Public Services Act and Foreign Ownership: What Changed Under RA 11659

The Public Services Act, as amended by Republic Act No. 11659, narrowed the definition of "public utility" to a fixed list of sectors. Only public utilities remain subject to the 60% Filipino ownership requirement under the Constitution. All other public services are now considered businesses affected with public interest, and the relevant Administrative Agency cannot impose nationality requirements on them. This means foreign investors may now own more than 40% of a public service that is not a public utility, subject to the certificate requirement and other applicable laws.

What is a public utility under the amended Public Services Act?

Under Section 10 of the Implementing Rules and Regulations of R.A. No. 11659, a public utility is a public service that operates, manages, or controls for public use any of the following:

• Distribution of Electricity;
• Transmission of Electricity;
• Petroleum and Petroleum Products Pipeline Transmission Systems;
• Water Pipeline Distribution Systems and Wastewater Pipeline Systems, including sewerage pipeline systems;
• Seaports; and
• Public Utility Vehicles.

All concessionaires, joint ventures, and similar entities that wholly operate, manage, or control these sectors for public use are also public utilities. The same section states that no other person shall be deemed a public utility unless otherwise subsequently provided by law.

What changed for foreign ownership?

Before the amendment, the term "public service" carried a broader scope, and the 60% Filipino ownership rule effectively covered many more activities. R.A. No. 11659 reclassified the field into two tiers:

1. Public utilities — the six sectors listed above, which remain subject to the constitutional nationality requirement.
2. Public services that are not public utilities — now treated as businesses affected with public interest.

Section 6 of the IRR is explicit: the relevant Administrative Agency shall not impose nationality requirements on a public service not classified as a public utility under its jurisdiction or supervision. This is the core of the change. Sectors such as telecommunications, domestic shipping, railways, toll roads, and airlines are no longer automatically subject to the 60% Filipino ownership cap, provided they fall outside the six public utility categories.

The 60% Filipino ownership rule still applies to public utilities

For public utilities, the nationality requirement remains. Section 17(e) of the IRR makes it unlawful for a public service, without prior approval of the relevant Administrative Agency, to sell, alienate, or transfer shares of its capital stock to any alien if the result would reduce Philippine nationals' ownership to less than 60% of the capital stock in the operation of a public utility.

The same provision states that such a sale or transfer shall be void and of no effect and shall be sufficient cause for cancelling the certificate. Foreign investors therefore cannot acquire control of a public utility beyond the constitutional limit.

Who regulates public services now?

The Public Service Commission no longer exists as the central regulator. Under Section 3 of the IRR, all references to the Commission in Commonwealth Act No. 146, as amended, now refer to the Administrative Agencies to which its powers and duties were transferred. These include the Civil Aeronautics Board, the Civil Aviation Authority of the Philippines, the Department of Energy, the Department of Environment and Natural Resources, the DICT, the Department of Transportation, the Energy Regulatory Commission, the LTFRB, the LTO, the Local Water Utilities Administration, the Maritime Industry Authority, the Metropolitan Waterworks and Sewerage System, the National Telecommunications Commission, the National Water Resources Board, the Philippine National Railways, the Philippine Ports Authority, and the Toll Regulatory Board.

Section 5 of the IRR provides that all public services, including those classified as public utilities, continue to be regulated and supervised by the relevant Administrative Agency under existing laws.

Can a public service be reclassified as a public utility later?

Yes. Section 11 of the IRR allows the President, upon the recommendation of NEDA, to recommend to Congress the classification of a particular public service as a public utility. The criteria include whether the entity regularly supplies and distributes a commodity or service of public consequence through a network, whether the commodity or service is a natural monopoly, whether it is necessary for the maintenance of life and occupation of the public, and whether the provider is obligated to provide adequate service on demand.

Section 12 sets out the review procedure. The relevant Administrative Agency submits a written request to NEDA with supporting documents, including a profile of the entities and their shareholders for the past three years, General Information Sheets and Audited Financial Statements, performance audit ratings, and a market study not older than two years. NEDA provides feedback on completeness within ten calendar days, conducts its review within ninety calendar days upon receipt of complete documents, and submits its findings and recommendation to the Office of the President.

Frequently asked questions

Is telecommunications now open to 100% foreign ownership?

Telecommunications is not among the six sectors listed as public utilities under Section 10 of the IRR. However, foreign ownership in telecommunications remains subject to other laws, including the Public Telecommunications Policy Act and the Constitution's provisions on the operation of public utilities. The IRR's definition of telecommunications excludes passive telecommunications tower infrastructure and value-added services.

What is the difference between a public service and a public utility?

A public utility is a specific type of public service that operates, manages, or controls for public use any of the six sectors listed in Section 10 of the IRR. All other public services are considered businesses affected with public interest under Section 14. The distinction matters because the 60% Filipino ownership requirement applies only to public utilities.

Do foreign investors need a certificate to operate a public service in the Philippines?

Yes. Section 7 of the IRR states that no public service shall operate in the Philippines without a valid certificate or authorization from the relevant Administrative Agency. Section 15 makes it unlawful to engage in any public service business without first securing such a certificate, except for grantees of legislative franchises expressly exempting the grantee and concerns expressly exempted from the agency's jurisdiction.

Practical takeaways

• The term "public utility" is now limited to six sectors: electricity distribution and transmission, petroleum and petroleum products pipeline transmission, water and wastewater pipeline distribution (including sewerage), seaports, and public utility vehicles.
• Public services outside those six sectors are no longer subject to nationality requirements imposed by the relevant Administrative Agency.
• The 60% Filipino ownership requirement still applies to public utilities, and any transfer of shares to an alien that breaches this limit is void.
• A public service may still be reclassified as a public utility through a NEDA review and a recommendation to Congress.
• All public services must secure a certificate or authorization from the relevant Administrative Agency before operating.

Primary sources

The rules discussed above are drawn from the following primary sources, as published in the Official Gazette and the national statute book.

• IRR of REPUBLIC ACT NO. 11659 - IMPLEMENTING RULES AND REGULATIONS OF THE REPUBLIC ACT NO. 11659 OR AN ACT AMENDING COMMONWEALTH ACT NO. 146, OTHERWISE KNOWN AS THE PUBLIC SERVICE ACT, AS AMENDED

• REPUBLIC ACT NO. 3671 - AN ACT AMENDING CERTAIN SECTIONS OF THE CHARTER OF THE CITY OF ILOILO BY CREATING A DEPARTMENT OF PUBLIC SERVICES.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.