PD 198 (Revised 2010) Provincial Water Utilities Act

amended pd 198 and other related issuances

2

table of contentstable of contentstable of contentstable of contentstable of contentsSECTION 1

Presidential Decree No. 198 4Local Water District Law 7Local Water Utilities 1 7Administration Law

SECTION 2Presidential Decree No. 768 2 6

SECTION 3Letter of Instructions No. 683 37


SECTION 5Presidential Decree No.1479 41


SECTION 7Executive Order No. 68 46

SECTION 8Supreme Court Ruling on Water 47Districts as Government Ownedand Controlled Corporations


SECTION 10Republic Act No. 9286 65

SECTION 11Executive Order No. 279 67Implementing Rules & Regulationsof Executive Order No. 279



SECTION 14Department of Justice Ruling 91on Water District Tax Exemption



3

amended presidential decree no. 198and other related issuances

Note: For the user’s guidance, all amendments in this new edition of PresidentialDecree No. 198 manual are printed in gray.


4

sectionsectionsectionsectionsection 1

MALACAŃANGMANILA

PRESIDENTIAL DECREE NO. 198(As amended by Presidential Decree Nos. 768 and 1479, R.A. 9286)

DECLARING A NATIONAL POLICY FAVORING LOCAL OPERATION AND

CONTROL OF WATER SYSTEMS; AUTHORIZING THE FORMATION OF LOCAL

WATER DISTRICTS AND PROVIDING FOR THE GOVERNMENT AND

ADMINISTRATION OF SUCH DISTRICTS; CHARTERING A NATIONAL

ADMINISTRATION TO FACILITATE IMPROVEMENT OF LOCAL WATER

UTILITIES; GRANTING SAID ADMINISTRATION SUCH POWERS AS ARE

NECESSARY TO OPTIMIZE PUBLIC SERVICE FROM WATER UTILITY

OPERATIONS, AND FOR OTHER PURPOSES:


5

RARARARARATIONALETIONALETIONALETIONALETIONALE

TITLE ITITLE ITITLE ITITLE ITITLE I

PRELIMINARY PROVISIONS

WHEREAS, one of the pre-requisites tothe orderly and well-balanced growth orurban areas is an effective system of localutilities, the absence of which is recognizedas a deterrent to economic growth, a hazardto public health and an irritant to the spiritand well-being of the citizenry;

WHEREAS, domestic water systems andsanitary sewers are two of the most basicand essential elements of local utility systems,which, with a few exceptions, do not exist inprovincial areas in the Philippines;

WHEREAS, existing domestic waterutilities are not meeting the needs of thecommunities they serve; water quality isunsatisfactory; pressure is inadequate; andreliability of service is poor, in fact, manypersons receive no piped water servicewhatsoever;

WHEREAS, conditions of service continueto worsen for two (2) apparent reasons,namely: (1) that key elements of existingsystems are deteriorating faster than they arebeing maintained or replaced, and (2) that theyare not being expanded at a rate sufficient tomatch population growth; and

WHEREAS, local water utilities shouldbe locally-controlled and managed, as well ashave support on the national level in the areaof technical advisory services and financing;

NOW, THEREFORE, I, FERDINAND E.MARCOS, President of the Philippines, by virtueof the powers vested in me by theConstitution, as Commander-in-Chief of allthe Armed Forces of the Philippines, andpursuant to Proclamation No. 1081 datedSeptember 21, 1972 and General Order No. 1dated September 22, 1972, as amended, do

hereby decree, order and make as part of thelaw of the land the following measure:

SECTION 1. Title. - This Decree shall beknown and referred to as the “Provincial WaterUtilities Act of 1973”.

SEC. 2. Declaration of Policy. - Thecreation, operation, maintenance andexpansion of reliable and economically viableand sound water supply and wastewaterdisposal systems for population centers ofthe Philippines is hereby declared to be anobjective of national policy of high priority.For purposes of achieving said objectives, theformulation and operation of independent,locally controlled public water districts isfound and declared to be the most feasibleand favored institutional structure. To thisend, it is hereby declared to be in the nationalinterest that said district be formed and thatlocal water supply and wastewater disposalsystems to be operated by and through suchdistricts to the greatest extent practicable. Toencourage the formulation of such local waterdistricts and the transfer thereto of existingwater supply and wastewater disposalfacilities, this Decree provides by general actthe authority for the formation thereof, on alocal option basis. It is likewise declaredappropriate, necessary and advisable that allfunding requirement for such local watersystems, other than those provided by localrevenues, should be channeled through andadministered by an institution on the nationallevel, which institution shall be responsiblefor and have authority to promulgate and


6

enforce certain rules and regulations to achievenational goals and the objective of providingpublic waterworks services to the greatestnumber at least cost, to offset systemintegration or joint investments andoperations whenever economically warrantedand to assure the maintenance of uniformstandards, training of personnel and theadoption of sound operating and accountingprocedures.

SEC. 3. Definitions. - As used in thisDecree, the following words and terms shallhave the meanings herein set forth, unless adifferent meaning clearly appears from thecontext. The definition of a word or termapplies to any of its variants.

(a) Act. - This Provincial Water UtilitiesAct of 1973.

(b) Appointing Authority. - The personempowered to appoint the members of theBoard of Directors of a local water districtdepending upon the geographic coverage andpopulation make-up of the particular district.In the event that more than seventy-five percentof the total active water service connectionsof a local water district are within theboundary of any city or municipality, theappointing authority shall be the mayor ofthat city or municipality, as the case may be;otherwise, the appointing authority shall bethe governor of the province within which thedistrict is located: Provided, That if the existingwaterworks system in the city or municipalityestablished as a water district under thisDecree is operated and managed by theprovince, initial appointment shall be extendedby the governor of the province. Subsequentappointments shall be as specified herein.

If portions of more than one province areincluded within the boundary of the district,and the appointing authority is to be the

governor, then the power to appoint shallrotate between the governors involved withthe initial appointments made by the governorin whose province the greatest number ofservice connections exists. (As amended bySec. 1, PD 768)

(c) Administration - The Local WaterUtilities Administration chartered in Title IIIof this Decree.

(d) NEDA. - The National Economicand Development Authority. (Note: Thisparagraph should properly have been deleted).

(e) Board or Board of Directors. - Theboard of directors of a district.

(f) Contracts. - All agreements,including leases, conveyances and obligations.

(g) District. - A local water districtformed pursuant to Title II of this Act.

(h) Local Water Utility. - Any district,city, municipality, province, investor-ownedpublic utility or cooperative corporation whichowns or operates a water system serving anurban center in the Philippines, except thatsaid term shall not include the MetropolitanWaterworks and Sewerage System (MWSS)or any system operated by the Bureau ofPublic Works as successor to the Wells andSprings Department of the NationalWaterworks and Sewerage Authority.

(i) Person. - A natural person,corporation, cooperative, partnership,association, city, municipality or otherjuridical entity.

(j) Property. - All real and personalproperty, including but not limited to: water,water rights, works, easements, rights of way.

(k) Street. - Includes road, valley,avenue, highway or other public way.

(l) Trustees or Board of Trustees. -The Board of Trustees of the Administration.


7

TITLE IITITLE IITITLE IITITLE IITITLE II

LOCAL WATER DISTRICT LAW

CHAPTER I – TitleSEC. 4. Title. – The provisions of this

Title shall be known and referred to as the“Local Water District Law.”

CHAPTER II – Purpose and FormationSEC. 5. Purpose. - Local water districts

may be formed pursuant to this Title for thepurpose of (a) acquiring, installing, improving,maintaining and operating water supply anddistribution systems for domestic, industrial,municipal and agricultural uses for residentsand lands within the boundaries of suchdistricts, (b) providing, maintaining andoperating wastewater collection, treatmentand disposal facilities, and (c) conducting suchother functions and operations incidental towater resource development, utilization anddisposal within such districts, as are necessaryor incidental to said purpose.

SEC. 6. Formation of District. - ThisAct is the source of authorization and powerto form and maintain a district. For purposesof this Act, a district shall be considered as aquasi-public corporation performing publicservice and supplying public wants. As such,a district shall exercise the powers, rights andprivileges given to private corporations underexisting laws, in addition to the powersgranted in, and subject to such restrictionsimposed, under this Act. To form a district,the legislative body of any city, municipalityor province shall enact a resolution containingthe following: (As amended by Sec. 1, PD 1479)

(a) the name of the local water district,which shall include the name of the city,municipality, or province, or region thereof,

served by said system, followed by the words“Water District”.

(b) A description of the boundary of thedistrict. In the case of a city or municipality,such boundary may include all lands withinthe city or municipality. A district may includeone or more municipalities, cities or provinces,or portions thereof: Provided, That suchmunicipalities, cities or provinces, or portionsthereof, cover a contiguous area. (As amendedby Sec. 2, PD 768)

(c) A statement completely transferringany and all waterworks and/or seweragefacilities managed, operated by or under thecontrol of such city, municipality or provinceto such district upon the filing of resolutionforming the district. (As amended by Sec. 2,PD 768; Sec. 1, PD 1479).

(d) A statement identifying the purposefor which the district is formed, which shallinclude those purposes outlined in Section 5above.

(e) The names of the initial directors ofthe district with the date of expiration of theterm of office for each which shall be on the31st of December of first, second, or thirdeven-numbered year after assuming office, asset forth in Section 11 hereof. (As amended bySec. 2, PD 768)

(f) A statement that the district may onlybe dissolved on the grounds and under theconditions set forth in Section 45 of this Title.

(g) A statement acknowledging thepowers, rights and obligations as set forth inSection 36 of this Title.

Nothing in the resolution of formationshall state or infer that the local legislativebody has the power to dissolve, alter or affectthe district beyond that specifically providedfor in this Act.

If two or more cities, municipalities or


8

provinces, or any combination thereof, desireto form a single district, a similar resolutionshall be adopted in each city, municipalityand province; or the city, municipality orprovince in which 75% of the total activeservice connections are situated shall pass aninitial resolution to be concurred in by theother cities, municipalities or provinces. (Asamended by Sec. 2, PD 768)

SEC. 7. Filing of Resolution. - A certifiedcopy of the resolution or resolutions forminga district shall be forwarded to the office ofthe Secretary of the Administration. If foundby the Administration to conform to therequirements of Section 6 and the policyobjectives in Section 2, the resolution shall beduly filed. The district shall be deemed dulyformed and existing upon the date of suchfiling. A certified copy of said resolutionshowing the filing stamp of the Administrationshall be maintained in the office of the district.Upon such filing, the local government orgovernments concerned shall lose ownership,supervision and control or any rightwhatsoever over the district except as providedherein. (As amended by Sec. 3, PD 768)

CHAPTER III - DirectorsSEC. 8. Number and Qualifications. -

The Board of Directors of a district shall becomposed of five citizens of the Philippineswho are of voting age and residents withinthe district. One member shall be arepresentative of civic-oriented service clubs,one member a representative of professionalassociations, one member a representative ofbusiness, commercial, or financialorganizations, one member a representativeof educational institutions and one member arepresentative of women’s organizations. Nopublic officials shall serve as director.

Provided, however, that if the district hasavailed of the financial assistance of theAdministration, the Administration mayappoint any of its personnel to sit in the boardof directors with all the rights and privilegesappertaining to a regular member, for suchperiod as the indebtedness remains unpaid, inwhich case the board shall be composed ofsix members. (As amended by Sec. 4, PD 768;Sec. 2, PD 1479)

SEC. 9. Appointment. - Board membersshall be appointed by the appointingauthority. Said appointments shall be madefrom a list of nominees, if any, submittedpursuant to Section 10. If no nominations aresubmitted, the appointing authority shallappoint any qualified person of the categoryto the vacant position.

SEC. 10. Nominations. - On or beforeOctober 1 of each even-numbered year, thesecretary of the district shall contact eachknown organization, association, orinstitution being represented by the directorwhose term will expire on December 31 andsolicit nominations from these organizationsto fill the position for the ensuing term. Onenomination may be submitted in writing byeach such organization to the secretary of thedistrict on or before November 1 of such year.This list of nominees shall be transmitted bythe Secretary of the district to the office ofthe appointing authority on or beforeNovember 15 of such year and he shall makehis appointment from the list submitted on orbefore December 15. In the event theappointing authority fails to make hisappointments on or before December 15,selection shall be made from said list ofnominees by majority vote of the seateddirectors of the district constituting a quorum.Initial nominations for all five seats of the


9

board shall be solicited by the legislative bodyor bodies at the time of adoption of theresolution forming the district. Thirty daysthereafter, a list of nominees shall besubmitted to the provincial governor in theevent the resolution forming the district is bya provincial board, or the mayor of the city ormunicipality in the event the resolutionforming the adoption of the district is by thecity or municipal board of councilors, whoshall select the initial directors therefromwithin 15 days after receipt of suchnominations.

SEC. 11. Term of Office. - Of the fiveinitial directors of each newly-formed district,two shall be appointed for a maximum termof two years, two for a maximum term offour years, and one for a maximum term ofsix years. Terms of office of all directors in agiven district shall be such that the term of atleast one director, but not more than two,shall expire on December 31 of each even-numbered year. Regular terms of office afterinitial terms shall be for six years commencingon January 1 of odd-numbered years.Directors may be removed for cause only,subject to review and approval of theAdministration. (As amended by Sec. 5, PD768)

SEC. 12. Vacancies. - In the event of avacancy in the board of directors occurringmore than six months before expiration of anydirector’s term, the remaining directors shall,within 30 days, serve notice or request thesecretary of the district for nominations andwithin 30 days thereafter a list of nomineesshall be submitted to the appointing authorityfor his appointment of a replacement directorfrom the list of nominees. In the absence ofsuch nominations, the appointing authorityshall make such appointment. If within 30

days after submission to him of a list ofnominees the appointing authority fails tomake an appointment, the vacancy shall befilled from such list by a majority vote of theremaining members of the Board of Directorsconstituting a quorum. Vacancies occurringwithin the last six months of an unexpiredterm shall also be filled by the Board in theabove manner. The director thus appointedshall serve the unexpired term only. (Asamended by Sec. 6, PD 768)

SEC. 13. Compensation. - Each directorshall receive a per diem to be determined bythe Board, for each meeting of the Boardactually attended by him, but no director shallreceive per diems in any given month in excessof the equivalent of the total per diem of fourmeetings in any given month.

Any per diem in excess of One hundredfifty pesos (P150.00) shall be subject to theapproval of the Administration. In additionthereto, each director shall receive allowancesand benefits as the Board may prescribesubject to the approval of the Administration.(As amended by Sec. 7, PD 768; R.A. 9286)

SEC. 14. Personal Liability. – Nodirector may be held to be personally liablefor any action of the district.

CHAPTER IV – The BoardSEC. 15. Organizational Meeting. - The

board shall hold its first meeting as soon aspracticable after appointment of the firstdirectors, and not later than 45 days afterformation of the district. At said first meetingof the district board, and thereafter at thefirst meeting of each odd-numbered year, theboard shall elect a chairman, a vice chairman,a secretary and a treasurer. Such secretaryand treasurer may, but need not be membersof the board, and the offices of secretary and


10

treasurer may be held by the same person.SEC. 16. Quorum. - A majority of the

board present in person shall constitute aquorum for the transaction of business;Provided, however, That no resolution ormotion shall be adopted or become effectivewithout the affirmative vote of a majority ofthe authorized number of members of theboard.

CHAPTER V – Powers and Duties of BoardSEC. 17. Performance of District

Powers. - All powers, privileges, and dutiesof the district shall be exercised and performedby and through the board: Provided, however,That any executive, administrative orministerial power shall be delegated andredelegated by the board to officers or agentsdesignated for such purpose by the board.

SEC. 18. Functions Limited to Policy-Making. - The function of the board shall beto establish policy. The board shall not engagein the detailed management of the district.

SEC. 19. By-Laws. - At its first meeting,the board shall adopt, and may thereafterfrom time to time amend by-laws for theoperation of business and affairs of the boardand the district. By-Laws may not be amendedwithout 30 days public notice to that effect,and a public hearing held.

SEC. 20. System of BusinessAdministration. - The Board shall, as soonas practicable, prescribe and define byresolution a system of business administrationand accounting for the district, which shallbe patterned upon and conform to thestandards established by the Administration.Auditing shall be performed by a certifiedpublic accountant not in the governmentservice. The Administration may, however,conduct annual audits of the fiscal operations

of the district to be performed by an auditorretained by the Administration. Expensesincurred in connection therewith shall be borneequally by the water district concerned andthe Administration. (As amended by Sec. 8,PD 768)

SEC. 21. Depository. - The district’sdepository shall be the Philippine NationalBank, unless use of such bank is impractical:Provided, however, That any and all reservesaccumulated for capital improvements maybe deposited with the Administration.

SEC. 22. Contracts. - All contracts ofthe district shall be entered into by or pursuantto authority of the board: Provided, however,That the board may be resolution delegateand redelegate to officers or agents of thedistricts, under such conditions andrestrictions as shall be fixed by the board, thepower to bind the district by contract.

CHAPTER VI- Officers and EmployeesSEC. 23. The General Manager. -

At the first meeting of the Board, or as soonthereafter as practicable, the Board shallappoint, by a majority vote, a general managerand shall define his duties and fix hiscompensation. Said officer shall not beremoved from office, except for cause and afterdue process. (As amended by Sec. 9, PD 768;R. A. 9286)

SEC. 24. Duties. - The duties of theGeneral Manager and other officers shall bedetermined and specified from time to timeby the board. The general manager, who shallnot be a director, shall have full supervisionand control of the maintenance and operationof water district facilities, with power andauthority to appoint all personnel of thedistrict: Provided, That the appointment ofpersonnel in the supervisory level shall be


11

subject to approval by the board. (As amendedby Sec. 10, PD 768)

CHAPTER VII – Powers of DistrictSEC. 25. Authorization. - The

district may exercise all the powers which areexpressly granted by this Title or which arenecessarily implied from, or incidental to thepowers and purposes herein stated. For thepurpose of carrying out the objectives of thisAct, a district is hereby granted the power ofeminent domain, the exercise thereof shall,however, be subject to review by theAdministration. (As amended by Sec. 4, PD1479)

SEC. 26. Acquisition ofWaterworks. - A district may purchase,construct, or otherwise acquire works, water,water rights, land, rights and privileges usefulor necessary to convey, supply, store, collect,treat, dispose of or make other use of waterfor any purpose authorized by this Title. Inthe acquisition of water or water rights thedistrict shall cooperate with existing agenciesof the government of the Philippines. (Asamended by Sec. 5, PD 1479)

SEC. 27. Sale of Water. - The districtshall have the power to sell water, pursuantto generally applicable rules and regulations,to any person for use within the district. As acondition of such sale, the district may requirethe filing of a written application for service,payment of established charges or depositsand execution of a water service contract.

A district may provide service to publicfaucets or hydrants provided that it shall firsthave executed an application and servicecontract with the Government entity toestablish or maintain such faucets or hydrantswithin the district. The district will be paidfor such service in the same manner as regular

domestic service and pursuant to the adoptedrules and regulations of the district.

Any district holding a valid Certificateof Conformance or a Conditional Certificateof Conformance from the Administration shallbe exempt from regulation by the PublicService Commission or its successor. (Asamended by Sec. 5, PD 1479)

SEC. 28. Sewerage. – A district mayrequire, construct, operate and furnishfacilities and services, within or without thedistrict, for the collection, treatment anddisposal of sewerage, waste, and storm water.The district may only furnish such servicesoutside the district by means of facilitiesdesigned primarily to serve inside the district.Upon providing a sewer system in any area ofthe district, the district may require allbuildings used by human beings to beconnected to the sewer system within suchreasonable time as may be prescribed by thedistrict, provided that the property uponwhich such building to be connected stands islocated within 35 meters of an existing mainof the district’s sewer system. After due noticethereof and refusal on the part of the propertyowner to so connect with the district’s sewersystem, the district may declare the furthermaintenance or use of cesspools, septic tanks,or other local means of sewerage disposal insuch area to be a public nuisance and, afternotice in writing of at least 10 days, deprivesaid property owner of any and all servicesprovided by the district, which sanction maybe co-extensive with the period during whichthe property owner persists in refusing toconnect with the district’s sewer system. (Asamended by Sec. 5, PD 1479)

SEC. 29. Rights of Way. - The rightof way is hereby granted to locate, constructand maintain works of the district on any


12

land which is now, or hereafter may be, ownedby the Government of the Philippines or byany of its political subdivisions, and/orinstrumentalities. A district may constructany works along, under or across any street,watercourse, railway, or conduit in any mannerwhich will afford security for life and property:Provided, That in planning any such works,the environmental aspects shall also beconsidered. (As amended by Sec. 5, PD 1479)

SEC. 30. Contracts. - A district shallhave the power to enter into contracts withany person for the purpose of performing anyfunctions of the district: Provided, That theBoard of Directors may not by contractdelegate any of the discretionary powersvested in the board by this Title. Specifically,but without limiting said general power, adistrict may enter into the following contracts:

(a ) Cooperation. - Agreement withthe Government of the Philippines or any ofits agencies or political subdivisions for thecooperative or joint performance of anyfunction of the district.

(b ) In-Lieu Share. – As an incident tothe acquisition of the existing water systemof a city, municipality, or province, a districtmay enter into a contract to pay in-lieu sharefor such utility plant, an annual amount notexceeding three percent (3%) of the district’sgross receipts from water sales in any year:Provided, however, That no contract of thisnature shall be executed during the first fiveyears of the existence of the district; andProvided, further, That the Board of Directorsshall determine that such contract will notadversely affect or impair the fiscal positionand operations of the district as verified bythe Administration. (As amended by Sec. 11,PD 768; Sec. 5, PD 1479)

(c) MWSS Agreement. - In the event

the city, municipality or province has notreached agreement with the MetropolitanWaterworks and Sewerage System pursuantto Section 15 and 17 of R. A. 6234, a districtmay, with the consent of the local government,act for and in behalf of the local interests innegotiating and executing such contract forfinal settlement of the consequences ofMWSS involvement in the operation of thewater system.

SEC. 31. Protection of Watersand Facilities of District. - A districtshall have the right to:

(a) Commence, maintain, intervene in,defend and compromise actions or proceedingsto prevent interference with or deteriorationof water quality or the natural flow of anysurface, stream or ground water supply whichmay be used or useful for any purpose of thedistrict or be a common benefit to the landsor its inhabitants. The ground water within adistrict is necessary to the performance of thedistrict’s powers and such district is herebyauthorized to adopt rules and regulationssubject to the approval of the National WaterResources Council governing the drilling,maintenance and operation of wells withinits boundaries for purposes other than a singlefamily domestic use on overlying land. Anywell operated in violation of such regulationsshall be deemed in interference with the watersof the district.

(b) Require a developer or builder of anystructure within the service areas of the districtto extend or connect its pipeline facilities tothe district facilities whenever suchdevelopment or structure is within one hundredmeters of existing district facilities orwhenever the district is willing to extend itsfacilities within one hundred meters of saiddevelopment or structure. For the purpose of


13

this section, development shall include thesubdivision of land for any purpose other thanagricultural purpose, and structure shall meanany building or facility to be used forresidential, commercial or industrial purposes.

(c) Prohibit any person, firm orcorporation from vending, selling, or otherwisedisposing of water for public purposes withinthe service area of the district where districtfacilities are available to provide such service,or fix terms and conditions by permit for suchsale or disposition of water.

(d) Safeguard and protect the use of itswaters. For this purpose, any person whoinstalls any water connection without theprevious authority from the water districtestablished under this Decree; tampers watermeters or uses jumpers or other deviceswhereby water is stolen; steals or pilfers wateror water meters; knowingly possesses stolenor pilfered water or water meters shall, uponconviction, be punished by prision correccionalin its minimum period or a fine ranging fromtwo thousand pesos to six thousand pesos, orboth. If the violation is committed with theconnivance or permission of an employee orofficer of the water district, an employee orofficer shall, upon conviction, be punished bya penalty one degree lower than prisioncorreccional in its minimum period andforthwith be dismissed and perpetuallydisqualified from employment in any utilityor service company owned or controlled bythe government. (As amended by Sec. 12, PD768)

(e) Take over the management,administration, operation and maintenanceof all watersheds within its territorialboundaries. (As amended by Sec. 6, PD 1479)

SEC. 32. Fire Protection Capacity.- The district may install and maintain pipeline

capacity and additional hydrants for fireprotection purposes: Provided, That prioragreement has been executed with the publicentity having principal fire protectionresponsibility within the district whereby thedistrict will be reimbursed over the reasonablelife of said facilities for the cost of installationand operation of such fire protection capacityand facilities. (As amended by Sec. 7, PD 1479)

CHAPTER VIII – Financial ProvisionsSEC. 33. Receipt, Deposit and

Payment of District Funds. - Thetreasurer shall receive, to the credit of thedistrict and in trust for its use and benefit, allmonies belonging to the district. All moniesbelonging to the District shall, wherepracticable, be deposited by the treasurer inthe Philippine National Bank. (As amendedby Sec. 13, PD 768; Sec. 7, PD 1479)

SEC. 34. Bonds or Other Evidenceof Indebtedness. - A district may borrowmoney to raise funds to pay all cost of anypublic improvements authorized by this Titleand may issue negotiable or non-negotiablebonds, promissory notes or other evidence ofindebtedness to support such borrowings.These obligations may be secured by amortgage, pledge, deed of trust of or any otherencumbrance upon any of its then owned orafter-acquired real or personal property, assetsor revenues and the same shall constitute alien as to the principal and interest thereon,on all such property, assets or revenues. Theinterests on such bonds or notes are exemptfrom all taxes, duties, fees, imposts, or othercharges of the national or local governments.(As amended by Sec. 14 and 15, PD 768; Sec.7, PD 1479)

SEC. 35. Authority for SubsequentBorrowings. - Where a water district has


14

borrowed money from the Administration, thedistrict shall not borrow money or incurfurther obligations from other sources withoutthe prior written consent of theAdministration. (As amended by 16, PD 768;Sec. 7, PD 1479)

SEC. 36. Default. - In the event ofthe default by the district in the payment ofprincipal or interest on its outstanding bondsor other obligations, any bondholder orcreditor shall have the right to bring an actionbefore the appropriate court to compel thepayment of such obligation. If the bondholderor creditor concerned is the Administration, itmay, without the necessity of judicial process,take over and operate the entire facilities,systems or properties of the district. For thepurpose, the Administration may designateits employees or any person or organizationto assume all powers of policy-decision andthe powers of management andadministration, including but not limited tothe establishment of water rates and charges,the dismissal and hiring of personnel, thepurchase of supplies, equipment and materialsand such other actions as may be necessaryto operate the utility efficiently. (As amendedby 16, PD 768; Sec. 7, PD 1479)

CHAPTER IX - RevenuesSEC. 37. Rates and Charges. -

Water. - A district may sell water under itscontrol, under schedules of rates and chargesas may be determined by the Board, to anyand all water users within the district. Saidschedule may provide for differential rates fordifferent categories of use and differentquantity blocks. The district, as far aspracticable, shall fix such rates and chargesfor water as will result in revenues which will:

“(a) Provide for reimbursement from all

new water customers for the cost ofinstallation of new services and meters;

“(b) Provide for revenue from all waterdeliveries and services performed by thedistrict;

“(c) Pay the operating expenses of thedistrict;

“(d) Provide for the maintenance andrepairs of the works;

“(e) Provide a reasonable surplus forreplacement, extension and improvements; and

“(f) Pay the interest and principal andprovide a sinking fund for the payment ofdebts of the district as they become due andestablish a fund for reasonable reserves. (Asamended by Sec. 17, PD 768; Sec. 7, PD 1479)

SEC. 38. Service and Stand-byCharges – Sewer. - A district may prescribeand collect rates and other charges for sewerservices furnished. A district may also fix,levy and collect a sewerage and wastewaterservice stand-by or availability charge in theevent sewer service is available and noconnection is made. Such rates and chargesmay be collected with the water charges ofthe district. In the event of failure to pay thewhole or any part thereof, district maydiscontinue any and all services for whichsuch bill is rendered, including water, shallnot be construed to prohibit the district fromcollecting rates and other charges in any otherlawful manner. (As amended by Sec. 18, PD768; Sec. 7, PD 1479)

SEC. 39. Production Assessment.- In the event the board of a district finds,after notice and hearing, that production ofgroundwater by other entities within thedistrict for commercial or industrial uses ininjuring or reducing the district’s financialcondition, the board may adopt and levy agroundwater production assessment to


15

compensate for such loss. In connectiontherewith, the district may require necessaryreports by the operator of any commercial orindustrial well. Failure to pay said assessmentshall constitute an invasion of the waters ofthe district and shall entitle this district to aninjunction and damages pursuant to Section32 of this Title. (As amended by Sec. 18, PD768; Sec. 7, PD 1479)

SEC. 40. Assessment and Stand-By Charges. - In order to obtain capital tofinance installation of sanitary sewerage, adistrict shall have the power to establish byresolution of the board of directors the areato be benefited from such facilities. After ahearing and upon notice to all parties affected,the district may levy and collect assessment,or stand-by charges based upon availablecapacities or upon selected characteristics ofproperty benefited by said improvements, asdetermined by the board. Said characteristicsmay include, but not limited to, the effectivelength of property fronting upon the proposedimprovement or in terms of the area containedwithin the boundary of said property. Saidassessment, if unpaid, shall be and constitutea lien on the land assessed. (As amended bySec. 18, PD 768; Sec. 7, PD 1479)

SEC. 41. Disposition of Income.The income of the district shall be disposed ofaccording to the following priorities:

“First, to pay its contractual andstatutory obligations and to meet its essentialcurrent operating expenses.

