The New Public Service Act (RA 11659) and What It Means for Foreign Investors in the Philippines: A Comprehensive 2026 Guide

Introduction

For decades, the Philippines maintained one of the most restrictive foreign ownership frameworks in Southeast Asia when it came to public services. Anchored by a broad, constitutionally-derived definition of “public utility,” foreign investors found themselves locked out of entire sectors of the economy — not because of any explicit statutory prohibition, but because courts and regulators had interpreted “public utility” so expansively that it captured industries far beyond electricity and water.

That changed on March 21, 2022, when President Rodrigo Roa Duterte signed into law Republic Act No. 11659 (RA 11659), otherwise known as the New Public Service Act. The law amended the 85-year-old Commonwealth Act No. 146 (CA 146), which had governed the regulation of public services since 1936. RA 11659 took effect on April 12, 2022, fifteen days after its publication in the Official Gazette on March 28, 2022. Its Implementing Rules and Regulations (IRR) were issued by the National Economic and Development Authority (NEDA) on March 20, 2023, and took effect on April 4, 2023.

The practical effect of RA 11659 on foreign investors cannot be overstated. Sectors that were previously subject to the 40% foreign equity cap under Section 11, Article XII of the 1987 Constitution — telecommunications, air transport, railways, expressways, and shipping — are now open to 100% foreign ownership, provided they do not constitute “critical infrastructure” or fall within the narrowed definition of “public utility.”

This article provides a comprehensive, lawyer-grade analysis of RA 11659 and its implications for foreign investors considering entry into the Philippine market in 2026 and beyond.

I. Historical Context: The Old Public Service Act (Commonwealth Act No. 146)

A. The Constitutional Framework

The 1987 Philippine Constitution, under Section 11 of Article XII (National Economy and Patrimony), provides:

“No franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or other entities organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens…”

This provision reserves the operation of public utilities to Filipino citizens or Filipino-majority corporations, imposing a ceiling of 40% foreign equity on any entity qualifying as a “public utility.”

The Constitution further provides, under Section 11, that:

“The participation of foreign investors in the governing body of any public utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing officers of such corporation or association must be citizens of the Philippines.”

B. The Problem: An Undefined “Public Utility”

Neither the Constitution, CA 146, nor any other statute before RA 11659 defined the term “public utility.” This legislative silence created decades of uncertainty. Courts and administrative agencies interpreted “public utility” broadly, capturing industries including:

Telecommunications and satellite communications
Air transport and domestic airlines
Railway systems and mass rail transit
Toll road networks and expressways
Shipping and maritime transport
Courier and parcel delivery services

The practical consequence was that foreign investors seeking to enter these sectors were effectively limited to 40% equity ownership — a structure that deterred serious foreign investment, as majority Filipino partners were required even when the foreign investor contributed all of the capital, technology, and operational expertise.

This structure created well-documented governance problems. Minority Filipino shareholders, holding 60% of shares but contributing a fraction of the investment, often had divergent interests from the foreign technological and financial partners. Boardroom disputes were common, and the arrangement did not serve the policy goal of developing Philippine infrastructure — it merely enriched Filipino nominees.

II. What RA 11659 Changed: The Redefinition of “Public Utility”

A. The Core Innovation: Section 4 of RA 11659

The most consequential provision of RA 11659 is Section 4, which for the first time in Philippine law defines “public utility.” Under RA 11659, a public utility refers to a public service that operates, manages, or controls for public use any of the following:

Distribution of electricity
Transmission of electricity
Petroleum and petroleum products pipeline transmission systems
Water pipeline distribution systems and wastewater pipeline systems, including sewerage pipeline systems
Seaports; and
Public utility vehicles

Critically, Section 4 further provides: “No other person shall be deemed a public utility unless otherwise subsequently provided by law.”

This is a closed-list definition. Any public service not enumerated in these six categories is not a “public utility” under RA 11659, and therefore is not subject to the 40% foreign equity cap under Section 11, Article XII of the Constitution.

