Out-Law News 1 min. read

Philippines allows 100% foreign ownership in further infrastructure sectors

The Philippines’ Public Service Act (PSA) has become law after the country’s president Rodrigo Duterte signed it in March. The PSA allows up to 100% foreign ownership of public services in the country.

Under the new law, the definition of ‘public utility’ is now limited to public services that are operated, managed, or controlled for public use. These include distribution of electricity, transmission of electricity, petroleum and petroleum products pipeline transmission systems; water pipeline distribution systems, wastewater pipeline systems and sewerage pipeline systems; seaports; and public utility vehicles.

All franchisors, joint ventures, and other similar entities that operate, manage, or control the above sectors exclusively for public use will be considered as public utilities.

Renewables expert John Yeap of Pinsent Masons said: “The revised definition of a public utility means certain sectors such as telecommunications, airlines and railways, no longer fall within the revised definition. This will facilitate the involvement of foreign investment into these sectors. The change also aligns these sectors with change made in the electricity sector where the generation of power was permitted by foreign controlled entities.” 

“However, with the focus on net zero and the shift away from coal and gas power projects to renewable power generation through solar and wind, the power generation sector will likely require an interpretation on the Regalian Doctrine, under which all public land in the Philippines is treated as belonging to the state, so as to enable foreign controlled entities to own solar and wind power projects,” he said.

Under the new law, the president has the right to suspend any investment in a public service in the interest of national security upon the review, evaluation, and recommendation of the relevant government agency. Foreign state-owned enterprises (SOEs) cannot own capital stock in public utilities or critical infrastructure; entities engaged in the telecommunications business must comply with the relevant ISO standards; and foreign nationals cannot own more than 50% of capital in critical infrastructure unless that country grants reciprocal treatment to Philippine nationals.

A performance audit provision authorises an independent assessment to monitor the cost and quality of services provided by the company to the public.

Based on the review, evaluation and recommendation of the relevant government department, the president has the right to suspend or prohibit any proposed merger or acquisition transaction within 60 days of receiving such recommendation. The president also has right to suspend or prohibit any investment in a public service that effectively results in the grant of control, whether direct or indirect, of the public service enterprise to a foreigner or a foreign corporation, within 60 days of receiving such recommendation.

In February, the Congress of the Philippines ratified a bill to amend the PSA to allow up to 100% foreign ownership in the telecommunications, airlines and railways sectors.

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