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PD 198 (Revised 2010) - 2 PDF
PD 198 (Revised 2010) - 2 PDF
PD 198 (Revised 2010) - 2 PDF
table of contents
SECTION 1
Presidential Decree No. 198 4
z Local Water District Law 7
z Local Water Utilities 17
Administration Law
SECTION 2
Presidential Decree No. 768 26
SECTION 3
Letter of Instructions No. 683 37
SECTION 4
Letter of Instructions No. 700 39
SECTION 5
Presidential Decree No.1479 41
SECTION 6
Letter of Instructions No. 744 44
SECTION 7
Executive Order No. 68 46
SECTION 8
Supreme Court Ruling on Water 47
Districts as Government Owned
and Controlled Corporations
SECTION 9
Executive Order No. 286 59
SECTION 10
Republic Act No. 9286 65
SECTION 11
Executive Order No. 279 67
Implementing Rules & Regulations
of Executive Order No. 279
SECTION 12
Executive Order No. 387 83
SECTION 13
Executive Order No. 421 85
SECTION 14
Department of Justice Ruling 91
on Water District Tax Exemption
SECTION 15
Executive Order No. 738 98
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amended pd 198 and other related issuances
Note: For the user’s guidance, all amendments in this new edition of Presidential
Decree No. 198 manual are printed in gray.
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amended pd 198 and other related issuances
section 1
MALACAŃANG
MANILA
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amended pd 198 and other related issuances
RA TIONALE
RATIONALE hereby decree, order and make as part of the
law of the land the following measure:
WHEREAS, one of the pre-requisites to
the orderly and well-balanced growth or
urban areas is an effective system of local TITLE I
utilities, the absence of which is recognized
as a deterrent to economic growth, a hazard PRELIMINARY PROVISIONS
to public health and an irritant to the spirit
and well-being of the citizenry; SECTION 1. Title. - This Decree shall be
WHEREAS, domestic water systems and known and referred to as the “Provincial Water
sanitary sewers are two of the most basic Utilities Act of 1973”.
and essential elements of local utility systems, SEC. 2. Declaration of Policy. - The
which, with a few exceptions, do not exist in creation, operation, maintenance and
provincial areas in the Philippines; expansion of reliable and economically viable
WHEREAS, existing domestic water and sound water supply and wastewater
utilities are not meeting the needs of the disposal systems for population centers of
communities they serve; water quality is the Philippines is hereby declared to be an
unsatisfactory; pressure is inadequate; and objective of national policy of high priority.
reliability of service is poor, in fact, many For purposes of achieving said objectives, the
persons receive no piped water service formulation and operation of independent,
whatsoever; locally controlled public water districts is
WHEREAS, conditions of service continue found and declared to be the most feasible
to worsen for two (2) apparent reasons, and favored institutional structure. To this
namely: (1) that key elements of existing end, it is hereby declared to be in the national
systems are deteriorating faster than they are interest that said district be formed and that
being maintained or replaced, and (2) that they local water supply and wastewater disposal
are not being expanded at a rate sufficient to systems to be operated by and through such
match population growth; and districts to the greatest extent practicable. To
WHEREAS, local water utilities should encourage the formulation of such local water
be locally-controlled and managed, as well as districts and the transfer thereto of existing
have support on the national level in the area water supply and wastewater disposal
of technical advisory services and financing; facilities, this Decree provides by general act
the authority for the formation thereof, on a
NOW, THEREFORE, I, FERDINAND E. local option basis. It is likewise declared
MARCOS, President of the Philippines, by virtue appropriate, necessary and advisable that all
of the powers vested in me by the funding requirement for such local water
Constitution, as Commander-in-Chief of all systems, other than those provided by local
the Armed Forces of the Philippines, and revenues, should be channeled through and
pursuant to Proclamation No. 1081 dated administered by an institution on the national
September 21, 1972 and General Order No. 1 level, which institution shall be responsible
dated September 22, 1972, as amended, do for and have authority to promulgate and
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amended pd 198 and other related issuances
enforce certain rules and regulations to achieve governor, then the power to appoint shall
national goals and the objective of providing rotate between the governors involved with
public waterworks services to the greatest the initial appointments made by the governor
number at least cost, to offset system in whose province the greatest number of
integration or joint investments and service connections exists. (As amended by
operations whenever economically warranted Sec. 1, PD 768)
and to assure the maintenance of uniform (c) Administration - The Local Water
standards, training of personnel and the Utilities Administration chartered in Title III
adoption of sound operating and accounting of this Decree.
procedures. (d) NEDA. - The National Economic
SEC. 3. Definitions. - As used in this and Development Authority. (Note: This
Decree, the following words and terms shall paragraph should properly have been deleted).
have the meanings herein set forth, unless a (e) Board or Board of Directors. - The
different meaning clearly appears from the board of directors of a district.
context. The definition of a word or term (f) Contracts. - All agreements,
applies to any of its variants. including leases, conveyances and obligations.
(a) Act. - This Provincial Water Utilities (g) District. - A local water district
Act of 1973. formed pursuant to Title II of this Act.
(b) Appointing Authority. - The person (h) Local Water Utility. - Any district,
empowered to appoint the members of the city, municipality, province, investor-owned
Board of Directors of a local water district public utility or cooperative corporation which
depending upon the geographic coverage and owns or operates a water system serving an
population make-up of the particular district. urban center in the Philippines, except that
In the event that more than seventy-five percent said term shall not include the Metropolitan
of the total active water service connections Waterworks and Sewerage System (MWSS)
of a local water district are within the or any system operated by the Bureau of
boundary of any city or municipality, the Public Works as successor to the Wells and
appointing authority shall be the mayor of Springs Department of the National
that city or municipality, as the case may be; Waterworks and Sewerage Authority.
otherwise, the appointing authority shall be (i) Person. - A natural person,
the governor of the province within which the corporation, cooperative, partnership,
district is located: Provided, That if the existing association, city, municipality or other
waterworks system in the city or municipality juridical entity.
established as a water district under this (j) Property. - All real and personal
Decree is operated and managed by the property, including but not limited to: water,
province, initial appointment shall be extended water rights, works, easements, rights of way.
by the governor of the province. Subsequent (k) Street. - Includes road, valley,
appointments shall be as specified herein. avenue, highway or other public way.
If portions of more than one province are (l) Trustees or Board of Trustees. -
included within the boundary of the district, The Board of Trustees of the Administration.
and the appointing authority is to be the
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amended pd 198 and other related issuances
provinces, or any combination thereof, desire Provided, however, that if the district has
to form a single district, a similar resolution availed of the financial assistance of the
shall be adopted in each city, municipality Administration, the Administration may
and province; or the city, municipality or appoint any of its personnel to sit in the board
province in which 75% of the total active of directors with all the rights and privileges
service connections are situated shall pass an appertaining to a regular member, for such
initial resolution to be concurred in by the period as the indebtedness remains unpaid, in
other cities, municipalities or provinces. (As which case the board shall be composed of
amended by Sec. 2, PD 768) six members. (As amended by Sec. 4, PD 768;
SEC. 7. Filing of Resolution. - A certified Sec. 2, PD 1479)
copy of the resolution or resolutions forming SEC. 9. Appointment. - Board members
a district shall be forwarded to the office of shall be appointed by the appointing
the Secretary of the Administration. If found authority. Said appointments shall be made
by the Administration to conform to the from a list of nominees, if any, submitted
requirements of Section 6 and the policy pursuant to Section 10. If no nominations are
objectives in Section 2, the resolution shall be submitted, the appointing authority shall
duly filed. The district shall be deemed duly appoint any qualified person of the category
formed and existing upon the date of such to the vacant position.
filing. A certified copy of said resolution SEC. 10. Nominations. - On or before
showing the filing stamp of the Administration October 1 of each even-numbered year, the
shall be maintained in the office of the district. secretary of the district shall contact each
Upon such filing, the local government or known organization, association, or
governments concerned shall lose ownership, institution being represented by the director
supervision and control or any right whose term will expire on December 31 and
whatsoever over the district except as provided solicit nominations from these organizations
herein. (As amended by Sec. 3, PD 768) to fill the position for the ensuing term. One
nomination may be submitted in writing by
CHAPTER III - Directors each such organization to the secretary of the
SEC. 8. Number and Qualifications. - district on or before November 1 of such year.
The Board of Directors of a district shall be This list of nominees shall be transmitted by
composed of five citizens of the Philippines the Secretary of the district to the office of
who are of voting age and residents within the appointing authority on or before
the district. One member shall be a November 15 of such year and he shall make
representative of civic-oriented service clubs, his appointment from the list submitted on or
one member a representative of professional before December 15. In the event the
associations, one member a representative of appointing authority fails to make his
business, commercial, or financial appointments on or before December 15,
organizations, one member a representative selection shall be made from said list of
of educational institutions and one member a nominees by majority vote of the seated
representative of women’s organizations. No directors of the district constituting a quorum.
public officials shall serve as director. Initial nominations for all five seats of the
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amended pd 198 and other related issuances
board shall be solicited by the legislative body days after submission to him of a list of
or bodies at the time of adoption of the nominees the appointing authority fails to
resolution forming the district. Thirty days make an appointment, the vacancy shall be
thereafter, a list of nominees shall be filled from such list by a majority vote of the
submitted to the provincial governor in the remaining members of the Board of Directors
event the resolution forming the district is by constituting a quorum. Vacancies occurring
a provincial board, or the mayor of the city or within the last six months of an unexpired
municipality in the event the resolution term shall also be filled by the Board in the
forming the adoption of the district is by the above manner. The director thus appointed
city or municipal board of councilors, who shall serve the unexpired term only. (As
shall select the initial directors therefrom amended by Sec. 6, PD 768)
within 15 days after receipt of such SEC. 13. Compensation. - Each director
nominations. shall receive a per diem to be determined by
SEC. 11. Term of Office. - Of the five the Board, for each meeting of the Board
initial directors of each newly-formed district, actually attended by him, but no director shall
two shall be appointed for a maximum term receive per diems in any given month in excess
of two years, two for a maximum term of of the equivalent of the total per diem of four
four years, and one for a maximum term of meetings in any given month.
six years. Terms of office of all directors in a Any per diem in excess of One hundred
given district shall be such that the term of at fifty pesos (P150.00) shall be subject to the
least one director, but not more than two, approval of the Administration. In addition
shall expire on December 31 of each even- thereto, each director shall receive allowances
numbered year. Regular terms of office after and benefits as the Board may prescribe
initial terms shall be for six years commencing subject to the approval of the Administration.
on January 1 of odd-numbered years. (As amended by Sec. 7, PD 768; R.A. 9286)
Directors may be removed for cause only, SEC. 14. Personal Liability. – No
subject to review and approval of the director may be held to be personally liable
Administration. (As amended by Sec. 5, PD for any action of the district.
768)
SEC. 12. Vacancies. - In the event of a CHAPTER IV – The Board
vacancy in the board of directors occurring SEC. 15. Organizational Meeting. - The
more than six months before expiration of any board shall hold its first meeting as soon as
director’s term, the remaining directors shall, practicable after appointment of the first
within 30 days, serve notice or request the directors, and not later than 45 days after
secretary of the district for nominations and formation of the district. At said first meeting
within 30 days thereafter a list of nominees of the district board, and thereafter at the
shall be submitted to the appointing authority first meeting of each odd-numbered year, the
for his appointment of a replacement director board shall elect a chairman, a vice chairman,
from the list of nominees. In the absence of a secretary and a treasurer. Such secretary
such nominations, the appointing authority and treasurer may, but need not be members
shall make such appointment. If within 30 of the board, and the offices of secretary and
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amended pd 198 and other related issuances
treasurer may be held by the same person. of the district to be performed by an auditor
SEC. 16. Quorum. - A majority of the retained by the Administration. Expenses
board present in person shall constitute a incurred in connection therewith shall be borne
quorum for the transaction of business; equally by the water district concerned and
Provided, however, That no resolution or the Administration. (As amended by Sec. 8,
motion shall be adopted or become effective PD 768)
without the affirmative vote of a majority of SEC. 21. Depository. - The district’s
the authorized number of members of the depository shall be the Philippine National
board. Bank, unless use of such bank is impractical:
Provided, however, That any and all reserves
CHAPTER V – Powers and Duties of Board accumulated for capital improvements may
SEC. 17. Performance of District be deposited with the Administration.
Powers. - All powers, privileges, and duties SEC. 22. Contracts. - All contracts of
of the district shall be exercised and performed the district shall be entered into by or pursuant
by and through the board: Provided, however, to authority of the board: Provided, however,
That any executive, administrative or That the board may be resolution delegate
ministerial power shall be delegated and and redelegate to officers or agents of the
redelegated by the board to officers or agents districts, under such conditions and
designated for such purpose by the board. restrictions as shall be fixed by the board, the
SEC. 18. Functions Limited to Policy- power to bind the district by contract.
Making. - The function of the board shall be
to establish policy. The board shall not engage CHAPTER VI- Officers and Employees
in the detailed management of the district. SEC. 23. The General Manager. -
SEC. 19. By-Laws. - At its first meeting, At the first meeting of the Board, or as soon
the board shall adopt, and may thereafter thereafter as practicable, the Board shall
from time to time amend by-laws for the appoint, by a majority vote, a general manager
operation of business and affairs of the board and shall define his duties and fix his
and the district. By-Laws may not be amended compensation. Said officer shall not be
without 30 days public notice to that effect, removed from office, except for cause and after
and a public hearing held. due process. (As amended by Sec. 9, PD 768;
SEC. 20. System of Business R. A. 9286)
Administration. - The Board shall, as soon SEC. 24. Duties. - The duties of the
as practicable, prescribe and define by General Manager and other officers shall be
resolution a system of business administration determined and specified from time to time
and accounting for the district, which shall by the board. The general manager, who shall
be patterned upon and conform to the not be a director, shall have full supervision
standards established by the Administration. and control of the maintenance and operation
Auditing shall be performed by a certified of water district facilities, with power and
public accountant not in the government authority to appoint all personnel of the
service. The Administration may, however, district: Provided, That the appointment of
conduct annual audits of the fiscal operations personnel in the supervisory level shall be
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amended pd 198 and other related issuances
subject to approval by the board. (As amended domestic service and pursuant to the adopted
by Sec. 10, PD 768) rules and regulations of the district.
Any district holding a valid Certificate
CHAPTER VII – Powers of District of Conformance or a Conditional Certificate
SEC. 25. Authorization. - The of Conformance from the Administration shall
district may exercise all the powers which are be exempt from regulation by the Public
expressly granted by this Title or which are Service Commission or its successor. (As
necessarily implied from, or incidental to the amended by Sec. 5, PD 1479)
powers and purposes herein stated. For the SEC. 28. Sewerage. – A district may
purpose of carrying out the objectives of this require, construct, operate and furnish
Act, a district is hereby granted the power of facilities and services, within or without the
eminent domain, the exercise thereof shall, district, for the collection, treatment and
however, be subject to review by the disposal of sewerage, waste, and storm water.
Administration. (As amended by Sec. 4, PD The district may only furnish such services
1479) outside the district by means of facilities
SEC. 26. Acquisition of designed primarily to serve inside the district.
Waterworks. - A district may purchase, Upon providing a sewer system in any area of
construct, or otherwise acquire works, water, the district, the district may require all
water rights, land, rights and privileges useful buildings used by human beings to be
or necessary to convey, supply, store, collect, connected to the sewer system within such
treat, dispose of or make other use of water reasonable time as may be prescribed by the
for any purpose authorized by this Title. In district, provided that the property upon
the acquisition of water or water rights the which such building to be connected stands is
district shall cooperate with existing agencies located within 35 meters of an existing main
of the government of the Philippines. (As of the district’s sewer system. After due notice
amended by Sec. 5, PD 1479) thereof and refusal on the part of the property
SEC. 27. Sale of Water. - The district owner to so connect with the district’s sewer
shall have the power to sell water, pursuant system, the district may declare the further
to generally applicable rules and regulations, maintenance or use of cesspools, septic tanks,
to any person for use within the district. As a or other local means of sewerage disposal in
condition of such sale, the district may require such area to be a public nuisance and, after
the filing of a written application for service, notice in writing of at least 10 days, deprive
payment of established charges or deposits said property owner of any and all services
and execution of a water service contract. provided by the district, which sanction may
A district may provide service to public be co-extensive with the period during which
faucets or hydrants provided that it shall first the property owner persists in refusing to
have executed an application and service connect with the district’s sewer system. (As
contract with the Government entity to amended by Sec. 5, PD 1479)
establish or maintain such faucets or hydrants SEC. 29. Rights of Way. - The right
within the district. The district will be paid of way is hereby granted to locate, construct
for such service in the same manner as regular and maintain works of the district on any
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amended pd 198 and other related issuances
land which is now, or hereafter may be, owned the city, municipality or province has not
by the Government of the Philippines or by reached agreement with the Metropolitan
any of its political subdivisions, and/or Waterworks and Sewerage System pursuant
instrumentalities. A district may construct to Section 15 and 17 of R. A. 6234, a district
any works along, under or across any street, may, with the consent of the local government,
watercourse, railway, or conduit in any manner act for and in behalf of the local interests in
which will afford security for life and property: negotiating and executing such contract for
Provided, That in planning any such works, final settlement of the consequences of
the environmental aspects shall also be MWSS involvement in the operation of the
considered. (As amended by Sec. 5, PD 1479) water system.
