More industries to be opened to foreigners

It’s just a matter of time before vital industries like telecommunications will no longer be bound by constitutional restrictions on foreign ownership.

The Senate last Dec. 15 approved on third and final reading a bill that will amend the archaic Public Service Act. In particular, it seeks to put a distinction between the terms “public utility” and “public service,” which at the moment are being used interchangeably.

Under Commonwealth Act 146 or the PSA, the term “public service” includes common carriers, those that own, operate or manage ice plants, irrigation systems, gas, electric light, heat and power, water supply and power, petroleum, sewerage systems, wire or wireless communications systems, wire or wireless broadcasting stations, and other public services.

The same law provides that no public service shall operate in the Philippines without a valid and subsisting certificate from the now defunct Public Service Commission (PSC), known as certificate of public convenience (CPC) or certificate of public convenience and necessity (CPCN), as the case may be. Only corporations, partnerships, associations, 60 percent of the stock or paid-up capital of which belongs entirely to citizens of the Philippines may be issued CPCs or CPCNs.

The functions of the PSC, which includes the power to fix the rates of those engaged in public service, have been distributed to different government agencies, including the National Telecommunications Commission for telecommunications and broadcasting, the Energy Regulatory Commission for power companies, the Metropolitan Waterworks and Sewerage System in the case of water distributors, the Land Transportation Franchising and Regulatory Board for public utility vehicles, among others.

Nowhere in the PSA does it mention about public utilities, nor does it say that public service providers and public utilities are one and the same.

But since some of those engaged in public service have been classified by jurisprudence as public utilities, they have become subject to a number of limitations imposed by the Constitution on public utilities, including the provision that limits the grant of franchise, certificate or any authorization for the operation of a public utilities to “Philippine citizens or corporations organized under Philippine laws, at least 60 percent of whose capital is owned by such citizens.”

However, the Supreme Court, in the case of Heirs of Gamboa vs Teves, said the word “capital” in the Constitutions refers only to shares with voting rights and whose full beneficial ownership is in the hands of Filipinos.

The Constitution also provides that all executive and managing officers of public utilities must be citizens of the Philippines, that public utilities are subject to temporary or permanent takeover by the government, among others.

As public utilities, some of these entities are, likewise, required to secure a legislative franchise before they can be issued CPCNs. Thus, before a telecommunications company can be issued a CPCN by the NTC, it has to have a valid congressional franchise.

In the case of Metropolitan Cebu Water District vs Adala, the SC defined a public utility as “a business or service engaged in regularly supplying the public with some commodity or service of public consequence such as electricity, gas, water, transportation, telephone or telegraph service.’

In KMU vs Garcia, the High Tribunal, likewise, defined public utilities as “privately owned and operated businesses whose services are essential to the general public.”

However, the law has classified some of those engaged in public service as not being public utilities. For instance, RA 9136 or the EPIRA law has declared power generators, such as independent power producers as not being public utilities. In the case of IDEALS vs PSALM, the Supreme Court explained that “power generation shall not be considered a public utility operation and hence no franchise is necessary and foreign investors are allowed entry into the electric power industry.”

The just approved Senate bill (Senate bill 2094 amending the PSA) will limit the scope of public utilities to electricity distribution, petroleum pipeline distribution systems, and water pipeline and sewerage pipeline systems. It merely defined public utility as a public service that operates, manages or controls for public use any of the following: distribution or transmission of electricity, petroleum and petroleum products pipeline transmission or distribution systems, water pipeline distribution systems and wastewater pipeline systems, airports, seaports, public utility vehicles, and expressways and tollways.

It said that upon the recommendation of NEDA, the President may recommend to Congress the classification of a public service as a public utility based on the following criteria: that such entity regularly supplies and directly transmits and distributes to the public through a network a commodity or service of public consequence, that the commodity or service is a natural monopoly that needs to be regulated when the common good so requires, the commodity or service is necessary for the maintenance of life and occupation of the public; and the commodity or service is obligated to provide adequate service to the public on demand.

A similar bill was approved by the House of Representatives back in March 2020.

Not being included in the enumeration of public utilities, telecommunications companies will no longer be subject to the 40 percent foreign ownership limitation under the Constitution and will be allowed to be 100 percent foreign owned. But as entities still considered as engaged in public service, they may still be required to secure a CPC, for which no prior franchise from Congress is required, and the rates that they will collect from the public will still be subject to regulation by their regulator, in this case the NTC.

The bill provides that unless otherwise included in the definition of a public utility, such person engaged in public service under CA 146 shall be continue to be subject to regulation by relevant administrative agencies and nationality requirements shall not be imposed.

Unfortunately, Article XVI Section 11 of the Constitution limits the ownership and management of mass media to citizens of the Philippines or to corporations, cooperatives or associations, wholly owned and managed by Filipino citizens. Under the Foreign Investments Negative List, mass media is among those industries whose equity must be 100 percent Filipino owned.

This means that the broadcasting industry, currently classified as a public utility, cannot be opened up to foreign ownership by law. Allowing 100 percent ownership in media requires an amendment of the Constitution.

Will the proposed amended PSA be good for the economy and for us? That remains to be seen.

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