PD 198 - 2021

amended pd 198 and other related issuances
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amended presidential decree no. 198

and other related issuances
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table of contents
SECTION 1
Presidential Decree No. 198 5
 Local Water District Law 8
 Local Water Utilities 17
Administration Law
SECTION 2
Presidential Decree No. 768 25
SECTION 3
Letter of Instructions No. 683 36
SECTION 4
SECTION 5
Presidential Decree No.1479 40
SECTION 6
SECTION 7
Executive Order No. 68 46
SECTION 8
Supreme Court Ruling on Water 47
Districts as Government Owned
and Controlled Corporations
SECTION 9
SECTION 10
Republic Act No. 9286 63
SECTION 11
Implementing Rules & Regulations
of Executive Order No. 279
SECTION 12
SECTION 13
SECTION 14
Department of Justice Ruling 91
on Water District Tax Exemption
SECTION 15
SECTION 16
Decision in Rama et al. v. Moises el al. 99
(G.R. No. 197146, Dec. 06, 2016)
SECTION 17
Decision in CSC v. Pillila Water District
(G.R. No. 190147, March 05, 2013 112
SECTION 18
DILG Memorandum Circular No. 2019-03
(Reiterating DILG MC No. 2016-146) 122
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section 1
MALACAÑANG
MANILA
PRESIDENTIAL DECREE NO. 198

(As amended by Presidential Decree Nos., 768 and 1479, R.A. 9286)
DECLARING A NATIONAL POLICY FAVORING LOCAL OPERATION

AND CONTROL OF WATER SYSTEMS; AUTHORIZING THE FORMATION OF
LOCAL WATER DISTRICTS AND PROVIDING FOR THE GOVERNMENT AND
ADMINISTRATION OF SUCH DISTRICTS; CHARTERING A NATIONAL
ADMINISTRATION TO FACILITATE IMPROVEMENT OF LOCAL WATER
UTILITIES; GRANTING SAID ADMINISTRATION SUCH POWERS AS ARE
NECESSARY TO OPTIMIZE PUBLIC SERVICE FROM WATER UTILITY
OPERATIONS, AND FOR OTHER PURPOSES:
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RA TIONALE
RATIONALE
WHEREAS, one of the pre-requisites to the orderly and well-balanced growth or urban areas is an
effective system of local utilities, the absence of which is recognized as a deterrent to economic growth, a
hazard to public health and an irritant to the spirit and well-being of the citizenry;
WHEREAS, domestic water systems and sanitary sewers are two of the most basic and essential
elements of local utility systems, which, with a few exceptions, do not exist in provincial areas in the
Philippines;
WHEREAS, existing domestic water utilities are not meeting the needs of the communities they serve;
water quality is unsatisfactory; pressure is inadequate; and reliability of service is poor, in fact, many persons
receive no piped water service whatsoever;
WHEREAS, conditions of service continue to worsen for two (2) apparent reasons, namely: (1) that key
elements of existing systems are deteriorating faster than they are being maintained or replaced, and (2) that
they are not being expanded at a rate sufficient to match population growth; and
WHEREAS, local water utilities should be locally-controlled and managed, as well as have support on
the national level in the area of technical advisory services and financing;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the

powers vested in me by the Constitution, as Commander-in-Chief of all the Armed Forces of the Philippines,
and pursuant to Proclamation No. 1081 dated September 21, 1972 and General Order No. 1 dated September
22, 1972, as amended, do hereby decree, order and make as part of the law of the land the following measure:
TITLE I
PRELIMINARY PROVISIONS
SECTION 1. Title. This Decree shall be known and referred to as the “Provincial Water Utilities Act of
1973”.
SEC. 2. Declaration of Policy. The creation, operation, maintenance and expansion of reliable and
economically viable and sound water supply and wastewater disposal systems for population centers of the
Philippines is hereby declared to be an objective of national policy of high priority. For purposes of achieving
said objectives, the formulation and operation of independent, locally controlled public water districts is found
and declared to be the most feasible and favored institutional structure. To this end, it is hereby declared to be
in the national interest that said district be formed and that local water supply and wastewater disposal systems
to be operated by and through such districts to the greatest extent practicable. To encourage the formulation of
such local water districts and the transfer thereto of existing water supply and wastewater disposal facilities, this
Decree provides by general act the authority for the formation thereof, on a local option basis. It is likewise
declared appropriate, necessary and advisable that all funding requirement for such local water systems, other
than those provided by local revenues, should be channeled through and administered by an institution on the
national level, which institution shall be responsible for and have authority to promulgate and enforce certain
rules and regulations to achieve national goals and the objective of providing public waterworks services to the
greatest number at least cost, to offset system integration or joint investments and operations whenever
economically warranted and to assure the maintenance of uniform standards, training of personnel and the
adoption of sound operating and accounting procedures.
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SEC. 3. Definitions. As used in this Decree, the following words and terms shall have the meanings
herein set forth, unless a different meaning clearly appears from the context. The definition of a word or term
applies to any of its variants.
(a) Act. This Provincial Water Utilities Act of 1973.
(b) Appointing Authority. The person empowered to appoint the members of the Board of Directors
of a local water district depending upon the geographic coverage and population make-up of the
particular district. In the event that more than seventy-five percent of the total active water
service connections of a local water district are within the boundary of any city or municipality, the
appointing authority shall be the mayor of that city or municipality, as the case may be; otherwise,
the appointing authority shall be the governor of the province within which the district is located:
Provided, That if the existing waterworks system in the city or municipality established as a
water district under this Decree is operated and managed by the province, initial appointment
shall be extended by the governor of the province. Subsequent appointments shall be as
specified herein.
If portions of more than one province are included within the boundary of the district, and the appointing
authority is to be the governor, then the power to appoint shall rotate between the governors involved with
the initial appointments made by the governor in whose province the greatest number of service
connections exists. (As amended by Sec. 1, PD 768)”: “(Note: In Rama, et al. v. Moises, et al. [G.R.
No. 197146, Dec. 6, 2016], Section 3 [b] of PD 198 to the extent that it applies to highly urbanized cities
and component cities with charter was declared by the Supreme Court as unconstitutional. Please
referSection 16 of this booklet.)”
(c) Administration. The Local Water Utilities Administration chartered in Title III of this Decree.
(d) NEDA. The National Economic and Development Authority. (Note: This paragraph should
properly have been deleted).
(e) Board or Board of Directors. The board of directors of a district.
(f) Contracts. All agreements, including leases, conveyances and obligations.
(g) District. A local water district formed pursuant to Title II of this Act.
(h) Local Water Utility. Any district, city, municipality, province, investor-owned public utility or
cooperative corporation which owns or operates a water system serving an urban center in the
Philippines, except that said term shall not include the Metropolitan Waterworks and Sewerage
System (MWSS) or any system operated by the Bureau of Public Works as successor to the
Wells and Springs Department of the National Waterworks and Sewerage Authority.
(i) Person. A natural person, corporation, cooperative, partnership, association, city, municipality or
other juridical entity.
(j) Property. All real and personal property, including but not limited to: water, water rights, works,
easements, rights of way.
(k) Street. Includes road, valley, avenue, highway or other public way.
(l) The Board of Trustees of the Administration
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TITLE II
LOCAL WATER DISTRICT LAW

CHAPTER I Title
SEC. 4. Title. The provisions of this Title shall be known and referred to as the “Local Water District
Law.”
CHAPTER II Purpose and Formation
SEC. 5. Purpose. - Local water districts may be formed pursuant to this Title for the purpose of (a)
acquiring, installing, improving, maintaining and operating water supply and distribution systems for domestic,
industrial, municipal and agricultural uses for residents and lands within the boundaries of such districts, (b)
providing, maintaining and operating wastewater collection, treatment and disposal facilities, and (c) conducting
such other functions and operations incidental to water resource development, utilization and disposal within
such districts, as are necessary or incidental to said purpose.
SEC. 6. Formation of District. - This Act is the source of authorization and power to form and maintain
a district. For purposes of this Act, a district shall be considered as a quasi-public corporation performing public
service and supplying public wants. As such, a district shall exercise the powers, rights and privileges given
to private corporations under existing laws, in addition to the powers granted in, and subject to such restrictions
imposed, under this Act. To form a district, the legislative body of any city, municipality or province shall enact
a resolution containing the following: (As amended by Sec. 1, PD 1479)
(a) The name of the local water district, which shall include the name of the city, municipality, or
province, or region thereof, served by said system, followed by the words “Water District”.
(b) A description of the boundary of the district. In the case of a city or municipality, such boundary
may include all lands within the city or municipality. A district may include one or more municipalities,
cities or provinces, or portions thereof: Provided, That such municipalities, cities or provinces, or
portions thereof, cover a contiguous area. (As amended by Sec. 2, PD 768)
(c) A statement completely transferring any and all waterworks and/or sewerage facilities managed,
operated by or under the control of such city, municipality or province to such district upon the filing
of resolution forming the district. (As amended by Sec. 2, PD 768; Sec. 1, PD 1479).
(d) A statement identifying the purpose for which the district is formed, which shall include those
purposes outlined in Section 5 above.
(e) The names of the initial directors of the district with the date of expiration of the term of office for each
which shall be on the 31st of December of first, second, or third even-numbered year after
assuming office, as set forth in Section 11 hereof. (As amended by Sec. 2, PD 768)
(f) A statement that the district may only be dissolved on the grounds and under the conditions set forth
in Section 45 of this Title.
(g) A statement acknowledging the powers, rights and obligations as set forth in Section 36 of this Title.
Nothing in the resolution of formation shall state or infer that the local legislative body has the power to
dissolve, alter or affect the district beyond that specifically provided for in this Act.
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If two or more cities, municipalities or provinces, or any combination thereof, desire to form a single
district, a similar resolution shall be adopted in each city, municipality and province; or the city, municipality or
province in which 75% of the total active service connections are situated shall pass an initial resolution to be
concurred in by the other cities, municipalities or provinces. (As amended by Sec. 2, PD 768)
SEC. 7. Filing of Resolution. - A certified copy of the resolution or resolutions forming a district shall
be forwarded to the office of the Secretary of the Administration. If found by the Administration to conform to the
requirements of Section 6 and the policy objectives in Section 2, the resolution shall be duly filed. The district
shall be deemed duly formed and existing upon the date of such filing. A certified copy of said resolution
showing the filing stamp of the Administration shall be maintained in the office of the district. Upon such filing,
the local government or governments concerned shall lose ownership, supervision and control or any right
whatsoever over the district except as provided herein. (As amended by Sec. 3, PD 768).”(Please refer to
DILG Memorandum Circular No. 2016-146 dated October 18, 2016, Section 18 of this booklet.)
CHAPTER III Directors
SEC. 8. Number and Qualifications. The Board of Directors of a district shall be composed of five
citizens of the Philippines who are of voting age and residents within the district. One member shall be a
representative of civic-oriented service clubs, one member a representative of professional associations, one
member a representative of business, commercial, or financial organizations, one member a representative of
educational institutions and one member a representative of women’s organizations. No public officials shall
serve as director. Provided, however, that if the district has availed of the financial assistance of the Administration,
the Administration may appoint any of its personnel to sit in the board of directors with all the rights and privileges
appertaining to a regular member, for such period as the indebtedness remains unpaid, in which case the board
shall be composed of six members. (As amended by Sec. 4, PD 768; Sec. 2, PD 1479)
SEC. 9. Appointment. - Board members shall be appointed by the appointing authority. Said
appointments shall be made from a list of nominees, if any, submitted pursuant to Section 10. If no nominations
are submitted, the appointing authority shall appoint any qualified person of the category to the vacant position.
SEC. 10. Nominations. - On or before October 1 of each even-numbered year, the secretary of the
district shall contact each known organization, association, or institution being represented by the director
whose term will expire on December 31 and solicit nominations from these organizations to fill the position for
the ensuing term. One nomination may be submitted in writing by each such organization to the secretary of
the district on or before November 1 of such year. This list of nominees shall be transmitted by the Secretary
of the district to the office of the appointing authority on or before November 15 of such year and he shall make
his appointment from the list submitted on or before December 15. In the event the appointing authority fails to
make his appointments on or before December 15, selection shall be made from said list of nominees by
majority vote of the seated directors of the district constituting a quorum. Initial nominations for all five seats of
the board shall be solicited by the legislative body or bodies at the time of adoption of the resolution forming the
district. Thirty days thereafter, a list of nominees shall be submitted to the provincial governor in the event the
resolution forming the district is by a provincial board, or the mayor of the city or municipality in the event the
resolution forming the adoption of the district is by the city or municipal board of councilors, who shall select the
initial directors therefrom within 15 days after receipt of such nominations.
SEC. 11. Term of Office. - Of the five initial directors of each newly-formed district, two shall be
appointed for a maximum term of two years, two for a maximum term of four years, and one for a maximum
term of six years. Terms of office of all directors in a given district shall be such that the term of at least one
director, but not more than two, shall expire on December 31 of each even-numbered year. Regular terms of
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office after initial terms shall be for six years commencing on January 1 of odd-numbered years. Directors may
be removed for cause only, subject to review and approval of the Administration. (As amended by Sec. 5, PD
768)
SEC. 12. Vacancies. In the event of a vacancy in the board of directors occurring more than six months
before expiration of any director’s term, the remaining directors shall, within 30 days, serve notice or request
the secretary of the district for nominations and within 30 days thereafter a list of nominees shall be submitted
to the appointing authority for his appointment of a replacement director from the list of nominees. In the absence
of such nominations, the appointing authority shall make such appointment. If within 30 days after submission
to him of a list of nominees the appointing authority fails to make an appointment, the vacancy shall be filled from
such list by a majority vote of the remaining members of the Board of Directors constituting a quorum.
Vacancies occurring within the last six months of an unexpired term shall also be filled by the Board in the
above manner. The director thus appointed shall serve the unexpired term only. (As amended by Sec. 6, PD
768)
SEC. 13. Compensation. Each director shall receive a per diem to be determined by the Board, for
each meeting of the Board actually attended by him, but no director shall receive per diems in any given month
in excess of the equivalent of the total per diem of four meetings in any given month.
Any per diem in excess of One hundred fifty pesos (P150.00) shall be subject to the approval of the
Administration. In addition thereto, each director shall receive allowances and benefits as the Board may
prescribe subject to the approval of the Administration. (As amended by Sec. 7, PD 768; R.A. 9286)
SEC. 14. Personal Liability. No director may be held to be personally liable for any action of the district.
CHAPTER IV The Board
SEC. 15. Organizational Meeting. The board shall hold its first meeting as soon as practicable after
appointment of the first directors, and not later than 45 days after formation of the district. At said first meeting of
the district board, and thereafter at the first meeting of each odd-numbered year, the board shall elect a chairman,
a vice chairman, a secretary and a treasurer. Such secretary and treasurer may, but need not be members of
the board, and the offices of secretary and treasurer may be held by the same person.
SEC. 16. Quorum. A majority of the board present in person shall constitute a quorum for the transaction
of business; Provided, however, That no resolution or motion shall be adopted or become effective without the
affirmative vote of a majority of the authorized number of members of the board.
CHAPTER V Powers and Duties of Board
SEC. 17. Performance of District Powers. All powers, privileges, and duties of the district shall be
exercised and performed by and through the board: Provided, however, That any executive, administrative or
ministerial power shall be delegated and redelegated by the board to officers or agents designated for such
purpose by the board.
SEC. 18. Functions Limited to Policy-Making. The function of the board shall be to establish policy.
The board shall not engage in the detailed management of the district.
SEC. 19. By-Laws. At its first meeting, the board shall adopt, and may thereafter from time to time amend
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by-laws for the operation of business and affairs of the board and the district. By-Laws may not be amended
without 30 days public notice to that effect, and a public hearing held.
SEC. 20. System of Business Administration. The Board shall, as soon as practicable, prescribe
and define by resolution a system of business administration and accounting for the district, which shall be
patterned upon and conform to the standards established by the Administration. Auditing shall be performed by
a certified public accountant not in the government service. The Administration may, however, conduct annual
audits of the fiscal operations of the district to be performed by an auditor retained by the Administration.
Expenses incurred in connection therewith shall be borne equally by the water district concerned and the
Administration. (As amended by Sec. 8, PD 768). “(Note: In Feliciano v. COA, et al. [G.R. No. 147402, Jan.
14, 2014], the Supreme Court ruled that the second sentence of Section 20 of PD 198 is unconstitutional
since it violates Section 2 [1] and 3, Article IX-D of the Constitution.”)
SEC. 21. Depository. The district’s depository shall be the Philippine National Bank, unless use of such
bank is impractical: Provided, however, That any and all reserves accumulated for capital improvements may
be deposited with the Administration.
SEC. 22. Contracts. All contracts of the district shall be entered into by or pursuant to authority of the
board: Provided, however, That the board may be resolution delegate and redelegate to officers or agents of the
districts, under such conditions and restrictions as shall be fixed by the board, the power to bind the district by
contract.
CHAPTER VI Officers and Employees
SEC. 23. The General Manager. At the first meeting of the Board, or as soon thereafter as practicable,
the Board shall appoint, by a majority vote, a general manager and shall define his duties and fix his
compensation. Said officer shall not be removed from office, except for cause and after due process. (As
amended by Sec. 9, PD 768; R. A. 9286). “(Note: In CSC v. Pillila WaterDistrict [G.R. No. 190147, March
5, 2013], the Supreme Court ruled that the General Manager of a water district who is appointed on
coterminous status may serve or hold office for a maximum of six (6) years, which is the tenure of the
appointing authority, subject to reappointment for another six (6) unless sooner removed by the Board of
Directors for loss of trust and confidence, or for any cause provided by law and with due process; the position
of General Manager is a non-career position and remains a primarily confidential position.”)
SEC. 24. Duties. The duties of the General Manager and other officers shall be determined and specified
from time to time by the board. The general manager, who shall not be a director, shall have full supervision and
control of the maintenance and operation of water district facilities, with power and authority to appoint all
personnel of the district: Provided, That the appointment of personnel in the supervisory level shall be subject
to approval by the board. (As amended by Sec. 10, PD 768)
CHAPTER VII Powers of District
SEC. 25. Authorization. The district may exercise all the powers which are expressly granted by this
Title or which are necessarily implied from, or incidental to the powers and purposes herein stated. For the
purpose of carrying out the objectives of this Act, a district is hereby granted the power of eminent domain, the
exercise thereof shall, however, be subject to review by the Administration. (As amended by Sec. 4, PD
1479)
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SEC. 26. Acquisition of Waterworks. A district may purchase, construct, or otherwise acquire works,
water, water rights, land, rights and privileges useful or necessary to convey, supply, store, collect, treat,
dispose of or make other use of water for any purpose authorized by this Title. In the acquisition of water or
water rights the district shall cooperate with existing agencies of the government of the Philippines. (As
amended by Sec. 5, PD 1479)
SEC. 27. Sale of Water. - The district shall have the power to sell water, pursuant to generally applicable
rules and regulations, to any person for use within the district. As a condition of such sale, the district may
require the filing of a written application for service, payment of established charges or deposits and execution
of a water service contract.
A district may provide service to public faucets or hydrants provided that it shall first have executed an
application and service contract with the Government entity to establish or maintain such faucets or hydrants
within the district. The district will be paid for such service in the same manner as regular domestic service and
pursuant to the adopted rules and regulations of the district.
Any district holding a valid Certificate of Conformance or a Conditional Certificate of Conformance from
the Administration shall be exempt from regulation by the Public Service Commission or its successor. (As
SEC. 28. Sewerage. A district may require, construct, operate and furnish facilities and services, within
or without the district, for the collection, treatment and disposal of sewerage, waste, and storm water. The district
may only furnish such services outside the district by means of facilities designed primarily to serve inside the
district. Upon providing a sewer system in any area of the district, the district may require all buildings used
by human beings to be connected to the sewer system within such reasonable time as may be prescribed by
the district, provided that the property upon which such building to be connected stands is located within 35
meters of an existing main of the district’s sewer system. After due notice thereof and refusal on the part of the
property owner to so connect with the district’s sewer system, the district may declare the further maintenance
or use of cesspools, septic tanks, or other local means of sewerage disposal in such area to be a public
nuisance and, after notice in writing of at least 10 days, deprive said property owner of any and all services
provided by the district, which sanction may be co-extensive with the period during which the property owner
persists in refusing to connect with the district’s sewer system. (As amended by Sec. 5, PD 1479)
SEC. 29. Rights of Way. The right of way is hereby granted to locate, construct and maintain works of
the district on any land which is now, or hereafter may be, owned by the Government of the Philippines or by
any of its political subdivisions, and/or instrumentalities. A district may construct any works along, under or
across any street, watercourse, railway, or conduit in any manner which will afford security for life and
property: Provided, That in planning any such works, the environmental aspects shall also be considered. (As
SEC. 30. Contracts. A district shall have the power to enter into contracts with any person for the
purpose of performing any functions of the district: Provided, That the Board of Directors may not by contract
delegate any of the discretionary powers vested in the board by this Title. Specifically, but without limiting said
general power, a district may enter into the following contracts:
(a) Cooperation. Agreement with the Government of the Philippines or any of its agencies or
political subdivisions for the cooperative or joint performance of any function of the district.
(b) In-Lieu Share. As an incident to the acquisition of the existing water system of a city,
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municipality, or province, a district may enter into a contract to pay in-lieu share for such utility
plant, an annual amount not exceeding three percent (3%) of the district’s gross receipts from
water sales in any year: Provided, however, That no contract of this nature shall be executed
during the first five years of the existence of the district; and Provided, further, That the Board of
Directors shall determine that such contract will not adversely affect or impair the fiscal position
and operations of the district as verified by the Administration. (As amended by Sec. 11, PD 768;
Sec. 5, PD 1479)
(c) MWSS Agreement. In the event the city, municipality or province has not reached agreement
with the Metropolitan Waterworks and Sewerage System pursuant to Section 15 and 17 of R. A.
6234, a district may, with the consent of the local government, act for and in behalf of the local
interests in negotiating and executing such contract for final settlement of the consequences of
MWSS involvement in the operation of the water system.
SEC. 31. Protection of Waters and Facilities of District. A district shall have the right to:
(a) Commence, maintain, intervene in, defend and compromise actions or proceedings to prevent
interference with or deterioration of water quality or the natural flow of any surface, stream or
ground water supply which may be used or useful for any purpose of the district or be a common
benefit to the lands or its inhabitants. The ground water within a district is necessary to the
performance of the district’s powers and such district is hereby authorized to adopt rules and
regulations subject to the approval of the National Water Resources Council governing the drilling,
maintenance and operation of wells within its boundaries for purposes other than a single family
domestic use on overlying land. Any well operated in violation of such regulations shall be
deemed in interference with the waters of the district.
(b) Require a developer or builder of any structure within the service areas of the district to extend or
connect its pipeline facilities to the district facilities whenever such development or structure is
within one hundred meters of existing district facilities or whenever the district is willing to extend
its facilities within one hundred meters of said development or structure. For the purpose of this
section, development shall include the subdivision of land for any purpose other than agricultural
purpose, and structure shall mean any building or facility to be used for residential, commercial or
industrial purposes.
(c) Prohibit any person, firm or corporation from vending, selling, or otherwise disposing of water for
public purposes within the service area of the district where district facilities are available to
provide such service, or fix terms and conditions by permit for such sale or disposition of water.
(d) Safeguard and protect the use of its waters. For this purpose, any person who installs any water
connection without the previous authority from the water district established under this Decree;
tampers water meters or uses jumpers or other devices whereby water is stolen; steals or pilfers
water or water meters; knowingly possesses stolen or pilfered water or water meters shall, upon
conviction, be punished by prision correccional in its minimum period or a fine ranging from two
thousand pesos to six thousand pesos, or both. If the violation is committed with the connivance
or permission of an employee or officer of the water district, an employee or officer shall, upon
conviction, be punished by a penalty one degree lower than prision correccional in its minimum
period and forthwith be dismissed and perpetually disqualified from employment in any utility or
service company owned or controlled by the government. (As amended by Sec. 12, PD 768)
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(e) Take over the management, administration, operation and maintenance of all watersheds within its
territorial boundaries. (As amended by Sec. 6, PD 1479)
SEC. 32. Fire Protection Capacity. The district may install and maintain pipeline capacity and
additional hydrants for fire protection purposes: Provided, That prior agreement has been executed with the
public entity having principal fire protection responsibility within the district whereby the district will be reimbursed
over the reasonable life of said facilities for the cost of installation and operation of such fire protection capacity
and facilities. (As amended by Sec. 7, PD 1479)
CHAPTER VIII – Financial Provisions
SEC. 33. Receipt, Deposit and Payment of District Funds. The treasurer shall receive, to the credit
of the district and in trust for its use and benefit, all monies belonging to the district. All monies belonging to the
District shall, where practicable, be deposited by the treasurer in the Philippine National Bank. (As amended
by Sec. 13, PD 768; Sec. 7, PD 1479)
SEC. 34. Bonds or Other Evidence of Indebtedness. A district may borrow money to raise funds
to pay all cost of any public improvements authorized by this Title and may issue negotiable or non-negotiable
bonds, promissory notes or other evidence of indebtedness to support such borrowings. These obligations
may be secured by a mortgage, pledge, deed of trust of or any other encumbrance upon any of its then owned
or after-acquired real or personal property, assets or revenues and the same shall constitute a lien as to the
principal and interest thereon, on all such property, assets or revenues. The interests on such bonds or notes
are exempt from all taxes, duties, fees, imposts, or other charges of the national or local governments. (As
amended by Sec. 14 and 15, PD 768; Sec. 7, PD 1479)
SEC. 35. Authority for Subsequent Borrowings. Where a water district has borrowed money from
the Administration, the district shall not borrow money or incur further obligations from other sources without the
prior written consent of the Administration. (As amended by 16, PD 768; Sec. 7, PD 1479)
SEC. 36. Default. In the event of the default by the district in the payment of principal or interest on its
outstanding bonds or other obligations, any bondholder or creditor shall have the right to bring an action before
the appropriate court to compel the payment of such obligation. If the bondholder or creditor concerned is the
Administration, it may, without the necessity of judicial process, take over and operate the entire facilities,
systems or properties of the district. For the purpose, the Administration may designate its employees or any
person or organization to assume all powers of policy-decision and the powers of management and administration,
including but not limited to the establishment of water rates and charges, the dismissal and hiring of personnel,
the purchase of supplies, equipment and materials and such other actions as may be necessary to operate the
utility efficiently. (As amended by 16, PD 768; Sec. 7, PD 1479)
CHAPTER IX Revenues
SEC. 37. Rates and Charges. Water. A district may sell water under its control, under schedules of
rates and charges as may be determined by the Board, to any and all water users within the district. Said
schedule may provide for differential rates for different categories of use and different quantity blocks. The
district, as far as practicable, shall fix such rates and charges for water as will result in revenues which will:
“(a) Provide for reimbursement from all new water customers for the cost of installation of new
services and meters;
“(b) Provide for revenue from all water deliveries and services performed by the district;
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“(c) Pay the operating expenses of the district;
“(d) Provide for the maintenance and repairs of the works;
“(e) Provide a reasonable surplus for replacement, extension and improvements; and
“(f) Pay the interest and principal and provide a sinking fund for the payment of debts of the district as
they become due and establish a fund for reasonable reserves. (As amended by Sec. 17, PD
768; Sec. 7, PD 1479)
SEC. 38. Service and Stand-by Charges. Sewer. A district may prescribe and collect rates and other
charges for sewer services furnished. A district may also fix, levy and collect a sewerage and wastewater
service stand-by or availability charge in the event sewer service is available and no connection is made.
Such rates and charges may be collected with the water charges of the district. In the event of failure to pay
the whole or any part thereof, district may discontinue any and all services for which such bill is rendered,
including water, shall not be construed to prohibit the district from collecting rates and other charges in any other
lawful manner. (As amended by Sec. 18, PD 768; Sec. 7, PD 1479)
SEC. 39. Production Assessment. In the event the board of a district finds, after notice and hearing,
that production of groundwater by other entities within the district for commercial or industrial uses in injuring or
reducing the district’s financial condition, the board may adopt and levy a groundwater production assessment
to compensate for such loss. In connection therewith, the district may require necessary reports by the operator
of any commercial or industrial well. Failure to pay said assessment shall constitute an invasion of the waters
of the district and shall entitle this district to an injunction and damages pursuant to Section 32 of this Title. (As
amended by Sec. 18, PD 768; Sec. 7, PD 1479)
SEC. 40. Assessment and Stand-By Charges. In order to obtain capital to finance installation of
sanitary sewerage, a district shall have the power to establish by resolution of the board of directors the area
to be benefited from such facilities. After a hearing and upon notice to all parties affected, the district may levy
and collect assessment, or stand-by charges based upon available capacities or upon selected characteristics
of property benefited by said improvements, as determined by the board. Said characteristics may include, but
not limited to, the effective length of property fronting upon the proposed improvement or in terms of the area
contained within the boundary of said property. Said assessment, if unpaid, shall be and constitute a lien on the
land assessed. (As amended by Sec. 18, PD 768; Sec. 7, PD 1479)
SEC. 41. Disposition of Income. The income of the district shall be disposed of according to the
following priorities:
“First, to pay its contractual and statutory obligations and to meet its essential current operating
expenses.
“Second, to allocate at least fifty percent (50%) of the balance exclusively as a reserve for debt
service and operating and maintenance, to be used for such purposes only during periods of
calamities, force majeure or unforeseen events.
“Third, to allocate the residue as a reserve exclusively for expansion and improvement of its
physical facilities. (As amended by Sec. 8, PD 1479)
CHAPTER X Changes in Organization
SEC. 42. Exclusion of a Territory. Any territory within the boundary of district may be excluded by
15
resolution of the board of directors after notice to land owners within the territory proposed to be excluded, and
upon a finding that said lands do not and will not benefit by reason of their inclusion within the district. A certified
copy of said resolution of exclusion shall be filed in the same manner and become effective in accordance with
the provisions applicable to the resolution forming the district. (As amended by Sec. 18, PD 768)
SEC. 43. Annexations and Deannexations. The Administration may, after notice to property owners
within the territory proposed for annexation or deannexation, and following a hearing, make findings of benefit
or potential benefit, and thereafter, require annexation or deannexation shall be accomplished by adoption and
filing of an appropriate resolution in the same manner as the filing of the resolution forming a district or of
exclusion, as the case may be. (As amended by Sec. 18, PD 768)
SEC. 44. Consolidation and Joint Operation. The Administration may require the merger or
consolidation of the facilities or operations of two or more districts formed pursuant to the levy, in the event that
the Administration shall have determined, following a hearing, that such merger or consolidation is in the best
interest of the residents in the districts involved. (As amended by Sec. 18, PD 768)
SEC. 45. Dissolution. A district may be dissolved by resolution of its board of directors filed in the
manner of filing the resolution forming the district: Provided, however, That prior to the adoption of any such
resolution: (1) another public entity has acquired the assets of the district and has assumed all obligations and
liabilities attached thereto; (2) all bondholders and other creditors have been notified and they consent to said
transfer and dissolution; and (3) a court of competent jurisdiction has found that said transfer and dissolution are
in the best interest of the public. (As amended by Sec. 19, PD 768)
CHAPTER XI Protection to Districts
SEC. 46. Exemption of Taxes. A district shall (1) be exempt from paying income taxes, and (2) shall
be exempt from the payment of (a) all National Government, local government and municipal taxes and fees,
including any franchise, filing, recordation, license or permit fees or taxes and any fees, charges or costs
involved in any court of administrative proceeding in which it may be a party and (b) all duties or imposts on
imported machinery, equipment and materials required for its operations. (As amended by Sec. 20, PD 768)
SEC. 47. Exclusive Franchise. No franchise shall be granted to any other person or agency for
domestic, industrial or commercial water service within the district or any portion thereof unless and except to
the extent that the board of directors of said district consents thereto by resolution duly adopted, such resolution,
however, shall be subject to review by the Administration. (As amended by Sec. 20, PD 768; Sec. 9, PD
1479)
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TITLE III
LOCAL WATER UTILITIES
ADMINISTRATION LAW
CHAPTER I Title
SEC. 48. Title. This Title of the Provincial Water Utilities Act of 1973 shall be known and referred to as
the “Local Water Utilities Administration Law”. (As amended by Sec. 20, PD 768)
CHAPTER II Charter and Purpose
SEC. 49. Charter. There is hereby chartered, created and formed a government corporation to be known
as the ‘Local Water Utilities Administration’ which is hereby attached to the Office of the President. The
provisions of this Title shall be and constitute the charter of the Administration. (As amended by Sec. 21, PD
768)
SEC. 50. Purposes. The Administration shall primarily be a specialized lending institution for the
promotion, development and financing of local water utilities. In the implementation of its functions, the
Administration shall, among others: (1) prescribe minimum standards and regulations in order to assure
acceptable standards of construction materials and supplies, maintenance, operation, personnel training, accounting
and fiscal practices for local water utilities; (2) furnish technical assistance and personnel training programs for
local water utilities; (3) monitor and evaluate local water standards; and (4) effect system integration, joint
investment and operation, district annexation and deannexation whenever economically warranted. (As
CHAPTER III - Board of Trustees

