Full foreign ownership in utilities faces tough Senate debate amid federalism shift — legislator

By Victor V. Saulon
Sub-Editor
THE chairman of the Senate energy committee has expressed concerns about a plan to grant full foreign ownership over power distribution and transmission as well as water services under a federal form of government as called for in a proposed constitutional change.
In the context of plans to shift to federal system, Senator Sherwin T. Gatchalian said he was bracing for an “explosive” debate at the Senate when legislators hear proposals to amend Commonwealth Act No. 146 or Public Service Act of 1936, as well as Republic Act 9136 or the Electric Power Industry Reform Act of 2001 (EPIRA).
On federalism, Mr. Gatchalian said he fears granting full foreign ownership over power transmission or distribution because of a possible threat on the country’s security.
“If it’s 100% foreign[-owned] there might be some national security concern,” he told reporters.
“Or let’s say Meralco (Manila Electric Co.), which [provides electricity to] almost 60% of the households, (if it’s) 100% foreign, there might be national security [concerns],” he added.
“That is something that we have to think about carefully,” Mr. Gatchalian said.
He said he is not in favor of handing over to foreigners public utilities such as electricity distribution and transmission, and water distribution. But the rest, including land, water and air transportation, may be granted 100% foreign ownership, he added.
“[Utilities] are natural monopolies, meaning you cannot have two transmission lines or two electricity distribution lines. So if it’s in the hands of foreigners, especially let’s say (we have a) conflict, (there might be some problem when it comes to) national security,” he said.
He said he believes full foreign ownership of power distribution will be allowed only when existing franchises expire. The move to ease ownership restrictions is meant to attract foreign investment, he added.
“That’s the recommendation of the Constitutional Commission,” he said, referring to the body tasked to look after changing the Constitution to include a shift to a federal form of government.
Ahead of Charter change, he said the Senate will be hearing amendments to the Public Service Act to separate utilities from public services. He said public utilities — power transmission and distribution, and water distribution — will remain at least 60% Filipino-owned.
Mr. Gatchalian said amendments to EPIRA will remove provisions that allow cross-ownership of power distribution and generation entities.
“Hopefully, in the next three weeks,” he said, when asked about when senators will hear the proposed amendments.
He said the cross-ownership provision allows a utility to own part of a generation company, which could give rise to a conflict of interest because the two sides forge a power supply agreement that determines the price of electricity to be imposed on consumers.
“I think there’s merit to hear that,” he said.
Mr. Gatchalian said many power generation companies favor the proposal because not all of them own a distribution utility. He said the problem with allowing cross-ownership is that an increase in power demand also allows the generation company to own a bigger share of the installed capacity, leaving smaller players unable to compete.
He said the proposed legislation would have a “sunset” provision for bilateral power supply contracts as well as a phased divestment period for companies. Microgrids may be allowed to own both power generation and distribution but with a limit on their capacity, he said.
He said he was not sure whether a power generation company should be allowed to continue having a retail electricity supply (RES) business. A licensed RES is allowed to sell electricity to consumers with power usage that has reached the threshold set by regulators.