B. The Sectors No Longer Subject to the 40% Cap

By operation of this narrowed definition, the following sectors — previously captured as “public utilities” through expansive judicial interpretation — are now open to 100% foreign ownership:

Sector	Previous Treatment	Treatment Under RA 11659
Telecommunications	Public utility (40% foreign cap)	Public service — 100% foreign allowed
Air transport / domestic airlines	Public utility (40% foreign cap)	Public service — 100% foreign allowed
Railway systems and mass rail transit	Public utility (40% foreign cap)	Public service — 100% foreign allowed
Toll roads and expressways	Public utility (40% foreign cap)	Public service — 100% foreign allowed
Shipping and maritime transport	Public utility (40% foreign cap)	Public service — 100% foreign allowed
airports (non-public utility classification)	Grey area, often treated as public utility	Public service — 100% foreign allowed (subject to critical infrastructure rules)
Courier and parcel delivery	Often treated as public utility	Public service — 100% foreign allowed
Cold storage and warehouse facilities	Often treated as public utility	Public service — 100% foreign allowed

This reclassification represents one of the most significant liberalization of foreign investment rules in the Philippines in decades.

III. Sectors That Remain Subject to the 40% Foreign Equity Cap

Despite the broad liberalization, RA 11659 preserved the 40% foreign equity cap for the six enumerated public utilities. Foreign investors must therefore still structure carefully when investing in these specific sectors:

A. Electricity Distribution

Entities engaged in the distribution of electricity — the operation of wires and infrastructure that deliver power to end consumers — remain classified as public utilities. The 40% foreign equity cap applies. Major distribution utilities in the Philippines include Meralco (Metro Manila), Visayan Electric (Cebu), and Davao Light and Power.

B. Electricity Transmission

The National Grid Corporation of the Philippines (NGCP) operates the transmission grid under a franchise. Transmission entities are public utilities subject to the 40% foreign equity cap.

C. Petroleum and Petroleum Products Pipeline Transmission

Pipeline operators transporting crude oil, refined petroleum products, or natural gas remain classified as public utilities.

D. Water Pipeline Distribution and Wastewater Systems

Maynilad Water Services (Metro Manila West) and Manila Water Company (Metro Manila East) operate under public utility franchises. Entities engaged in water pipeline distribution and wastewater collection remain subject to the 40% cap.

E. Seaports

While Philippine ports have been partially liberalized through the Republic Act No. 10864 (Ports Development Act), port operators and entities engaged in the management and operation of seaports for public use may still be subject to the 40% foreign equity cap depending on their specific structure and the applicable regulatory framework.

F. Public Utility Vehicles (PUVs)

jeepneys, buses, taxis, and other vehicles used for public transport remain subject to the 40% cap. This is particularly relevant for foreign investors in the ride-hailing, logistics, and public transport sectors.

IV. Critical Infrastructure: The National Security Carve-Out

A. Definition Under RA 11659

Even though a sector may not qualify as a “public utility” under Section 4 of RA 11659, it may still face foreign ownership restrictions if it constitutes “critical infrastructure.” The law defines critical infrastructure as:

“Any public service which owns, uses, or operates systems and assets, whether physical or virtual, so vital to the Republic of the Philippines that the incapacity or destruction of such systems or assets would have a detrimental impact on national security, including telecommunications and other such vital services as may be declared by the President.”

The IRR of RA 11659, issued by NEDA on March 20, 2023, further clarifies that only a public service engaged in the provision of telecommunications services is considered critical infrastructure under the IRR — and no other public service shall be considered critical infrastructure unless declared as such by the President through executive issuance.

B. Critical Infrastructure: 50% Cap with Reciprocity

Under Section 25 of RA 11659:

Foreign nationals are prohibited from owning more than 50% of the capital of entities engaged in the operation and management of critical infrastructure.
This restriction applies unless the country of such foreign national accords reciprocity to Philippine nationals — i.e., unless the foreign investor’s home country allows Filipinos to hold majority ownership in similar infrastructure sectors in that country.

The 50% ceiling for critical infrastructure represents a middle ground: it is more permissive than the 40% public utility cap, but still ensures that foreign investors cannot unilaterally control infrastructure deemed vital to national security.