“Second, to allocate at least fifty percent(50%) of the balance exclusively as a reservefor debt service and operating andmaintenance, to be used for such purposesonly during periods of calamities, forcemajeure or unforeseen events.

“Third, to allocate the residue as a reserve

exclusively for expansion and improvement ofits physical facilities. (As amended by Sec. 8,PD 1479)

CHAPTER X - Changes in OrganizationSEC. 42. Exclusion of a Territory.

- Any territory within the boundary of districtmay be excluded by resolution of the board ofdirectors after notice to land owners withinthe territory proposed to be excluded, andupon a finding that said lands do not and willnot benefit by reason of their inclusion withinthe district. A certified copy of said resolutionof exclusion shall be filed in the same mannerand become effective in accordance with theprovisions applicable to the resolution formingthe district. (As amended by Sec. 18, PD 768)

SEC. 43. Annexations andDeannexations. - The Administration may,after notice to property owners within theterritory proposed for annexation ordeannexation, and following a hearing, makefindings of benefit or potential benefit, andthereafter, require annexation or deannexationshall be accomplished by adoption and filingof an appropriate resolution in the samemanner as the filing of the resolution forminga district or of exclusion, as the case may be.(As amended by Sec. 18, PD 768)

SEC. 44. Consolidation and JointOperation. - The Administration may requirethe merger or consolidation of the facilities oroperations of two or more districts formedpursuant to the levy, in the event that theAdministration shall have determined,following a hearing, that such merger orconsolidation is in the best interest of theresidents in the districts involved. (Asamended by Sec. 18, PD 768)

SEC. 45. Dissolution. - A districtmay be dissolved by resolution of its board of


16

directors filed in the manner of filing theresolution forming the district: Provided,however, That prior to the adoption of anysuch resolution: (1) another public entity hasacquired the assets of the district and hasassumed all obligations and liabilitiesattached thereto; (2) all bondholders and othercreditors have been notified and they consentto said transfer and dissolution; and (3) a courtof competent jurisdiction has found that saidtransfer and dissolution are in the best interestof the public. (As amended by Sec. 19, PD768)

CHAPTER XI - Protection to DistrictsSEC. 46. Exemption from Taxes. -

A district shall (1) be exempt from payingincome taxes, and (2) shall be exempt fromthe payment of (a) all National Government,local government and municipal taxes andfees, including any franchise, filing,recordation, license or permit fees or taxesand any fees, charges or costs involved in anycourt of administrative proceeding in which itmay be a party and (b) all duties or impostson imported machinery, equipment andmaterials required for its operations. (Asamended by Sec. 20, PD 768)

*SEC. 47. Exclusive Franchise. -No franchise shall be granted to any otherperson or agency for domestic, industrial orcommercial water service within the districtor any portion thereof unless and except tothe extent that the board of directors of saiddistrict consents thereto by resolution dulyadopted, such resolution, however, shall besubject to review by the Administration. (Asamended by Sec. 20, PD 768; Sec. 9, PD 1479)

* See Metropolitan Cebu Water District vs. Margarita Adala (G.R. No. 168914, July 4, 2007) declaring as unconstitutional Section 47of PD 198, as amended.


17

TITLE IIITITLE IIITITLE IIITITLE IIITITLE III

LOCAL WATER UTILITIESADMINISTRATION LAW

CHAPTER I – TitleSEC. 48. Title. - This Title of the

Provincial Water Utilities Act of 1973 shall beknown and referred to as the “Local WaterUtilities Administration Law”. (As amendedby Sec. 20, PD 768)

CHAPTER II – Charter and Purpose*SEC. 49. Charter. - There is hereby

chartered, created and formed a governmentcorporation to be known as the ‘Local WaterUtilities Administration’ which is herebyattached to the Office of the President. Theprovisions of this Title shall be and constitutethe charter of the Administration. (Asamended by Sec. 21, PD 768)

SEC. 50. Purposes . - TheAdministration shall primarily be a specializedlending institution for the promotion,development and financing of local waterutilities. In the implementation of itsfunctions, the Administration shall, amongothers: (1) prescribe minimum standards andregulations in order to assure acceptablestandards of construction materials andsupplies, maintenance, operation, personneltraining, accounting and fiscal practices forlocal water utilities; (2) furnish technicalassistance and personnel training programsfor local water utilities; (3) monitor andevaluate local water standards; and (4) effectsystem integration, joint investment and

operation, district annexation anddeannexation whenever economicallywarranted. (As amended by Sec. 22, PD 768)

CHAPTER III - Board of TrusteesSEC. 51. Composition. - The Board

of Trustees of the Administration shall becomposed of a chairman and four othermembers, all of whom shall be citizens of thePhilippines.

“One trustee at any time shall have atleast ten years experience in banking, financeor business. One trustee at any time shallpossess sufficient background in the field oreconomics; one trustee at any time shall haveexperience in management or systemsoperations. Two trustees at any time shall becivil or sanitary engineers with experiencerelated to water supply or wastewateroperations. Not more than one trustee mayrepresent a private investor-owned utility. Noelected official shall be entitled to act as atrustee. At least three of the trustees must beemployees of the National Government.

“The General Manager shall be ex-officiomember of the Board. (As amended by Sec.23, PD 768)

SEC. 52. Appointment and Termof Office. - The trustees, with exception ofthe ex-officio member, shall be appointed bythe President of the Philippines. They shallserve a term of five years each: Provided, Thatof the first four initially appointed, one shallserve a term of five years, another for fouryears, the third for three years, and the fourthfor two years. Trustees may be removed forcause only.

The incumbent trustees holding office assuch upon the effectivity of this amendmentshall continue to hold such office until theexpiration of their original terms as defined in

* EO 738 dated July 14, 2008, transferred LWUA from DPWH toDOH, giving DOH administrative supervision over LWUA


18

their appointments. (As amended by Sec. 24,PD 768)

SEC. 53. Vacancies. - Vacancies inthe Board of Trustees for any reasonwhatsoever shall be filled by the President ofthe Philippines in like manner as in the case ofnew appointments but the trustees soappointed shall serve only the unexpiredportion of the term of the trustees substitutedfor. (As amended by Sec. 25, PD 768)

SEC. 54. Powers. - All of the businessand affairs of the Administration shall becarried on and its powers shall be exercisedby and through the Board of Trustees. Thefunction of the trustees, however, shall be toestablish policy, not to engage in the detailedmanagement of the Administration. (Asamended by Sec. 25, PD 768)

SEC. 55. Compensation . - TheTrustees shall each receive a per diem as maybe fixed by the Board for each meeting actuallyattended by them: Provided, That the total ofsuch per diem in any one month for eachTrustee, shall not exceed the equivalent of theper diems for four meetings; Provided, further,That per diems in excess of three hundredpesos per meeting shall be subject to approvalof the Office of the President; and Provided,finally, That, in addition, each Trustee shallbe reimbursed his expenses incurred inconnection with the performance of hisfunctions in such amount as may bedetermined by the Board of Trustees. (Asamended by Sec. 26, PD 768)

CHAPTER IV – By-LawsSEC. 56. By-Laws. - The Board of

Trustees shall adopt a code of by-laws for theconduct of the affairs of the Administrationwhich may be amended from time to time bythe affirmative vote of four Trustees.

Except as otherwise provided herein, theorganizational structure and staffing patternof the Administration, the qualification of theappointive officers and employees, the powersand responsibilities of the officers, the internalprocedure of the Administration, and suchother matters relative to the organization,management and conduct of the affairs ofthe Administration shall be as provided in theby-laws; Provided, That, the appointment ofand disciplinary action against officers andemployees of the Administration shall be doneand effected pursuant to guidelinesestablished by the Board of Trustees. (Asamended by Sec. 26, PD 768)

CHAPTER V - Officers and EmployeesSEC. 57. Officers. - The Board shall

elect a chairman from among its members. Inaddition, the Board shall select a secretaryand a corporate legal counsel, each of whomshall not be a trustee. (As amended by Sec.28, PD 768)

SEC. 58. The Administrator andOther Employees. - The Trustees shall selecta general manager who shall not come fromthe appointed trustees. The general managershall receive compensation in an amount asmay be fixed by the Board, subject to theapproval of the President of the Philippines,but in no case less than fifty-four thousandpesos per annum. The general manager shallemploy and appoint all additional personnel;Provided, That the appointment of personnelin the supervisory level shall be subject toconfirmation by the Board. (per E. O. 68 dated11-21-86)

The incumbent manager holding officeas such upon the effectivity of this amendmentshall continue to hold such office unless soonerterminated by competent authority. (As


19

amended by Sec. 29, PD 768)The regular professional and technical

personnel of the Administration shall beexempt from WAPCO and Civil Service rulesand regulations; Provided, That the personnelshall be entitled to the benefits and privilegesnormally accorded to government employees,such as retirement, GSIS insurance, leave andsimilar matters.

CHAPTER VI - PowersSEC. 59. General Corporate Powers.

– The Administration shall have all the powerswhich are expressly granted to it under thisTitle, or which are necessary, implied from, orincidental to the powers and purposes hereinstated.

SEC. 60. Borrowing and SecurityTherefor. - The Administration may borrowfunds as authorized in Section 72 of this Title,and issue as security therefor debentures orother evidence of indebtedness constituting alien on any and all securities, covenants andobligations of local water utilities held by theAdministration as security for loans made tosuch local water utilities. (As amended bySec. 30, PD 768)

SEC. 61. Loans. - Administration maymake loans from its Revolving Loan Funds toqualified local water utilities, upon thefollowing conditions and pursuant to thefollowing procedures:

(a) Qualification of Borrower . -Before any loan may be granted, the localwater utility shall (1) hold a valid certificateof conformance or a conditional certificate ofCompliance from the Administration, and (2)meet such other and further loan qualificationrequirements as the trustees may establish;

(b) Feasibility Study. – A feasibilitystudy which may be required by the

Administration for any proposed project forwhich loan funds are sought may beundertaken by the water district, theAdministration or by a consultant prequalifiedby the Administration; (As amended by Sec.31, PD 768)

(c) Security. - The Administration maytake as security for such loans the authorizedbonds or other evidence of debt by the waterdistrict and a mortgage on its properties; (Asamended by Sec. 31, PD 768)

(d) Loan Documents andProcedures. - The Board of Trustees shalladopt rules, loan documents and proceduresto be used in the granting of loans. Suchrules shall include provisions for security,payment and default. (As amended by Sec.31, PD 768)

(e) Default. - In the event of default bythe local water district in the payment ofprincipal or interest on its outstanding bondsor other obligations to the Administration,the latter may, without the necessity of judicialprocess, take over and operate the facilitiesor properties of the district. For this purpose,the Administration may designate itsemployees or any person or organization toassume both the policy-making authority andthe powers of management, including but notlimited to, the establishment of water ratesand service charges, the dismissal and hiringof personnel, the purchase of equipment,supplies or materials and such other actionsas may be necessary to operate the waterdistrict efficiently. Such policy-making andmanagement prerogatives may be returned tothe Board of Directors and the generalmanager of the water district, respectively,when all of its overdue accounts have beenpaid, all its reserve requirements have beensatisfied and all the causes of default have


20

been met. (As amended by Sec. 31, PD 768)(f) Funding of Loan. - When a loan is

made to local water utility, the necessaryamount of such loan shall be programmed toassure completion of the project for whichsuch loan was granted. (As amended by Sec.10, PD 1479)

SEC. 62. Regulations. -Administration shall have the power and dutyto establish standards for local water utilitiesand adopt rules and regulations for theenforcement thereof. The Administration shallvigorously consult and coordinate its actionswith all government agencies active in theareas of public works and all other concernedagencies in the promulgation of thesestandards. Said standards and regulationsshall include the following:

(a) Water Quality. - Minimum drinkingwater standards including a uniform testingand reporting system. Said standards shallinclude bacteriological, chemical and physicalparameters;

(b) Design and Construction . -Minimum criteria for the design andconstruction of new or additional facilitiesfor water supply, treatment, transmission anddistribution, and for wastewater collection,treatment and disposal;

(c) Equipment, Materials andSupplies. - Standards for the optimumselection and effective utilization ofequipment, materials and supplies by localwater and sewer utilities;

(d) Operations and Maintenance. -Standardized procedures for operating andmaintaining equipment and facilities;

(e) Personnel. - The training ofpersonnel who operate or manage local waterutilities. For this purpose, at least a majorityof the personnel of a local water district must

have satisfactorily completed appropriatetraining courses, programs or seminarsconducted by the Administration, and mustbe holders of a certificate of completion orcompetence, as the case may be, before acertificate of conformance is issued to thewater district.

For certain positions which theAdministration may specify, only thosepersons possessing, or in the case ofsubsequent appointments, only persons whowill undergo training and shall have obtainedwithin six months, a certificate of completionor competence, as the case may be shall beappointed. (As amended by Sec. 32, PD 768)

(f) Organization. - Organizational andinstitutional criteria to assure independentoperation and funding of local water utilities.

(g) Accounting. - A uniform accountingsystem with uniform chart of accounts. Saidstandard and regulations also shall includestipulated levels of internal reporting to localwater utility management.

SEC. 63. Rate Review. - Any publicly-owned local utility holding a Certificate ofConformance or Conditional Certificate ofConformance from the Administration ishereby declared exempt from the jurisdictionof the Public Service Commission or itssuccessor. Any rates or charges establishedby such local water utility shall be adequateto provide for:

(a) Reimbursement from all new watercustomers for the cost of installing newservices and meters;

(b) Revenue from all water deliveriesand services performed by the district;

(c) Annual operating expense of thedistrict;

(d) The maintenance and repairs of theworks;


21

(e) A reasonable surplus forreplacement, extension and improvement; and

(f) Payment of the interest andprincipal and provide a sinking fund forpayment of debts of the district as theybecome due and establish a fund for reasonablereserves. (As amended by Sec. 33, PD 768)

The rates or charges established by suchlocal district, after hearing shall have beenconducted for the purpose, shall be subject toreview by the Administration to establishcompliance with the above-stated provisions.Said review of rates or charges shall beexecutory and enforceable after the lapse ofseven calendar days from posting thereof in apublic place in the locality of the water district,without prejudice to an appeal being takentherefrom by a water concessionaire to theNational Water Resources Council whosedecision thereon shall be appealable to theOffice of the President. An appeal to theCouncil shall be perfected within thirty daysafter the expiration of the seven-day period ofposting. The Council shall decide on appealwithin thirty days from perfection. (Asamended by Sec. 11, PD 1479)

SEC. 64. Technical Assistance. -Administration shall provide technicalassistance to local water utilities; their boards,management and operating personnel, to aidin meeting the standards and criteriaestablished by the Administration, and toencourage the upgrading of the operationsand management of such local water utilities.Said technical assistance should consist ofthose matters which are practical to financeor develop on a national basis but are beyondthe capability of the individual local waterutility, as such.

SEC. 65. Training Programs. -Administration shall establish training

programs and seminars for personnel of localwater utility. Programs shall include the areasof utility management, operation,maintenance and customer service.Administration shall have the power to issueCertificate of Completion for the satisfactorycompletion of a specified course of instruction.In the case of operational personnel,Administration may conduct appropriateexaminations and issue correspondingCertificates of Competence to assist localwater utilities to meet the personnel standardsset pursuant to Section 62 (d) of this Title.

SEC. 66. Certificate of Conformance. -Administration may require report from allwater utilities, conduct field investigations andreview all available information to determinewhether there has been conformance to itsstandards and procedures establishedpursuant to Section 62 of this Title. Upon afinding that said standards are met, theAdministration shall issue a Certificate ofConformance to any such water utility. SaidCertificate maybe revoked after due notice andhearing as to any local water utility whichthereafter fails to continue conformance withsuch standards. A Conditional Certificate ofConformance may be issued where proceduresand practices have been adopted to assureconformances and reasonable time schedulehas been adopted. Failure to reachconformance as contemplated shall be causefor revocation of such conditional certificate,without hearing or other cause.

CHAPTER VII – Financial ProvisionsSEC. 67. Capital Stock. - The authorized

capital of the Local Water UtilitiesAdministration is Two Billion, Five HundredMillion Pesos divided into Twelve Million FiveHundred Thousand share of stock with a par


22

value of Two Hundred Pesos per share whichshall be subscribed by the NationalGovernment and opened to subscription byprivate investors or government financialinstitutions. (As amended by Sec. 34, PD 768;Sec. 12, PD 1479)

SEC. 68. Payment for NationalGovernment Shares. - All amounts previouslyreleased by the National Government to theRevolving Fund of the Administration shall becredited as payment for subscriptions toshares of stock at par value. Whatever balanceremaining of said subscription shall be paidfrom a continuing appropriation which ishereby made out of any funds in the NationalTreasury not otherwise appropriated, suchannual appropriation to be programmed andreleased in accordance with pertinent budgetlaws: Provided, That this continuingappropriation shall remain in force until thebalance of the unpaid subscription of thegovernment to the capital stock of theadministration have been paid in full. (Asamended by Sec. 34, PD 768; Sec. 13, PD 1479)

SEC. 69. Operational Expenses. -The Board of Trustees is hereby authorized toappropriate out of any funds of theAdministration, such amounts as it may deemnecessary for the operational and otherexpenses of the Administration including thepurchase of necessary equipment. (Asamended by Sec. 34, PD 768)

SEC. 70. Charges. - To the extent thatthe Administration performs services for thebenefit and at the request of a local waterdistrict or utility or a number of water districts,utilities or organizations, it may levy fees orcharges for such service rendered.

Charges may include an assessmentagainst water districts or utilities to financethose functions of the Administration which

are of general benefit to water districts orutilities including, but not limited to, generaladministration and supervision. (As amendedby Sec. 34, PD 768)

SEC. 71. Receipt and Investmentof Funds. - Whenever the Administrationreceives money whether as payment forsubscriptions to shares of stock, principalrepayments, interest income, payment forservices rendered or for any purposewhatsoever, it shall issue its own receipts andprovide for their safekeeping and investmentunder policy guidelines as may be establishedby the Board of Trustees in accordance withDepartment of Finance regulations. (Asamended by Sec. 34, PD 768)

SEC. 72. Domestic BorrowingAuthority. - The Administration shall havethe authority to borrow money from alldomestic loan sources whether governmentor private; Provided, That its loansoutstanding from domestic sources at any onetime shall not exceed One Billion Pesos. (Asamended by Sec. 36, PD 768)

SEC. 73. Authority to ContractForeign Loan. - The Administration ishereby authorized to contract loans, credits,in any convertible foreign currency or capitalgoods, and to incur indebtedness from timeto time with foreign governments, or anyinternational financial institutions or fundsources, including suppliers credits or deferredpayment arrangements, the total outstandingamount of which, excluding interests, shallnot exceed five hundred million United Statesdollars or the equivalent thereof in othercurrencies, on terms and conditionspromulgated by the Secretary of Finance andthe Monetary Board for the accomplishmentof its objectives; and to enter into and executecontracts and other documents specifying


23

such terms and conditions.The President of the Philippines, by

himself, or through his duly authorizedrepresentative, is hereby authorized tonegotiate and contract with foreigngovernments or any international financialinstitution or fund sources in the name andon behalf of the Administration, one or severalloans, for the purpose of implementing theAdministration’s program for the promotionand development of local water utilitiesthrough the Administration’s financing orlending operations.

The President of the Philippines, byhimself, or through his duly authorizedrepresentative, is hereby further authorized toguarantee, absolutely and unconditionally, asprimary obligor and not as mere surety, in thename and on behalf of the Republic of thePhilippines, the payments of the loans, creditsand indebtedness up to the amount hereinauthorized, over and above the amounts whichthe President of the Philippines pursuant toloan agreements entered into with foreigngovernments or any international financialinstitution or fund sources.

The loans, credits and indebtednesscontracted under this section shall be in accordwith the provisions of the Foreign BorrowingAct as amended. (As amended by Sec. 36, PD768)

SEC. 74. Depository for Reserves. -Any local water utility which is accumulatingreserves for capital improvement may makespecified time deposits of the same to theAdministration in the manner authorized forbanks in handling trust funds. Such fundsshall not be used for operating purposes bythe Administration. (As amended by Sec. 37,PD 768)

SEC. 75. Control and Supervision over

All Releases of Appropriations forWaterworks and Sewerage Systems. -Since the Administration is charged with thedevelopment of local water utilities, fundsfrom prior and future appropriations of theNational Government for waterworks andsewerage systems in cities, municipalities,and provinces that are covered by duly formedwater districts shall be released directly tothe Administration for the account of thewater districts concerned. The Administrationmay, however, draw from such account feesand charges for services rendered to the waterdistricts concerned as specified in Section 70of this Title. (As amended by Sec. 38, PD 768)

SEC. 76. Government Assistanceto Non-Viable Districts. - There shall beincluded in the General Appropriations Act anoutlay in the form of National Governmentaid or subsidy to meet the financialrequirements in the development of watersupply systems of water districts which aredetermined by the Administration to befinancially non-viable in such amount as theAdministration may recommend, but notexceeding the cost of source development andmain transmission line. Releases of such fundsshall be made directly to the Administration.In the development of such water supplysystems, the Administration shall exert allefforts to bring the levels of service within thecost repayment capacity of the beneficiaries.(As amended by Sec. 14, PD 1479)

SEC. 77. Special Projects. -Whenever required by the National Governmentto provide funding requirements for thedevelopment of waterworks and seweragesystems in municipalities, cities or provinces,or portions thereof not yet covered by a dulyformed water district, an outlay shall beprovided in the General Appropriations Act,


24

upon the request of the Administration,separate from its capitalization, for thepurposes of meeting the financialrequirements of the project: Provided,however, That in the event that funds for theproject have already been appropriated by theNational Government, such funds shall bereleased directly to the Administration.Expenses incurred by the Administration forthe service rendered may be drawn from suchaccount as provided in Section 70 of this Title.(As amended by Sec. 14, PD 1479)

SEC. 78. Exemption from AllTaxes, Duties, Fees, Imposts and OtherCharges by the Government. - To enablethe Administration to pay its indebtednessand obligations, and in furtherance andeffective implementation of the policies andobjectives of this Decree, the Administrationis hereby declared exempt;

“(a) From the payment of all taxes, fees,imposts, charges, costs and restrictions bythe Government of the Republic of thePhilippines, its provinces, cities,municipalities, and other government agenciesand instrumentalities, and filing and servicefees and other charges of courts in any courtor administrative proceedings in which it maybe a party;

“(b) From all income taxes, franchisetaxes and realty taxes to be paid to theNational Government, its provinces, cities,municipalities and other government agenciesand instrumentalities; and

“(c) From all import duties, compensatingtaxes, wharfage fees on import of foreigngoods and equipment required for itsoperations and projects. (As amended by Sec.38, PD 768; Sec. 15, PD 1479)


25

GENERAL PROVISIONSSEC. 79. Separability of

Provisions. – If any provision of this Decree,or the application of such provision to anyperson or circumstances, is declared invalid,the remainder of the Decree or the applicationof such provision to other persons orcircumstances shall not be affected by suchdeclaration. (As amended by Sec. 39, PD 768;Sec. 15, PD 1479)

SEC. 80. Effect on Other Acts. - AllActs or parts of Acts, Decrees, General Orders,Executive Orders, Proclamations, or rules andregulations inconsistent herewith are repealedor modified accordingly. (As amended by Sec.39, PD 768; Sec. 15, PD 1479)

SEC. 81. Effectivity. - This Decree shalltake effect immediately.

Done in the City of Manila, this 25th dayof May in the year of Our Lord, nineteenhundred and seventy-three.

(SGD) FERDINAND E. MARCOS

By the President:(SGD) ALEJANDRO MELCHORExecutive Secretary

Presidential Decree No. 768 was promulgatedon August 15, 1975.

Presidential Decree No. 1479 was promulgatedon June 11, 1978.


26

sectionsectionsectionsectionsection 2MALACAŃANG

MANILA

Presidential Decree No. 768

AMENDING PRESIDENTIAL DECREENO.198 ENTITLED “DECLARING ANATIONAL POLICY FAVORING LOCALOPERATION AND CONTROL OF WATERSYSTEMS; AUTHORIZING THEFORMATION OF LOCAL WATER DISTRICTSAND PROVIDING FOR THE GOVERNMENTAND ADMINISTRATION OF SUCHDISTRICT; CHARTERING A NATIONALADMINISTRATION TO FACILITATEIMPROVEMENT OF LOCAL WATERFACILITIES; GRANTING SAIDADMINISTRATION SUCH POWERS AS ARENECESSARY TO OPTIMIZE PUBLICSERVICE FROM WATER UTILITYOPERATIONS, AND FOR OTHERPURPOSES.”