SEC. 51. Composition. The Board of Trustees of the Administration shall be composed of a chairman
and four other members, all of whom shall be citizens of the Philippines.
One trustee at any time shall have at least ten years experience in banking, finance or business. One
trustee at any time shall possess sufficient background in the field of economics; one trustee at any time shall
have experience in management or systems operations. Two trustees at any time shall be civil or sanitary
engineers with experience related to water supply or wastewater operations. Not more than one trustee may
represent a private investor-owned utility. No elected official shall be entitled to act as a trustee. At least three
of the trustees must be employees of the National Government.
The General Manager shall be ex-officio member of the Board. (As amended by Sec. 23, PD 768)
SEC. 52. Appointment and Term of Office. The trustees, with exception of the ex-officio member,
shall be appointed by the President of the Philippines. They shall serve a term of five years each: Provided,
That of the first four initially appointed, one shall serve a term of five years, another for four years, the third for
three years, and the fourth for two years. Trustees may be removed for cause only.
The incumbent trustees holding office as such upon the effectivity of this amendment shall continue to hold
such office until the expiration of their original terms as defined in their appointments. (As amended by Sec. 24,
PD 768)
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SEC. 53. Vacancies. Vacancies in the Board of Trustees for any reason whatsoever shall be filled by
the President of the Philippines in like manner as in the case of new appointments but the trustees so appointed
shall serve only the unexpired portion of the term of the trustees substituted for. (As amended by Sec. 25, PD
768)
SEC. 54. Powers. All of the business and affairs of the Administration shall be carried on and its powers
shall be exercised by and through the Board of Trustees. The function of the trustees, however, shall be to
establish policy, not to engage in the detailed management of the Administration. (As amended by Sec. 25, PD
768)
SEC. 55. Compensation. The Trustees shall each receive a per diem as may be fixed by the Board
for each meeting actually attended by them: Provided, That the total of such per diem in any one month for each
Trustee, shall not exceed the equivalent of the per diems for four meetings; Provided, further, That per diems in
excess of three hundred pesos per meeting shall be subject to approval of the Office of the President; and
Provided, finally, That, in addition, each Trustee shall be reimbursed his expenses incurred in connection with
the performance of his functions in such amount as may be determined by the Board of Trustees. (As amended
by Sec. 26, PD 768)
CHAPTER IV By-Laws
SEC. 56. By-Laws. The Board of Trustees shall adopt a code of by-laws for the conduct of the affairs of
the Administration which may be amended from time to time by the affirmative vote of four Trustees.
Except as otherwise provided herein, the organizational structure and staffing pattern of the Administration,
the qualification of the appointive officers and employees, the powers and responsibilities of the officers, the
internal procedure of the Administration, and such other matters relative to the organization, management and
conduct of the affairs of the Administration shall be as provided in the by-laws; Provided, That, the appointment
of and disciplinary action against officers and employees of the Administration shall be done and effected
pursuant to guidelines established by the Board of Trustees. (As amended by Sec. 26, PD 768)
CHAPTER V Officers and Employees
SEC. 57. Officers. The Board shall elect a chairman from among its members. In addition, the Board
shall select a secretary and a corporate legal counsel, each of whom shall not be a trustee. (As amended by
Sec. 28, PD 768)
SEC. 58. The Administrator and Other Employees. The Trustees shall select a general manager
who shall not come from the appointed trustees. The general manager shall receive compensation in an
amount as may be fixed by the Board, subject to the approval of the President of the Philippines, but in no case
less than fifty-four thousand pesos per annum. The general manager shall employ and appoint all additional
personnel; Provided, That the appointment of personnel in the supervisory level shall be subject to confirmation
by the Board. (per E. O. 68 dated 11-21-86)
The incumbent manager holding office as such upon the effectivity of this amendment shall continue to hold
such office unless sooner terminated by competent authority. (As amended by Sec. 29, PD 768)
The regular professional and technical personnel of the Administration shall be exempt from WAPCO and
Civil Service rules and regulations; Provided, That the personnel shall be entitled to the benefits and privileges
normally accorded to government employees, such as retirement, GSIS insurance, leave and similar matters.
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CHAPTER VI Powers
SEC. 59. General Corporate Powers. The Administration shall have all the powers which are
expressly granted to it under this Title, or which are necessary, implied from, or incidental to the powers and
purposes herein stated.
SEC. 60. Borrowing and Security Therefor. The Administration may borrow funds as authorized in
Section 72 of this Title, and issue as security therefor debentures or other evidence of indebtedness constituting
a lien on any and all securities, covenants and obligations of local water utilities held by the Administration as
security for loans made to such local water utilities. (As amended by Sec. 30, PD 768)
SEC. 61. Loans. Administration may make loans from its Revolving Loan Funds to qualified local water
utilities, upon the following conditions and pursuant to the following procedures:
(a) Qualification of Borrower. Before any loan may be granted, the local water utility shall (1) hold
a valid certificate of conformance or a conditional certificate of Compliance from the Administration,
and (2) meet such other and further loan qualification requirements as the trustees may establish;
(b) Feasibility Study. A feasibility study which may be required by the Administration for any
proposed project for which loan funds are sought may be undertaken by the water district, the
Administration or by a consultant prequalified by the Administration; (As amended by Sec. 31,
PD 768)
(c) Security. The Administration may take as security for such loans the authorized bonds or other
evidence of debt by the water district and a mortgage on its properties; (As amended by Sec. 31,
PD 768)
(d) Loan Documents and Procedures. The Board of Trustees shall adopt rules, loan documents
and procedures to be used in the granting of loans. Such rules shall include provisions for
security, payment and default. (As amended by Sec. 31, PD 768)
(e) Default. In the event of default by the local water district in the payment of principal or interest
on its outstanding bonds or other obligations to the Administration, the latter may, without the
necessity of judicial process, take over and operate the facilities or properties of the district. For
this purpose, the Administration may designate its employees or any person or organization to
assume both the policy-making authority and the powers of management, including but not
limited to, the establishment of water rates and service charges, the dismissal and hiring of
personnel, the purchase of equipment, supplies or materials and such other actions as may be
necessary to operate the water district efficiently. Such policy-making and management
prerogatives may be returned to the Board of Directors and the general manager of the water
district, respectively, when all of its overdue accounts have been paid, all its reserve requirements
have been satisfied and all the causes of default have been met. (As amended by Sec. 31, PD
768)
(f) Funding of Loan. When a loan is made to local water utility, the necessary amount of such loan
shall be programmed to assure completion of the project for which such loan was granted. (As
SEC. 62. Regulations. Administration shall have the power and duty to establish standards for local
19
water utilities and adopt rules and regulations for the enforcement thereof. The Administration shall vigorously
consult and coordinate its actions with all government agencies active in the areas of public works and all other
concerned agencies in the promulgation of these standards. Said standards and regulations shall include the
following:
(a) Water Quality. Minimum drinking water standards including a uniform testing and reporting
system. Said standards shall include bacteriological, chemical and physical parameters;
(b) Design and Construction. Minimum criteria for the design and construction of new or additional
facilities for water supply, treatment, transmission and distribution, and for wastewater collection,
treatment and disposal;
(c) Equipment, Materials and Supplies. Standards for the optimum selection and effective
utilization of equipment, materials and supplies by local water and sewer utilities;
(d) Operations and Maintenance. Standardized procedures for operating and maintaining equipment
and facilities;
(e) Personnel. The training of personnel who operate or manage local water utilities. For this
purpose, at least a majority of the personnel of a local water district must have satisfactorily
completed appropriate training courses, programs or seminars conducted by the Administration,
and must be holders of a certificate of completion or competence, as the case may be, before a
certificate of conformance is issued to the water district.
For certain positions which the Administration may specify, only those persons possessing, or in the
case of subsequent appointments, only persons who will undergo training and shall have obtained within
six months, a certificate of completion or competence, as the case may be shall be appointed. (As
(f) Organization. Organizational and institutional criteria to assure independent operation and
funding of local water utilities.
(g) Accounting. A uniform accounting system with uniform chart of accounts. Said standard and
regulations also shall include stipulated levels of internal reporting to local water utility management.
SEC. 63. Rate Review. Any publicly-owned local utility holding a Certificate of Conformance or
Conditional Certificate of Conformance from the Administration is hereby declared exempt from the jurisdiction
of the Public Service Commission or its successor. Any rates or charges established by such local water
utility shall be adequate to provide for:
(a) Reimbursement from all new water customers for the cost of installing new services and meters;
(b) Revenue from all water deliveries and services performed by the district;
(c) Annual operating expense of the district;
(d) The maintenance and repairs of the works;
(e) A reasonable surplus for replacement, extension and improvement; and
(f) Payment of the interest and principal and provide a sinking fund for payment of debts of the district
as they become due and establish a fund for reasonable reserves. (As amended by Sec. 33, PD
768)
20
The rates or charges established by such local district, after hearing shall have been conducted for the
purpose, shall be subject to review by the Administration to establish compliance with the above-stated
provisions. Said review of rates or charges shall be executory and enforceable after the lapse of seven
calendar days from posting thereof in a public place in the locality of the water district, without prejudice
to an appeal being taken therefrom by a water concessionaire to the National Water Resources Council
whose decision thereon shall be appealable to the Office of the President. An appeal to the Council shall
be perfected within thirty days after the expiration of the seven-day period of posting. The Council shall
decide on appeal within thirty days from perfection. (As amended by Sec. 11, PD 1479)
SEC. 64. Technical Assistance. Administration shall provide technical assistance to local water
utilities; their boards, management and operating personnel, to aid in meeting the standards and criteria
established by the Administration, and to encourage the upgrading of the operations and management of such
local water utilities. Said technical assistance should consist of those matters which are practical to finance or
develop on a national basis but are beyond the capability of the individual local water utility, as such.
SEC. 65. Training Programs. Administration shall establish training programs and seminars for
personnel of local water utility. Programs shall include the areas of utility management, operation, maintenance
and customer service. Administration shall have the power to issue Certificate of Completion for the satisfactory
completion of a specified course of instruction. In the case of operational personnel, Administration may conduct
appropriate examinations and issue corresponding Certificates of Competence to assist local water utilities to
meet the personnel standards set pursuant to Section 62 (d) of this Title.
SEC. 66. Certificate of Conformance. Administration may require report from all water utilities,
conduct field investigations and review all available information to determine whether there has been conformance
to its standards and procedures established pursuant to Section 62 of this Title. Upon a finding that said
standards are met, the Administration shall issue a Certificate of Conformance to any such water utility. Said
Certificate maybe revoked after due notice and hearing as to any local water utility which thereafter fails to
continue conformance with such standards. A Conditional Certificate of Conformance may be issued where
procedures and practices have been adopted to assure conformances and reasonable time schedule has been
adopted. Failure to reach conformance as contemplated shall be cause for revocation of such conditional
certificate, without hearing or other cause.
CHAPTER VII Financial Provisions
SEC. 67. Capital Stock. The authorized capital of the Local Water Utilities Administration is Two Billion,
Five Hundred Million Pesos divided into Twelve Million Five Hundred Thousand share of stock with a par
value of Two Hundred Pesos per share which shall be subscribed by the National Government and opened
to subscription by private investors or government financial institutions. (As amended by Sec. 34, PD 768;
Sec. 12, PD 1479)
SEC. 68. Payment for National Government Shares. All amounts previously released by the
National Government to the Revolving Fund of the Administration shall be credited as payment for subscriptions
to shares of stock at par value. Whatever balance remaining of said subscription shall be paid from a continuing
appropriation which is hereby made out of any funds in the National Treasury not otherwise appropriated, such
annual appropriation to be programmed and released in accordance with pertinent budget laws: Provided, That
this continuing appropriation shall remain in force until the balance of the unpaid subscription of the government
to the capital stock of the administration have been paid in full. (As amended by Sec. 34, PD 768; Sec. 13, PD
1479)
SEC. 69. Operational Expenses. The Board of Trustees is hereby authorized to appropriate out of any
21
funds of the Administration, such amounts as it may deem necessary for the operational and other expenses of
the Administration including the purchase of necessary equipment. (As amended by Sec. 34, PD 768)
SEC. 70. Charges. To the extent that the Administration performs services for the benefit and at the
request of a local water district or utility or a number of water districts, utilities or organizations, it may levy fees
or charges for such service rendered.
Charges may include an assessment against water districts or utilities to finance those functions of the
Administration which are of general benefit to water districts or utilities including, but not limited to, general
administration and supervision. (As amended by Sec. 34, PD 768)
SEC. 71. Receipt and Investment of Funds. Whenever the Administration receives money whether
as payment for subscriptions to shares of stock, principal repayments, interest income, payment for services
rendered or for any purpose whatsoever, it shall issue its own receipts and provide for their safekeeping and
investment under policy guidelines as may be established by the Board of Trustees in accordance with
Department of Finance regulations. (As amended by Sec. 34, PD 768)
SEC. 72. Domestic Borrowing Authority. The Administration shall have the authority to borrow
money from all domestic loan sources whether government or private; Provided, That its loans outstanding from
domestic sources at any one time shall not exceed One Billion Pesos. (As amended by Sec. 36, PD 768)
SEC. 73. Authority to Contract Foreign Loan. The Administration is hereby authorized to contract
loans, credits, in any convertible foreign currency or capital goods, and to incur indebtedness from time to time
with foreign governments, or any international financial institutions or fund sources, including suppliers credits
or deferred payment arrangements, the total outstanding amount of which, excluding interests, shall not exceed
five hundred million United States dollars or the equivalent thereof in other currencies, on terms and conditions
promulgated by the Secretary of Finance and the Monetary Board for the accomplishment of its objectives; and
to enter into and execute contracts and other documents specifying such terms and conditions.
The President of the Philippines, by himself, or through his duly authorized representative, is hereby
authorized to negotiate and contract with foreign governments or any international financial institution or
fund sources in the name and on behalf of the Administration, one or several loans, for the purpose of
implementing the Administration’s program for the promotion and development of local water utilities
through the Administration’s financing or lending operations.
The President of the Philippines, by himself, or through his duly authorized representative, is hereby
further authorized to guarantee, absolutely and unconditionally, as primary obligor and not as mere surety,
in the name and on behalf of the Republic of the Philippines, the payments of the loans, credits and
indebtedness up to the amount herein authorized, over and above the amounts which the President of the
Philippines pursuant to loan agreements entered into with foreign governments or any international
financial institution or fund sources.
The loans, credits and indebtedness contracted under this section shall be in accord with the provisions
of the Foreign Borrowing Act as amended. (As amended by Sec. 36, PD 768)
SEC. 74. Depository for Reserves. Any local water utility which is accumulating reserves for capital
improvement may make specified time deposits of the same to the Administration in the manner authorized for
banks in handling trust funds. Such funds shall not be used for operating purposes by the Administration. (As
22
SEC. 75. Control and Supervision over All Releases of Appropriations for Waterworks and
Sewerage Systems. Since the Administration is charged with the development of local water utilities, funds
from prior and future appropriations of the National Government for waterworks and sewerage systems in
cities, municipalities, and provinces that are covered by duly formed water districts shall be released directly
to the Administration for the account of the water districts concerned. The Administration may, however, draw
from such account fees and charges for services rendered to the water districts concerned as specified in
Section 70 of this Title. (As amended by Sec. 38, PD 768)
SEC. 76. Government Assistance to Non-Viable Districts. There shall be included in the General
Appropriations Act an outlay in the form of National Government aid or subsidy to meet the financial requirements
in the development of water supply systems of water districts which are determined by the Administration to be
financially non-viable in such amount as the Administration may recommend, but not exceeding the cost of
source development and main transmission line. Releases of such funds shall be made directly to the
Administration. In the development of such water supply systems, the Administration shall exert all efforts to
bring the levels of service within the cost repayment capacity of the beneficiaries. (As amended by Sec. 14,
PD 1479)
SEC. 77. Special Projects. Whenever required by the National Government to provide funding
requirements for the development of waterworks and sewerage systems in municipalities, cities or provinces,
or portions thereof not yet covered by a duly formed water district, an outlay shall be provided in the General
Appropriations Act, upon the request of the Administration, separate from its capitalization, for the purposes of
meeting the financial requirements of the project: Provided, however, That in the event that funds for the project
have already been appropriated by the National Government, such funds shall be released directly to the
Administration. Expenses incurred by the Administration for the service rendered may be drawn from such
account as provided in Section 70 of this Title. (As amended by Sec. 14, PD 1479)
SEC. 78. Exemption from All Taxes, Duties, Fees, Imposts and Other Charges by the
Government. To enable the Administration to pay its indebtedness and obligations, and in furtherance and
effective implementation of the policies and objectives of this Decree, the Administration is hereby declared
exempt;
“(a) From the payment of all taxes, fees, imposts, charges, costs and restrictions by the Government
of the Republic of the Philippines, its provinces, cities, municipalities, and other government
agencies and instrumentalities, and filing and service fees and other charges of courts in any court
or administrative proceedings in which it may be a party;
“(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government,
its provinces, cities, municipalities and other government agencies and instrumentalities; and
“(c) From all import duties, compensating taxes, wharfage fees on import of foreign goods and
equipment required for its operations and projects. (As amended by Sec. 38, PD 768; Sec. 15,
PD 1479)
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)
23
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.
Done in the City of Manila, this 25th day of May in the year of Our Lord, nineteen hundred and seventy-
three.
SGD) FERDINAND E. MARCOS

