PSA’s IRR: A low-hanging fruit
The amended Public Service Act (PSA) or Republic Act No. 11659 is a game-changer that opened several key public service industries such as telecommunications, shipping, tollways, trains, air carriers, and airports—previously under the Constitution’s 60-40 foreign equity ownership restriction—to 100 percent ownership.
As the Philippines reels from the debilitating effects of the pandemic and the Russia-Ukraine war, the new law can provide our economy a much-needed boost through the entry of substantial foreign capital that would augment the government’s scarce resources to sustainable infrastructure development. Based on initial investment leads, Albay Rep. Joey Salceda, one of the main authors of the law, said foreign investments could hit P299 billion or roughly $6 billion in the next five years after the passage of the amended PSA.
To ensure we reap the benefits of the amended PSA, we need the implementing rules and regulations (IRR) as soon as possible, not only to send a clear signal that the Philippines encourages foreign investments but also to convey that their entry will be facilitated efficiently.
The amended PSA law provides safeguards to address national security issues. But the IRR should be clear on these provisions, so they will not become impediments that can negate the intent of the law. Below are some of these safeguard clauses that need to be addressed by the IRR:
Section 23 of RA 11659 gives the President the power to suspend or prohibit any investment in the interest of national security upon reviewing, evaluating, and recommending the relevant government agencies. On the matter of national security issues, the following—as contained in the Organization for Economic Cooperation and Development guidelines for recipient country investment policies relating to national security—should be ensured in the IRR:
Nondiscriminatory. The government should rely on measures of general application. Where such measures are deemed inadequate, specific actions that will be taken should be based on particular circumstances of the concerned investment that pose a risk to national security.
Transparency. Regulatory objectives and practices should be made as transparent as possible to increase the predictability of outcomes. In addition, investors should be properly notified and consulted if there is any plan to change a policy.
Regulatory proportionality. Any restriction on investment or conditions on transactions should not be greater than needed to protect national security and should be avoided when other existing measures are adequate to address a national security concern. Imposing restrictive investment measures should be used as a last resort.
Section 25 of the RA 11659 prevents foreign nationals from owning more than 50 percent of capital in the operation and management of critical infrastructure unless the foreign nationals’ home countries accord reciprocity to Philippine nationals. If the President declares airports as critical infrastructure, the sector shall be subject to the reciprocity requirement. However, the law states that “reciprocity may be satisfied by rights of similar value in other economic sectors.” An example of reciprocity would be preferential trade agreements where barriers are lowered between two countries.
The IRR should provide clear parameters that can help the National Economic and Development Authority and the Securities and Exchange Commission in determining if the reciprocity requirements are met to help encourage more foreign investments.
In addition, the rules should make it clear that the Anti-Red Tape Authority will monitor and enforce the ease of doing business (EODB) law concerning the amended PSA. The application process under the amended PSA will be covered by the EODB rules that set the processing period to seven days for simple transactions, 15 days for the more complex ones, and a maximum of 20 days for highly technical projects.
Given the importance of the PSA, the formulation of its IRR is a “low-hanging fruit” that should be prioritized by the new administration and made part of its action plans for the first 365 days of its term. In this regard, the Legislative-Executive Development Advisory Council should be convened immediately by the incoming President to monitor the drafting of the IRR and even accelerate its issuance even before the scheduled deadline of October 2022.
The PSA is landmark legislation in keeping with similar reforms passed by our Asean neighbors. The amended PSA’s IRR is critical to bringing in the much-needed investments to the Philippine economy to help create jobs, fuel economic recovery, and enable the country to catch up with our more developed Asean peers. Its prompt and proper implementation is a quick win with huge benefits that could propel our country’s faster and sustained development.
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Gary B. Teves served as finance secretary under the Arroyo administration.
