Public interest first

No other business is as heavily guarded no less than by the highest law of our land as the operation and management of public utilities.

The 1987 Constitution under Article 12 Section 11 provides that “no franchise, certificate or any form of authorization of a public utility shall be granted except to citizens of the Philippines or to corporations or association organized under the laws of the Philippines, at least 60 per centum of whose capital is owned by such citizens.”

In the case of Heirs of Gamboa vs Teves and Roy vs Herbosa, the Supreme Court explained that capital does not refer to the entire capital but only to the outstanding capital entitled to vote. Both legal and beneficial ownership of 60 percent of the outstanding capital stock must be in the hands of Filipinos, meaning full beneficial ownership. And this 60 percent minimum Filipino ownership is to be applied not only on the entire outstanding capital stock whether or not entitled to vote but also to the OCS which is entitled to vote in the election of directors.

The same section also provides that such franchise or authorization granted to operation of public utilities cannot be exclusive in character or for a period longer than 50 years. The franchise or right is also granted under the condition that it shall be subject to amendment, alteration or repeal by Congress when the common good so requires.

The Constitution also provides that all the executive and managing officers of such corporations or associations granted authority to operate public utilities must be Philippine citizens and that the participation of foreign investors in the governing body of public utility enterprises is limited to their proportionate share in the capital.

Meanwhile, Art. 12 Sec. 17 allows the State in times of national emergency and when the public interest requires it to temporarily take over or direct the operation of any privately owned public utility during the emergency and under reasonable terms prescribed by it.

On the other hand, Sec. 18 allows the transfer to public ownership utilities and other private enterprises to be operated by the government, in the interest of national welfare or defense and upon payment of just compensation.

But what businesses are considered as public utilities? The Constitution does not say so.

The New Public Service Act under Republic Act 11659 defined public utility as “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.”

The new law specifically provided that transport vehicles accredited with and operating through transport network corporations shall not be considered as public utility vehicles.

But a public service which is not classified as a public utility shall be considered as a business affected with public interest and therefore still subject to the constitutional provisions on temporary and permanent take over by the State.

RA 11659 likewise emphasized that notwithstanding any law to the contrary, nationality requirements shall not be imposed by the relevant administrative agencies on any public service not classified as a public utility.

Public utilities and critical infrastructure such as telecommunications which are not public utilities but whose ownership, use or operation is vital to the country that its incapacity or destruction would have a detrimental impact on national security are subject to the limitation that they cannot be owned by an entity controlled by or acting on behalf of a foreign government or foreign state-owned enterprises.

But sovereign wealth funds and independent pension funds of foreign states are allowed to collectively own up to 30 percent of the capital of such public services, referring to public utilities and critical infrastructure.

Meanwhile, under the reciprocity clause of RA 11659, foreign nationals shall not be allowed to own more than 50 percent of the capital of entities engaged in the operation and management of critical infrastructure unless their country accords the same treatment to Philippine nationals.

But there are those who want RA 11659 be declared as unconstitutional.

Businessman Louis Biraogo for instance, wants the law, in particular Sections 4 and 34 of RA 11659, to be declared as unconstitutional claiming that the new PSA amended the Constitution when it removed the constitutional limits of foreign ownership of certain Filipino industries.

There is also a consumer group which announced that it had filed last October before the SC a petition also questioning the constitutionality of RA 11659.

But the better question to ask of course is this: When the Constitution failed to define the meaning and coverage of the term “public utilities,” did it give Congress the power to determine what enterprises shall be considered a public utilities? After all, Art. 12. Sec. 11 of the 1987 Constitution did not grant Congress such authority.

Does that mean that the SC will only determine what would fall within the constitutional coverage of public utilities when a justiciable controversy is brought before it?

Is this also the reason why the old Public Service Act did not define what public utilities are and what businesses are considered as public utilities and instead limited its coverage only to public service which is not synonymous with public utility?

These cases now before the High Tribunal should finally put to rest these issues once and for all. Should it leave the determination of what public utilities are when we all know that the grant of franchises to these enterprises are often smacked with vested interests and even conflicts of interests?

Because of the vital role which public utilities perform, such determination should be made free from biases. The new PSA was a creation of Congress after all and in determining what should and should not be classified as public utilities, we can’t help but ask whether it was the national interest or the interest of a few which was considered.

For comments, e-mail at [email protected]