C. Foreign State-Owned Enterprises: Absolute Prohibition

Section 23 of RA 11659 contains an absolute prohibition: entities controlled by or acting on behalf of a foreign government or foreign state-owned enterprises (SOEs) are prohibited from owning capital in any public service classified as a public utility or critical infrastructure.

This prohibition applies regardless of reciprocity. A foreign SOE cannot acquire majority or even minority control of a Philippine electricity distribution utility, telecommunications company, or seaport operator, even if the foreign investor’s country grants Filipinos reciprocal rights.

V. The National Security Review Mechanism

A. Presidential Power to Block Transactions

Section 23 of RA 11659 grants the President the power to suspend or prohibit any proposed merger, acquisition, or investment in a public service that effectively results in the grant of control — whether direct or indirect — to a foreigner or foreign corporation, if such transaction is determined to be contrary to the national interest.

This review mechanism is NSC-led and operates independently of competition law review by the Philippine Competition Commission (PCC). A foreign investor considering the acquisition of a controlling stake in any public service entity — even one not classified as a public utility or critical infrastructure — should factor in the possibility of a national security review.

B. Investment Policy Council Review

Under the IRR, the Investment Policy Council (IPC), chaired by the Secretary of Trade and Industry, may review foreign investments in public services to assess national security implications and coordinate with relevant regulatory agencies.

VI. Practical Scenarios for Foreign Investors

Scenario A: The Foreign Telecommunications Investor

A foreign technology company from Japan wishes to establish a mobile virtual network operator (MVNO) in the Philippines or acquire an existing telecom provider.

Analysis: Telecommunications services are not enumerated under Section 4 of RA 11659 as a public utility. As such, they are not subject to the 40% foreign equity cap. The company may register a Philippine subsidiary with 100% foreign ownership under the Foreign Investments Act (RA 7042, as amended by RA 11647).

However, if the company seeks to operate as a telecommunications entity, it must comply with National Telecommunications Commission (NTC) licensing requirements. Further, telecommunications is classified as critical infrastructure under the IRR. If the foreign investor holds more than 50% of the capital, reciprocity must be established — meaning Japan’s laws must allow Philippine nationals to hold majority ownership in Japanese telecom companies. If Japan grants such reciprocity, 100% foreign ownership is possible. If not, the company is limited to 50% equity.

Additionally, the company must obtain an ISO certification for information security management from an accredited certification body — a requirement mandated by RA 11659 for telecommunications businesses, though this does not apply to micro, small, and medium enterprises (MSMEs).

Key takeaway: Telecommunications is open to 100% foreign ownership subject to NTC licensing, ISO certification, reciprocity (if above 50%), and national security review.

Scenario B: The Foreign Airport Operator

A foreign airport management company from Singapore wishes to bid on the operation and management of a Philippine regional airport under a public-private partnership (PPP) arrangement.

Analysis: Airports are not enumerated as public utilities under Section 4 of RA 11659. However, airports may be classified as critical infrastructure if the President so declares. Under the IRR, only telecommunications is currently designated as critical infrastructure by operation of the rules — airports would require a separate presidential declaration to be treated as critical infrastructure.

Even if airports were to be declared critical infrastructure in the future, the foreign investor would be limited to 50% equity ownership unless reciprocity applies. Singapore’s laws must allow Philippine nationals to hold majority ownership in Singapore airport management companies.

The company must also consider PCC merger notification requirements if the investment exceeds the thresholds under the Philippine Competition Act (RA 10667).

Key takeaway: Airports are currently open to 100% foreign ownership, subject to reciprocity (if applicable), PPP regulatory compliance, and competition law review.

Scenario C: The Foreign Railway Developer

A European infrastructure fund seeks to invest in the development and operation of a new railway line in the Philippines.

Analysis: Railways are not enumerated as public utilities under RA 11659. A foreign-invested railway development company may be 100% foreign-owned under the Foreign Investments Act. The company would need to comply with the regulatory requirements of the Department of Transportation (DOTr) and the Philippine Railways Authority (PRA) or the relevant regulatory body.

