TABLE OF CONTENTS

I. INTRODUCTION – The 60:40 Rule in Public Utilities was a

highly divisive issue and a close vote…………………………………………………….. 1

A. VESTIGES OF COLONIALISM – The introduction of the 60:40 Rule

was driven by nationalistic fervor, along with suspicion towards foreign
involvement …………………………………………………………………………….3

B. CALLS FOR AMENDMENT – The debate on the 60:40 Rule persists

to this day, with some calling for its abrogation in light of current economic
necessities………………………………………………………………………………5

II. ALIENS BEWARE – The jurisprudential concepts interpreting Article XII,

Section 11 became stricter on foreign equity participation…………………………………9

A. CORPORATE CITIZENS? – The Supreme Court, citing an SEC

decision, affirmed the Grandfather Rule over the Control Test, to
determine the nationality of corporations under Art. XII, Sec. 11 ………………..12

Redmont Consolidated Mines Corporation vs.

McArthur Mining Corporation., et al…………………………………………14.

In the Matter of the Corporate Rehabilitation of

Bayan Telecommunications Inc……………………………………………...16

B. CAPITAL CONTROL – The Supreme Court held that the word “Capital”
in Art. XII, Sec. 11 referred to shares of stock entitled to vote for directors…….17

Gamboa v. Teves (2011)……………………………………………………..17

Gamboa v Teves (2012)………………………………………………………19

The obiter dicta: The Court made a statement that the 60:40 Rule
should be applied to all classes of shares, voting or non-voting…………20

SEC Memorandum Circular No. 8, Series of 2013: The SEC

applied the 60:40 Rule to both the stocks entitled to vote,
and the total number of stocks, whether entitled to vote or not…………..21

Aftermath: Despite stricter jurisprudence, the application by

the SEC allowed non-compliant public utilities to maintain
their status quo…………………………………………………………………21
III. LEGAL CREATIVITY AND ECONOMIC INGENUITY – The amorphous
concept of what is a public utility provides a space for allowing foreign equity
participation without breaking the spirit of Art. XII, Sec. ……………………………..……23

A. PUBLIC UTILITY – The definition of public utility changes according

to law and jurisprudence, as long as the public use and non-exclusive
service are present……………………………………………………………….……24

The Electric Power Industry Reform Act of 2001………………………………24

B. OWNERSHIP AND OPERATION – The Supreme Court differentiated

between owning the assets and materials of a public utility,
from the operation of that public utility………………………………………………26

Tatad v Garcia……………………………………………………………………..27

IV. CONCLUSION: ON OUR OWN TWO FEET – While the 60:40 Rule has
the noble goal of securing competent and independent public services,
enshrining the Rule in the Constitution hinders the ability of Congress
to adapt to the economic necessities of the times………………………………………...29
FOREIGN EQUITY RESTRICTIONS
ON PUBLIC UTILITIES
DEVELOPMENTS IN LAW
AND JURISPRUDENCE

Raymond A. Panotes
30 April 2015

In Partial Fulfillment of the

Supervised Legal Research Program

Submitted to
Dean Raul C. Pangalangan