.

“The implementation of policies on competition and regulatory efficiency necessitates comprehensive and transparent consultations with key stakeholders and legislators to ensure that these remain faithful to public interest,” NEDA Secretary Arsenio M. Balisacan said in a statement.

The law effectively allows full foreign ownership in telecommunications, domestic shipping, railways and subways, airlines, expressways and tollways, and airports. These sectors were previously subjected to the 40% foreign ownership cap for public utilities under the Constitution.

However, other public service utilities such as electricity transmission and distribution, water and wastewater pipeline distribution systems including sewerage, petroleum and petroleum products pipeline transmission systems, seaports, and public utility vehicles will still be subjected to the 40% foreign equity limit.

Under Rule 8, Section 32 of the IRR, telecommunication is the only public service considered as a “critical infrastructure,” which is defined as “so vital to the Philippines that the incapacity or destruction of such systems or assets would have detrimental impact on national security.”

“No other public service shall be considered critical infrastructure unless declared by the President (through an executive order),” the rules said.

However, the NEDA can recommend a public service to be considered as critical infrastructure upon request of an administrative agency.

The rules included a reciprocity requirement for foreign investments in critical infrastructure. Foreign nationals cannot own more than 50% of a firm engaged in services classified as critical infrastructure, unless their country accords reciprocity to Philippine nationals.

Also, the IRR sets the process and criteria for a national security review of foreign investments in public services and critical infrastructure.

A national security review may be conducted if a proposed merger, acquisition or any investment in a public service would result in giving control, whether direct or indirect, to a foreigner or foreign corporation.

A review may also be triggered if the proposed deal would have national security implications. For instance, the public service entity is involved in top secret or confidential contracts, military or defense-related services, or operates in geographical areas critical to national security.

Upon recommendation of relevant agencies, the President is given the authority to suspend or prohibit transactions or investments in public services if it will result in the grant of control to a foreigner or foreign corporation.

The rules prohibit foreign governments or foreign state-owned enterprises from making an investment or owning any capital in any public service classified as public utility or critical infrastructure. This also includes entities controlled or acting on behalf of foreign governments or state-owned enterprises.

Sovereign wealth funds and independent pension funds of each state may also collectively own up to 30% of the capital of a public service classified as critical infrastructure.

British Chamber of Commerce of the Philippines Executive Director Chris Nelson said the amendments to the PSA will help the Philippines attract more foreign investments.

“We look at all these developments very positively and what we see is the need to continue to further open up the economy. The Philippines is an important market in its own right,” he said in a phone call.

Mr. Nelson said the government should continue to implement measures that will further liberalize the economy and improve the ease of doing business.

Foundation for Economic Freedom (FEF) President Calixto V. Chikiamco said the IRR will be able to “facilitate investments without compromising national security.”

“However, execution depends on how good, efficient, reasonable, and fair the implementing administrative agencies are,” he added.

Mr. Chikiamco also said that the PSA can boost investments in infrastructure and other strategic industries like shipping and telecommunications, since they are now open to greater foreign entry and competition.

“I think the Public Service Act is in order and is clearly an improvement over the previous law limiting foreign ownership to only 40%,” Leonardo A. Lanzona, who teaches economics at the Ateneo de Manila University, said in an e-mail.

However, Mr. Lanzona said that the PSA may not necessarily boost infrastructure development “since the liberalization is limited to the running of the businesses or services in these select industries.”

“The entire supply chain for these industries may involve industries that are still subject to this 40-60% rule. Because of this, the investments may not be forthcoming. I would prefer the liberalization of public service utilities with the necessary safeguards to ensure national security,” he added.

Finance Secretary Benjamin E. Diokno said in a forum on Monday that there are still many other industries that can be opened up to foreign ownership.

“There are many more areas to improve upon. Like ownership of mass media, that’s closed. Foreigners can’t own (mass media). I’m for opening that up, that will give more opportunities. And education institutions, there are still many areas,” he said.