‘Public utility’: The lesser evil vs the greater good

Amending the Philippine Constitution is a tough process, if not the hardest thing to do.

All sentiments, nationalistic or otherwise will be deliberated on, and privilege speeches will be invoked–potentially followed by a declamation contest. When the votes in Congress are finally cast, Filipino voters need to approve via plebiscite. With or without a pandemic, it will be a monumental exercise.

Hence, even if the Constitution needs updating, you cannot blame well-meaning legislators for wanting to change the economic rules without the pain of a constitutional amendment. Case in point is the proposed Public Service Act amendment to address the Constitutional limitation on foreign ownership of public utilities. The Charter provides that no franchise for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations which are at least 60 percent Filipino-owned.

The proposed bill seeks to redefine “public utility” so that it refers only to electricity distribution and transmission and water distribution and sewerage systems. If the rest of public utilities like telco are no longer going to be treated as public utilities, foreign investors can come in and help without limitations. That is the idea.

The main issue I submit is that with the proposed new Public Service Act, the redefinition of public utilities can easily be attacked as unconstitutional. Note that the definition of public utility was synonymous to public service companies when the framers wrote our Constitution. So this definition is what they had in mind.

The Supreme Court (SC) has actually defined a “public utility” as a “business or service engaged in regularly supplying the public with some commodity necessary for the maintenance of life and occupation of the residents.”

Note that as early as 1923, the SC was already saying that public utility refers to public use. In the case of Iloilo Ice and Cold Storage Co., even if an ice facility was part of the list of public utilities under the law, the Court did not consider it as such because that facility was not for everyone–not for public use. And on another occasion, even if an airport is not among the enumerated businesses in the law, the SC tagged it as public utility. Can congressional redefinition be effective against constitutional principles?

For clarity, I am all for allowing more foreign investors in nationalized activities serving the public. We need them and they can change the game for our country. But if they put in money, trusting the new law (if passed), and the law will later be attacked as unconstitutional by any interested party, the Supreme Court will have enough to declare the law as violative of the Constitution. Then, we are going to be so worse than where we were before, credibility-wise, as an investment destination and a place to do business because our laws can’t be trusted.

To be fair, even without a change in law, up to 100 percent foreign equity can be allowed in respect of ownership of the assets and their operations so long as these foreign corporations don’t render services to the public directly. The nationality requirement applies only to that part of the business that directly renders services to the public.

For example, in the case of telco companies, foreign equity of more than 40 percent (up to 100 percent) can be legally allowed in entities that own and operate the fiber optic cables or active telco towers, while Filipino companies can lease these core network assets and qualify for franchise to render services to the public. A 60 percent Filipino-owned telco company without owning the expensive core network asset can still own their internal systems that connect to the network, the cables that run from the posts to the residential outlets, and most of all, the subscriber relationships and service responsibilities to the public.

Certainly, existing government regulations must adapt, and the necessity of the traditional financial commitments and asset ownership from a franchisee must be reconsidered. A law can be crafted to facilitate these changes to these old rules to leverage on more liberal, yet valid partnerships with foreign investors.

The same is true with transportation where a foreign corporation for instance can own the railway coaches and rails while a 60 percent Filipino-owned franchisee can keep the contract of carriage and still be the common carrier.

It is not unlike the Electric Power Industry Reform Act (EPIRA) that recognizes the difference between ownership of the power generation assets vs the distribution of electricity to the end users, with the latter being the public utility portion.

The SC has given guidance that business contracts of discretionary nature do not make the seller a public utility even if the contract brings public good. On the other hand, when a business provides services to an indefinite part of the public, such that anyone able to demand cannot be refused the service by discretion, that is public utility.

The redefinition of “public utility” in the proposed law, because of the good it is trying to achieve, may appear to be the lesser evil. But is it so easy to set a precedent on how to overcome and weaken the Constitution by using ordinary law to redefine our Charter? Can legislators redefine the meaning of land? Or redefine islands, and waters and thus give up national territory sketched in our Constitution? Can we claim a new Philippine version/definition of “due process of law” to take liberties despite guarantees by the Constitution? There is a greater good to be preserved by going forward the right way–or it will not be progress at all. We need help, but not at any cost.

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Alexander B. Cabrera is the chairman and senior partner of Isla Lipana & Co./PwC Philippines. He is the chairman of the Integrity Initiative, Inc. (II, Inc.), a non-profit organization that promotes common ethical and acceptable integrity standards. Email your comments and questions to [email protected].