WHEREAS, it is the primary concern ofthe government to develop an orderly andeffective system of local water utilities,particularly in the area of water supply andsewerage services;

WHEREAS, under Presidential Decree No.198, the Government declared as a nationalpolicy the local operation and control of watersystems; authorized the formation of localwater districts; provided for theadministration of such districts, and chartereda national administration to facilitateimprovement of local water utilities;

WHEREAS, there is need to amendcertain provisions of Presidential Decree No.

198 in order to hasten and make more effectivethe implementation and administration of theprogram of total development and expansionof domestic water systems;

NOW, THEREFORE, I, FERDINAND E .MARCOS, President of the Philippines, byvirtue of the powers vested in me by theConstitution, do hereby order and decree theamendment of Presidential Decree No. 198, asfollows:

SECTION 1. Section 3, paragraph (b) ofPresidential Decree No. 198, is hereby amendedto read as follows:

“(b) Appointing Authority. - The personempowered to appoint the members of theBoard of Directors of a local water districtdepending upon the geographic coverage andpopulation make-up of the particular district.In the event that more than seventy-five percentof the total active water service connectionsof a local water district are within theboundary of any city or municipality, theappointing authority shall be the mayor ofthe city or municipality, as the case may be;otherwise, the appointing authority shall bethe governor of the province within which thedistrict is located: Provided, That if the existingwaterworks system in the city or municipalityestablished as a water district under thisDecree is operated and managed by theprovince, initial appointment shall be extendedby the governor of the province. Subsequentappointments shall be as specified herein.

“If portions of more than one provinceare included within the boundary of thedistrict, and the appointing authority is to bethe governor, then the power to appoint shallrotate between the governors involved withthe initial appointments made by the governorin whose province the greatest number ofservice connections exists.”


27

SEC. 2. Paragraphs (b), (c), (e) and lastparagraph of Section 6 of the same decree,are hereby amended to read as follows:

“x x x”“(b) A description of the boundary of the

district. In the case of a city or municipality,such boundary may include all lands withinthe city or municipality. A district may includeone or more municipalities, cities or provinces,or portions thereof: Provided, That suchmunicipalities, cities or provinces, or portionsthereof, cover a contiguous area.

“(c) A statement transferring any and allwaterworks and/or sewerage facilitiesmanaged, operated by or under the control ofsuch city, municipality or province to suchdistrict pursuant to a contract authorized bythis Title.

“x x x”“(e) The names of the initial directors of

the district with the date of expiration of theterm of office for each which shall be on the31st of December of first, second, or third even-numbered year after assuming office, as setforth in Section 11 hereof.

“x x x”“If two or more cities, municipalities or

provinces, or any combination thereof, desireto form a single district, a similar resolutionshall be adopted in each city, municipalityand province; or the city, municipality orprovince in which 75% of the total activeservice connections are situated shall pass aninitial resolution to be concurred in by theother cities, municipalities or provinces.”

SEC. 3. Section 7 of the same decree ishereby amended to read as follows:

“SEC. 7. Filing of Resolution. - A certifiedcopy of the resolution or resolutions forminga district shall be forwarded to the office ofthe Secretary of the Administration. If found

by the Administration to conform to therequirements of Section 6 and the policyobjectives in Section 22, the resolution shallbe duly filed. The district shall be deemed dulyformed and existing upon the date of suchfiling. A certified copy of said resolutionshowing the filing stamp of the Administrationshall be maintained in the office of the district.Upon such filing, the local government orgovernments concerned shall lose ownership,supervision and control or any rightwhatsoever over the district except as providedherein.”


“SEC. 8. Number and Qualifications. -The Board or Directors of a district shall becomposed of five citizens of the Philippineswho are of voting age and residents withinthe district. One member shall be arepresentative of civic-oriented service clubs,one member a representative of professionalassociations, one member a representative ofbusiness, commercial, or financialorganizations, one member a representativeof educational institutions and one member arepresentative of women’s organizations. Nopublic officials shall serve as director.”


“SEC. 11. Term of Office. - Of the five initialdirectors of each newly-formed district, twoshall be appointed for a maximum term oftwo years, two for a maximum term of fouryears, and one for a maximum term of sixyears. Terms of office of all directors in a givendistrict shall be such that the term of at leastone director, but not more than two, shallexpire on December 31 of each even-numberedyear. Regular terms of office after the initialterms shall be for six years commencing on


28

January 1 of odd-numbered years. Directorsmay be removed for cause only, subject toreview and approval of the Administration.”


“SEC. 12. Vacancies. - In the event of avacancy in the board of directors occurringmore than six months before expiration of anydirector’s term, the remaining directors shallwithin 30 days, serve notice to or request thesecretary of the district for nominations andwithin 30 days thereafter a list of nomineesshall be submitted to the appointing authorityfor his appointment of a replacement directorfrom the list of nominees. In the absence ofsuch nominations, the appointing authorityshall make such appointment. If within 30days after submission to him of a list ofnominees the appointing authority fails tomake an appointment, the vacancy shall befilled from such list by a majority vote of theremaining members of the Board of Directorsconstituting a quorum. Vacancies occurringwithin the last six months of an unexpiredterm shall also be filled by the Board in theabove manner. The director thus appointedshall serve the unexpired term only.


“SEC. 13. Compensation. - Each directorshall receive a per diem, to be determined bythe board, for each meeting of the boardactually attended by him, but no director shallreceive per diems in any given month in excessof the equivalent of the total per diem of fourmeetings in any given month. No director shallreceive other compensation for services to thedistrict.

“Any per diem in excess of P50 shall besubject to approval of the Administration.”

SEC. 8. Section 20 of the same decree is

hereby amended to read as follows:“SEC. 20. System of Business

Administration. - The Board shall, as soon aspracticable, prescribe and define by resolutiona system of business administration andaccounting for the district, which shall bepatterned upon and conform to the standardsestablished by the Administration. Auditingshall be performed by a certified publicaccountant not in the government service. TheAdministration may, however, conduct annualaudits of the fiscal operations of the districtto be performed by an auditor retained by theAdministration. Expenses incurred inconnection therewith shall be borne equallyby the water district concerned and theAdministration.”


“SEC. 23. The General Manager. - At thefirst meeting of the board, or as soonthereafter as practicable, the board shallappoint, by a majority vote, a general managerand shall define his duties and fix hiscompensation. Said officer shall serve at thepleasure of the board.”


“SEC. 24. Duties. - The duties of theGeneral Manager and other officers shall bedetermined and specified from time to timeby the board. The general manager, who shallnot be a director, shall have full supervisionand control of the maintenance and operationof water district facilities, with power andauthority to appoint all personnel of thedistrict: Provided, That the appointment ofpersonnel in the supervisory level shall besubject to approval by the board.”

SEC. 11. Paragraph (b) of Section 31 ofthe same decree is hereby amended to read as


29

follows:“(b) In-Lieu Share. - As an incident to the

acquisition of the existing water system of acity, municipality, or province, a district mayenter into a contract to pay in-lieu share forsuch utility plant, an annual amount notexceeding three percent (3%) of the district’sgross receipts from water sales in any year:Provided, however, That no contract of thisnature shall be executed during the first fiveyears of the existence of the district; andProvided, further, That the Board of Directorsshall determine that such contract will notadversely affect or impair the fiscal positionand operations of the district as verified bythe Administration.”

SEC. 12. Section 32 of the same decreeis hereby amended by adding four newsubsections therein, which shall read asfollows:

“SEC. 32. Protection of Waters and,Facilities of District. - A district shall have theright to:

“(a) Commence, maintain, intervene in,defend and compromise actions or proceedingsto prevent interference with or deteriorationof water quality or the natural flow of anysurface, stream or ground water supply whichmay be used or useful for any purpose of thedistrict or be a common benefit to the landsor its inhabitants. The ground water within adistrict is necessary to the performance of thedistrict’s powers and such district is herebyauthorized to adopt rules and regulationssubject to the approval of the National WaterResources Council governing the drilling,maintenance and operation of wells withinits boundaries for purposes other than a singlefamily domestic use on overlying land. Anywell operated in violation of such regulationsshall be deemed in interference with the waters

of the district.“(b) Require a developer or builder of any

structure within the service areas of the districtto extend or connect its pipeline facilities tothe district facilities whenever suchdevelopment or structure is within one hundredmeters of existing district facilities orwhenever the district is willing to extend itsfacilities within one hundred meters of saiddevelopment or structure. For the purpose ofthis section, development shall include thesubdivision of land for any purpose other thanagricultural purpose, and structure shall meanany building or facility to be used forresidential, commercial or industrial purposes.

“(c) Prohibit any person, firm orcorporation from vending, selling, or otherwisedisposing of water for public purposes withinthe service area of the district where districtfacilities are available to provide such service,or fix terms and conditions by permit for suchsale or disposition of water.

“(d) Safeguard and protect the use of itswaters. For this purpose, any person whoinstalls any water connection without theprevious authority from the water districtestablished under this Decree; tampers watermeters or uses jumpers or other deviceswhereby water is stolen; steals or pilfers wateror water meters; knowingly possesses stolenor pilfered water or water meters shall, uponconviction, be punished by prision correccionalin its minimum period or a fine ranging fromtwo thousand pesos to six thousand pesos, orboth. If the violation is committed with theconnivance or permission of an employee orofficer of the water district, an employee orofficer shall, upon conviction, be punished bya penalty one degree lower than prisioncorreccional in its minimum period andforthwith be dismissed and perpetually


30

disqualified from employment in any utilityor service company owned or controlled bythe government.”

Sec. 13. Section 34 of the same decree ishereby amended to read as follows:

“SEC. 34. Receipt, Deposit and Paymentof District Funds. - The treasurer shall receive,to the credit of the district and in trust for itsuse and benefit, all monies belonging to thedistrict. All monies belonging to the Districtshall, where practicable, be deposited by thetreasurer in the Philippine National Bank.”

SEC. 14. Section 35 of the same decreeis hereby repealed.

SEC. 15. Section 36 of the same decreeis hereby amended to be known as Section 35to read as follows:

“SEC. 35. Bonds or Other Evidence ofIndebtedness. - A district may borrow moneyto raise funds to pay all cost of any publicimprovements authorized by this Title andmay issue negotiable or non-negotiablebonds, promissory notes or other evidence ofindebtedness to support such borrowings.These obligations may be secured by amortgage, pledge, deed of trust of or any otherencumbrance upon any of its then owned orafter-acquired real or personal property, assetsor revenues and the same shall constitute alien as to the principal and interest thereon,on all such property, assets or revenues. Theinterests on such bonds or notes are exemptfrom all taxes, duties, fees, imposts, or othercharges of the national or local governments.”

SEC. 16. Two new sections are herebyinserted to be known as Section 36 andSection 37, respectively, which shall read asfollows:

“SEC. 36. Authority for SubsequentBorrowings. - Where a water district hasborrowed money from the Administration, the

district shall not borrow money or incurfurther obligations from other sources withoutthe prior written consent of theAdministration.

“SEC. 37. Default. - In the event of thedefault by the district in the payment ofprincipal or interest on its outstanding bondsor other obligations, any bondholder orcreditor shall have the right to bring an actionbefore the appropriate court to compel thepayment of such obligation. If the bondholderor creditor concerned is the Administration, itmay, without the necessity of judicial process,take over and operate the entire facilities,systems or properties of the district. For thispurpose, the Administration may designateits employees or any person or organizationto assume all powers of policy-decision andthe powers of management andadministration, including but not limited tothe establishment of water rates and charges,the dismissal and hiring of personnel, thepurchase of supplies, equipment and materialsand such other actions as may be necessaryto operate the utility efficiently.”

SEC. 17. Section 37 of the same decreeis hereby amended to read as Section 38 asfollows:

“SEC. 38. Rates and Charges - Water. - Adistrict may sell water under its control, underschedules of rates and charges as may bedetermined by the Board, to any and all waterusers within the district. Said schedule mayprovide for differential rates for differentcategories of use and different quantity blocks.The district, as far as practicable, shall fixsuch rates and charges for water as will resultin revenues which will:

“(a) Provide for reimbursement from allnew water customers for the cost ofinstallation of new services and meters;


31

“(b) Provide for revenue from all waterdeliveries and services performed by thedistrict;

“(c) Pay the operating expenses of thedistrict;

“(d) Provide for the maintenance andrepairs of the works;

“(e) Provide a reasonable surplus forreplacement, extension and improvements; and

“(f) Pay the interest and principal andprovide a sinking fund for the payment ofdebts of the district as they become due andestablish a fund for reasonable reserves.”

SEC. 18. Sections 38, 39, 40, 41, 42 and43 of the same decree are hereby amended toread as Sections 39, 40, 41, 42, 43 and 44,respectively.


“SEC. 45. Dissolution. - A district maybe dissolved by resolution of its board ofdirectors filed in the manner of filing theresolution forming the district: Provided,however, That prior to the adoption of anysuch resolution: (1) another public entity hasacquired the assets of the district and hasassumed all obligations and liabilitiesattached thereto; (2) all bondholders and othercreditors have been notified and they consentto said transfer and dissolution, and (3) a courtof competent jurisdiction has found that saidtransfer and dissolution are in the best interestof the public.”

SEC. 20. Sections 45, 46 and 47 of thesame decree are hereby amended to read asSections 46, 47 and 48, respectively.

SEC. 21. Section 48 of the same decree ishereby amended to read as Section 49 asfollows:

“SEC. 49. Charter. - There is hereby

chartered, created and formed a governmentcorporation to be known as the ‘Local WaterUtilities Administration’ which is herebyattached to the Office of the President. Theprovisions of this Title shall be and constitutethe charter of the Administration.”


“SEC. 50. Purposes. - The Administrationshall primarily be a specialized lendinginstitution for the promotion, development andfinancing of local water utilities. In theimplementation of its functions, theAdministration shall, among others: (1)prescribe minimum standards and regulationsin order to assure acceptable standards ofconstruction materials and supplies,maintenance, operation, personnel training,accounting and fiscal practices for local waterutilities; (2) furnish technical assistance andpersonnel training programs for local waterutilities; (3) monitor and evaluate local waterstandards; and (4) effect systems integration,joint investment and operations, districtannexation and deannexation whenevereconomically warranted.”


“SEC. 51. Composition. - The Board ofTrustees of the Administration shall becomposed of a chairman and four othermembers, all of whom shall be citizens of thePhilippines.

“One trustee at any time shall have atleast ten years experience in banking, financeor business. One trustee at any time shallpossess sufficient background in the field ofeconomics; one trustee at any time shall haveexperience in management or systems


32

operations. Two trustees at any time shall becivil or sanitary engineers with experiencerelated to water supply or wastewateroperations. Not more than one trustee mayrepresent a private investor-owned utility. Noelected official shall be entitled to act as atrustee. At least three of the trustees must beemployees of the National Government.

“The General Manager shall be ex-officiomember of the Board.”

SEC.24. Section 51 of the same decree ishereby amended to read as Section 52 asfollows:

“SEC. 52. Appointment and Term ofOffice. - The trustees, with exception of the ex-officio member, shall be appointed by thePresident of the Philippines. They shall servea term of five years each: Provided, That ofthe first four initially appointed, one shallserve a term of five years, another for fouryears, the third for three years, and the fourthfor two years. Trustees may be removed forcause only.

“The incumbent trustees holding officeas such upon the effectivity of this amendmentshall continue to hold such office until theexpiration of their original terms as defined intheir appointments.”

SEC. 25. Sections 52 and 53 of the samedecree are hereby amended to read as Sections53 and 54, respectively.


“SEC. 55. Compensation. - The Trusteesshall each receive a per diem as may be fixedby the Board for each meeting actuallyattended by them: Provided, That the total ofsuch per diem in any one month for eachTrustee, shall not exceed the equivalent of theper diems for four meetings; Provided, further,

That per diems in excess of three hundredpesos per meeting shall be subject to approvalof the Office of the President; and Provided,finally, That, in addition, each Trustee shallbe reimbursed his expenses incurred inconnection with the performance of hisfunctions in such amount as may bedetermined by the Board of Trustees.”

SEC. 27. Sections 55 and 56 of the samedecree are hereby amended to read as Section56 as follows:

“SEC. 56. By-Laws. - The Board ofTrustees shall adopt a code of by-laws for theconduct of the affairs of the Administrationwhich may be amended from time to time bythe affirmative vote of four Trustees.

“Except as otherwise provided herein, theorganizational structure and staffing patternof the Administration, the qualification of theappointive officers and employees, the powersand responsibilities of the officers, the internalprocedure of the Administration, and suchother matters relative to the organization,management and conduct of the affairs ofthe Administration shall be as provided in theby-laws; Provided, That, the appointment ofand disciplinary action against officers andemployees of the Administration shall be doneand effected pursuant to guidelinesestablished by the Board of Trustees.”

SEC. 28. Section 57 of the same decreeis hereby amended to read as follows:

“SEC. 57. Officers. - The Board shall electa chairman from among its members. Inaddition, the Board shall select a secretaryand a corporate legal counsel, each of whomshall not be a trustee.”

SEC. 29. The first paragraph of Section58 of the same decree is hereby amended toread as follows:

“SEC. 58. The General Manager and


33

Other Employees. - The Trustees shall select ageneral manager who shall not come fromthe appointed trustees. The general managershall receive compensation in an amount asmay be fixed by the Board, subject to theapproval of the President of the Philippines,but in no case less than fifty-four thousandpesos per annum. The general manager shallemploy and appoint all additional personnel;Provided, That the appointment of personnelin the supervisory level shall be subject toconfirmation by the Board.

“The incumbent manager holding officeas such upon the effectivity of this amendmentshall continue to hold such office unless soonerterminated by competent authority.”


“SEC. 60. Borrowing and SecurityTherefor. - The Administration may borrowfunds as authorized in Section 72 of this Title,and issue as security therefor debentures orother evidence of indebtedness constituting alien on any and all securities, covenants andobligations of local water utilities held by theAdministration as security for loans made tosuch local water utilities.”

SEC. 31. Paragraphs (b), (c), and (d) ofSection 61 of the same decree are herebyamended to read, and a new paragraph ishereby inserted which shall read, as follows:

“SEC. 61. Loans - x x x x“(a) x x x x“(b) Feasibility Study. - A feasibility study

which may be required by the Administrationfor any proposed project for which loan fundsare sought may be undertaken by the waterdistrict, the Administration or by a consultantprequalified by the Administration.

“(c) Security. - The Administration maytake as security for such loans the authorized

bonds or other evidence of debt by the waterdistrict and a mortgage on its properties;

“(d) Loan Documents and Procedures; -The Board of Trustees shall adopt rules, loandocuments and procedures to be used in thegranting of loans. Such rules shall includeprovisions for security, payment and default.

“(e) Default. - In the event of default bythe local water district in the payment ofprincipal or interest on its outstanding bondsor other obligations to the Administration,the latter may, without the necessity of judicialprocess, take over and operate the facilitiesor properties of the district. For this purpose,the Administration may designate itsemployees or any person or organization toassume both the policy-making authority andthe powers of management, including but notlimited to, the establishment of water ratesand service charges, the dismissal and hiringof personnel, the purchase of equipment,supplies or materials and such other actionsmay be necessary to operate the water districtefficiently. Such policy-making andmanagement prerogatives may be returned tothe Board of Directors and the generalmanager of the water district, respectively,when all of its overdue accounts have beenpaid, all its reserve requirements have beensatisfied and all the causes of default havebeen met.”

SEC. 32. Paragraph (e) Section 62 of thesame decree is hereby amended to read asfollows:

“SEC. 62. Regulations. - x x x x“(e) Personnel. - The training of personnel

or operate or manage local water utilities.For this purpose, at least a majority of thepersonnel of a local water district must havesatisfactorily completed appropriate trainingcourses, programs or seminars conducted by


34

the Administration, and must be holders of acertificate of completion or competence, asthe case may be, before a certificate ofconformance is issued to the water district.

“For certain positions which theAdministration may specify, only thosepersons possessing, or in the case ofsubsequent appointments, only persons whowill undergo training and shall have obtainedwithin six months, a certificate of completionor competence, as the case may be, shall beappointed.”

SEC. 33. Paragraph (f) of Section 63 ofthe same decree is hereby amended to read asfollows:

“SEC. 63. Rate Review. - x x x x“(f) Payment of the interest and principal

and provide a sinking fund for payment ofdebts of the district as they become due andestablish a fund reasonable reserves.

“The rates or charges established by suchlocal water district shall be subject to reviewby the Administration to establish compliancewith the above-stated provisions. Said reviewof rates or any charges therein shall be by theBoard of Trustees, and in writing.”

SEC. 34. Sections 67, 68 and 69 of thesame decree are hereby repealed, and five newsections are hereby substituted therefor to beknown as Section 67, 68, 69, 70 and 71, whichshall be read as follows:

“SEC. 67. Capital Stock. - The authorizedcapital of the Local Water UtilitiesAdministration is Five Hundred Million Pesosdivided into Five Million shares of stock witha par value of One Hundred Pesos per share,which shall be subscribed by the NationalGovernment and opened to subscription byprivate investors or government financialinstitutions.

“SEC. 68. Payment for National

Government Shares. - All amounts previouslyreleased by the National Government to theRevolving Fund of the Administration shall becredited as payment for subscriptions toshares of stock at par value. Thereafter, theNational Government shall for each yearbeginning with fiscal year 1975-76 subscribeand pay for the necessary capitalization asprogrammed during the year; Provided, Thatthe amount programmed for each year shallnot be less than Fifty Million Pesos.

“SEC. 69. Operational Expenses. - TheBoard of Trustees is hereby authorized toappropriate out of any funds of theAdministration, such amounts as it may deemnecessary for the operational and otherexpenses of the Administration including thepurchase of necessary equipment.

“SEC. 70. Charges. - To the extent thatthe Administration performs services for thebenefit and at the request of a local waterdistrict or utility or a number of water districts,utilities or organizations, it may levy fees orcharges for such service rendered.

“Charges may include an assessmentagainst water districts or utilities to financethose functions of the Administration whichare of general benefit to water districts orutilities including, but not limited to, generaladministration and supervision.

“SEC. 71. Receipt and Investment ofFunds. - Whenever the Administration receivesmoney whether as payment for subscriptionsto shares of stock, principal repayments,interest income, payment for services renderedor for any purpose whatsoever, it shall issueits own receipts and provide for theirsafekeeping and investment under policyguidelines as may be established by the Boardof Trustees in accordance with Department ofFinance regulations.”


35

SEC. 35. Section 70 of the same decreeis hereby repealed.

SEC. 36. Section 71 of the same decree ishereby amended to read as Sections 72 and73 as follows:

“SEC. 72. Domestic Borrowing Authority.- The Administration shall have the authorityto borrow money from all domestic loansources whether government or private;Provided, That its loans outstanding fromdomestic sources at any one time shall notexceed One Billion Pesos.”

“SEC. 73. Authority to Contract ForeignLoan. - The Administration is hereby authorizedto contract loans, credits, in any convertibleforeign currency or capital goods, and to incurindebtedness from time to time with foreigngovernments, or any international financialinstitutions or fund sources, includingsuppliers credits or deferred paymentarrangements, the total outstanding amountof which, excluding interests, shall not exceedfive hundred million United States dollars orthe equivalent thereof in other currencies, onterms and conditions promulgated by theSecretary of Finance and the Monetary Boardfor the accomplishment of its objectives; andto enter into and execute contracts and otherdocuments specifying such terms andconditions.

“The President of the Philippines, byhimself, or through his duly authorizedrepresentative, is hereby authorized tonegotiate and contract with foreigngovernments or any international financialinstitution or fund sources in the name andon behalf of the Administration, one or severalloans, for the purpose of implementing theAdministration’s program for the promotionand development of local water utilitiesthrough the Administration’s financing or

lending operations.“The President of the Philippines, by

himself or through his duly authorizedrepresentative, is hereby further authorized toguarantee, absolutely and unconditionally, asprimary obligor and not as mere surety, in thename and on behalf of the Republic of thePhilippines, the payments of the loans, creditsand indebtedness up to the amount hereinauthorized, over and above the amounts whichthe President of the Philippines pursuant toloan agreements entered into with foreigngovernments or any international financialinstitution or fund sources.

“The loans, credits and indebtednesscontracted under this section shall be in accordwith the provisions of the Foreign BorrowingAct as amended.”


“SEC. 74. Depository for Reserves. - Anylocal water utility which is accumulatingreserves for capital improvement may makespecified time deposits of the same to theAdministration in the manner authorized forbanks in handling trust funds. Such fundsshall not be used for operating purposes bythe Administration.”

SEC. 38. Two new sections are herebyinserted to be known as Section 75 andSection 76, which shall read as follows:

“SEC. 75. Control and Supervision overAll Releases of Appropriations for Waterworksand Sewerage Systems. - Since theAdministration is charged with thedevelopment of local water utilities, fundsfrom prior and future appropriations of theNational Government for waterworks andsewerage systems in cities, municipalities,and provinces that are covered by duly formed


36

water districts shall be released directly tothe Administration for the account of thewater districts concerned. The Administrationmay, however, draw from such account feesand charges for services rendered to the waterdistrict concerned as specified in Section 70of this Title.

“SEC. 76. Exemption from All Taxes,Duties, Fees, Imposts and Other Charges bythe Government. - To enable theAdministration to pay its indebtedness andobligations, and in furtherance and effectiveimplementation of the policies and objectivesof this Decree, the Administration is herebydeclared exempt:

“(a) From the payment of all taxes, fees,imposts, charges, costs and restrictions bythe Government of the Republic of thePhilippines, its provinces, cities,municipalities, and other government agenciesand instrumentalities, and filing and servicefees and other charges of courts in any courtor administrative proceedings in which it maybe a party;

“(b) From all income taxes, franchisetaxes and realty taxes to be paid to theNational Government, its provinces, cities,municipalities and other government agenciesand instrumentalities; and

“(c) From all import duties, compensatingtaxes, wharfage fees on import of foreigngoods and equipment require for its operationsand projects.”

SEC. 39. Sections 73 and 74 of the samedecree are hereby amended to read as Section77 and 78, respectively.

SEC. 40. This Decree shall take effectimmediately.

Done in the City of Manila, this 15th dayof August in the year of Our Lord, nineteenhundred and seventy-five.

By the President:

(SGD) ALEJANDRO MELCHORExecutive Secretary


37

sectionsectionsectionsectionsection 3Office of the President of the Philippines

Malacańang

Letter of Instructions No. 683

ESTABLISHING BASIC POLICIES FORTHE WATER SUPPLY SECTOR

WHEREAS, drinking water is a basicrequirement to sustain life;

WHEREAS, only about 40 percent of thepopulation of the Philippines is presentlyserved with public water supply systems;

WHEREAS, it is primary concern of theGovernment in promoting the welfare of thepeople to hasten the availability of watersupply services in the whole country, withspecial attention to the rural areas;

WHEREAS, the approved PhilippineDevelopment Plan for 1978-1987, therefore,aims to increase the public water supplycoverage to about 85 percent of the totalPhilippine population within ten years;

WHEREAS, there is a need to restructurethe water supply sector so that gaps andoverlaps in responsibility will be eliminated;and

WHEREAS, it is necessary to establishcertain basic policies to attain these objectivesin the most efficient manner;

NOW, THEREFORE, I, FERDINAND E.MARCOS, President of the Philippines, byvirtue of the powers vested in me by theConstitution, do hereby order theimplementation of the following basic policiesfor the water supply sector;

(1) The attainment of complete coverage

of water supply services for the whole countryis a declared policy of the State and shall beeffected primarily through:

(a) The rationalization of theorganizational structure for the water supplysector; (b) The formation of water districts,associations, cooperatives or corporations forthe construction, operation and maintenanceof water supply systems in preference tosystems directly operated and managed bylocal governments; and (c) The encouragementof self-help and self-reliant water supplyprojects.