SEC. 30. Contracts. - A district shall SEC. 31. Protection of Waters
have the power to enter into contracts with and Facilities of District. - A district
any person for the purpose of performing any shall have the right to:
functions of the district: Provided, That the (a) Commence, maintain, intervene in,
Board of Directors may not by contract defend and compromise actions or proceedings
delegate any of the discretionary powers to prevent interference with or deterioration
vested in the board by this Title. Specifically, of water quality or the natural flow of any
but without limiting said general power, a surface, stream or ground water supply which
district may enter into the following contracts: may be used or useful for any purpose of the
(a) Cooperation. - Agreement with district or be a common benefit to the lands
the Government of the Philippines or any of or its inhabitants. The ground water within a
its agencies or political subdivisions for the district is necessary to the performance of the
cooperative or joint performance of any district’s powers and such district is hereby
function of the district. authorized to adopt rules and regulations
(b) In-Lieu Share. – As an incident to subject to the approval of the National Water
the acquisition of the existing water system Resources Council governing the drilling,
of a city, municipality, or province, a district maintenance and operation of wells within
may enter into a contract to pay in-lieu share its boundaries for purposes other than a single
for such utility plant, an annual amount not family domestic use on overlying land. Any
exceeding three percent (3%) of the district’s well operated in violation of such regulations
gross receipts from water sales in any year: shall be deemed in interference with the waters
Provided, however, That no contract of this of the district.
nature shall be executed during the first five (b) Require a developer or builder of any
years of the existence of the district; and structure within the service areas of the district
Provided, further, That the Board of Directors to extend or connect its pipeline facilities to
shall determine that such contract will not the district facilities whenever such
adversely affect or impair the fiscal position development or structure is within one hundred
and operations of the district as verified by meters of existing district facilities or
the Administration. (As amended by Sec. 11, whenever the district is willing to extend its
PD 768; Sec. 5, PD 1479) facilities within one hundred meters of said
(c) MWSS Agreement. - In the event development or structure. For the purpose of
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amended pd 198 and other related issuances
this section, development shall include the capacity and additional hydrants for fire
subdivision of land for any purpose other than protection purposes: Provided, That prior
agricultural purpose, and structure shall mean agreement has been executed with the public
any building or facility to be used for entity having principal fire protection
residential, commercial or industrial purposes. responsibility within the district whereby the
(c) Prohibit any person, firm or district will be reimbursed over the reasonable
corporation from vending, selling, or otherwise life of said facilities for the cost of installation
disposing of water for public purposes within and operation of such fire protection capacity
the service area of the district where district and facilities. (As amended by Sec. 7, PD 1479)
facilities are available to provide such service,
or fix terms and conditions by permit for such CHAPTER VIII – Financial Provisions
sale or disposition of water. SEC. 33. Receipt, Deposit and
(d) Safeguard and protect the use of its Payment of District Funds. - The
waters. For this purpose, any person who treasurer shall receive, to the credit of the
installs any water connection without the district and in trust for its use and benefit, all
previous authority from the water district monies belonging to the district. All monies
established under this Decree; tampers water belonging to the District shall, where
meters or uses jumpers or other devices practicable, be deposited by the treasurer in
whereby water is stolen; steals or pilfers water the Philippine National Bank. (As amended
or water meters; knowingly possesses stolen by Sec. 13, PD 768; Sec. 7, PD 1479)
or pilfered water or water meters shall, upon SEC. 34. Bonds or Other Evidence
conviction, be punished by prision correccional of Indebtedness. - A district may borrow
in its minimum period or a fine ranging from money to raise funds to pay all cost of any
two thousand pesos to six thousand pesos, or public improvements authorized by this Title
both. If the violation is committed with the and may issue negotiable or non-negotiable
connivance or permission of an employee or bonds, promissory notes or other evidence of
officer of the water district, an employee or indebtedness to support such borrowings.
officer shall, upon conviction, be punished by These obligations may be secured by a
a penalty one degree lower than prision mortgage, pledge, deed of trust of or any other
correccional in its minimum period and encumbrance upon any of its then owned or
forthwith be dismissed and perpetually after-acquired real or personal property, assets
disqualified from employment in any utility or revenues and the same shall constitute a
or service company owned or controlled by lien as to the principal and interest thereon,
the government. (As amended by Sec. 12, PD on all such property, assets or revenues. The
768) interests on such bonds or notes are exempt
(e) Take over the management, from all taxes, duties, fees, imposts, or other
administration, operation and maintenance charges of the national or local governments.
of all watersheds within its territorial (As amended by Sec. 14 and 15, PD 768; Sec.
boundaries. (As amended by Sec. 6, PD 1479) 7, PD 1479)
SEC. 32. Fire Protection Capacity. SEC. 35. Authority for Subsequent
- The district may install and maintain pipeline Borrowings. - Where a water district has
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amended pd 198 and other related issuances
borrowed money from the Administration, the new water customers for the cost of
district shall not borrow money or incur installation of new services and meters;
further obligations from other sources without “(b) Provide for revenue from all water
the prior written consent of the deliveries and services performed by the
Administration. (As amended by 16, PD 768; district;
Sec. 7, PD 1479) “(c) Pay the operating expenses of the
SEC. 36. Default. - In the event of district;
the default by the district in the payment of “(d) Provide for the maintenance and
principal or interest on its outstanding bonds repairs of the works;
or other obligations, any bondholder or “(e) Provide a reasonable surplus for
creditor shall have the right to bring an action replacement, extension and improvements; and
before the appropriate court to compel the “(f) Pay the interest and principal and
payment of such obligation. If the bondholder provide a sinking fund for the payment of
or creditor concerned is the Administration, it debts of the district as they become due and
may, without the necessity of judicial process, establish a fund for reasonable reserves. (As
take over and operate the entire facilities, amended by Sec. 17, PD 768; Sec. 7, PD 1479)
systems or properties of the district. For the SEC. 38. Service and Stand-by
purpose, the Administration may designate Charges – Sewer. - A district may prescribe
its employees or any person or organization and collect rates and other charges for sewer
to assume all powers of policy-decision and services furnished. A district may also fix,
the powers of management and levy and collect a sewerage and wastewater
administration, including but not limited to service stand-by or availability charge in the
the establishment of water rates and charges, event sewer service is available and no
the dismissal and hiring of personnel, the connection is made. Such rates and charges
purchase of supplies, equipment and materials may be collected with the water charges of
and such other actions as may be necessary the district. In the event of failure to pay the
to operate the utility efficiently. (As amended whole or any part thereof, district may
by 16, PD 768; Sec. 7, PD 1479) discontinue any and all services for which
such bill is rendered, including water, shall
CHAPTER IX - Revenues not be construed to prohibit the district from
SEC. 37. Rates and Charges. - collecting rates and other charges in any other
Water. - A district may sell water under its lawful manner. (As amended by Sec. 18, PD
control, under schedules of rates and charges 768; Sec. 7, PD 1479)
as may be determined by the Board, to any SEC. 39. Production Assessment.
and all water users within the district. Said - In the event the board of a district finds,
schedule may provide for differential rates for after notice and hearing, that production of
different categories of use and different groundwater by other entities within the
quantity blocks. The district, as far as district for commercial or industrial uses in
practicable, shall fix such rates and charges injuring or reducing the district’s financial
for water as will result in revenues which will: condition, the board may adopt and levy a
“(a) Provide for reimbursement from all groundwater production assessment to
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amended pd 198 and other related issuances
compensate for such loss. In connection exclusively for expansion and improvement of
therewith, the district may require necessary its physical facilities. (As amended by Sec. 8,
reports by the operator of any commercial or PD 1479)
industrial well. Failure to pay said assessment
shall constitute an invasion of the waters of CHAPTER X - Changes in Organization
the district and shall entitle this district to an SEC. 42. Exclusion of a Territory.
injunction and damages pursuant to Section - Any territory within the boundary of district
32 of this Title. (As amended by Sec. 18, PD may be excluded by resolution of the board of
768; Sec. 7, PD 1479) directors after notice to land owners within
SEC. 40. Assessment and Stand- the territory proposed to be excluded, and
By Charges. - In order to obtain capital to upon a finding that said lands do not and will
finance installation of sanitary sewerage, a not benefit by reason of their inclusion within
district shall have the power to establish by the district. A certified copy of said resolution
resolution of the board of directors the area of exclusion shall be filed in the same manner
to be benefited from such facilities. After a and become effective in accordance with the
hearing and upon notice to all parties affected, provisions applicable to the resolution forming
the district may levy and collect assessment, the district. (As amended by Sec. 18, PD 768)
or stand-by charges based upon available SEC. 43. Annexations and
capacities or upon selected characteristics of Deannexations. - The Administration may,
property benefited by said improvements, as after notice to property owners within the
determined by the board. Said characteristics territory proposed for annexation or
may include, but not limited to, the effective deannexation, and following a hearing, make
length of property fronting upon the proposed findings of benefit or potential benefit, and
improvement or in terms of the area contained thereafter, require annexation or deannexation
within the boundary of said property. Said shall be accomplished by adoption and filing
assessment, if unpaid, shall be and constitute of an appropriate resolution in the same
a lien on the land assessed. (As amended by manner as the filing of the resolution forming
Sec. 18, PD 768; Sec. 7, PD 1479) a district or of exclusion, as the case may be.
SEC. 41. Disposition of Income. (As amended by Sec. 18, PD 768)
The income of the district shall be disposed of SEC. 44. Consolidation and Joint
according to the following priorities: Operation. - The Administration may require
“First, to pay its contractual and the merger or consolidation of the facilities or
statutory obligations and to meet its essential operations of two or more districts formed
current operating expenses. pursuant to the levy, in the event that the
“Second, to allocate at least fifty percent Administration shall have determined,
(50%) of the balance exclusively as a reserve following a hearing, that such merger or
for debt service and operating and consolidation is in the best interest of the
maintenance, to be used for such purposes residents in the districts involved. (As
only during periods of calamities, force amended by Sec. 18, PD 768)
majeure or unforeseen events. SEC. 45. Dissolution. - A district
“Third, to allocate the residue as a reserve may be dissolved by resolution of its board of
15
amended pd 198 and other related issuances
16
amended pd 198 and other related issuances
their appointments. (As amended by Sec. 24, Except as otherwise provided herein, the
PD 768) organizational structure and staffing pattern
SEC. 53. Vacancies. - Vacancies in of the Administration, the qualification of the
the Board of Trustees for any reason appointive officers and employees, the powers
whatsoever shall be filled by the President of and responsibilities of the officers, the internal
the Philippines in like manner as in the case of procedure of the Administration, and such
new appointments but the trustees so other matters relative to the organization,
appointed shall serve only the unexpired management and conduct of the affairs of
portion of the term of the trustees substituted the Administration shall be as provided in the
for. (As amended by Sec. 25, PD 768) by-laws; Provided, That, the appointment of
SEC. 54. Powers. - All of the business and disciplinary action against officers and
and affairs of the Administration shall be employees of the Administration shall be done
carried on and its powers shall be exercised and effected pursuant to guidelines
by and through the Board of Trustees. The established by the Board of Trustees. (As
function of the trustees, however, shall be to amended by Sec. 26, PD 768)
establish policy, not to engage in the detailed
management of the Administration. (As CHAPTER V - Officers and Employees
amended by Sec. 25, PD 768) SEC. 57. Officers. - The Board shall
SEC. 55. Compensation. - The elect a chairman from among its members. In
Trustees shall each receive a per diem as may addition, the Board shall select a secretary
be fixed by the Board for each meeting actually and a corporate legal counsel, each of whom
attended by them: Provided, That the total of shall not be a trustee. (As amended by Sec.
such per diem in any one month for each 28, PD 768)
Trustee, shall not exceed the equivalent of the SEC. 58. The Administrator and
per diems for four meetings; Provided, further, Other Employees. - The Trustees shall select
That per diems in excess of three hundred a general manager who shall not come from
pesos per meeting shall be subject to approval the appointed trustees. The general manager
of the Office of the President; and Provided, shall receive compensation in an amount as
finally, That, in addition, each Trustee shall may be fixed by the Board, subject to the
be reimbursed his expenses incurred in approval of the President of the Philippines,
connection with the performance of his but in no case less than fifty-four thousand
functions in such amount as may be pesos per annum. The general manager shall
determined by the Board of Trustees. (As employ and appoint all additional personnel;
amended by Sec. 26, PD 768) Provided, That the appointment of personnel
in the supervisory level shall be subject to
CHAPTER IV – By-Laws confirmation by the Board. (per E. O. 68 dated
SEC. 56. By-Laws. - The Board of 11-21-86)
Trustees shall adopt a code of by-laws for the The incumbent manager holding office
conduct of the affairs of the Administration as such upon the effectivity of this amendment
which may be amended from time to time by shall continue to hold such office unless sooner
the affirmative vote of four Trustees. terminated by competent authority. (As
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amended pd 198 and other related issuances
amended by Sec. 29, PD 768) Administration for any proposed project for
The regular professional and technical which loan funds are sought may be
personnel of the Administration shall be undertaken by the water district, the
exempt from WAPCO and Civil Service rules Administration or by a consultant prequalified
and regulations; Provided, That the personnel by the Administration; (As amended by Sec.
shall be entitled to the benefits and privileges 31, PD 768)
normally accorded to government employees, (c) Security. - The Administration may
such as retirement, GSIS insurance, leave and take as security for such loans the authorized
similar matters. bonds or other evidence of debt by the water
district and a mortgage on its properties; (As
CHAPTER VI - Powers amended by Sec. 31, PD 768)
SEC. 59. General Corporate Powers. (d) Loan Documents and
– The Administration shall have all the powers Procedures. - The Board of Trustees shall
which are expressly granted to it under this adopt rules, loan documents and procedures
Title, or which are necessary, implied from, or to be used in the granting of loans. Such
incidental to the powers and purposes herein rules shall include provisions for security,
stated. payment and default. (As amended by Sec.
SEC. 60. Borrowing and Security 31, PD 768)
Therefor. - The Administration may borrow (e) Default. - In the event of default by
funds as authorized in Section 72 of this Title, the local water district in the payment of
and issue as security therefor debentures or principal or interest on its outstanding bonds
other evidence of indebtedness constituting a or other obligations to the Administration,
lien on any and all securities, covenants and the latter may, without the necessity of judicial
obligations of local water utilities held by the process, take over and operate the facilities
Administration as security for loans made to or properties of the district. For this purpose,
such local water utilities. (As amended by the Administration may designate its
Sec. 30, PD 768) employees or any person or organization to
SEC. 61. Loans. - Administration may assume both the policy-making authority and
make loans from its Revolving Loan Funds to the powers of management, including but not
qualified local water utilities, upon the limited to, the establishment of water rates
following conditions and pursuant to the and service charges, the dismissal and hiring
following procedures: of personnel, the purchase of equipment,
(a) Qualification of Borrower. - supplies or materials and such other actions
Before any loan may be granted, the local as may be necessary to operate the water
water utility shall (1) hold a valid certificate district efficiently. Such policy-making and
of conformance or a conditional certificate of management prerogatives may be returned to
Compliance from the Administration, and (2) the Board of Directors and the general
meet such other and further loan qualification manager of the water district, respectively,
requirements as the trustees may establish; when all of its overdue accounts have been
(b) Feasibility Study. – A feasibility paid, all its reserve requirements have been
study which may be required by the satisfied and all the causes of default have
19
amended pd 198 and other related issuances
been met. (As amended by Sec. 31, PD 768) have satisfactorily completed appropriate
(f) Funding of Loan. - When a loan is training courses, programs or seminars
made to local water utility, the necessary conducted by the Administration, and must
amount of such loan shall be programmed to be holders of a certificate of completion or
assure completion of the project for which competence, as the case may be, before a
such loan was granted. (As amended by Sec. certificate of conformance is issued to the
10, PD 1479) water district.
SEC. 62. Regulations. - For certain positions which the
Administration shall have the power and duty Administration may specify, only those
to establish standards for local water utilities persons possessing, or in the case of
and adopt rules and regulations for the subsequent appointments, only persons who
enforcement thereof. The Administration shall will undergo training and shall have obtained
vigorously consult and coordinate its actions within six months, a certificate of completion
with all government agencies active in the or competence, as the case may be shall be
areas of public works and all other concerned appointed. (As amended by Sec. 32, PD 768)
agencies in the promulgation of these (f) Organization. - Organizational and
standards. Said standards and regulations institutional criteria to assure independent
shall include the following: operation and funding of local water utilities.
(a) Water Quality. - Minimum drinking (g) Accounting. - A uniform accounting
water standards including a uniform testing system with uniform chart of accounts. Said
and reporting system. Said standards shall standard and regulations also shall include
include bacteriological, chemical and physical stipulated levels of internal reporting to local
parameters; water utility management.
(b) Design and Construction. - SEC. 63. Rate Review. - Any publicly-
Minimum criteria for the design and owned local utility holding a Certificate of
construction of new or additional facilities Conformance or Conditional Certificate of
for water supply, treatment, transmission and Conformance from the Administration is
distribution, and for wastewater collection, hereby declared exempt from the jurisdiction
treatment and disposal; of the Public Service Commission or its
(c) Equipment, Materials and successor. Any rates or charges established
Supplies. - Standards for the optimum by such local water utility shall be adequate
selection and effective utilization of to provide for:
equipment, materials and supplies by local (a) Reimbursement from all new water
water and sewer utilities; customers for the cost of installing new
(d) Operations and Maintenance. - services and meters;
Standardized procedures for operating and (b) Revenue from all water deliveries
maintaining equipment and facilities; and services performed by the district;
(e) Personnel. - The training of (c) Annual operating expense of the
personnel who operate or manage local water district;
utilities. For this purpose, at least a majority (d) The maintenance and repairs of the
of the personnel of a local water district must works;
20
amended pd 198 and other related issuances
(e) A reasonable surplus for programs and seminars for personnel of local
replacement, extension and improvement; and water utility. Programs shall include the areas
(f) Payment of the interest and of utility management, operation,
principal and provide a sinking fund for maintenance and customer service.
payment of debts of the district as they Administration shall have the power to issue
become due and establish a fund for reasonable Certificate of Completion for the satisfactory
reserves. (As amended by Sec. 33, PD 768) completion of a specified course of instruction.