However, the fund must also consider whether the project involves critical infrastructure — a determination that would depend on the scope and national significance of the railway system as assessed by the President.

If the European fund is a sovereign wealth fund or an independent pension fund, the IRR of RA 11659 imposes an additional limitation: collective foreign ownership by such funds is limited to 30% of the capital of any public utility or critical infrastructure entity. This is a nuanced restriction that applies specifically to sovereign wealth funds and pension funds, not to corporate investors.

Key takeaway: Railway development is open to 100% foreign ownership, subject to transportation regulatory requirements and any critical infrastructure classification.

Scenario D: The Foreign Electricity Distribution Investor

A foreign energy company from South Korea wishes to invest in a Philippine electricity distribution utility.

Analysis: Electricity distribution is enumerated as a public utility under Section 4 of RA 11659. Foreign equity is therefore capped at 40% under Section 11, Article XII of the Constitution. The investor must structure through a Filipino-majority corporation, with at least 60% of the capital held by Filipino citizens.

Additionally, the company must comply with Energy Regulatory Commission (ERC) requirements for franchise holders and distribution utility operations. The investor should also consider the anti-dummy law implications under Commonwealth Act No. 108 — any arrangement that effectively gives the foreign investor control beyond their 40% equity stake (through nominee agreements, voting trusts, or management contracts) may be construed as a violation.

Key takeaway: Electricity distribution remains subject to the 40% foreign equity cap. Structures that circumvent this cap through nominees or control arrangements risk prosecution under the Anti-Dummy Law.

VII. Compliance Obligations Under RA 11659

Foreign investors operating in previously restricted sectors should be aware of the following compliance obligations arising from RA 11659 and its IRR:

A. Regulatory Agency Oversight

All public service entities — regardless of foreign ownership level — remain subject to the regulatory jurisdiction of their respective sector regulators. The NTC oversees telecommunications; the ERC oversees electricity; the Marina oversees shipping; the Land Transportation Franchising and Regulatory Board (LTFRB) oversees public utility vehicles.

B. Annual Performance Audits

Section 27 of RA 11659 mandates that administrative agencies ensure the annual conduct of performance audits by an independent evaluation team. The audits assess: (i) cost efficiency; (ii) quality of services provided to the public; and (iii) the ability of the public service provider to immediately and adequately respond to emergency cases.

Foreign investors operating public service entities must maintain compliance with service quality standards as determined by their respective regulators.

C. Information Security Certification for Telecommunications

Entities engaged in the telecommunications business must obtain and maintain certifications from an accredited certification body attesting to compliance with relevant ISO standards on information security. This requirement does not apply to MSMEs.

D. Anti-Dummy Law Compliance

Commonwealth Act No. 108 (the Anti-Dummy Law) remains in full force. Foreign investors must ensure that their corporate structures and actual arrangements do not circumvent the equity restrictions that do remain in place for public utilities and critical infrastructure. The distinction between permissible business arrangements and prohibited dummy arrangements is a fact-based inquiry that requires careful legal analysis.

VIII. Comparative Analysis: The Before and After

Aspect	Before RA 11659 (Under CA 146)	After RA 11659 (Effective April 12, 2022)
Definition of “public utility”	Undefined; subject to broad judicial interpretation	Narrowly defined as six enumerated sectors only
Telecommunications	Subject to 40% foreign cap	100% foreign ownership allowed (subject to critical infrastructure rules and reciprocity)
Air transport	Subject to 40% foreign cap	100% foreign ownership allowed
Railways	Subject to 40% foreign cap	100% foreign ownership allowed
Expressways and toll roads	Subject to 40% foreign cap	100% foreign ownership allowed
Electricity distribution	Subject to 40% foreign cap	Unchanged — still 40% cap
Water distribution	Subject to 40% foreign cap	Unchanged — still 40% cap
Seaports	Subject to 40% foreign cap	Unchanged — still 40% cap
Public utility vehicles	Subject to 40% foreign cap	Unchanged — still 40% cap
National security review	Ad hoc, no statutory basis	Statutory basis under Section 23 of RA 11659
Critical infrastructure rules	None	Section 25 RA 11659: 50% cap with reciprocity

