Lingering questions

After almost a year since the law took effect and after grueling and intense discussions, the rules implementing the new Public Service Act are finally out.

While the implementing rules of Republic Act 11659 clarified a number of vague and confusing provisions of the law which overhauled and amended the archaic Public Service Act of 1936, there are still a lot of questions that remain unanswered.

But I will get into those in a bit.

As approved by the National Economic and Development Authority (NEDA) and 20 other administrative agencies that replaced the defunct Public Service Commission, the new law upon its effectivity on April 4, 2023 will allow full foreign ownership of businesses in select public service industries such as airports, railways, expressways, and subject to certain restrictions, telecommunications.

Unlike the old law which was silent on what are considered as public utilities, RA 11659 expressly enumerated what are included in the term. These are those in electricity transmission and distribution, water and wastewater pipeline distribution system including sewerage, petroleum and petroleum products pipeline transmission systems, seaports, and public utility vehicles excluding transport network vehicle service (TNVS) providers accredited with transport network companies (TNC).

The IRR provides that no public service shall operate in the Philippines without a valid certificate or authorization from the relevant administrative agency, to the effect that the operation of said service and the authorization to do business will promote the public interest in a proper and suitable manner.

RA 11659, as well as its IRR, did not provide for a definition of what the term “public utility” means but instead referred to it as a public service that operates, manages or controls for public use the distribution of electricity, its transmission, petroleum pipeline transmission systems, water and wastewater pipeline systems, seaports and PUVs, as well as all concessionaires, joint ventures, and other entities that wholly operate, manage or control for public use the said sectors.

The enumeration, however, is not exclusive since the President, upon the recommendation of NEDA, may recommend to Congress the classification of a particular public service as a public utility.

But why does it matter whether a public service is a public utility or not?

The 1987 Constitution provides instance that no franchise, certificate or authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under Philippine laws, at least 60 percent of whose capital is owned by such citizens.

The Supreme Court, in the case of Heirs of Gamboa vs Teves and Roy vs Herbosa, has interpreted the word “capital” in the Constitution to refer however only to that portion of the outstanding capital stock which is owned and held by Filipino citizens, meaning both the legal and beneficial ownership, including voting rights on those shares and the right to dispose of those shares, are in the hands of Filipinos.

Public utilities are also subject to other constitutional limitations. For instance such authorization to operate a public utility shall not be exclusive in character and for a period of not more than 50 years; that the license shall be subject to amendment, alteration or repeal by Congress when the common good so requires; that all executive and managing officers of such corporation or association must by Philippine citizens; that the participation of foreign investors in the governing body of any public utility shall be limited to their proportionate share of their capital; the provisions on temporary and permanent take-over of public utilities by the State, among others.

But because the new law provides that even if a public service is not classified as a public utility, it will be considered as a business affected with public interest and therefore, the provisions under Section 17 and 18, Article XII of the Constitution on temporary and permanent takeovers by the State will still apply.

Businesses engaged in telecommunications, which used to be considered as public utilities under the Public Telecommunications Act, are no longer classified as such but remain as public service enterprises and are further categorized as critical infrastructure.

Under the IRR of RA 11659, the following are prohibited from making any investment or owning capital in any public service classified as public utility or critical infrastructure: foreign governments or foreign state-owned enterprises; entities controlled by a foreign government or foreign state-owned enterprise; or entities acting on behalf of a foreign government or foreign state-owned enterprises.

Such entities with existing investments or capital in public utility entities or entities classified as critical infrastructure prior to the effectivity of the law may maintain their investments and capital ownership but are now prohibited from investing additional capital.

However, sovereign wealth funds and independent pension funds of each state may invest in the capital of such public utility or entities classified as critical infrastructure but their cumulative investment shall not exceed 30 percent of the capital.

A number of questions however were left unanswered by the new rules. For instance, since RA 11659 has expressly repealed conflicting provisions of the Public Telecommunications Act, are telecommunications companies, which are no longer classified as public utilities, still required to obtain a congressional franchise as a prerequisite to the issuance by the National Telecommunications Commission of a certificate of public convenience? After all, RA 7925, when it mentioned the word “franchise” as a requirement before conducting business as public telecommunications entity under Sec. 16, was obviously referring to a certificate of public convenience and necessity (CPCN) to be issued by the NTC as can be gleamed from the second paragraph of Sec. 16.

How about broadcasting companies, which were considered as public utilities and therefore were required to obtain congressional franchises before they can operate? Since they are clearly not classified as public utilities, would getting a CPC from the NTC be sufficient?

Or how about TNVS providers or those vehicles accredited with TNCs like Grab? Since PUVs are classified under the law as public utilities while TNVS providers are not, where does the difference now lie in terms of getting authorizations from the LTFRB?

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