Public Service Act amendments a win-win for the Philippines

With the official campaign period for the May 9 election starting on Monday, both the Philippine Senate and House of Representatives have adjourned session.

Congress will be on break for three and half months, so they aren’t set to return until the 23rd of May. And even when they do, they’ll only have a couple of weeks’ worth of session to tie up any pending legislative priorities before adjourning Sine Die.

Given the tight legislative calendar, legislators made sure to ratify legislative priorities before the break. This included the bicameral conference committee report for  SB 2094 and HB 78, which propose amendments to the 85-year old Public Service Act (PSA).

Certified as urgent by President Rodrigo Duterte, the bill relaxes foreign ownership restrictions in some industries. It is expected to attract much-needed foreign direct investments (FDIs), leading to lower prices, better services, and more jobs.

According to Rep. Sharon Garin, chairperson of the House Committee on Economic Affairs, the amendments to the PSA will be a ”game-changer” for the Philippine economy. Based on estimates from Congress, they expect the passage of the law to increase the country’s FDIs by around P299 billion over the next five years. They also expect the gross domestic product growth rate to increase by 0.47 percentage points above the baseline.

The PSA bill also has the Philippine business community’s support. In fact, ahead of the bill’s ratification, several business chambers, associations, and councils issued a joint statement saying that the PSA bill is one of the most significant reforms for the Philippine economy in many decades and is essential to restoring and eventually exceeding pre-pandemic rates of economic growth.

The 85-year-old Public Service Act that this bill is amending says that “public utilities” must be at least 60% Filipino-owned, effectively capping foreign ownership at 40%. However, what the old law doesn’t do is distinguish between the definitions of “public utilities” and “public services.” The newly ratified bill intends to sort that out. 

In the ratified bill, only the following are public utilities: transmission and distribution of electricity, water pipeline and sewerage, seaports, petroleum pipeline, and public utility vehicles. These will continue to be subjected to the 40% foreign ownership rule as public utilities. 

On the other hand, those not classified as public utilities, such as telecommunications and airlines, shall otherwise be considered public services and now be allowed to have 100% foreign ownership.

That said, some groups lobbied for even more liberal provisions that would have shortened the list of public utilities. However, some legislators argued that certain critical industries need to be reserved for and controlled by Filipinos. 

Take seaports, for instance. Seaports play a vital role in the country’s economy, transportation and logistics. They serve as a gateway global economic market while also a cheap and most effective transportation system. 

With seaports playing such an essential role in the movement of people and goods and the nation’s economic growth, it makes sense that legislators chose to keep important industries like seaports as protected public utilities. This way, even if after the PSA is amended, some key sectors remain majority Filipino-owned.

During deliberations, some policymakers were concerned that allowing 100% foreign ownership in certain industries might have national security implications. For example, in the Telecommunications sector, DITO Telecommunity, the country’s third telecommunications provider, is already 40% controlled by state-backed China Telecom. If allowed, China Telecom would likely quickly increase its stake in DITO to 100% once the PSA is amended. 

Observers worried it might compromise Filipino’s data if this were to happen. China has a National Intelligence Law which requires organizations and citizens to “support, assist and cooperate with the state intelligence work.” This means that, if the Chinese government wanted, a 100% of China Telecom-owned DITO would have to hand over data on Filipino users to Chinese intelligence agencies. 

To allay these concerns, Sen. Grace Poe assured the public that safeguards provisions were included in the bicameral conference’s report to address these national security risks. For instance, a key provision prohibits foreign state-owned enterprises from owning capital in any public service classified as a public utility or critical infrastructure (such as telecommunications).

The amendments also give the President the authority to suspend or prohibit any proposed merger or acquisition, or investment in a public service that gives control to a foreigner or foreign corporation. 

The ratification of the proposed amendments to the PSA comes at a critical time. We are still struggling to return to our pre-pandemic pace in terms of the economy. Politically, we are approaching the end of the current political cycle. Soon newly elected legislators will come in and start with a clean legislative slate, with all unpassed billed needing to be refiled, regardless of their progress in the previous Congress.

For this reason, we really must commend the leadership of both Houses and the Bicameral Conference Committee, co-chaired by Sen. Grace Poe and Representative Sharon Garin, for making sure the PSA amendments bill was ratified before going into adjournment. This landmark legislation will help the country’s economy recover while at the same time ensuring vital public utilities— such as seaports—remain Filipino-owned and that critical public services —like telecommunications — are safeguarded against foreign governments’ interests.

Paco Pangalangan is the executive director of think tank Stratbase ADR Institute.