DoJ: No more limit on foreigners utilizing renewable energy resources
By: Ramon Vaughn Dy III on December 29,2022
PURSUANT to the request of the Department of Energy (DoE), the Department of Justice (DoJ) issued a legal opinion that revisited foreign investment limits in the exploration, development and utilization (EDU) of solar, wind, hydro and ocean/tidal energy resources in relation to Section 2, Article 12 of the 1987 Constitution, which states that the EDU of natural resources, including all forces of potential energy, is limited to Filipino citizens or entities whose capital is at least 60-percent owned by Filipino citizens. Put differently, the foreign equity participation for the EDU of natural resources is limited to 40 percent.
On Sept. 29, 2022, the DoJ, through DoJ Opinion 21, Series of 2022, accepted the DoE’s contemporary views on the matter and adopted an innovative and pioneering interpretation of the term “natural resources” in relation to the term “all forces of potential energy” under the Constitution. The DoJ opined that the EDU of kinetic energy (energy from water, marine current, wind, solar or the ocean) should not be subjected to the 40-percent foreign equity limitation under Section 2, Article 12 of the Constitution because such energy resources are beyond the ambit of the term “natural resources” as used in the said section and that the term “all forces of potential energy” should be understood in its technical sense, which necessarily excludes kinetic energy.
The enumeration accompanying the term “natural resources” in Section 2, Article 12 (i.e., lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna) are all susceptible of appropriation. Thus, the term “natural resources” could not include the sun, the wind or the ocean as they are not subject to appropriation.
Since these energy sources (the sun, the wind and the ocean) are not subject to appropriation as understood under the constitutional provision, they could be used, exploited or harnessed by anyone. While the sun itself cannot be owned by the Philippines, the sunlight that reaches the Philippines can be considered as an energy source for the Philippines.
The overriding notion by the Constitutional Commission for the 1987 Constitution for the limitation of foreign participation in the EDU of natural resources stemmed from the fear of depletion of the country’s exhaustible resources by foreigners. This finds no application to renewable energy sources such as the sun, the wind and the ocean because by their very nature, such energy sources are incapable, under normal circumstances, of exhaustion. Solar energy, for as long as there is the sun shining above the sky, will not run out. The same can be said of the wind and the tides; for as long as the winds continue to circulate around the globe and the waters continue to ebb and flow, energy harnessed from these resources may be considered inexhaustible.
Another point that supports the view that renewable energy sources are not covered by the constitutional provision is that at the time of crafting the 1987 Constitution, such energy sources are not yet developed, used or exploited. The change of circumstances with the advent of new technology and processes magnifies the inapplicability of the limitations under the Constitution with respect to such energy sources.
In line with this DoJ Opinion, the DoE, through Department Circular DC2022-11-0034, removed Section 19(A) of the Rules and Regulations Implementing Republic Act 9513, otherwise known as the “Renewable Energy Act of 2008” (RE Act IRR), indicating that potential energy sources include kinetic energy sources from water, marine current and wind, solar, ocean, geothermal and biomass, and the amendment of Section 19(B) of the RE Act IRR by expressly indicating that the state may enter into renewable energy service or operating contracts with Filipino and/or foreign citizens or Filipino and/or foreign-owned corporations or associations
The DoJ, however, qualified its opinion by stating that the Water Code and jurisprudence limiting to Filipino citizens or juridical persons the appropriation of waters, direct from the source, for power generation shall continue to prevail, unless repealed or reversed.
Similar to the developments introduced by Republic Act 11659, or the “Public Service Act,” as amended, which resulted in the removal of foreign equity restrictions on most public service entities not classified as public utilities in accordance with Article XII, Section 11 of the 1987 Constitution, this innovative and progressive interpretation by the DoJ that renewable energy sources is not subject to the 40-percent foreign equity participation limit for its exploration, development and utilization will be a significant step toward the influx of foreign direct investments in the Philippine economy for many years to come. To avoid any doubt, it would be more fitting, of course, if new legislation was set in motion by Congress to solidify the interpretation of the DoJ toward the progressive growth of the renewable energy sector in the Philippines.
Removing the nationality requirement imposed on foreign-owned businesses engaged in the EDU of kinetic energy allows the entry of much-needed foreign capital into the country’s renewable energy industry. With these foreign direct investments, it is hoped that our country shall soon achieve the goal of making cleaner energy more accessible to the greater public.
Ramon Vaughn F. Dy III is a graduate of the Ateneo de Manila University School of Law and an Associate of Mata-Perez, Tamayo & Francisco (MTF Counsel).