The rates or charges established by such In the case of operational personnel,
local district, after hearing shall have been Administration may conduct appropriate
conducted for the purpose, shall be subject to examinations and issue corresponding
review by the Administration to establish Certificates of Competence to assist local
compliance with the above-stated provisions. water utilities to meet the personnel standards
Said review of rates or charges shall be set pursuant to Section 62 (d) of this Title.
executory and enforceable after the lapse of SEC. 66. Certificate of Conformance. -
seven calendar days from posting thereof in a Administration may require report from all
public place in the locality of the water district, water utilities, conduct field investigations and
without prejudice to an appeal being taken review all available information to determine
therefrom by a water concessionaire to the whether there has been conformance to its
National Water Resources Council whose standards and procedures established
decision thereon shall be appealable to the pursuant to Section 62 of this Title. Upon a
Office of the President. An appeal to the finding that said standards are met, the
Council shall be perfected within thirty days Administration shall issue a Certificate of
after the expiration of the seven-day period of Conformance to any such water utility. Said
posting. The Council shall decide on appeal Certificate maybe revoked after due notice and
within thirty days from perfection. (As hearing as to any local water utility which
amended by Sec. 11, PD 1479) thereafter fails to continue conformance with
SEC. 64. Technical Assistance. - such standards. A Conditional Certificate of
Administration shall provide technical Conformance may be issued where procedures
assistance to local water utilities; their boards, and practices have been adopted to assure
management and operating personnel, to aid conformances and reasonable time schedule
in meeting the standards and criteria has been adopted. Failure to reach
established by the Administration, and to conformance as contemplated shall be cause
encourage the upgrading of the operations for revocation of such conditional certificate,
and management of such local water utilities. without hearing or other cause.
Said technical assistance should consist of
those matters which are practical to finance CHAPTER VII – Financial Provisions
or develop on a national basis but are beyond SEC. 67. Capital Stock. - The authorized
the capability of the individual local water capital of the Local Water Utilities
utility, as such. Administration is Two Billion, Five Hundred
SEC. 65. Training Programs. - Million Pesos divided into Twelve Million Five
Administration shall establish training Hundred Thousand share of stock with a par
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amended pd 198 and other related issuances
value of Two Hundred Pesos per share which are of general benefit to water districts or
shall be subscribed by the National utilities including, but not limited to, general
Government and opened to subscription by administration and supervision. (As amended
private investors or government financial by Sec. 34, PD 768)
institutions. (As amended by Sec. 34, PD 768; SEC. 71. Receipt and Investment
Sec. 12, PD 1479) of Funds. - Whenever the Administration
SEC. 68. Payment for National receives money whether as payment for
Government Shares. - All amounts previously subscriptions to shares of stock, principal
released by the National Government to the repayments, interest income, payment for
Revolving Fund of the Administration shall be services rendered or for any purpose
credited as payment for subscriptions to whatsoever, it shall issue its own receipts and
shares of stock at par value. Whatever balance provide for their safekeeping and investment
remaining of said subscription shall be paid under policy guidelines as may be established
from a continuing appropriation which is by the Board of Trustees in accordance with
hereby made out of any funds in the National Department of Finance regulations. (As
Treasury not otherwise appropriated, such amended by Sec. 34, PD 768)
annual appropriation to be programmed and SEC. 72. Domestic Borrowing
released in accordance with pertinent budget Authority. - The Administration shall have
laws: Provided, That this continuing the authority to borrow money from all
appropriation shall remain in force until the domestic loan sources whether government
balance of the unpaid subscription of the or private; Provided, That its loans
government to the capital stock of the outstanding from domestic sources at any one
administration have been paid in full. (As time shall not exceed One Billion Pesos. (As
amended by Sec. 34, PD 768; Sec. 13, PD 1479) amended by Sec. 36, PD 768)
SEC. 69. Operational Expenses. - SEC. 73. Authority to Contract
The Board of Trustees is hereby authorized to Foreign Loan. - The Administration is
appropriate out of any funds of the hereby authorized to contract loans, credits,
Administration, such amounts as it may deem in any convertible foreign currency or capital
necessary for the operational and other goods, and to incur indebtedness from time
expenses of the Administration including the to time with foreign governments, or any
purchase of necessary equipment. (As international financial institutions or fund
amended by Sec. 34, PD 768) sources, including suppliers credits or deferred
SEC. 70. Charges. - To the extent that payment arrangements, the total outstanding
the Administration performs services for the amount of which, excluding interests, shall
benefit and at the request of a local water not exceed five hundred million United States
district or utility or a number of water districts, dollars or the equivalent thereof in other
utilities or organizations, it may levy fees or currencies, on terms and conditions
charges for such service rendered. promulgated by the Secretary of Finance and
Charges may include an assessment the Monetary Board for the accomplishment
against water districts or utilities to finance of its objectives; and to enter into and execute
those functions of the Administration which contracts and other documents specifying
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amended pd 198 and other related issuances
24
amended pd 198 and other related issuances
GENERAL PROVISIONS
SEC. 79. Separability of
Provisions. – If any provision of this Decree,
or the application of such provision to any
person or circumstances, is declared invalid,
the remainder of the Decree or the application
of such provision to other persons or
circumstances shall not be affected by such
declaration. (As amended by Sec. 39, PD 768;
Sec. 15, PD 1479)
SEC. 80. Effect on Other Acts. - All
Acts or parts of Acts, Decrees, General Orders,
Executive Orders, Proclamations, or rules and
regulations inconsistent herewith are repealed
or modified accordingly. (As amended by Sec.
39, PD 768; Sec. 15, PD 1479)
SEC. 81. Effectivity. - This Decree shall
take effect immediately.
By the President:
(SGD) ALEJANDRO MELCHOR
Executive Secretary
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amended pd 198 and other related issuances
SEC. 2. Paragraphs (b), (c), (e) and last by the Administration to conform to the
paragraph of Section 6 of the same decree, requirements of Section 6 and the policy
are hereby amended to read as follows: objectives in Section 22, the resolution shall
“x x x” be duly filed. The district shall be deemed duly
“(b) A description of the boundary of the formed and existing upon the date of such
district. In the case of a city or municipality, filing. A certified copy of said resolution
such boundary may include all lands within showing the filing stamp of the Administration
the city or municipality. A district may include shall be maintained in the office of the district.
one or more municipalities, cities or provinces, Upon such filing, the local government or
or portions thereof: Provided, That such governments concerned shall lose ownership,
municipalities, cities or provinces, or portions supervision and control or any right
thereof, cover a contiguous area. whatsoever over the district except as provided
“(c) A statement transferring any and all herein.”
waterworks and/or sewerage facilities SEC. 4. Section 8 of the same decree is
managed, operated by or under the control of hereby amended to read as follows:
such city, municipality or province to such “SEC. 8. Number and Qualifications. -
district pursuant to a contract authorized by The Board or Directors of a district shall be
this Title. composed of five citizens of the Philippines
“x x x” who are of voting age and residents within
“(e) The names of the initial directors of the district. One member shall be a
the district with the date of expiration of the representative of civic-oriented service clubs,
term of office for each which shall be on the one member a representative of professional
31st of December of first, second, or third even- associations, one member a representative of
numbered year after assuming office, as set business, commercial, or financial
forth in Section 11 hereof. organizations, one member a representative
“x x x” of educational institutions and one member a
“If two or more cities, municipalities or representative of women’s organizations. No
provinces, or any combination thereof, desire public officials shall serve as director.”
to form a single district, a similar resolution SEC. 5. Section 11 of the same decree is
shall be adopted in each city, municipality hereby amended to read as follows:
and province; or the city, municipality or “SEC. 11. Term of Office. - Of the five initial
province in which 75% of the total active directors of each newly-formed district, two
service connections are situated shall pass an shall be appointed for a maximum term of
initial resolution to be concurred in by the two years, two for a maximum term of four
other cities, municipalities or provinces.” years, and one for a maximum term of six
SEC. 3. Section 7 of the same decree is years. Terms of office of all directors in a given
hereby amended to read as follows: district shall be such that the term of at least
“SEC. 7. Filing of Resolution. - A certified one director, but not more than two, shall
copy of the resolution or resolutions forming expire on December 31 of each even-numbered
a district shall be forwarded to the office of year. Regular terms of office after the initial
the Secretary of the Administration. If found terms shall be for six years commencing on
27
amended pd 198 and other related issuances
disqualified from employment in any utility district shall not borrow money or incur
or service company owned or controlled by further obligations from other sources without
the government.” the prior written consent of the
Sec. 13. Section 34 of the same decree is Administration.
hereby amended to read as follows: “SEC. 37. Default. - In the event of the
“SEC. 34. Receipt, Deposit and Payment default by the district in the payment of
of District Funds. - The treasurer shall receive, principal or interest on its outstanding bonds
to the credit of the district and in trust for its or other obligations, any bondholder or
use and benefit, all monies belonging to the creditor shall have the right to bring an action
district. All monies belonging to the District before the appropriate court to compel the
shall, where practicable, be deposited by the payment of such obligation. If the bondholder
treasurer in the Philippine National Bank.” or creditor concerned is the Administration, it
SEC. 14. Section 35 of the same decree may, without the necessity of judicial process,
is hereby repealed. take over and operate the entire facilities,
SEC. 15. Section 36 of the same decree systems or properties of the district. For this
is hereby amended to be known as Section 35 purpose, the Administration may designate
to read as follows: its employees or any person or organization
“SEC. 35. Bonds or Other Evidence of to assume all powers of policy-decision and
Indebtedness. - A district may borrow money the powers of management and
to raise funds to pay all cost of any public administration, including but not limited to
improvements authorized by this Title and the establishment of water rates and charges,
may issue negotiable or non-negotiable the dismissal and hiring of personnel, the
bonds, promissory notes or other evidence of purchase of supplies, equipment and materials
indebtedness to support such borrowings. and such other actions as may be necessary
These obligations may be secured by a to operate the utility efficiently.”
mortgage, pledge, deed of trust of or any other SEC. 17. Section 37 of the same decree
encumbrance upon any of its then owned or is hereby amended to read as Section 38 as
after-acquired real or personal property, assets follows:
or revenues and the same shall constitute a “SEC. 38. Rates and Charges - Water. - A
lien as to the principal and interest thereon, district may sell water under its control, under
on all such property, assets or revenues. The schedules of rates and charges as may be
interests on such bonds or notes are exempt determined by the Board, to any and all water
from all taxes, duties, fees, imposts, or other users within the district. Said schedule may
charges of the national or local governments.” provide for differential rates for different
SEC. 16. Two new sections are hereby categories of use and different quantity blocks.
inserted to be known as Section 36 and The district, as far as practicable, shall fix
Section 37, respectively, which shall read as such rates and charges for water as will result
follows: in revenues which will:
“SEC. 36. Authority for Subsequent “(a) Provide for reimbursement from all
Borrowings. - Where a water district has new water customers for the cost of
borrowed money from the Administration, the installation of new services and meters;
30
amended pd 198 and other related issuances
“(b) Provide for revenue from all water chartered, created and formed a government
deliveries and services performed by the corporation to be known as the ‘Local Water
district; Utilities Administration’ which is hereby
“(c) Pay the operating expenses of the attached to the Office of the President. The
district; provisions of this Title shall be and constitute
“(d) Provide for the maintenance and the charter of the Administration.”
repairs of the works; SEC. 22. Section 49 of the same decree
“(e) Provide a reasonable surplus for is hereby amended to read as Section 50 as
replacement, extension and improvements; and follows:
“(f) Pay the interest and principal and “SEC. 50. Purposes. - The Administration
provide a sinking fund for the payment of shall primarily be a specialized lending
debts of the district as they become due and institution for the promotion, development and
establish a fund for reasonable reserves.” financing of local water utilities. In the
SEC. 18. Sections 38, 39, 40, 41, 42 and implementation of its functions, the
43 of the same decree are hereby amended to Administration shall, among others: (1)
read as Sections 39, 40, 41, 42, 43 and 44, prescribe minimum standards and regulations
respectively. in order to assure acceptable standards of
SEC. 19. Section 44 of the same decree construction materials and supplies,
is hereby amended to read as Section 45 as maintenance, operation, personnel training,
follows: accounting and fiscal practices for local water
“SEC. 45. Dissolution. - A district may utilities; (2) furnish technical assistance and
be dissolved by resolution of its board of personnel training programs for local water
directors filed in the manner of filing the utilities; (3) monitor and evaluate local water
resolution forming the district: Provided, standards; and (4) effect systems integration,
however, That prior to the adoption of any joint investment and operations, district
such resolution: (1) another public entity has annexation and deannexation whenever
acquired the assets of the district and has economically warranted.”
assumed all obligations and liabilities SEC. 23. Section 50 of the same decree
attached thereto; (2) all bondholders and other is hereby amended to read as Section 51 as
creditors have been notified and they consent follows:
to said transfer and dissolution, and (3) a court “SEC. 51. Composition. - The Board of
of competent jurisdiction has found that said Trustees of the Administration shall be
transfer and dissolution are in the best interest composed of a chairman and four other
of the public.” members, all of whom shall be citizens of the
SEC. 20. Sections 45, 46 and 47 of the Philippines.
same decree are hereby amended to read as “One trustee at any time shall have at
Sections 46, 47 and 48, respectively. least ten years experience in banking, finance
SEC. 21. Section 48 of the same decree is or business. One trustee at any time shall
hereby amended to read as Section 49 as possess sufficient background in the field of
follows: economics; one trustee at any time shall have
“SEC. 49. Charter. - There is hereby experience in management or systems
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amended pd 198 and other related issuances
operations. Two trustees at any time shall be That per diems in excess of three hundred
civil or sanitary engineers with experience pesos per meeting shall be subject to approval
related to water supply or wastewater of the Office of the President; and Provided,
operations. Not more than one trustee may finally, That, in addition, each Trustee shall
represent a private investor-owned utility. No be reimbursed his expenses incurred in
elected official shall be entitled to act as a connection with the performance of his
trustee. At least three of the trustees must be functions in such amount as may be
employees of the National Government. determined by the Board of Trustees.”
“The General Manager shall be ex-officio SEC. 27. Sections 55 and 56 of the same
member of the Board.” decree are hereby amended to read as Section
SEC.24. Section 51 of the same decree is 56 as follows:
hereby amended to read as Section 52 as “SEC. 56. By-Laws. - The Board of
follows: Trustees shall adopt a code of by-laws for the
“SEC. 52. Appointment and Term of conduct of the affairs of the Administration
Office. - The trustees, with exception of the ex- which may be amended from time to time by
officio member, shall be appointed by the the affirmative vote of four Trustees.
President of the Philippines. They shall serve “Except as otherwise provided herein, the
a term of five years each: Provided, That of organizational structure and staffing pattern
the first four initially appointed, one shall of the Administration, the qualification of the
serve a term of five years, another for four appointive officers and employees, the powers
years, the third for three years, and the fourth and responsibilities of the officers, the internal
for two years. Trustees may be removed for procedure of the Administration, and such
cause only. other matters relative to the organization,
“The incumbent trustees holding office management and conduct of the affairs of
as such upon the effectivity of this amendment the Administration shall be as provided in the
shall continue to hold such office until the by-laws; Provided, That, the appointment of
expiration of their original terms as defined in and disciplinary action against officers and
their appointments.” employees of the Administration shall be done
SEC. 25. Sections 52 and 53 of the same and effected pursuant to guidelines
decree are hereby amended to read as Sections established by the Board of Trustees.”
53 and 54, respectively. SEC. 28. Section 57 of the same decree
SEC. 26. Section 54 of the same decree is hereby amended to read as follows:
is hereby amended to read as Section 55 as “SEC. 57. Officers. - The Board shall elect
follows: a chairman from among its members. In
“SEC. 55. Compensation. - The Trustees addition, the Board shall select a secretary
shall each receive a per diem as may be fixed and a corporate legal counsel, each of whom
by the Board for each meeting actually shall not be a trustee.”
attended by them: Provided, That the total of SEC. 29. The first paragraph of Section
such per diem in any one month for each 58 of the same decree is hereby amended to
Trustee, shall not exceed the equivalent of the read as follows:
per diems for four meetings; Provided, further, “SEC. 58. The General Manager and
32
amended pd 198 and other related issuances
Other Employees. - The Trustees shall select a bonds or other evidence of debt by the water
general manager who shall not come from district and a mortgage on its properties;
the appointed trustees. The general manager “(d) Loan Documents and Procedures; -
shall receive compensation in an amount as The Board of Trustees shall adopt rules, loan
may be fixed by the Board, subject to the documents and procedures to be used in the
approval of the President of the Philippines, granting of loans. Such rules shall include
but in no case less than fifty-four thousand provisions for security, payment and default.
pesos per annum. The general manager shall “(e) Default. - In the event of default by
employ and appoint all additional personnel; the local water district in the payment of
Provided, That the appointment of personnel principal or interest on its outstanding bonds
in the supervisory level shall be subject to or other obligations to the Administration,
confirmation by the Board. the latter may, without the necessity of judicial
“The incumbent manager holding office process, take over and operate the facilities
as such upon the effectivity of this amendment or properties of the district. For this purpose,
shall continue to hold such office unless sooner the Administration may designate its
terminated by competent authority.” employees or any person or organization to
SEC. 30. Section 60 of the same decree assume both the policy-making authority and
is hereby amended to read as follows: the powers of management, including but not
“SEC. 60. Borrowing and Security limited to, the establishment of water rates
Therefor. - The Administration may borrow and service charges, the dismissal and hiring
funds as authorized in Section 72 of this Title, of personnel, the purchase of equipment,
and issue as security therefor debentures or supplies or materials and such other actions
other evidence of indebtedness constituting a may be necessary to operate the water district
lien on any and all securities, covenants and efficiently. Such policy-making and
obligations of local water utilities held by the management prerogatives may be returned to
Administration as security for loans made to the Board of Directors and the general
such local water utilities.” manager of the water district, respectively,
SEC. 31. Paragraphs (b), (c), and (d) of when all of its overdue accounts have been
Section 61 of the same decree are hereby paid, all its reserve requirements have been
amended to read, and a new paragraph is satisfied and all the causes of default have
hereby inserted which shall read, as follows: been met.”
