Philippines – Amending The Public Service Law: Distinguishing Public Utilities From Public Services.

Senate Bill No. 1441 seeks to amend the Public Service Act to differentiate a “public service” from a “public utility,” thereby lifting the nationality restriction on the areas of power generation and supply, transportation, broadcasting, and telecommunication, among others.

 

During the 17th Congress of the Philippines, Senate Bill No. 1441 was introduced seeking to amend the antiquated Commonwealth Act No. 146, otherwise known as the “Public Service Act,” which is the primary law, after the Philippine Constitution, that governs public services in the Philippines. In particular, the following amendments were proposed: the transfer of the functions of the now defunct Public Service Commission to various administrative agencies; the definition of “public utility” as distinguished from a “public service;” an appropriate mechanism for fixing rates based on a reasonable rate of return; and, the penalties for violations.

 

Most notable among the aforementioned proposed amendments is in the definition of a “public utility” which has, in the past, been used interchangeably with the term “public service.” As currently worded, the Public Service Act defines a “public service” to include “every person that now or hereafter may own, operate, manage, or control 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 whether 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 railways, marine repair shop, [warehouse] 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.”

 

At the time of its passing, the intent of the law was to regulate public services, which by its very nature, is imbued with public interest, to ensure that such basic public services were accessible to everyone equally. Public service providers were limited to Filipino citizens, and to entities at least 60% of whose capital is owned and controlled by Filipino citizens. By reason of such a restriction, monopolies were inevitably formed as very few local players had the financial resources and technical capacity required by such enterprises.

 

The 1987 Constitution of the Philippines provides 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 per centum of whose capital is owned by such citizens.” In this connection, the 11th Foreign Investment Negative List lists the “operation of a public utility” as an area of investment which is limited to no more than 40% foreign equity participation.

 

However, the Constitution itself does not define a “public utility” and, accordingly, the term has been interpreted broadly to include all public services, thereby applying the stringent nationality requirements under the Constitution to all who fit the all-encompassing definition, no doubt discouraging, if not scaring away, potential foreign investors.

 

The proposed amendment statutorily defines a public utility as a mere subset of public services, a recognition that while a public utility is a public service, it is much smaller in scope than the latter, and limits the same to just three main industries, namely: Transmission of Electricity; Distribution of Electricity; and Water Works and Sewerage Systems. The bill further provides that no other business or service shall be classified as a public utility unless otherwise subsequently provided by law, upon recommendation by the Philippine Competition Commission, in consultation with the National Economic and Development Authority.

 

The bill proposes to lift the nationality restrictions on all public services, and limits the application of the same to those that fall within the proposed limited definition of public utilities. Similarly, this would limit the application of the constitutional restriction on public utilities to those defined as such. This would have significant consequences to foreign investments in the areas of transportation, broadcasting, telecommunication, and power generation and supply, to name a few, as such declassified industries would now be allowed to be wholly foreign owned and controlled.

 

Proponents of the amendment claim that this would open the industry to actual, true and meaningful competition, with the immediate effect of allowing more players, both domestic and foreign, to “slug it out to win the satisfaction of the Filipino people.” Foreign players will now be allowed to come in and force local players to compete, and break natural monopolies that have formed through the years.

 

There is no doubt that many sectors of society have an interest in getting the amendments passed, and the proponents are no less tenacious in pushing for the same. The President himself has signified his interest to open up the telecommunication industry to foreign players. Nonetheless, the 18th Congress is a whole new ball game, and whatever the legislative wisdom may be, we can only hope that the interests of the Filipino people remain primordial