(2) Agencies involved in water supply shallstrive to attain financial independence,thereby minimizing Government subsidy, byincreasing their own internal revenuegeneration capabilities and by providingservices within the cost repayment capabilitiesof the beneficiaries.

(3) The levels of water supply service tobe developed shall vary according to technicaleconomic, organizational and financialconsideration. These levels of service are asfollows:

Level I - Point sources (such as raincollector, wells and springs); generally for ruralareas where houses are scattered too thinlyto justify a distribution system.

Level II - Communal faucet systems;generally for rural areas where houses areclustered densely enough to justify a pipeddistribution system with a faucet providedfor a number of households.

Level III - Individual house connections;generally for urban areas.

(4) The rationalization of the watersupply sector structure shall be pursued inaccordance with the following strategies:

(a) The Metropolitan Waterworks andSewerage System shall concentrate its


38

operations in Metropolitan Manila and othercontiguous areas that may later be includedin its service coverage.

(b) The Local Water UtilitiesAdministration shall promote water districtsin cities and municipalities with populationof at least 20,000 each. It will support thesewater districts through institutional, technicaland financial assistance.

(c) The Bureau of Public Works shall bemainly responsible for the construction ofwells and development of springs in ruralareas.

(d) The Department of Local Governmentsand Community Development shall beresponsible for the formations of waterassociations and cooperatives that willoperate and maintain water supply systemsfor communities in the provinces covered bythe Provincial Development AssistanceProgram (PDAP). It shall provide institutional,technical and financial support to theseassociations and cooperatives.

(e) A Task Force on Rural Water Supplyunder the National Water Resources Councilshall, until such time that a permanentinstitution of the Government to handle therural water supply sector is evolved, beresponsible for the formation of waterassociations and cooperatives that willconstruct, operate, and maintain water supplysystems in the rural areas of non-PDAPprovinces. This Task Force shall providetechnical, institutional, and financialassistance to these associations andcooperatives. It shall also make studies andrecommendations on the appropriateinstitution that will eventually be responsiblefor the rural water supply sector on apermanent basis. The Task Force is herebyauthorized to call upon any agency of the

Government for assistance in accomplishingits tasks.

(5) The National Water Resources Councilshall be responsible for coordinating theimplementation of the above policies. It shallsubmit to the President of the Philippines,periodic reports on the status on the entirewater supply sector and the performance ofeach of the above agencies in relation to theoverall policy framework for water supply.

Done in the City of Manila, this 30th dayof March in the year of Our Lord, nineteenhundred and seventy eight.

(SGD) FERDINAND E. MARCOSPresident of the Philippines


39

sectionsectionsectionsectionsection 4Office of the President of the Philippines

Malacańang


PROVIDING MEASURES TO CONTROLAND REGULATE INCREASES IN WATER

RATES

WHEREAS, there is a need to helpdepressed or newly formed water districtsdevelop their financial viability, but at thesame time avoid too abrupt increases in theirwater rates;

WHEREAS, there is a need to prescribecertain measures whereby increases of ratesimposed by water districts are controlled orregulated;

NOW, THEREFORE, I, FERDINAND E.MARCOS, President of the Philippines, byvirtue of the powers vested in me by theConstitution, do hereby order theimplementation of the following measures inthe operation and development of waterdistricts;

(1) The Local Water UtilitiesAdministration (LWUA) shall:

(a) Implement a socialized pricing schemefor water districts in setting up water rateswhereby the more affluent, heavy users paymore per unit than the low income, minimalusers of water, LWUA shall prescribe guidelinesfor this purpose;

(b) Provide institutional developmentservices to water districts free of charge;

(c) Grant capital improvement loans towater districts on concessionary terms;

(d) On a case-to-case basis, defer loanamortization payments until improvementsare completed and actually in operation;

(e) Assist water districts improve theiroperational efficiency through skills/managerial training and systems development;

(f) Ensure that the water rates are notabruptly increased beyond the water usersability to pay, seeing to it that each increaseif warranted, does not exceed 60% of thecurrent rate;

(g) Limit charges for feasibility andengineering studies to not more than 15% ofthe actual construction cost of the projectimplemented;

(h) Require 100% metering to insurecorrect charging of water actually consumedand to discourage its wasteful use;

(i) Where indicated, consider theadoption of lower standards of service,especially for the marginally feasible areas,to reduce project cost; and;

(j) Reduce required reserves accumulationfor meeting emergency and contingency needsas will be appropriate.

(2) The National ElectrificationAdministration and the National PowerCorporation shall study ways and means togrant special reduced electric power rates tothe water districts concerned. Where feasible,the National Power Corporation shall alsodetermine ways by which the water districtscan directly tap the power lines.

(3) The Budget Commission shall providein the national government annual operatingbudget starting with CY 1979 such amount asshall be requested by LWUA and recommendedby the National Economic and DevelopmentAuthority for the conduct of feasibility studiesfor the development of waterworks systemsin established water districts. Such national


40

government contribution shall not constitutepart of LWUA’s equity nor shall it be chargedagainst the water districts.

(4) The local government concerned shallprovide subsidy for the operation of depressedor newly created water districts. The subsidyshall initially be up to the level provided bythe local government for the operation of thesystem immediately prior to the formation ofthe water district. The subsidy, however, shallbe reduced as the water services and revenuesimprove as determined by LWUA.

(5) The water district concerned shallconduct public hearings prior to any proposedincrease in water rates.

Done in the City of Manila, this 1st dayof June in the year of Our Lord, nineteenhundred and seventy eight.

(SGD) FERDINAND E . MARCOSPresident of the Philippines


41

MALACAŃANGManila

PRESIDENTIAL DECREE NO. 1479

FURTHER AMENDING PRESIDENTIALDECREE NO. 198 OTHERWISE KNOWN ASTHE “PROVINCIAL WATER UTILITIES ACTOF 1973”, AS AMENDED BYPRESIDENTIAL DECREE NO. 768

WHEREAS, Presidential Decree No. 198,as amended by Presidential Decree No. 768,declares as a national policy the localoperation and control of water systems;authorizes the formation of local waterdistricts; provides for the administration ofsuch districts and charters a nationaladministration to facilitate improvement oflocal water utilities;

WHEREAS, in order to accelerate thedevelopment and expansion of domestic watersystems, there is a need to further amendcertain provisions of Presidential Decree No.198, as amended.

NOW, THEREFORE, I FERDINAND E.MARCOS, President of the Philippines, byvirtue of the powers vested in me by theConstitution, do hereby order and decree thefurther amendment of Presidential Decree No.198, as follows:

SECTION 1. The first paragraph ofSection 6 of Presidential Decree No. 198, asamended, is hereby amended to read asfollows:

“SEC. 6. Formation of District. - This Actis the source of authorization and power to

sectionsectionsectionsectionsection 5 form and maintain a district. For purposes ofthis Act, a district shall be considered as aquasi-public corporation performing publicservice and supplying public wants. As such,a district shall exercise the powers, rights andprivileges given to private corporations underexisting laws, in addition to the powersgranted in, and subject to such restrictionsimposed, under this Act.

x x x(c) A statement completely transferring

any and all waterworks and/or seweragefacilities managed, operated by or under thecontrol of such city, municipality or provinceto such district upon the filing of resolutionforming the district.

x x xSEC. 2. A new sentence is hereby added

to Section 8 of the same decree to read asfollows:

“SEC. 8. Number and Qualifications. –xxx Provided, however, that if the district hasavailed of the financial assistance of theAdministration, the Administration mayappoint any of its personnel to sit in the boardof directors with all the rights and privilegesappertaining to a regular member, for suchperiod as the indebtedness remains unpaid, inwhich case the board shall be composed ofsix members.”

SEC. 3. Section 25 of the same decree ishereby amended.

SEC. 4. Section 26 of the same decree ishereby amended to read as Section 25 asfollows:

“SEC. 25. Authorization. - The districtmay exercise all the powers which areexpressly granted by this Title or which arenecessarily implied from, or incidental to thepowers and purposes herein stated. For thepurpose of carrying out the objectives of this


42

Act, a district is hereby granted the power ofeminent domain, the exercise thereof shall,however, be subject to review by theAdministration.”

SEC. 5. Sections 27, 28, 29, 30 and 31 ofthe same decree are hereby amended to readas Section 26, 27, 28, 29 and 30, respectively.

SEC. 6. Section 32 of the same decree ishereby amended to read as Section 31.

“SEC. 31. Protection of Waters andFacilities of District. - A district shall have theright to

x x x(e) take over the management,

administration, operation and maintenanceof all watersheds within its territorialboundaries.”

SEC. 7. Sections 33, 34, 35, 36, 37, 38,39, 40 and 41 of the same decree are herebyamended to read as Sections 32, 33, 34, 35,36, 37, 38, 39 and 40, respectively.

SEC. 8. A new section is hereby insertedto be known as Section 41 which shall readas follows:

“SEC. 41. Disposition of Income. - Theincome of the district shall be disposed ofaccording to the following priorities:

“First, to pay its contractual andstatutory obligations and to meet its essentialcurrent operating expenses.

“Second, to allocate at least fifty percent(50%) of the balance exclusively as a reservefor debt service and operating andmaintenance, to be used for such purposesonly during periods of calamities, forcemajeure or unforeseen events.

“Third, to allocate the residue as a reserveexclusively for expansion and improvement ofits physical facilities.”


“SEC. 47. Exclusive Franchise. - Nofranchise shall be granted to any other personor agency for domestic, industrial orcommercial water service within the districtor any portion thereof unless and except tothe extent that the board of directors of saiddistrict consents thereto by resolution dulyadopted, such resolution, however, shall besubject to review by the Administration.”


“SEC. 61. Loans.x x x(f) Funding of Loan. When a loan is made

to local water utility, the necessary amountof such loan shall be programmed to assurecompletion of the project for which such loanwas granted.”

SEC. 11. The last paragraph of Section63 of the same decree is hereby amended toread as follows:

“SEC. 63. Rate Review.x x xThe rates or charges established by such

local district, after hearing shall have beenconducted for the purpose, shall be subject toreview by the Administration to establishcompliance with the above-stated provisions.Said review of rates or charges shall beexecutory and enforceable after the lapse ofseven calendar days from posting thereof in apublic place in the locality of the water district,without prejudice to an appeal being takentherefrom by a water concessionaire to theNational Water Resources Council whosedecision thereon shall be appealable to theOffice of the President. An appeal to theCouncil shall be perfected within thirty daysafter the expiration of the seven-day period ofposting. The Council shall decide on appealwithin thirty days from perfection.


43


“SEC. 67. Capital Stock. - The authorizedcapital of the Local Water UtilitiesAdministration is Two Billion Five HundredMillion Pesos divided into Twelve Million FiveHundred Thousand share of stock with a parvalue of Two Hundred Pesos per share whichshall be subscribed by the NationalGovernment and opened to subscription byprivate investors or government financialinstitutions.”


“SEC. 68. Payment for NationalGovernment Shares. - All amounts x x x at parvalue. Whatever balance remaining of saidsubscription shall be paid from a continuingappropriation which is hereby made out ofany funds in the National Treasury nototherwise appropriated, such annualappropriation to be programmed and releasedin accordance with the pertinent budget laws:Provided, That this continuing appropriationshall remain in force until the balance of theunpaid subscription of the government to thecapital stock of the administration have beenpaid in full.”

SEC. 14. New sections are hereby insertedto be known as Section 76 and 77,respectively, which shall read as follows:

“SEC. 76. Government Assistance to Non-Viable Districts. - There shall be included inthe General Appropriations Act an outlay inthe form of National Government aid orsubsidy to meet the financial requirements inthe development of water supply systems ofwater districts which are determined by theAdministration to be financially non-viable insuch amount as the Administration mayrecommend, but not exceeding the cost of

source development and main transmissionline. Releases of such funds shall be madedirectly to the Administration. In thedevelopment of such water supply systems,the Administration shall exert all efforts tobring the levels of service within the costrepayment capacity of the beneficiaries.”

“SEC. 77. Special Projects. - Wheneverrequired by the National Government to providefunding requirements for the development ofwaterworks and sewerage systems inmunicipalities, cities or provinces, or portionsthereof not yet covered by a duly formed waterdistrict, an outlay shall be provided in theGeneral Appropriations Act, upon the requestof the Administration, separate from itscapitalization, for the purposes of meetingthe financial requirements of the project:Provided, however, That in the event that fundsfor the project have already been appropriatedby the National Government, such funds shallbe released directly to the Administration.Expenses incurred by the Administration forthe service rendered may be drawn from suchaccount as provided in Section 70 of this Title.”

SEC. 15. Sections 76, 77, 78 and 79 ofthe same decree are hereby amended to readas Sections 78, 79, 80 and 81, respectively.

SEC. 16. This Decree shall take effectimmediately.

Done in the City of Manila, this 11th dayof June in the year of Our Lord, nineteenhundred and seventy-eight.

By the President:

(SGD) JUAN C. TUVERAPresidential Assistant


44

Office of the President of the PhilippinesMalacańang


RELATIVE TO RELIABLE WATERSUPPLY AT REASONABLE RATES IN

THE COUNTRYSIDE

TO: The Minister of Public Works,Transportation and Communications

The Chairman and Members, NationalWater Resources Council

The General Manager, Local WaterUtilities Administration

The Chairman and General Managers ofWater Districts

All Others Concerned

WHEREAS, the provision of adequatewater supply at reasonable rates is a primaryobjective of the New Society;

WHEREAS, the implementation of anational program for improved water supplyis the responsibility of local organizationsparticularly Water Districts and localgovernment units, assisted by the NationalWater Resources Council and the Local WaterUtilities Administration;

WHEREAS, there is need to improveplanning, monitoring and implementingactivities at all levels, and to reduce waterrates to minimum levels;

NOW, THEREFORE, I, FERDINAND E.MARCOS, President of the Philippines, dohereby order and instruct:

1. The Local Water UtilitiesAdministration and Water Districts shallimmediately review the facilities design,implementation plan and rates and feescharged, with the objective of:

a. Reducing water rates to minimumlevels;

b. Eliminating unnecessary fees andregulatory measure;

c. Implementing expansion plans inphases so as to keep in step with growth indemand without resulting in excess capacity;

d. Reducing cost of construction to aminimum

2. The National Water Resources Councilshall eliminate all unnecessary regulatorymeasures and fees particularly on privatelyowned and dug wells.

3. The Local Water UtilitiesAdministration and each Water Districts shallprepare a public education program whichshall concentrate on the need and methodsfor water conservation, water rates, waterfacilities requirements and need for financing,and other related aspects of Water Districtoperations. They shall, in addition, prepare acomprehensive program and system of publicconsultation, both formally in hearings andinformally through an education program,when considering increases in water rates,particularly at the time when Water Districtsinitiate operation.

4. The Local Water UtilitiesAdministration shall review the compositionof the Board of each Water District to makesure that consumers are properly and fullyrepresented. It shall initiate the necessarychanges.



45

5. The Local Water UtilitiesAdministration shall assess the terms of loansextended to Water Districts, including maturity,amortization schedule, and interest rates, forthe purpose of enabling Water Districts tomeet their obligations without chargingexcessive water rates to consumers.

6. The Committee on National Aid toLocal Government Units shall study andrecommend to the President a program forcommunal water pumps to serve areas notcovered by Water District or which do nototherwise have an adequate water supply. Theprogram shall provide for a sharing ofconstruction cost among national and localgovernment units, whereby the nationalgovernment shall provide counterpart fundingassistance, charged to the funds provided asAid to Local Government Units under PD No.144.

Done in the City of Manila, this 28th dayof September, nineteen hundred and seventy-eight.

(SGD) FERDINAND E. MARCOSPresident of the Philippines


46

EXECUTIVE ORDER NO. 68

MODIFYING PRESIDENTIAL DECREENO. 198, AS AMENDED

WHEREAS, the Local Water UtilitiesAdministration (LWUA) was created by virtueof Presidential Decree No. 198, as amended;

WHEREAS, Section 58 of PresidentialDecree No. 198, as amended, provides for aGeneral Manager of the Local Water UtilitiesAdministration (LWUA) while Section 23 ofthe said Decree likewise provides for a generalmanager for a local water district;

WHEREAS, there is a need todistinguish the General Manager of the LocalWater Utilities Administration (LWUA) fromthe general managers of the various localwater districts by changing the designationof the General Manager of the Local WaterUtilities Administration (LWUA);

WHEREAS, as a consequence, the titleof the next in rank of the General Managerof the Local Water Utilities Administration(LWUA) should be similarly changed;

NOW, THEREFORE, I, CORAZON C.AQUINO, President of the Philippines, dohereby order:

SECTION 1. Section 58 of Chapter 58,Title III of Presidential Decree No. 198, asamended, is hereby modified to the extentthat the title of the head of the Local WaterUtilities Administration (LWUA) is changed

sectionsectionsectionsectionsection 7 from General Manager to Administrator andthe officer(s) next in rank shall be designatedas Deputy Administrator(s).

DONE in the City of Manila, this 21st dayof November, in the year of Our Lord, NineHundred and Eighty-Six.

(SGD) CORAZON C. AQUINOPresident of the Philippines


47

SUPREME COURT RULING ON WATERDISTRICTS AS GOVERNMENT-OWNEDAND CONTROLLED CORPORATIONS

Republic of the PhilippinesSupreme Court

Manila

EN BANC

DAVAO CITY WATER DISTRICT,CAGAYAN DE ORO CITY WATER DISTRICT,METRO CEBU WATER DISTRICT,ZAMBOANGA CITY WATER DISTRICT,LEYTE METRO WATER DISTRICT,BUTUAN CITY WATER DISTRICT,CAMARINES NORTE WATER DISTRICT,LAGUNA WATER DISTRICT,DUMAGUETE CITY WATER DISTRICT,LA UNION WATER DISTRICT,BAYBAY WATER DISTRICT,METRO LINGAYEN WATER DISTRICT,URDANETA WATER DISTRICT,COTABATO CITY WATER DISTRICT,MARAWI CITY WATER DISTRICT,TAGUM WATER DISTRICT,DIGOS WATER DISTRICT,BISLIG WATER DISTRICT,and MEYCAUAYAN WATER DISTRICT

Petitioners

- versus -

CIVIL SERVICE COMMISSION, andCOMMISSION ON AUDIT

Respondents

G. R. Nos. 95237-38Present:FERNAN, C. J.,NARVASA,MELENCIO-HERRERA,GUTIERREZ, JR.,CRUZ,PARAS,FELICIANO,PADILLA,BIDIN,SARMIENTO,GRIŃO-AQUINO,MEDIALDEA,REGALADO &DAVIDE, JR., JJ.

Promulgated: September 13, 1991————————————————————————

D E C I S I O N

MEDIALDEA, J.:Whether or not the Local Water Districts

formed and created pursuant to the provisionsof Presidential Decree No. 198, as amended,are government-owned or controlledcorporations with original charter fallingunder the Civil Service Law and/or covered bythe visitorial power of the Commission onAudit is the issue which the petitioners entreatthis Court, en banc to shed light on.

Petitioners are among the more than fivehundred (500) water districts existingthroughout the country formed pursuant tothe provisions of Presidential Decree No. 198,as amended by Presidential Decrees Nos. 768and 1479, otherwise known as the “ProvincialWater Utilities Act of 1973.”

Presidential Decree No. 198 was issuedby the then President Ferdinand E. Marcos by



48

virtue of his legislative power underProclamation No. 1981. It authorized thedifferent local legislative bodies to form andcreate their respective water districts througha resolution they will pass subject to theguidelines, rules and regulations therein laiddown. The decree further created and formedthe “Local Water Utilities Administration”(LWUA), a national agency attached to theNational Economic and Development Authority(NEDA), and granted with regulatory powernecessary to optimize public service fromwater utilities operations.

The respondents, on the other hand, arethe Civil Service Commission (CSC) and theCommission on Audit (COA), both governmentagencies and represented in this case by theSolicitor General.

On April 17, 1989, this Court ruled in thecase of Tanjay Water District v. Gabaton, etal. (G.R. No. 63742, 172 SCRA 253):

Significantly, Article IX (B),Section 2(1) of the 1987 Constitutionprovides that the Civil Serviceembraces all branches, subdivisions,instrumentalities, and agencies of thegovernment, including government-owned and controlled corporationswith original charters. Inasmuch asPD No. 198, as amended, is the originalcharter of the petitioner, Tanjay WaterDistrict, and respondent Tarlac WaterDistrict and all water districts in thecountry, they come under the coverageof the Civil Service Law, rules andregulations. (Sec. 35, Art. VIII and Sec.37, Art. IX of PD No. 807).”As an offshoot of the immediately cited

ruling, the CSC issued Resolution No. 90-575,the dispositive portion of which reads:

“NOW THEREFORE, in view of

all the foregoing, the Commissionresolved, as it hereby resolves, to rulethat Local Water Districts, beingquasi-public corporations created bylaw to perform public services andsupply public wants, the matter ofhiring and firing of its officers andemployees should be governed by theCivil Service Law, rules andregulations. Henceforth, allappointments of personnel of thedifferent local water districts in thecountry shall be submitted to theCommission for appropriate action.”(Rollo. p.22)However, on May 16, 1990, in G.R. No.

85760, entitled “Metro Iloilo Water District v.National Labor Relations Commission, et al.,”the Third Division of this Court ruled in aminute resolution:

“x x x“Considering that PD 198 is a

general legislation empowering and/or authorizing government agenciesand entities to create water districts,said PD 198 cannot be considered asthe charter itself creating the WaterDistricts. Public respondent NLRC didnot commit any grave abuse ofdiscretion in holding that theoperative act, that created the MetroIloilo Water District was theresolution of the SangguniangPanglungsod of Iloilo City. Hence, theemployees of Water Districts are notcovered by Civil Service Laws as thelatter do (sic) not have originalcharters.In adherence to the just cited ruling, the

CSC suspended the implementation ofResolution No. 90-575 by issuing Resolution


49

No. 90-770 which reads:“ x x x“NOW, THEREFORE, in view of

all the foregoing, the Commissionresolved to rule, as it hereby rules,that the implementation of CSCResolution No. 575 dated June 27,1990 be deferred in the meantimepending clarification from theSupreme Court as regards itsconflicting decisions in the cases ofTanjay Water District v. Gabaton andMetro Iloilo Water District v. NationalLabor Relations Commission.” (p.26,Rollo)In the meanwhile, there exists a

divergence of opinions between COA on onehand, and the LWUA on the other hand, withrespect to the authority of COA to audit thedifferent water districts.

COA opined that the audit of the waterdistricts is simply an act of discharging thevisitorial power vested in them by law (letterof COA to LWUA, dated August 13, 1985, pp.29-30, Rollo).

On the other hand, LWUA maintained thatonly those water districts with subsidies fromthe government fall within the COA’sjurisdiction and only to the extent of theamount of such subsidies, pursuant to theprovision of the Government Auditing Code ofthe Phils.

It is observed that just like the questionof whether the employees of the water districtsfalls under the coverage of the Civil ServiceLaw, the conflict between the water districtsand the COA is also dependent on the finaldetermination of whether or not water districtsare government-owned or controlledcorporations with original charter. The reasonbehind this is Sec. 2(1), Article IX-D of the

1987 Constitution which reads:“Sec. 2(1) The Commission on

Audit shall have the power, authorityand duty to examine, audit, and settleall accounts pertaining to the revenueand receipts of, and expenditures oruses of funds and property, ownedor held in trust by, or pertaining tothe Government, or any of itssubdivisions, agencies orinstrumentalities, includinggovernment-owned or controlledcorporations with original charters,and on a post audit basis.” (emphasissupplied).Petitioners’ main argument is that they

are private corporations without originalcharter, hence they are outside the jurisdictionof respondents CSC and COA. Reliance is madeon the Metro Iloilo case which declaredpetitioners as quasi-public corporationscreated by virtue of PD 198, a generallegislation which cannot be considered as thecharter itself creating the water districts.Holding on to this ruling, petitioners contendthat they are private corporations which areonly regarded as quasi-public or semi-publicbecause they serve public interest andconvenience and that since PD 198 is a generallegislation, the operative act which created awater district is not the said decree but theresolution of the sanggunian concerned.

After a fair consideration of the parties’arguments coupled with a careful study ofthe applicable laws as well as theconstitutional provisions involved. We ruleagainst the petitioners and reiterate Our rulingin Tanjay case declaring water districtsgovernment-owned or controlled corporationswith original charter.

As early as Baguio Water District v.


50

Trajano, et al., (G. R. No. 65428, February 20,1984, 127 SCRA 730), We already ruled that awater district is a corporation createdpursuant to a special law – P. D. No. 198, asamended, and as such its officers andemployees are covered by the Civil Service Law.

In another case (Hagonoy Water Districtv. NLRC, G. R. No. 81490, August 31, 1988,165 SCRA 272), We ruled once again that localwater districts are quasi-public corporationswhose employees belong to the Civil Service.The Court’s pronouncement in this case, asextensively quoted in the Tanjay case, supra,partly reads:

“The only question here iswhether or not local water districtsare government-owned or controlledcorporations whose employees aresubject to the provisions of the CivilService Law. The Labor Arbiterasserted jurisdiction over the allegedillegal dismissal of private respondentVillanueva by relying on Section 25of Presidential Decree No. 198, knownas the Provincial Water Utilities Actof 1973” which went onto effect in25 May 1973, and which provides asfollows:

Exemption from CivilService. - The district and itsemployees, being engaged in aproprietary function, are herebyexempt from the provision of theCivil Service Law. CollectiveBargaining shall be availableonly to personnel belowsupervisory levels: Provided,however, That the total of allsalaries, wages, emoluments,benefits or other compensationpaid to all employees in any

month shall not exceed fiftypercent (50%) of average netmonthly revenue. Said netrevenue representing incomefrom water sales and sewerageservice charges, less pro-ratashare of debt service andexpenses for fuel or energy forpumping during the precedingfiscal year.

The Labor Arbiter failed to takeinto account the provisions ofPresidential Decree No. 1479, whichwent into effect on 11 June 1978.PD.No. 1479 wiped away Section 25of PD 198 quoted above, and Section26 of PD 198 was renumbered asSection 25 in the following manner:

“Section 26 of the same decreePD 198 is hereby amended to read asSection 25 as follows:

Section 25. Authorization.– The district may exercise allthe powers which are expresslygranted by this Title or whichare necessarily implied from orincidental to the powers andpurposes herein stated. For thepurpose of carrying out theobjectives of this Act, a districtis hereby granted the power ofeminent domain, the exercisethereof shall, however, besubject to review by theAdministration.