“SEC. 61. Loans - x x x x SEC. 32. Paragraph (e) Section 62 of the
“(a) x x x x same decree is hereby amended to read as
“(b) Feasibility Study. - A feasibility study follows:
which may be required by the Administration “SEC. 62. Regulations. - x x x x
for any proposed project for which loan funds “(e) Personnel. - The training of personnel
are sought may be undertaken by the water or operate or manage local water utilities.
district, the Administration or by a consultant For this purpose, at least a majority of the
prequalified by the Administration. personnel of a local water district must have
“(c) Security. - The Administration may satisfactorily completed appropriate training
take as security for such loans the authorized courses, programs or seminars conducted by
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amended pd 198 and other related issuances
the Administration, and must be holders of a Government Shares. - All amounts previously
certificate of completion or competence, as released by the National Government to the
the case may be, before a certificate of Revolving Fund of the Administration shall be
conformance is issued to the water district. credited as payment for subscriptions to
“For certain positions which the shares of stock at par value. Thereafter, the
Administration may specify, only those National Government shall for each year
persons possessing, or in the case of beginning with fiscal year 1975-76 subscribe
subsequent appointments, only persons who and pay for the necessary capitalization as
will undergo training and shall have obtained programmed during the year; Provided, That
within six months, a certificate of completion the amount programmed for each year shall
or competence, as the case may be, shall be not be less than Fifty Million Pesos.
appointed.” “SEC. 69. Operational Expenses. - The
SEC. 33. Paragraph (f) of Section 63 of Board of Trustees is hereby authorized to
the same decree is hereby amended to read as appropriate out of any funds of the
follows: Administration, such amounts as it may deem
“SEC. 63. Rate Review. - x x x x necessary for the operational and other
“(f) Payment of the interest and principal expenses of the Administration including the
and provide a sinking fund for payment of purchase of necessary equipment.
debts of the district as they become due and “SEC. 70. Charges. - To the extent that
establish a fund reasonable reserves. the Administration performs services for the
“The rates or charges established by such benefit and at the request of a local water
local water district shall be subject to review district or utility or a number of water districts,
by the Administration to establish compliance utilities or organizations, it may levy fees or
with the above-stated provisions. Said review charges for such service rendered.
of rates or any charges therein shall be by the “Charges may include an assessment
Board of Trustees, and in writing.” against water districts or utilities to finance
SEC. 34. Sections 67, 68 and 69 of the those functions of the Administration which
same decree are hereby repealed, and five new are of general benefit to water districts or
sections are hereby substituted therefor to be utilities including, but not limited to, general
known as Section 67, 68, 69, 70 and 71, which administration and supervision.
shall be read as follows: “SEC. 71. Receipt and Investment of
“SEC. 67. Capital Stock. - The authorized Funds. - Whenever the Administration receives
capital of the Local Water Utilities money whether as payment for subscriptions
Administration is Five Hundred Million Pesos to shares of stock, principal repayments,
divided into Five Million shares of stock with interest income, payment for services rendered
a par value of One Hundred Pesos per share, or for any purpose whatsoever, it shall issue
which shall be subscribed by the National its own receipts and provide for their
Government and opened to subscription by safekeeping and investment under policy
private investors or government financial guidelines as may be established by the Board
institutions. of Trustees in accordance with Department of
“SEC. 68. Payment for National Finance regulations.”
34
amended pd 198 and other related issuances
3
of water supply services for the whole country
section is a declared policy of the State and shall be
effected primarily through:
(a) The rationalization of the
Office of the President of the Philippines organizational structure for the water supply
Malacańang sector; (b) The formation of water districts,
associations, cooperatives or corporations for
Letter of Instructions No. 683 the construction, operation and maintenance
of water supply systems in preference to
ESTABLISHING BASIC POLICIES FOR systems directly operated and managed by
THE WATER SUPPLY SECTOR local governments; and (c) The encouragement
of self-help and self-reliant water supply
WHEREAS, drinking water is a basic projects.
requirement to sustain life; (2) Agencies involved in water supply shall
WHEREAS, only about 40 percent of the strive to attain financial independence,
population of the Philippines is presently thereby minimizing Government subsidy, by
served with public water supply systems; increasing their own internal revenue
WHEREAS, it is primary concern of the generation capabilities and by providing
Government in promoting the welfare of the services within the cost repayment capabilities
people to hasten the availability of water of the beneficiaries.
supply services in the whole country, with (3) The levels of water supply service to
special attention to the rural areas; be developed shall vary according to technical
WHEREAS, the approved Philippine economic, organizational and financial
Development Plan for 1978-1987, therefore, consideration. These levels of service are as
aims to increase the public water supply follows:
coverage to about 85 percent of the total Level I - Point sources (such as rain
Philippine population within ten years; collector, wells and springs); generally for rural
WHEREAS, there is a need to restructure areas where houses are scattered too thinly
the water supply sector so that gaps and to justify a distribution system.
overlaps in responsibility will be eliminated; Level II - Communal faucet systems;
and generally for rural areas where houses are
WHEREAS, it is necessary to establish clustered densely enough to justify a piped
certain basic policies to attain these objectives distribution system with a faucet provided
in the most efficient manner; for a number of households.
NOW, THEREFORE, I, FERDINAND E. Level III - Individual house connections;
MARCOS, President of the Philippines, by generally for urban areas.
virtue of the powers vested in me by the (4) The rationalization of the water
Constitution, do hereby order the supply sector structure shall be pursued in
implementation of the following basic policies accordance with the following strategies:
for the water supply sector; (a) The Metropolitan Waterworks and
(1) The attainment of complete coverage Sewerage System shall concentrate its
37
amended pd 198 and other related issuances
4
(d) On a case-to-case basis, defer loan
section amortization payments until improvements
are completed and actually in operation;
(e) Assist water districts improve their
Office of the President of the Philippines operational efficiency through skills/
Malacańang managerial training and systems development;
(f) Ensure that the water rates are not
Letter of Instructions No. 700 abruptly increased beyond the water users
ability to pay, seeing to it that each increase
PROVIDING MEASURES TO CONTROL if warranted, does not exceed 60% of the
AND REGULATE INCREASES IN WATER current rate;
RATES (g) Limit charges for feasibility and
engineering studies to not more than 15% of
WHEREAS, there is a need to help the actual construction cost of the project
depressed or newly formed water districts implemented;
develop their financial viability, but at the (h) Require 100% metering to insure
same time avoid too abrupt increases in their correct charging of water actually consumed
water rates; and to discourage its wasteful use;
WHEREAS, there is a need to prescribe (i) Where indicated, consider the
certain measures whereby increases of rates adoption of lower standards of service,
imposed by water districts are controlled or especially for the marginally feasible areas,
regulated; to reduce project cost; and;
NOW, THEREFORE, I, FERDINAND E. (j) Reduce required reserves accumulation
MARCOS, President of the Philippines, by for meeting emergency and contingency needs
virtue of the powers vested in me by the as will be appropriate.
Constitution, do hereby order the (2) The National Electrification
implementation of the following measures in Administration and the National Power
the operation and development of water Corporation shall study ways and means to
districts; grant special reduced electric power rates to
(1) The Local Water Utilities the water districts concerned. Where feasible,
Administration (LWUA) shall: the National Power Corporation shall also
(a) Implement a socialized pricing scheme determine ways by which the water districts
for water districts in setting up water rates can directly tap the power lines.
whereby the more affluent, heavy users pay (3) The Budget Commission shall provide
more per unit than the low income, minimal in the national government annual operating
users of water, LWUA shall prescribe guidelines budget starting with CY 1979 such amount as
for this purpose; shall be requested by LWUA and recommended
(b) Provide institutional development by the National Economic and Development
services to water districts free of charge; Authority for the conduct of feasibility studies
(c) Grant capital improvement loans to for the development of waterworks systems
water districts on concessionary terms; in established water districts. Such national
39
amended pd 198 and other related issuances
40
amended pd 198 and other related issuances
5
form and maintain a district. For purposes of
section this Act, a district shall be considered as a
quasi-public corporation performing public
service and supplying public wants. As such,
MALACAŃANG a district shall exercise the powers, rights and
Manila privileges given to private corporations under
existing laws, in addition to the powers
PRESIDENTIAL DECREE NO. 1479 granted in, and subject to such restrictions
imposed, under this Act.
FURTHER AMENDING PRESIDENTIAL xxx
DECREE NO. 198 OTHERWISE KNOWN AS (c) A statement completely transferring
THE “PROVINCIAL WATER UTILITIES ACT any and all waterworks and/or sewerage
OF 1973”, AS AMENDED BY facilities managed, operated by or under the
PRESIDENTIAL DECREE NO. 768 control of such city, municipality or province
to such district upon the filing of resolution
WHEREAS, Presidential Decree No. 198, forming the district.
as amended by Presidential Decree No. 768, xxx
declares as a national policy the local SEC. 2. A new sentence is hereby added
operation and control of water systems; to Section 8 of the same decree to read as
authorizes the formation of local water follows:
districts; provides for the administration of “SEC. 8. Number and Qualifications. –
such districts and charters a national xxx Provided, however, that if the district has
administration to facilitate improvement of availed of the financial assistance of the
local water utilities; Administration, the Administration may
WHEREAS, in order to accelerate the appoint any of its personnel to sit in the board
development and expansion of domestic water of directors with all the rights and privileges
systems, there is a need to further amend appertaining to a regular member, for such
certain provisions of Presidential Decree No. period as the indebtedness remains unpaid, in
198, as amended. which case the board shall be composed of
NOW, THEREFORE, I FERDINAND E. six members.”
MARCOS, President of the Philippines, by SEC. 3. Section 25 of the same decree is
virtue of the powers vested in me by the hereby amended.
Constitution, do hereby order and decree the SEC. 4. Section 26 of the same decree is
further amendment of Presidential Decree No. hereby amended to read as Section 25 as
198, as follows: follows:
SECTION 1. The first paragraph of “SEC. 25. Authorization. - The district
Section 6 of Presidential Decree No. 198, as may exercise all the powers which are
amended, is hereby amended to read as expressly granted by this Title or which are
follows: necessarily implied from, or incidental to the
“SEC. 6. Formation of District. - This Act powers and purposes herein stated. For the
is the source of authorization and power to purpose of carrying out the objectives of this
41
amended pd 198 and other related issuances
Act, a district is hereby granted the power of “SEC. 47. Exclusive Franchise. - No
eminent domain, the exercise thereof shall, franchise shall be granted to any other person
however, be subject to review by the or agency for domestic, industrial or
Administration.” commercial water service within the district
SEC. 5. Sections 27, 28, 29, 30 and 31 of or any portion thereof unless and except to
the same decree are hereby amended to read the extent that the board of directors of said
as Section 26, 27, 28, 29 and 30, respectively. district consents thereto by resolution duly
SEC. 6. Section 32 of the same decree is adopted, such resolution, however, shall be
hereby amended to read as Section 31. subject to review by the Administration.”
“SEC. 31. Protection of Waters and SEC. 10. Section 61 of the same decree is
Facilities of District. - A district shall have the hereby amended to read as follows:
right to “SEC. 61. Loans.
xxx xxx
(e) take over the management, (f) Funding of Loan. When a loan is made
administration, operation and maintenance to local water utility, the necessary amount
of all watersheds within its territorial of such loan shall be programmed to assure
boundaries.” completion of the project for which such loan
SEC. 7. Sections 33, 34, 35, 36, 37, 38, was granted.”
39, 40 and 41 of the same decree are hereby SEC. 11. The last paragraph of Section
amended to read as Sections 32, 33, 34, 35, 63 of the same decree is hereby amended to
36, 37, 38, 39 and 40, respectively. read as follows:
SEC. 8. A new section is hereby inserted “SEC. 63. Rate Review.
to be known as Section 41 which shall read xxx
as follows: The rates or charges established by such
“SEC. 41. Disposition of Income. - The local district, after hearing shall have been
income of the district shall be disposed of conducted for the purpose, shall be subject to
according to the following priorities: review by the Administration to establish
“First, to pay its contractual and compliance with the above-stated provisions.
statutory obligations and to meet its essential Said review of rates or charges shall be
current operating expenses. executory and enforceable after the lapse of
“Second, to allocate at least fifty percent seven calendar days from posting thereof in a
(50%) of the balance exclusively as a reserve public place in the locality of the water district,
for debt service and operating and without prejudice to an appeal being taken
maintenance, to be used for such purposes therefrom by a water concessionaire to the
only during periods of calamities, force National Water Resources Council whose
majeure or unforeseen events. decision thereon shall be appealable to the
“Third, to allocate the residue as a reserve Office of the President. An appeal to the
exclusively for expansion and improvement of Council shall be perfected within thirty days
its physical facilities.” after the expiration of the seven-day period of
SEC. 9. Section 47 of the same decree is posting. The Council shall decide on appeal
hereby amended to read as follows: within thirty days from perfection.
42
amended pd 198 and other related issuances
SEC. 12. Section 67 of the same decree source development and main transmission
is hereby amended to read as follows: line. Releases of such funds shall be made
“SEC. 67. Capital Stock. - The authorized directly to the Administration. In the
capital of the Local Water Utilities development of such water supply systems,
Administration is Two Billion Five Hundred the Administration shall exert all efforts to
Million Pesos divided into Twelve Million Five bring the levels of service within the cost
Hundred Thousand share of stock with a par repayment capacity of the beneficiaries.”
value of Two Hundred Pesos per share which “SEC. 77. Special Projects. - Whenever
shall be subscribed by the National required by the National Government to provide
Government and opened to subscription by funding requirements for the development of
private investors or government financial waterworks and sewerage systems in
institutions.” municipalities, cities or provinces, or portions
SEC. 13. Section 68 of the same decree thereof not yet covered by a duly formed water
is hereby amended to read as follows: district, an outlay shall be provided in the
“SEC. 68. Payment for National General Appropriations Act, upon the request
Government Shares. - All amounts x x x at par of the Administration, separate from its
value. Whatever balance remaining of said capitalization, for the purposes of meeting
subscription shall be paid from a continuing the financial requirements of the project:
appropriation which is hereby made out of Provided, however, That in the event that funds
any funds in the National Treasury not for the project have already been appropriated
otherwise appropriated, such annual by the National Government, such funds shall
appropriation to be programmed and released be released directly to the Administration.
in accordance with the pertinent budget laws: Expenses incurred by the Administration for
Provided, That this continuing appropriation the service rendered may be drawn from such
shall remain in force until the balance of the account as provided in Section 70 of this Title.”
unpaid subscription of the government to the SEC. 15. Sections 76, 77, 78 and 79 of
capital stock of the administration have been the same decree are hereby amended to read
paid in full.” as Sections 78, 79, 80 and 81, respectively.
SEC. 14. New sections are hereby inserted SEC. 16. This Decree shall take effect
to be known as Section 76 and 77, immediately.
respectively, which shall read as follows: Done in the City of Manila, this 11th day
“SEC. 76. Government Assistance to Non- of June in the year of Our Lord, nineteen
Viable Districts. - There shall be included in hundred and seventy-eight.
the General Appropriations Act an outlay in
the form of National Government aid or By the President:
subsidy to meet the financial requirements in
the development of water supply systems of
water districts which are determined by the (SGD) JUAN C. TUVERA
Administration to be financially non-viable in Presidential Assistant
such amount as the Administration may
recommend, but not exceeding the cost of
43
amended pd 198 and other related issuances
6
NOW, THEREFORE, I, FERDINAND E.
section MARCOS, President of the Philippines, do
hereby order and instruct:
1. The Local Water Utilities
Office of the President of the Philippines Administration and Water Districts shall
Malacańang immediately review the facilities design,
implementation plan and rates and fees
Letter of Instructions No. 744 charged, with the objective of:
a. Reducing water rates to minimum
RELATIVE TO RELIABLE WATER levels;
SUPPLY AT REASONABLE RATES IN b. Eliminating unnecessary fees and
THE COUNTRYSIDE regulatory measure;
c. Implementing expansion plans in
TO: The Minister of Public Works, phases so as to keep in step with growth in
Transportation and Communications demand without resulting in excess capacity;
d. Reducing cost of construction to a
The Chairman and Members, National minimum
Water Resources Council 2. The National Water Resources Council
shall eliminate all unnecessary regulatory
The General Manager, Local Water measures and fees particularly on privately
Utilities Administration owned and dug wells.
3. The Local Water Utilities
The Chairman and General Managers of Administration and each Water Districts shall
Water Districts prepare a public education program which
shall concentrate on the need and methods
All Others Concerned for water conservation, water rates, water
facilities requirements and need for financing,
WHEREAS, the provision of adequate and other related aspects of Water District
water supply at reasonable rates is a primary operations. They shall, in addition, prepare a
objective of the New Society; comprehensive program and system of public
WHEREAS, the implementation of a consultation, both formally in hearings and
national program for improved water supply informally through an education program,
is the responsibility of local organizations when considering increases in water rates,
particularly Water Districts and local particularly at the time when Water Districts
government units, assisted by the National initiate operation.
Water Resources Council and the Local Water 4. The Local Water Utilities
Utilities Administration; Administration shall review the composition
WHEREAS, there is need to improve of the Board of each Water District to make
planning, monitoring and implementing sure that consumers are properly and fully
activities at all levels, and to reduce water represented. It shall initiate the necessary
rates to minimum levels; changes.
44
amended pd 198 and other related issuances
45
amended pd 198 and other related issuances
7
from General Manager to Administrator and
section the officer(s) next in rank shall be designated
as Deputy Administrator(s).
DONE in the City of Manila, this 21st day
EXECUTIVE ORDER NO. 68 of November, in the year of Our Lord, Nine
Hundred and Eighty-Six.
MODIFYING PRESIDENTIAL DECREE
NO. 198, AS AMENDED
(SGD) CORAZON C. AQUINO
WHEREAS, the Local Water Utilities President of the Philippines
Administration (LWUA) was created by virtue
of Presidential Decree No. 198, as amended;
8
G. R. Nos. 95237-38
section Present:
FERNAN, C. J.,
NARVASA,
SUPREME COURT RULING ON WATER MELENCIO-HERRERA,
DISTRICTS AS GOVERNMENT-OWNED GUTIERREZ, JR.,
AND CONTROLLED CORPORATIONS CRUZ,
PARAS,
Republic of the Philippines FELICIANO,
Supreme Court PADILLA,
Manila BIDIN,
SARMIENTO,
EN BANC GRIŃO-AQUINO,
MEDIALDEA,
DAVAO CITY WATER DISTRICT, REGALADO &
CAGAYAN DE ORO CITY WATER DISTRICT, DAVIDE, JR., JJ.
