The Philippines opens its doors to foreign investors for its renewable energy projects.

The Department of Energy promulgated Department Circular 2022-11-0034, which amended Section 19 of the implementing rules and regulations of Republic Act 9513 or the Renewable Energy or RE Law. The amendment allowed foreign citizens or foreign-owned entities to engage in the exploration, development, and utilization of the country's RE resources, such as solar, wind, biomass, ocean, or tidal energy. The DoE Circular was signed by Energy Secretary Raphael Lotilla on 15 November 2022.

The promulgation of the DoE circular follows the opinion issued by the Department of Justice on 29 September 2022. In the opinion, the DoJ stated that the 40 percent foreign equity restriction on EDU of natural resources under Section 2, Article XII of the Constitution does not apply to RE projects. However, the DoJ stated that Section 19 of the IRR should be amended by the DoE to conform to the opinion.

In its opinion, the DoJ noted that "natural resources" referred to in Section 2, Article XII of the Constitution is not all-embracing as to include all forms and manner of natural resources. First, the term covers properties that are within the state's power of dominium pursuant to the Regalian Doctrine, such as lands, fisheries, forests, and wildlife. These properties are all susceptible to appropriation.

The DoJ stated that RE sources are not covered by the constitutional restriction on foreign equity. The term "natural resources" could not include the sun, the wind or the ocean as they are not subject to appropriation. Citing the debates of the Constitutional Commission for the 1987 Constitution, the DoJ noted that the compelling reason behind the imposition of a limit to foreign participation in the EDU of natural resources is the fear of depletion of the country's exhaustible resources by foreigners. This finds no application to inexhaustible RE sources. Further, the framers of the Constitution could not have contemplated such energy sources since they were still in their embryonic stage of development at that time, if at all. The change of circumstances with the advent of new technology and processes magnifies the inapplicability of the limitations under the Constitution with respect to such energy sources.

Secondly, the term also covers only potential energy, and excludes kinetic energy. Potential energy is commonly referred to as "energy relative to its position in a given system," or "energy at rest." In contrast, kinetic energy is the "energy possessed by an object, resulting from the motion of that object," or simply put, "energy in motion." RE sources, such as solar, wind, hydro and ocean or tidal energy sources, are considered kinetic energy sources. Thus, it is considered as "natural resources" subject to the foreign equity restriction under the Constitution.

However, foreign equity restriction on the appropriation of waters, direct from the source, for power generation, shall continue to be in force pursuant to the Water Code and jurisprudence.

DoE Secretary Lotilla said that the DoE has been receiving an impressive amount of interest from both local and foreign investors in RE development. With the relaxation of the foreign equity restrictions in the RE sector, the DoE expects an increase in investments in the RE sector, which would contribute to the economy, provide jobs, and help meet the goal of increasing the RE in power generation. The amendment is also consistent with the statement made by President Ferdinand Marcos Jr. to push the transition to renewable energy in his last State of the Nation Address.

***

For more of Dean Nilo Divina's legal tidbits, please visit www.divinalaw.com. For comments and questions, please send an email to cabdo@divinalaw.com.