Thus, Section 25 of PD 198exempting the employees of waterdistricts from the application of theCivil Service Law was removed fromthe statute books:

“ x x x.


51

“We grant the petition forthe following reasons:

“1. Section 25 of PD No.198 was repealed by Section 3of PD No. 1479; Section 26 ofPD No. 198 was amended to readas Sec. 25 by Sec. 4 of PD No.1479. The amendatory decreetook effect on June 11, 1978.

“x x x“3. The BWD is a

corporation created pursuant toa special law – PD No. 198, asamended. As such its officersand employees are part of theCivil Service (Sec. 1, Art. XII-B,[1973] Constitution: PD No.868).”

Ascertained from a consideration of thewhole statute, PD 198 is a special lawapplicable only to the different water districtscreated pursuant thereto. In all its essentialterms, it is obvious that it pertains to a specialpurpose which is intended to meet a particularset of conditions and circumstances. The factthat said decree generally applies to all waterdistricts throughout the country does notchange the fact that PD 198 is a special law.Accordingly, this Court’s resolution in MetroIloilo case declaring PD 198 as a generallegislation is hereby abandoned.

By “government-owned or controlledcorporation with original charter,” We meangovernment owned or controlled corporationcreated by special law and not under theCorporation Code of the Philippines. Thus, inthe case of Lumanta v. NLRC (G. R. No. 82819,February 8, 1989, 170 SCRA 79, 82), We held:

“The Court, in National ServiceCorporation (NASECO) v. NationalLabor Relations Commission, G. R.

No. 69870, promulgated on 29November 1988, quoting extensivelyfrom the deliberations of the 1986Constitutional Commission in respectof the intent and meaning of the newphrase ‘with original charter’ in effectheld that government-owned andcontrolled corporations with originalcharter refer to corporationschartered by special law asdistinguished from corporationsorganized under out generalincorporation statute – theCorporation Code. In NASECO, thecompany involved had beenorganized under the generalincorporation statute and was asubsidiary of the National InvestmentDevelopment Corporation (NIDC)which in turn was a subsidiary ofthe Philippine National Bank, a bankchartered by a special statue. Thus,government-owned or controlledcorporations like NASECO areeffectively, excluded from the scopeof the Civil Service.” (emphasissupplied)From the foregoing pronouncement, it is

clear that what has been excluded from thecoverage of the CSC are those corporationscreated pursuant to the Corporation Code.Significantly, petitioners are not created underthe said code, but on the contrary, they werecreated pursuant to a special law and aregovernment primarily by its provision.

No consideration may thus be given topetitioners’ contention that the operative actwhich created the water districts are theresolutions of the respective local sangguniansand that consequently, PD 198, as amended,cannot be considered as their charter.


52

It is to be noted that PD 198, as amendedis the source of authorization and power toform and maintain a district. Section 6 ofsaid decree provides:

“Sec. 6. Formation of District. –This Act is the source of authorizationand power to form and maintain adistrict. Once formed, a district issubject to the provisions of this Actand not under the jurisdiction of anypolitical subdivision. x x x.”Moreover, it must be observed that PD

198, contains all the essential terms necessaryto constitute a charter creating a juridicalperson. For example, Section 6(a) provides forthe name that will be used by a water district,thus:

“Section 7. x x x. To form adistrict, the legislative body of anycity, municipality or province shallenact a resolution containing thefollowing:

“a) The name of the local waterdistrict, which shall include the nameof the city, municipality, or province,or region thereof, served by saidsystem, followed by the words‘Water District.’It also prescribes for the numbers and

qualifications of the members of the Board ofDirectors:

“Sec. 8. Number andQualifications. - The Board ofDirectors of a district shall becomposed of five citizens of thePhilippines who are of voting age andresidents within the district. Onemember shall be a representative ofcivic-oriented service clubs, onemember a representative ofprofessional associations, one

member a representative of business,commercial or financialorganizations, one member arepresentative of educationalinstitutions and one member arepresentative of women’sorganization. No public official shallserve as director. Provided, however,that if the district has availed of thefinancial assistance of theAdministration, the Administrationmay appoint any of its personnel tosit in the board of directors with allthe rights and privileges appertainingto a regular member for such periodas the indebtedness remains unpaidin which case the board shall becomposed of six members;” (asamended by PDs Nos. 768 & 1479).the manner of their appointment and

nominations;“Section 9. Appointment. –

Board members shall be appointedby the appointing authority. Saidappointments shall be made from alist of nominees, if any, submittedpursuant to Section 10. If nonominations are submitted, theappointing authority shall appointany qualified person of the categoryto the vacant position;

“Section 10. Nominations. - Onor before October 1 of each even-numbered year, the secretary of thedistrict shall contact each knownorganization, association, orinstitution being represented by thedirector whose term will expire onDecember 31 and solicit nominationsfrom these organizations to fill theposition for the ensuing term. One


53

nomination may be submitted inwriting by each such organization tothe Secretary of the district on orbefore November 1 of such year: Thislist of nominees shall be transmittedby the Secretary of the district to theoffice of the appointing authority onor before November 15 of such yearand he shall make his appointmentfrom the list submitted on or beforeDecember 15. In the event theappointing authority fails to makehis appointments on or beforeDecember 15, selection shall be madefrom said list of nominees by majorityvote of the seated directors of thedistrict constituting a quorum. Initialnominations for all five seats of theboard shall be solicited by thelegislative body or bodies at the timeof adoption of the resolution formingthe district. Thirty days thereafter, alist of nominees shall be submittedto the provincial governor in the eventthe resolution forming the district isby a provincial board, or the mayorof the city or municipality in the eventthe resolution forming the adoptionof the district is by the city ormunicipal board of councilors, whoshall select the initial directorstherefrom within 15 days after receiptof such nominations;

their terms of office:Section 11. Term of Office. - Of

the five initial directors of each newlyformed district, two shall beappointed for a maximum term oftwo years, two for a maximum termof four years, and one for a maximumterm of six years. Terms of office of

all directors in a given district shallbe such that the term of at least onedirector, but not more than two, shallexpire on December 31 of each even-numbered year. Regular terms ofoffice after the initial terms shall befor six years commencing on January1 of odd-numbered years. Directorsmay be removed for cause only,subject to review and approval of theAdministration;” (as amended by PD768)

the manner of filling up vacancies:“Section 12. Vacancies. - In the

event of a vacancy in the board ofdirectors occurring more than sixmonths before expiration of anydirector’s term, the remainingdirectors shall within 30 days, servenotice to or request the secretary ofthe district for nominations andwithin 30 days, thereafter a list ofnominees shall be submitted to theappointing authority for hisappointment of a replacementdirector from the list of nominees. Inthe absence of such nominations, theappointing authority shall make suchappointment. If within 30 days aftersubmission to him of a list ofnominees the appointing authorityfails to make an appointment, thevacancy shall be filled from such listby a majority vote of the remainingmembers of the Board of Directorsconstituting quorum. Vacanciesoccurring within the last six monthsof an unexpired term shall also befilled by the Board in the abovemanner. The director thus appointedshall serve the unexpired term only;”


54

(as amended by PD 768).and the compensation and personal

liability of the members of the Board ofDirectors:

“Section 13. Compensation. -Each director shall receive a per diem,to be determined by the board, foreach meeting of the board actuallyattended by him, but no directorsshall receive per diems in any givenmonth in excess of the equivalent ofthe total per diems of four meeting inany given month. No director shallreceive other compensation forservices to the district.

“Any per diem in excess ofP50.00 shall be subject to approvalof the Administration (as amendedby PD 768).

“Section 14. Personal Liability.No director may be held to bepersonally liable for any action ofthe district.”Noteworthy, the above quoted provisions

of PD 198, as amended, are similar to thosewhich are actually contained in othercorporate charters. The conclusion isinescapable that the said decree is in truthand in fact the charter of the different waterdistricts for it clearly defines the latter’sprimary purpose and its basic organizationalset-up. In other words, PD 198, as amended,is the very law which gives a water districtjuridical personality. While it is true that aresolution of a local sanggunian is stillnecessary for the final creation of a district,this Court is of the opinion that said resolutioncannot be considered as its charter, the samebeing intended only to implement theprovisions of said decree. In passing aresolution forming a water district, the local

sanggunian is entrusted with no authority ordiscretion to grant a charter for the creationof a private corporation. It is merely given theauthority for the formation of a water district,on a local option basis, to be exercised underand in pursuance of PD 198.

More than the aforequoted provisions,what is of important interest in the case atbar is Section 3, par. (b) of the same decreewhich reads:

“Section 3(b). Appointingauthority. - The person empowered toappoint the members of the Board ofDirectors of a local water district,depending upon the geographiccoverage and population make-up ofthe particular district. In the event thatmore than seventy-five percent of thetotal active water service connectionsof a local water districts are withinthe boundary of any city ormunicipality, the appointing authorityshall be the mayor of that city ormunicipality, as the case may be;otherwise, the appointing authorityshall be the governor of the provincewithin which the district is located:Provided, That if the existingwaterworks system in the city ormunicipality established as a waterdistrict under this Decree is operatedand managed by the province, initialappointment shall be extended by thegovernor of the province. Subsequentappointments shall be as specifiedherein.

If portions of more than oneprovince are included within theboundary of the district, and theappointing authority is to be thegovernors then the power to appoint


55

shall rotate between the governorsinvolved with the initial appointmentsmade by the governor in whoseprovince the greatest number ofservice connections exists (asamended by PD 768).The above-quoted section definitely sets

to naught petitioners’ contention that theyare private corporations. It is clear therefromthat the power to appoint the members whowill comprise the Board of Directors belongsto the local executives of the local subdivisionunits where such districts are located. Incontrast, the members of the Board ofDirectors or trustees of a private corporationare elected from among the members andstockholders thereof. It would not be amissto emphasize at this point that a privatecorporation is created for the private purpose,benefit, aim and end of its members orstockholders. Necessarily, said members orstockholders should be given a free hand tochoose those who will compose the governingbody of their corporation. But this is not thecase here and this clearly indicates thatpetitioners are definitely not privatecorporations.

The foregoing disquisitionnotwithstanding, We are, however, notunaware of the serious repercussion this maybring to the thousands of water districtsemployees throughout the country who standto be affected because they do not have thenecessary civil service eligibilities. As theseemployees are equally protected by theconstitutional guarantee to security of tenure.We find it necessary to rule for the protectionof such right which cannot be impaired by asubsequent ruling of this Court. Thus, thoseemployees who have acquired their permanentemployment status at the time of the

promulgation of this decision cannot beremoved by the mere reason that they lackthe necessary civil service eligibilities.

ACCORDINGLY, the petition is herebyDISMISSED. Petitioners are declared“government-owned or controlled corporationswith original charter” which fall under thejurisdiction of the public respondents CSC andCOA.

SO ORDERED.

(SGD) LEO D. MEDIALDEAAssociate Justice

WE CONCUR:

(SGD) MARCELO B. FERNANChief Justice

(SGD) ANDRES R. NARVASAAssociate Justice

(SGD) AMEURFINA A. MELENCIO-HERRERA

Associate Justice

(ON LEAVE)HUGO E . GUTIERREZ, JR.Associate Justice

(SGD) ISAGANI A. CRUZAssociate Justice

(SGD) EDGARDO L. PARASAssociate Justice

(ON LEAVE)FLORENTINO P. FELICIANOAssociate Justice


56

(SGD) TEODORO R. PADILLAAssociate Justice

(SGD) ADBULWAHID A. BIDINAssociate Justice

(ON LEAVE)ABRAHAM F. SARMIENTOAssociate Justice

(SGD) CAROLINA C. GRINO-AQUINOAssociate Justice

(SGD) FLORENZ D. REGALADOAssociate Justice

(SGD) HILARIO G. DAVIDE, JR.Associate Justice

C E R T I F I C A T I O NC E R T I F I C A T I O N

Pursuant to Article VIII, Section 13 of theConstitution, it is hereby certified that theconclusions in the above decision were reachedin consultation before the case was assignedto the writer of the opinion of the Court.

(SGD) MARCELO B. FERNANChief Justice

Separate Opinions:BIDIN, J., Dissenting:

I regret I have to register my dissent inthis case. I agree with the main ponencia thatP.D. 198, as amended, authorizes the differentlocal legislative bodies (Sanggunian) to formand create their respective water districtsthrough a Resolution which they will passsubject to the guidelines, rules and regulationstherein laid down. The issue, therefore, to be

resolved is whether the local water districtsso created are government-owned or controlledcorporations with original charters embracedby the Civil Service as contemplated by Art.IX-B, Sec. 2[1] of the 1987 Constitution.

P. D. 198 is a general legislation whichauthorized the formation of water districts.However, the operative act which creates awater district is not said decree but theresolution of the Sanggunian concernedforming and maintaining a local water district.Thus, Section 2 of the P. D. 198, among others,provides:

“Sec. 2. Declaration of Policy – xx x To encourage the formulation ofsuch local water districts and thetransfer thereto of existing watersupply and waste water disposalfacilities, this Decree provides bygeneral act the authority for theformation thereof, on a local optionbasis. x x x” (Underscoring supplied)Implementing the above policy, Title II of

P. D. 198 provides:“TITLE II. – LOCAL WATER DISTRICT LAW

CHAPTER I. - TitleSec. 4. Title – The provisions of

this Title shall be known and referredto as the ‘Local Water District Law.’

CHAPTER II. – Purpose andFormation

Sec. 5. Purpose. – Local waterdistricts may be formed pursuant tothis Title for the purposes of (a)acquiring, installing, improving,maintaining and operating watersupply and distribution systems fordomestic, industrial, municipal andagricultural uses for residents andlands within the boundaries of suchdistricts (b) providing, maintaining


57

and operating wastewater collection,treatment and disposal facilities, and(c) conducting such other functionsand operations incidental to waterresource development, utilization anddisposal within such districts, as arenecessary or incidental to saidpurpose.

Sec. 6. Formation of District. –This Act is the source of authorizationand power to form and maintain adistrict. For purposes of this Act, adistrict shall be considered as a quasi-public corporation performing publicservice and supplying public wants.As such, a district shall exercise thepowers, rights and privileges givento private corporations under existinglaws, in addition to the powersgranted in, and subject to suchrestrictions imposed, under this Act.

x x xSec. 7. Filing of Resolution. - A

certified copy of the resolution orresolutions forming a district shallbe forwarded to the office of theSecretary of the Administration. Iffound by the Administration toconform to the requirements ofSection 6 and the policy objectives inSection 2, the resolution shall be dulyfiled. The district shall be deemed dulyformed and existing upon the date ofsuch filing. A certified copy of saidresolution showing the filing stampof the Administration shall bemaintained in the office of the district.Upon such filing, the local governmentor governments concerned shall loseownership, supervision and controlor any right whatsoever over the

district except as provided herein.”(Underscoring supplied)It is apparent that insofar as the

formation of local water districts areconcerned, P. D. 198 is not an original charterbut a general act authorizing the formationof water districts on local opinion basis (Sec.2, P. D. 198) similar to the Corporation Code.What is chartered, formed and created underP. D. 198 as a government corporation is the“Local Water Utilities Administration”attached to the Office of the President asfollows:

“Sec. 49. Charter. – There ishereby chartered, created and formeda government corporation to beknown as the ‘Local Water UtilitiesAdministration’ which is herebyattached to the Office of thePresident. The provisions of this Titleshall be and constitute the charter ofthe Administration.”On the other hand, local water districts

are formed by resolutions of the respectiveProvincial, City and Municipal councils (Sec.7, P. D. 198) filed with the Local Water UtilitiesAdministration, a government corporationchartered under Section 49, P. D. 198 andattached to the Office of the President.Consequently, without the requisite resolutionof the Sanggunian concerned forming thewater district having been filed with the LocalWater Utilities Administration, no waterdistrict is formed. What gives the waterdistricts juridical personality is the resolutionof the respective Sanggunian forming thedistrict and filed with the Local Water UtilitiesAdministration. Once formed, a water districtis subject to the provisions of P. D. 198 and nolonger under the jurisdiction of any politicaladministration which shall thereafter lose


58

ownership, supervision and control over thedistrict (Sec. 7 PD 198).

In view of the foregoing, I vote to Grantthe petition and to declare petitioners asquasi-public corporations performing publicservice without original charters, and thereforenot embraced by the Civil Service.

(SGD). ADBULWAHID A. BIDINAssociate Justice

(SGD) DANIEL T. MARTINEZClerk of Court


59


REORGANIZING THE METROPOLITANWATERWORKS AND SEWERAGE SYSTEM(MWSS) AND THE LOCAL WATER UTILITIESADMINISTRATION (LWUA) PURSUANT TOREPUBLIC ACT NO. 8041, OTHERWISEKNOWN AS THE NATIONAL WATER CRISISACT OF 1995

WHEREAS, as enunciated in Republic ActNo. 8041, it is the “declared policy of the Stateto adopt urgent and effective measures toaddress the nationwide water crisis whichadversely affects the health and well-being ofthe population, food production andindustrialization process;”

WHEREAS, consistent with this policy,Section 7 of Republic Act No. 8041 authorizedthe President to revamp and reorganize theMWSS and the LWUA;

WHEREAS, the Joint Executive-LegislativeWater Crisis Commission established underthe same law has, after consultingrepresentatives of the MWSS and the LWUA,proposed a reorganizational plan for the saidagencies; and

WHEREAS, the proposed reorganizationis consistent with the Administration’sframework for governance, having beendesigned to streamline and correctdysfunctions in the structure and operationsof the MWSS and the LWUA to enable theseagencies to become more effective, efficientand responsive to the country’s needs forpotable water, as well as prepare thegroundwork for their eventual privatization,

where feasible.NOW, THEREFORE, I, FIDEL V. RAMOS,

President of the Philippines, by virtue of thepowers vested in me by law, consistent withthe reorganization plan proposed by the JointExecutive-Legislative Water Crisis Commission,do hereby order:

SEC. 1. Framework and Objectives. - Thereorganization of the MWSS and LWUA shallbe undertaken in the context of theAdministration’s framework of governance.Accordingly, the role of the nationalgovernment shall be to steer rather than row.It shall, to the extent possible, encourage theprivate sector to participate in the delivery ofpublic goods through franchising, concession,management, privatization or otherarrangements of the concerned agenciesoperations or facilities.

Prudence and restraint in the use ofgovernment resources shall be exercised.Efforts at streamlining and correctingdysfunctions in the operations and structuresof the agencies concerned shall be undertakento achieve more with less. The delivery of moreeffective, efficient, and responsible publicservice shall be paramount.

SEC. 2. Reorganization Plan for theMWSS. - The MWSS shall be reorganized, asfollows:

2.1. Officers. - The MWSS shall be headedby an Administrator who shall be its chiefexecutive officer. He shall be assisted by two(2) Senior Deputy Administrators, one forOperations and Customers Service and anotherfor Resource Development and Management.There shall, moreover, be four (4) DeputyAdministrators, one (1) for Engineering andConstruction, one (1) for Finance andAdministration, and two (2) for CustomersService. The Senior Deputy Administrators and



60

Deputy Administrators shall be appointed bythe Board, upon the recommendation of theAdministrator.

2.2 Organization and Management. - TheAdministrator, with the assistance of hisSenior Deputy Administrators, shall provideoverall direction and control over theoperations and administration of MWSS.

(a) The Office of the Administrator shallhave the following services and/or departmentsdirectly under its supervision:

i. Corporate Planning Serviceii. Internal Audit Serviceiii. Management Information Serviceiv. System Development Departmentv. Computer Service Departmentvi. Legal Departmentvii. Public Affairs Department(b) The Office of the Senior Deputy

Administrator for Operations and CustomersService shall be in charge of the operationsand maintenance of the MWSS plants andother facilities, and the actual delivery ofservice to water users. It shall have directsupervision of the following departments:

i. Water Productionii. Water Transmission and Meter

Managementiii. Sewerage(c) To ensure more effective and

responsive delivery of water services andincrease revenues, Customers Service shall bedivided into two Districts, each District to beheaded by a Deputy Administrator. EachDistrict shall have four service areas with eachArea (or department) performing the followingfunctions, as well as such other functions thatmay be assigned to it consistent with thepurpose of decentralizing to ensure betterpublic service:

i. Revenue Generation, including

meter installation and reading, billing andcollection

ii. Facilities Operation Maintenanceand Improvement

iii. Meter Managementiv. Public Information(d) The Office of the Senior Administrator

for Resource Development and Managementshall have direct supervision over the DeputyAdministrators for Engineering andConstruction, and for Administration andFinance.

(e) The Office of the Deputy Administratorfor Engineering and Construction shallundertake planning and programming,monitoring, and evaluation of projects for thedevelopment and expansion of waterworksand sewerage facilities. Specifically, it shallhave direct supervision over the followingdepartments:

i. Project Planningii. Project Designiii. Applied Research and Quality

ControlThe same Deputy Administrator shall

have direct supervision over the ProjectManagement Office, which comprises a poolof project managers, presently consisting offive (5).

(f) The Office of the Deputy Administratorfor Finance and Administration shall beresponsible for resource management andprovision of administrative support services.It shall consist of the following departments:

i. Accountingii. Managerial Finance and Budgetiii. Human Resource Development and

Manpower Planningiv. General Servicesv. Personnel Management and Health

Services


61

vi. Treasury(g) The Table of Organization down to

department level is provided for in Annex “A”.2.3. Authority to Revise the Number of

Departments. - The MWSS is, subject to theapproval of the President, authorized to revisethe number of departments herein specified ifand when the same becomes necessary byreason of a franchising, concession,privatization or other arrangements that willreduce the scope of its current operations andactivities.”,

SEC. 3. Reorganization Plan for theLWUA. - The LWUA is hereby reorganized, asfollows:

3.1. Officers. - The LWUA shall be headedby an Administrator who shall be its chiefexecutive officer. He shall be assisted by aSenior Deputy Administrator. There shall,moreover, be three (3) Deputy Administrators,one (1) each for Finance, Administration andArea Operations. The Senior DeputyAdministrator and Deputy Administrators shallbe appointed by the Board upon therecommendation of the Administrator.

3.2. Organization and Management. - TheAdministrator, with the assistance of hisSenior Deputy Administrator, shall provideover-all direction and control over theoperations and administration of the LWUA.

(a) The Office of the Administrator shallhave direct supervision over the followingdepartments:

i. Internal Controlii. Management Servicesiii. Public Affairs(b) The Office of the Senior Deputy

Administrator shall have direct supervisionover the following departments:

i. Special Projectsii. Legal

iii. Water Resource Research and TrainingThe Senior Deputy Administrator shall

also exercise supervision over the three (3)Deputy Administrators.

(c) The Office of the DeputyAdministrator for Finance shall be responsiblefor financial resources management and loansadministration. Specifically, it shall havedirect supervision over the followingdepartments:

i. Treasuryii. Accountingiii. Loans Administrationiv. Water District Audit(d) The Office of the Deputy

Administrator for Administration shall beprimarily responsible for the provision ofadministrative services. It shall have directsupervision over the following departments:

i. Human Resource Managementii. Property Managementiii. General Services(e) The Office of the Deputy Administrator

for Area Operations shall have directsupervision over nine (9) area managers whowill be responsible for the following functionsat the field level:

i. Project Planningii. Project Monitoring and Evaluationiii. Water District Developmentiv. Loans Evaluation(f) The Table of Organization down to

department level is provided for in Annex “B”.3.3. Authority to Revise the Number of

Departments. - The LWUA is, subject to theapproval of the President, authorized to revisethe number of departments herein specified ifand when the same becomes necessary byreason of a franchising, concession,privatization or other arrangements that willreduce the scope of its current operations and


62

activities.SEC. 4. Detailed Staffing. - The MWSS

and LWUA are hereby directed to prepare theirproposed detailed staffing or manningpatterns accounting for all positions in theorganization and the corresponding budgetaryand resource rearrangements as may benecessary. They are, moreover, required toconduct a thorough personnel audit todetermine their respective manpowerrequirements. An inventory of contracts of allcontractual employees including casual andtemporary employees shall also be made todetermine the need for the continuation oftheir services.

The proposed staffing pattern shall besubmitted to the Department of Budget andManagement (DBM) for review not later thansixty (60) days from the date hereof. The DBMshall submit its recommendation to thePresident within thirty (30) days from receiptof the proposal but in no case later than ninety(90) days from the date hereof.

The revised staffing or manning patternshall in no case exceed the number of existingauthorized regular positions.

SEC. 5. Revised Compensation. - TheMWSS and the LWUA are hereby authorizedto adopt a revised and upgraded positionclassification and compensation package forits officers and employees, subject to thefollowing conditions:

a. no diminution of the present salariesand benefits of MWSS and LWUA personnel;

b. the revised rates of compensation shallbe commensurate to the improved and efficientrevenue collection of the agency concerned asdetermined by their respective Boards ofTrustees;

c. the adjusted rates shall not exceedindustry and private sector rates of

compensation;d. approval by the Board of Trustee of

their respective budgets which must besufficient to cover the proposed adjustmentson compensation;

e. the non-revenue water of the agencyconcerned shall in no case be more than fortypercent (40%); and

f. final approval of the President.SEC. 6. Separation Pay. - Any official or

employee of the MWSS and LWUA who maybe phased out by reason of the reorganizationshall be entitled to such benefits as may bedetermined by existing laws. For this purpose,the MWSS, LWUA and DBM are herebydirected to study and propose schemes ormeasures to provide personnel who shallvoluntarily retire from the service incentivesand other benefits, including the possibilityof accelerating the application of the revisedcompensation package under the SalaryStandardization Law, Republic Act No. 6758.The recommendation should be submitted tothe President not later than thirty (30) daysfrom the date hereof.

SECTION 7. Effectivity. - This ExecutiveOrder shall take effect the day after itscomplete publication in a newspaper ofgeneral circulation.

DONE in the City of Manila, this 6th dayof December, in the year of Our Lord, NineteenHundred and Ninety-Five.

By the President:

(SGD) RUBEN D. TORRESExecutive Secretary

Published in the Manila Times onDecember 11, 1995.


63

ANNEX A

METROPOLITAN WATERWORKS & SEWERAGE SYSTEM ORGANIZATIONALSTRUCTURE


64

ANNEX B

LOCAL WATER UTILITIES ADMINISTRATION ORGANIZATIONAL STRUCTURE

Services Office


65

Republic of the PhilippinesCongress of the Philippines

Metro Manila

Twelfth Congress

Third Regular Session

Begun and held in Metro Manila, onMonday, the twenty-eighth day of July, twothousand and three.

Republic Act No. 9286

AN ACT FURTHER AMENDINGPRESIDENTIAL DECREE NO. 198,OTHERWISE KNOWN AS “THEPROVINCIAL WATER UTILITIES ACT OF1973”, AS AMENDED

Be it enacted by the Senate and House ofRepresentatives of the Philippines in Congressassembled:

Section 1. Section 13 of PresidentialDecree No. 198, as amended, is hereby amendedto read as follows:

“Sec. 13. Compensation. - Each directorshall receive per diem to be determined by theBoard, for each meeting of the Board actuallyattended by him, but no director shall receiveper diems in any given month in excess of theequivalent of the total per diem of fourmeetings in any given month.

