Senate committee bats for passage of Public Service Act

Domestic terminal in Manila North Harbor.
  • The Senate Public Services Committee is endorsing approval of the bill amending the Public Service Act (PSA) to improve and lower the cost of basic services, including transportation
  • Senate Bill No. 2094 aims to limit the coverage of “public utility’ to just distribution of electricity, transmission of electricity, and water pipeline distribution and sewerage pipeline systems
  • The domestic shipping sector opposes the bill that will open the industry to foreign players, citing the threat to national security issues and small and medium-sized players

The Senate Public Services Committee (SPSC) is endorsing approval of the bill amending the Public Service Act (PSA) as a way to improve and lower the cost of basic services, including transportation.

In a sponsorship speech on March 10, SPSC chair Senator Grace Poe said the proposed amendment of the 85-year-old Commonwealth Act No. 146, or the PSA, seeks to make the law in tune with the need of 110 million Filipinos for more and better providers of public services.

Poe said Senate Bill (SB) No. 2094 aims to clear “the ambiguity surrounding the interchangeably used terms ‘public utility’ and ‘public service,’” and limit public utility to just three services—distribution of electricity; transmission of electricity; and water pipeline distribution and sewerage pipeline systems.

Excluded from the definition of public utility are transportation, telecommunications, broadcasting, and other public services. Their exclusion will effectively allow 100% foreign ownership in these industries as they will no longer be considered public services or be covered by the 60%-40% ownership principle under the Constitution.

Poe explained that public utilities are to be treated as natural monopolies, entry to which must be restricted pursuant to Section 11, Article XII of the Constitution. All other public services that are not natural monopolies will be freed from such foreign equity restriction but not from any of their other responsibilities as public service providers, she pointed out.

“We are not redefining things. We are declaring as public policy that the expansion of the investment base will benefit the public by allowing meaningful competition with more players, domestic and foreign, to slug it out to win the satisfaction of the consuming Filipino people,” Poe said.

SB 2094 gives the National Economic and Development Authority, Philippine Competition Commission, and all concerned agencies the power to recommend to Congress to reclassify public services as public utilities based on these criteria:

  • The service regularly supplies and directly transmits and distributes to the public through a network a commodity or service of public consequence
  • The service is a natural monopoly
  • The service is necessary for the maintenance of life and occupation of the public
  • The service is obligated to provide adequate service to the public on demand

The proposed measure also acknowledges the need for a flexible methodology for rate setting that will allow recovery of prudent and efficient costs and a reasonable rate of return.

Moreover, it seeks to amend the old fines of erring public service providers from “a measly P200 per day” of violation to P2 million, plus “disgorgement of profits” and additional “treble damages.”

To allay fears the proposed measure would put the country’s sovereignty at risk, Poe said a provision was put tasking the National Security Council to initiate a review of foreign investments that would result in the control of any critical infrastructure in the country.

Critical infrastructure refers to assets that are so vital to the country that the incapacity of such assets would debilitate national security. These assets are the transmission and distribution of electricity, water and sewerage pipeline systems, telecommunications, and common carriers. This review will eventually be submitted for approval or appropriate action by the President.

Another safeguard, found in the reciprocity clause, provides that foreign nationals may own only more than 40% of the public services identified as critical infrastructure if their country accords a reciprocal right to Filipinos by law, treaty or international agreement.

Moreover, foreign employees are only allowed after the non-availability of a competent, able and willing Filipino is determined. Foreign employment shall not be more than 25% of the total employees of any given corporation.

Other safeguards in the bill include the critical infrastructure’s compliance with ISO standards on information security, annual performance audit, regular studies and comprehensive baseline survey to be performed by several administrative agencies, and the conduct of a congressional oversight and periodic review.

Local opposition

Domestic shipping lines, however, have been opposing allowing foreign players in the domestic shipping industry, saying this would hurt local carriers, especially small- and medium-sized shipping lines.

READ: 100% foreign ownership in local shipping to wipe out small carriers, exec warns

Philippine Coastwise Shipping Association, Inc. president Paul Rodriguez said domestic ship owners “would be very much affected” if the bill is passed as they would be unable to compete with foreign players, who have the advantage of availability of capital in their own countries.

Rodriguez said domestic shipping is actually very competitive if looked at from the perspective that all of these costs form the door-to-door package, instead of comparing local costs to the freight rates of international shipping lines. Customers should unbundle the costs to have an “apples-to-apples” comparison between domestic and international shipping rates, he continued.

Even economies like Japan, South Korea, and the United States never opened up their cabotage for reasons of national security and economy, Rodriguez pointed out. Cabotage is the policy of restricting the operation of sea, air, or other transport services within or into a particular country to that country’s own transport services.

In addition, Rodriguez said opening the domestic transport industry could allow entities that pose threats to national security or are involved in smuggling to “just come in and go if they [foreign carriers] are not controlled by the Philippine government’s maritime authority.”

The Philippine Inter-Island Shipping Association and the Philippine Liner Shipping Association have also been asking Congress to include domestic shipping in the coverage of public utilities in the bill amending the PSA.

READ: Retain foreign ownership restriction in domestic shipping, industry associations insist

The groups also cited national security as a reason, and stressed that domestic shipping is a strategic industry for an archipelagic country in times of national disasters, response and reconstruction, potential conflict over the West Philippine Sea or war, smuggling, drugs, illegal fishing, and piracy.

The groups also said that opening up transportation “will not bring down domestic transport costs so long as foreign corporations will be subjected to the same operating conditions as domestic transport operators.” They noted that among the contributing factors to the high transport cost of domestic trade are the high operational costs, taxes and regulatory fees.

SB 2094 substitutes various Senate bills filed to amend the PSA, and takes into consideration House Bill (HB) No. 78, which also seeks to amend the definition of public services and was passed by the Lower House on third and final reading in March last year.