METRO CEBU WATER DISTRICT,
ZAMBOANGA CITY WATER DISTRICT, Promulgated: September 13, 1991
LEYTE METRO WATER DISTRICT, ————————————————————————
BUTUAN CITY WATER DISTRICT,
CAMARINES NORTE WATER DISTRICT, DECISION
LAGUNA WATER DISTRICT,
DUMAGUETE CITY WATER DISTRICT, MEDIALDEA, J.:
LA UNION WATER DISTRICT, Whether or not the Local Water Districts
BAYBAY WATER DISTRICT, formed and created pursuant to the provisions
METRO LINGAYEN WATER DISTRICT, of Presidential Decree No. 198, as amended,
URDANETA WATER DISTRICT, are government-owned or controlled
COTABATO CITY WATER DISTRICT, corporations with original charter falling
MARAWI CITY WATER DISTRICT, under the Civil Service Law and/or covered by
TAGUM WATER DISTRICT, the visitorial power of the Commission on
DIGOS WATER DISTRICT, Audit is the issue which the petitioners entreat
BISLIG WATER DISTRICT, this Court, en banc to shed light on.
and MEYCAUAYAN WATER DISTRICT Petitioners are among the more than five
Petitioners hundred (500) water districts existing
throughout the country formed pursuant to
- versus - the provisions of Presidential Decree No. 198,
as amended by Presidential Decrees Nos. 768
CIVIL SERVICE COMMISSION, and and 1479, otherwise known as the “Provincial
COMMISSION ON AUDIT Water Utilities Act of 1973.”
Respondents Presidential Decree No. 198 was issued
by the then President Ferdinand E. Marcos by
47
amended pd 198 and other related issuances
virtue of his legislative power under all the foregoing, the Commission
Proclamation No. 1981. It authorized the resolved, as it hereby resolves, to rule
different local legislative bodies to form and that Local Water Districts, being
create their respective water districts through quasi-public corporations created by
a resolution they will pass subject to the law to perform public services and
guidelines, rules and regulations therein laid supply public wants, the matter of
down. The decree further created and formed hiring and firing of its officers and
the “Local Water Utilities Administration” employees should be governed by the
(LWUA), a national agency attached to the Civil Service Law, rules and
National Economic and Development Authority regulations. Henceforth, all
(NEDA), and granted with regulatory power appointments of personnel of the
necessary to optimize public service from different local water districts in the
water utilities operations. country shall be submitted to the
The respondents, on the other hand, are Commission for appropriate action.”
the Civil Service Commission (CSC) and the (Rollo. p.22)
Commission on Audit (COA), both government However, on May 16, 1990, in G.R. No.
agencies and represented in this case by the 85760, entitled “Metro Iloilo Water District v.
Solicitor General. National Labor Relations Commission, et al.,”
On April 17, 1989, this Court ruled in the the Third Division of this Court ruled in a
case of Tanjay Water District v. Gabaton, et minute resolution:
al. (G.R. No. 63742, 172 SCRA 253): “x x x
Significantly, Article IX (B), “Considering that PD 198 is a
Section 2(1) of the 1987 Constitution general legislation empowering and/
provides that the Civil Service or authorizing government agencies
embraces all branches, subdivisions, and entities to create water districts,
instrumentalities, and agencies of the said PD 198 cannot be considered as
government, including government- the charter itself creating the Water
owned and controlled corporations Districts. Public respondent NLRC did
with original charters. Inasmuch as not commit any grave abuse of
PD No. 198, as amended, is the original discretion in holding that the
charter of the petitioner, Tanjay Water operative act, that created the Metro
District, and respondent Tarlac Water Iloilo Water District was the
District and all water districts in the resolution of the Sangguniang
country, they come under the coverage Panglungsod of Iloilo City. Hence, the
of the Civil Service Law, rules and employees of Water Districts are not
regulations. (Sec. 35, Art. VIII and Sec. covered by Civil Service Laws as the
37, Art. IX of PD No. 807).” latter do (sic) not have original
As an offshoot of the immediately cited charters.
ruling, the CSC issued Resolution No. 90-575, In adherence to the just cited ruling, the
the dispositive portion of which reads: CSC suspended the implementation of
“NOW THEREFORE, in view of Resolution No. 90-575 by issuing Resolution
48
amended pd 198 and other related issuances
Trajano, et al., (G. R. No. 65428, February 20, month shall not exceed fifty
1984, 127 SCRA 730), We already ruled that a percent (50%) of average net
water district is a corporation created monthly revenue. Said net
pursuant to a special law – P. D. No. 198, as revenue representing income
amended, and as such its officers and from water sales and sewerage
employees are covered by the Civil Service Law. service charges, less pro-rata
In another case (Hagonoy Water District share of debt service and
v. NLRC, G. R. No. 81490, August 31, 1988, expenses for fuel or energy for
165 SCRA 272), We ruled once again that local pumping during the preceding
water districts are quasi-public corporations fiscal year.
whose employees belong to the Civil Service. The Labor Arbiter failed to take
The Court’s pronouncement in this case, as into account the provisions of
extensively quoted in the Tanjay case, supra, Presidential Decree No. 1479, which
partly reads: went into effect on 11 June 1978.
“The only question here is PD.No. 1479 wiped away Section 25
whether or not local water districts of PD 198 quoted above, and Section
are government-owned or controlled 26 of PD 198 was renumbered as
corporations whose employees are Section 25 in the following manner:
subject to the provisions of the Civil “Section 26 of the same decree
Service Law. The Labor Arbiter PD 198 is hereby amended to read as
asserted jurisdiction over the alleged Section 25 as follows:
illegal dismissal of private respondent Section 25. Authorization.
Villanueva by relying on Section 25 – The district may exercise all
of Presidential Decree No. 198, known the powers which are expressly
as the Provincial Water Utilities Act granted by this Title or which
of 1973” which went onto effect in are necessarily implied from or
25 May 1973, and which provides as incidental to the powers and
follows: purposes herein stated. For the
Exemption from Civil purpose of carrying out the
Service. - The district and its objectives of this Act, a district
employees, being engaged in a is hereby granted the power of
proprietary function, are hereby eminent domain, the exercise
exempt from the provision of the thereof shall, however, be
Civil Service Law. Collective subject to review by the
Bargaining shall be available Administration.
only to personnel below Thus, Section 25 of PD 198
supervisory levels: Provided, exempting the employees of water
however, That the total of all districts from the application of the
salaries, wages, emoluments, Civil Service Law was removed from
benefits or other compensation the statute books:
paid to all employees in any “ x x x.
50
amended pd 198 and other related issuances
58
amended pd 198 and other related issuances
9
where feasible.
section NOW, THEREFORE, I, FIDEL V. RAMOS,
President of the Philippines, by virtue of the
powers vested in me by law, consistent with
EXECUTIVE ORDER NO. 286 the reorganization plan proposed by the Joint
Executive-Legislative Water Crisis Commission,
REORGANIZING THE METROPOLITAN do hereby order:
WATERWORKS AND SEWERAGE SYSTEM SEC. 1. Framework and Objectives. - The
(MWSS) AND THE LOCAL WATER UTILITIES reorganization of the MWSS and LWUA shall
ADMINISTRATION (LWUA) PURSUANT TO be undertaken in the context of the
REPUBLIC ACT NO. 8041, OTHERWISE Administration’s framework of governance.
KNOWN AS THE NATIONAL WATER CRISIS Accordingly, the role of the national
ACT OF 1995 government shall be to steer rather than row.
It shall, to the extent possible, encourage the
WHEREAS, as enunciated in Republic Act private sector to participate in the delivery of
No. 8041, it is the “declared policy of the State public goods through franchising, concession,
to adopt urgent and effective measures to management, privatization or other
address the nationwide water crisis which arrangements of the concerned agencies
adversely affects the health and well-being of operations or facilities.
the population, food production and Prudence and restraint in the use of
industrialization process;” government resources shall be exercised.
WHEREAS, consistent with this policy, Efforts at streamlining and correcting
Section 7 of Republic Act No. 8041 authorized dysfunctions in the operations and structures
the President to revamp and reorganize the of the agencies concerned shall be undertaken
MWSS and the LWUA; to achieve more with less. The delivery of more
WHEREAS, the Joint Executive-Legislative effective, efficient, and responsible public
Water Crisis Commission established under service shall be paramount.
the same law has, after consulting SEC. 2. Reorganization Plan for the
representatives of the MWSS and the LWUA, MWSS. - The MWSS shall be reorganized, as
proposed a reorganizational plan for the said follows:
agencies; and 2.1. Officers. - The MWSS shall be headed
WHEREAS, the proposed reorganization by an Administrator who shall be its chief
is consistent with the Administration’s executive officer. He shall be assisted by two
framework for governance, having been (2) Senior Deputy Administrators, one for
designed to streamline and correct Operations and Customers Service and another
dysfunctions in the structure and operations for Resource Development and Management.
of the MWSS and the LWUA to enable these There shall, moreover, be four (4) Deputy
agencies to become more effective, efficient Administrators, one (1) for Engineering and
and responsive to the country’s needs for Construction, one (1) for Finance and
potable water, as well as prepare the Administration, and two (2) for Customers
groundwork for their eventual privatization, Service. The Senior Deputy Administrators and
59
amended pd 198 and other related issuances
Deputy Administrators shall be appointed by meter installation and reading, billing and
the Board, upon the recommendation of the collection
Administrator. ii. Facilities Operation Maintenance
2.2 Organization and Management. - The and Improvement
Administrator, with the assistance of his iii. Meter Management
Senior Deputy Administrators, shall provide iv. Public Information
overall direction and control over the (d) The Office of the Senior Administrator
operations and administration of MWSS. for Resource Development and Management
(a) The Office of the Administrator shall shall have direct supervision over the Deputy
have the following services and/or departments Administrators for Engineering and
directly under its supervision: Construction, and for Administration and
i. Corporate Planning Service Finance.
ii. Internal Audit Service (e) The Office of the Deputy Administrator
iii. Management Information Service for Engineering and Construction shall
iv. System Development Department undertake planning and programming,
v. Computer Service Department monitoring, and evaluation of projects for the
vi. Legal Department development and expansion of waterworks
vii. Public Affairs Department and sewerage facilities. Specifically, it shall
(b) The Office of the Senior Deputy have direct supervision over the following
Administrator for Operations and Customers departments:
Service shall be in charge of the operations i. Project Planning
and maintenance of the MWSS plants and ii. Project Design
other facilities, and the actual delivery of iii. Applied Research and Quality
service to water users. It shall have direct Control
supervision of the following departments: The same Deputy Administrator shall
i. Water Production have direct supervision over the Project
ii. Water Transmission and Meter Management Office, which comprises a pool
Management of project managers, presently consisting of
iii. Sewerage five (5).
(c) To ensure more effective and (f) The Office of the Deputy Administrator
responsive delivery of water services and for Finance and Administration shall be
increase revenues, Customers Service shall be responsible for resource management and
divided into two Districts, each District to be provision of administrative support services.
headed by a Deputy Administrator. Each It shall consist of the following departments:
District shall have four service areas with each i. Accounting
Area (or department) performing the following ii. Managerial Finance and Budget
functions, as well as such other functions that iii. Human Resource Development and
may be assigned to it consistent with the Manpower Planning
purpose of decentralizing to ensure better iv. General Services
public service: v. Personnel Management and Health
i. Revenue Generation, including Services
60
amended pd 198 and other related issuances
activities. compensation;
SEC. 4. Detailed Staffing. - The MWSS d. approval by the Board of Trustee of
and LWUA are hereby directed to prepare their their respective budgets which must be
proposed detailed staffing or manning sufficient to cover the proposed adjustments
patterns accounting for all positions in the on compensation;
organization and the corresponding budgetary e. the non-revenue water of the agency
and resource rearrangements as may be concerned shall in no case be more than forty
necessary. They are, moreover, required to percent (40%); and
conduct a thorough personnel audit to f. final approval of the President.
determine their respective manpower SEC. 6. Separation Pay. - Any official or
requirements. An inventory of contracts of all employee of the MWSS and LWUA who may
contractual employees including casual and be phased out by reason of the reorganization
temporary employees shall also be made to shall be entitled to such benefits as may be
determine the need for the continuation of determined by existing laws. For this purpose,
their services. the MWSS, LWUA and DBM are hereby
The proposed staffing pattern shall be directed to study and propose schemes or
submitted to the Department of Budget and measures to provide personnel who shall
Management (DBM) for review not later than voluntarily retire from the service incentives
sixty (60) days from the date hereof. The DBM and other benefits, including the possibility
shall submit its recommendation to the of accelerating the application of the revised
President within thirty (30) days from receipt compensation package under the Salary
of the proposal but in no case later than ninety Standardization Law, Republic Act No. 6758.
(90) days from the date hereof. The recommendation should be submitted to
The revised staffing or manning pattern the President not later than thirty (30) days
shall in no case exceed the number of existing from the date hereof.
authorized regular positions. SECTION 7. Effectivity. - This Executive
SEC. 5. Revised Compensation. - The Order shall take effect the day after its
MWSS and the LWUA are hereby authorized complete publication in a newspaper of
to adopt a revised and upgraded position general circulation.
classification and compensation package for
its officers and employees, subject to the DONE in the City of Manila, this 6th day
following conditions: of December, in the year of Our Lord, Nineteen
a. no diminution of the present salaries Hundred and Ninety-Five.
and benefits of MWSS and LWUA personnel;
b. the revised rates of compensation shall By the President:
be commensurate to the improved and efficient
revenue collection of the agency concerned as (SGD) RUBEN D. TORRES
determined by their respective Boards of Executive Secretary
Trustees;
c. the adjusted rates shall not exceed Published in the Manila Times on
industry and private sector rates of December 11, 1995.
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amended pd 198 and other related issuances
ANNEX A
63
amended pd 198 and other related issuances
ANNEX B
Services Office
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amended pd 198 and other related issuances
10
and benefits as the Board may prescribe
section subject to the approval of the Administration.”
Sec. 2. Section 23 of Presidential Decree
No. 198, as amended, is hereby amended to
Republic of the Philippines read as follows:
Congress of the Philippines “Sec. 23. The General Manager. - At the
Metro Manila first meeting of the Board, or as soon
thereafter as practicable, the Board shall
Twelfth Congress appoint, by a majority vote, a general manager
and shall define his duties and fix his
Third Regular Session compensation. Said officer shall not be
removed from office, except for cause and after
Begun and held in Metro Manila, on due process.”
Monday, the twenty-eighth day of July, two Sec. 3. Separability Clause. - If any
thousand and three. section or provision of this Act is declared
unconstitutional or invalid, the other sections
Republic Act No. 9286 or provisions not affected thereby shall
continue to be in force and effect.
AN ACT FURTHER AMENDING Sec. 4. Repealing Clause. - All acts,
PRESIDENTIAL DECREE NO. 198, decrees, executive orders, rules and
OTHERWISE KNOWN AS “THE regulations, part or parts thereof inconsistent
PROVINCIAL WATER UTILITIES ACT OF with the provisions of this Act are hereby
1973”, AS AMENDED repealed or modified accordingly.
Sec. 5. Effectivity Clause. - This Act shall
Be it enacted by the Senate and House of take effect upon its approval.
Representatives of the Philippines in Congress Approved.
assembled:
Section 1. Section 13 of Presidential
Decree No. 198, as amended, is hereby amended (SGD) JOSE DE VENECIA JR.
to read as follows: Speaker of the House of Representatives
“Sec. 13. Compensation. - Each director
shall receive per diem to be determined by the
Board, for each meeting of the Board actually (SGD) FRANKLIN M. DRILON
attended by him, but no director shall receive President of the Senate
per diems in any given month in excess of the
equivalent of the total per diem of four This Act which is a consolidation of
meetings in any given month. Senate Bill No. 2727 and House Bill No. 4861
“Any per diem in excess of One hundred was finally passed by the Senate and House
fifty pesos (P150.00) shall be subject to the of Representatives on February 6, 2004 and
approval of the Administration. In addition February 7, 2004, respectively.
thereto, each director shall receive allowances
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amended pd 198 and other related issuances
11
WHEREAS, there is a need to tap
section financing resources available to the water
sector, including international grants, and
funding from government financing
MALACAŃANG institutions (GFIs), private financing
Manila institutions (PFls), and LGUs;
WHEREAS, there is a need to review and
BY THE PRESIDENT OF THE PHILIPPINES rationalize current financing policies for the
Philippine water supply and sewerage sector
EXECUTIVE ORDER NO. 279 to allow for the efficient flow of resources
thereto;
INSTITUTING REFORMS IN THE WHEREAS, cognizant of the urgency of
FINANCING POLICIES FOR THE WATER the aforecited need, the NEDA Board passed a
SUPPLY AND SEWERAGE SECTOR AND resolution providing for the reforms in the
WATER SERVICE PROVIDERS AND financing of the water supply and sewerage
PROVIDING FOR THE RATIONALIZATION OF sector and the creation of an Oversight
LWUA’S ORGANIZATIONAL STRUCTURE Committee for the purpose of coordinating
AND OPERATIONS IN SUPPORT THEREOF. and overseeing the implementation of said
financing reforms in the Philippine water
WHEREAS, Presidential Decree No. 198 supply and sewerage sector;
(“PD 198”) established the Local Water Utilities WHEREAS, the implementation of the
Administration (LWUA), mandating it to serve recommended reforms requires that LWUA, as
as a “specialized lending institution” for the the focal government agency for financing and
promotion, development and financing of local institutional development of local WDs,
water utilities; refocus its objectives and rationalize its
WHEREAS, the Local Government Units operation;
(LGUs) are responsible for the provision of basic WHEREAS, by virtue of’ Executive Order
services and facilities as enumerated under 123, s. of 2002, the regulation of tariffs of
Section 17 of the Republic Act. No. 7160 (Local WDs will be undertaken by the National Water
Government Code), including among others, the Resources Board (NWRB) with a proviso that
provision of water supply and sewerage LWUA, consistent with its mandate under PD
services; 198, may continue reviewing the tariff of WDs
WHEREAS, shifts in government financing in which it has financial exposure with the
policies and constraints in the availability of end view of ensuring their financial viability.
financing from the National Government, and WHEREAS, the LWUA is currently
lack of investor confidence in the water supply attached to the Department of Public Works
and sewerage sector and limited capital stock and Highways (DPWH) by virtue of Executive
and domestic and foreign borrowing authority Order No. 124, s. of 1987;
have constrained LWUA from providing WHEREAS, rationalization of LWUA’s
financing assistance to qualified Water operations require closer policy and program
Districts (WDs); coordination with the Office of the President
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amended pd 198 and other related issuances
the Oversight Committee. The Oversight In addition, the LWUA Board of Trustees (BOT)
Committee may subject the classification of shall include representatives from the agency
the WSPs to audit; to which it is attached.