“Any per diem in excess of One hundredfifty pesos (P150.00) shall be subject to theapproval of the Administration. In additionthereto, each director shall receive allowances

and benefits as the Board may prescribesubject to the approval of the Administration.”

Sec. 2. Section 23 of Presidential DecreeNo. 198, as amended, is hereby amended toread as follows:

“Sec. 23. The General Manager. - At thefirst meeting of the Board, or as soonthereafter as practicable, the Board shallappoint, by a majority vote, a general managerand shall define his duties and fix hiscompensation. Said officer shall not beremoved from office, except for cause and afterdue process.”

Sec. 3. Separability Clause. - If anysection or provision of this Act is declaredunconstitutional or invalid, the other sectionsor provisions not affected thereby shallcontinue to be in force and effect.

Sec. 4. Repealing Clause. - All acts,decrees, executive orders, rules andregulations, part or parts thereof inconsistentwith the provisions of this Act are herebyrepealed or modified accordingly.

Sec. 5. Effectivity Clause. - This Act shalltake effect upon its approval.

Approved.

(SGD) JOSE DE VENECIA JR.Speaker of the House of Representatives

(SGD) FRANKLIN M. DRILONPresident of the Senate

This Act which is a consolidation ofSenate Bill No. 2727 and House Bill No. 4861was finally passed by the Senate and Houseof Representatives on February 6, 2004 andFebruary 7, 2004, respectively.



66

(SGD) ROBERTO P. NAZARENOSecretary GeneralHouse of Representatives

(SGD) OSCAR G. YABESSecretary of the Senate

Approved: April 02, 2004

(SGD) GLORIA MACAPAGAL-ARROYOPresident of the Philippines


67


Manila

BY THE PRESIDENT OF THE PHILIPPINES


INSTITUTING REFORMS IN THEFINANCING POLICIES FOR THE WATERSUPPLY AND SEWERAGE SECTOR ANDWATER SERVICE PROVIDERS ANDPROVIDING FOR THE RATIONALIZATION OFLWUA’S ORGANIZATIONAL STRUCTUREAND OPERATIONS IN SUPPORT THEREOF.

WHEREAS, Presidential Decree No. 198(“PD 198”) established the Local Water UtilitiesAdministration (LWUA), mandating it to serveas a “specialized lending institution” for thepromotion, development and financing of localwater utilities;

WHEREAS, the Local Government Units(LGUs) are responsible for the provision of basicservices and facilities as enumerated underSection 17 of the Republic Act. No. 7160 (LocalGovernment Code), including among others, theprovision of water supply and sewerageservices;

WHEREAS, shifts in government financingpolicies and constraints in the availability offinancing from the National Government, andlack of investor confidence in the water supplyand sewerage sector and limited capital stockand domestic and foreign borrowing authorityhave constrained LWUA from providingfinancing assistance to qualified WaterDistricts (WDs);

WHEREAS, there is a need to tapfinancing resources available to the watersector, including international grants, andfunding from government financinginstitutions (GFIs), private financinginstitutions (PFls), and LGUs;

WHEREAS, there is a need to review andrationalize current financing policies for thePhilippine water supply and sewerage sectorto allow for the efficient flow of resourcesthereto;

WHEREAS, cognizant of the urgency ofthe aforecited need, the NEDA Board passed aresolution providing for the reforms in thefinancing of the water supply and seweragesector and the creation of an OversightCommittee for the purpose of coordinatingand overseeing the implementation of saidfinancing reforms in the Philippine watersupply and sewerage sector;

WHEREAS, the implementation of therecommended reforms requires that LWUA, asthe focal government agency for financing andinstitutional development of local WDs,refocus its objectives and rationalize itsoperation;

WHEREAS, by virtue of’ Executive Order123, s. of 2002, the regulation of tariffs ofWDs will be undertaken by the National WaterResources Board (NWRB) with a proviso thatLWUA, consistent with its mandate under PD198, may continue reviewing the tariff of WDsin which it has financial exposure with theend view of ensuring their financial viability.

WHEREAS, the LWUA is currentlyattached to the Department of Public Worksand Highways (DPWH) by virtue of ExecutiveOrder No. 124, s. of 1987;

WHEREAS, rationalization of LWUA’soperations require closer policy and programcoordination with the Office of the President


68

(OP);WHEREAS, under Section 31, Chapter

10, Book III of Executive Order No. 292 or theAdministrative Code of 1987, the President,in order to achieve simplicity, economy andefficiency, has continuing authority toreorganize the administrative structure ofagencies under it;

NOW, THEREFORE, I, GLORIAMACAPAGAL-ARROYO, President of theRepublic of the Philippines, by virtue of thepowers vested in me by law, do hereby order:

PART IGENERAL PROVISIONS

SECTION 1. Reform Objectives/Policies- All concerned government agencies andinstrumentalities of the water supply andsewerage sector, including but not limited tothe Department of Finance (DOF), theMunicipal Finance Corporation (MFC),Department of Interior and Local Government(DILG), Department of. Budget andManagement (DBM), Department ofEnvironment and Natural Resources (DENR),DPWH, National Economic and DevelopmentAuthority (NEDA), LWUA, and the GFIs arehereby directed to pursue and implement thefollowing reform objectives / policies in thewater supply and sewerage sector:

(a) Improvement of investor confidencein the water supply and sewerage sector;

(b) Rationalization in the allocation ofscarce financial resources in the water supplyand sewerage sector through classificationand graduation initiatives;

(c) Freedom of choice of water serviceproviders in sourcing financing;

(d) Increase in the participation of LGUs,GFls, and PFIs in the financing of the water

supply and sewerage sector;(e) Stipulation of improved service and

creation of financial self-sustainability forwater service providers;

(f) Encouragement of initiatives aimedat self-sufficiency of water service providers,including, but not limited to, amalgamation,private sector participation, cost-recoverytariffs, and resource pooling;

(g) Grant of incentives for theimprovement and graduation of water serviceproviders;

(h) Education of consumers towardstreating water as a scarce economic good;and

(i) Establishment of an independenteconomic regulator for the water supply andsewerage sector.

SEC. 2. Definition of Terms – Forpurposes of this Order, the term:

(a) Water Service Providers (WSPs) - referto local water utilities such as WDs, LGU-runwater utilities, rural waterworks andsanitation associations, barangay waterworksand sanitation associations, regardless oflocation.

(b) Amalgamation - refers to theconsolidation, joint operation or annexationof two or more WSPs resulting into a waterdistrict.

(c) Classification – refers to thecategorization of WSPs into non-creditworthy,pre-creditworthy, semi-creditworthy orcreditworthy to determine proper allocationof financing.

(d) Cost Recovery Tariff - is the tariffrequired to cover capital and operation andmaintenance costs of WSPs at all service levels.

(e) Creditworthy WSPs - are financiallyself-sustaining WSPs and capable of accessingfinancing from GFIs and/or PFIs.


69

(f) Government Financial Institutions(GFIs) – refer to the Development Bank of thePhilippines (DBP), Land Bank of the Philippines(LBP) and other financing institutions ownedand controlled by the Government

(g) Graduation - refers to the progressionof a WSP from semi-creditworthy tocreditworthy status or of a non-credit worthyto pre-creditworthy or of a pre-creditworthyWSP to semi-creditworthy status based onimprovements in financial and operationalindicators.

(h) Local Government Units (LGUs)- referto the territorial and political subdivisions ofthe Philippines, consisting of provinces, cities,municipalities and barangays.

(i) Non-Creditworthy WSPs - refer toWSPs with potential to reach pre-creditworthystatus in the medium-term, based on relevantfinancial and operational indicators set bythe Oversight Committee.

(j) Pre-Creditworthy WSPs - refer toWSPs which are not likely to becomecreditworthy in the medium-term due toperformance issues but can demonstrate thepotential for creditworthiness in the long-term,based on relevant financial and operationalindicators set by the Oversight Committee.

(k) Semi-Creditworthy WSPs - refer toWSPs with the demonstrated ability to achievecreditworthiness in the short-term, based onrelevant financial and operational indicatorsset by the Oversight Committee, but either lackthe full criteria for creditworthiness or do notmeet the criteria consistently.

PART IIOVERSIGHT COMMITTEE

SEC. 3. Oversight Committee – An inter-agency Oversight Committee is hereby

constituted for purposes of coordinating andoverseeing the implementation of the reformsin the financing, graduation and regulatorypolicies in the water supply and seweragesector.

SEC. 4. Composition - The compositionof the Oversight Committee shall be asfollows:

Chair: Department of Finance (DOF)Vice-Chair: National Economic and

Development Authority (NEDA)Members: Department of Budget and

Management (DBM)Department of Interior and Local

Government (DILG):Office of the President (OP)Local Water Utilities Administration

(LWUA)Designated representatives of DOF, NEDA,

DBM, DILG and OP must preferably be ofUndersecretary level LWUA must be representedby its Administrator.

GFIs and the Municipal DevelopmentFund Office (MDFO) may serve as resourcepersons during meetings of the OversightCommittee.

SEC. 5. Functions - The OversightCommittee shall, among others:

(a) Formulate the implementing rules andregulations (IRR) of this Order;

(b) Review the rationalization plan to besubmitted by LWUA pursuant to Section 9 ofthis Order and submit its recommendationson said plan to the President for approval;

(c) Review the criteria for theclassification of WSPs, recommended by theWater Development Group (WDG) of LWUA;

(d) Review the classification of WSPsprepared by LWUA-WDG, duly certified byLWUA-Head that the same is in accordancewith the criteria presented to and reviewed by


70

the Oversight Committee. The OversightCommittee may subject the classification ofthe WSPs to audit;

(e) Prepare an action plan for the reformsin the financing policies in the water supplyand sewerage sector for the near term and themedium term including incentive schemes thatappropriate agencies may consider to offer toGFIs and PFIs to encourage such institutionsto lend to WSPs;

(f) Prepare and submit quarterly reportsto the agency to which LWUA is attached; and

(g) Review the charter of LWUA and whennecessary, propose amendments thereto.

The Oversight Committee shallimmediately organize itself and set its policiesand procedures to facilitate theimplementation of the said reforms in thewater supply and sewerage sector.

SEC. 6. Technical Secretariat - TheOversight Committee shall establish aTechnical Secretariat under DOF to be staffedby personnel assigned by government agenciescomprising it. It shall serve as the officialrepository of all data concerning theclassification and evaluation of all WSPS,

SEC. 7. Expenses - Members of theOversight Committee and its TechnicalSecretariat shall be entitled to receivehonoraria and/or reimbursement of expensesas may be allowed subject to availability offunds and prevailing rules and regulations.

PART IIILOCAL WATER UTILITIES

ADMINISTRATION

SEC. 8. Transfer to OP - The LWUA,presently attached to the DPWH, is herebyattached to OP until such time it is transferredto DOF as provided for under Section 10 hereof.

In addition, the LWUA Board of Trustees (BOT)shall include representatives from the agencyto which it is attached.

SEC. 9. Rationalization of LWUA’sorganizational structure and operations -LWUA, subject to applicable laws andregulations, is hereby directed to review itsorganizational structure and internal policiesand programs, rationalize its operation andrefocus its objectives to include other WSPs,whenever feasible or applicable to facilitateimplementation of and conform with thepolicies enunciated in this Order. To this extent,LWUA shall constitute and designate from itscurrent organizational set-up, a WaterDevelopment Group (WDG), a WaterDevelopment Financier (WDF) and a TechnicalAssistance Group (TAG), or similar structures,with functions and responsibilities as follows:A. Water Development Group (WDG)

The WDG shall have the followingresponsibilities;

(a) The WDG which shall be primarilycharged with the continuation of LWUA’scurrent institutional development servicesaimed at graduating WSPs, as well as theclassification of WSPs.

(b) The WDG shall classify the WSPs intoeither creditworthy, semi-creditworthy, pre-creditworthy or non-creditworthy for thepurpose of determining the appropriatesources of financing. WSPs initially classifiedby WDG as creditworthy and/or non-creditworthy shall be subject to further reviewby the Oversight Committee pursuant toSection 5 of this Order.

WSPs classified as semi-creditworthyand pre-creditworthy and non-credit worthyshall be subject to periodic review by the WDGat least once every three (3) years for purposesof reclassification. At their own instance,


71

WSPs may request the WDG for an annualreclassification review.

(c) Graduation - The WDG shall develop agraduation plan for non-creditworthy, pre-creditworthy and semi-creditworthy WSPsbased on the following graduation initiatives:

LWUA-WDG shall monitor theimplementation of the graduation plan andevaluate the effectiveness of the graduationinitiatives undertaken by the semi-creditworthy, pre-creditworthy and non-creditworthy WSPs.

LWUA-WDG shall initially cover theclassification and graduation plan andinitiatives of WDs. It may also cover otherWSPs as deemed applicable or feasible.

(d) Reporting - LWUA-WDG shall prepareand submit quarterly reports on its activitiesto the Oversight Committee and DOF.B. Water Development Financier (WDF)

The WDF shall have the followingresponsibilities:

(a) The WDF which shall be primarilytasked to enhance and/or strengthen LWUA’slending functions and evaluate the applicationsfor financial assistance.

(b) Re-orientation Towards BankingPrinciples - LWUA, through the WDF, shallenhance and/or strengthen its lending policiesand functions to carry out and implement itsmandate to provide financing particularly tonon-credit worthy, pre-creditworthy and semi-creditworthy WDs, grounded on sounddevelopment banking principles. To this effect,LWUA shall adopt development bankingprinciples which cater to the financing needsof WSPs and shall develop its own proceduresfor the monitoring of its loan portfolio. LWUAshall develop lending policies and guidelinesin pursuit of the policies and principlesespoused under this Executive Order within

90 days from its effectivity and submit thesame to the Oversight Committee. LWUA shallconduct its operations in a transparent,efficient and effective manner.

(c) Strengthening of Collection Function- In the exercise of its lending functions, LWUAshall also strengthen its collection functionfrom WDs as well as enhance its payment ofloans to LWUA creditors. To this effect, allcollections arising from LWUA’s receivablesshall constitute a special fund to beapportioned between debt servicing of LWUAloans and the additioned funding necessaryto support the LWUA’s graduation andtechnical assistance functions under the WDGand the TAG.

(i) Cost Recovery Tariff Initiatives - Theseare initiatives aimed at achieving widespreadfull cost recovery tariffs in the long term. Theinitiatives shall include the inventory of non-credit worthy, semi-creditworthy and pre-creditworthy WSPs to determine the degreeto which tariffs are sufficient to accumulateat least a minimal reserve for collateral orcounterpart equity. In. addition, should theLGUs invest in WSPs, they should be allowedrecovery of and some minimal return on itsinvestment.

(ii) Amalgamation and Private SectorParticipation Initiatives - These are initiativesaimed at achieving economies of scale andefficiency of service through the use ofidentified amalgamation and private sectorparticipation techniques based on technical,geographical, economic and other indicators.

LWUA shall develop the necessaryguidelines during the transition period for theamalgamated WDs and LGUs.

(iii) Management Structure andGovernance - These initiatives pertain toinstitutional improvements within the WSPs’


72

structure leading to greater accountability andimproved service.

(iv) LGU/WSP Resource Coordination forCredit Enhancement. - This refers to thepooling of resources between semi-creditworthy and/or pre-creditworthy or semi-creditworthy and/or non-creditworthy WSPsand the relevant LGUs in their service areas tofinance water supply and sewerage projectsor create the collateral needed to borrow fromGFls and PFIs.

(v) Education - This refers tocommunication and information initiatives onthe benefits of graduation initiatives includingcost recovery tariffs, amalgamation, privatesector participation and LGU/WSP resourcecoordination.

(vi) Technical Assistance to non-creditworthy and pre-creditworthy WSPs - Thisrefers to technical assistance to supportgraduation initiatives which may be given withor without charge within a value thresholdthat may be determined by LWUA-WDG.

(d) Segregation of LWUA Loan Portfolios- For purposes of identification andadministrative efficiency, LWUA shall maintainseparate accounting, payment and collectionsystems for existing loans and loans to begranted henceforth pursuant to the reformsinstituted in this Executive Order.C. Technical Assistance Group (TAG)

TAG shall have the followingresponsibilities:

(a) TAG shall continue LWUA’s programof providing technical assistance to WSPs, inaccordance with the proceeding sections.

(b) TAG shall extend project-relatedtechnical assistance to GFIs and credit-worthyWSPs on a competitive basis, consistent withapplicable laws, rules and regulations ongovernment procurement.

(c) Above a certain value threshold,which threshold shall be determined by LWUA,TAG shall extend project-related technicalassistance to semi-creditworthy WSPs on acompetitive basis, consistent with applicablelaws, rules and regulations on governmentprocurement.

(d) LWUA-TAG shall extend project-relatedassistance to non-creditworthy and pre-creditworthy WDs which may be with orwithout charge within a certain valuethreshold to be determined by LWUA tosupport projects funded by LWUA-WDF.

SEC. 10. Within thirty (30) days from theeffectivity of this Order, LWUA shall review itscurrent structure and submit its rationalizedplan to the Oversight Committee, consistentwith the policy reforms enunciated under thisOrder. The Oversight Committee shall evaluatethe rationalization plan within thirty (30) daysfrom receipt. LWUA, with the endorsement ofthe Oversight Committee, shall submit therationalization plan to the President for finalapproval.

Upon approval by the President of thereforms in the water supply and seweragesector, including the rationalized organizationand manpower structure of LWUA, LWUA shallthen be transferred to DOF. Pursuant to Section51 of PD 198, at least three (3) of the trusteesmust be employees of the National Government.DOF shall always be represented in the LWUA-BOT.

PART IVFINANCING POLICIES

SEC. 11. Responsibility of LGUs - In linewith the principle of devolution of the provisionof basic services under the Local GovernmentCode, LGUs shall be encouraged to provide


73

delivery of water supply and sewerage servicesthrough, but not limited to, investments in, orloans to WSPs. LGUs shall as a general policy,be financially and operationally responsiblefor the WSPs within their respectivejurisdictions.

SEC. 12. Sources of Financing - Thesources of financing for the water supply andsewerage sector shall be as follows:

(a) Creditworthy WSPs shall be eligibleto source financing at commercial lendingrates from GFIs and PFIs. Pursuant thereto,LWUA, with respect to creditworthy WDs shallenhance and streamline its waiver proceduresto effect the reform objectives/policiesenunciated herein. GFIs shall strengthen theirskills base and develop lending programsspecially tailored to the needs of the watersupply and sewerage sector.

(b) Semi-creditworthy WDs shall beeligible to source concessional debt financingfrom the LWUA-WDF, as well as GFIs and PFIswhen possible.

(c) Pre-creditworthy WDs shall be eligibleto source grants from donors and deepconcessional financing from the LWUA-WDF.

(d) Non-creditworthy WDs shall continueto be eligible for financing under the LWUA-WDF. However, LGUs are hereby encouragedto provide financial and operational supportfor such WDs and other WSPs within theirrespective jurisdictions. DILG and MDFO shallprovide the necessary technical and financialsupport within their respective mandates.

(e) WSPs, including eligible WDs, canaccess financing from GFIs, PFIs, MDFO, andLGUs, whenever possible.

LWUA-WDG shall provide the necessaryincentives for graduation such as extensionof greater flexibility in WD’s operation as aWD graduate from one stage to the next.

LWUA-WDG shall provide guidelines toencourage graduation, which shall beapproved by LWUA-BOT for submission to theOversight Committee.

SEC. 13. Role of Financial Institution –The classification of WSPs shall merely be adeterminant of eligibility for the varioussources of financing, but shall not in any waybe construed as an outright guarantee ofactual financing from the designated source.

PART VFINAL PROVISIONS

SEC. 14. The Oversight Committee shallformulate the IRR of this Order within 90 daysfrom its effectivity, which shall be publishedin accordance with the requirements of theAdministrative Code of 1987 and otherpertinent laws.

SEC. 15. The Oversight Committee shallcease to exist three (3) years after the approvalby the President of the rationalizedorganization and manpower structure ofLWUA, with any remaining function of theCommittee to be assumed by the DOF.

SEC. 16. Any violation of this Order andof its IRR shall be subject to disciplinary actionand other penalties as provided for in saidIRR and other relevant laws and issuances.

SEC. 17. If any provision of this Order isdeclared unconstitutional or invalid, the otherprovisions not affected thereby shall remainin full force and effect.

SEC. 18. All orders, executive issuances,rules and regulations, administrativeresolutions, or parts thereof, inconsistent withthe provisions of this Order are hereby repealedor modified accordingly.

SEC. 19. This Order shall take effect uponits publication in the Official Gazette or in a


74

newspaper of general circulation in thePhilippines.

DONE, in the City of Manila, this 2nd ofday of February in the year of our Lord, TwoThousand and Four.

By the President:

(SGD) ALBERTO G. ROMULOExecutive Secretary


75

Republic of the PhilippinesDEPARTMENT OF FINANCE

Manila

IMPL EMENTING RUL ES ANDREGULATIONS OF EXECUTIVE ORDER NO.279, SERIES OF 2004, “PRESCRIBINGGUIDELINES ON INSTITUTING REFORMSIN THE FINANCING POLICIES FOR THEWATER SUPPLY AND SEWERAGE SECTORAND WATER SERVICE PROVIDERS ANDPROVIDING FOR THE RATIONALIZATIONOF LWUA’S ORGANIZATIONALSTRUCTURE AND OPERATIONS INSUPPORT THEREOF

Section 1. PurposeTo prescribe the guidelines, criteria,

grounds and procedures which shall governfinancing policies for the water supply andsewerage sector and the rationalization ofLWUA’s organizational structure, operationand refocusing of its objectives.

Section 2. CoverageThese IRR shall cover all water districts

(WDs) other water service providers (WSPs)outside the coverage of MWSS/Maynilad/Manila Water and all concerned governmentagencies which have a role in theimplementation of EO 279, such as but notlimited to the Department of Finance (DOF),National Economic and Development Authority(NEDA), Department of Budget andManagement (DBM), Department of Interiorand Local Government (DILG), Office of thePresident (OP), Local Water UtilitiesAdministration (LWUA), Government FinancialInstitutions (GFIs), Municipal FinanceCorporation (MFC), Department of PublicWorks and Highways (DPWH), Department of

Environment and National Resources (DENR),Rural Waterworks and SanitationAssociations (RWSAs) and BarangayWaterworks and Sanitation Associations(BWSAs).

Section 3. Reforms, Objectives and PoliciesIn view of the shifts in government

financing policies and constraints in theavailability of financing from the NationalGovernment, there is a need to review andrationalize current financing policies for thePhilippine water supply and sewerage sectorto allow for the efficient flow of resources tothe sector. Cognizant of the need, these IRRhope to address the following reforms,objectives and policies:

(a) Improvement of investor confidencein the water supply and sewerage sector;

(b) Rationalization in the allocation ofscarce financial resources in the water supplyand sewerage sector through classificationand graduation initiatives;

(c) Freedom of choice of WSPs in sourcingfinancing;

(d) Increase in the participation of LGUs,GFIs, and PFIs in the financing of the watersupply and sewerage sector;

(e) Stimulation of improved service andcreation of financial self-sustainability forWSPs;

(f) Encouragement of initiatives aimedat self-sufficiency of water service providers,including, but not limited to, amalgamation,private sector participation, cost-recoverytariffs, and resource pooling;

(g) Grant of incentives for theimprovement and graduation of WSPs; and

(h) Education of consumers towardstreating water as a scarce economic good.


76

Section 4. Definition of TermsFor the purpose of these IRR, the

following terms are defined:(a) Amalgamation – consolidation, joint

operation or annexation of two or more WSPsresulting into a WD.

(b) Classification – categorization ofWSPs into non-creditworthy, pre-creditworthy,semi-creditworthy or creditworthy todetermine proper allocation of financing.

(c) Cost Recovery Tariff – tariff that isrequired to cover investment in capitalexpenditures, operating expenditures and debtservicing, including minimal reserve forcollateral or counterpart equity, and reservefor recovery of and some minimal return onLGU’s investment/infusion in the WDs or WSPs.

(d) Creditworthy WSPs – financially self-sustaining WSPs capable of accessingfinancing from GFIs and/or PFIs.

(e) Government Financial Institutions(GFIs) – Development Bank of the Philippines(DBP), Land Bank of the Philippines (LBP) andother financing institutions owned andcontrolled by the Government.

(f) Graduation – the progression of a WSPfrom non-creditworthy to pre-creditworthystatus or from a pre-creditworthy to semi-creditworthy status and/or from a semi-creditworthy to creditworthy status based onimprovements in financial and operationalindicators.

(g) Local Government Units (LGUs) –territorial and political subdivisions of thePhilippines, consisting of provinces, cities,municipalities and barangays.

(h) Long Term – period covering more thanfive (5) years,

(i) Medium Term – period coveringbetween three (3) and five (5) years.

(j) Non-Creditworthy WSPs – WSPs with

potential to reach pre-creditworthy status inthe medium-term, based on relevant financialand operational indicators set by the OversightCommittee.

(k) Pre-Creditworthy WSPs – WSPswhich are not likely to become creditworthyin the medium-term due to performance issuesbut can demonstrate the potential forcreditworthiness in the long-term, as may bedetermined based on relevant financial andoperational indicators set by the OversightCommittee.

(l) Private Financial Institutions (PFIs) –private entities which are primarily organizedfor the purpose of extending credit facilitiesto consumers and to industrial or agriculturalenterprises. Financing institutions other thangovernment financial institutions. Theseinclude universal and commercial banks.

(m) Semi-Creditworthy WSPs – WSPswith the demonstrated ability to achievecreditworthiness in the short-term, based onrelevant financial and operational indicatorsset by the Oversight Committee, but either lackthe full criteria for creditworthiness or do notmeet the criteria consistently.

(n) Short Term – period covering one year(1) to less than three (3) years.

(o) Technical Assistance – includesfeasibility study, detailed engineering design,review of feasibility study and engineeringdesign, preparation of work program,construction supervision, start-up operations,operations and maintenance assistance,rehabilitation of dilapidated systems, welldrilling and construction of new wells,rehabilitation and repair of old wells andemergency repair of water supply system.Financing for technical assistance involvingpre-feasibility or feasibility studies, projectidentification, sector survey, institution


77

building activities including training, shall becharged against beneficiaries unless grantsare available for the purpose. On the otherhand, consultancy/advisory services relatedto construction activities, including detailedengineering shall be considered as part of theproject capital cost and may be financed bythe project loan.

(p) Value Threshold – the level at whichLWUA may grant project related technicalassistance for free to the PCW and NCW WSPswithout affecting LWUA’s viability. This willbe determined by LWUA on a yearly basisdepending on LWUA’s capability to absorbsuch additional cost.

(q) Water Service Providers (WSPs) – localwater utilities such as WDs, LGU-run waterutilities, rural waterworks and sanitationassociations (RWSAs), and barangaywaterworks and sanitation associations(BWSAs), regardless of location.

Section 5. ResponsibilitiesThe implementation of the recommended

reforms requires that LWUA as the localgovernment agency for financing andinstitutional development of local WDs,focuses its objectives and rationalizes itsoperations. Accordingly, the rationalizationof LWUA’s organizational structure, operationand refocusing of its objectives, and theimplementation of the reforms in the financingpolicies for the water supply and seweragesector, as defined in Section 2 of these IRR,require close policy coordination among theconcerned government agencies.