By the President:
(SGD) ALEJANDRO MELCHOR

Executive Secretary
Presidential Decree No. 768 was promulgated on August 15, 1975.
Presidential Decree No. 1479 was promulgated on June 11, 1978.
24
section 2
MALACAÑANG
MANILA
Presidential Decree No. 768
AMENDING PRESIDENTIAL DECREE NO.198 ENTITLED “DECLARING A NATIONAL POLICY

FAVORING LOCAL OPERATION AND CONTROL OF WATER SYSTEMS; AUTHORIZING THE
FORMATION OF LOCAL WATER DISTRICTS AND PROVIDING FOR THE GOVERNMENT AND
ADMINISTRATION OF SUCH DISTRICT; CHARTERING A NATIONAL ADMINISTRATION TO
FACILITATE IMPROVEMENT OF LOCAL WATER FACILITIES; GRANTING SAID ADMINISTRATION
SUCH POWERS AS ARE NECESSARY TO OPTIMIZE PUBLIC SERVICE FROM WATER UTILITY
OPERATIONS, AND FOR OTHER PURPOSES.”
WHEREAS, it is the primary concern of the government to develop an orderly and effective system of
local water utilities, particularly in the area of water supply and sewerage services;
WHEREAS, under Presidential Decree No. 198, the Government declared as a national policy the local
operation and control of water systems; authorized the formation of local water districts; provided for the
administration of such districts, and chartered a national administration to facilitate improvement of local water
utilities;
WHEREAS, there is need to amend certain provisions of Presidential Decree No. 198 in order to hasten
and make more effective the implementation and administration of the program of total development and
expansion of domestic water systems;
NOW, THEREFORE, I, FERDINAND E . MARCOS, President of the Philippines, by virtue of the