(e) Prepare an action plan for the reforms SEC. 9. Rationalization of LWUA’s
in the financing policies in the water supply organizational structure and operations -
and sewerage sector for the near term and the LWUA, subject to applicable laws and
medium term including incentive schemes that regulations, is hereby directed to review its
appropriate agencies may consider to offer to organizational structure and internal policies
GFIs and PFIs to encourage such institutions and programs, rationalize its operation and
to lend to WSPs; refocus its objectives to include other WSPs,
(f) Prepare and submit quarterly reports whenever feasible or applicable to facilitate
to the agency to which LWUA is attached; and implementation of and conform with the
(g) Review the charter of LWUA and when policies enunciated in this Order. To this extent,
necessary, propose amendments thereto. LWUA shall constitute and designate from its
The Oversight Committee shall current organizational set-up, a Water
immediately organize itself and set its policies Development Group (WDG), a Water
and procedures to facilitate the Development Financier (WDF) and a Technical
implementation of the said reforms in the Assistance Group (TAG), or similar structures,
water supply and sewerage sector. with functions and responsibilities as follows:
SEC. 6. Technical Secretariat - The A. Water Development Group (WDG)
Oversight Committee shall establish a The WDG shall have the following
Technical Secretariat under DOF to be staffed responsibilities;
by personnel assigned by government agencies (a) The WDG which shall be primarily
comprising it. It shall serve as the official charged with the continuation of LWUA’s
repository of all data concerning the current institutional development services
classification and evaluation of all WSPS, aimed at graduating WSPs, as well as the
SEC. 7. Expenses - Members of the classification of WSPs.
Oversight Committee and its Technical (b) The WDG shall classify the WSPs into
Secretariat shall be entitled to receive either creditworthy, semi-creditworthy, pre-
honoraria and/or reimbursement of expenses creditworthy or non-creditworthy for the
as may be allowed subject to availability of purpose of determining the appropriate
funds and prevailing rules and regulations. sources of financing. WSPs initially classified
by WDG as creditworthy and/or non-
PART III creditworthy shall be subject to further review
LOCAL WATER UTILITIES by the Oversight Committee pursuant to
ADMINISTRATION Section 5 of this Order.
WSPs classified as semi-creditworthy
SEC. 8. Transfer to OP - The LWUA, and pre-creditworthy and non-credit worthy
presently attached to the DPWH, is hereby shall be subject to periodic review by the WDG
attached to OP until such time it is transferred at least once every three (3) years for purposes
to DOF as provided for under Section 10 hereof. of reclassification. At their own instance,
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amended pd 198 and other related issuances
WSPs may request the WDG for an annual 90 days from its effectivity and submit the
reclassification review. same to the Oversight Committee. LWUA shall
(c) Graduation - The WDG shall develop a conduct its operations in a transparent,
graduation plan for non-creditworthy, pre- efficient and effective manner.
creditworthy and semi-creditworthy WSPs (c) Strengthening of Collection Function
based on the following graduation initiatives: - In the exercise of its lending functions, LWUA
LWUA-WDG shall monitor the shall also strengthen its collection function
implementation of the graduation plan and from WDs as well as enhance its payment of
evaluate the effectiveness of the graduation loans to LWUA creditors. To this effect, all
initiatives undertaken by the semi- collections arising from LWUA’s receivables
creditworthy, pre-creditworthy and non-credit shall constitute a special fund to be
worthy WSPs. apportioned between debt servicing of LWUA
LWUA-WDG shall initially cover the loans and the additioned funding necessary
classification and graduation plan and to support the LWUA’s graduation and
initiatives of WDs. It may also cover other technical assistance functions under the WDG
WSPs as deemed applicable or feasible. and the TAG.
(d) Reporting - LWUA-WDG shall prepare (i) Cost Recovery Tariff Initiatives - These
and submit quarterly reports on its activities are initiatives aimed at achieving widespread
to the Oversight Committee and DOF. full cost recovery tariffs in the long term. The
B. Water Development Financier (WDF) initiatives shall include the inventory of non-
The WDF shall have the following credit worthy, semi-creditworthy and pre-
responsibilities: creditworthy WSPs to determine the degree
(a) The WDF which shall be primarily to which tariffs are sufficient to accumulate
tasked to enhance and/or strengthen LWUA’s at least a minimal reserve for collateral or
lending functions and evaluate the applications counterpart equity. In. addition, should the
for financial assistance. LGUs invest in WSPs, they should be allowed
(b) Re-orientation Towards Banking recovery of and some minimal return on its
Principles - LWUA, through the WDF, shall investment.
enhance and/or strengthen its lending policies (ii) Amalgamation and Private Sector
and functions to carry out and implement its Participation Initiatives - These are initiatives
mandate to provide financing particularly to aimed at achieving economies of scale and
non-credit worthy, pre-creditworthy and semi- efficiency of service through the use of
creditworthy WDs, grounded on sound identified amalgamation and private sector
development banking principles. To this effect, participation techniques based on technical,
LWUA shall adopt development banking geographical, economic and other indicators.
principles which cater to the financing needs LWUA shall develop the necessary
of WSPs and shall develop its own procedures guidelines during the transition period for the
for the monitoring of its loan portfolio. LWUA amalgamated WDs and LGUs.
shall develop lending policies and guidelines (iii) Management Structure and
in pursuit of the policies and principles Governance - These initiatives pertain to
espoused under this Executive Order within institutional improvements within the WSPs’
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amended pd 198 and other related issuances
structure leading to greater accountability and (c) Above a certain value threshold,
improved service. which threshold shall be determined by LWUA,
(iv) LGU/WSP Resource Coordination for TAG shall extend project-related technical
Credit Enhancement. - This refers to the assistance to semi-creditworthy WSPs on a
pooling of resources between semi- competitive basis, consistent with applicable
creditworthy and/or pre-creditworthy or semi- laws, rules and regulations on government
creditworthy and/or non-creditworthy WSPs procurement.
and the relevant LGUs in their service areas to (d) LWUA-TAG shall extend project-related
finance water supply and sewerage projects assistance to non-creditworthy and pre-
or create the collateral needed to borrow from creditworthy WDs which may be with or
GFls and PFIs. without charge within a certain value
(v) Education - This refers to threshold to be determined by LWUA to
communication and information initiatives on support projects funded by LWUA-WDF.
the benefits of graduation initiatives including SEC. 10. Within thirty (30) days from the
cost recovery tariffs, amalgamation, private effectivity of this Order, LWUA shall review its
sector participation and LGU/WSP resource current structure and submit its rationalized
coordination. plan to the Oversight Committee, consistent
(vi) Technical Assistance to non-credit with the policy reforms enunciated under this
worthy and pre-creditworthy WSPs - This Order. The Oversight Committee shall evaluate
refers to technical assistance to support the rationalization plan within thirty (30) days
graduation initiatives which may be given with from receipt. LWUA, with the endorsement of
or without charge within a value threshold the Oversight Committee, shall submit the
that may be determined by LWUA-WDG. rationalization plan to the President for final
(d) Segregation of LWUA Loan Portfolios approval.
- For purposes of identification and Upon approval by the President of the
administrative efficiency, LWUA shall maintain reforms in the water supply and sewerage
separate accounting, payment and collection sector, including the rationalized organization
systems for existing loans and loans to be and manpower structure of LWUA, LWUA shall
granted henceforth pursuant to the reforms then be transferred to DOF. Pursuant to Section
instituted in this Executive Order. 51 of PD 198, at least three (3) of the trustees
C. Technical Assistance Group (TAG) must be employees of the National Government.
TAG shall have the following DOF shall always be represented in the LWUA-
responsibilities: BOT.
(a) TAG shall continue LWUA’s program
of providing technical assistance to WSPs, in PART IV
accordance with the proceeding sections. FINANCING POLICIES
(b) TAG shall extend project-related
technical assistance to GFIs and credit-worthy SEC. 11. Responsibility of LGUs - In line
WSPs on a competitive basis, consistent with with the principle of devolution of the provision
applicable laws, rules and regulations on of basic services under the Local Government
government procurement. Code, LGUs shall be encouraged to provide
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amended pd 198 and other related issuances
delivery of water supply and sewerage services LWUA-WDG shall provide guidelines to
through, but not limited to, investments in, or encourage graduation, which shall be
loans to WSPs. LGUs shall as a general policy, approved by LWUA-BOT for submission to the
be financially and operationally responsible Oversight Committee.
for the WSPs within their respective SEC. 13. Role of Financial Institution –
jurisdictions. The classification of WSPs shall merely be a
SEC. 12. Sources of Financing - The determinant of eligibility for the various
sources of financing for the water supply and sources of financing, but shall not in any way
sewerage sector shall be as follows: be construed as an outright guarantee of
(a) Creditworthy WSPs shall be eligible actual financing from the designated source.
to source financing at commercial lending
rates from GFIs and PFIs. Pursuant thereto, PART V
LWUA, with respect to creditworthy WDs shall FINAL PROVISIONS
enhance and streamline its waiver procedures
to effect the reform objectives/policies SEC. 14. The Oversight Committee shall
enunciated herein. GFIs shall strengthen their formulate the IRR of this Order within 90 days
skills base and develop lending programs from its effectivity, which shall be published
specially tailored to the needs of the water in accordance with the requirements of the
supply and sewerage sector. Administrative Code of 1987 and other
(b) Semi-creditworthy WDs shall be pertinent laws.
eligible to source concessional debt financing SEC. 15. The Oversight Committee shall
from the LWUA-WDF, as well as GFIs and PFIs cease to exist three (3) years after the approval
when possible. by the President of the rationalized
(c) Pre-creditworthy WDs shall be eligible organization and manpower structure of
to source grants from donors and deep LWUA, with any remaining function of the
concessional financing from the LWUA-WDF. Committee to be assumed by the DOF.
(d) Non-creditworthy WDs shall continue SEC. 16. Any violation of this Order and
to be eligible for financing under the LWUA- of its IRR shall be subject to disciplinary action
WDF. However, LGUs are hereby encouraged and other penalties as provided for in said
to provide financial and operational support IRR and other relevant laws and issuances.
for such WDs and other WSPs within their SEC. 17. If any provision of this Order is
respective jurisdictions. DILG and MDFO shall declared unconstitutional or invalid, the other
provide the necessary technical and financial provisions not affected thereby shall remain
support within their respective mandates. in full force and effect.
(e) WSPs, including eligible WDs, can SEC. 18. All orders, executive issuances,
access financing from GFIs, PFIs, MDFO, and rules and regulations, administrative
LGUs, whenever possible. resolutions, or parts thereof, inconsistent with
LWUA-WDG shall provide the necessary the provisions of this Order are hereby repealed
incentives for graduation such as extension or modified accordingly.
of greater flexibility in WD’s operation as a SEC. 19. This Order shall take effect upon
WD graduate from one stage to the next. its publication in the Official Gazette or in a
73
amended pd 198 and other related issuances
By the President:
74
amended pd 198 and other related issuances
building activities including training, shall be rationalize its operations and refocus its
charged against beneficiaries unless grants objectives to include WSPs, whenever feasible
are available for the purpose. On the other or applicable, to facilitate implementation of
hand, consultancy/advisory services related and conform with the policies enunciated in
to construction activities, including detailed EO 279. Further, LWUA shall conduct its
engineering shall be considered as part of the operations in a transparent, efficient and
project capital cost and may be financed by effective manner.
the project loan. LWUA shall constitute and designate from
(p) Value Threshold – the level at which its current organization set-up, a Water
LWUA may grant project related technical Development Group (WDG), a Water
assistance for free to the PCW and NCW WSPs Development Financier (WDF) and a Technical
without affecting LWUA’s viability. This will Assistance Group (TAG), or similar structures,
be determined by LWUA on a yearly basis with functions and responsibilities as follows:
depending on LWUA’s capability to absorb 5.1. A Water Development Group (WDG)
such additional cost. WDG shall have the following
(q) Water Service Providers (WSPs) – local responsibilities:
water utilities such as WDs, LGU-run water (a) It shall be primarily charged with the
utilities, rural waterworks and sanitation continuation of LWUA’s current institutional
associations (RWSAs), and barangay development services aimed at graduating
waterworks and sanitation associations WSPs, as well as the classification of WSPs.
(BWSAs), regardless of location. (b) It shall classify the WSPs into either
creditworthy, semi-creditworthy, pre-
Section 5. Responsibilities creditworthy or non-creditworthy for the
The implementation of the recommended purpose of determining the appropriate
reforms requires that LWUA as the local sources of financing WSPs initially classified
government agency for financing and by WDG as creditworthy and/or non-
institutional development of local WDs, creditworthy shall be subject to further review
focuses its objectives and rationalizes its by the Oversight Committee pursuant to
operations. Accordingly, the rationalization Section 5.2(b) of these IRR.
of LWUA’s organizational structure, operation LWUA shall initially cover the
and refocusing of its objectives, and the classification and graduation plan and
implementation of the reforms in the financing initiatives of WDs. It may also cover other
policies for the water supply and sewerage WSPs as deemed applicable or feasible.
sector, as defined in Section 2 of these IRR, To facilitate the classification of the WDs,
require close policy coordination among the LWUA shall prepare the criteria for
concerned government agencies. classification and submit the same to the
Oversight Committee for review within 30 days
5.1 Local Water Utilities Administration upon effectivity of EO 279.
LWUA, subject to applicable laws and The criteria shall consider:
regulations, shall review its organizational i. financial indicators such as current
structure and internal policies and programs, ratio, debt service ratio, debt/equity ratio,
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amended pd 198 and other related issuances
profit margin ratio and cash flow ratio; and counterpart equity. In addition, should the
ii. operational indicators such as LGUs invest in WSPs, they should be allowed
collection efficiency; non-revenue water and recovery of and some minimal return on their
service connections/staff. investment.
LWUA shall closely coordinate with the ii. Amalgamation and Private Sector
GFIs in determining the criteria for Participation initiatives - these are initiatives
classification. aimed at achieving economics of scale and
The classification of WDs shall be duly efficiency of service through the use of
approved by the LWUA Administrator for identified amalgamation and private sector
submission to the Oversight Committee for participation techniques based on technical,
review within 90 days upon completion of geographical, economic and other indicators.
review of classification criteria by the OC. LWUA shall formulate within 180 days
For the initial classification, WDs have upon effectivity of these IRR, the necessary
to meet the criteria for three (3) consecutive guidelines to be observed by the amalgamated
years to be considered creditworthy. WDs WSPs during the transition period. Among
classified as semi-creditworthy, pre- other things, the guidelines shall address the
creditworthy and non-creditworthy shall be a) incentives for amalgamation, b) mechanics
subject to periodic review by WDG at least of amalgamation, c) restructuring of the
once every three (3) years for purposes of Board of Directors and officer of the
reclassification. In like manner, subsequent amalgamated WSPs with respect but not
classification shall require three (3) years limited to tenure of office and surviving
consistent favorable evaluation. At their own positions, and d) controlling WSPs taking into
instance, WDs may request the WDG for an account considerations such as the size,
annual reclassification review. financial condition and the location of the
Any changes in the classification should participating WSPs.
be submitted to the Oversight Committee. iii. Management Structure and
Lending to WDs initially classified as Governance - These initiatives pertain to
creditworthy shall be governed by Section 9 institutional improvements within the WSPs
(b) of these IRR. structure leading to greater accountability and
(c.) It shall develop a graduation plan for improved service.
non-creditworthy, pre-creditworthy and semi- iv. LGU/WSP Resource Coordination for
creditworthy WSPs based on the following Credit Enhancement - this refers to the pooling
graduation initiatives: of resources between semi-creditworthy and/
i. Cost Recovery Tariff Initiatives - these or pre-creditworthy and/or non-creditworthy
are initiatives aimed at achieving widespread WSPs and the relevant LGUs in their service
full cost recovery tariffs in the long-term. The areas to finance water supply and sewerage
initiatives shall include the inventory of non- projects or create the collateral needed to
creditworthy, semi-creditworthy and pre- borrow from GFIs and PFIs.
creditworthy WSPs to determine the degree To allow LGU recovery of and some
to which tariffs are sufficient to accumulate minimal return on its investments in the WSPs
at least a minimal reserve for collateral or pursuant to (c) (i) and (c) (iv) of this Section,
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amended pd 198 and other related issuances
LWUA shall formulate benchmarks for LGU (a.) It shall be primarily tasked to enhance
sharing in the earnings of the WSPs in and/or strengthen LWUA’s lending functions
coordination with the MFC and the DOF within and evaluate the applications for financial
180 days upon effectivity of these IRR. assistance.
v. Education – refers to communication (b.) Re-orientation Towards Banking
and information initiatives on the benefits of Principles - LWUA, through the WDF, shall
graduation initiatives including cost recovery enhance and/or strengthen its mandate as a
tariffs, amalgamation, private sector specialized lending agency under PD 198 as
participation and LGU/WSP resource amended by providing financing particularly
coordination. to non-creditworthy, pre-creditworthy and
vi. Technical Assistance to non- semi-creditworthy WDs, grounded on sound
creditworthy and pre-creditworthy WSPs – development banking principles. To this effect,
refers to technical assistance to support LWUA shall adopt development banking
graduation initiatives which may be given with principles, which cater to the financing needs
or without charge within the value threshold of WSPs and shall develop its own procedures
that may be determined by LWUA-WDG. for the monitoring of its loan portfolio. LWUA
LWUA-WDG shall monitor the shall develop lending policies and guidelines
implementation of the graduation plan and in pursuit of the policies and principles
evaluate the effectiveness of the graduation espoused under EO 279 in coordination with
initiatives undertaken by the semi- the MFC and GFIs within 90 days from its
creditworthy, pre-creditworthy and non- effectivity and submit the same to the
creditworthy WSPs. Oversight Committee. The new lending policies
(d.) The LWUA-WDG shall prepare and and guidelines shall only apply to new loans
submit quarterly reports on its activities to to be approved by LWUA for prospective WD-
the Oversight Committee and DOF. borrowers.
