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Out-Law News 1 min. read

Philippines to allow 100% foreign ownership in further infrastructure sectors

The Congress of the Philippines has ratified a bill to amend the Public Service Act (PSA) to allow up to 100% foreign ownership in the telecommunications, airlines and railways sectors.

Under the revised version of the PSA, telecommunications, domestic shipping, railways and subways, airlines, expressways and toll ways, and airports would be excluded from the definition of ‘public utility’. This means they would no longer be restricted to the 40% foreign ownership cap under the country’s 1987 Constitution.

The revised version of the Act is awaiting approval from the country’s president Rodrigo Duterte.

Once approved, these business sectors would be open to much-needed foreign investment, which could provide cheaper airfares, lower transportation and shipping costs, more affordable internet services and more infrastructure investment.

William Stroll, a partner at Pinsent Masons MPillay, the Singapore joint law venture between MPillay and Pinsent Masons, said: “It is encouraging to see that the Philippines is lifting the cap on foreign ownership in these sectors. We see that there a large number of international investors who are interested in investing in the Philippines but are deterred by the existing restrictions on foreign investment. We know that investors view the Philippines as an attractive jurisdiction to invest and these amendments will be well received.” 

“However, there is clearly appetite within the international investment community for further removal of the restrictions, particularly the restrictions in the power and energy sectors. The lifting of the cap for geothermal energy in November 2020 was well received and there is clear investor demand for a lifting of the cap in the wind and solar and other power and energy sectors. Raising the cap in these sectors will make foreign Investment easier to achieve and will raise investor confidence in the country,” he said.

Sectors in natural monopolies including transmission and distribution of electricity, petroleum, water, seaports, and public utility vehicles, will continue to be limited to a cap of 40% foreign ownership, IJGlobal said.

Foreign state-owned enterprises are prohibited from owning capital in any public service classified as critical infrastructure, and foreign investments are reviewed by the National Security Council. Foreign nationals will not be allowed to own over 40% of capital in public services involved in the operation and management of critical infrastructure, unless their country grants reciprocal treatment to Philippine nationals.  This includes the generation, distribution and transmission of electricity, petroleum and petroleum products, pipeline transmission systems, water pipeline distribution systems and wastewater pipeline systems including sewerage pipeline systems, seaports and public utility vehicles.

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