Held
No, ChenYang Electric Distribution Company cannot own 100% of a corporation engaged in the distribution of electricity in Mindanao because distribution of electricity is a public utility, and under Article XII, Section 11 of the 1987 Constitution, at least 60% of the capital of such a corporation must be owned by Filipino citizens.
Explanation
The 1987 Constitution restricts ownership of public utilities to Filipino citizens or corporations at least 60% owned by Filipinos. A public utility is a business that offers services essential to the public, such as electricity distribution. The Electric Power Industry Reform Act of 2001 explicitly states that distribution of electricity is a regulated common carrier business requiring a franchise, which is a form of authorization for a public utility. Therefore, a corporation engaged in electricity distribution is considered a public utility under the Constitution.
Foreign ownership in domestic market enterprises can be up to 100% unless restricted by the Constitution or other laws. Since distribution of electricity is a public utility, it is subject to the constitutional restriction requiring at least 60% Filipino ownership. The Electric Power Industry Reform Act confirms that franchises for electricity distribution are granted exclusively by Congress, reinforcing the constitutional limitation.
Application to the facts
ChenYang Electric Distribution Company, being a foreign corporation, wants to incorporate a corporation in the Philippines to engage in electricity distribution in Mindanao. Since electricity distribution is a public utility, the corporation must comply with the constitutional requirement that at least 60% of its capital stock be owned by Filipino citizens. ChenYang's claim that it can own 100% because it is not a public utility is incorrect because the law explicitly classifies electricity distribution as a public utility business requiring a franchise.
Therefore, ChenYang cannot own 100% of the corporation; it must limit its ownership to 40%, with at least 60% owned by Filipino citizens, to comply with the constitutional and statutory requirements.
- a constitutional provision is among the sources and controls over any conflicting statute
"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 associations organized under the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or repeal by the Congress when the common good so requires.…
"The distribution of electricity to end-users shall be a regulated common carrier business requiring a franchise. Distribution of electric power to all end-users may be undertaken by private distribution utilities, cooperatives, local government units presently undertaking this function and other duly authorized entities, subject to regulation by the ERC."
"The power to grant franchises to persons engaged in the transmission and distribution of electricity shall be vested exclusively in the Congress of the Philippines..."
"Non-Philippine nationals may own up to one hundred percent (100%) of domestic market enterprises unless foreign ownership therein is prohibited or limited by the Constitution and existing law or the Foreign Investment Negative List under Section 8 hereof."
Laws retrieved
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- Section 11, The 1987 Constitution of the Republic of the Philippines
- Section 22, Electric Power Industry Reform Act of 2001
- Section 27, Electric Power Industry Reform Act of 2001
- Section 2, Foreign Investments Act of 1991
- Section 7, Foreign Investments Act of 1991
- Section 3, Foreign Investments Act of 1991
- Section 43, Electric Power Industry Reform Act of 2001
- Section 28, Electric Power Industry Reform Act of 2001
Cases retrieved
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