J. Albert Gamboa l February 7, 2023 l Manila Bulletin
After more than 80 years, the Commonwealth-era Public Service Act (PSA) of 1936 was amended by Congress last year. Then President Rodrigo Duterte signed Republic Act 11659 allowing 100% ownership of public services in the Philippines. It clearly defined the term “public utilities” and differentiated them from “public services.” Thus, the foreign direct investment (FDI) restrictions on public services have been lifted to spur the flow of global capital into various sectors of the domestic market.
With the passage of RA 11659, only the following industries are classified as public utilities: electricity distribution and transmission; petroleum and oil products pipeline transmission systems; water and wastewater pipeline systems; seaports; and public utility vehicles. These are reserved exclusively for Filipino citizens and corporations 60% owned by Filipinos, in line with the 1987 Philippine Constitution’s economic provisions.
The 40% limitation also applies to foreign ownership of real estate and educational institutions. However, it is no longer applicable to airports, railways, tollways, subways, and expressways under the PSA amendments.
RA 11659 has introduced the new concept of “critical infrastructure” that refers to any public service owning, using, or operating systems and assets vital to the country such that their incapacity or destruction would have a detrimental impact on national security. It specifies telecommunications as a critical infrastructure and as such, it is subject to a 50% foreign equity restriction with a reciprocity provision: more than 50% foreign ownership may be allowed if the country of such foreign telecoms firm accords reciprocal rights to Filipinos as provided by law, treaty, or international agreement.
Mass media are the last remaining sector that are still reserved 100% for Filipino individuals or corporations, associations, and cooperatives that are wholly-owned and managed by Filipinos. This is mandated under Article 16 Section 11 of the Constitution, which also provides that “Congress shall regulate or prohibit monopolies in commercial mass media when the public interest so requires.”
Through legislative means, past administrations liberalized certain industries that were previously subject to constitutional limitations on foreign ownership. In 2014, President Benigno Aquino III signed a landmark bill allowing foreign banks to acquire up to a 100% stake in domestic banks, aside from setting up fully-owned banking subsidiaries. President Gloria Arroyo deregulated the energy sector and encouraged Fil-foreign joint ventures with the signing of the Electric Power Industry Reform Act of 2001.
It was under President Joseph Estrada’s watch that the Retail Trade Liberalization Act of 2000 was passed, while licensed foreign professionals were permitted to practice in the Philippines (except for lawyers). During the term of President Fidel Ramos, he opened up the telecoms industry to competition and approved the passage of the Special Economic Zone Act of 1995 that promoted the establishment of industrial estates and special ecozones for foreign investors. His predecessor, President Corazon Aquino, encouraged the influx of FDIs when she signed into law the Foreign Investments Act of 1991.
Over the past seven months, President Ferdinand Marcos Jr. has traveled abroad eight times and returned home with billions of dollars worth of investment pledges. He was only one of two Asian leaders who were invited to participate in the World Economic Forum at Davos, Switzerland – where his pitch for the Maharlika Investment Fund (MIF) was directed at multinational funders and business leaders in attendance.
According to Finance Secretary Benjamin Diokno, once the MIF is established, foreign investors could bring in more funds for the Philippine government’s crucial infra projects. Such is the global trend in the digital age, when most countries encourage seed money from overseas to buoy up the local economy.
*** J. Albert Gamboa is a Life Member of the Financial Executives Institute of the Philippines (FINEX) and Vice-Chair of the FINEX Ethics Committee. The opinion expressed herein does not necessarily reflect the views of these institutions and the Manila Bulletin. #FinexPhils www.finex.org.ph