powers vested in me by the Constitution, do hereby order and decree the amendment of Presidential Decree
No. 198, as follows:
SECTION 1. Section 3, paragraph (b) of Presidential Decree No. 198, is hereby amended to read as
follows:
“(b) Appointing Authority. The person empowered to appoint the members of the Board of
Directors of a local water district depending upon the geographic coverage and population make-
up of the particular district. In the event that more than seventy-five percent of the total active
water service connections of a local water district are within the boundary of any city or
municipality, the appointing authority shall be the mayor of the city or municipality, as the case
may be; otherwise, the appointing authority shall be the governor of the province within which the
district is located: Provided, That if the existing waterworks system in the city or municipality
established as a water district under this Decree is operated and managed by the province, initial
appointment shall be extended by the governor of the province. Subsequent appointments shall
be as specified herein.
“If portions of more than one province are included within the boundary of the district, and the appointing
authority is to be the governor, then the power to appoint shall rotate between the governors involved with the
initial appointments made by the governor in whose province the greatest number of service connections
exists.”
25
SEC. 2. Paragraphs (b), (c), (e) and last paragraph of Section 6 of the same decree, are hereby
amended to read as follows:
“x x x”
“(b) A description of the boundary of the district. In the case of a city or municipality, such boundary may
include all lands within the city or municipality. A district may include one or more municipalities, cities or
provinces, or portions thereof: Provided, That such municipalities, cities or provinces, or portions thereof, cover
a contiguous area.
“(c) A statement transferring any and all waterworks and/or sewerage facilities managed, operated by or
under the control of such city, municipality or province to such district pursuant to a contract authorized by this
Title.
“x x x”
“(e) The names of the initial directors of the district with the date of expiration of the term of office for each
which shall be on the 31st of December of first, second, or third even-numbered year after assuming office, as
set forth in Section 11 hereof.
“x x x”
“If two or more cities, municipalities or provinces, or any combination thereof, desire to form a single
district, a similar resolution shall be adopted in each city, municipality and province; or the city, municipality or
province in which 75% of the total active service connections are situated shall pass an initial resolution to be
concurred in by the other cities, municipalities or provinces.”
SEC. 3. Section 7 of the same decree is hereby amended to read as follows:
“SEC. 7. Filing of Resolution. A certified copy of the resolution or resolutions forming a district shall be
forwarded to the office of the Secretary of the Administration. If found by the Administration to conform to the
shall be deemed duly formed and existing upon the date of such filing. A certified copy of said resolution showing
the filing stamp of the Administration shall be maintained in the office of the district. Upon such filing, the local
government or governments concerned shall lose ownership, supervision and control or any right whatsoever
over the district except as provided herein.”
“SEC. 8. Number and Qualifications. The Board or Directors of a district shall be composed of five
member a representative of business, commercial, or financial organizations, one member a representative of
educational institutions and one member a representative of women’s organizations. No public officials shall
serve as director.”
“SEC. 11. Term of Office. Of the five initial directors of each newly-formed district, two shall be
office after the initial terms shall be for six years commencing on January 1 of odd-numbered years. Directors
26
may be removed for cause only, subject to review and approval of the Administration.”
“SEC. 12. Vacancies. In the event of a vacancy in the board of directors occurring more than six months
before expiration of any director’s term, the remaining directors shall within 30 days, serve notice to or request
the secretary of the district for nominations and within 30 days thereafter a list of nominees shall be submitted
to the appointing authority for his appointment of a replacement director from the list of nominees. In the absence
of such nominations, the appointing authority shall make such appointment. If within 30 days after submission
to him of a list of nominees the appointing authority fails to make an appointment, the vacancy shall be filled from
such list by a majority vote of the remaining members of the Board of Directors constituting a quorum.
Vacancies occurring within the last six months of an unexpired term shall also be filled by the Board in the
above manner. The director thus appointed shall serve the unexpired term only.
“SEC. 13. Compensation. Each director shall receive a per diem, to be determined by the board, for
each meeting of the board actually attended by him, but no director shall receive per diems in any given month
in excess of the equivalent of the total per diem of four meetings in any given month. No director shall receive
other compensation for services to the district.
“Any per diem in excess of P50 shall be subject to approval of the Administration.”
“SEC. 20. System of Business Administration. The Board shall, as soon as practicable, prescribe
and define by resolution a system of business administration and accounting for the district, which shall be
patterned upon and conform to the standards established by the Administration. Auditing shall be performed by
a certified public accountant not in the government service. The Administration may, however, conduct annual
audits of the fiscal operations of the district to be performed by an auditor retained by the Administration.
Expenses incurred in connection therewith shall be borne equally by the water district concerned and the
Administration.”
“SEC. 23. The General Manager. At the first meeting of the board, or as soon thereafter as practicable,
the board shall appoint, by a majority vote, a general manager and shall define his duties and fix his
compensation. Said officer shall serve at the pleasure of the board.”
“SEC. 24. Duties. The duties of the General Manager and other officers shall be determined and specified
from time to time by the board. The general manager, who shall not be a director, shall have full supervision and
control of the maintenance and operation of water district facilities, with power and authority to appoint all
personnel of the district: Provided, That the appointment of personnel in the supervisory level shall be subject
to approval by the board.”
SEC. 11. Paragraph (b) of Section 31 of the same decree is hereby amended to read as follows:
“(b) In-Lieu Share. - As an incident to the acquisition of the existing water system of a city, municipality,
or province, a district may enter into a contract to pay in-lieu share for such utility plant, an annual amount
27
not exceeding three percent (3%) of the district’s gross receipts from water sales in any year: Provided,
however, That no contract of this nature shall be executed during the first five years of the existence of the
district; and Provided, further, That the Board of Directors shall determine that such contract will not
adversely affect or impair the fiscal position and operations of the district as verified by the Administration.”
SEC. 12. Section 32 of the same decree is hereby amended by adding four new subsections
therein, which shall read as follows:
“SEC. 32. Protection of Waters and, Facilities of District. A district shall have the right to:
“(a) Commence, maintain, intervene in, defend and compromise actions or proceedings to prevent
interference with or deterioration of water quality or the natural flow of any surface, stream or
ground water supply which may be used or useful for any purpose of the district or be a common
benefit to the lands or its inhabitants. The ground water within a district is necessary to the
performance of the district’s powers and such district is hereby authorized to adopt rules and
regulations subject to the approval of the National Water Resources Council governing the drilling,
maintenance and operation of wells within its boundaries for purposes other than a single family
domestic use on overlying land. Any well operated in violation of such regulations shall be
deemed in interference with the waters of the district.
“(b) Require a developer or builder of any structure within the service areas of the district to extend or
connect its pipeline facilities to the district facilities whenever such development or structure is
within one hundred meters of existing district facilities or whenever the district is willing to extend
its facilities within one hundred meters of said development or structure. For the purpose of this
section, development shall include the subdivision of land for any purpose other than agricultural
purpose, and structure shall mean any building or facility to be used for residential, commercial or
industrial purposes.
“(c) Prohibit any person, firm or corporation from vending, selling, or otherwise disposing of water for
public purposes within the service area of the district where district facilities are available to
provide such service, or fix terms and conditions by permit for such sale or disposition of water.
“(d) Safeguard and protect the use of its waters. For this purpose, any person who installs any water
connection without the previous authority from the water district established under this Decree;
tampers water meters or uses jumpers or other devices whereby water is stolen; steals or pilfers
water or water meters; knowingly possesses stolen or pilfered water or water meters shall, upon
conviction, be punished by prision correccional in its minimum period or a fine ranging from two
thousand pesos to six thousand pesos, or both. If the violation is committed with the connivance
or permission of an employee or officer of the water district, an employee or officer shall, upon
conviction, be punished by a penalty one degree lower than prision correccional in its minimum
period and forthwith be dismissed and perpetually disqualified from employment in any utility or
service company owned or controlled by the government.”
Sec. 13. Section 34 of the same decree is hereby amended to read as follows:
“SEC. 34. Receipt, Deposit and Payment of District Funds. The treasurer shall receive, to the credit
of the district and in trust for its use and benefit, all monies belonging to the district. All monies belonging to the
District shall, where practicable, be deposited by the treasurer in the Philippine National Bank.”
SEC. 14. Section 35 of the same decree is hereby repealed.
28
SEC. 15. Section 36 of the same decree is hereby amended to be known as Section 35 to read
as follows:
“SEC. 35. Bonds or Other Evidence of Indebtedness. A district may borrow money to raise funds
to pay all cost of any public improvements authorized by this Title and may issue negotiable or non-negotiable
bonds, promissory notes or other evidence of indebtedness to support such borrowings. These obligations may
be secured by a mortgage, pledge, deed of trust of or any other encumbrance upon any of its then owned or
after-acquired real or personal property, assets or revenues and the same shall constitute a lien as to the
principal and interest thereon, on all such property, assets or revenues. The interests on such bonds or notes
are exempt from all taxes, duties, fees, imposts, or other charges of the national or local governments.”
SEC. 16. Two new sections are hereby inserted to be known as Section 36 and Section 37,
respectively, which shall read as follows:
“SEC. 36. Authority for Subsequent Borrowings. Where a water district has borrowed money from
the Administration, the district shall not borrow money or incur further obligations from other sources without the
prior written consent of the Administration.
“SEC. 37. Default. In the event of the default by the district in the payment of principal or interest on its
outstanding bonds or other obligations, any bondholder or creditor shall have the right to bring an action before
the appropriate court to compel the payment of such obligation. If the bondholder or creditor concerned is the
Administration, it may, without the necessity of judicial process, take over and operate the entire facilities,
systems or properties of the district. For this purpose, the Administration may designate its employees or any
person or organization to assume all powers of policy-decision and the powers of management and administration,
including but not limited to the establishment of water rates and charges, the dismissal and hiring of personnel,
the purchase of supplies, equipment and materials and such other actions as may be necessary to operate the
utility efficiently.”
SEC. 17. Section 37 of the same decree is hereby amended to read as Section 38 as follows:
“SEC. 38. Rates and Charges. Water. A district may sell water under its control, under schedules of
rates and charges as may be determined by the Board, to any and all water users within the district. Said
schedule may provide for differential rates for different categories of use and different quantity blocks. The district,
as far as practicable, shall fix such rates and charges for water as will result in revenues which will:
“(a) Provide for reimbursement from all new water customers for the cost of installation of new
services and meters;
“(b) Provide for revenue from all water deliveries and services performed by the district;
“(c) Pay the operating expenses of the district;
“(d) Provide for the maintenance and repairs of the works;
“(e) Provide a reasonable surplus for replacement, extension and improvements; and
“(f) Pay the interest and principal and provide a sinking fund for the payment of debts of the district as
they become due and establish a fund for reasonable reserves.”
SEC. 18. Sections 38, 39, 40, 41, 42 and 43 of the same decree are hereby amended to read as
Sections 39, 40, 41, 42, 43 and 44, respectively.
29
“SEC. 45. Dissolution. A district may be dissolved by resolution of its board of directors filed in the
manner of filing the resolution forming the district: Provided, however, That prior to the adoption of any such
resolution: (1) another public entity has acquired the assets of the district and has assumed all obligations and
liabilities attached thereto; (2) all bondholders and other creditors have been notified and they consent to said
transfer and dissolution, and (3) a court of competent jurisdiction has found that said transfer and dissolution are
in the best interest of the public.”
SEC. 20. Sections 45, 46 and 47 of the same decree are hereby amended to read as Sections 46,
47 and 48, respectively.
“SEC. 49. Charter. There is hereby chartered, created and formed a government corporation to be
known as the ‘Local Water Utilities Administration’ which is hereby attached to the Office of the President. The
provisions of this Title shall be and constitute the charter of the Administration.”
“SEC. 50. Purposes. The Administration shall primarily be a specialized lending institution for the
promotion, development and financing of local water utilities. In the implementation of its functions, the Administration
shall, among others: (1) prescribe minimum standards and regulations in order to assure acceptable standards
of construction materials and supplies, maintenance, operation, personnel training, accounting and fiscal
practices for local water utilities; (2) furnish technical assistance and personnel training programs for local water
utilities; (3) monitor and evaluate local water standards; and (4) effect systems integration, joint investment and
operations, district annexation and deannexation whenever economically warranted.”
“SEC. 51. Composition. The Board of Trustees of the Administration shall be composed of a chairman
and four other members, all of whom shall be citizens of the Philippines.
“One trustee at any time shall have at least ten years experience in banking, finance or business.
One trustee at any time shall possess sufficient background in the field of economics; one trustee at any
time shall have experience in management or systems operations. Two trustees at any time shall be civil
or sanitary engineers with experience related to water supply or wastewater operations. Not more than
one trustee may represent a private investor-owned utility. No elected official shall be entitled to act as a
trustee. At least three of the trustees must be employees of the National Government.
“The General Manager shall be ex-officio member of the Board.”
SEC.24. Section 51 of the same decree is hereby amended to read as Section 52 as follows:
“SEC. 52. Appointment and Term of Office. The trustees, with exception of the ex-officio member,
shall be appointed by the President of the Philippines. They shall serve a term of five years each: Provided,
That of the first four initially appointed, one shall serve a term of five years, another for four years, the third for
three years, and the fourth for two years. Trustees may be removed for cause only.
“The incumbent trustees holding office as such upon the effectivity of this amendment shall continue
to hold such office until the expiration of their original terms as defined in their appointments.”
30
SEC. 25. Sections 52 and 53 of the same decree are hereby amended to read as Sections 53 and
54, respectively.
“SEC. 55. Compensation. The Trustees shall each receive a per diem as may be fixed by the Board
for each meeting actually attended by them: Provided, That the total of such per diem in any one month for each
Trustee, shall not exceed the equivalent of the per diems for four meetings; Provided, further, That per diems
in excess of three hundred pesos per meeting shall be subject to approval of the Office of the President; and
Provided, finally, That, in addition, each Trustee shall be reimbursed his expenses incurred in connection with
the performance of his functions in such amount as may be determined by the Board of Trustees.”
SEC. 27. Sections 55 and 56 of the same decree are hereby amended to read as Section 56 as
follows:
“SEC. 56. By-Laws. The Board of Trustees shall adopt a code of by-laws for the conduct of the affairs of
the Administration which may be amended from time to time by the affirmative vote of four Trustees.
“Except as otherwise provided herein, the organizational structure and staffing pattern of the Administration,
the qualification of the appointive officers and employees, the powers and responsibilities of the officers,
the internal procedure of the Administration, and such other matters relative to the organization, management
and conduct of the affairs of the Administration shall be as provided in the by-laws; Provided, That, the
appointment of and disciplinary action against officers and employees of the Administration shall be done
and effected pursuant to guidelines established by the Board of Trustees.”
“SEC. 57. Officers. The Board shall elect a chairman from among its members. In addition, the Board
shall select a secretary and a corporate legal counsel, each of whom shall not be a trustee.”
SEC. 29. The first paragraph of Section 58 of the same decree is hereby amended to read as
follows:
“SEC. 58. The General Manager and Other Employees. The Trustees shall select a general manager
who shall not come from the appointed trustees. The general manager shall receive compensation in an amount
as may be fixed by the Board, subject to the approval of the President of the Philippines, but in no case less
than fifty-four thousand pesos per annum. The general manager shall employ and appoint all additional
personnel; Provided, That the appointment of personnel in the supervisory level shall be subject to confirmation
by the Board.
“The incumbent manager holding office as such upon the effectivity of this amendment shall continue
to hold such office unless sooner terminated by competent authority.”
“SEC. 60. Borrowing and Security Therefor. The Administration may borrow funds as authorized in
Section 72 of this Title, and issue as security therefor debentures or other evidence of indebtedness constituting
a lien on any and all securities, covenants and obligations of local water utilities held by the Administration as
security for loans made to such local water utilities.”
SEC. 31. Paragraphs (b), (c), and (d) of Section 61 of the same decree are hereby amended to
31
read, and a new paragraph is hereby inserted which shall read, as follows:
“SEC. 61. Loans x x x x
“(a) x x x x
“(b) Feasibility Study. A feasibility study which may be required by the Administration for any
proposed project for which loan funds are sought may be undertaken by the water district, the
Administration or by a consultant prequalified by the Administration.
“(c) Security. The Administration may take as security for such loans the authorized bonds or other
evidence of debt by the water district and a mortgage on its properties;
“(d) Loan Documents and Procedures; The Board of Trustees shall adopt rules, loan documents
and procedures to be used in the granting of loans. Such rules shall include provisions for security,
payment and default.
“(e) Default. In the event of default by the local water district in the payment of principal or interest on
its outstanding bonds or other obligations to the Administration, the latter may, without the necessity
of judicial process, take over and operate the facilities or properties of the district. For this purpose,
the Administration may designate its employees or any person or organization to assume both the
policy-making authority and the powers of management, including but not limited to, the establishment
of water rates and service charges, the dismissal and hiring of personnel, the purchase of
equipment, supplies or materials and such other actions may be necessary to operate the water
district efficiently. Such policy-making and management prerogatives may be returned to the
Board of Directors and the general manager of the water district, respectively, when all of its
overdue accounts have been paid, all its reserve requirements have been satisfied and all the
causes of default have been met.”
SEC. 32. Paragraph (e) Section 62 of the same decree is hereby amended to read as follows:
“SEC. 62. Regulations. x x x x
“(e) Personnel. The training of personnel or operate or manage local water utilities. For this purpose,
at least a majority of the personnel of a local water district must have satisfactorily completed
appropriate training courses, programs or seminars conducted by the Administration, and must be
holders of a certificate of completion or competence, as the case may be, before a certificate of
conformance is issued to the water district.
“For certain positions which the Administration may specify, only those persons possessing, or in the
case of subsequent appointments, only persons who will undergo training and shall have obtained within
six months, a certificate of completion or competence, as the case may be, shall be appointed.”
SEC. 33. Paragraph (f) of Section 63 of the same decree is hereby amended to read as follows:
“SEC. 63. Rate Review. x x x x
“(f) Payment of the interest and principal and provide a sinking fund for payment of debts of the district
as they become due and establish a fund reasonable reserves.
“The rates or charges established by such local water district shall be subject to review by the
Administration to establish compliance with the above-stated provisions. Said review of rates or any
32
charges therein shall be by the Board of Trustees, and in writing.”
SEC. 34. Sections 67, 68 and 69 of the same decree are hereby repealed, and five new sections
are hereby substituted therefor to be known as Section 67, 68, 69, 70 and 71, which shall be read as
follows:
“SEC. 67. Capital Stock. The authorized capital of the Local Water Utilities Administration is Five
Hundred Million Pesos divided into Five Million shares of stock with a par value of One Hundred Pesos per
share, which shall be subscribed by the National Government and opened to subscription by private investors
or government financial institutions.
“SEC. 68. Payment for National Government Shares. All amounts previously released by the
National Government to the Revolving Fund of the Administration shall be credited as payment for subscriptions
to shares of stock at par value. Thereafter, the National Government shall for each year beginning with fiscal
year 1975-76 subscribe and pay for the necessary capitalization as programmed during the year; Provided,
That the amount programmed for each year shall not be less than Fifty Million Pesos.
“SEC. 69. Operational Expenses. The Board of Trustees is hereby authorized to appropriate out of any
funds of the Administration, such amounts as it may deem necessary for the operational and other expenses of
the Administration including the purchase of necessary equipment.
“SEC. 70. Charges. To the extent that the Administration performs services for the benefit and at the
request of a local water district or utility or a number of water districts, utilities or organizations, it may levy fees
or charges for such service rendered.
“Charges may include an assessment against water districts or utilities to finance those functions of
the Administration which are of general benefit to water districts or utilities including, but not limited to,
general administration and supervision.
“SEC. 71. Receipt and Investment of Funds. Whenever the Administration receives money whether
as payment for subscriptions to shares of stock, principal repayments, interest income, payment for services
rendered or for any purpose whatsoever, it shall issue its own receipts and provide for their safekeeping and
investment under policy guidelines as may be established by the Board of Trustees in accordance with
Department of Finance regulations.”
SEC. 35. Section 70 of the same decree is hereby repealed.
SEC. 36. Section 71 of the same decree is hereby amended to read as Sections 72 and 73 as
follows:
“SEC. 72. Domestic Borrowing Authority. The Administration shall have the authority to borrow
money from all domestic loan sources whether government or private; Provided, That its loans outstanding
from domestic sources at any one time shall not exceed One Billion Pesos.”
“SEC. 73. Authority to Contract Foreign Loan. The Administration is hereby authorized to contract
loans, credits, in any convertible foreign currency or capital goods, and to incur indebtedness from time to time
with foreign governments, or any international financial institutions or fund sources, including suppliers credits
or deferred payment arrangements, the total outstanding amount of which, excluding interests, shall not exceed
five hundred million United States dollars or the equivalent thereof in other currencies, on terms and conditions
promulgated by the Secretary of Finance and the Monetary Board for the accomplishment of its objectives; and
to enter into and execute contracts and other documents specifying such terms and conditions.
33
“The President of the Philippines, by himself, or through his duly authorized representative, is hereby
authorized to negotiate and contract with foreign governments or any international financial institution or
fund sources in the name and on behalf of the Administration, one or several loans, for the purpose of
implementing the Administration’s program for the promotion and development of local water utilities
through the Administration’s financing or lending operations.
“The President of the Philippines, by himself or through his duly authorized representative, is hereby
further authorized to guarantee, absolutely and unconditionally, as primary obligor and not as mere surety,
in the name and on behalf of the Republic of the Philippines, the payments of the loans, credits and
indebtedness up to the amount herein authorized, over and above the amounts which the President of the
Philippines pursuant to loan agreements entered into with foreign governments or any international
financial institution or fund sources.
“The loans, credits and indebtedness contracted under this section shall be in accord with the
provisions of the Foreign Borrowing Act as amended.”
“SEC. 74. Depository for Reserves. Any local water utility which is accumulating reserves for capital
improvement may make specified time deposits of the same to the Administration in the manner authorized for
banks in handling trust funds. Such funds shall not be used for operating purposes by the Administration.”
SEC. 38. Two new sections are hereby inserted to be known as Section 75 and Section 76,
which shall read as follows:
“SEC. 75. Control and Supervision over All Releases of Appropriations for Waterworks and
Sewerage Systems. Since the Administration is charged with the development of local water utilities, funds
from prior and future appropriations of the National Government for waterworks and sewerage systems in
cities, municipalities, and provinces that are covered by duly formed water districts shall be released directly
to the Administration for the account of the water districts concerned. The Administration may, however, draw
from such account fees and charges for services rendered to the water district concerned as specified in Section
70 of this Title.
“SEC. 76. Exemption from All Taxes, Duties, Fees, Imposts and Other Charges by the
Government. To enable the Administration to pay its indebtedness and obligations, and in furtherance and
effective implementation of the policies and objectives of this Decree, the Administration is hereby declared
exempt:
“(a) From the payment of all taxes, fees, imposts, charges, costs and restrictions by the Government
of the Republic of the Philippines, its provinces, cities, municipalities, and other government
agencies and instrumentalities, and filing and service fees and other charges of courts in any court
or administrative proceedings in which it may be a party;
“(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government,
its provinces, cities, municipalities and other government agencies and instrumentalities; and
“(c) From all import duties, compensating taxes, wharfage fees on import of foreign goods and
equipment require for its operations and projects.”
34
SEC. 39. Sections 73 and 74 of the same decree are hereby amended to read as Section 77 and
78, respectively.
SEC. 40. This Decree shall take effect immediately.
Done in the City of Manila, this 15th day of August in the year of Our Lord, nineteen hundred and seventy-
five.
By the President:
(SGD) ALEJANDRO MELCHOR

Executive Secretary
35
section 3
Office of the President of the Philippines
Malacañang
Letter of Instructions No. 683
ESTABLISHING BASIC POLICIES FOR

THE WATER SUPPLY SECTOR
WHEREAS, drinking water is a basic requirement to sustain life;
WHEREAS, only about 40 percent of the population of the Philippines is presently served with public
water supply systems;
WHEREAS, it is primary concern of the Government in promoting the welfare of the people to hasten the
availability of water supply services in the whole country, with special attention to the rural areas;
WHEREAS, the approved Philippine Development Plan for 1978-1987, therefore, aims to increase the
public water supply coverage to about 85 percent of the total Philippine population within ten years;
WHEREAS, there is a need to restructure the water supply sector so that gaps and overlaps in
responsibility will be eliminated; and
WHEREAS, it is necessary to establish certain basic policies to attain these objectives in the most
efficient manner;

powers vested in me by the Constitution, do hereby order the implementation of the following basic policies for
the water supply sector;
(1) The attainment of complete coverage of water supply services for the whole country is a declared
policy of the State and shall be effected primarily through:
(a) The rationalization of the organizational structure for the water supply sector; (b) The formation of
water districts, associations, cooperatives or corporations for the construction, operation and
maintenance of water supply systems in preference to systems directly operated and managed
by local governments; and (c) The encouragement of self-help and self-reliant water supply
projects.
(2) Agencies involved in water supply shall strive to attain financial independence, thereby minimizing
Government subsidy, by increasing their own internal revenue generation capabilities and by providing
services within the cost repayment capabilities of the beneficiaries.
(3) The levels of water supply service to be developed shall vary according to technical economic,
organizational and financial consideration. These levels of service are as follows:
Level I: Point sources (such as rain collector, wells and springs); generally for rural areas where houses
are scattered too thinly to justify a distribution system.
36
Level II: Communal faucet systems; generally for rural areas where houses are clustered densely
enough to justify a piped distribution system with a faucet provided for a number of households.
Level III: Individual house connections; generally for urban areas.
(4) The rationalization of the water supply sector structure shall be pursued in accordance with the
following strategies:
(a) The Metropolitan Waterworks and Sewerage System shall concentrate its operations in Metropolitan
Manila and other contiguous areas that may later be included in its service coverage.
(b) The Local Water Utilities Administration shall promote water districts in cities and municipalities with
population of at least 20,000 each. It will support these water districts through institutional, technical
and financial assistance.
(c) The Bureau of Public Works shall be mainly responsible for the construction of wells and
development of springs in rural areas.
(d) The Department of Local Governments and Community Development shall be responsible for the
formations of water associations and cooperatives that will operate and maintain water supply
systems for communities in the provinces covered by the Provincial Development Assistance
Program (PDAP). It shall provide institutional, technical and financial support to these associations
and cooperatives.
(e) A Task Force on Rural Water Supply under the National Water Resources Council shall, until such
time that a permanent institution of the Government to handle the rural water supply sector is
evolved, be responsible for the formation of water associations and cooperatives that will construct,
operate, and maintain water supply systems in the rural areas of non-PDAP provinces. This Task
Force shall provide technical, institutional, and financial assistance to these associations and
cooperatives. It shall also make studies and recommendations on the appropriate institution that
will eventually be responsible for the rural water supply sector on a permanent basis. The Task
Force is hereby authorized to call upon any agency of the Government for assistance in
accomplishing its tasks.
(5) The National Water Resources Council shall be responsible for coordinating the implementation of
the above policies. It shall submit to the President of the Philippines, periodic reports on the status on the
entire water supply sector and the performance of each of the above agencies in relation to the overall
policy framework for water supply.
Done in the City of Manila, this 30th day of March in the year of Our Lord, nineteen hundred and seventy
eight.
(SGD) FERDINAND E. MARCOS

President of the Philippines
37
section 4
Malacañang
PROVIDING MEASURES TO CONTROL

AND REGULATE INCREASES IN WATER RATES
WHEREAS, there is a need to help depressed or newly formed water districts develop their financial
viability, but at the same time avoid too abrupt increases in their water rates;
WHEREAS, there is a need to prescribe certain measures whereby increases of rates imposed by water
districts are controlled or regulated;
powers vested in me by the Constitution, do hereby order the implementation of the following measures in the
operation and development of water districts;
(1) The Local Water Utilities Administration (LWUA) shall:
(a) Implement a socialized pricing scheme for water districts in setting up water rates whereby the
more affluent, heavy users pay more per unit than the low income, minimal users of water, LWUA
shall prescribe guidelines for this purpose;
(b) Provide institutional development services to water districts free of charge;
(c) Grant capital improvement loans to water districts on concessionary terms;
(d) On a case-to-case basis, defer loan amortization payments until improvements are completed and
actually in operation;
(e) Assist water districts improve their operational efficiency through skills/managerial training and
systems development;
(f) Ensure that the water rates are not abruptly increased beyond the water users ability to pay, seeing
to it that each increase if warranted, does not exceed 60% of the current rate;
(g) Limit charges for feasibility and engineering studies to not more than 15% of the actual construction
cost of the project implemented;
(h) Require 100% metering to insure correct charging of water actually consumed and to discourage
its wasteful use;
(i) Where indicated, consider the adoption of lower standards of service, especially for the marginally
feasible areas, to reduce project cost; and;
38
(j) Reduce required reserves accumulation for meeting emergency and contingency needs as will be
appropriate.
(2) The National Electrification Administration and the National Power Corporation shall study ways
and means to grant special reduced electric power rates to the water districts concerned. Where feasible,
the National Power Corporation shall also determine ways by which the water districts can directly tap
the power lines.
(3) The Budget Commission shall provide in the national government annual operating budget starting
with CY 1979 such amount as shall be requested by LWUA and recommended by the National
Economic and Development Authority for the conduct of feasibility studies for the development of
waterworks systems in established water districts. Such national government contribution shall not
constitute part of LWUA’s equity nor shall it be charged against the water districts.
(4) The local government concerned shall provide subsidy for the operation of depressed or newly
created water districts. The subsidy shall initially be up to the level provided by the local government for
the operation of the system immediately prior to the formation of the water district. The subsidy, however,
shall be reduced as the water services and revenues improve as determined by LWUA.
(5) The water district concerned shall conduct public hearings prior to any proposed increase in water
rates.
Done in the City of Manila, this 1st day of June in the year of Our Lord, nineteen hundred and seventy
eight.
(SGD) FERDINAND E . MARCOS

39
section 5
MALACAÑANG
Manila
PRESIDENTIAL DECREE NO. 1479
FURTHER AMENDING PRESIDENTIAL DECREE NO. 198 OTHERWISE KNOWN AS THE

