[Vantage Point] Foreign investors, cold to 100%-ownership enticement?

Is allowing foreign investors to own a 100% stake in the Philippines’ utility sector enough to lure them?

The Public Service Act (PSA) has been amended following the enactment of Republic Act (RA) 11659 which relaxes the restrictions on the entry of foreign money in the country’s utility sector. The move hopes to bring in foreign players, but the hype over imported money rolling in seems to have fizzled out too soon.

I have been monitoring the sector since the amendment, but have yet to see significant investment movements, such as expressed interest from any big foreign conglomerate. Insiders are telling Rappler that the Department of Energy (DOE) and the Department of Information and Communication Technology (DICT) have already “rolled out the red carpet” for project proposals for 100 % foreign-owned investments in renewable energy and information and communication technology. There have been no takers.

Before the law was signed, Elon Musk’s Starlink was all over town, teasing us with the possibility of finally enjoying a fast internet connection by using its low-orbit satellites. After the national elections, however, nothing has been heard from them.

Why are there no takers? For one, there is really no guarantee that RA 11659 will be able to protect foreign investors from possible takeovers and even government sequestration. This is because aside from questions about its constitutionality, there is also the existence of the so-called Material Adverse Government Action (MAGA). This is a provision contained in the Implementing Rules and Regulations (IRRs) of RA 6957 or the Build Operate and Transfer (BOT) Law which allows the government to retain control of a certain privately funded project upon reasonable compensation. The provisions on MAGA also provide for the rules on materiality or amount threshold, nature and compensation, cap on monetary compensation, conditions for termination, and termination payment due to MAGA. In short, prospective foreign investors hoping to secure 100% ownership of a public utility receive no assurance that they can maintain full control of their investments. Blame MAGA and the lingering questions about the constitutionality of RA 11659 for that insecurity.

Foreign investors’ fears

Prospective players may have already sensed that there is no guarantee that their investments would be protected even with the enactment of RA 11659. There is also broad opposition to its implementation that even President Ferdinand Marcos Jr. has long expressed reservations on its implementation. In an interview with ABC5 during the campaign period, then-candidate Marcos clearly stated that merely amending the PSA is not the correct option if we want to remove the equity restriction for foreign ownership of public utilities. “That will require a constitutional amendment if we are going to proceed in that manner,” he stressed.

Even DOE Secretary Raphael Lotilla has admitted that while the energy department is keen on pushing for renewable energy projects that are fully owned by foreign companies, the DOE is also concerned that such a move could harm Filipino investors. “Only when there is no Filipino investor in that same area can we entertain foreigners,” Lotilla explained.

These are signs that the Marcos administration is not keen on pushing for the implementation of RA 11659. It will not be surprising if an administration ally would push for the review of this law which is seen as detrimental to local business interests. The political opposition had been among those which rabidly objected to the passage of RA 11659. Former senior associate justice Antonio Carpio had also questioned Congress for usurping the powers of the Supreme Court as the “ultimate interpreter of the Constitution.”

Carpio wrote in his column Crosscurrents, “If Congress succeeds in amending the Constitution through a redefinition of constitutional terms,” this would abrogate the validity of “the three modes of amending the Constitution.” This means that ratification by the people of any constitutional amendment would no longer be needed.  

According to Carpio, “Congress can simply enact ordinary laws redefining the constitutional terms ‘land’ to exclude reclaimed land, ‘mass media’ to exclude online newspapers, ‘educational institutions’ to exclude correspondence schools.” He added that these terms, including “public utility,” are not defined in the Constitution primarily because the Constitution does not contain a definition of terms. “[C]learly, there is a confluence of positions among various political forces in relation to RA 11659.” Carpio added. “This could provide the impetus for the present administration to push for its review and eventual repeal.”

This is also the beef of a petition filed before Supreme Court (SC) by concerned lawyer Louie Biraogo, who says he is fighting for the rights of Filipino investors who would suffer if and when foreigners are allowed to own businesses that have historically been their domains.

“There is no way by which this provision can be tampered with unless there is a law that specifically provides for the amendments to the provisions made in the Constitution, Biraogo noted, citing that RA 11659 which amends Commonwealth Act No. 146 or the Public Service Act “falls within the ambit of the legal procedure within which constitutional provisions can be amended.”

Country risks

Owning 100% of local businesses, while beneficial to foreign investor, does not mean however that they would jump right in and park their investible funds into the country. These companies exercise due diligence – sifting through investment assessments prepared by political and financial risks and asset managers – making doubly sure that they would make the right investment decision.

Unfortunately for the Philippines, many foreigners still see the country as a risky investment destination. The common complaint is that regulators often change the rules midstream. A country risk manager told Rappler that foreign investors are turned off by constantly changing rules, even if the contract has already been signed, sealed, and delivered.

There are so many areas that the Philippines has to improve on before foreign investors consider us as a safe investment haven. The risk manager ticked off these items: defects in the political system; continued graft and corruption in key agencies; lack of transparency and accountability in governance; regulatory capture or agencies captured by vested interests, and weaknesses in the electoral processes (such as rampant cheating and manipulation of results; political dynasties and money-based traditional politics; armed conflict; the worsening human rights situation, particularly extrajudicial killings of journalists and activists on the left of the political spectrum, and public apathy or withdrawal from political engagement, especially at the national level). – Rappler.com

Val A. Villanueva is a veteran business journalist. He was a former business editor of the Philippine Star and the Gokongwei-owned Manila Times. For comments, suggestions email him at mvala.v@gmail.com.