5.1 Local Water Utilities AdministrationLWUA, subject to applicable laws and

regulations, shall review its organizationalstructure and internal policies and programs,

rationalize its operations and refocus itsobjectives to include WSPs, whenever feasibleor applicable, to facilitate implementation ofand conform with the policies enunciated inEO 279. Further, LWUA shall conduct itsoperations in a transparent, efficient andeffective manner.

LWUA shall constitute and designate fromits current organization set-up, a WaterDevelopment Group (WDG), a WaterDevelopment Financier (WDF) and a TechnicalAssistance Group (TAG), or similar structures,with functions and responsibilities as follows:5.1. A Water Development Group (WDG)

WDG shall have the followingresponsibilities:

(a) It shall be primarily charged with thecontinuation of LWUA’s current institutionaldevelopment services aimed at graduatingWSPs, as well as the classification of WSPs.

(b) It shall classify the WSPs into eithercreditworthy, semi-creditworthy, pre-creditworthy or non-creditworthy for thepurpose of determining the appropriatesources of financing WSPs initially classifiedby WDG as creditworthy and/or non-creditworthy shall be subject to further reviewby the Oversight Committee pursuant toSection 5.2(b) of these IRR.

LWUA shall initially cover theclassification and graduation plan andinitiatives of WDs. It may also cover otherWSPs as deemed applicable or feasible.

To facilitate the classification of the WDs,LWUA shall prepare the criteria forclassification and submit the same to theOversight Committee for review within 30 daysupon effectivity of EO 279.

The criteria shall consider:i. financial indicators such as current

ratio, debt service ratio, debt/equity ratio,


78

profit margin ratio and cash flow ratio; andii. operational indicators such as

collection efficiency; non-revenue water andservice connections/staff.

LWUA shall closely coordinate with theGFIs in determining the criteria forclassification.

The classification of WDs shall be dulyapproved by the LWUA Administrator forsubmission to the Oversight Committee forreview within 90 days upon completion ofreview of classification criteria by the OC.

For the initial classification, WDs haveto meet the criteria for three (3) consecutiveyears to be considered creditworthy. WDsclassified as semi-creditworthy, pre-creditworthy and non-creditworthy shall besubject to periodic review by WDG at leastonce every three (3) years for purposes ofreclassification. In like manner, subsequentclassification shall require three (3) yearsconsistent favorable evaluation. At their owninstance, WDs may request the WDG for anannual reclassification review.

Any changes in the classification shouldbe submitted to the Oversight Committee.

Lending to WDs initially classified ascreditworthy shall be governed by Section 9(b) of these IRR.

(c.) It shall develop a graduation plan fornon-creditworthy, pre-creditworthy and semi-creditworthy WSPs based on the followinggraduation initiatives:

i. Cost Recovery Tariff Initiatives - theseare initiatives aimed at achieving widespreadfull cost recovery tariffs in the long-term. Theinitiatives shall include the inventory of non-creditworthy, semi-creditworthy and pre-creditworthy WSPs to determine the degreeto which tariffs are sufficient to accumulateat least a minimal reserve for collateral or

counterpart equity. In addition, should theLGUs invest in WSPs, they should be allowedrecovery of and some minimal return on theirinvestment.

ii. Amalgamation and Private SectorParticipation initiatives - these are initiativesaimed at achieving economics of scale andefficiency of service through the use ofidentified amalgamation and private sectorparticipation techniques based on technical,geographical, economic and other indicators.

LWUA shall formulate within 180 daysupon effectivity of these IRR, the necessaryguidelines to be observed by the amalgamatedWSPs during the transition period. Amongother things, the guidelines shall address thea) incentives for amalgamation, b) mechanicsof amalgamation, c) restructuring of theBoard of Directors and officer of theamalgamated WSPs with respect but notlimited to tenure of office and survivingpositions, and d) controlling WSPs taking intoaccount considerations such as the size,financial condition and the location of theparticipating WSPs.

iii. Management Structure andGovernance - These initiatives pertain toinstitutional improvements within the WSPsstructure leading to greater accountability andimproved service.

iv. LGU/WSP Resource Coordination forCredit Enhancement - this refers to the poolingof resources between semi-creditworthy and/or pre-creditworthy and/or non-creditworthyWSPs and the relevant LGUs in their serviceareas to finance water supply and sewerageprojects or create the collateral needed toborrow from GFIs and PFIs.

To allow LGU recovery of and someminimal return on its investments in the WSPspursuant to (c) (i) and (c) (iv) of this Section,


79

LWUA shall formulate benchmarks for LGUsharing in the earnings of the WSPs incoordination with the MFC and the DOF within180 days upon effectivity of these IRR.

v. Education – refers to communicationand information initiatives on the benefits ofgraduation initiatives including cost recoverytariffs, amalgamation, private sectorparticipation and LGU/WSP resourcecoordination.

vi. Technical Assistance to non-creditworthy and pre-creditworthy WSPs –refers to technical assistance to supportgraduation initiatives which may be given withor without charge within the value thresholdthat may be determined by LWUA-WDG.

LWUA-WDG shall monitor theimplementation of the graduation plan andevaluate the effectiveness of the graduationinitiatives undertaken by the semi-creditworthy, pre-creditworthy and non-creditworthy WSPs.

(d.) The LWUA-WDG shall prepare andsubmit quarterly reports on its activities tothe Oversight Committee and DOF.

For the purposes of Section 5.1 A (c ) ofthese IRR and Sec. 12 of EO 279, LWUA shallsubmit to the Oversight Committee, guidelinesto encourage graduation as approved by theLWUA Board of Trustees within 180 days uponeffectivity of these IRR. Said guidelines shallinclude incentives such as, but not limited togreater flexibility in WD’s operation as WDgraduates from one stage to the next, andenjoyment of LWUA’s streamlined waiverprocedures.

5.1.B Water Development Financier(WDF)

WDF shall have the followingresponsibilities:

(a.) It shall be primarily tasked to enhanceand/or strengthen LWUA’s lending functionsand evaluate the applications for financialassistance.

(b.) Re-orientation Towards BankingPrinciples - LWUA, through the WDF, shallenhance and/or strengthen its mandate as aspecialized lending agency under PD 198 asamended by providing financing particularlyto non-creditworthy, pre-creditworthy andsemi-creditworthy WDs, grounded on sounddevelopment banking principles. To this effect,LWUA shall adopt development bankingprinciples, which cater to the financing needsof WSPs and shall develop its own proceduresfor the monitoring of its loan portfolio. LWUAshall develop lending policies and guidelinesin pursuit of the policies and principlesespoused under EO 279 in coordination withthe MFC and GFIs within 90 days from itseffectivity and submit the same to theOversight Committee. The new lending policiesand guidelines shall only apply to new loansto be approved by LWUA for prospective WD-borrowers.

(c.) Strengthening of Collection Function- In the exercise of its lending functions, LWUAshall also strengthen its collection functionfrom WDs as well enhance its payment ofloans to LWUA creditors. To this effect, allcollection arising from LWUA receivables shallconstitute a special fund to be apportioned todebt servicing of LWUA loans, additionalfunding necessary to support the LWUA’sgraduation and technical assistance functionsunder the WDG and the TAG.

(d.) Segregation of LWUA Loan Portfolios- For purposes of identification andadministrative efficiency, LWUA shall maintainseparate accounting, payment and collectionsystems for existing loans and loans to be


80

granted henceforth pursuant to the reformsinstituted under EO 279.

5.1.C Technical Assistance Group (TAG)TAG shall have the following

responsibilities:(a.) It shall continue LWUA’s program of

providing technical assistance to WSPs, inaccordance with the proceeding sections.

(b.) It shall extend project-related technicalassistance to GFIs, PFIs and creditworthyWSPs on a competitive basis, consistent withthe applicable laws, rules and regulations ongovernment procurement.

(c.) Above a certain value threshold, whichthreshold shall be determined by LWUA inaccordance with the definition provided forunder Section 4 of these IRR, TAG shall extendproject-related technical assistance to semi-creditworthy WSPs on a competitive basis,consistent with applicable laws, rules andregulations on government procurement.

(d.) It shall extend project-relatedassistance to non-creditworthy and pre-creditworthy WSPs funded by the LWUA-WDF.This assistance may be with or without chargewithin a certain value threshold to bedetermined by LWUA on a yearly basis.

5.1.D Within 30 days from the effectivityof EO 279, LWUA shall review its currentstructure and submit its rationalized plan tothe Oversight Committee, consistent with thepolicy reforms enunciated under the said EO.The Oversight Committee shall evaluate therationalization plan within 30 days fromreceipt.

5.1.E LWUA with the endorsement of theOversight Committee, shall submit therationalization plan to the President for final

approval not later than 75 days upon theeffectivity of the EO.

(a.) Upon approval by the President ofthe reforms in the water supply and seweragesector, including the rationalized organizationand staffing structure of LWUA, an EO shallbe issued attaching LWUA to DOF, for policyand program coordination.5.2 Oversight Committee (OC)

The Oversight Committee constitutedpursuant to Section 3 of EO 279 shallcoordinate and oversee the implementationof the reforms in the financing and graduationpolicies in the water supply and seweragesector.

In addition to the function explicitly takenfrom the EO, the OC shall:

(a.) Review the criteria for theclassification of WSPs, recommended by theLWUA within 30 days upon submission byLWUA;

(b.) Review the classification of WSPsprepared by LWUA pursuant to Sec. 9 A(b) EO279, duly certified by the LWUA Administratorthat the same is in accordance with the criteriapresented to and reviewed by the OversightCommittee pursuant to Sec. 5 (d) of EO 279.The Oversight Committee shall review thesame within 60 days upon submission byLWUA. The Oversight Committee may subjectthe classification of the WSP to audit;

Immediate actions include, among others,the review of LWUA Charter as provided underSection 5 of EO 279 including theclassification of water districts, graduationof WSPs, reform in LWUA financial waiverprocess and compliance of LWUA to provisionsof EO 279 and of these IRR within the specifiedtimelines. On the other hand, medium termactions include the determination ofappropriate incentives for GFIs and the PFIs


81

to lend to WSPs.All functions of the Oversight Committee,

which are continuing in nature, shall beperformed by the DOF, as provided for underSection 15 of EO 279.

Section 6. AttachmentUpon approval by the President of the

reforms in the water supply and seweragesector, including the rationalized organizationstructure and the staffing pattern of LWUA,LWUA shall then be attached to the DOF.Pursuant to Section 51 of PD 198, at leastthree (3) of the trustees must be employees ofthe National Government (NG). NGrepresentatives must be at least Director level,DOF shall always be represented in the LWUABoard of Trustees.

Section 7. ExpensesMembers of the Oversight Committee and

its Technical Secretariat shall be entitled toreceive honoraria and/or reimbursement ofexpenses as may be allowed subject toavailability of funds and prevailing rules andregulations.

FINANCING POLICIES

Section 8. Responsibility of LGUsIn line with the principle of devolution of

the provision of basic services under the LocalGovernment Code, LGUs shall be encouragedto provide delivery of water supply andsewerage through, but not limited to,investments in, or loans to WSPs. LGUs shallas general policy, be financially andoperationally responsible for the WSPs,excluding WDs and RWSAs, within theirrespective jurisdictions.

Section 9. Source of FinancingThe source of financing for the water

supply and sewerage sector shall be asfollows:

(a.) Creditworthy WSPs shall be eligibleto source financing at commercial lendingrates from GFIs and PFIs. Pursuant thereto,LWUA with respect to creditworthy WDs shallenhance and streamline its waiver proceduresto effect the reform objectives/policiesenunciated under EO 279. However, LWUA shallwork out an arrangement to GFIs/PFIs toensure repayment of LWUA loan to WSP. GFIsshall strengthen their skills base and developlending programs specially tailored to theneeds of the water supply and seweragesector;

(b.) Creditworthy WDs may be eligiblefor financing from LWUA in case no funds areavailable from other sources, subject toprioritization criteria giving preference to NCWup to SCW WDs/WSPs, availability of fundsand provided that these WDs undertakegraduation initiatives such as pooling ofresources, amalgamation, among others withthe end objective of accessing financing fromGFIs/PFIs and sources other than LWUA;

(c.) Semi-creditworthy (SCW) WDs shallbe eligible to source concessional projectfinancing as grants from donor agencies,financial assistance made available throughrepresentative of the District, LGU financialassistance packages or financing from otherdonors made available and are coursedthrough the LWUA-WDF. Said WSPs shall bere-oriented towards meeting the lendingcriteria of GFIs and PFIs to qualify them foreventual financing in the medium termwhenever possible;

(d.) Pre-creditworthy (PCW) WDs shall beeligible from donors and deep concessional


82

financing from the LWUA-WDF.(e.) Non-creditworthy (NCW) WDs shall

continue to be eligible for financing under theLWUA-WDF. However, LGUs are herebyencouraged to provide financial andoperational support for such WDs and otherWSPs within their respective jurisdictions. DILGand MFC shall provide the necessary technicaland financial support within their respectivemandates;

(f.) Whenever concessionary loan/grantfunds are available from the NG and othersources, the LWUA shall allocate the said fundsto the SCW, PCW and NCW WDs which havethe potential to demonstrate increasedviability; and

(g.) WSPs including eligible WDs, canaccess financing from the GFIs, PFIs, MFC,and LGUs, whenever possible and shall beconsistent with the provisions of these IRR.

DILG shall, within the mandate andexisting programs, pursue and activecampaign program to implement policies inthe EO which concern the LGU.

Section 10. Role of Financing InstitutionThe classification of WSPs shall merely

be a determinant of eligibility for the varioussources of financing, and shall not in any waybe construed as an outright guarantee ofactual financing from the designated source.

Section 11. Repealing ClauseAll Circulars or Resolutions or part

thereof, which are inconsistent with these IRR,are hereby repealed or modified accordingly.

Section 12. EffectivityThese IRR shall take effect fifteen (15)

days after its publication in the Official Gazetteor in a newspaper of general circulation.

Done in the City of Manila, this 16th dayof July in the year of our Lord, Two Thousandand Four.

Oversight Committee

(SGD) JUANITA D. AMATONGSecretary of Finance

Chairman

(SGD) ROMULO L. NERINational Economic and Development

AuthorityDirector-GeneralVice-Chairman

(SGD) ) EMILIA T. BONCODINDepartment of Budget & Management

SecretaryMember

(SGD) JOSE D. LINA, JR.Department of Interior & Local Government

SecretaryMember

(SGD) GAMALIEL A. CORDOBAOffice of the President

Deputy Executive SecretaryMember

(SGD) LORENZO H. JAMORALocal Water Utilities Administration

AdministratorMember


83

MalacańangManila


TRANSFERRING THE LOCAL WATERUTILITIES ADMINISTRATION FROM THEOFFICE OF THE PRESIDENT TO THEDEPARTMENT OF PUBLIC WORKS ANDHIGHWAYS (DPWH) ANDSTRENGTHENING THE SUPERVISION BYTHE DPWH SECRETARY OVER THEMETROPOLITAN WATERWORKS ANDSEWERAGE SYSTEM.

WHEREAS, the Local Water UtilitiesAdministration (LWUA), which was created byvirtue of Presidential Decree No. 198, asamended, is currently attached to the Officeof the President by virtue of Executive OrderNo. 279, series of 2004;

WHEREAS, the MetropolitanWaterworks and Sewerage System (MWSS)was created by virtue of Republic Act No. 6234,as amended, and is currently attached to theDPWH by virtue of Executive Order No. 124,series of 1987;

WHEREAS, there is a need for a concertedand well-coordinated effort in formulatingpolicies as well as planning and implementingprograms and projects for the water sector;

WHEREAS, there is a need to speed-upthe provision of potable water in everybarangay;

WHEREAS, the DPWH is mandated toensure that the planning, design, constructionand maintenance of infrastructure facilities

such as national highways, flood control andwater resource development systems are inaccordance with the highest level and safetyand efficiency and with the overall nationaldevelopment objectives;

WHEREAS, under Section 31, Chapter10, Book III of Executive Order No. 292, seriesof 1987, otherwise known as the“Administrative Code of 1987”, the President,in order to achieve simplicity, economy andefficiency, has the continuing authority toreorganize the administrative structure of theOffice of the President.

NOW, THEREFORE, I, GLORIAMACAPAGAL-ARROYO, President of theRepublic of the Philippines, by virtue of thepowers vested in me by law, do hereby order:

SECTION 1. Transfer of LWUA toDPWH. – The Local Water UtilitiesAdministration (LWUA) is hereby transferredfrom the Office of the President to theDepartment of Public Works and Highways(DPWH).

SECTION 2. Authority to ExerciseAdministrative Supervision. – The Secretaryof Public Works Highways is hereby authorizedto exercise administrative supervision over theLWUA and the MWSS, with the objective ofproviding a concerted and well-coordinatedeffort in formulating policies, as well asplanning and implementing programs andprojects for the water sector.

For the purpose, the DPWH Secretaryshall, among others:

a. Coordinate and oversee the policy-making processes of the respective governingboards of the LWUA and the MWSS;

b. Require the submission of reports asthe DPWH Secretary may deem necessary,including periodic reports of their respective



84

policies and the implementation of their majorprograms and projects, and their respectiveaudited financial statements within sixty (60)days after the close of the fiscal year;

c. Initiate measures within the agency topromote efficiency and effectiveness,including, but not limited to, the conduct ofmanagement audits, performance evaluationsand inspections to determine compliance withestablished policies, standards and guidelines;

d. To take such action as may benecessary for the proper performance ofofficial functions, including rectification ofviolations, abuses and other forms ofmaladministration; and

e. In general, to oversee the operations ofthe LWUA and the MWSS to ensure that theseagencies are managed efficiently andeffectively.

SECTION 3. Rules and Regulations. –The DPWH Secretary, in consultation with theChairman of the LWUA and the MWSS, ishereby authorized to issue rules andregulations for the effective implementationof the provisions of this Executive Order;

SECTION 4. Repealing Clause. – Theprovisions of Executive Order No. 279 (s. 2004)which are inconsistent with the provisions ofthis Executive Order hereby repealed, amendedor modified accordingly. All other executiveissuance, rules, regulations or parts thereof,which are inconsistent with any of theprovisions thereof are hereby repealed,amended or modified accordingly.

SECTION 5. Effectivity. – This ExecutiveOrder shall take effect upon its publication inthe Official Gazette or in an newspaper ofgeneral circulation in the Philippines.

DONE in the City of Manila, this 18th

day of November in the year of Our Lord, TwoThousand and Four.

By the President:

(SGD) EDUARDO R. ERMITAExecutive Secretary


85


MANILA


IMPLEMENTING THE REFOCUSINGOF FUNCTIONS AND ORGANIZATIONALSTRUCTURE OF THE LOCAL WATERUTILITIES ADMINISTRATION UNDER EO279 AND PROVIDING OPTIONS ANDBENEFITS FOR EMPLOYEES WHO MAYAFFECTED THEREON

WHEREAS, it is the policy of governmentof adopt institutional reforms and effectfunctional, operational and organizationaladjustments in the bureaucracy tocontinuously improve the quality andefficiency of public service delivery andtransform it into an efficient and results-oriented structure;

WHEREAS, Executive Order (EO) No. 279provides for the rationalization of LWUA’sorganizational structure and refocusing itsobjectives to fully implement the reforms inthe financing policies in the water supply andsewerage sector and water service providers;

WHEREAS, Section 79 of the GeneralProvisions of RA 9336 (General AppropriationsAct of 2005) mandates, among others, theadoption of institutional strengtheningmeasures to improve service delivery andenhance productivity; identification of areaswhere improvement are necessary; andimplementation of corresponding structure,functional and operational adjustments thatwill result in streamlined organization and

operation and improved performance andproductivity.

NOW, THEREFORE, I, GLORIAMACAPAGAL ARROYO, President of thePhilippines, by virtue of the powers vested inme by law, do hereby order the following:

SECTION 1. Core functions. - LWUA shallproved institutional development services, andstrengthen its, lending practices and policieson granting financial assistance grounded onsound development banking principles aimedat graduating water districts (WDs) and otherwater service providers (WSPs), allowingefficient use of financial resources, extendtechnical assistance to WDs/WSPs andaddressing the need for a greater number ofWDs/WSPs.

SECTION 2. Specific Shifts in PolicyDirections, Functions, Programs, Activitiesand Strategies. - To fully implement thereform objectives/policies in the water supplyand sewerage sector, LWUA shall:

a. Improve investor’s confidence in thewater supply and sewerage sector;

b.Rationalize the allocation of financialresources in the water supply andsewerage sector through classificationand graduation initiatives;

c. Expand the freedom of choice of waterservice providers in sourcing theirfunding requirements;

d.Increase the participation of LocalGovernment Units (LGUs), GovernmentFinancial Institutions (GFIs), andPrivate Financial Institutions (PFIs) infinancing the water supply andsewerage sector;

e. Stimulate improved service and createfinancial self-sustainability for waterservice providers;

f. Encourage initiatives aimed at self-


86

sufficiency of water service providers,including, but not limited to,amalgamation, private sectorparticipation, cost recovery tariffs, andresource pooling;

g. Grant initiatives for the improvementand graduation of water serviceproviders;

h. Educate consumers towards treatingwater as a scarce economic good; and

i. Perform such other functions as arenecessary for the implementation ofthe foregoing objectives/policies.

SECTION 3. Organizational Structure. -LWUA’s rationalized organization andmanagement structure shall be composed ofthe following:

3.1 Board of Trustees. - The LWUA Boardof Trustees (BOT) shall formulate policydirection for the over-all development of thecountry’s water supply program. It shall becomposed of a Chairman and four memberswith at least three (3) trustees coming fromthe National Government, provided that DOFshall always be represented in the LWUA -BOT. The Administrator of LWUA shall be anex-officio Vice Chairman of the LWUA-BOT.There shall be a Board Secretariat, a LegalCounsel and an Internal Audit Departmentunder the Board of Trustees.

3.2 The LWUA Administrator. - TheLWUA shall be headed by an Administrator tobe appointed by the President. As chiefexecutive officer of LWUA, the Administratorshall direct and supervise the operation ofLWUA and its corporate performance, executeand administer policies and guidelinesapproved by the Board of Trustees.

3.3 Deputy Administrators. - There shallbe a Deputy Administrator for each of thefollowing major Groups:

1. Water Development Group (WDG)(Luzon),2. WDG- Visayas/Mindanao,3. Water Financier Group, and4. Administrative Service Group.3.3.1 Water Development Group(WDG). - There shall be two WDGs: onegroup for Luzon and another for Visayas/Mindanao.The WDG shall be primarily responsiblefor the continuation of LWUA’s currentinstitutional development services aimedat graduating WDs/WSPs, as well as theclassification of the credit worthiness ofWDs/WSPs for purposes of determiningthe appropriate source of financing; itshall develop a graduation plan for semi-creditworthy, pre-creditworthy and non-creditworthy WDs/WSPs based on thegraduation initiatives provided under EO279; and, it shall also monitor theimplementation of the graduation planand evaluate the effectiveness of thegraduation initiatives undertaken byWDs/WSPs and other functionsundertaken by WDs/WSPs.

The WDG shall operate in four (4) areas,as follows:

I. WDG-Luzon shall be handling Areas 1and 2

Area 1 (covers Region I, 2, 3 andCAR), and Area 2 (covers Regions 4 and5).

2. WDG- Visayas/Mindanao shall behandling Areas 3 and 4;

Area 3 (covers Regions 6, 7 and 8),Area 4 (covers Regions 9, 10, II, 12

and ARMM region).


87

Each Area shall be composed of thefollowing divisions namely:

2.1 Corporate Governance Division2.2 Cost Recovery Tariff Division2.3 Special Coordination Division2.4 Engineering Division

3. Technical Assistance Department(TAD). - The TAD shall continue LWUA’sprogram of providing technicalassistance to WDs/WSPs. Consistentwith applicable laws, rules andregulations on government procurement,the TAD shall extend project-relatedtechnical assistance to GFIs andcreditworthy WDs/WSPs on acompetitive basis: provided that abovea certain value threshold, LWUA shallextend project related technicalassistance to semi-creditworthy, WDs/WSPs on a competitive basis. The TADshall also extend project relatedassistance to non-creditworthy, pre-creditworthy WDs/WSPs which may bewith or without charge within a certainvalue threshold. The TAD shall have threedivisions, to wit:

3.1 Project Development Division3.2 Water Services Training Division3.3 Research/Water Laboratory

Division

3.3.2 Water Development FinanceGroup (WDFG). - The WDFG shallenhance and/or strengthen LWUA’slending policies and functions for thepurpose of carrying out andimplementing its mandate in providingfinancing, particularly to non-creditworthy, pre-creditworthy and semi-creditworthy WDs/WSPs, grounded on

sound development banking principles.It shall develop its own procedure for themonitoring of its loan portfolio; it shallstrengthen the collection functions fromWDs/WSPs as well as enhance itspayment of loans to LWUA creditors. TheWDF shall have three departments, towit:

3.3.2.1 Treasury Department3.3.2.2 Loan Portfolio Management Department3.3.2.3 Accounting Department3.3.3 Administrative Services

Group (ASG). - The ASG shall providethe requisite support and ancillaryservices to the organization, with thefollowing departments:

3.3.3.1 Human Resources Management Department

3.3.3.2 Property Management Department

3.3.3.3 General Services Department

3.4 Abolition of the Office of the SeniorDeputy Administrator. - The Office of theSenior Deputy Administrator is herebyabolished and its functions subsumed underthe Office of the Administrator and the DeputyAdministrators for each WDG.

SECTION 4. Staffing Pattern. - Within30 days after the issuance of this Order, thestaffing pattern of LWUA shall be submittedto the Department of Budget and Management(DBM) for review and approval.

LWUA is given the flexibility to makechanges in its staffing pattern; Provided, thatthe number of plantilla positions ismaintained; Provided further, that the sameshall be subject to the approval of DBM.

SECTION 5. Options for Personnel WhoMay Be Affected by the Rationalization of


88

Functions. - Personnel who may be affectedby the rationalization of functions shall havethe following options:

5.1 Remain in government service,provided that their appointments, whetherpermanent or temporary, shall be attested bythe Civil Service Commission (CSC); Providedfurther, that those with temporaryappointments shall be guaranteed tenure upto the expiration of their appointment only, or

5.2 Avail of the retirement/separationbenefits herein provided.

SECTION 6. Personnel Who Would Optto Remain in Government Service. - Affectedpersonnel who would opt to remain ingovernment service shall either be:

a. placed by the CSC in other agencieswhere additional personnel arerequired; or

b. transferred to CSC, if not placedwithin two (2) months, to remaintherein until a match could be found.

Their compensation shall be transferredto the recipient agency or to CSC, as the maybe.

Affected LWUA personnel who choose toremain in government service but would laterobject to his/her new job assignment, withoutjustifiable meritorious reasons approved bythe CSC, shall be deemed separated/retiredand shall be paid the appropriate retirement,separation or unemployment under existingretirement/separation laws, without theincentives provided herein.