“PROVINCIAL WATER UTILITIES ACT OF 1973”, AS AMENDED BY PRESIDENTIAL DECREE NO.
768
WHEREAS, Presidential Decree No. 198, as amended by Presidential Decree No. 768, declares as a
national policy the local operation and control of water systems; authorizes the formation of local water districts;
provides for the administration of such districts and charters a national administration to facilitate improvement
of local water utilities;
WHEREAS, in order to accelerate the development and expansion of domestic water systems, there is
a need to further amend certain provisions of Presidential Decree No. 198, as amended.
NOW, THEREFORE, I FERDINAND E. MARCOS, President of the Philippines, by virtue of the

powers vested in me by the Constitution, do hereby order and decree the further amendment of Presidential
Decree No. 198, as follows:
SECTION 1. The first paragraph of Section 6 of Presidential Decree No. 198, as amended, is hereby
amended to read as follows:
“SEC. 6. Formation of District. This Act is the source of authorization and power to form and maintain
a district. For purposes of this Act, a district shall be considered as a quasi-public corporation performing public
imposed, under this Act.
xxx
(c) A statement completely transferring any and all waterworks and/or sewerage facilities managed,
operated by or under the control of such city, municipality or province to such district upon the filing
of resolution forming the district.
xxx
SEC. 2. A new sentence is hereby added to Section 8 of the same decree to read as follows:
“SEC. 8. Number and Qualifications. xxx Provided, however, that if the district has availed of the
financial assistance of the Administration, the Administration may appoint any of its personnel to sit in the board
of directors with all the rights and privileges appertaining to a regular member, for such period as the indebtedness
remains unpaid, in which case the board shall be composed of six members.”
SEC. 3. Section 25 of the same decree is hereby amended.
40
“SEC. 25. Authorization. The district may exercise all the powers which are expressly granted by this
Title or which are necessarily implied from, or incidental to the powers and purposes herein stated. For the
exercise thereof shall, however, be subject to review by the Administration.”
SEC. 5. Sections 27, 28, 29, 30 and 31 of the same decree are hereby amended to read as
Section 26, 27, 28, 29 and 30, respectively.
SEC. 6. Section 32 of the same decree is hereby amended to read as Section 31.
“SEC. 31. Protection of Waters and Facilities of District. A district shall have the right to
xxx
(e) take over the management, administration, operation and maintenance of all watersheds within its
territorial boundaries.”
SEC. 7. Sections 33, 34, 35, 36, 37, 38, 39, 40 and 41 of the same decree are hereby amended to
read as Sections 32, 33, 34, 35, 36, 37, 38, 39 and 40, respectively.
SEC. 8. A new section is hereby inserted to be known as Section 41 which shall read as
follows:
“SEC. 41. Disposition of Income. The income of the district shall be disposed of according to the
following priorities:
“First, to pay its contractual and statutory obligations and to meet its essential current operating
expenses.
“Second, to allocate at least fifty percent (50%) of the balance exclusively as a reserve for debt
service and operating and maintenance, to be used for such purposes only during periods of calamities,
force majeure or unforeseen events.
“Third, to allocate the residue as a reserve exclusively for expansion and improvement of its physical
facilities.”
“SEC. 47. Exclusive Franchise. No franchise shall be granted to any other person or agency for
domestic, industrial or commercial water service within the district or any portion thereof unless and except to
the extent that the board of directors of said district consents thereto by resolution duly adopted, such resolution,
however, shall be subject to review by the Administration.”
“SEC. 61. Loans.
xxx
(f) Funding of Loan. When a loan is made to local water utility, the necessary amount of such loan
shall be programmed to assure completion of the project for which such loan was granted.”
SEC. 11. The last paragraph of Section 63 of the same decree is hereby amended to read as
follows:
41
“SEC. 63. Rate Review.
xxx
The rates or charges established by such local district, after hearing shall have been conducted for the
purpose, shall be subject to review by the Administration to establish compliance with the above-stated
provisions. Said review of rates or charges shall be executory and enforceable after the lapse of seven
calendar days from posting thereof in a public place in the locality of the water district, without prejudice
to an appeal being taken therefrom by a water concessionaire to the National Water Resources Council
whose decision thereon shall be appealable to the Office of the President. An appeal to the Council shall
be perfected within thirty days after the expiration of the seven-day period of posting. The Council shall
decide on appeal within thirty days from perfection.
“SEC. 67. Capital Stock. The authorized capital of the Local Water Utilities Administration is Two Billion
Five Hundred Million Pesos divided into Twelve Million Five Hundred Thousand share of stock with a par
value of Two Hundred Pesos per share which shall be subscribed by the National Government and opened
to subscription by private investors or government financial institutions.”
“SEC. 68. Payment for National Government Shares. All amounts x x x at par value. Whatever
balance remaining of said subscription shall be paid from a continuing appropriation which is hereby made out
of any funds in the National Treasury not otherwise appropriated, such annual appropriation to be programmed
and released in accordance with the pertinent budget laws: Provided, That this continuing appropriation shall
remain in force until the balance of the unpaid subscription of the government to the capital stock of the
administration have been paid in full.”
SEC. 14. New sections are hereby inserted to be known as Section 76 and 77, respectively,
which shall read as follows:
“SEC. 76. Government Assistance to Non-Viable Districts. There shall be included in the General
Appropriations Act an outlay in the form of National Government aid or subsidy to meet the financial requirements
in the development of water supply systems of water districts which are determined by the Administration to be
financially non-viable in such amount as the Administration may recommend, but not exceeding the cost of
source development and main transmission line. Releases of such funds shall be made directly to the
Administration. In the development of such water supply systems, the Administration shall exert all efforts to
bring the levels of service within the cost repayment capacity of the beneficiaries.”
“SEC. 77. Special Projects. Whenever required by the National Government to provide funding
requirements for the development of waterworks and sewerage systems in municipalities, cities or provinces,
or portions thereof not yet covered by a duly formed water district, an outlay shall be provided in the General
Appropriations Act, upon the request of the Administration, separate from its capitalization, for the purposes of
meeting the financial requirements of the project: Provided, however, That in the event that funds for the project
have already been appropriated by the National Government, such funds shall be released directly to the
Administration. Expenses incurred by the Administration for the service rendered may be drawn from such
account as provided in Section 70 of this Title.”
SEC. 15. Sections 76, 77, 78 and 79 of the same decree are hereby amended to read as Sections
78, 79, 80 and 81, respectively.
42
SEC. 16. This Decree shall take effect immediately.
Done in the City of Manila, this 11th day of June in the year of Our Lord, nineteen hundred and seventy-
eight.
By the President:
(SGD) JUAN C. TUVERA

Presidential Assistant
43
section 6
Malacañang
RELATIVE TO RELIABLE WATER SUPPLY AT REASONABLE RATES IN THE COUNTRYSIDE
TO: The Minister of Public Works, Transportation and Communications
The Chairman and Members, National Water Resources Council
The General Manager, Local Water Utilities Administration
The Chairman and General Managers of Water Districts

All Others Concerned
WHEREAS, the provision of adequate water supply at reasonable rates is a primary objective of the New
Society;
WHEREAS, the implementation of a national program for improved water supply is the responsibility of
local organizations particularly Water Districts and local government units, assisted by the National Water
Resources Council and the Local Water Utilities Administration;
WHEREAS, there is need to improve planning, monitoring and implementing activities at all levels, and
to reduce water rates to minimum levels;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, do hereby order and
instruct:
1. The Local Water Utilities Administration and Water Districts shall immediately review the
facilities design, implementation plan and rates and fees charged, with the objective of:
a. Reducing water rates to minimum levels;
b. Eliminating unnecessary fees and regulatory measure;
c. Implementing expansion plans in phases so as to keep in step with growth in demand without
resulting in excess capacity;
d. Reducing cost of construction to a minimum
2. The National Water Resources Council shall eliminate all unnecessary regulatory measures
and fees particularly on privately owned and dug wells.
3. The Local Water Utilities Administration and each Water Districts shall prepare a public
education program which shall concentrate on the need and methods for water conservation, water rates,
water facilities requirements and need for financing, and other related aspects of Water District operations.
44
They shall, in addition, prepare a comprehensive program and system of public consultation, both
formally in hearings and informally through an education program, when considering increases in water
rates, particularly at the time when Water Districts initiate operation.
4. The Local Water Utilities Administration shall review the composition of the Board of each
Water District to make sure that consumers are properly and fully represented. It shall initiate the
necessary changes.
5. The Local Water Utilities Administration shall assess the terms of loans extended to Water
Districts, including maturity, amortization schedule, and interest rates, for the purpose of enabling Water
Districts to meet their obligations without charging excessive water rates to consumers.
6. The Committee on National Aid to Local Government Units shall study and recommend to
the President a program for communal water pumps to serve areas not covered by Water District or
which do not otherwise have an adequate water supply. The program shall provide for a sharing of
construction cost among national and local government units, whereby the national government shall
provide counterpart funding assistance, charged to the funds provided as Aid to Local Government Units
under PD No. 144.
Done in the City of Manila, this 28th day of September, nineteen hundred and seventy-eight.
(SGD) FERDINAND E. MARCOS

45
section 7
EXECUTIVE ORDER NO. 68
MODIFYING PRESIDENTIAL DECREE NO. 198, AS AMENDED
WHEREAS, the Local Water Utilities Administration (LWUA) was created by virtue of Presidential
Decree No. 198, as amended;
WHEREAS, Section 58 of Presidential Decree No. 198, as amended, provides for a General Manager
of the Local Water Utilities Administration (LWUA) while Section 23 of the said Decree likewise provides for a
general manager for a local water district;
WHEREAS, there is a need to distinguish the General Manager of the Local Water Utilities Administration
(LWUA) from the general managers of the various local water districts by changing the designation of the
General Manager of the Local Water Utilities Administration (LWUA);
WHEREAS, as a consequence, the title of the next in rank of the General Manager of the Local Water
Utilities Administration (LWUA) should be similarly changed;
NOW, THEREFORE, I, CORAZON C. AQUINO, President of the Philippines, do hereby order:
SECTION 1. Section 58 of Chapter 58, Title III of Presidential Decree No. 198, as amended, is hereby
modified to the extent that the title of the head of the Local Water Utilities Administration (LWUA) is changed from
General Manager to Administrator and the officer(s) next in rank shall be designated as Deputy Administrator(s).
DONE in the City of Manila, this 21st day of November, in the year of Our Lord, Nine Hundred and
Eighty-Six.
(SGD) CORAZON C. AQUINO

46
section 8
SUPREME COURT RULING ON WATER DISTRICTS AS GOVERNMENT-OWNED AND
CONTROLLED CORPORATIONS
Republic of the Philippines

Supreme Court
Manila
EN BANC
DAVAO CITY WATER DISTRICT,

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

COMMISSION ON AUDIT
Respondents
G. R. Nos. 95237-38
Present:
FERNAN, C. J.,
NARVASA,
MELENCIO-HERRERA,
GUTIERREZ, JR.,
CRUZ,
47
PARAS,
FELICIANO,
PADILLA,
BIDIN,
SARMIENTO,
GRIÑO-AQUINO,
MEDIALDEA,
REGALADO &
DAVIDE, JR., JJ.
Promulgated: September 13, 1991

———————————————————————
DECISION
MEDIALDEA, J.:
Whether or not the Local Water Districts formed and created pursuant to the provisions of Presidential
Decree No. 198, as amended, are government-owned or controlled corporations with original charter falling
under the Civil Service Law and/or covered by the visitorial power of the Commission on Audit is the issue
which the petitioners entreat this Court, en banc to shed light on.
Petitioners are among the more than five hundred (500) water districts existing throughout the country
formed pursuant to the provisions of Presidential Decree No. 198, as amended by Presidential Decrees Nos.
768 and 1479, otherwise known as the “Provincial Water Utilities Act of 1973.”
Presidential Decree No. 198 was issued by the then President Ferdinand E. Marcos by virtue of his
legislative power under Proclamation No. 1981. It authorized the different local legislative bodies to form and
create their respective water districts through a resolution they will pass subject to the guidelines, rules and
regulations therein laid down. The decree further created and formed the “Local Water Utilities Administration”
(LWUA), a national agency attached to the National Economic and Development Authority (NEDA), and
granted with regulatory power necessary to optimize public service from water utilities operations.
The respondents, on the other hand, are the Civil Service Commission (CSC) and the Commission on
Audit (COA), both government agencies and represented in this case by the Solicitor General.
On April 17, 1989, this Court ruled in the case of Tanjay Water District v. Gabaton, et al. (G.R. No. 63742,
172 SCRA 253):
Significantly, Article IX (B), Section 2(1) of the 1987 Constitution provides that the Civil Service embraces
all branches, subdivisions, instrumentalities, and agencies of the government, including government-owned
and controlled corporations with original charters. Inasmuch as PD No. 198, as amended, is the original charter
of the petitioner, Tanjay Water District, and respondent Tarlac Water District and all water districts in the country,
they come under the coverage of the Civil Service Law, rules and regulations. (Sec. 35, Art. VIII and Sec. 37,
Art. IX of PD No. 807).”
As an offshoot of the immediately cited ruling, the CSC issued Resolution No. 90-575, the dispositive
portion of which reads:
“NOW THEREFORE, in view of all the foregoing, the Commission resolved, as it hereby resolves, to
rule that Local Water Districts, being quasi-public corporations created by law to perform public services and
supply public wants, the matter of hiring and firing of its officers and employees should be governed by the Civil
48
Service Law, rules and regulations. Henceforth, all appointments of personnel of the different local water districts
in the country shall be submitted to the Commission for appropriate action.” (Rollo. p.22)
However, on May 16, 1990, in G.R. No. 85760, entitled “Metro Iloilo Water District v. National Labor
Relations Commission, et al.,” the Third Division of this Court ruled in a minute resolution:
“x x x
“Considering that PD 198 is a general legislation empowering and/or authorizing government agencies
and entities to create water districts, said PD 198 cannot be considered as the charter itself creating the Water
Districts. Public respondent NLRC did not commit any grave abuse of discretion in holding that the operative
act, that created the Metro Iloilo Water District was the resolution of the Sangguniang Panglungsod of Iloilo City.
Hence, the employees of Water Districts are not covered by Civil Service Laws as the latter do (sic) not have
original charters.
In adherence to the just cited ruling, the CSC suspended the implementation of Resolution No. 90-575 by
issuing Resolution No. 90-770 which reads:
“xxx
“NOW, THEREFORE, in view of all the foregoing, the Commission resolved to rule, as it hereby rules,
that the implementation of CSC Resolution No. 575 dated June 27, 1990 be deferred in the meantime pending
clarification from the Supreme Court as regards its conflicting decisions in the cases of Tanjay Water District v.
Gabaton and Metro Iloilo Water District v. National Labor Relations Commission.” (p.26, Rollo)
In the meanwhile, there exists a divergence of opinions between COA on one hand, and the LWUA on
the other hand, with respect to the authority of COA to audit the different water districts.
COA opined that the audit of the water districts is simply an act of discharging the visitorial power vested
in them by law (letter of COA to LWUA, dated August 13, 1985, pp. 29-30, Rollo).
On the other hand, LWUA maintained that only those water districts with subsidies from the government
fall within the COA’s jurisdiction and only to the extent of the amount of such subsidies, pursuant to the provision
of the Government Auditing Code of the Phils.
It is observed that just like the question of whether the employees of the water districts falls under the
coverage of the Civil Service Law, the conflict between the water districts and the COA is also dependent on
the final determination of whether or not water districts are government-owned or controlled corporations with
original charter. The reason behind this is Sec. 2(1), Article IX-D of the 1987 Constitution which reads:
“Sec. 2(1) The Commission on Audit shall have the power, authority and duty to examine, audit, and
settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property,
owned or held in trust by, or pertaining to the Government, or any of its subdivisions, agencies or instrumentalities,
including government-owned or controlled corporations with original charters, and on a post audit basis.”
(emphasis supplied).
Petitioners’ main argument is that they are private corporations without original charter, hence they are
outside the jurisdiction of respondents CSC and COA. Reliance is made on the Metro Iloilo case which
declared petitioners as quasi-public corporations created by virtue of PD 198, a general legislation which cannot
be considered as the charter itself creating the water districts. Holding on to this ruling, petitioners contend that
they are private corporations which are only regarded as quasi-public or semi-public because they serve public
interest and convenience and that since PD 198 is a general legislation, the operative act which created a water
district is not the said decree but the resolution of the sanggunian concerned.
49
After a fair consideration of the parties’ arguments coupled with a careful study of the applicable laws as
well as the constitutional provisions involved. We rule against the petitioners and reiterate Our ruling in Tanjay
case declaring water districts government-owned or controlled corporations with original charter.
As early as Baguio Water District v. Trajano, et al., (G. R. No. 65428, February 20, 1984, 127 SCRA
730), We already ruled that a water district is a corporation created pursuant to a special law – P. D. No. 198,
as amended, and as such its officers and employees are covered by the Civil Service Law.
In another case (Hagonoy Water District v. NLRC, G. R. No. 81490, August 31, 1988, 165 SCRA 272),
We ruled once again that local water districts are quasi-public corporations whose employees belong to the
Civil Service. The Court’s pronouncement in this case, as extensively quoted in the Tanjay case, supra, partly
reads:
“The only question here is whether or not local water districts are government-owned or controlled
corporations whose employees are subject to the provisions of the Civil Service Law. The Labor Arbiter
asserted jurisdiction over the alleged illegal dismissal of private respondent Villanueva by relying on Section 25
of Presidential Decree No. 198, known as the Provincial Water Utilities Act of 1973” which went onto effect in
25 May 1973, and which provides as follows:
Exemption from Civil Service. The district and its employees, being engaged in a proprietary function,
are hereby exempt from the provision of the Civil Service Law. Collective Bargaining shall be available only
to personnel below supervisory levels: Provided, however, That the total of all salaries, wages, emoluments,
benefits or other compensation paid to all employees in any month shall not exceed fifty percent (50%) of
average net monthly revenue. Said net revenue representing income from water sales and sewerage service
charges, less pro-rata share of debt service and expenses for fuel or energy for pumping during the preceding
fiscal year.
The Labor Arbiter failed to take into account the provisions of Presidential Decree No. 1479, which went
into effect on 11 June 1978. PD.No. 1479 wiped away Section 25 of PD 198 quoted above, and Section 26 of
PD 198 was renumbered as Section 25 in the following manner:
“Section 26 of the same decree PD 198 is hereby amended to read as Section 25 as follows:
Section 25. Authorization. The district may exercise all the powers which are expressly granted by
this Title or which are necessarily implied from or incidental to the powers and purposes herein stated. For the
exercise thereof shall, however, be subject to review by the Administration.
Thus, Section 25 of PD 198 exempting the employees of water districts from the application of the Civil
Service Law was removed from the statute books:
“ x x x.
“We grant the petition for the following reasons:
“1. Section 25 of PD No. 198 was repealed by Section 3 of PD No. 1479; Section 26 of PD No. 198 was
amended to read as Sec. 25 by Sec. 4 of PD No. 1479. The amendatory decree took effect on June 11, 1978.
“x x x
“3. The BWD is a corporation created pursuant to a special law PD No. 198, as amended. As such its
officers and employees are part of the Civil Service (Sec. 1, Art. XII-B, [1973] Constitution: PD No. 868).”
50
Ascertained from a consideration of the whole statute, PD 198 is a special law applicable only to the
different water districts created pursuant thereto. In all its essential terms, it is obvious that it pertains to a special
purpose which is intended to meet a particular set of conditions and circumstances. The fact that said decree
generally applies to all water districts throughout the country does not change the fact that PD 198 is a special
law. Accordingly, this Court’s resolution in Metro Iloilo case declaring PD 198 as a general legislation is hereby
abandoned.
By “government-owned or controlled corporation with original charter,” We mean government owned or

controlled corporation created by special law and not under the Corporation Code of the Philippines. Thus, in
the case of Lumanta v. NLRC (G. R. No. 82819, February 8, 1989, 170 SCRA 79, 82), We held:
“The Court, in National Service Corporation (NASECO) v. National Labor Relations Commission, G.
R. No. 69870, promulgated on 29 November 1988, quoting extensively from the deliberations of the 1986
Constitutional Commission in respect of the intent and meaning of the new phrase ‘with original charter’ in effect
held that government-owned and controlled corporations with original charter refer to corporations chartered by
special law as distinguished from corporations organized under out general incorporation statute – the Corporation
Code. In NASECO, the company involved had been organized under the general incorporation statute and
was a subsidiary of the National Investment Development Corporation (NIDC) which in turn was a subsidiary
of the Philippine National Bank, a bank chartered by a special statue. Thus, government-owned or controlled
corporations like NASECO are effectively, excluded from the scope of the Civil Service.” (emphasis supplied)
From the foregoing pronouncement, it is clear that what has been excluded from the coverage of the CSC
are those corporations created pursuant to the Corporation Code. Significantly, petitioners are not created under
the said code, but on the contrary, they were created pursuant to a special law and are government primarily
by its provision.
No consideration may thus be given to petitioners’ contention that the operative act which created the
water districts are the resolutions of the respective local sanggunians and that consequently, PD 198, as
amended, cannot be considered as their charter.
It is to be noted that PD 198, as amended is the source of authorization and power to form and maintain
a district. Section 6 of said decree provides:
“Sec. 6. Formation of District. This Act is the source of authorization and power to form and maintain
a district. Once formed, a district is subject to the provisions of this Act and not under the jurisdiction of any
political subdivision.
x x x.”
Moreover, it must be observed that PD 198, contains all the essential terms necessary to constitute a
charter creating a juridical person. For example, Section 6(a) provides for the name that will be used by a water
district, thus:
“Section 7. x x x. To form a district, the legislative body of any city, municipality or province shall enact
a resolution containing the following:
“(a) The name of the local water district, which shall include the name of the city, municipality, or
province, or region thereof, served by said system, followed by the words ‘Water District.’
It also prescribes for the numbers and qualifications of the members of the Board of Directors:
51
“Sec. 8. Number and Qualifications. The Board of Directors of a district shall be composed of five
member a representative of business, commercial or financial organizations, one member a representative of
educational institutions and one member a representative of women’s organization. No public official shall serve
as director. Provided, however, that if the district has availed of the financial assistance of the Administration, the
Administration may appoint any of its personnel to sit in the board of directors with all the rights and privileges
appertaining to a regular member for such period as the indebtedness remains unpaid in which case the board
shall be composed of six members;” (as amended by PDs Nos. 768 & 1479)
the manner of their appointment and nominations;

