PSA Amendment Implementing Rules and Regulations

On March 20, 2023, the National Economic Development Authority (NEDA) issued the Rules and Regulations Implementing the amended Public Service Act (PSA IRR). It took effect on April 4, 2023. It seeks to operationalize the amendments introduced by Republic Act No. 11659 to the Public Service Act, which amendments opened critical public service industries, including telecommunications, to 100% foreign ownership, subject to certain conditions. The discussion below focuses on provisions of particular interest to the telecommunications industry, which is classified as a public service owning critical infrastructure under the amended Public Service Act.

Key provisions

  • Process for National Security Review. Any proposed merger or acquisition transaction, or any investment in a public service entity, that (a) will effectively result in the grant of control, whether direct or indirect, to a foreigner or a foreign corporation, or a foreign government; and, (b) has national security implications may be voluntarily declared by the parties with the relevant department or Administrative Agency, at least 30 calendar days prior to the date of execution of relevant agreements. The relevant government department or Administrative Agency may, on its own initiative, also initiate the national security review process if it deems the conditions triggering national security review to be present. After voluntary declaration or motu proprio initiation, the transaction shall then undergo initial risk assessment (which may take up to 30 calendar days) and comprehensive national security review (which may take up to 60 calendar days). The relevant department or Administrative Agency shall then submit a recommendation to the President who may suspend or prohibit any proposed merger or acquisition transaction, or any investment in a public service that effectively results in the grant of control, whether direct or indirect, to a foreigner or a foreign corporation.
  • Proof of compliance with reciprocity requirements. The Administrative Agency, in case of investments in existing public service entities classified as critical infrastructure, or the Securities and Exchange Commission (SEC), in case of investments in public service entities classified as critical infrastructure which are still in the process of registration with the SEC, shall require documentary evidence from the foreign national to prove reciprocity. This may include (a) a copy of the official publication of the law and/or other government issuances granting rights and privileges to Philippine nationals attested by the foreign government officer having legal custody of the record, or his deputy; or (b) relevant documents granting rights and privileges to Philippine nationals to invest in the country of the foreign investor and certified in accordance with the Apostille Convention or consularised by the Philippine embassy having jurisdiction in the home country of the foreign investor.
  • Information security requirement for telecommunications. Persons and companies engaged in the telecommunications business — except those classified as micro, small and medium enterprises — shall obtain and maintain certifications from an accredited certification body attesting to compliance with relevant ISO standards on information security, as prescribed by the Department of Information and Communications Technology (DICT). The maintenance of these certifications shall be a continuing qualification for retention of franchise or other authority to operate.
  • Performance audit. Public utilities classified as critical infrastructure are subject to annual performance audits by independent evaluation teams of the relevant department or Administrative Agency. The performance audit focuses on the evaluation of the following factors based on published metrics: (a) cost, (b) the quality of services provided to the public, (c) the ability of the public service provider to immediately and adequately respond to emergency cases, (d) risk assessment, (e) emergency response, (f) and cybersecurity, among others.

The amendment to the Public Service Act and the issuance of the PSA IRR are seen as “landmark reform[s] that will further improve the country’s position as an ideal investment hub.” The issuance of the PSA IRR is part of the government’s ongoing efforts to attract necessary capital and technology, which efforts include the amendments to the Foreign Investments Act and the Retail Trade Liberalization Act, the passage of the Corporate Recovery and Tax Incentives for Enterprises Act, the ratification of Regional Comprehensive Economic Partnership ratification, amendments to the IRR of the Build-Operate-Transfer Law, approval of the NEDA Joint Venture Guidelines, and the renewed focus on infrastructure (including digital infrastructure) development under the Build Better More program of the current administration. It remains to be seen whether the new regulations will efficiently and effectively facilitate the entry of foreign investments in public service sectors.

Read the latest SyCipLaw TMT and Data Bulletin here or via this link.