Telcos as critical infrastructure

If the bill proposing amendments to the Public Service Act becomes law, public utilities and even other businesses providing public service that are operating in the country should brace themselves for tougher regulation.

Senate Bill  2094, which was recently approved on third and final reading, will limit the term “public utility” to those engaged in public service that operate, manage or control for public use distribution or transmission, or electricity, petroleum and petroleum products pipeline transmission or distribution systems, water pipeline distribution systems and wastewater pipeline systems, airports, seaports, public utility vehicles, and expressways and tollways, as well as all concessionaires, joint ventures, and other entities that wholly operate, manage or control for public use the said sectors.

Congress, upon recommendation of the President, may classify other public services as public utilities.

As proposed, in the determination of the rates that may be imposed by those engaged in public service, the regulators will only allow the recovery of “prudent and efficient costs.”

The bill also includes an additional ground for the suspension or revocation of any certificate or authorization issued by government regulatory agencies: when the holder has failed for three consecutive years the annual performance audit conducted by an independent evaluation team in accordance with the metrics set by the administrative agency.

It proposes an increase in the penalties imposed on any public service corporation that will perform, commit or do any act or thing forbidden or prohibited, or shall neglect, fail or omit to do or perform an act required to be done or performed, from a fine not exceeding P25,000 or imprisonment of not exceeding five years, to a fine not less than the present value of the original fine based on the consumer price index, or imprisonment of not lower than six years and not higher than 12 years or both, at the court’s discretion.

In case the services of any entity engaged in the operation and management of critical infrastructure are interrupted, such entity shall act on customer complaints or provide an action plan to be accomplished within one day from the date of the complaint.

Such entity engaged in the operation and management of critical infrastructure is also required to file a monthly report to the appropriate regulatory agency detailing the service interruptions that occurred during the covered period, as well as the complaints lodged before it, and the actions taken on each complaint.

The bill, likewise, provides for a review of foreign direct investments in covered transactions, upon order of the President or the National Security Council, to determine its effects on the national security of the country.

The President is authorized to take appropriate actions, including the suspension of a covered transaction involving critical infrastructure that threatens to impair the national security.

Senate Bill 2094 also proposes that in the absence of any specific fine or penalty imposed under the charter of the administrative agency or the special laws governing the particular public service, every public service violating or failing to comply with the terms and conditions of any certificate or any orders, decisions or regulations of the administrative agency shall be subject to whichever is higher between disgorgement of profits or a fine equal to the present value of the original fine based on the consumer price index or both.

Entities controlled by or acting on behalf of a foreign government or foreign state-owned enterprises are prohibited from owning capital in any public service classified as critical infrastructure, but such investment shall apply on to those made after the law takes effect.

Foreign nationals are also not allowed to own more than 40 percent of the capital of any public service engaged in the operation and management of critical infrastructure unless the country of such foreign national accords reciprocity to Philippine nationals as may be provided by foreign law, treaty or international agreement.

Meanwhile, unless otherwise provided by law or international agreement, a public service will be allowed to employ a foreign national only after the determination of non-availability of a Philippine national who is competent, able, and willing to perform the services for which the foreign national is desired.

Critical infrastructure, under the bill, refer to systems and assets, whether physical or virtual that are vital to the country that the incapacity or destruction of such systems or assets would have a debilitating impact on national security. This would include telecommunications, air carriers, domestic shipping, and railways and subways.

Covered transaction refers to any investment activity that could result in foreign control of a business or entity considered as critical infrastructure.

Under the Constitution, no franchise, certificate or any authorization for the operation of a public utility shall be granted except to Philippine citizens or corporations organized under Philippine laws, at least 60 percent of whose capital is owned by such citizens.

The Constitution, likewise, imposes other requirements on public utilities. For instance, franchises or rights granted to public utilities shall not be exclusive in character and for a period longer than 50 years, shall be subject to amendment, alteration or repeal by Congress when the common good requires, and cannot be longer than 50 years.

The participation of foreign investors in the governing body of public utility enterprises is also limited to their proportionate share in its capital, and all executive and managing officers of such corporation or association must be citizens of the Philippines.

Public utilities are also subject to temporary and permanent takeover by government.

For those which are considered as engaged in public service, but are not classified as public utilities, they will continue to be subject to regulation by their respective administrative agencies, but no longer subject to the nationality requirements imposed on public utilities under the Constitution.

Since telecommunications companies, air carriers, railways and subways, and domestic shipping companies are no longer classified as public utilities, they will now be open to 100 percent foreign ownership. However, since they are considered as critical infrastructure, entities controlled by or acting on behalf of a foreign government or foreign state-owned enterprises are prohibited from owning capital in them.

But since the application of such restrictions will be prospective, the investments of Chinese state-owned China Telecommunications Corp. in Dito Telecommunity of businessman Dennis Uy will not be covered by the prohibition. However, any additional stake of the Chinese state-owned firms in Dito may be subject to the new law.

Dito, being a telecommunications companies classified as critical infrastructure, will likewise be subject to the prohibition disallowing foreign nationals from owning more than 40 percent of the capital of any public service engaged in the operation and management of critical infrastructure unless the reciprocity rules apply.

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