“Section 9. Appointment. Board members shall be appointed by the appointing authority. Said
appointments shall be made from a list of nominees, if any, submitted pursuant to Section 10. If no nominations
are submitted, the appointing authority shall appoint any qualified person of the category to the vacant position;
“Section 10. Nominations. On or before October 1 of each even-numbered year, the secretary of the
district shall contact each known organization, association, or institution being represented by the director
whose term will expire on December 31 and solicit nominations from these organizations to fill the position for
the ensuing term. One nomination may be submitted in writing by each such organization to the Secretary of
the district on or before November 1 of such year: This list of nominees shall be transmitted by the Secretary
of the district to the office of the appointing authority on or before November 15 of such year and he shall make
his appointment from the list submitted on or before December 15. In the event the appointing authority fails to
make his appointments on or before December 15, selection shall be made from said list of nominees by
majority vote of the seated directors of the district constituting a quorum. Initial nominations for all five seats of
the board shall be solicited by the legislative body or bodies at the time of adoption of the resolution forming the
district. Thirty days thereafter, a list of nominees shall be submitted to the provincial governor in the event the
resolution forming the district is by a provincial board, or the mayor of the city or municipality in the event the
resolution forming the adoption of the district is by the city or municipal board of councilors, who shall select the
initial directors therefrom within 15 days after receipt of such nominations;
their terms of office:

Section 11. Term of Office. Of the five initial directors of each newly formed district, two shall be
office after the initial terms shall be for six years commencing on January 1 of odd-numbered years. Directors
may be removed for cause only, subject to review and approval of the Administration;” (as amended by PD
768)
the manner of filling up vacancies:

“Section 12. Vacancies. In the event of a vacancy in the board of directors occurring more than six
months before expiration of any director’s term, the remaining directors shall within 30 days, serve notice to or
request the secretary of the district for nominations and within 30 days, thereafter a list of nominees shall be
submitted to the appointing authority for his appointment of a replacement director from the list of nominees. In
the absence of such nominations, the appointing authority shall make such appointment. If within 30 days after
submission to him of a list of nominees the appointing authority fails to make an appointment, the vacancy shall
be filled from such list by a majority vote of the remaining members of the Board of Directors constituting
quorum. Vacancies occurring within the last six months of an unexpired term shall also be filled by the Board
52
in the above manner. The director thus appointed shall serve the unexpired term only;” (as amended by PD
768).
and the compensation and personal liability of the members of the Board of Directors:
“Section 13. Compensation. Each director shall receive a per diem, to be determined by the board, for
each meeting of the board actually attended by him, but no directors shall receive per diems in any given month
in excess of the equivalent of the total per diems of four meeting in any given month. No director shall receive
other compensation for services to the district.
“Any per diem in excess of P50.00 shall be subject to approval of the Administration (as amended by PD
768).
“Section 14. Personal Liability. No director may be held to be personally liable for any action of the
district.”
Noteworthy, the above quoted provisions of PD 198, as amended, are similar to those which are actually
contained in other corporate charters. The conclusion is inescapable that the said decree is in truth and in fact
the charter of the different water districts for it clearly defines the latter’s primary purpose and its basic
organizational set-up. In other words, PD 198, as amended, is the very law which gives a water district
juridical personality. While it is true that a resolution of a local sanggunian is still necessary for the final creation
of a district, this Court is of the opinion that said resolution cannot be considered as its charter, the same being
intended only to implement the provisions of said decree. In passing a resolution forming a water district, the
local sanggunian is entrusted with no authority or discretion to grant a charter for the creation of a private
corporation. It is merely given the authority for the formation of a water district, on a local option basis, to be
exercised under and in pursuance of PD 198.
More than the aforequoted provisions, what is of important interest in the case at bar is Section 3, par. (b)
of the same decree which reads:
“Section 3 (b). Appointing authority. The person empowered to appoint the members of the Board of
Directors of a local water district, depending upon the geographic coverage and population make-up of the
particular district. In the event that more than seventy-five percent of the total active water service connections
of a local water districts are within the boundary of any city or municipality, the appointing authority shall be the
mayor of that city or municipality, as the case may be; otherwise, the appointing authority shall be the governor
of the province within which the district is located: Provided, That if the existing waterworks system in the city
or municipality established as a water district under this Decree is operated and managed by the province, initial
appointment shall be extended by the governor of the province. Subsequent appointments shall be as specified
herein.
If portions of more than one province are included within the boundary of the district, and the appointing
authority is to be the governors then the power to appoint shall rotate between the governors involved with the
initial appointments made by the governor in whose province the greatest number of service connections exists
(as amended by PD 768).
The above-quoted section definitely sets to naught petitioners’ contention that they are private corporations.
It is clear therefrom that the power to appoint the members who will comprise the Board of Directors belongs to
the local executives of the local subdivision units where such districts are located. In contrast, the members of
the Board of Directors or trustees of a private corporation are elected from among the members and stockholders
thereof. It would not be amiss to emphasize at this point that a private corporation is created for the private
53
purpose, benefit, aim and end of its members or stockholders. Necessarily, said members or stockholders
should be given a free hand to choose those who will compose the governing body of their corporation. But this
is not the case here and this clearly indicates that petitioners are definitely not private corporations.
The foregoing disquisition notwithstanding, We are, however, not unaware of the serious repercussion this
may bring to the thousands of water districts employees throughout the country who stand to be affected
because they do not have the necessary civil service eligibilities. As these employees are equally protected
by the constitutional guarantee to security of tenure. We find it necessary to rule for the protection of such right
which cannot be impaired by a subsequent ruling of this Court. Thus, those employees who have acquired their
permanent employment status at the time of the promulgation of this decision cannot be removed by the mere
reason that they lack the necessary civil service eligibilities.
ACCORDINGLY, the petition is hereby DISMISSED. Petitioners are declared “government-owned or

controlled corporations with original charter” which fall under the jurisdiction of the public respondents CSC and
COA.
SO ORDERED.
(SGD) LEO D. MEDIALDEA

Associate Justice
WE CONCUR:
(SGD) MARCELO B. FERNAN

Chief Justice
(SGD) ANDRES R. NARVASA

Associate Justice
(SGD) AMEURFINA A. MELENCIO-HERRERA
Associate Justice
(ON LEAVE)
HUGO E . GUTIERREZ, JR.
Associate Justice
(SGD) ISAGANI A. CRUZ

Associate Justice
(SGD) EDGARDO L. PARAS

Associate Justice
(ON LEAVE)
FLORENTINO P. FELICIANO
Associate Justice
(SGD) TEODORO R. PADILLA
Associate Justice
(SGD) ADBULWAHID A. BIDIN

Associate Justice
54
(ON LEAVE)
ABRAHAM F. SARMIENTO
Associate Justice
(SGD) CAROLINA C. GRINO-AQUINO

Associate Justice
(SGD) FLORENZ D. REGALADO

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

Associate Justice
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the
above decision were reached in consultation before the case was assigned to the writer of the opinion of the
Court.
(SGD) MARCELO B. FERNAN

Chief Justice
Separate Opinions:
BIDIN, J., Dissenting:
I regret I have to register my dissent in this case. I agree with the main ponencia that P.D. 198, as
amended, authorizes the different local legislative bodies (Sanggunian) to form and create their respective water
districts through a Resolution which they will pass subject to the guidelines, rules and regulations therein laid
down. The issue, therefore, to be resolved is whether the local water districts so created are government-
owned or controlled corporations with original charters embraced by the Civil Service as contemplated by Art.
IX-B, Sec. 2[1] of the 1987 Constitution.
P. D. 198 is a general legislation which authorized the formation of water districts. However, the operative
act which creates a water district is not said decree but the resolution of the Sanggunian concerned forming and
maintaining a local water district. Thus, Section 2 of the P. D. 198, among others, provides:
“Sec. 2. Declaration of Policy x x x To encourage the formulation of such local water districts and the
transfer thereto of existing water supply and waste water disposal facilities, this Decree provides by general act
the authority for the formation thereof, on a local option basis. x x x” (Underscoring supplied)
Implementing the above policy, Title II of P. D. 198 provides:
“TITLE II. – LOCAL WATER DISTRICT LAW
CHAPTER I. - Title
Sec. 4. Title The provisions of this Title shall be known and referred to as the ‘Local Water District Law.’
CHAPTER II. Purpose and Formation
Sec. 5. Purpose. Local water districts may be formed pursuant to this Title for the purposes of (a)
acquiring, installing, improving, maintaining and operating water supply and distribution systems for domestic,
55
industrial, municipal and agricultural uses for residents and lands within the boundaries of such districts (b)
providing, maintaining and operating wastewater collection, treatment and disposal facilities, and (c) conducting
such other functions and operations incidental to water resource development, utilization and disposal within
such districts, as are necessary or incidental to said purpose.
Sec. 6. Formation of District. This Act is the source of authorization and power to form and maintain a
district. For purposes of this Act, a district shall be considered as a quasi-public corporation performing public
imposed, under this Act.
xxx
Sec. 7. Filing of Resolution. A certified copy of the resolution or resolutions forming a district shall be
forwarded to the office of the Secretary of the Administration. If found by the Administration to conform to the
shall be deemed duly formed and existing upon the date of such filing. A certified copy of said resolution showing
the filing stamp of the Administration shall be maintained in the office of the district. Upon such filing, the local
government or governments concerned shall lose ownership, supervision and control or any right whatsoever
over the district except as provided herein.” (Underscoring supplied)
It is apparent that insofar as the formation of local water districts are concerned, P. D. 198 is not an
original charter but a general act authorizing the formation of water districts on local opinion basis (Sec. 2,
P. D. 198) similar to the Corporation Code. What is chartered, formed and created under P. D. 198 as a
government corporation is the “Local Water Utilities Administration” attached to the Office of the President
as follows:
“Sec. 49. Charter. There is hereby chartered, created and formed a government corporation to be known
as the ‘Local Water Utilities Administration’ which is hereby attached to the Office of the President. The
provisions of this Title shall be and constitute the charter of the Administration.”
On the other hand, local water districts are formed by resolutions of the respective Provincial, City
and Municipal councils (Sec. 7, P. D. 198) filed with the Local Water Utilities Administration, a government
corporation chartered under Section 49, P. D. 198 and attached to the Office of the President. Consequently,
without the requisite resolution of the Sanggunian concerned forming the water district having been filed
with the Local Water Utilities Administration, no water district is formed. What gives the water districts
juridical personality is the resolution of the respective Sanggunian forming the district and filed with the
Local Water Utilities Administration. Once formed, a water district is subject to the provisions of P. D. 198
and no longer under the jurisdiction of any political administration which shall thereafter lose ownership,
supervision and control over the district (Sec. 7 PD 198).
In view of the foregoing, I vote to Grant the petition and to declare petitioners as quasi-public
corporations performing public service without original charters, and therefore not embraced by the Civil
Service.
(SGD). ADBULWAHID A. BIDIN

Associate Justice
(SGD) DANIEL T. MARTINEZ

Clerk of Court
56
section 9
REORGANIZING THE METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM (MWSS)

AND THE LOCAL WATER UTILITIES ADMINISTRATION (LWUA) PURSUANT TO REPUBLIC
ACT NO. 8041, OTHERWISE KNOWN AS THE NATIONAL WATER CRISIS ACT OF 1995
WHEREAS, as enunciated in Republic Act No. 8041, it is the “declared policy of the State to adopt urgent
and effective measures to address the nationwide water crisis which adversely affects the health and well-
being of the population, food production and industrialization process;”
WHEREAS, consistent with this policy, Section 7 of Republic Act No. 8041 authorized the President to
revamp and reorganize the MWSS and the LWUA;
WHEREAS, the Joint Executive-Legislative Water Crisis Commission established under the same law
has, after consulting representatives of the MWSS and the LWUA, proposed a reorganizational plan for the said
agencies; and
WHEREAS, the proposed reorganization is consistent with the Administration’s framework for governance,
having been designed to streamline and correct dysfunctions in the structure and operations of the MWSS and
the LWUA to enable these agencies to become more effective, efficient and responsive to the country’s needs
for potable water, as well as prepare the groundwork for their eventual privatization, where feasible.
NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Philippines, by virtue of the powers vested
in me by law, consistent with the reorganization plan proposed by the Joint Executive-Legislative Water Crisis
Commission, do hereby order:
SEC. 1. Framework and Objectives. The reorganization of the MWSS and LWUA shall be undertaken
in the context of the Administration’s framework of governance. Accordingly, the role of the national government
shall be to steer rather than row. It shall, to the extent possible, encourage the private sector to participate in the
delivery of public goods through franchising, concession, management, privatization or other arrangements of
the concerned agencies operations or facilities.
Prudence and restraint in the use of government resources shall be exercised. Efforts at streamlining
and correcting dysfunctions in the operations and structures of the agencies concerned shall be undertaken
to achieve more with less. The delivery of more effective, efficient, and responsible public service shall
be paramount.
SEC. 2. Reorganization Plan for the MWSS. The MWSS shall be reorganized, as follows:
2.1. Officers. The MWSS shall be headed by an Administrator who shall be its chief executive
officer. He shall be assisted by two (2) Senior Deputy Administrators, one for Operations and Customers
Service and another for Resource Development and Management. There shall, moreover, be four (4)
Deputy Administrators, one (1) for Engineering and Construction, one (1) for Finance and Administration,
57
and two (2) for Customers Service. The Senior Deputy Administrators and Deputy Administrators shall
be appointed by the Board, upon the recommendation of the Administrator.
2.2 Organization and Management. The Administrator, with the assistance of his Senior Deputy
Administrators, shall provide overall direction and control over the operations and administration of MWSS.
(a) The Office of the Administrator shall have the following services and/or departments directly under
its supervision:
i. Corporate Planning Service

ii. Internal Audit Service
iii. Management Information Service
iv. System Development Department
v.Computer Service Department
vi. Legal Department
vii. Public Affairs Department
(b) The Office of the Senior Deputy Administrator for Operations and Customers Service shall be in
charge of the operations and maintenance of the MWSS plants and other facilities, and the actual
delivery of service to water users. It shall have direct supervision of the following departments:
i. Water Production
ii. Water Transmission and Meter Management
iii. Sewerage
(c) To ensure more effective and responsive delivery of water services and increase revenues,
Customers Service shall be divided into two Districts, each District to be headed by a Deputy
Administrator. Each District shall have four service areas with each Area (or department)
performing the following functions, as well as such other functions that may be assigned to it
consistent with the purpose of decentralizing to ensure better public service:
i. Revenue Generation, including meter installation and reading, billing and collection
ii. Facilities Operation Maintenance and Improvement
iii. Meter Management
iv. Public Information
(d) The Office of the Senior Administrator for Resource Development and Management shall have
direct supervision over the Deputy Administrators for Engineering and Construction, and for
Administration and Finance.
(e) The Office of the Deputy Administrator for Engineering and Construction shall undertake planning
and programming, monitoring, and evaluation of projects for the development and expansion of
waterworks and sewerage facilities. Specifically, it shall have direct supervision over the following
departments:
i. Project Planning
ii. Project Design
iii. Applied Research and Quality Control
The same Deputy Administrator shall have direct supervision over the Project Management Office,
58
which comprises a pool of project managers, presently consisting of five (5).
(f) The Office of the Deputy Administrator for Finance and Administration shall be responsible for
resource management and provision of administrative support services. It shall consist of the
following departments:
i. Accounting
ii. Managerial Finance and Budget
iii. Human Resource Development and Manpower Planning
iv. General Services
v. Personnel Management and Health Services
vi. Treasury
(g) The Table of Organization down to department level is provided for in Annex “A”.
2.3. Authority to Revise the Number of Departments. The MWSS is, subject to the approval of
the President, authorized to revise the number of departments herein specified if and when the same
becomes necessary by reason of a franchising, concession, privatization or other arrangements that will
reduce the scope of its current operations and activities.”,
SEC. 3. Reorganization Plan for the LWUA. The LWUA is hereby reorganized, as follows:
3.1. Officers. The LWUA shall be headed by an Administrator who shall be its chief executive officer.
He shall be assisted by a Senior Deputy Administrator. There shall, moreover, be three (3) Deputy
Administrators, one (1) each for Finance, Administration and Area Operations. The Senior Deputy
Administrator and Deputy Administrators shall be appointed by the Board upon the recommendation of the
Administrator.
3.2. Organization and Management. The Administrator, with the assistance of his Senior Deputy
Administrator, shall provide over-all direction and control over the operations and administration of the
LWUA.
(a) The Office of the Administrator shall have direct supervision over the following departments:
i. Internal Control
ii. Management Services
iii. Public Affairs
(b) The Office of the Senior Deputy Administrator shall have direct supervision over the following
departments:
i. Special Projects
ii. Legal
iii. Water Resource Research and Training
The Senior Deputy Administrator shall also exercise supervision over the three (3) Deputy Administrators.
(c) The Office of the Deputy Administrator for Finance shall be responsible for financial resources
management and loans administration. Specifically, it shall have direct supervision over the
following departments:
59
i. Treasury
ii. Accounting
iii. Loans Administration
iv. Water District Audit
(d) The Office of the Deputy Administrator for Administration shall be primarily responsible for the
provision of administrative services. It shall have direct supervision over the following departments:
i. Human Resource Management

ii. Property Management
iii. General Services
(e) The Office of the Deputy Administrator for Area Operations shall have direct supervision over nine
(9) area managers who will be responsible for the following functions at the field level:
i. Project Planning
ii. Project Monitoring and Evaluation
iii. Water District Development
iv. Loans Evaluation
(f) The Table of Organization down to department level is provided for in Annex “B”.
3.3. Authority to Revise the Number of Departments. The LWUA is, subject to the approval of the
President, authorized to revise the number of departments herein specified if and when the same
becomes necessary by reason of a franchising, concession, privatization or other arrangements that will
reduce the scope of its current operations and activities.
SEC. 4. Detailed Staffing. The MWSS and LWUA are hereby directed to prepare their proposed
detailed staffing or manning patterns accounting for all positions in the organization and the corresponding
budgetary and resource rearrangements as may be necessary. They are, moreover, required to conduct a
thorough personnel audit to determine their respective manpower requirements. An inventory of contracts of all
contractual employees including casual and temporary employees shall also be made to determine the need for
the continuation of their services.
The proposed staffing pattern shall be submitted to the Department of Budget and Management (DBM)
for review not later than sixty (60) days from the date hereof. The DBM shall submit its recommendation
to the President within thirty (30) days from receipt of the proposal but in no case later than ninety (90)
days from the date hereof.
The revised staffing or manning pattern shall in no case exceed the number of existing authorized
regular positions.
SEC. 5. Revised Compensation. The MWSS and the LWUA are hereby authorized to adopt a revised
and upgraded position classification and compensation package for its officers and employees, subject to the
following conditions:
a. no diminution of the present salaries and benefits of MWSS and LWUA personnel;
b. the revised rates of compensation shall be commensurate to the improved and efficient revenue
collection of the agency concerned as determined by their respective Boards of Trustees;
60
c. the adjusted rates shall not exceed industry and private sector rates of compensation;
d. approval by the Board of Trustee of their respective budgets which must be sufficient to cover the
proposed adjustments on compensation;
e. the non-revenue water of the agency concerned shall in no case be more than forty percent
(40%); and
f. final approval of the President.
SEC. 6. Separation Pay. Any official or employee of the MWSS and LWUA who may be phased out
by reason of the reorganization shall be entitled to such benefits as may be determined by existing laws. For
this purpose, the MWSS, LWUA and DBM are hereby directed to study and propose schemes or measures
to provide personnel who shall voluntarily retire from the service incentives and other benefits, including the
possibility of accelerating the application of the revised compensation package under the Salary Standardization
Law, Republic Act No. 6758. The recommendation should be submitted to the President not later than thirty (30)
days from the date hereof.
SECTION 7. Effectivity. This Executive Order shall take effect the day after its complete publication in
a newspaper of general circulation.
DONE in the City of Manila, this 6th day of December, in the year of Our Lord, Nineteen Hundred and
Ninety-Five.
By the President:
(SGD) RUBEN D. TORRES

Executive Secretary
Published in the Manila Times on December 11, 1995.
61
ANNEX A
METROPOLITAN WATERWORKS & SEWERAGE SYSTEM ORGANIZATIONAL

STRUCTURE
Board
of Trustees
Board Secretariat
Administrator
Management Internal Audit

Information Service Service
System
Technology
Management Corporate Planning
Department Service
Computer
Service
Department
Public Affairs
Legal Department Department
Senior Deputy Senior Deputy

Administrator for Administrator for
Operations and Resource Development
Customer Service and Management
Water Water Transmission Sewerage

Production and Meter Management
Department
Department
Department
Deputy Deputy Deputy Deputy

Administrator Administrator Administrator for Administrator for
for District 1 for District 2 Engineering & Engineering &
Construction Construction
Area 1 Area 5
PMO Pool of 5 Accounting
Area 2 Area 6 Project Managers Department
Managerial
Area 3 Area 7 Planning
Finance & Budget
Department
Area 8
Department
Area 4
Design Treasury
Department Department
Human Resource
Applied Research &
Development & Manpower
Quality Control Planning Department
Department
General Service
Department
Personnel Management &

Health Service Department
62
section 10
Congress of the Philippines
Metro Manila
Twelfth Congress
Third Regular Session
Begun and held in Metro Manila, on Monday, the twenty-eighth day of July, two thousand and three.
Republic Act No. 9286
AN ACT FURTHER AMENDING PRESIDENTIAL DECREE NO. 198, OTHERWISE KNOWN AS

“THE PROVINCIAL WATER UTILITIES ACT OF 1973”, AS AMENDED
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:
Section 1. Section 13 of Presidential Decree No. 198, as amended, is hereby amended to read as
follows:
“Sec. 13. Compensation. - Each director shall receive per diem to be determined by the Board, for each
meeting of the Board actually attended by him, but no director shall receive per diems in any given month in
excess of the equivalent of the total per diem of four meetings in any given month.
“Any per diem in excess of One hundred fifty pesos (P150.00) shall be subject to the approval of the
Administration. In addition thereto, each director shall receive allowances and benefits as the Board may
prescribe subject to the approval of the Administration.”
Sec. 2. Section 23 of Presidential Decree No. 198, as amended, is hereby amended to read as follows:
“Sec. 23. The General Manager. - At the first meeting of the Board, or as soon thereafter as practicable,
the Board shall appoint, by a majority vote, a general manager and shall define his duties and fix his
compensation. Said officer shall not be removed from office, except for cause and after due process.”
Sec. 3. Separability Clause. - If any section or provision of this Act is declared unconstitutional or invalid,
the other sections or provisions not affected thereby shall continue to be in force and effect.
Sec. 4. Repealing Clause. - All acts, decrees, executive orders, rules and regulations, part or parts
thereof inconsistent with the provisions of this Act are hereby repealed or modified accordingly.
Sec. 5. Effectivity Clause. - This Act shall take effect upon its approval.
63
Approved.
(SGD) JOSE DE VENECIA JR.

