Think tank warns of public utilities being run to serve interests of foreign investors

THE GOVERNMENT needs to ensure that public utilities opened up to foreign investment be run to serve national development goals while regulating the for-profit aspect of such projects, a think tank said.

“Strong regulation or even state-owned enterprises (SOEs) are crucial for public utilities to serve national development goals and not be run mainly for the profit of foreign investors,” Jose Enrique A. Africa, executive director of IBON Foundation, said in a Viber message.

Mr. Africa said that the government’s “obsolete free market framework” prevents it from “actively” developing greater Filipino or state-owned capacity in the public utilities sector.

In March, the House of Representatives approved on final reading the proposed amendments to certain economic provisions of the 1987 Constitution. 

Resolution of Both Houses  (RBH) No. 7 seeks to ease economic restrictions on the foreign ownership of public utilities, education and advertising companies. The RBH called for the restrictions to be bypassed by specific laws enacted by legislators. The amendments to the Constitution are to be implemented by inserting the phrase “unless otherwise provided by law” in Articles 12, 14, and 16 of the charter. 

The Constitution limits investment in those industries to be at least 60% Filipino-owned.

Leonardo A. Lanzona, Jr., economics professor at the Ateneo de Manila, said that the proposal will require “substantial regulation” due to the possibility that “low-quality institutions” or “unscrupulous investors” may enter the country.

“In this case, the government needs to have a plan as to what direction the public utility, education and advertising company has to take, and use these regulations to bring the country to what our systems should have,” he said via e-mail. 

Opening up the economy’s public utilities, particularly energy, would increase competition in the market, thereby “improving the efficiency of delivering electricity services,” according to Noel M. Baga, convenor of think tank Center for Energy Research and Policy.

“It is a basic principle in economics that allowing more players into the energy market increases competition, leading to positive outcomes for the Filipino people,” he said in an e-mail to BusinessWorld.

Allowing 100% foreign ownership in projects to explore, develop, and utilize natural resources would contribute to energy production, Mr. Baga said.

In 2022, the DoE amended the implementing rules and regulations of the Renewable Energy Act of 2008 to allow 100% foreign investment in renewable energy projects.

“Local energy companies often lack the capital needed to develop our indigenous natural resources for energy use, making foreign investment crucial for utilizing our resources effectively,” Mr. Baga said. 

According to Mr. Africa, competition is “overrated especially in natural monopolies like public utilities.”

“Instead of the impossibility of making natural monopolies competitive, it’s better for development to build state capacity in public utilities to at least regulate or better yet to run these effectively,” he said. — Sheldeen Joy Talavera