For the purposes of Section 5.1 A (c ) of (c.) Strengthening of Collection Function
these IRR and Sec. 12 of EO 279, LWUA shall - In the exercise of its lending functions, LWUA
submit to the Oversight Committee, guidelines shall also strengthen its collection function
to encourage graduation as approved by the from WDs as well enhance its payment of
LWUA Board of Trustees within 180 days upon loans to LWUA creditors. To this effect, all
effectivity of these IRR. Said guidelines shall collection arising from LWUA receivables shall
include incentives such as, but not limited to constitute a special fund to be apportioned to
greater flexibility in WD’s operation as WD debt servicing of LWUA loans, additional
graduates from one stage to the next, and funding necessary to support the LWUA’s
enjoyment of LWUA’s streamlined waiver graduation and technical assistance functions
procedures. under the WDG and the TAG.
(d.) Segregation of LWUA Loan Portfolios
5.1.B Water Development Financier - For purposes of identification and
(WDF) administrative efficiency, LWUA shall maintain
WDF shall have the following separate accounting, payment and collection
responsibilities: systems for existing loans and loans to be
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amended pd 198 and other related issuances
granted henceforth pursuant to the reforms approval not later than 75 days upon the
instituted under EO 279. effectivity of the EO.
(a.) Upon approval by the President of
5.1.C Technical Assistance Group (TAG) the reforms in the water supply and sewerage
TAG shall have the following sector, including the rationalized organization
responsibilities: and staffing structure of LWUA, an EO shall
(a.) It shall continue LWUA’s program of be issued attaching LWUA to DOF, for policy
providing technical assistance to WSPs, in and program coordination.
accordance with the proceeding sections. 5.2 Oversight Committee (OC)
(b.) It shall extend project-related technical The Oversight Committee constituted
assistance to GFIs, PFIs and creditworthy pursuant to Section 3 of EO 279 shall
WSPs on a competitive basis, consistent with coordinate and oversee the implementation
the applicable laws, rules and regulations on of the reforms in the financing and graduation
government procurement. policies in the water supply and sewerage
(c.) Above a certain value threshold, which sector.
threshold shall be determined by LWUA in In addition to the function explicitly taken
accordance with the definition provided for from the EO, the OC shall:
under Section 4 of these IRR, TAG shall extend (a.) Review the criteria for the
project-related technical assistance to semi- classification of WSPs, recommended by the
creditworthy WSPs on a competitive basis, LWUA within 30 days upon submission by
consistent with applicable laws, rules and LWUA;
regulations on government procurement. (b.) Review the classification of WSPs
(d.) It shall extend project-related prepared by LWUA pursuant to Sec. 9 A(b) EO
assistance to non-creditworthy and pre- 279, duly certified by the LWUA Administrator
creditworthy WSPs funded by the LWUA-WDF. that the same is in accordance with the criteria
This assistance may be with or without charge presented to and reviewed by the Oversight
within a certain value threshold to be Committee pursuant to Sec. 5 (d) of EO 279.
determined by LWUA on a yearly basis. The Oversight Committee shall review the
same within 60 days upon submission by
5.1.D Within 30 days from the effectivity LWUA. The Oversight Committee may subject
of EO 279, LWUA shall review its current the classification of the WSP to audit;
structure and submit its rationalized plan to Immediate actions include, among others,
the Oversight Committee, consistent with the the review of LWUA Charter as provided under
policy reforms enunciated under the said EO. Section 5 of EO 279 including the
The Oversight Committee shall evaluate the classification of water districts, graduation
rationalization plan within 30 days from of WSPs, reform in LWUA financial waiver
receipt. process and compliance of LWUA to provisions
of EO 279 and of these IRR within the specified
5.1.E LWUA with the endorsement of the timelines. On the other hand, medium term
Oversight Committee, shall submit the actions include the determination of
rationalization plan to the President for final appropriate incentives for GFIs and the PFIs
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amended pd 198 and other related issuances
financing from the LWUA-WDF. Done in the City of Manila, this 16th day
(e.) Non-creditworthy (NCW) WDs shall of July in the year of our Lord, Two Thousand
continue to be eligible for financing under the and Four.
LWUA-WDF. However, LGUs are hereby
encouraged to provide financial and Oversight Committee
operational support for such WDs and other
WSPs within their respective jurisdictions. DILG (SGD) JUANITA D. AMATONG
and MFC shall provide the necessary technical Secretary of Finance
and financial support within their respective Chairman
mandates;
(f.) Whenever concessionary loan/grant (SGD) ROMULO L. NERI
funds are available from the NG and other National Economic and Development
sources, the LWUA shall allocate the said funds Authority
to the SCW, PCW and NCW WDs which have Director-General
the potential to demonstrate increased Vice-Chairman
viability; and
(g.) WSPs including eligible WDs, can (SGD) ) EMILIA T. BONCODIN
access financing from the GFIs, PFIs, MFC, Department of Budget & Management
and LGUs, whenever possible and shall be Secretary
consistent with the provisions of these IRR. Member
DILG shall, within the mandate and
existing programs, pursue and active (SGD) JOSE D. LINA, JR.
campaign program to implement policies in Department of Interior & Local Government
the EO which concern the LGU. Secretary
Member
Section 10. Role of Financing Institution
The classification of WSPs shall merely (SGD) GAMALIEL A. CORDOBA
be a determinant of eligibility for the various Office of the President
sources of financing, and shall not in any way Deputy Executive Secretary
be construed as an outright guarantee of Member
actual financing from the designated source.
(SGD) LORENZO H. JAMORA
Section 11. Repealing Clause Local Water Utilities Administration
All Circulars or Resolutions or part Administrator
thereof, which are inconsistent with these IRR, Member
are hereby repealed or modified accordingly.
12
such as national highways, flood control and
section water resource development systems are in
accordance with the highest level and safety
and efficiency and with the overall national
Malacańang development objectives;
Manila WHEREAS, under Section 31, Chapter
10, Book III of Executive Order No. 292, series
EXECUTIVE ORDER NO. 387 of 1987, otherwise known as the
“Administrative Code of 1987”, the President,
TRANSFERRING THE LOCAL WATER in order to achieve simplicity, economy and
UTILITIES ADMINISTRATION FROM THE efficiency, has the continuing authority to
OFFICE OF THE PRESIDENT TO THE reorganize the administrative structure of the
DEPARTMENT OF PUBLIC WORKS AND Office of the President.
HIGHWAYS (DPWH) AND
STRENGTHENING THE SUPERVISION BY NOW, THEREFORE, I, GLORIA
THE DPWH SECRETARY OVER THE MACAPAGAL-ARROYO, President of the
METROPOLITAN WATERWORKS AND Republic of the Philippines, by virtue of the
SEWERAGE SYSTEM. powers vested in me by law, do hereby order:
SECTION 1. Transfer of LWUA to
WHEREAS, the Local Water Utilities DPWH. – The Local Water Utilities
Administration (LWUA), which was created by Administration (LWUA) is hereby transferred
virtue of Presidential Decree No. 198, as from the Office of the President to the
amended, is currently attached to the Office Department of Public Works and Highways
of the President by virtue of Executive Order (DPWH).
No. 279, series of 2004; SECTION 2. Authority to Exercise
WHEREAS, the Metropolitan Administrative Supervision. – The Secretary
Waterworks and Sewerage System (MWSS) of Public Works Highways is hereby authorized
was created by virtue of Republic Act No. 6234, to exercise administrative supervision over the
as amended, and is currently attached to the LWUA and the MWSS, with the objective of
DPWH by virtue of Executive Order No. 124, providing a concerted and well-coordinated
series of 1987; effort in formulating policies, as well as
WHEREAS, there is a need for a concerted planning and implementing programs and
and well-coordinated effort in formulating projects for the water sector.
policies as well as planning and implementing For the purpose, the DPWH Secretary
programs and projects for the water sector; shall, among others:
WHEREAS, there is a need to speed-up a. Coordinate and oversee the policy-
the provision of potable water in every making processes of the respective governing
barangay; boards of the LWUA and the MWSS;
WHEREAS, the DPWH is mandated to b. Require the submission of reports as
ensure that the planning, design, construction the DPWH Secretary may deem necessary,
and maintenance of infrastructure facilities including periodic reports of their respective
83
amended pd 198 and other related issuances
policies and the implementation of their major DONE in the City of Manila, this 18th
programs and projects, and their respective day of November in the year of Our Lord, Two
audited financial statements within sixty (60) Thousand and Four.
days after the close of the fiscal year;
c. Initiate measures within the agency to
promote efficiency and effectiveness, By the President:
including, but not limited to, the conduct of
management audits, performance evaluations
and inspections to determine compliance with (SGD) EDUARDO R. ERMITA
established policies, standards and guidelines; Executive Secretary
d. To take such action as may be
necessary for the proper performance of
official functions, including rectification of
violations, abuses and other forms of
maladministration; and
e. In general, to oversee the operations of
the LWUA and the MWSS to ensure that these
agencies are managed efficiently and
effectively.
SECTION 3. Rules and Regulations. –
The DPWH Secretary, in consultation with the
Chairman of the LWUA and the MWSS, is
hereby authorized to issue rules and
regulations for the effective implementation
of the provisions of this Executive Order;
SECTION 4. Repealing Clause. – The
provisions of Executive Order No. 279 (s. 2004)
which are inconsistent with the provisions of
this Executive Order hereby repealed, amended
or modified accordingly. All other executive
issuance, rules, regulations or parts thereof,
which are inconsistent with any of the
provisions thereof are hereby repealed,
amended or modified accordingly.
SECTION 5. Effectivity. – This Executive
Order shall take effect upon its publication in
the Official Gazette or in an newspaper of
general circulation in the Philippines.
84
amended pd 198 and other related issuances
13
operation and improved performance and
section productivity.
NOW, THEREFORE, I, GLORIA
MACAPAGAL ARROYO, President of the
MALACAŃANG Philippines, by virtue of the powers vested in
MANILA me by law, do hereby order the following:
SECTION 1. Core functions. - LWUA shall
EXECUTIVE ORDER NO. 421 proved institutional development services, and
strengthen its, lending practices and policies
IMPLEMENTING THE REFOCUSING on granting financial assistance grounded on
OF FUNCTIONS AND ORGANIZATIONAL sound development banking principles aimed
STRUCTURE OF THE LOCAL WATER at graduating water districts (WDs) and other
UTILITIES ADMINISTRATION UNDER EO water service providers (WSPs), allowing
279 AND PROVIDING OPTIONS AND efficient use of financial resources, extend
BENEFITS FOR EMPLOYEES WHO MAY technical assistance to WDs/WSPs and
AFFECTED THEREON addressing the need for a greater number of
WDs/WSPs.
WHEREAS, it is the policy of government SECTION 2. Specific Shifts in Policy
of adopt institutional reforms and effect Directions, Functions, Programs, Activities
functional, operational and organizational and Strategies. - To fully implement the
adjustments in the bureaucracy to reform objectives/policies in the water supply
continuously improve the quality and and sewerage sector, LWUA shall:
efficiency of public service delivery and a. Improve investor’s confidence in the
transform it into an efficient and results- water supply and sewerage sector;
oriented structure; b.Rationalize the allocation of financial
WHEREAS, Executive Order (EO) No. 279 resources in the water supply and
provides for the rationalization of LWUA’s sewerage sector through classification
organizational structure and refocusing its and graduation initiatives;
objectives to fully implement the reforms in c. Expand the freedom of choice of water
the financing policies in the water supply and service providers in sourcing their
sewerage sector and water service providers; funding requirements;
WHEREAS, Section 79 of the General d.Increase the participation of Local
Provisions of RA 9336 (General Appropriations Government Units (LGUs), Government
Act of 2005) mandates, among others, the Financial Institutions (GFIs), and
adoption of institutional strengthening Private Financial Institutions (PFIs) in
measures to improve service delivery and financing the water supply and
enhance productivity; identification of areas sewerage sector;
where improvement are necessary; and e. Stimulate improved service and create
implementation of corresponding structure, financial self-sustainability for water
functional and operational adjustments that service providers;
will result in streamlined organization and f. Encourage initiatives aimed at self-
85
amended pd 198 and other related issuances
be subject to the incentive herein provided; government to the retirement premiums, with
PROVIDED FURTHER: That for the interest, of employees who are not yet entitled
purpose of complying with the required to avail either RA 660 or RA 8291.
number of years of service under RA SECTION 9. Other Benefits of Retired/
8291, the portability scheme under RA Separated Personnel. - LWUA affected
7699 (An Act Instituting Limited personnel who opted to retire or be separated
Portability Scheme in the Social Security shall, in addition to the applicable benefits
Insurance Systems by Totalizing the above, be entitled to the following:
Workers’ Creditable Services or 9.1 Refund of Pag-IBIG Contributions. All
Contributions in Each of the Systems) affected personnel who are members of the
may be applied, subject to existing Pag-IBIG shall be entitled to the refund of their
policies and guidelines; contributions (both personal and government),
PROVIDED FURTHERMORE: That pursuant to existing rules and regulations of
on the day of separation, the GSIS shall the Home Development Mutual Fund;
pay the amount of retirement/separation/ 9.2 Commutation of Unused Vacation
unemployment benefits payable by the and Sick Leave Credits. All LWUA affected
GSIS, to which an affected employee may personnel shall be entitled to the commutation
be entitled to under the provisions of this of unused vacation and sick leave credits in
Order, subject to the submission of the accordance with existing rules and regulations.
required documents to the GSIS one (1) They are also allowed to monetize their
month before the set date of retirement/ accumulated compensatory time-off credits,
separation. if any.
7.3 Those with less than three (3) SECTION 10. Resulting Staffing Pattern
years of government service may opt to and Personnel. - To ensure that the new
avail of the separation gratuity under rationalized organization is staffed with
RA No. 6656; plus the appropriate competent and dedicated civil servants, the
incentive provided under Section 7.2. LWUA Management shall draw up the
No affected employee who deployment of personnel to the new OSSP
opted for retirement/separation with utmost care, subject to all pertinent Civil
shall receive less than an aggregate Service rules and regulations. Further, LWUA
amount of Fifty Thousand Pesos Management shall ensure the implementation
(P50,000.00) as his retirement/ of appropriate personnel action on affected
separation gratuity benefit from employees in accordance with the
both the National Government and corresponding guidelines as may be issued by
the GSIS. the DBM.
SECTION 8. Return by the GSIS of the SECTION 11. Transition Plan. - Towards
National Government’s Share in the the smooth and expeditious implementation
Retirement Premiums of Personnel Who of its plan, the LWUA Management shall
Cannot Avail of RA No. 660 or RA 8291. - prepare and implement a step-by-step action
The GSIS shall return to the National plan for the transition from the old structure
Government the corresponding share of the to the new rationalized organization. In this
89
amended pd 198 and other related issuances
regard, it shall closely supervise and properly hospitals, within a period of five (5) years.
document turnover of responsibilities and Reemployment in any other Branch of
accountabilities. Government shall be considered as new entry
SECTION 12. Funding. - Funds needed to to the civil service.
implement this rationalization, as well as the SECTION 15. Repealing Clause. - All
payment of the separation/retirement benefits, issuances, order, rules and regulations or parts
not covered by the GSIS, shall be taken from thereof that are inconsistent with this
available LWUA corporate funds, subject to Executive Order are hereby revoked, amended
the usual accounting and auditing rules and or modified accordingly.
regulations. In case of funding deficiency, the SECTION 16. Effectivity. - This Executive
National Government may provide assistance Order shall take effect immediately.
in the payment of incentives to affected
personnel, in accordance with applicable laws, DONE in the City of Manila, this 13th
and subject to the usual accounting and day of April, in the year of our Lord two
auditing rules and regulations. thousand and five.
SECTION 13. Effectivity of the
Retirement/Separation Package. - The option By Authority of the President:
to avail of the retirement /separation package
shall be available up to two (2) months after
the DBM approval of the LWUA staffing (SGD) EDUARDO R. ERMITA
pattern, provided that such period may be Executive Secretary
extended only in exceptional circumstances
upon the recommendation of the LWUA
Administrator and approval by the DBM.
LWUA shall ensure that there is a smooth
transition from the old to the new rationalized
organization. Affected employee who opted
to avail of the retirement/separation package
shall not be included in the selection and
placement process of employees in the new
staffing pattern. However, they shall not be
considered retired/separated from the service
until their actual receipt of the benefits
provided herein.