Speaker of the House of Representatives
(SGD) FRANKLIN M. DRILON

President of the Senate
This Act which is a consolidation of Senate Bill No. 2727 and House Bill No. 4861 was finally passed
by the Senate and House of Representatives on February 6, 2004 and February 7, 2004, respectively.
(SGD) ROBERTO P. NAZARENO

Secretary General
House of Representatives
(SGD) OSCAR G. YABES

Secretary of the Senate
Approved: April 02, 2004
(SGD) GLORIA MACAPAGAL-ARROYO

64
section 11
MALACAÑANG
Manila
BY THE PRESIDENT OF THE PHILIPPINES
INSTITUTING REFORMS IN THE FINANCING POLICIES FOR THE WATER SUPPLY AND
SEWERAGE SECTOR AND WATER SERVICE PROVIDERS AND PROVIDING FOR THE
RATIONALIZATION OF LWUA’S ORGANIZATIONAL STRUCTURE AND OPERATIONS IN SUPPORT
THEREOF.
WHEREAS, Presidential Decree No. 198 (“PD 198”) established the Local Water Utilities Administration
(LWUA), mandating it to serve as a “specialized lending institution” for the promotion, development and
financing of local water utilities;
WHEREAS, the Local Government Units (LGUs) are responsible for the provision of basic services and
facilities as enumerated under Section 17 of the Republic Act. No. 7160 (Local Government Code), including
among others, the provision of water supply and sewerage services;
WHEREAS, shifts in government financing policies and constraints in the availability of financing from the
National Government, and lack of investor confidence in the water supply and sewerage sector and limited
capital stock and domestic and foreign borrowing authority have constrained LWUA from providing financing
assistance to qualified Water Districts (WDs);
WHEREAS, there is a need to tap financing resources available to the water sector, including international
grants, and funding from government financing institutions (GFIs), private financing institutions (PFls), and
LGUs;
WHEREAS, there is a need to review and rationalize current financing policies for the Philippine water
supply and sewerage sector to allow for the efficient flow of resources thereto;
WHEREAS, cognizant of the urgency of the aforecited need, the NEDA Board passed a resolution
providing for the reforms in the financing of the water supply and sewerage sector and the creation of an
Oversight Committee for the purpose of coordinating and overseeing the implementation of said financing
reforms in the Philippine water supply and sewerage sector;
WHEREAS, the implementation of the recommended reforms requires that LWUA, as the focal government
agency for financing and institutional development of local WDs, refocus its objectives and rationalize its
operation;
WHEREAS, by virtue of’ Executive Order 123, s. of 2002, the regulation of tariffs of WDs will be
undertaken by the National Water Resources Board (NWRB) with a proviso that LWUA, consistent with its
mandate under PD 198, may continue reviewing the tariff of WDs in which it has financial exposure with the end
view of ensuring their financial viability.
65
WHEREAS, the LWUA is currently attached to the Department of Public Works and Highways (DPWH)
by virtue of Executive Order No. 124, s. of 1987;
WHEREAS, rationalization of LWUA’s operations require closer policy and program coordination with the
Office of the President (OP);
WHEREAS, under Section 31, Chapter 10, Book III of Executive Order No. 292 or the Administrative
Code of 1987, the President, in order to achieve simplicity, economy and efficiency, has continuing authority
to reorganize the administrative structure of agencies under it;
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Republic of the Philippines,

by virtue of the powers vested in me by law, do hereby order:
PART I
GENERAL PROVISIONS
SECTION 1. Reform Objectives/Policies. All concerned government agencies and instrumentalities

of the water supply and sewerage sector, including but not limited to the Department of Finance (DOF), the
Municipal Finance Corporation (MFC), Department of Interior and Local Government (DILG), Department of.
Budget and Management (DBM), Department of Environment and Natural Resources (DENR), DPWH,
National Economic and Development Authority (NEDA), LWUA, and the GFIs are hereby directed to pursue
and implement the following reform objectives / policies in the water supply and sewerage sector:
(a) Improvement of investor confidence in the water supply and sewerage sector;
(b) Rationalization in the allocation of scarce financial resources in the water supply and sewerage
sector through classification and graduation initiatives;
(c) Freedom of choice of water service providers in sourcing financing;

(d) Increase in the participation of LGUs, GFls, and PFIs in the financing of the water supply and
sewerage sector;
(e) Stipulation of improved service and creation of financial self-sustainability for water service
providers;
(f) Encouragement of initiatives aimed at self-sufficiency of water service providers, including, but not
limited to, amalgamation, private sector participation, cost-recovery tariffs, and resource pooling;
(g) Grant of incentives for the improvement and graduation of water service providers;
(h) Education of consumers towards treating water as a scarce economic good; and
(i) Establishment of an independent economic regulator for the water supply and sewerage sector.
SEC. 2. Definition of Terms. For purposes of this Order, the term:
(a) Water Service Providers (WSPs) - refer to local water utilities such as WDs, LGU-run water
utilities, rural waterworks and sanitation associations, barangay waterworks and sanitation
associations, regardless of location.
(b) Amalgamation - refers to the consolidation, joint operation or annexation of two or more WSPs
66
resulting into a water district.
(c) Classification – refers to the categorization of WSPs into non-creditworthy, pre-creditworthy,

semi-creditworthy or creditworthy to determine proper allocation of financing.
(d) Cost Recovery Tariff - is the tariff required to cover capital and operation and maintenance costs
of WSPs at all service levels.
(e) Creditworthy WSPs - are financially self-sustaining WSPs and capable of accessing financing
from GFIs and/or PFIs.
(f) Government Financial Institutions (GFIs) – refer to the Development Bank of the Philippines
(DBP), Land Bank of the Philippines (LBP) and other financing institutions owned and controlled
by the Government
(g) Graduation - refers to the progression of a WSP from semi-creditworthy to creditworthy status or
of a non-credit worthy to pre-creditworthy or of a pre-creditworthy WSP to semi-creditworthy
status based on improvements in financial and operational indicators.
(h) Local Government Units (LGUs) - refer to the territorial and political subdivisions of the
Philippines, consisting of provinces, cities, municipalities and barangays.
(i) Non-Creditworthy WSPs - refer to WSPs with potential to reach pre-creditworthy status in the
medium-term, based on relevant financial and operational indicators set by the Oversight Committee.
(j) Pre-Creditworthy WSPs - refer to WSPs which are not likely to become creditworthy in the
medium-term due to performance issues but can demonstrate the potential for creditworthiness in
the long-term, based on relevant financial and operational indicators set by the Oversight Committee.
(k) Semi-Creditworthy WSPs - refer to WSPs with the demonstrated ability to achieve creditworthiness
in the short-term, based on relevant financial and operational indicators set by the Oversight
Committee, but either lack the full criteria for creditworthiness or do not meet the criteria consistently.
PART II
OVERSIGHT COMMITTEE
SEC. 3. Oversight Committee. An inter-agency Oversight Committee is hereby constituted for purposes
of coordinating and overseeing the implementation of the reforms in the financing, graduation and regulatory
policies in the water supply and sewerage sector.
SEC. 4. Composition. The composition of the Oversight Committee shall be as follows:
Chair: Department of Finance (DOF)

Vice-Chair: National Economic and Development Authority (NEDA)
Members: Department of Budget and Management (DBM)
Department of Interior and Local Government (DILG):
Office of the President (OP)
Local Water Utilities Administration (LWUA)
Designated representatives of DOF, NEDA, DBM, DILG and OP must preferably be of Undersecretary
level LWUA must be represented by its Administrator.
67
GFIs and the Municipal Development Fund Office (MDFO) may serve as resource persons during
meetings of the Oversight Committee.
SEC. 5. Functions. The Oversight Committee shall, among others:
(a) Formulate the implementing rules and regulations (IRR) of this Order;
(b) Review the rationalization plan to be submitted by LWUA pursuant to Section 9 of this Order and
submit its recommendations on said plan to the President for approval;
(c) Review the criteria for the classification of WSPs, recommended by the Water Development
Group (WDG) of LWUA;
(d) Review the classification of WSPs prepared by LWUA-WDG, duly certified by LWUA-Head that
the same is in accordance with the criteria presented to and reviewed by the Oversight Committee.
The Oversight Committee may subject the classification of the WSPs to audit;
(e) Prepare an action plan for the reforms in the financing policies in the water supply and sewerage
sector for the near term and the medium term including incentive schemes that appropriate
agencies may consider to offer to GFIs and PFIs to encourage such institutions to lend to WSPs;
(f) Prepare and submit quarterly reports to the agency to which LWUA is attached; and
(g) Review the charter of LWUA and when necessary, propose amendments thereto.
The Oversight Committee shall immediately organize itself and set its policies and procedures to
facilitate the implementation of the said reforms in the water supply and sewerage sector.
SEC. 6. Technical Secretariat The Oversight Committee shall establish a Technical Secretariat under
DOF to be staffed by personnel assigned by government agencies comprising it. It shall serve as the official
repository of all data concerning the classification and evaluation of all WSPS,
SEC. 7. Expenses Members of the Oversight Committee and its Technical Secretariat shall be entitled
to receive honoraria and/or reimbursement of expenses as may be allowed subject to availability of funds and
prevailing rules and regulations.
PART III
LOCAL WATER UTILITIES ADMINISTRATION
SEC. 8. Transfer to OP The LWUA, presently attached to the DPWH, is hereby attached to OP until
such time it is transferred to DOF as provided for under Section 10 hereof. In addition, the LWUA Board of
Trustees (BOT) shall include representatives from the agency to which it is attached.
SEC. 9. Rationalization of LWUA’s organizational structure and operations LWUA, subject to

applicable laws and regulations, is hereby directed to review its organizational structure and internal policies
and programs, rationalize its operation and refocus its objectives to include other WSPs, whenever feasible or
applicable to facilitate implementation of and conform with the policies enunciated in this Order. To this extent,
LWUA shall constitute and designate from its current organizational set-up, a Water Development Group
(WDG), a Water Development Financier (WDF) and a Technical Assistance Group (TAG), or similar structures,
with functions and responsibilities as follows:
68
A. Water Development Group (WDG)
The WDG shall have the following responsibilities;
(a) The WDG which shall be primarily charged with the continuation of LWUA’s current institutional
development services aimed at graduating WSPs, as well as the classification of WSPs.
(b) The WDG shall classify the WSPs into either creditworthy, semi-creditworthy, pre-creditworthy or
non-creditworthy for the purpose of determining the appropriate sources of financing. WSPs
initially classified by WDG as creditworthy and/or non-creditworthy shall be subject to further
review by the Oversight Committee pursuant to Section 5 of this Order.
WSPs classified as semi-creditworthy and pre-creditworthy and non-credit worthy shall be subject to
periodic review by the WDG at least once every three (3) years for purposes of reclassification. At their
own instance, WSPs may request the WDG for an annual reclassification review.
(c) Graduation The WDG shall develop a graduation plan for non-creditworthy, pre-creditworthy and
semi-creditworthy WSPs based on the following graduation initiatives:
LWUA-WDG shall monitor the implementation of the graduation plan and evaluate the effectiveness of
the graduation initiatives undertaken by the semi-creditworthy, pre-creditworthy and non-credit worthy
WSPs.
LWUA-WDG shall initially cover the classification and graduation plan and initiatives of WDs. It may
also cover other WSPs as deemed applicable or feasible.
(d) Reporting LWUA-WDG shall prepare and submit quarterly reports on its activities to the Oversight
Committee and DOF.
B. Water Development Financier (WDF)

The WDF shall have the following responsibilities:
(a) The WDF which shall be primarily tasked to enhance and/or strengthen LWUA’s lending functions
and evaluate the applications for financial assistance.
(b) Re-orientation Towards Banking Principles LWUA, through the WDF, shall enhance and/or
strengthen its lending policies and functions to carry out and implement its mandate to provide
financing particularly to non-credit worthy, pre-creditworthy and semi-creditworthy WDs, grounded
on sound development banking principles. To this effect, LWUA shall adopt development banking
principles which cater to the financing needs of WSPs and shall develop its own procedures for
the monitoring of its loan portfolio. LWUA shall develop lending policies and guidelines in pursuit of
the policies and principles espoused under this Executive Order within 90 days from its effectivity
and submit the same to the Oversight Committee. LWUA shall conduct its operations in a
transparent, efficient and effective manner.
(c) Strengthening of Collection Function In the exercise of its lending functions, LWUA shall also
strengthen its collection function from WDs as well as enhance its payment of loans to LWUA
creditors. To this effect, all collections arising from LWUA’s receivables shall constitute a special
fund to be apportioned between debt servicing of LWUA loans and the additioned funding necessary
to support the LWUA’s graduation and technical assistance functions under the WDG and the TAG.
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(i) Cost Recovery Tariff Initiatives These are initiatives aimed at achieving widespread full cost
recovery tariffs in the long term. The initiatives shall include the inventory of non-credit worthy,
semi-creditworthy and pre-creditworthy WSPs to determine the degree to which tariffs are sufficient
to accumulate at least a minimal reserve for collateral or counterpart equity. In. addition, should the
LGUs invest in WSPs, they should be allowed recovery of and some minimal return on its
investment.
(ii) Amalgamation and Private Sector Participation Initiatives These are initiatives aimed at
achieving economies of scale and efficiency of service through the use of identified amalgamation
and private sector participation techniques based on technical, geographical, economic and other
indicators.
LWUA shall develop the necessary guidelines during the transition period for the amalgamated WDs
and LGUs.
(iii) Management Structure and Governance These initiatives pertain to institutional improvements
within the WSPs’ structure leading to greater accountability and improved service.
(iv) LGU/WSP Resource Coordination for Credit Enhancement. This refers to the pooling of
resources between semi-creditworthy and/or pre-creditworthy or semi-creditworthy and/or non-
creditworthy WSPs and the relevant LGUs in their service areas to finance water supply and
sewerage projects or create the collateral needed to borrow from GFls and PFIs.
(v) Education This refers to communication and information initiatives on the benefits of graduation
initiatives including cost recovery tariffs, amalgamation, private sector participation and LGU/
WSP resource coordination.
(vi) Technical Assistance to non-credit worthy and pre-creditworthy WSPs This refers to
technical assistance to support graduation initiatives which may be given with or without charge
within a value threshold that may be determined by LWUA-WDG.
(d) Segregation of LWUA Loan Portfolios For purposes of identification and administrative
efficiency, LWUA shall maintain separate accounting, payment and collection systems for existing
loans and loans to be granted henceforth pursuant to the reforms instituted in this Executive Order.
C. Technical Assistance Group (TAG)
TAG shall have the following responsibilities:
(a) TAG shall continue LWUA’s program of providing technical assistance to WSPs, in accordance
with the proceeding sections.
(b) TAG shall extend project-related technical assistance to GFIs and credit-worthy WSPs on a
competitive basis, consistent with applicable laws, rules and regulations on government
procurement.
(c) Above a certain value threshold, which threshold shall be determined by LWUA, TAG shall extend
project-related technical assistance to semi-creditworthy WSPs on a competitive basis, consistent
with applicable laws, rules and regulations on government procurement.
(d) LWUA-TAG shall extend project-related assistance to non-creditworthy and pre-creditworthy WDs
70
which may be with or without charge within a certain value threshold to be determined by LWUA
to support projects funded by LWUA-WDF.
SEC. 10. Within thirty (30) days from the effectivity of this Order, LWUA shall review its current structure
and submit its rationalized plan to the Oversight Committee, consistent with the policy reforms enunciated under
this Order. The Oversight Committee shall evaluate the rationalization plan within thirty (30) days from receipt.
LWUA, with the endorsement of the Oversight Committee, shall submit the rationalization plan to the President
for final approval.
Upon approval by the President of the reforms in the water supply and sewerage sector, including the
rationalized organization and manpower structure of LWUA, LWUA shall then be transferred to DOF.
Pursuant to Section 51 of PD 198, at least three (3) of the trustees must be employees of the National
Government. DOF shall always be represented in the LWUA-BOT.
PART IV
FINANCING POLICIES
SEC. 11. Responsibility of LGUs In line with the principle of devolution of the provision of basic
services under the Local Government Code, LGUs shall be encouraged to provide delivery of water supply
and sewerage services through, but not limited to, investments in, or loans to WSPs. LGUs shall as a general
policy, be financially and operationally responsible for the WSPs within their respective jurisdictions.
SEC. 12. Sources of Financing The sources of financing for the water supply and sewerage sector
shall be as follows:
(a) Creditworthy WSPs shall be eligible to source financing at commercial lending rates from GFIs
and PFIs. Pursuant thereto, LWUA, with respect to creditworthy WDs shall enhance and streamline
its waiver procedures to effect the reform objectives/policies enunciated herein. GFIs shall
strengthen their skills base and develop lending programs specially tailored to the needs of the
water supply and sewerage sector.
(b) Semi-creditworthy WDs shall be eligible to source concessional debt financing from the LWUA-
WDF, as well as GFIs and PFIs when possible.
(c) Pre-creditworthy WDs shall be eligible to source grants from donors and deep concessional
financing from the LWUA-WDF.
(d) Non-creditworthy WDs shall continue to be eligible for financing under the LWUA-WDF. However,
LGUs are hereby encouraged to provide financial and operational support for such WDs and other
WSPs within their respective jurisdictions. DILG and MDFO shall provide the necessary technical
and financial support within their respective mandates.
(e) WSPs, including eligible WDs, can access financing from GFIs, PFIs, MDFO, and LGUs,
whenever possible.
LWUA-WDG shall provide the necessary incentives for graduation such as extension of greater
flexibility in WD’s operation as a WD graduate from one stage to the next. LWUA-WDG shall provide
guidelines to encourage graduation, which shall be approved by LWUA-BOT for submission to the
Oversight Committee.
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SEC. 13. Role of Financial Institution The classification of WSPs shall merely be a determinant of
eligibility for the various sources of financing, but shall not in any way be construed as an outright guarantee of
actual financing from the designated source.
PART V
FINAL PROVISIONS
SEC. 14. The Oversight Committee shall formulate the IRR of this Order within 90 days from its
effectivity, which shall be published in accordance with the requirements of the Administrative Code of 1987 and
other pertinent laws.
SEC. 15. The Oversight Committee shall cease to exist three (3) years after the approval by the
President of the rationalized organization and manpower structure of LWUA, with any remaining function of the
Committee to be assumed by the DOF.
SEC. 16. Any violation of this Order and of its IRR shall be subject to disciplinary action and other
penalties as provided for in said IRR and other relevant laws and issuances.
SEC. 17. If any provision of this Order is declared unconstitutional or invalid, the other provisions not
affected thereby shall remain in full force and effect.
SEC. 18. All orders, executive issuances, rules and regulations, administrative resolutions, or parts
thereof, inconsistent with the provisions of this Order are hereby repealed or modified accordingly.
SEC. 19. This Order shall take effect upon its publication in the Official Gazette or in a newspaper of
general circulation in the Philippines.
DONE, in the City of Manila, this 2nd of day of February in the year of our Lord, Two Thousand and Four.
By the President:
(SGD) ALBERTO G. ROMULO

