The Market Monitor Minding the Nation's Business
President Rodrigo Duterte signed into law amendments to the 85-year-old Public Service Act that would allow foreigners full ownership of local airlines, telecommunications, mass media, railways and logistical or shipping operators.
Republic Act 11659 removed the 40% equity cap on foreigners in public utility companies, while aiming to generate jobs and spur activity in the aftermath of the pandemic’s grave impact on the economy.
The new law also address the inability of the country to attract foreign investment due to red-tape, corruption and political uncertainty. Many investors have been pouring their money in neighboring countries.
The new law reclassifies mass media, telecommunications, railways, airlines, and logistical facilities as public services from their previous classification as public utilities.
The public service sector had long been dominated by a few big companies.
“I believe that with this law, the easing of foreign equity restrictions will attract more global investors, modernize several sectors of public service and improve the delivery of essential services,” outgoing President Rodrigo Duterte said as he signed off on the changes.
R.A. 11659 listed the affected public utility sectors:
- Distribution of electricity
- Transmission of electricity
- Petroleum and petroleum products pipeline transmission systems
- Water pipeline distribution systems and wastewater pipeline systems, including sewage pipelines
- Seaports
- Public utility vehicles
Industry not in the list will remain as public services.
Prior to the amendment, foreigners were restricted from full ownership of companies considered to be public utilities, which include telecommunications firms.
Analysts say this has stunted investment in telcos and resulted in a duopoly that is disadvantageous to consumers.
“Indeed, the enactment of this amended law, as well as the amended Foreign Investments Act, will help stimulate the economy, especially for local businesses,” Duterte added.
House Ways and Means panel chairperson Joey Salceda, the law’s principal author, said it was the closest that the country had been to overcoming the “growth overhang caused by the 1987 Constitution’s foreign equity restrictions.”
“It cures our self-inflicted FDI (Foreign Direct Investment) limits. No one told us public services are necessarily public utilities. We just assumed that they meant the same thing, so we imposed foreign equity restrictions on a broad swathe of services in need of capital,” Salceda said.
Trade Secretary Ramon Lopez said foreign equity restrictions would be “eased out” in several sectors, including telecommunications, shipping, airlines, railway and subways.
The amendments do not apply to sectors classified as public utilities, such as water and electricity distribution, where foreign equity remains capped at 40%.
The President retains the power to block a proposed foreign takeover of a public service.
A 2020 index published by the Organisation for Economic Cooperation and Development shows the Philippines has some of the most restrictive foreign direct investment rules in the world.
The Philippines ranked 95 out of 190 countries in the World Bank’s “Doing Business 2020” report.