Amendments to Philippine Public

Service Act Passed

On 2 March 2022, President Rodrigo Duterte signed into law the amendments to the 85-year
old Public Service Act (“PSA”). The amended PSA constitutes the third installment of the
investment reform measures[1] that local and foreign business groups have been urging
lawmakers to enact to accelerate the country’s economic recovery.[2] Notably, the amended
PSA clarifies the long-existing confusion behind the terms “public service” and “public utility”,
and correspondingly, the foreign equity limitation imposed by the Philippine Constitution on
public utilities. In addition, the amending law also puts in place various safeguards that serve
to protect the country’s national security and sovereignty.

The law has the following salient points:

 Public utility is now clearly defined and distinguished from public service. Prior
to the amendments, the Philippine Supreme Court had construed public utility to
mean public service. However, with the passage of the amended PSA, it is clear that
this can no longer be the case. Under the amended law, public utility is expressly
defined as a public service that operates, manages or controls for public use any of
the following services: 1) distribution of electricity[3]; 2) transmission of electricity[4];
3) petroleum and petroleum products pipeline transmission systems[5], 4) water
pipelines distribution systems and wastewater pipeline systems[6], 5) seaports[7],
and 6) public utility vehicles[8]. On the other hand, public service has retained its
original definition under the old PSA.[9] As such, it is now clear that public utility and
public service do not refer to the same thing. To put maters into perspective, all
public utilities are public services, but not all public services are public utilities.
 Congress has the power to classify a public service as a public utility. Under
the amended PSA, no other service shall be deemed a public utility. This
notwithstanding, Congress is empowered by law to add to the classification of public
utilities through the enactment of a statute.
 The President may recommend to classify a public service as a public
utility. The President, upon the recommendation of the National Economic and
Development Authority (“NEDA”), may propose to the Philippine Congress the
classification of a public service as a public utility, provided the following criteria are
met:
o The person or juridical entity regularly supplies and directly transmits and
distributes to the public through a network a commodity or service of public
consequence;
o The commodity or service is a natural monopoly that needs to be regulated
when the common good so requires;
o The commodity or service is necessary for the maintenance of life and
occupation of the public; and
o The commodity or service is obligated to provide adequate service to the
public on demand.
 Administrative agencies are prohibited from imposing nationality requirements
on public services not classified as public utilities. The amended PSA expressly
prohibits administrative agencies from imposing nationality requirements on public
services not classified as public utilities.
 The President is bestowed with power to suspend or prohibit proposed
mergers or acquisitions involving public services that would effectively give
control to foreigners. Under the amended PSA, the President is given the power to
suspend or prohibit any proposed merger or acquisition transaction, or any
investment in a public service, which would effectively result in the grant of control to
a foreign national.
 Entities owned or controlled by foreign governments or state-owned
enterprises are prohibited from investing in public utilities or critical
infrastructure. Upon the effectivity of the PSA amendments, entities owned or
controlled by foreign governments or state-owned enterprises will be barred from
making new investments in any public utility or critical infrastructure[10], save for
 sovereign wealth funds and independent pension funds of states, subject to a 30%
equity restriction.
 Foreign nationals may invest in public services classified as critical
infrastructure subject to reciprocity rules. A foreign national is not allowed to own
more than 50% equity in a public service engaged in the operation and management
of critical infrastructure unless the country of such foreign national extends the same
privilege to Philippine nationals as may be provided by foreign law, treaty or
international agreement.
 Entities in the telecommunications sector must be certified compliant with ISO
standards on information security. As a continuing requirement to retain their
authority to operate as a public service, entities engaged in the telecommunications
business are required to obtain and maintain certifications from an accredited body
attesting to compliance with relevant ISO standards on information security. This
requirement serves to protect the Philippines from cyber threats coming from foreign
interests.
 Public service entities are subject to an annual performance audit. Under the
amended PSA, administrative agencies are mandated to ensure the conduct of an
annual performance audit by an independent evaluation team for purposes of
monitoring cost, quality of services, and the ability of public service providers to
immediately and adequately respond to emergencies.

Implications for business in the Philippines 

Significantly, the amended PSA opens up multiple key sectors of the Philippine public
service industry that were previously subject to the constitutionally imposed 40% foreign
equity restriction on public utilities. In eliminating the confusion between the terms “public
service” and “public utility”, the Philippine Congress has now made it clear that sectors like
telecommunications, domestic shipping, railways and subways, airlines, expressways,
tollways, and transport network vehicles services (“TNVS”)[11] should no longer be made
subject to the equity cap provided under the Constitution. Thus, foreign nationals are now
generally allowed to own up to 100% equity in businesses that offer these services. This
being the case, the Philippines can expect to see an influx of foreign investments and
players in these newly liberalised sectors.[12]

Conclusion
The entry of foreign investments and players into the newly liberalised sectors would
undoubtedly contribute positively to improving the lives of Filipinos. The passage of the
amended PSA can be expected to give rise to an increase in competition in the Philippine
market which could lead to lower prices, higher quality goods and services, greater variety
and more innovation.[13] For the ordinary individual, this would translate to cheaper
telecommunication services, faster Internet speeds, and better infrastructure and transport
systems. With the Philippine economy beginning to gain traction, Filipinos can remain
optimistic about recovering from the devastating effects of the pandemic.

Highlights:

1. Limits the coverage of public utilities to key sectors that will be subject to
the 60-40 percent foreign equity limitation.