What's in it for the economy if the Public Services Act is amended?

MANILA, Philippines — After Congress ratified the bicameral version of the bill amending the Public Service Act on Wednesday, some analysts expect this legislation to steer the economy on a "positive" track, but stressed the need for stringent regulations.

Why it matters

If signed into law by President Rodrigo Duterte, the current version of the measure would open industries once deemed off-limits to foreign capital — such as telecommunications, airlines, and railways — to full foreign ownership since they would be excluded from the definition of "public utility."

What analysts say

For Jun Neri, lead economist at Bank of the Philippine Islands, consumers could benefit from increased foreign participation in key sectors through competition.

"It's generally seen as positive legislation as it gives consumers more choices, hopefully at more affordable prices," Neri said in a Viber message.

The country has numerous restrictions on foreign investments in industries that were deemed public utilities. For instance, telco companies, which must be 60% owned by Filipino nationals, could be opened to foreign takeover once the bill is enacted to law. Fitch Solutions reported last December that the Public Services Act would benefit telcos and transport spaces in the Philippines, owing to "a conducive environment for technological uptake."

Michael Enriquez, chief investment officer at Sun Life Investment Management and Trust Corp, agreed with Neri.

"Currently all our telcos have foreign partners due to the high caped and fast-changing technology. The law would further open up the possibility of having more players in the industry," Enriquez said in a Viber message.

"This would be similar for airlines and railways as we expand the need for mass transportation, opening to foreign players can expedite the development," he added.

Under the current form of the bill, there are still some sectors that are restricted to full foreign equity such as public utility vehicles, power and water utilities, seaports and petroleum pipelines.

The strongest proponent for this law has been the National Economic and Development Authority. The agency said on Monday that by signing the bill into law, the Philippines is following what other countries in the region have done to corner foreign capital.

Are there potential risks?

But some observers like Terry Ridon, convenor at Infrawatch PH, an infrastructure think tank, pointed out that the Philippine bureaucracy needs to work on "honest governance" or else opening up the economy to more foreign participation would be a futile exercise.

"The Public Service Act seeks to skirt around nationality restrictions in the 1987 Constitution to allow 100% foreign ownership in sectors traditionally reserved for Filipinos or Filipino-majority firms. Foreign investments to the country will come only if the governance issues in the country are resolved, as this remains the main binding constraint for growth," Ridon said in a text message.

For Ridon, longstanding issues of corruption, cronyism and red tape will still deter foreign investments since it continues "to delay permits, disqualify competition, and raise capital costs to do business in the country." He cited as an example the Pharmally controversy, which involved the procurement of “overpriced” medical supplies for the Duterte's administration's pandemic response.

The Public Services Act was also amended to allow the president to designate if a public service is indeed a public utility, which could allow it to enjoy certain benefits under the law. But Neri said strict regulations are still needed for this law.

"A regulatory body has to make sure that rules on keeping the playing field level have to be enforced well. If violations are seen they should be forced to comply, fined heavily if necessary. The Competition Commission should also be allowed to monitor and enforce rules," Neri said.

“We have to remain vigilant beyond passage of the law," he added.