Philippines: Department of Justice Rules: Solar, Wind, Hydro and Ocean or Tidal Energy should NOT be Subject to Forty Percent (40%) Foreign Equity Restrictions

DFDL Philippines

30th November 2022

In an opinion addressed to the Department of Energy, the Department of Justice stated that the exploration, development, and utilization of solar, wind, hydro and ocean or tidal energy should not be subject to forty percent (40%) foreign equity limitation under Section of 2 Article XII of the Constitution.

Solar, wind, hydro and ocean or tidal energy should NOT be subject to forty percent (40%) foreign equity limitation under the Constitution

In an opinion addressed to the Department of Energy (“DOE”), the Department of Justice (“DOJ”) stated that the exploration, development, and utilization of solar, wind, hydro and ocean or tidal energy should not be subject to forty percent (40%) foreign equity limitation under Section of 2 Article XII of the Constitution.

Section 2 Article XII of the Constitution states that: “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. XXX 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. XXX.”

The DOJ stated that solar, wind, hydro, and ocean or tidal energy sources are beyond the ambit of the term “natural resources” in the Constitution. The reason imposing the foreign equity limitation in the exploration, development, and utilization of natural resources i.e., fear of depletion of the natural resources by foreigners, was determined as not applicable to renewable energy sources that are inexhaustible. Further, the DOJ opined that the renewable energy sources such as those from solar, wind, hydro and ocean or tides are considered as kinetic energy not covered by the Constitution which covers “potential energy.” The Opinion further stated that “all forces of potential energy” must be understood in its technical sense which excludes kinetic energy. Potential energy is “energy at rest” while kinetic energy is “energy in motion”.

The DOJ, however, qualified its opinion to be subject to the following:

(1) The executive construction, as provided under the implementing rules and regulations of the Renewable Energy Act, that solar, wind, hydro and ocean or tidal energy is subject to forty percent (40%) foreign equity limitation, would remain, unless amended; and

(2) The Water Code and jurisprudence limiting to Filipino citizens or juridical person the appropriation of waters, direct from source, for power generation shall continue to prevail, unless repealed or reversed.

The information provided here is for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.

Contact

Cristina Suralvo

Partner, Ocampo & Suralvo Law Offices
csuralvo@ocamposuralvo.com
www.ocamposuralvo.com

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Philippines

For Philippine legal and tax matters, DFDL collaborates with Philippine law firm Ocampo & Suralvo Law Offices firm (OS Law).

OS Law is comprised of Philippine attorneys with outstanding academic and professional backgrounds and decades of legal, government, and regulatory experience. They are skilled industry advisers, having worked at top Philippine law firms and professional service firms where they have been involved in significant transactions and dealt with foreign clients acquiring, managing, or divesting Philippine investments. The power and energy sector is a key focus for OS Law as it builds on its partners’ experience with the industry in previous professional capacities.

OS Law assists in all aspects of Philippine general corporate and commercial legal practice across the spectrum of clients’ business concerns including mergers, acquisitions, joint ventures, corporate restructuring, foreign direct investments, and taxation.

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