Constitutional limit hinders FDIs in RE – Gatchalian

Published August 24, 2020, 5:00 AM

by Myrna M. Velasco

The flow of foreign direct investments (FDIs) in the country’s renewable energy (RE) sector is getting restrained because of the Constitutional limitations set forth in the exploitation, exploration and utilization of indigenous resources, according to Senate Committee on Energy Chairman Sherwin T. Gatchalian.

“It’s actually a barrier to entry of capital, especially in the initial stage. In a deal setting, we have foreign capital coming in especially because foreign capital is usually cheaper than our local capital that can invest in these types of projects. So, typically, if they (foreign investors) have cheap capital, they want to control and own that corporation – so it does become a barrier to entry for investors here in country,” the lawmaker explained.

Gatchalian noted that given the Constitutional prescription restricting the exploitation and development of RE resources to Filipino corporations and citizens, full foreign ownership cannot be accorded to interested foreign investors. Thus, government must find ways on how to ease such impediments to capital flows.

“The reason why RE cannot be given full foreign ownership is because of its Constitutional limitation — that natural resources should be utilized and explored only by Filipino corporations and Filipinos, so there’s a limit to that in terms of full foreign ownership of RE,” Gatchalian stressed.

Nevertheless, National Renewable Energy Board (NREB) Chairperson Monalisa C. Dimalanta indicated that on the request of the Department of Energy (DOE), they are currently studying other mechanisms and processes on how foreign participation can be maximized in RE projects.

Gatchalian similarly asked the University of the Philippines-College of Law to look into the issue (Constitutional limitations for RE) “because this is a legal question that we need to untangle…so that we can find mechanisms and ways for capital to come in.”

On NREB’s part, Dimalanta expounded the initial strides happened in the geothermal sector, wherein financial or technical assistance agreements (FTAAs) can be entered into with foreign corporations – as geothermal has been defined as a mineral resource in the Renewable Energy (RE) Act.

In hydropower, the NREB chief qualified that foreign ownership had likewise been allowed – chiefly in the power plant development segment of the venture; although the dam and impoundment components are still reserved to Filipino firms and citizens.

“There are already areas which can allow for greater foreign participation like for geothermal – like if it’s a large scale geothermal exploration or a large-scale project, it allows for FTAA mechanism or financial, technical agreement approach to be tapped for that exploration,” the NREB chief emphasized.

In the hydro sector, she cited Supreme Court ruling on the case of Angat that “allows for participation of foreign investors or foreign shareholders in the power generation component, but not the dam component or the impoundment component because that’s where the extraction happens on the renewable energy resource.”

Dimalanta said the ongoing NREB study is exploring other areas where foreign capital flow or investments can be further relaxed. “We need to study it further because what we have here is a Constitutional requirement that we need to tackle,” she added.