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PH to allow 100% foreign ownership of select public services

Two new laws, one of which amends the Public Service Act by enabling the 100 percent foreign ownership of public services, in the Philippine Senate are aimed at wooing more foreign direct investments (FDI).

Foreign investors will now be able to fully own public services such as telecommunications, airlines, shipping, and railways.

One of the bills cistinction between the definition of public services and public utilities since under the 1987 Constitution, only firms that are at least 60 percent owned by Filipinos are given the authorization, certificate, and franchise to operate as a public utility.

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Under the new law, public utilities have been narrowed to electricity distribution; electricity transmission; airports; seaports; water pipeline distribution and sewerage; tollways and expressways; and public utility vehicles.

There will be no restriction on foreign ownership for industrial undertakings not classified as public utilities. However, to protect national security, the bill contains safeguards that prohibit foreign state-owned enterprises from owning capital in a public service classified as critical infrastructure. The government’s National Security Council will review such foreign investments.

The new retail law (RA 11595) recently signed by President Duterte, lowers the paid-up capital requirement for foreign retail enterprises “and other purposes”.

It removes the requirement for a “Certificate of Pre-qualification” prescribed under the old regime (under RA 8762 or Retail Trade Liberalization Act of 2000). In the past, foreign retailers are required to submit to the Philippine Board of Investments (BOI) this certificate before they can invest in or engage in a retail trade business in the country. This has been scrapped.

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(c) The new law sets a single minimum paid-up capital requirement of PhP25 million ($485,090) for all foreign-owned retail trade enterprises. It also lowers the minimum investment requirement per store to PhP10 million ($194,036).

The twin set of new laws have been dubbed as “game changers” as they could unleash the flow of investment dollars to the Philippines, which has a $1.47 trillion GDP.

The landmark legislations come 35 years after the ratification of the 1987 Constitution, which prescribes a 40 percent cap in foreign ownership of key industries.

The Philippine economy is among the most negatively impacted in ASEAN, with GDP decreasing 9.5 percent in 2020 and national debt rising to PHP 10.3 trillion (US$201 billion).

Staff Report

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