The Renewable Energy DOJ Opinion and the Philippine’ Patchwork Approach to Reform

Atty. Rami Hourani

A welcome development has occurred in the Philippine Legal Landscape. The Secretary of Justice issued a Legal Opinion that Renewable Energy is not subject to the 60-40 Filipino-Foreign ownership restrictions found in the constitution and related laws. This is a good thing because it permits foreign investors to engage in these fields of commerce and potentially increase the energy mix of the Philippines’s share in renewable energy. However, this article will call into question the way that we are introducing this change in the Philippine Legal Landscape. The text of the opinion can be found here.

Omitting much nuance and detail, in substance, the Secretary of Justice opines that the Art 12, Sec. 2 of the 1987 Constitution which reads as follows:

“All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant.” [Emphasis Supplied]

The Legal Opinion hinges on the imposition of a technical definition of the phrase “all sources of potential energy”. Potential Energy, as distinguished from Kinetic Energy, is energy that is stored such as those found in lumber used for kindling, fossil fuels, or natural gases. These are things which are subject of depletion, essentially they can be used up. Kinetic Energy on the other hand is that energy which exists in the movement of water, wind and that delivered by the sun. This legal opinion elegantly sidesteps the ever-present requirement of 60-40 Filipino Foreign Ownership required in many industry classifications. However, the focus of this short article will be the delivery of this legal position by way of a legal opinion and the implications of the same on the views of prospective foreign investors in the Philippines.

A Legal Opinion is something most often used in the context of a consultation with a lawyer. The Secretary of Justice a lawyer imbued with the special functions of his office and issues an opinion in much the same way a normal lawyer would. However, his opinion has extra force by virtue of the powers duties and responsibilities pursuant to the Administrative Code of 1987 as the Department of Justice is the Republic of the Philippines’s legal counsel. In practical terms, this means that the Secretary of Justice is the counselor for the country. This means that his opinions are entitled to respect across the branches of government.

However, we have to see this from the perspective of an eventual investor in the Philippines. Even a modest investment in renewable energy costs Billions of pesos. Further, these projects take decades to recoup their initial investment. A Legal Opinion is subject to revision by successors to the office. There is real and definite danger that a future Secretary of Justice may disagree with the above interpretation by his predecessor and issue a new one to replace it. In the absence of other legal protection, an investor would be forced to divest himself (likely at a substantial discount) in order to comply with the 60-40 requirement.

It would be prudent to codify the above provision into law. This way we would avoid the above described snafu. The Philippines should not shy away from more comprehensive legislative reform if it means the security of important investments in key sectors. Little needs to be elaborated upon with regard the dangers of climate change and the distinct absence of cheap electricity in the Philippines. This pattern repeats itself with bandaid legislative solutions such as the recent Public Service Act Amendments which elected to work around the Constitutional restrictions by merely redefining what Public Service vis-a-vis Public Utility meant instead of undertaking a more comprehensive approach to the Constitutional restrictions imposed on foreign ownership.

Atty. Hourani practices law in Cebu City, PhilippinesIf you would like to set an appointment with him, you may reach him here.

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