Congress sets bill for Duterte’s okay, sees more foreign capital to drive PH
Congress has ratified the bicameral conference committee report on the amendments to the Public Service Act (PSA), which will lift foreign investment restrictions on all sectors except the transmission and distribution of electricity, water pipeline and sewerage, seaports, petroleum pipeline, and public utility vehicles.
The Senate and the House of Representatives ratified the report on House Bill 78 and Senate Bill 2094, which amends the nearly century-old Commonwealth Act 146 and redefines public utilities that remain sealed off to foreign investments.
This developed as Socioeconomic Planning Secretary Karl Kendrick T. Chua said that a strong competition policy will help strengthen the Philippines’ foundation to achieve upper-middle-income country status, and to sustain growth towards high-income country status in one generation.
“By fostering a business-friendly environment and a level playing field that welcomes all players, we can promote more innovation, create more and better jobs, and accelerate our growth,” Chua said on Thursday during the 2022 Manila Forum on Competition in Developing Countries of the Philippine Competition Commission.
Albay 2nd District Rep. Joey Salceda, House Ways and Means Committee Chair and one of the movers of the measure, lauded the passage of the bill, which will be transmitted to President Rodrigo Duterte to sign into law.
Salceda explained that the measure effectively opens up to 100 percent foreign equity all economic sectors in the country Economic and is the closest that the country has been in overcoming the “growth overhang caused by the 1987 Constitution’s foreign equity restrictions.”
“It’s a massive reform because it opens us to foreign capital. We need a lot of foreign capital. We have plenty of domestic talent, but they leave for abroad because the capital required to hire them is invested abroad,” he said.
For Salceda, the proposal will yield “massive” impacts to job creation and investments.
“We expect an increase in FDIs (foreign direct investments) by around P299 billion over the next five years from the final version of thesectors that will be opened up as a result of the PSA amendments. We also expect gross value added (GVA) growth in these areas to cause a GDP growth rate that is 0.47 percentage points higher than the baseline,” he added.
Another mover of the bill, Marikina 2nd District Rep. Stella Quimbo, said the passage of these amendments will be a game-changer in liberalizing the public services market and providing new opportunities for investment and capital to enter the country.
“Ultimately, the Filipino wins. This amendatory law is for the Filipino people. Opening up the economy will bring with it advanced technology, more jobs, and a more competitive business environment,” she said.
Quimbo explained that telecommunications, airports, railways, expressways, tollways, and shipping were among the industries excluded from the definition of “public utility” in the ratified amendments.
“Therefore, these public service sectors shall be open to foreign investment and competition. This development would inevitably result in cheaper airfares and transportation costs, lower shipping costs that would benefit our exporters. With more investment and competition in the telecoms sector, the public can also expect faster and more affordable internet services,” her office said in a statement.
Quimbo cited that under the 1987 Constitution, public utilities must secure a legislative franchise that is subject to the 60-40 ownership limitation.
“This has deterred foreign investment from entering industries that were considered ‘public utility’ in nature. Thus, providing a concrete and narrow definition of public utility shall effectively open up other public services to foreign investment,” she said.
Salceda also said the ratified version of the Public Service Act will be “a boon to consumers”
“Apart from the fact that more competition means lower prices generally, we also imposed a provision that if public utilities and public services exceed the rates set by the regulators, they have to refund the excess collections from the public, and also pay fines,” he said.
“Now we have something squarely and explicitly in the law that will allow us to punish public services that charge excessive rates,” the Albay solon added.
“Consumers stand to benefit from the PSA amendments immediately. Of course, in the long run, we are also bound to create more jobs and maybe even be able to send many OFWs home, as we expect new FDI due to the reform to come from capital-starved public services.”
CA 146 was enacted in 1936 when the Philippines was preparing for full independence from the United States.
For his part, Chua said that prior to the pandemic, the government had pursued game-changing reforms to improve the country’s global competitiveness ranking.
These include the enactment of the Ease of Doing Business and Efficient Government Service Delivery Act, the Philippine Innovation Act, and the Rice Tariffication Law, and the implementation of the Build Build Build infrastructure program.
“As a result, in 2019, our ranking improved to 44th among 141 countries in the most recent Global Competitiveness Index ranking on business dynamism. We also ranked 52nd – or top 37 percent – on product market efficiency,” the socioeconomic planning chief said.
According to Chua, during the pandemic, the Philippine government has continued to pursue reforms to improve competition which formed part of the country’s economic recovery program.
Among these are the Corporate Recovery and Tax Incentives for Enterprises or CREATE Act, which lowered the regular corporate income tax and made the grant of fiscal incentives system more performance-based, targeted, time-bound, and transparent, he said.
Apart from this, Chua said that the government is also pursuing three economic liberalization bills. These include the Amendments to the Retail Trade Liberalization Act which has been enacted, the Amendments to the Foreign Investments Act which has been sent to the President for his signature, and the Amendments to the Public Service Act which both Houses of Congress have ratified.
“These landmark reforms will relax restrictions on foreign ownership, bring in more innovation, create more and better jobs, lower prices, improve quality of service, and maximize the benefits of CREATE to attract more investments into the country,” Chua added.
However, progressive lawmakers opposed the ratification, with Gabriela Women’s Party Rep. Arlene Brosas saying the PSA amendment opens up the economy for foreigners to take over, including telecommunication and transportation.”
“By providing a limited definition of public utility, this measure exploits the loophole in the 1987 Constitution to allow the circumvention of foreign ownership limits for all other types of public services,” Brosas said, adding that it would allow 100% foreign ownership of telecoms, railways, airlines, and logistical facilities.
“Ironically, we are ratifying this measure on the anniversary of the 1987 Constitution,” she added.
Bayan Muna Rep. Carlos Zarate also said the measure removes public protections against excessive charges for public utilities, and totally removes control and authority of the government over them.
This would lead to uncontrolled hikes in prices and bills once businesses assume total control of the utilities, Zarate added, noting it was also circumventing the Constitution.
Salceda said he is happy that the bicameral panel came up with a more liberal version than the Senate version.
“It’s no surprise that we lag our neighbors behind in terms of foreign direct investment. We are the most restrictive economy in ASEAN, bar none.
The PSA amendments change things massively. The final version no longer requires burdensome reviews by the entire national security council for so-called critical infrastructure, which the Senate introduced,” he said. “The main economic benefit of the PSA amendments is that it provides local (and oligopolistic) players in key sectors with a credible threat of external competition. Credible threat of competition is seen as a pro-competitive measure that reduces monopoly or oligopoly power (to set prices or provide services at low quality) and encourages local players to improve efficiency,” the lawmaker added.
“Empirically, certain sectors appear to be responsive to the threat of new sectors by trying to generate customer loyalty among existing clients through lower prices.”
Salceda also maintained that the bill protects consumers.
“Apart from the fact that more competition means lower prices generally, we also imposed a provision that if public utilities and public services exceed the rates set by the regulators, they have to refund the excess collections from the public, and also pay fines,” Salceda said.
“Now we have something squarely and explicitly in the law that will allow us to punish public services that charge excessive rates,” he said.