Opening Doors to Public Service

Juan Miguel C. dela Cruz

Last 15 December 2021, Senate passed on third and final reading Senate Bill No. 2094, which seeks to amend Commonwealth Act No. 146, otherwise known as the Public Service Act (PSA). The Senate Bill attempts to streamline and liberalize the current restrictions placed on the ownership, management, and control of public utilities and public services.

By way of background, the 1987 Constitution has adopted a Filipino First policy by giving preference to qualified Filipinos in the grant of rights, privileges, and concessions covering the national economy and patrimony. Article XII, Section 11 of the Constitution states that no franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines at least 60% of whose capital is owned by such citizens. The maximum 40% foreign equity participation in the operation of a public utility has been in place since the 1935 Constitution.

Neither the Constitution nor statutes define what a “public utility” is. Notably, the Supreme Court, citing American jurisprudence, had the occasion to define a public utility as “a business or service engaged in regularly supplying the public with some commodity or service of public consequence such as electricity, gas, water, transportation, telephone or telegraph service.”

The PSA, approved in 1936, has entangled the concept of public utility with “public service”. It considers an entity as being engaged in public service if it “own[s], operate[s], manage[s], or control[s] in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, sub-way motor vehicle, either for freight or passenger, or both with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries, and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine railway, marine repair shop, wharf or dock, ice plant, ice-refrigeration plant, canal, irrigation system, gas, electric light, heat and power, water supply and power, petroleum, sewerage system, wire or wireless communications system, wire or wireless broadcasting stations and other similar public services.”

The PSA requires those engaged in any public service business to secure a certificate of public convenience or certificate of public convenience and necessity, except grantees of legislative franchises expressly exempting such grantee from the requirement of securing a certificate.

The Senate Bill has seemingly reconciled the entangled concepts by recognizing that a public utility is a subset of public service. In other words, all public utilities are public services; but not all public services are public utilities.

Under the Senate Bill, a public utility refers to a public service that operates, manages or controls for public use any of the following:

  1. Distribution or transmission of electricity
  2. Petroleum and petroleum products pipeline transmission or distribution systems
  3. Water pipeline distribution systems and wastewater pipeline systems
  4. Airports
  5. Seaports
  6. Public utility vehicles
  7. Expressways and tollways

The Senate Bill states that “[a]ll concessioners, joint ventures and other similar entities that wholly operate, manage or control for public use the sectors above are public utilities.” No other person shall be deemed a public utility unless otherwise subsequently provided by law.

In a press release, it was elaborated that those not classified as a public utility shall otherwise be considered as a public service, which will not be bound by the 60-40% nationality requirement. Notably, telecommunications, air carriers, domestic shipping, and railways and subways are considered a public service under the Senate Bill. As a safeguard, the aforementioned services are considered as critical infrastructure, which is subject to a reciprocity clause. Hence, foreign nationals shall not be allowed to own more than 40% of capital in public services engaged in the operation and management of critical infrastructure unless the country of such foreign national accords reciprocity to Philippine nationals. Further, 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 critical infrastructure.

Moreover, it shall be unlawful for any public service to sell, alienate or in any manner transfer shares of its capital stock, without prior approval and authorization, to any alien if the result of that sale, alienation, or transfer in itself or in connection with another previous sale shall be the reduction to less than 60% of the capital stock belonging to Philippine citizens in the operation of a public utility as required by the Constitution.

For the operation of the business services, no public service shall operate in the Philippines without possessing a valid and subsisting franchise and/or certificate from Congress and/or the proper administrative agency unless exempted. Operating, managing, or controlling public utilities shall not be interpreted as a requirement for legislative franchise where the law does not require any.

In keeping with the Filipino First policy, the Senate Bill requires a public service to employ a foreign national only after the determination of non-availability of a Philippine national who is competent, able and willing to perform the services for which the foreign national is desired. Understudy/skills development program will also be enforced to ensure the transfer of technology/skills to Filipinos, with the potential of succeeding the foreign national in the same establishment or its subsidiary.

Notably, the House of Representatives has its own version of the bill amending the PSA. Differences between both versions exist, notably on the definition of public utility and the terms of the reciprocity clause. In the House version, a public service will be deemed a public utility based on certain criteria, i.e. regularity of the service of public consequence, natural monopoly, necessity, and demand.

The Senate Bill is currently with the Bicameral Conference Committee to reconcile the conflicting provisions of the Senate and House versions. After both houses has given their approval, the enrolled bill shall be presented to the President for approval. The President either signs it into law, or vetoes and sends it back to the Senate with a veto message.

This article is for informational and educational purposes only. It is not offered and does not constitute legal advice or legal opinion.

Juan Miguel C. De La Cruz is an associate of the Corporate and Special Projects Department (CSPD) of the Angara Abello Concepcion Regala & Cruz Law Offices or ACCRALAW, located at Bonifacio Global City, Taguig City, Metro Manila, Philippines.
[email protected]
(632) 8830-8000

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