Measure amending PSA to boost FDI – analysts
Credit to Author: Mayvelin U. Caraballo, TMT| Date: Sat, 29 Feb 2020 16:20:28 +0000
PROPOSED amendments to the 84-year-old Public Service Act (PSA) would boost job-generating foreign direct investments (FDI) in the country, but regulators must ensure these would be properly implemented, analysts say.
This comes after some lawmakers have criticized the planned amendments, raising concerns that once passed, these would allow foreign companies to fully own certain public utilities.
According to Union Bank of the Philippines (UnionBank) chief economist Ruben Carlo Asuncion, the amendments proposed under House Bill (HB) 78 “will be good for competition and consumers eventually.”
Approved on second reading at the House of Representatives on February 18, the measure filed by Albay Second District Rep. Jose Maria Clemente “Joey” Salceda seeks to provide a clear statutory definition of “public utility.”
This means a smaller set of services, including electricity distribution and transmission, and water pipeline distribution or sewerage pipeline system, will remain subject to foreign equity ownership restrictions imposed on public utilities.
This also means industries excluded from this definition, such as transportation and telecommunications, would fall under “public service” — whose definition is retained — making them open to full foreign ownership.
Salceda said the proposed law would bolster competition and further protect public interest. But Albay First District Rep. Edcel Lagman called the bill “fatally violative” of the 1987 Constitution, citing Supreme Court rulings in arguing that there were no distinction between the two terms, and Kabataan Party-list Rep. Sarah Jane Elago said the measure poses problems for the country’s privacy and national security.
HB 78 is set to be tackled on third and final reading on Monday.
Asuncion also said regulatory institutions should also be strengthened, as these sectors to be opened are critical to the economy and even to national security.
“So, it is only fitting that local institutions that will implement this legislation, once it becomes law, should be amply strengthened in terms of regulatory capabilities,” he added.
The economist cited, as a good example of deregulation, the country’s banking system, where foreign banks are welcome, although their number is limited.
“The regulatory support and implementation by the BSP (Bangko Sentral ng Pilipinas) is a good example of how a local institution should be stronger and capable to tackle new laws that can totally change the competition landscape in the country,” he added.
The banking sector began attracting foreign players after Republic Act 10641, or the Act Allowing the Full Entry of Foreign Banks in the Philippines, was passed in July 2014. The law lifted the prevailing equity limit of 60 percent for foreign partners and allowed 100-percent ownership of the voting shares in an existing local bank.
For his part, Rizal Commercial Banking Corp. (RCBC) economist Michael Ricafort said further easing restrictions on foreign investments “will help increase FDI into te country” and help the country catch up with the higher FDI inflows in other Asian countries.
Relatively lower FDI in the country in recent years, compared to other Asian countries, have been partly attributed to the restrictions on foreign investments, whereas other major economies have more liberalized policies, he added.
Latest available central bank data showed that net FDI inflows in the first 11 months of 2019 dropped by 29.9 percent to $6.41 billion from $9.15 billion during the same period in 2018.
“Sanctity of contracts or not changing the rules in the middle of the game would help assure foreign investors as the government adopts greater safeguards/scrutiny, at the onset, to prevent contracts that are considered/deemed onerous to the government, learning from the lessons in the past,” Ricafort said.
On improving diplomatic and business relations of the Philippines and China, the RCBC economist believes the bill could result in more investments from Beijing, including in telecommunications.
The National Economic and Development Authority said earlier the amendments to the PSA would significantly reduce equity restrictions in several service industries and encourage the participation of foreign investors, thus fostering more competition in the Philippine market.