SECTION 14. Prohibition on Rehiring of
Personnel Retired/Separated from the
Service. - A personnel who would opt to retire
or be separated as a result of the
rationalization efforts shall not be appointed
or hired in any agency of the Executive Branch,
except in educational institutions and
90
amended pd 198 and other related issuances
14
9,736,486.17, plus increments as contained
section in its decision dated April 19, 2005, and that,
after proceeding, we render a ruling (a) to
declare that it is not subject to income tax
Republika ng Pilipinas pursuant to Section 32 (B) (7) (b) of the
KAGAWARAN NG KATARUNGAN National Internal Revenue Code (NIRC) of 1997,
Department of Justice (b) to declare that it is not subject to franchise
Manila tax, or, in the alternative, should it be liable
OFFICE OF THE SECRETARY for franchise tax, it should no longer be liable
for value added tax and (c) to declare that the
CAMARINES NORTE WATER petitioner is not liable for payment of
DISTRICT (CNWD), increments for deficiency income and value
Petitioner, added taxes for taxable year 2000.
Petitioner alleges, among others, that it
-versus- – Case No. OSJ-2005-03 seeks from this Office “proper interpretation
and application of laws relative to the
BUREAU OF INTERNAL exemption, or liability, of the petitioner from
REVENUE (BIR), payment of income tax, franchise tax, and
Respondent, other internal revenue taxes;” that it is a public
x————————————————-------------------x water utility performing an essential
government function; that its income is
DECISION exempt from taxes pursuant to Section 32 (B)
Subject herein is the petition for (7) (b) of the Tax Code, as amended; that BIR
Arbitration filed by Camarines Norte Water Ruling No. 074-98 has already been
District (CNWD), through its statutory superseded or abandoned by BIR Ruling Nos.
counsel, the Office of the Government 018-2000 and DA-088-2001; that the
Corporate Counsel (OGCC) against the Bureau assessments issued against it is contrary to
of Internal Revenue (BIR), represented by its the uniformity and equal protection clauses
Commissioner, pursuant to Chapter 14, Book of the Constitution; that P. D. No. 198 is a
IV of Executive Order (E.O.) No. 292, which special law that should prevail over the Tax
adopted the provisions of P. D. 242 prescribing Code which is a general law and that the
the procedure for the administrative assessments are contrary to the general
settlement or adjudication of disputes, claims welfare clause of the constitution and inimical
and controversies between and among to public interest.
government offices, agencies and As alleged in the pleadings, the following
instrumentalities, including government- are the background facts relevant to
owned or controlled corporations. petitioner’s claim for exemption from payment
In its Amended Petition, herein petitioner of income tax, franchise tax, value added tax
prays that this Office issue an Order against and other deficiency income and value added
respondent to defer from collecting the alleged taxes for taxable year 2000:
tax deficiency amounting to Php 1. On November 13, 2001, Letter of
91
amended pd 198 and other related issuances
Authority No. 00061324 was issued this petition for lack of merit.
authorizing and directing Revenue Officer Respondent avers that petitioner seeks
Romulo C. Baguid of Revenue District Office to dispute the decision rendered by respondent
64, Daet, Camarines Norte, to examine the on its protest against the assessments issued
books of accounts and other accounting by it. It submits that this Office lacks
records of CNWD for all internal revenue tax jurisdiction to take cognizance of its decision
purposes covering the taxable year 2000. on disputed assessments; that it is the Court
2. As a result, it was determined of Tax Appeals that has jurisdiction; that the
that CNWD is liable to deficiency income and appellate jurisdiction of the Court of Tax
value added taxes for the same year. Appeals is exclusive; and that the power to
3.On February 3, 2003, a interpret the provisions of the Tax Code is
Preliminary Assessment Notice was issued with the respondent and this interpretation
followed by a Formal Letter of Demand and is subject to review by the Secretary of
the corresponding Final Assessment Notices Finance and not by the Secretary of Justice.
on July 3, 2003, against CNWD demanding Respondent also contends that when R.
payment allegedly of the total amount of A. No. 7109, entitled “An Act Granting Tax
P9,736,486.17. Exemption Privileges to Local Water
4. CNWD disputed the assessments Districts,” took effect, it expressly
and on August 26, 2003, the BIR rendered as extinguished the tax exemption privileges of
decision denying the protest of CNWD. petitioner after the lapse of five (5) years from
5. On November 11, 2003, CNWD, its effectivity thereby making CNWD liable
through the OGCC, filed a request for for income and franchise taxes.
reconsideration and on April 19, 2005, the Respondent further argues that in order
Commissioner of Internal Revenue denied with for the petitioner to be exempt under section
finality the protest of CNWD and 32 (B) (7) (b) of the Tax Code two conditions
consequently ordered CNWD to pay the should be met: (1) the income derived must be
aggregate amount allegedly of from a public utility or from the exercise of
P9,734,486.17 as deficiency income and value any essential government function, and (2)
added taxes for taxable year 2000, plus the income must accrue to the Government of
increments that have accrued thereon until the Philippines or to any political subdivision
the actual date of payment. thereof; and that failure to satisfy both two
6. On May 25, 2005, the petitioner conditions makes the petitioner liable.
elevated the matter to this Office as to the Finally, respondent argues, among
proper interpretation or the correctness of others, that petitioner cannot contend that it
ruling of the Commissioner of Internal is performing governmental functions when
Revenue. the law creating it states that it is engaged in
In its Answer, dated October 20, 2005, a proprietary functions; that its exemption
which was filed beyond the reglementary privilege cannot hinge on previous BIR
period of fifteen (15) days to file an answer, Rulings; and that local water districts have
the respondent specifically denies the nature different charters and are governed by
of this petition and prays for the dismissal of different laws.
92
amended pd 198 and other related issuances
Code of 1987. As a result thereof, CTA income and shall be exempt from taxation
dismissed the petition for review in order to under this Title:
be filed before this Office. xx xx
“The operation of the principle of Miscellaneous Items. –
estoppel on the question of jurisdiction xx xx
seemingly depends upon whether the lower (b) Income Derived by the Government or
court actually had jurisdiction or not. If it its Political Subdivisions. – Income derived
had no jurisdiction but the case was tried from any public utility or from the exercise of
and decided upon the theory that it had any essential governmental function accruing
jurisdiction, the parties are not barred, on to the Government of the Philippines or to
appeal, from assailing such jurisdiction, for any political subdivision thereof.”
the same ‘must exist as a matter of law, and It is a basic rule in statutory
may not be conferred by consent of the parties interpretation that when the words and
or by estoppel’ (5C.J.S. 861-863). However, if phrases of a statute are clear and unequivocal,
the lower court had jurisdiction, and the case their meaning must be determined from the
was heard and decided upon a given theory, language employed and the statute must be
such, for instance, as the court had no taken to mean exactly what it says. The
jurisdiction, the party who induced it to adopt probable intent cannot be speculated apart
such theory will not be permitted, on appeal, from the language used because when the
to assume an inconsistent position-that the law is clear, it is not susceptible to
lower court had jurisdiction. Here, the principle interpretation-only to application.
of estoppel applies. The rule that jurisdiction A careful perusal of Section 32(B) (7) (b)
is conferred by law, and does not depend upon of the NIRC, above-quoted, shows that income
the will of the parties, have no bearing derived (a) from any public utility and that
thereon.” (underscoring supplied) derived (b) from the exercise of any essential
Respondent, is therefore, estopped from government function accruing to the
assailing the jurisdiction of this Office. It does Government of the Philippines or to any
not matter if it is a rule that government is political subdivision thereof are two different
never estopped by the mistakes or errors of items which shall not be included in gross
its agents. The rationale is because certain income and shall be exempt from taxation
affirmative acts of public officials may give under the law. The subject NIRC provision is
rise to estoppel, as what happened in this clear enough as to require an interpretation.
case. Consequently, if the GOCC, as the
Going now to the merits of the case, the petitioner herein, derives income from its
subject provision of the National Internal operation as a public utility, the income is
Revenue Code, insofar as pertinent, is clear excluded from gross income, irrespective of
and categorical: whether or not said income accrued to the
“SEC. 32. Gross Income. – Government of the Philippines or to any
xx xx political subdivision thereof. But if the income
(B) Exclusion from Gross Income. – The was derived from the exercise of any essential
following items shall not be included in gross government function, the above-quoted
94
amended pd 198 and other related issuances
provision requires that the income must law two conditions should be met, namely,
accrue to the government or any of its political (1) the income derived must be from a public
subdivision for it to be excluded from gross utility or from the exercise of any essential
income. government function, and (2) the income must
The exemption in the first case is accrue to the Government of the Philippines
justified by its nature as a public utility. A or to any political subdivision thereof, not
public utility has been defined as “1. a only because the law is clear enough to
company that provides necessary services to require an interpretation but also because of
the public, such as telephone lines and service, the use of the disjunctive article “or”.
electricity, and water, xxx, 2. a person, In statutory construction, the use of the
corporation or other association that carries word “or” signifies “alternative”,
on an enterprise for the accommodation of “dissatisfaction” and “independence” of one
the public, the members of which are entitled thing from each of the other things
as a matter of right to use its facilities.” enumerated. When used, the various members
Likewise, the Supreme Court, in one case, has of the sentence are to be taken separately.
had occasion to define a public utility as one This must be distinguished from the use of
organized for “hire or compensation” to serve the conjunctive word “and” which, when used,
the public, which is given the right to demand connotes that the various members of a
its service. sentence are to be taken jointly. Thus, we
Indeed, the income of the petitioner falls cannot but agree more with the petitioner’s
under the first category of income that is claim that the phrase “accruing to the
exempt from taxation having derived the same Government of the Philippine or to any
from its operation as a public utility that political subdivision thereof ” only qualifies
renders necessary services to the public, and the income from the exercise of any essential
which status had even been recognized and government function to which it is attached
acknowledged by the respondent, albeit and does not qualify the income derived from
impliedly and indirectly, when, in its ruling, a public utility.
respondent admitted that local water districts Moreover, anent the section heading of
are public utilities. Section 32 (B) (7) (b), suffice it to say that
Upon the other hand, the other exemption while the same can be resorted to in the
is justified by the fact that the income results construction of statutes to determine or
from the exercise of an essential government ascertain legislative intent, the same is not
function and accrues to the government or its conclusive. In the language of the Supreme
political subdivision. In both instances, a Court:
contrary view would also be opposed to the It is a familiar law that when the text
rule that, generally, the government cannot itself of a statute or a treaty is clear and
tax itself for to do so would not be beneficial unambiguous, there is neither necessity nor
to the government. propriety in resorting to the preamble or
We cannot subscribe to the position headings or epigraphs of a section for
advanced by the respondent that in order to interpretation of the text, especially where
satisfy the requirements of said provision of such epigraphs or headings of sections are
95
amended pd 198 and other related issuances
mere catchwords or reference aids indicating only corporations created under a general law
the general nature of the text that follows. can qualify as private corporations. Under
xxx Being nothing more than a convenient existing laws, that general law is the
index to the contents of the articles of the Corporation Code, except that the Cooperative
Code, they cannot in any event have the effect Code governs the incorporation of
of modifying or limiting the unambiguous cooperatives.
words of the text. Secondary aids may be The Constitution authorizes Congress to
consulted to remove, not to create doubt. create government-owned or controlled
Neither are we prepared to subscribe to corporations through special charters. Since
respondent’s claim that since under Section private corporations cannot have special
3 of R.A. No. 7109, the tax exemption privileges charters, it follows that Congress can create
granted to “all water districts shall be enjoyed corporations with special charters only if such
only for a period of five (5) years from the corporations are government-owned or
effectivity of (the) Act,” “all LWD’s, such as controlled.
herein peitioner, became liable for income and Obviously, LWDs are not private
franchise taxes,” among others. corporations because they are not created
It must be stressed that while in its ruling under the Corporation Code. xxx.
in Tanjay Water District vs. Gabaton, 172 At this point, it may significant to point
SCRA 253, dated April 17, 1989, the Supreme out that while, as rightfully interpreted by
Court, citing Hagonoy Water District vs. the respondent in its Ruling No. 074-98, under
NLRC, said’ that local water districts are Section 27 (c) of the NIRC, which states that
quasi-public corporations, in Davao City –
Water District vs. Civil Service Commission, “Sec. 27 xxx
201 SCRA 593, it categorically stated that (c) Government-owned or Controlled
water districts are “government-owned or Corporations, Agencies or Instrumentalities-
controlled corporations with original charter, The provisions of existing special or general
“that is, “government-owned or controlled laws to the contrary not withstanding, all
corporations created under a special law and corporations, agencies or instrumentalities
not under the Corporation Code of the owned or controlled by the Government,
Philippines.” As the Court explicitly except the Government Service Insurance
expounded in the much later case of Feliciano System (GSIS), the Social Secutiry System
vs. Commission on Audit, 419 SCRA 363, (SSS), the Philippine Health Insurance (PHIC),
quoting Section 16, Article XII of the the Philippine Charity Sweepstakes Office
Constitution: (PCSO), and the Philippine Amusement and
“In short, Congress cannot enact a law Gaming Corporation (PAGCOR), shall pay such
creating a private corporation with a special rate of tax upon their taxable income as are
charter. Such legislation would be imposed by this Section upon corporations
unconstitutional. Private corporations may or associations engaged in similar business,
exist only under a general law. If the industry or activity.”
corporation is private, it must necessarily Only five (5) corporations, namely GSIS,
exist under a general law. Stated differently, SSS, PHIC, PCSO and PAGCOR are exempted
96
amended pd 198 and other related issuances
from the payment of regular corporate income reason why a huge company can be exempt
tax, this Office has occasion to rule that the while a small entity cannot be exempt.
enumeration under the law is not exclusive. On the issue of Franchise Tax and Value-
In fact, respondent impliedly agreed with our Added Tax, Section 119, of the Tax Code of
view when it issued BIR Ruling No. 018-2000, 1997 provides that:
dated January 20, 2000, declaring that the “Sec. 119. Tax on Franchises. Any
income of the National Power Corporation provision of general or special law to the
(NPC), a government-owned or controlled contrary not withstanding, there shall levied,
corporation at the same time a public utility assessed and collected in respect to all
engaged in the supply of electricity, is franchises on radio and/or television
exempted from income tax pursuant to Section broadcasting companies whose annual gross
32 (B) (7) (b) of the Tax Code, and BIR Ruling receipts of the preceding year does not exceed
No. DA 088, dated May 16, 2001, declaring Ten Million pesos (P10,000,000.00), subject
that MWSS, a government-owned public Section 236 of this code, a tax of three percent
utility, is equally exempted from income tax (3%) and on electric, gas and water utilities,
pursuant to the same section. a tax of two percent (2%) on the gross receipts
We feel that it is timely at this point in derived from the business covered by the law
time to set the record straight, that water granting the franchise: xxx”
districts all over the country must be declared It is clear from the above provision that
as exempt from tax as they are no different the CNWD is liable for Franchise Tax of two
from MWSS that is engaged in the supply of percent (2%) of its gross receipts, however
potable drinking water to the public in Metro since it is now subject to franchise tax, they
Manila. are exempt from VAT on their services that
To rule otherwise violates the equal are already subject to franchise.
protection of the laws. The phrase equal WHEREFORE, premises considered,
protection of the laws signifies that “all CNWD is declared exempt from payment of
persons subject to legislation shall be treated income tax as an exclusion from gross income,
alike under like circumstances and conditions liable for payment of franchise tax but exempt
both in the privileges conferred and liabilities from VAT and all other increments thereto.
imposed.” With respect to the prayer of the
We do not see rational basis in exempting petitioner that this Office issue a Cease and
PAGCOR and PCSO vis-a-vis MWSS and Water Desist Order against respondent to defer from
Districts from income tax where one proceeds collecting the amount of Php 9,736,486.17
from gambling while the other proceeds from the same is hereby GRANTED.
basic necessity. This could be the reason why No costs.
the respondent find it wise to exempt MWSS SO ORDERED.
and NAPOCOR in its ruling by breeching the Manila, Philippines, March 20, 2006
non-exclusivity of Section 27(c) of the NIRC.
If respondent can exempt MWSS there is no (SGD) RAUL M. GONZALES
reason why it cannot exempt the water Secretary
districts all over the country. There is no
97
amended pd 198 and other related issuances
15
shall coordinate with the Secretary of Public
section Works and Highways and the Metropolitan
Waterworks Sewerage System (MWSS) to
ensure that there will be concerted efforts in
EXECUTIVE ORDER NO. 738 formulating policies as well as planning and
implementing programs and projects for the
TRANSFERRING THE LOCAL WATER water sector.
UTILITIES ADMINISTRATION FROM THE SECTION 3. Repealing Clause. The
DEPARTMENT OF PUBLIC WORKS AND provisions of Executive Order No. 187 (s. 2004)
HIGHWAYS TO THE DEPARTMENT OF HEALTH which are inconsistent with the provisions of
this Executive Order are hereby repealed,
amended or modified accordingly.
WHEREAS, under Executive Order (EO) All other executive issuances, rules,
No. 387 (s. 2004), the Local Water Utilities regulations or parts thereof, which are
Administration (LWUA) was transferred from inconsistent with any of the provisions hereof
the Office of the President (OP) to the are hereby repealed, amended or modified
Department of Public Works and Highways accordingly.
(DPWH); SECTION 4. Effectivity. This Executive
WHEREAS, the provision of potable Order shall take effect immediately.
water is a primary health concern which
should be supervised by the Department of DONE. In the City of Manila, this 14th
Health (DOH); day of July, in the year of Our Lord, Two
WHEREAS, there is also a need to speed- Thousand and Eight.
up and ensure the provision of safe potable
water in every barangay; and
WHEREAS, under Section 31, Chapter By the President:
10, Title III, Book III of the Administrative Code
of 1987, the President has the continuing (Sgd.) Sec. EDUARDO R. ERMITA
authority to reorganize the administrative Executive Secretary
structure of the Office of the President.
NOW, THEREFORE, I, GLORIA
MACAPAGAL-ARROYO, President of the
Philippines, by virtue of the powers vested in
me by law, do hereby order:
SECTION 1. Transfer of LWUA to DOH.
The LWUA is hereby transferred from the
DPWH to the DOH.
SECTION 2. Authority to Exercise
Administrative Supervision. The Secretary of
Health is hereby authorized to exercise
administrative supervision over the LWUA, and
98