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By: Kathlene Guiang on September 12,2019

Under the 1987 Philippine Constitution, the grant of franchise, certificate, or any other form of authorization for the operation of a public utility is limited to Filipino citizens and to entities at least 60 percent of whose capital is owned and controlled by Filipino citizens.

The constitution, however, does not define the term “public utility.” Thus, in interpreting what services constitute public utility, reference has always been made to the definition of the term “public services” under our Public Service Act (PSA) or Commonwealth Act 146, a law passed way back in 1936.

Public service under the PSA

As a consequence of the broad and all-encompassing definition of what public service is under the PSA, common carriers engaged in the transport of passengers and cargoes, ice plants, wharf, irrigation systems, wire or wireless communication services, among others, have been considered public utilities subject to the 60-40 nationality requirement.

The PSA provides that public service includes every person who “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.”
Service providers engaged in public service are regulated and required to secure Certificates of Public Convenience or Certificates of Public Convenience and Necessity prior to start of operations. The rates they impose are also being regulated.

Proposed amendments to PSA

In light with the government’s efforts to open more businesses to foreign participation and make our economy more responsive to globalization, Sen. Franklin M. Drilon introduced Senate Bill 13 (SB 13) to amend the PSA. At the House of Representatives, Rep. Joey Salceda filed House Bill 78 (HB 78) which also aims to amend the PSA.

Both SB 13 and HB 78 propose to introduce a definition of public utility to refer to a person or entity which “operates, manages and controls for public use any of the following: distribution of electricity, transmission of electricity and water pipeline distribution system or sewerage pipeline system.”

With the new definition of the term, public utilities will be distinguished from those engaged in public service. Also, the 60-40 restriction under our constitution
will be limited only to those identified as public utilities mentioned above. This will, in effect, lift the foreign equity restrictions imposed under our constitution on other services, particularly those engaged in telecommunication, internet and transportation services.

A “public service,” however, may still be reclassified as a “public utility” by Congress upon the recommendation of the National Economic Development Authority, in consultation with the Philippine Competition Commission and other concerned agencies. The recommendation must be based on the following criteria:

a. The person or juridical entity regularly supplies and directly transmits and distributes to the public through a network, a commodity or service of public consequence;

b. The commodity or service is necessary to the public and is a natural monopoly that needs to be regulated when the common good so requires;

c. The commodity or service is necessary for the maintenance of the life and occupation of residents; and

d. The commodity or service is obligated to provide adequate service to the public on demand.

Another amendment proposed is the transfer of the functions of the Public Service Commission (PSC) to various administrative agencies. The proper administrative agency, in addition to the current powers of the PSC, may ratify its prior provisional approval or change, modify or alter the approved rates imposed by any public service.

There is no doubt that SB No. 13 or HB No. 78, if passed into law, will result to a more competitive economy, since it will encourage more players in the market, and will bring about not only improved quality of basic services but also lower prices for availing these services.

Contact Information

Our office address:

15/f Unit A. ACT Tower, H.V. Dela Costa St.
Salcedo Village, Makati City 1227 Philippines

Telefax: +632 831-1297

Telephone: +632 808-5375 • +632 815-0069



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