SECTION 7. Benefits of Personnel WhoWould Opt to Retire or Be Separated fro mthe Service. - Affected personnel, withappointments attested by the CSC, whetherhired on a permanent or temporary basis, whowould opt to retire or be separated from theservice pursuant to Section 5 hereof and those

hired on a casual or contractual basis, ifqualified, shall be given the option to availthemselves of any of the following, whicheveris beneficial to them:

7.1 Retirement gratuity provided underRA 1616, as amended, payable by the lastemployer of the affected personnel, plus therefund of retirement premiums payable by theGovernment Service Insurance Service (GSIS),without the incentive herein provided.

7.2 Retirement benefit under RA 660 orapplicable retirement, separation orunemployment benefit under RA 8291, ifqualified, plus the following applicableincentives:

7.2.1 1/2 month of the present basicsalary for every year of governmentservice, for those who have rendered20 years of service and below;

7.2.2 3/4 month of the present basicsalary for every year of governmentservice, computed starting from 1styear, for those who have rendered21-30 years of service; and

7.2.3 one (1) month of the present basicsalary for every year of governmentservice, computed starting from the1st year, for those who haverendered more than 30 years ofservice.For purpose of Section 7.2.1 to

7.2.3, employment for a fraction of theyear shall be considered as employmentfor the whole year.

PROVIDED: That for the purposeof computing the total amount ofincentive that an affected personnelwould receive, only his/her governmentservice up to age 59 and a fraction thereofwould be counted: government servicestarting at the age 60 would no longer


89

be subject to the incentive herein provided;PROVIDED FURTHER: That for the

purpose of complying with the requirednumber of years of service under RA8291, the portability scheme under RA7699 (An Act Instituting LimitedPortability Scheme in the Social SecurityInsurance Systems by Totalizing theWorkers’ Creditable Services orContributions in Each of the Systems)may be applied, subject to existingpolicies and guidelines;

PROVIDED FURTHERMORE: Thaton the day of separation, the GSIS shallpay the amount of retirement/separation/unemployment benefits payable by theGSIS, to which an affected employee maybe entitled to under the provisions of thisOrder, subject to the submission of therequired documents to the GSIS one (1)month before the set date of retirement/separation.

7.3 Those with less than three (3)years of government service may opt toavail of the separation gratuity underRA No. 6656; plus the appropriateincentive provided under Section 7.2.

No affected employee whoopted for retirement/separationshall receive less than an aggregateamount of Fifty Thousand Pesos(P50,000.00) as his retirement/separation gratuity benefit fromboth the National Government andthe GSIS.

SECTION 8. Return by the GSIS of theNational Government’s Share in theRetirement Premiums of Personnel WhoCannot Avail of RA No. 660 or RA 8291. -The GSIS shall return to the NationalGovernment the corresponding share of the

government to the retirement premiums, withinterest, of employees who are not yet entitledto avail either RA 660 or RA 8291.

SECTION 9. Other Benefits of Retired/Separated Personnel. - LWUA affectedpersonnel who opted to retire or be separatedshall, in addition to the applicable benefitsabove, be entitled to the following:

9.1 Refund of Pag-IBIG Contributions. Allaffected personnel who are members of thePag-IBIG shall be entitled to the refund of theircontributions (both personal and government),pursuant to existing rules and regulations ofthe Home Development Mutual Fund;

9.2 Commutation of Unused Vacationand Sick Leave Credits. All LWUA affectedpersonnel shall be entitled to the commutationof unused vacation and sick leave credits inaccordance with existing rules and regulations.They are also allowed to monetize theiraccumulated compensatory time-off credits,if any.

SECTION 10. Resulting Staffing Patternand Personnel. - To ensure that the newrationalized organization is staffed withcompetent and dedicated civil servants, theLWUA Management shall draw up thedeployment of personnel to the new OSSPwith utmost care, subject to all pertinent CivilService rules and regulations. Further, LWUAManagement shall ensure the implementationof appropriate personnel action on affectedemployees in accordance with thecorresponding guidelines as may be issued bythe DBM.

SECTION 11. Transition Plan. - Towardsthe smooth and expeditious implementationof its plan, the LWUA Management shallprepare and implement a step-by-step actionplan for the transition from the old structureto the new rationalized organization. In this


90

regard, it shall closely supervise and properlydocument turnover of responsibilities andaccountabilities.

SECTION 12. Funding. - Funds needed toimplement this rationalization, as well as thepayment of the separation/retirement benefits,not covered by the GSIS, shall be taken fromavailable LWUA corporate funds, subject tothe usual accounting and auditing rules andregulations. In case of funding deficiency, theNational Government may provide assistancein the payment of incentives to affectedpersonnel, in accordance with applicable laws,and subject to the usual accounting andauditing rules and regulations.

SECTION 13. Effectivity of theRetirement/Separation Package. - The optionto avail of the retirement /separation packageshall be available up to two (2) months afterthe DBM approval of the LWUA staffingpattern, provided that such period may beextended only in exceptional circumstancesupon the recommendation of the LWUAAdministrator and approval by the DBM.LWUA shall ensure that there is a smoothtransition from the old to the new rationalizedorganization. Affected employee who optedto avail of the retirement/separation packageshall not be included in the selection andplacement process of employees in the newstaffing pattern. However, they shall not beconsidered retired/separated from the serviceuntil their actual receipt of the benefitsprovided herein.

SECTION 14. Prohibition on Rehiring ofPersonnel Retired/Separated from theService. - A personnel who would opt to retireor be separated as a result of therationalization efforts shall not be appointedor hired in any agency of the Executive Branch,except in educational institutions and

hospitals, within a period of five (5) years.Reemployment in any other Branch ofGovernment shall be considered as new entryto the civil service.

SECTION 15. Repealing Clause. - Allissuances, order, rules and regulations or partsthereof that are inconsistent with thisExecutive Order are hereby revoked, amendedor modified accordingly.

SECTION 16. Effectivity. - This ExecutiveOrder shall take effect immediately.

DONE in the City of Manila, this 13thday of April, in the year of our Lord twothousand and five.

By Authority of the President:

(SGD) EDUARDO R. ERMITAExecutive Secretary


91

Republika ng PilipinasKAGAWARAN NG KATARUNGAN

Department of JusticeManila

OFFICE OF THE SECRETARY

CAMARINES NORTE WATERDISTRICT (CNWD),Petitioner,

-versus- – Case No. OSJ-2005-03

BUREAU OF INTERNALREVENUE (BIR),Respondent,x————————————————-------------------x

D E C I S I O NSubject herein is the petition for

Arbitration filed by Camarines Norte WaterDistrict (CNWD), through its statutorycounsel, the Office of the GovernmentCorporate Counsel (OGCC) against the Bureauof Internal Revenue (BIR), represented by itsCommissioner, pursuant to Chapter 14, BookIV of Executive Order (E.O.) No. 292, whichadopted the provisions of P. D. 242 prescribingthe procedure for the administrativesettlement or adjudication of disputes, claimsand controversies between and amonggovernment offices, agencies andinstrumentalities, including government-owned or controlled corporations.

In its Amended Petition, herein petitionerprays that this Office issue an Order againstrespondent to defer from collecting the allegedtax deficiency amounting to Php

9,736,486.17, plus increments as containedin its decision dated April 19, 2005, and that,after proceeding, we render a ruling (a) todeclare that it is not subject to income taxpursuant to Section 32 (B) (7) (b) of theNational Internal Revenue Code (NIRC) of 1997,(b) to declare that it is not subject to franchisetax, or, in the alternative, should it be liablefor franchise tax, it should no longer be liablefor value added tax and (c) to declare that thepetitioner is not liable for payment ofincrements for deficiency income and valueadded taxes for taxable year 2000.

Petitioner alleges, among others, that itseeks from this Office “proper interpretationand application of laws relative to theexemption, or liability, of the petitioner frompayment of income tax, franchise tax, andother internal revenue taxes;” that it is a publicwater utility performing an essentialgovernment function; that its income isexempt from taxes pursuant to Section 32 (B)(7) (b) of the Tax Code, as amended; that BIRRuling No. 074-98 has already beensuperseded or abandoned by BIR Ruling Nos.018-2000 and DA-088-2001; that theassessments issued against it is contrary tothe uniformity and equal protection clausesof the Constitution; that P. D. No. 198 is aspecial law that should prevail over the TaxCode which is a general law and that theassessments are contrary to the generalwelfare clause of the constitution and inimicalto public interest.

As alleged in the pleadings, the followingare the background facts relevant topetitioner’s claim for exemption from paymentof income tax, franchise tax, value added taxand other deficiency income and value addedtaxes for taxable year 2000:

1. On November 13, 2001, Letter of



92

Authority No. 00061324 was issuedauthorizing and directing Revenue OfficerRomulo C. Baguid of Revenue District Office64, Daet, Camarines Norte, to examine thebooks of accounts and other accountingrecords of CNWD for all internal revenue taxpurposes covering the taxable year 2000.

2. As a result, it was determinedthat CNWD is liable to deficiency income andvalue added taxes for the same year.

3.On February 3, 2003, aPreliminary Assessment Notice was issuedfollowed by a Formal Letter of Demand andthe corresponding Final Assessment Noticeson July 3, 2003, against CNWD demandingpayment allegedly of the total amount ofP9,736,486.17.

4. CNWD disputed the assessmentsand on August 26, 2003, the BIR rendered asdecision denying the protest of CNWD.

5. On November 11, 2003, CNWD,through the OGCC, filed a request forreconsideration and on April 19, 2005, theCommissioner of Internal Revenue denied withfinality the protest of CNWD andconsequently ordered CNWD to pay theaggregate amount allegedly ofP9,734,486.17 as deficiency income and valueadded taxes for taxable year 2000, plusincrements that have accrued thereon untilthe actual date of payment.

6. On May 25, 2005, the petitionerelevated the matter to this Office as to theproper interpretation or the correctness ofruling of the Commissioner of InternalRevenue.

In its Answer, dated October 20, 2005,which was filed beyond the reglementaryperiod of fifteen (15) days to file an answer,the respondent specifically denies the natureof this petition and prays for the dismissal of

this petition for lack of merit.Respondent avers that petitioner seeks

to dispute the decision rendered by respondenton its protest against the assessments issuedby it. It submits that this Office lacksjurisdiction to take cognizance of its decisionon disputed assessments; that it is the Courtof Tax Appeals that has jurisdiction; that theappellate jurisdiction of the Court of TaxAppeals is exclusive; and that the power tointerpret the provisions of the Tax Code iswith the respondent and this interpretationis subject to review by the Secretary ofFinance and not by the Secretary of Justice.

Respondent also contends that when R.A. No. 7109, entitled “An Act Granting TaxExemption Privileges to Local WaterDistricts,” took effect, it expresslyextinguished the tax exemption privileges ofpetitioner after the lapse of five (5) years fromits effectivity thereby making CNWD liablefor income and franchise taxes.

Respondent further argues that in orderfor the petitioner to be exempt under section32 (B) (7) (b) of the Tax Code two conditionsshould be met: (1) the income derived must befrom a public utility or from the exercise ofany essential government function, and (2)the income must accrue to the Government ofthe Philippines or to any political subdivisionthereof; and that failure to satisfy both twoconditions makes the petitioner liable.

Finally, respondent argues, amongothers, that petitioner cannot contend that itis performing governmental functions whenthe law creating it states that it is engaged ina proprietary functions; that its exemptionprivilege cannot hinge on previous BIRRulings; and that local water districts havedifferent charters and are governed bydifferent laws.


93

By way of reply to the respondent’sAnswer, petitioner maintains that this Officehas jurisdiction over the instant case; thatrespondent is estopped from assailing thejurisdiction of this Office; and that petitionersatisfies the requirements of Section 32 (B)(7) (b) of the Tax Code.

No amicable settlement having beenreached during the preliminary conference, theinstant petition, on motion of petitioner, dulyconcurred in by the respondent, wasconsidered submitted for resolution based onthe pleadings and memoranda to be filed withthis Office. However, while petitionersubmitted its Memorandum, the respondentfailed to submit any.

Petitioner reiterated in its position paperthat this Office has jurisdiction over theinstant case; that respondent is estoppedfrom assailing the jurisdiction of this Officeand that it complies with the requirementsfor exemption under Section 32 (B) (7) (b) ofthe Tax Code.

We find for the petitioner.It bears stress, at the outset, that while

on its face, it appears that the instant petitionwas brought up to question the validity ofthe disputed assessment made by therespondent against CNWD, the petitionerherein, there is also here, in fact and on closerscrutiny, a question of law involved, i.e., theproper interpretation of Section (B) (7) (b) ofthe NIRC of 1997, and both parties haveconflicting interpretations thereof requiring,therefore, this Office to interpret the samepursuant to its authority under Section 66and 68, Chapter 14, Book IV of E. O. No. 292,to wit:

“Chapter 14 – Controversies amongGovernment Offices and Corporations

Sec. 66. How Settled. – All disputes,

claims and controversies, solely between oramong the departments, bureaus, office,agencies and instrumentalities of the NationalGovernment, including government-owned orcontrolled corporations, such as those arisingfrom the interpretation and application ofstatutes, contracts or agreements, shall beadministratively settled or adjudicated in themanner provided in this Chapter. xxx

xxxSec. 68. Disputes Involving Questions of

Fact and Law. – Cases involving mixedquestions of law and of fact or only factualissues shall be submitted to and settled oradjudicated by:

(1) The Solicitor General, if the dispute,claim or controversy involves onlydepartments, bureaus, offices and otheragencies of the National Government as wellas government-owned or controlledcorporations or entities of whom he is theprincipal law officer or general counsel; and

(2) The Secretary of Justice in all othercases not falling under paragraph (1).”(underscoring supplied)

The jurisdiction of this Department overthe case cannot, thus, be disputed.

Moreover, assuming, argumentatively,that the provisions of E. O. No. 292, earlier-quoted, do not apply, this Office can stillassume jurisdiction over the case based onthe principle of estoppel. Respondent, it mustbe noted, had, on at least one occasion, whichwe take judicial notice of, involving the sameissues that have been raised in the instantcase, assailed the jurisdiction of the Court ofTax Appeals (CTA) and claimed that since thepetitioner MCWD is a government-owned andcontrolled corporation, the dispute should besettled in accordance with the provisions ofChapter 14, Book IV of the Administrative


94

Code of 1987. As a result thereof, CTAdismissed the petition for review in order tobe filed before this Office.

“The operation of the principle ofestoppel on the question of jurisdictionseemingly depends upon whether the lowercourt actually had jurisdiction or not. If ithad no jurisdiction but the case was triedand decided upon the theory that it hadjurisdiction, the parties are not barred, onappeal, from assailing such jurisdiction, forthe same ‘must exist as a matter of law, andmay not be conferred by consent of the partiesor by estoppel’ (5C.J.S. 861-863). However, ifthe lower court had jurisdiction, and the casewas heard and decided upon a given theory,such, for instance, as the court had nojurisdiction, the party who induced it to adoptsuch theory will not be permitted, on appeal,to assume an inconsistent position-that thelower court had jurisdiction. Here, the principleof estoppel applies. The rule that jurisdictionis conferred by law, and does not depend uponthe will of the parties, have no bearingthereon.” (underscoring supplied)

Respondent, is therefore, estopped fromassailing the jurisdiction of this Office. It doesnot matter if it is a rule that government isnever estopped by the mistakes or errors ofits agents. The rationale is because certainaffirmative acts of public officials may giverise to estoppel, as what happened in thiscase.

Going now to the merits of the case, thesubject provision of the National InternalRevenue Code, insofar as pertinent, is clearand categorical:

“SEC. 32. Gross Income. –xx xx(B) Exclusion from Gross Income. – The

following items shall not be included in gross

income and shall be exempt from taxationunder this Title:

xx xxMiscellaneous Items. – xx xx(b) Income Derived by the Government or

its Political Subdivisions. – Income derivedfrom any public utility or from the exercise ofany essential governmental function accruingto the Government of the Philippines or toany political subdivision thereof.”

It is a basic rule in statutoryinterpretation that when the words andphrases of a statute are clear and unequivocal,their meaning must be determined from thelanguage employed and the statute must betaken to mean exactly what it says. Theprobable intent cannot be speculated apartfrom the language used because when thelaw is clear, it is not susceptible tointerpretation-only to application.

A careful perusal of Section 32(B) (7) (b)of the NIRC, above-quoted, shows that incomederived (a) from any public utility and thatderived (b) from the exercise of any essentialgovernment function accruing to theGovernment of the Philippines or to anypolitical subdivision thereof are two differentitems which shall not be included in grossincome and shall be exempt from taxationunder the law. The subject NIRC provision isclear enough as to require an interpretation.

Consequently, if the GOCC, as thepetitioner herein, derives income from itsoperation as a public utility, the income isexcluded from gross income, irrespective ofwhether or not said income accrued to theGovernment of the Philippines or to anypolitical subdivision thereof. But if the incomewas derived from the exercise of any essentialgovernment function, the above-quoted


95

provision requires that the income mustaccrue to the government or any of its politicalsubdivision for it to be excluded from grossincome.

The exemption in the first case isjustified by its nature as a public utility. Apublic utility has been defined as “1. acompany that provides necessary services tothe public, such as telephone lines and service,electricity, and water, xxx, 2. a person,corporation or other association that carrieson an enterprise for the accommodation ofthe public, the members of which are entitledas a matter of right to use its facilities.”Likewise, the Supreme Court, in one case, hashad occasion to define a public utility as oneorganized for “hire or compensation” to servethe public, which is given the right to demandits service.

Indeed, the income of the petitioner fallsunder the first category of income that isexempt from taxation having derived the samefrom its operation as a public utility thatrenders necessary services to the public, andwhich status had even been recognized andacknowledged by the respondent, albeitimpliedly and indirectly, when, in its ruling,respondent admitted that local water districtsare public utilities.

Upon the other hand, the other exemptionis justified by the fact that the income resultsfrom the exercise of an essential governmentfunction and accrues to the government or itspolitical subdivision. In both instances, acontrary view would also be opposed to therule that, generally, the government cannottax itself for to do so would not be beneficialto the government.

We cannot subscribe to the positionadvanced by the respondent that in order tosatisfy the requirements of said provision of

law two conditions should be met, namely,(1) the income derived must be from a publicutility or from the exercise of any essentialgovernment function, and (2) the income mustaccrue to the Government of the Philippinesor to any political subdivision thereof, notonly because the law is clear enough torequire an interpretation but also because ofthe use of the disjunctive article “or”.

In statutory construction, the use of theword “or” signifies “alternative”,“dissatisfaction” and “independence” of onething from each of the other thingsenumerated. When used, the various membersof the sentence are to be taken separately.This must be distinguished from the use ofthe conjunctive word “and” which, when used,connotes that the various members of asentence are to be taken jointly. Thus, wecannot but agree more with the petitioner’sclaim that the phrase “accruing to theGovernment of the Philippine or to anypolitical subdivision thereof ” only qualifiesthe income from the exercise of any essentialgovernment function to which it is attachedand does not qualify the income derived froma public utility.

Moreover, anent the section heading ofSection 32 (B) (7) (b), suffice it to say thatwhile the same can be resorted to in theconstruction of statutes to determine orascertain legislative intent, the same is notconclusive. In the language of the SupremeCourt:

It is a familiar law that when the textitself of a statute or a treaty is clear andunambiguous, there is neither necessity norpropriety in resorting to the preamble orheadings or epigraphs of a section forinterpretation of the text, especially wheresuch epigraphs or headings of sections are


96

mere catchwords or reference aids indicatingthe general nature of the text that follows.xxx Being nothing more than a convenientindex to the contents of the articles of theCode, they cannot in any event have the effectof modifying or limiting the unambiguouswords of the text. Secondary aids may beconsulted to remove, not to create doubt.

Neither are we prepared to subscribe torespondent’s claim that since under Section3 of R.A. No. 7109, the tax exemption privilegesgranted to “all water districts shall be enjoyedonly for a period of five (5) years from theeffectivity of (the) Act,” “all LWD’s, such asherein peitioner, became liable for income andfranchise taxes,” among others.

It must be stressed that while in its rulingin Tanjay Water District vs. Gabaton, 172SCRA 253, dated April 17, 1989, the SupremeCourt, citing Hagonoy Water District vs.NLRC, said’ that local water districts arequasi-public corporations, in Davao CityWater District vs. Civil Service Commission,201 SCRA 593, it categorically stated thatwater districts are “government-owned orcontrolled corporations with original charter,“that is, “government-owned or controlledcorporations created under a special law andnot under the Corporation Code of thePhilippines.” As the Court explicitlyexpounded in the much later case of Felicianovs. Commission on Audit, 419 SCRA 363,quoting Section 16, Article XII of theConstitution:

“In short, Congress cannot enact a lawcreating a private corporation with a specialcharter. Such legislation would beunconstitutional. Private corporations mayexist only under a general law. If thecorporation is private, it must necessarilyexist under a general law. Stated differently,

only corporations created under a general lawcan qualify as private corporations. Underexisting laws, that general law is theCorporation Code, except that the CooperativeCode governs the incorporation ofcooperatives.

The Constitution authorizes Congress tocreate government-owned or controlledcorporations through special charters. Sinceprivate corporations cannot have specialcharters, it follows that Congress can createcorporations with special charters only if suchcorporations are government-owned orcontrolled.

Obviously, LWDs are not privatecorporations because they are not createdunder the Corporation Code. xxx.

At this point, it may significant to pointout that while, as rightfully interpreted bythe respondent in its Ruling No. 074-98, underSection 27 (c) of the NIRC, which states that–

“Sec. 27 xxx(c) Government-owned or Controlled

Corporations, Agencies or Instrumentalities-The provisions of existing special or generallaws to the contrary not withstanding, allcorporations, agencies or instrumentalitiesowned or controlled by the Government,except the Government Service InsuranceSystem (GSIS), the Social Secutiry System(SSS), the Philippine Health Insurance (PHIC),the Philippine Charity Sweepstakes Office(PCSO), and the Philippine Amusement andGaming Corporation (PAGCOR), shall pay suchrate of tax upon their taxable income as areimposed by this Section upon corporationsor associations engaged in similar business,industry or activity.”

Only five (5) corporations, namely GSIS,SSS, PHIC, PCSO and PAGCOR are exempted


97

from the payment of regular corporate incometax, this Office has occasion to rule that theenumeration under the law is not exclusive.In fact, respondent impliedly agreed with ourview when it issued BIR Ruling No. 018-2000,dated January 20, 2000, declaring that theincome of the National Power Corporation(NPC), a government-owned or controlledcorporation at the same time a public utilityengaged in the supply of electricity, isexempted from income tax pursuant to Section32 (B) (7) (b) of the Tax Code, and BIR RulingNo. DA 088, dated May 16, 2001, declaringthat MWSS, a government-owned publicutility, is equally exempted from income taxpursuant to the same section.

We feel that it is timely at this point intime to set the record straight, that waterdistricts all over the country must be declaredas exempt from tax as they are no differentfrom MWSS that is engaged in the supply ofpotable drinking water to the public in MetroManila.

To rule otherwise violates the equalprotection of the laws. The phrase equalprotection of the laws signifies that “allpersons subject to legislation shall be treatedalike under like circumstances and conditionsboth in the privileges conferred and liabilitiesimposed.”

We do not see rational basis in exemptingPAGCOR and PCSO vis-a-vis MWSS and WaterDistricts from income tax where one proceedsfrom gambling while the other proceeds frombasic necessity. This could be the reason whythe respondent find it wise to exempt MWSSand NAPOCOR in its ruling by breeching thenon-exclusivity of Section 27(c) of the NIRC.If respondent can exempt MWSS there is noreason why it cannot exempt the waterdistricts all over the country. There is no

reason why a huge company can be exemptwhile a small entity cannot be exempt.

On the issue of Franchise Tax and Value-Added Tax, Section 119, of the Tax Code of1997 provides that:

“Sec. 119. Tax on Franchises. Anyprovision of general or special law to thecontrary not withstanding, there shall levied,assessed and collected in respect to allfranchises on radio and/or televisionbroadcasting companies whose annual grossreceipts of the preceding year does not exceedTen Million pesos (P10,000,000.00), subjectSection 236 of this code, a tax of three percent(3%) and on electric, gas and water utilities,a tax of two percent (2%) on the gross receiptsderived from the business covered by the lawgranting the franchise: xxx”

It is clear from the above provision thatthe CNWD is liable for Franchise Tax of twopercent (2%) of its gross receipts, howeversince it is now subject to franchise tax, theyare exempt from VAT on their services thatare already subject to franchise.

WHEREFORE, premises considered,CNWD is declared exempt from payment ofincome tax as an exclusion from gross income,liable for payment of franchise tax but exemptfrom VAT and all other increments thereto.

With respect to the prayer of thepetitioner that this Office issue a Cease andDesist Order against respondent to defer fromcollecting the amount of Php 9,736,486.17the same is hereby GRANTED.

No costs.SO ORDERED.Manila, Philippines, March 20, 2006

(SGD) RAUL M. GONZALESSecretary


98


TRANSFERRING THE LOCAL WATERUTILITIES ADMINISTRATION FROM THEDEPARTMENT OF PUBLIC WORKS ANDHIGHWAYS TO THE DEPARTMENT OF HEALTH

WHEREAS, under Executive Order (EO)No. 387 (s. 2004), the Local Water UtilitiesAdministration (LWUA) was transferred fromthe Office of the President (OP) to theDepartment of Public Works and Highways(DPWH);

WHEREAS, the provision of potablewater is a primary health concern whichshould be supervised by the Department ofHealth (DOH);

WHEREAS, there is also a need to speed-up and ensure the provision of safe potablewater in every barangay; and

WHEREAS, under Section 31, Chapter10, Title III, Book III of the Administrative Codeof 1987, the President has the continuingauthority to reorganize the administrativestructure of the Office of the President.

NOW, THEREFORE, I, GLORIAMACAPAGAL-ARROYO, President of thePhilippines, by virtue of the powers vested inme by law, do hereby order:

SECTION 1. Transfer of LWUA to DOH.The LWUA is hereby transferred from theDPWH to the DOH.

SECTION 2. Authority to ExerciseAdministrative Supervision. The Secretary ofHealth is hereby authorized to exerciseadministrative supervision over the LWUA, and

shall coordinate with the Secretary of PublicWorks and Highways and the MetropolitanWaterworks Sewerage System (MWSS) toensure that there will be concerted efforts informulating policies as well as planning andimplementing programs and projects for thewater sector.

SECTION 3. Repealing Clause. Theprovisions of Executive Order No. 187 (s. 2004)which are inconsistent with the provisions ofthis Executive Order are hereby repealed,amended or modified accordingly.

All other executive issuances, rules,regulations or parts thereof, which areinconsistent with any of the provisions hereofare hereby repealed, amended or modifiedaccordingly.

SECTION 4. Effectivity. This ExecutiveOrder shall take effect immediately.

DONE. In the City of Manila, this 14th

day of July, in the year of Our Lord, TwoThousand and Eight.

By the President:

(Sgd.) Sec. EDUARDO R. ERMITAExecutive Secretary


PD 198 (Revised 2010) Provincial Water Utilities Act

Documents

Transcript of PD 198 (Revised 2010) Provincial Water Utilities Act