Republic Act No. 11659 amends the Public Service Act and limits the definition of “public utility” to stimulate foreign investment in public service sectors

On 21 March 2022, President Rodrigo Roa Duterte signed Republic Act (“RA”) No. 11659 or “An act amending Commonwealth Act No. 146, otherwise known as the ‘Public Service Act’, as amended”.

It was published in the Official Gazette on 28 March 2022 and took effect after fifteen (15) days following its date of publication or on 12 April 2022.

The State recognizes the role of the private sector as one of the main engines for national growth and development. Thus, it is the policy of the State to encourage private enterprise and expand the base of investment in the Philippines, with the goal of providing efficient, reliable and affordable basic services to all. These policies are fulfilled by: (a) ensuring effective regulation of public services; (b) providing reasonable rate of return to public services; (c) rationalizing foreign equity restrictions by clearly defining the term “public utilities”; and (d) instituting processes for the protection of national security.

Section 11, Article XII of the 1987 Constitution of the Philippines provides for the Filipinization of public utilities. The provision of the Constitution reserves the operation of public utilities to Filipino citizens or corporations organized under the Philippine laws and at least sixty percent (60%) of whose capital is owned by Filipino citizens. The purpose of the limitation imposed by the Constitution is to prevent foreigners from controlling the operations of public utilities in the Philippines which is a sector imbued with public interest.

However, the term “public utility” was not defined under the 1987 Constitution, the old Public Service Act, or any other law. Thus, what is covered by “public utility” has always been subject to judicial interpretation. Perhaps the most salient amendment introduced by RA No. 11659 is defining the term “public utility”.

Under Section 4 of RA No. 11659, “public utility” refers to a public service that operates, manages or controls for public use any of the following: (1) Distribution of Electricity; (2) Transmission of Electricity; (3) Petroleum and Petroleum Products Pipeline Transmission Systems; (4) Water Pipeline Distribution Systems and Wastewater Pipeline Systems, including sewerage pipeline systems; (5) Seaports; and (6) Public Utility Vehicles.

Section 4 of RA No. 11659 further provides that no other person shall be deemed a public utility unless otherwise subsequently provided by law. Thus, the definition introduced by RA No. 11659 limits the coverage of public utility to specific sectors that will remain subject to the forty percent (40%) foreign equity ownership limit provided for by the 1987 Constitution. Considering this amendment in the Public Service Act, key industries such as telecommunication and transportation have been removed from the definition of public utility. Consequently, these industries shall no longer be subject to the foreign equity cap provided for by Section 11, Article XII of the 1987 Constitution.

In addition to the foregoing, the President may recommend to Congress the classification of a public service as a public utility on the basis of the following criteria: (1) The person or juridical entity regularly supplies and transmits and distributes to the public through a network a commodity or service of public consequence; (2) The commodity or service is a natural monopoly that needs to be regulated when the common good so requires. For this purpose, natural monopoly exists when the market demand for a commodity or service can be supplied by a single entity at a lower cost than by two or more entities; (3) The commodity or service is necessary for the maintenance of life and occupation of the public; and (4) The commodity or service is obligated to provide adequate service to the public on demand.

Section 23 of RA No. 11659 moreover grants the President the power to suspend or prohibit, in the interest of national security, any proposed merger or acquisition transaction, or any investment in a public service that effectively results in the grant of control, whether direct or indirect, to a foreigner or a foreign corporation.

An entity controlled by or acting on behalf of the foreign government or foreign state-owned enterprises shall be prohibited from owning capital in any public service classified as public utility or critical infrastructure. A critical infrastructure refers to any public service which owns, uses, or operates systems and assets, whether physical or virtual, so vital to the Philippines that the incapacity or destruction of such systems or assets would have a detrimental impact on national security, including telecommunications and other such vital services as may be declared by the President.

Further, foreign investments to critical infrastructure projects are subject to reciprocity clause. Section 25 of RA No. 11659 prohibits foreign nationals to own more than fifty percent (50%) of the capital of entities engaged in the operation and management of critical infrastructure unless the country of such foreign national accords reciprocity to Philippine Nationals as may be provided by foreign law, treaty or international agreement.

Entities engaged in the telecommunications business are further required to obtain and maintain certifications from an accredited certification body attesting to compliance with relevant International Organization for Standardization (ISO) standards on information security. This requirement, however, does not apply to micro, small and medium enterprises under RA No. 6977, otherwise known as the “Magna Carta for Micro, Small and Medium Enterprises, as amended.”

RA No. 11659 mandates administrative agencies to ensure the annual conduct of performance audit by an independent evaluation team to monitor cost, the quality of services provided to the public, and the ability of the public service provider to immediately and adequately respond to emergency cases.

The Implementing Rules and Regulations of RA No. 11659 shall be promulgated within six (6) months from the effectivity of the law.  

A copy of the RA No. 11659 can be accessed in:

https://www.officialgazette.gov.ph/downloads/2022/03mar/20220321-RA-11659.pdf