IX. How RA 11659 Interacts with the CREATE MORE Act (RA 12066)

It is important to note that RA 11659 operates in conjunction with other recent liberalization measures. The CREATE MORE Act (RA 12066), signed into law on November 8, 2024, further enhanced the Philippines’ tax and incentives framework for foreign investors. While RA 12066 primarily concerns fiscal incentives under the Board of Investments (BOI) and PEZA regimes, its broader policy thrust — attracting high-value, long-term foreign investment — is complementary to the liberalization objectives of RA 11659.

Foreign investors in sectors opened by RA 11659 may simultaneously qualify for BOI incentives under the 2026 Strategic Investments Priority Plan (SIPP), particularly in sectors involving green infrastructure, innovation, and export-oriented activities.

X. Strategic Recommendations for Foreign Investors

Based on the foregoing analysis, foreign investors considering entry into the Philippine public services sector should:

Conduct sector classification analysis first. Determine whether the target sector constitutes a “public utility” (six sectors only), “critical infrastructure” (telecommunications by IRR), or an unrestricted public service before structuring the investment.
Verify reciprocity before committing to majority ownership in telecommunications or any subsequently declared critical infrastructure sector. This requires legal analysis of the foreign investor’s home country laws.
Conduct anti-dummy law due diligence on any proposed corporate structure, nominee arrangements, or management contracts to ensure compliance with Commonwealth Act No. 108.
Factor in national security review risk. Even for sectors open to 100% foreign ownership, the President retains authority under Section 23 of RA 11659 to block transactions on national security grounds. Early engagement with the Investment Policy Council and relevant regulatory agencies is advisable.
Assess PCC merger notification obligations. The Philippine Competition Commission may require notification of acquisitions meeting certain thresholds, independent of the RA 11659 review process.
Consider BOI and CREATE MORE Act incentives for qualifying investments in sectors such as green energy, digital infrastructure, and export-oriented services.
Ensure ISO information security certification is obtained and maintained for telecommunications ventures.

XI. Conclusion

RA 11659 represents the most consequential reform to Philippine foreign investment law in recent memory. By narrowing the definition of “public utility” to six enumerated sectors — electricity distribution and transmission, petroleum pipelines, water and wastewater pipelines, seaports, and public utility vehicles — the law has effectively opened telecommunications, air transport, railways, expressways, and a broad range of other public services to 100% foreign ownership.

For foreign investors, this is a significant opportunity. But the liberalization is not absolute. Critical infrastructure — particularly telecommunications — remains subject to a 50% foreign equity cap absent reciprocity. Public utilities remain capped at 40% foreign ownership. And the national security review mechanism gives the government broad discretion to block transactions it deems contrary to the national interest.

The message for foreign investors is clear: the Philippines has opened its doors wider than ever before. Those who take the time to understand the nuances of RA 11659 — its definitions, its carve-outs, and its compliance requirements — will find significant opportunities in one of Southeast Asia’s most dynamic economies.

This article is for informational purposes only and does not constitute legal advice. For specific legal guidance on foreign investment in the Philippines, please contact Tungol & Tan Law Offices.

Verified Legal Sources:

Republic Act No. 11659 (New Public Service Act), signed March 21, 2022, published in the Official Gazette March 28, 2022. Full text available at: https://www.officialgazette.gov.ph/downloads/2022/03mar/20220321-RA-11659.pdf and https://lawphil.net/statutes/repacts/ra2022/ra_11659_2022.html
Implementing Rules and Regulations of RA 11659, issued by NEDA, effective April 4, 2023. Available at: https://neda.gov.ph/irr-ra11659-psa/
1987 Philippine Constitution, Article XII, Section 11
Commonwealth Act No. 146 (Public Service Act), as amended
Commonwealth Act No. 108 (Anti-Dummy Law)
Republic Act No. 10667 (Philippine Competition Act)
Republic Act No. 12066 (CREATE MORE Act), signed November 8, 2024