Who is obstructing the reform of the Public Service Act?

In seven months’ time, Filipinos will once again elect the leaders and lawmakers of our country. Aside from studying campaign platforms and promises that candidates regularly make, we ought to examine closely their track records and past behaviors. How legislators vote and deliberate on critical measures now can reveal their underlying motives as well as their expected future behavior. One controversial measure that legislators are tackling is Senate Bill (SB) 2094, a long-overdue reform to amend the Public Service Act (PSA).

The Public Service Act was enacted 85 years ago as Commonwealth Act No. 146. Due to the PSA’s ambiguous definition of “public utilities” and the term’s conflation with “public services,” many sectors have been limited by foreign ownership restrictions. The Organization for Economic Cooperation and Development (OECD) ranked the Philippines as the third most restrictive out of 83 economies on the FDI (Foreign Direct Investments) Regulatory Restrictiveness Index in 2020, just behind Palestine and Libya.

As a result of this outdated law, our public services have essentially become family businesses. A lack of competition and innovation has been practically institutionalized, and consumers have suffered the consequences of expensive and unreliable services.

SB 2094 clarifies the definition of public utilities, which at present require 60% ownership of Filipinos. SB 2094 will limit the scope of public utilities to distribution of electricity, transmission of electricity, petroleum pipeline distribution systems, and water pipeline and sewerage pipeline systems, among others. At the same time, SB 2094 will lift foreign ownership restrictions on some crucial public services, such as telecommunications and transportation.

These amendments will lead to new foreign investments in transportation and telecommunications, which will lead to more stable supply chains, improved logistics, expanded and more accessible internet or digital services, rapid innovation, job creation, and a clearer path to development in the country.

For nearly the past two years, COVID-19 has revealed the gross inequities in internet penetration in the country. We have all become more reliant on internet connectivity for education, employment, public services, and healthcare. However, many Filipinos still lack accessible, affordable, and high-quality internet access, especially in rural areas. This is a constraint that we must necessarily address to spur economic growth in the new normal. And while the first step has been achieved through Executive Order 127 liberalizing access to satellite services, amending the PSA to allow the entry and competition of more players in the market will provide the necessary condition for digital transformation.

Senator Ralph Recto has argued that allowing total foreign ownership of telecommunications companies through SB 2094 will pose serious risks to our national security. However, the Senate version of the bill already includes safeguard provisions to address these risks. In the proposed bill, foreign investments in “critical industries” (including telecommunications) must undergo periodic review by both the National Security Council and Congress, which may result in permit or franchise cancellation if security threats are found.

AS SB 2094 is now on the Senate floor for amendments, Senator Recto has repeatedly made interpellations to delay its progress. He has rehashed the arguments of invoking national security. Unfortunately, his protectionist views and obstructionist tactics only serve the interests of entrenched oligarchs at the expense of the Filipino consumers.

This kind of obstructionist behavior is nothing new from Senator Recto. His long track record of putting vested interests above the greater good can be seen in his numerous attempts to dilute and block prior reforms.

In 2012, he attempted to weaken the health gains from the Sin Tax Law by proposing lower rates that would have favored the tobacco industry. Today, he is pushing aggressively for Senate Bill 2239, a retrogressive bill that will dilute the regulation of harmful vaping and electronic cigarette products by lowering the minimum age of access to 18.

In 2018, he inserted amendments to the automobile tax in TRAIN, rendering the tax structure less efficient and less progressive, but more favorable to a segment of car manufacturers. He wanted the progressive fuel tax scrapped. He weakened the rationalization of the value-added tax (VAT) by retaining unwarranted exemptions.

During the Senate interpellations of the CREATE Bill in 2020, he objected to the rationalization of fiscal incentives and proposed several amendments diluting its reform.

Each one of the above reforms represented opportunities to improve the fiscal space and strengthen economic institutions in the country. And each time, Recto has used his position as a senior legislator to weaken or hinder reforms, thus further entrenching some vested interests.

With national elections just around the corner, Senator Recto’s obstruction of the Public Service Act amendments is signaling his intent and strategy. Filipino voters and consumers be damned.

AJ Montesa is an economic analyst and Pia Rodrigo is the strategic communications officer of Action for Economic Reforms.