On March 21, 2022, President Rodrigo Roa Duterte signed Republic Act (“RA”) No. 11659 or “An Act to Amend Commonwealth Act No. 146, otherwise known as the “Civil Service Act.” “, as amended”.

It was published in the Official Journal on March 28, 2022 and took effect fifteen (15) days after its date of publication, i.e. April 12, 2022.

The State recognizes the role of the private sector as one of the main engines of growth and national development. Thus, the policy of the state is to encourage private enterprise and broaden the investment base in the Philippines, with the aim of providing efficient, reliable and affordable basic services to all. These policies are implemented by: (a) ensuring effective regulation of public services; (b) provide a reasonable rate of return to utilities; (c) rationalize restrictions on foreign ownership by clearly defining the term “public services”; and (d) establishing processes to protect national security.

Article XII of Section 11 of the 1987 Constitution of the Philippines provides for the Philippinization of public services. The provision of the Constitution reserves the operation of public utilities to citizens of the Philippines or corporations organized under the laws of the Philippines and in which at least sixty percent (60%) of the capital is owned by Filipino citizens. The purpose of the limitation imposed by the Constitution is to prevent foreigners from controlling the operations of public services in the Philippines, which is a sector steeped in public interest.

However, the term “public utility” was not defined in the 1987 Constitution, the old Civil Service Act or any other law. Thus, what is covered by “public utility” has always been subject to judicial interpretation. Perhaps the most significant change introduced by RA 11659 is the definition of the term “public purpose”.

Under Section 4 of RA 11659, “utility” means a utility that operates, manages, or controls for public use any of the following: (1) Distribution of electricity; (2) Transmission of electricity; (3) Petroleum and petroleum product pipeline transportation systems; (4) Piped water distribution systems and sewage pipe systems, including sewer pipe systems; (5) seaports; and (6) Public utility vehicles.

Article 4 of Law No. 11659 further provides that no other person shall be considered a public service, unless otherwise provided by law later. Thus, the definition introduced by RA No. 11659 limits the coverage of the public service to specific sectors which will remain subject to the limit of forty percent (40%) of foreign participation provided for by the Constitution of 1987. In view of this amendment in the Civil Service Act, key industries such as telecommunications and transport were removed from the definition of public service. Accordingly, these industries will no longer be subject to the foreign equity limit provided for in Section 11, Article XII of the 1987 Constitution.

In addition to the foregoing, the President may recommend to Congress the classification of a public service as a public service based on the following criteria: (1) The natural or legal person regularly provides, transmits, and distributes to the public through of a network a good or a service of public interest; (2) The commodity or service is a natural monopoly which must be regulated when the common good requires it. To this end, there is a natural monopoly when the market demand for a good or service can be satisfied by a single entity at a lower cost than that of two or more entities; (3) The good or service is necessary to maintain the life and occupation of the public; and (4) The product or service is obligated to provide adequate service to the public upon request.

Article 23 of Law No. 11659 further confers on the President the power to suspend or prohibit, in the interest of national security, any proposed merger or acquisition operation, or any investment in a public service that actually results in the grant of control, direct or direct. or indirectly, to a foreigner or a foreign company.

An entity controlled by or acting on behalf of the foreign government or foreign state enterprises is prohibited from holding equity in any utility classified as a utility or critical infrastructure. A critical infrastructure refers to any utility that owns, uses or operates systems and assets, whether physical or virtual, so vital to the Philippines that the incapacitation or destruction of such systems or assets would have a detrimental impact on national security, including telecommunications. and other vital services as declared by the President.

In addition, foreign investments in critical infrastructure projects are subject to a reciprocity clause. Article 25 of Law No. 11659 prohibits foreign nationals from holding more than fifty percent (50%) of the capital of entities engaged in the operation and management of critical infrastructures unless the country of that national foreigner does not grant reciprocity to Filipino nationals, as may be expected. by foreign law, treaty or international agreement.

Entities engaged in the telecommunications industry are additionally required to obtain and maintain certifications from an accredited certification body attesting to compliance with relevant International Organization for Standardization (ISO) security standards. information. This requirement, however, does not apply to micro, small, and medium enterprises under RA No. 6977, also known as “Magna Carta for Micro, Small, and Medium Enterprises, as amended.”

RA No. 11659 directs administrative agencies to ensure the annual conduct of a performance audit by an independent assessment team to monitor costs, the quality of services provided to the public and the ability of the public service provider to meet immediately and appropriately in case of emergency.

The rules and regulations implementing RA 11659 must be enacted within six (6) months of the entry into force of the law.

A copy of RA No. 11659 can be viewed at:

https://www.officialgazette.gov.ph/downloads/2022/03mar/20220321-RA-11659.pdf