Drowned out in the endless political noise is an important piece of legislation that could change the country’s investment and competition landscape.
The Lower House on August 29 approved on second reading House Bill 5828, which seeks to amend the 81-year-old Public Services Act. By updating the definition of public utilities, the planned amendments seek to open up the sector to more foreign participation, which is seen to result in much-needed transfer of technology and investments.
For instance, constitutional restrictions on foreign participation in telecommunications, water and transportation have historically stymied healthy competition, resulting in an idiosyncrasy that many Filipinos only know too well: That internet connectivity and sad state of mass transportation in the country is simultaneously one of the publics daily peeves.
While seemingly pedantic, that “public service” has been used interchangeably with “public utility” has in fact inhibited growth in the sector, especially in comparison with other countries in the region. While the 1987 Constitution provides that the operation of a public utility be reserved to Philippine citizens or a Filipino majority-owned corporation, this has led to the erroneous perception that a public utility is public service and thus subject to such ownership limits.
From the country’s experience with many of such utilities, it’s been obvious that insufficient competition in the market had been a factor that leads to subpar service quality and high prices. Ultimately, the very lack of choices for consumers not only results in dissatisfaction but encourages monopolies, which is always a risk for consumers.
The bill will thus attempt to solve this by opening up certain industries to competition and providing a mechanism for rate-fixing that would allow a reasonable rate of return to investors in order to encourage more players. In particular, it will establish a clear statutory definition of what constitutes a public utility in three key areas: distribution of electricity, transmission of electricity, and water pipeline distribution system or sewerage pipeline.
In a senate version or the proposed amendments filed by Senator Grace Poe, “public utility” is “not synonymous to public service as the former is a subset of the latter. Public utility regularly supplies and directly transmits and distributes to the public, through a network, a commodity or service of public consequence.”
This will thus exclude from the definition of public utility the following: electric power generation, electric power supply, crude oil and petroleum products, transportation, broadcasting, and telecommunication. The potential influx of foreign investment in these essential industries does not discount the competence of Philippine-owned corporations but merely recognizes the potential significant economic contribution of foreign investments either through the infusion of capital or the transfer of knowledge.
Broadly speaking, the amendment to the Public Services Act signals an open policy regime, and one which cultivates a globally competitive investment climate in the Philippines. It also announces that, yes, the PSA does not account for globalization and technological innovation. Finally, the proposed statutory definition is less tedious than removing the foreign equity restriction on public utilities via constitutional change.
Utilities represent an important aspect of every Filipino’s everyday experience, and it’s in the state’s interest to make sure that the economic space they inhabit is hospitable to players. In addition to the definition of public service and a rates-fixing mechanism, also proposed is the imposition of applicable penalties for violations and fees for public services. Combined, all these are envisioned to result in increased competition, lower prices, and improved quality of basic services.
Foreign equity restrictions have long had a negative impact on the foreign direct investments that the country receives, which over the last decade or so has woefully lagged behind many countries in the region. Obviously, this has consequences on job creation and, therefore, inclusive growth. Moreover, concerns over runaway players are unfounded as the key industries will continue to be regulated, with more administrative remedies and safeguards will be put in place.
Utilities shape the way we live and the quality of how we live. As the bearer of public interest, government must do whatever it can to give this sector all the life and freedom that it needs.