Executive Secretary
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DEPARTMENT OF FINANCE
Manila
IMPLEMENTING RULES AND REGULATIONS OF EXECUTIVE ORDER NO. 279, SERIES OF

2004, “PRESCRIBING GUIDELINES ON INSTITUTING REFORMS IN THE FINANCING POLICIES
FOR THE WATER SUPPLY AND SEWERAGE SECTOR AND WATER SERVICE PROVIDERS AND
PROVIDING FOR THE RATIONALIZATION OF LWUA’S ORGANIZATIONAL STRUCTURE AND
OPERATIONS IN SUPPORT THEREOF
Section 1. Purpose
To prescribe the guidelines, criteria, grounds and procedures which shall govern financing policies for
the water supply and sewerage sector and the rationalization of LWUA’s organizational structure, operation
and refocusing of its objectives.
Section 2. Coverage
These IRR shall cover all water districts (WDs) other water service providers (WSPs) outside the
coverage of MWSS/Maynilad/Manila Water and all concerned government agencies which have a role
in the implementation of EO 279, such as but not limited to the Department of Finance (DOF), National
Economic and Development Authority (NEDA), Department of Budget and Management (DBM),
Department of Interior and Local Government (DILG), Office of the President (OP), Local Water Utilities
Administration (LWUA), Government Financial Institutions (GFIs), Municipal Finance Corporation (MFC),
Department of Public Works and Highways (DPWH), Department of Environment and National Resources
(DENR), Rural Waterworks and Sanitation Associations (RWSAs) and Barangay Waterworks and
Sanitation Associations (BWSAs).
Section 3. Reforms, Objectives and Policies

In view of the shifts in government financing policies and constraints in the availability of financing from
the National Government, there is a need to review and rationalize current financing policies for the
Philippine water supply and sewerage sector to allow for the efficient flow of resources to the sector.
Cognizant of the need, these IRR hope to address the following reforms, objectives and policies:
(a) Improvement of investor confidence in the water supply and sewerage sector;
(b) Rationalization in the allocation of scarce financial resources in the water supply and sewerage
sector through classification and graduation initiatives;
(c) Freedom of choice of WSPs in sourcing financing;
(d) Increase in the participation of LGUs, GFIs, and PFIs in the financing of the water supply and
sewerage sector;
(e) Stimulation of improved service and creation of financial self-sustainability for WSPs;
(f) Encouragement of initiatives aimed at self-sufficiency of water service providers, including, but not
limited to, amalgamation, private sector participation, cost-recovery tariffs, and resource pooling;
(g) Grant of incentives for the improvement and graduation of WSPs; and
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(h) Education of consumers towards treating water as a scarce economic good.
Section 4. Definition of Terms
For the purpose of these IRR, the following terms are defined:
(a) Amalgamation consolidation, joint operation or annexation of two or more WSPs resulting into a
WD.
(b) Classification categorization of WSPs into non-creditworthy, pre-creditworthy, semi-creditworthy

or creditworthy to determine proper allocation of financing.
(c) Cost Recovery Tariff tariff that is required to cover investment in capital expenditures, operating
expenditures and debt servicing, including minimal reserve for collateral or counterpart equity, and
reserve for recovery of and some minimal return on LGU’s investment/infusion in the WDs or
WSPs.
(d) Creditworthy WSPs financially self-sustaining WSPs capable of accessing financing from GFIs
and/or PFIs.
(e) Government Financial Institutions (GFIs) Development Bank of the Philippines (DBP), Land
Bank of the Philippines (LBP) and other financing institutions owned and controlled by the
Government.
(f) Graduation the progression of a WSP from non-creditworthy to pre-creditworthy status or from
a pre-creditworthy to semi-creditworthy status and/or from a semi-creditworthy to creditworthy
status based on improvements in financial and operational indicators.
(g) Local Government Units (LGUs) territorial and political subdivisions of the Philippines, consisting
of provinces, cities, municipalities and barangays.
(h) Long Term period covering more than five (5) years,
(i) Medium Term period covering between three (3) and five (5) years.
(j) Non-Creditworthy WSPs WSPs with potential to reach pre-creditworthy status in the medium-
term, based on relevant financial and operational indicators set by the Oversight Committee.
(k) Pre-Creditworthy WSPs WSPs which are not likely to become creditworthy in the medium-
term due to performance issues but can demonstrate the potential for creditworthiness in the long-
term, as may be determined based on relevant financial and operational indicators set by the
Oversight Committee.
(l) Private Financial Institutions (PFIs) private entities which are primarily organized for the
purpose of extending credit facilities to consumers and to industrial or agricultural enterprises.
Financing institutions other than government financial institutions. These include universal and
commercial banks.
(m)Semi-Creditworthy WSPs WSPs with the demonstrated ability to achieve creditworthiness in

the short-term, based on relevant financial and operational indicators set by the Oversight Committee,
but either lack the full criteria for creditworthiness or do not meet the criteria consistently.
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(n) Short Term period covering one year (1) to less than three (3) years.
(o) Technical Assistance includes feasibility study, detailed engineering design, review of feasibility
study and engineering design, preparation of work program, construction supervision, start-up
operations, operations and maintenance assistance, rehabilitation of dilapidated systems, well
drilling and construction of new wells, rehabilitation and repair of old wells and emergency repair
of water supply system. Financing for technical assistance involving pre-feasibility or feasibility
studies, project identification, sector survey, institution building activities including training, shall be
charged against beneficiaries unless grants are available for the purpose. On the other hand,
consultancy/advisory services related to construction activities, including detailed engineering
shall be considered as part of the project capital cost and may be financed by the project loan.
(p) Value Threshold the level at which LWUA may grant project related technical assistance for free
to the PCW and NCW WSPs without affecting LWUA’s viability. This will be determined by
LWUA on a yearly basis depending on LWUA’s capability to absorb such additional cost.
(q) Water Service Providers (WSPs) local water utilities such as WDs, LGU-run water utilities,
rural waterworks and sanitation associations (RWSAs), and barangay waterworks and sanitation
associations (BWSAs), regardless of location.
Section 5. Responsibilities
The implementation of the recommended reforms requires that LWUA as the local government agency
for financing and institutional development of local WDs, focuses its objectives and rationalizes its
operations. Accordingly, the rationalization of LWUA’s organizational structure, operation and refocusing of
its objectives, and the implementation of the reforms in the financing policies for the water supply and
sewerage sector, as defined in Section 2 of these IRR, require close policy coordination among the
concerned government agencies.
5.1 Local Water Utilities Administration
LWUA, subject to applicable laws and regulations, shall review its organizational structure and
internal policies and programs, rationalize its operations and refocus its objectives to include WSPs,
whenever feasible or applicable, to facilitate implementation of and conform with the policies enunciated
in EO 279. Further, LWUA shall conduct its operations in a transparent, efficient and effective manner.
LWUA shall constitute and designate from its current organization set-up, a Water Development
Group (WDG), a Water Development Financier (WDF) and a Technical Assistance Group (TAG), or
similar structures, with functions and responsibilities as follows:
5.1. A Water Development Group (WDG)
WDG shall have the following responsibilities:
(a) It shall be primarily charged with the continuation of LWUA’s current institutional development
services aimed at graduating WSPs, as well as the classification of WSPs.
(b) It shall classify the WSPs into either creditworthy, semi-creditworthy, pre-creditworthy or non-
creditworthy for the purpose of determining the appropriate sources of financing WSPs initially
classified by WDG as creditworthy and/or non-creditworthy shall be subject to further review
75
by the Oversight Committee pursuant to Section 5.2(b) of these IRR.
LWUA shall initially cover the classification and graduation plan and initiatives of WDs. It may also
cover other WSPs as deemed applicable or feasible.
To facilitate the classification of the WDs, LWUA shall prepare the criteria for classification and
submit the same to the Oversight Committee for review within 30 days upon effectivity of EO 279.
The criteria shall consider:
i. financial indicators such as current ratio, debt service ratio, debt/equity ratio, profit margin ratio
and cash flow ratio; and
ii. operational indicators such as collection efficiency; non-revenue water and service connections/
staff.
LWUA shall closely coordinate with the GFIs in determining the criteria for classification.
The classification of WDs shall be duly approved by the LWUA Administrator for submission to the
Oversight Committee for review within 90 days upon completion of review of classification criteria by
the OC.
For the initial classification, WDs have to meet the criteria for three (3) consecutive years to be
considered creditworthy. WDs classified as semi-creditworthy, pre-creditworthy and non-creditworthy
shall be subject to periodic review by WDG at least once every three (3) years for purposes of
reclassification. In like manner, subsequent classification shall require three (3) years consistent
favorable evaluation. At their own instance, WDs may request the WDG for an annual reclassification
review.
Any changes in the classification should be submitted to the Oversight Committee.

Lending to WDs initially classified as creditworthy shall be governed by Section 9 (b) of these
IRR.
(c.) It shall develop a graduation plan for non-creditworthy, pre-creditworthy and semi-creditworthy
WSPs based on the following graduation initiatives:
i. Cost Recovery Tariff Initiatives these are initiatives aimed at achieving widespread full cost
recovery tariffs in the long-term. The initiatives shall include the inventory of non-creditworthy, semi-
creditworthy and pre-creditworthy WSPs to determine the degree to which tariffs are sufficient to
accumulate at least a minimal reserve for collateral or counterpart equity. In addition, should the LGUs
invest in WSPs, they should be allowed recovery of and some minimal return on their investment.
ii. Amalgamation and Private Sector Participation initiatives these are initiatives aimed at
achieving economics of scale and efficiency of service through the use of identified amalgamation and
private sector participation techniques based on technical, geographical, economic and other indicators.
LWUA shall formulate within 180 days upon effectivity of these IRR, the necessary guidelines to
be observed by the amalgamated WSPs during the transition period. Among other things, the
guidelines shall address the a) incentives for amalgamation, b) mechanics of amalgamation, c)
restructuring of the Board of Directors and officer of the amalgamated WSPs with respect but not
76
limited to tenure of office and surviving positions, and d) controlling WSPs taking into account
considerations such as the size, financial condition and the location of the participating WSPs.
iii. Management Structure and Governance these initiatives pertain to institutional improvements
within the WSPs structure leading to greater accountability and improved service.
iv. LGU/WSP Resource Coordination for Credit Enhancement this refers to the pooling of
resources between semi-creditworthy and/or pre-creditworthy and/or non-creditworthy WSPs and
the relevant LGUs in their service areas to finance water supply and sewerage projects or create the
collateral needed to borrow from GFIs and PFIs.
To allow LGU recovery of and some minimal return on its investments in the WSPs pursuant to
(c) (i) and (c) (iv) of this Section, LWUA shall formulate benchmarks for LGU sharing in the earnings
of the WSPs in coordination with the MFC and the DOF within 180 days upon effectivity of these IRR.
v. Education refers to communication and information initiatives on the benefits of graduation

initiatives including cost recovery tariffs, amalgamation, private sector participation and LGU/WSP
resource coordination.
vi. Technical Assistance to non-creditworthy and pre-creditworthy WSPs refers to technical

assistance to support graduation initiatives which may be given with or without charge within the
value threshold that may be determined by LWUA-WDG.
LWUA-WDG shall monitor the implementation of the graduation plan and evaluate the effectiveness
of the graduation initiatives undertaken by the semi-creditworthy, pre-creditworthy and non-creditworthy
WSPs.
(d.) The LWUA-WDG shall prepare and submit quarterly reports on its activities to the Oversight
Committee and DOF.
For the purposes of Section 5.1 A (c ) of these IRR and Sec. 12 of EO 279, LWUA shall submit
to the Oversight Committee, guidelines to encourage graduation as approved by the LWUA Board of
Trustees within 180 days upon effectivity of these IRR. Said guidelines shall include incentives such
as, but not limited to greater flexibility in WD’s operation as WD graduates from one stage to the next,
and enjoyment of LWUA’s streamlined waiver procedures.
5.1.B Water Development Financier (WDF)
WDF shall have the following responsibilities:
(a.) It shall be primarily tasked to enhance and/or strengthen LWUA’s lending functions and
evaluate the applications for financial assistance.
(b.) Re-orientation Towards Banking Principles LWUA, through the WDF, shall enhance
and/or strengthen its mandate as a specialized lending agency under PD 198 as amended by
providing financing particularly to non-creditworthy, pre-creditworthy and semi-creditworthy
WDs, grounded on sound development banking principles. To this effect, LWUA shall adopt
development banking principles, which cater to the financing needs of WSPs and shall
develop its own procedures for the monitoring of its loan portfolio. LWUA shall develop lending
policies and guidelines in pursuit of the policies and principles espoused under EO 279 in
77
coordination with the MFC and GFIs within 90 days from its effectivity and submit the same
to the Oversight Committee. The new lending policies and guidelines shall only apply to new
loans to be approved by LWUA for prospective WD-borrowers.
(c.) Strengthening of Collection Function In the exercise of its lending functions, LWUA shall
also strengthen its collection function from WDs as well enhance its payment of loans to LWUA
creditors. To this effect, all collection arising from LWUA receivables shall constitute a special
fund to be apportioned to debt servicing of LWUA loans, additional funding necessary to support
the LWUA’s graduation and technical assistance functions under the WDG and the TAG.
(d.) Segregation of LWUA Loan Portfolios For purposes of identification and administrative
efficiency, LWUA shall maintain separate accounting, payment and collection systems for
existing loans and loans to be granted henceforth pursuant to the reforms instituted under EO
279.
5.1.C Technical Assistance Group (TAG)
TAG shall have the following responsibilities:
(a.) It shall continue LWUA’s program of providing technical assistance to WSPs, in accordance
with the proceeding sections.
(b.) It shall extend project-related technical assistance to GFIs, PFIs and creditworthy WSPs on
a competitive basis, consistent with the applicable laws, rules and regulations on government
procurement.
(c.) Above a certain value threshold, which threshold shall be determined by LWUA in accordance
with the definition provided for under Section 4 of these IRR, TAG shall extend project-related
technical assistance to semi-creditworthy WSPs on a competitive basis, consistent with
applicable laws, rules and regulations on government procurement.
(d.) It shall extend project-related assistance to non-creditworthy and pre-creditworthy WSPs

funded by the LWUA-WDF. This assistance may be with or without charge within a certain
value threshold to be determined by LWUA on a yearly basis.
5.1.D Within 30 days from the effectivity of EO 279, LWUA shall review its current structure and
submit its rationalized plan to the Oversight Committee, consistent with the policy reforms enunciated
under the said EO. The Oversight Committee shall evaluate the rationalization plan within 30 days from
receipt.
5.1.E LWUA with the endorsement of the Oversight Committee, shall submit the rationalization plan
to the President for final approval not later than 75 days upon the effectivity of the EO.
(a.) Upon approval by the President of the reforms in the water supply and sewerage sector,
including the rationalized organization and staffing structure of LWUA, an EO shall be issued
attaching LWUA to DOF, for policy and program coordination.
5.2 Oversight Committee (OC)
The Oversight Committee constituted pursuant to Section 3 of EO 279 shall coordinate and
oversee the implementation of the reforms in the financing and graduation policies in the water supply
78
and sewerage sector.
In addition to the function explicitly taken from the EO, the OC shall:
(a.) Review the criteria for the classification of WSPs, recommended by the LWUA within 30 days
upon submission by LWUA;
(b.) Review the classification of WSPs prepared by LWUA pursuant to Sec. 9 A(b) EO 279, duly
certified by the LWUA Administrator that the same is in accordance with the criteria presented
to and reviewed by the Oversight Committee pursuant to Sec. 5 (d) of EO 279. The Oversight
Committee shall review the same within 60 days upon submission by LWUA. The Oversight
Committee may subject the classification of the WSP to audit;
Immediate actions include, among others, the review of LWUA Charter as provided under Section
5 of EO 279 including the classification of water districts, graduation of WSPs, reform in LWUA
financial waiver process and compliance of LWUA to provisions of EO 279 and of these IRR within
the specified timelines. On the other hand, medium term actions include the determination of appropriate
incentives for GFIs and the PFIs to lend to WSPs.
All functions of the Oversight Committee, which are continuing in nature, shall be performed by the
DOF, as provided for under Section 15 of EO 279.
Section 6. Attachment
Upon approval by the President of the reforms in the water supply and sewerage sector, including the
rationalized organization structure and the staffing pattern of LWUA, LWUA shall then be attached to the
DOF. Pursuant to Section 51 of PD 198, at least three (3) of the trustees must be employees of the
National Government (NG). NG representatives must be at least Director level, DOF shall always be
represented in the LWUA Board of Trustees.
Section 7. Expenses
Members of the Oversight Committee and its Technical Secretariat shall be entitled to receive
honoraria and/or reimbursement of expenses as may be allowed subject to availability of funds and
prevailing rules and regulations.
FINANCING POLICIES
Section 8. Responsibility of LGUs
In line with the principle of devolution of the provision of basic services under the Local Government
Code, LGUs shall be encouraged to provide delivery of water supply and sewerage through, but not
limited to, investments in, or loans to WSPs. LGUs shall as general policy, be financially and operationally
responsible for the WSPs, excluding WDs and RWSAs, within their respective jurisdictions.
Section 9. Source of Financing
The source of financing for the water supply and sewerage sector shall be as follows:
(a.) Creditworthy WSPs shall be eligible to source financing at commercial lending rates from GFIs
and PFIs. Pursuant thereto, LWUA with respect to creditworthy WDs shall enhance and streamline
its waiver procedures to effect the reform objectives/policies enunciated under EO 279. However,
79
LWUA shall work out an arrangement to GFIs/PFIs to ensure repayment of LWUA loan to WSP.
GFIs shall strengthen their skills base and develop lending programs specially tailored to the
needs of the water supply and sewerage sector;
(b.) Creditworthy WDs may be eligible for financing from LWUA in case no funds are available from
other sources, subject to prioritization criteria giving preference to NCW up to SCW WDs/WSPs,
availability of funds and provided that these WDs undertake graduation initiatives such as pooling
of resources, amalgamation, among others with the end objective of accessing financing from
GFIs/PFIs and sources other than LWUA;
(c.) Semi-creditworthy (SCW) WDs shall be eligible to source concessional project financing as
grants from donor agencies, financial assistance made available through representative of the
District, LGU financial assistance packages or financing from other donors made available and are
coursed through the LWUA-WDF. Said WSPs shall be re-oriented towards meeting the lending
criteria of GFIs and PFIs to qualify them for eventual financing in the medium term whenever
possible;
(d.) Pre-creditworthy (PCW) WDs shall be eligible from donors and deep concessional financing from
the LWUA-WDF.
(e.) Non-creditworthy (NCW) WDs shall continue to be eligible for financing under the LWUA-WDF.
However, LGUs are hereby encouraged to provide financial and operational support for such
WDs and other WSPs within their respective jurisdictions. DILG and MFC shall provide the
necessary technical and financial support within their respective mandates;
(f.) Whenever concessionary loan/grant funds are available from the NG and other sources, the
LWUA shall allocate the said funds to the SCW, PCW and NCW WDs which have the potential
to demonstrate increased viability; and
(g.) WSPs including eligible WDs, can access financing from the GFIs, PFIs, MFC, and LGUs,
whenever possible and shall be consistent with the provisions of these IRR.
DILG shall, within the mandate and existing programs, pursue and active campaign program to
implement policies in the EO which concern the LGU.
Section 10. Role of Financing Institution
The classification of WSPs shall merely be a determinant of eligibility for the various sources of
financing, and shall not in any way be construed as an outright guarantee of actual financing from the
designated source.
Section 11. Repealing Clause
All Circulars or Resolutions or part thereof, which are inconsistent with these IRR, are hereby
repealed or modified accordingly.
Section 12. Effectivity
These IRR shall take effect fifteen (15) days after its publication in the Official Gazette or in a
newspaper of general circulation.
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Done in the City of Manila, this 16th day of July in the year of our Lord, Two Thousand and Four.
Oversight Committee
(SGD) JUANITA D. AMATONG

Secretary of Finance
Chairman
(SGD) ROMULO L. NERI

National Economic and Development Authority
Director-General
Vice-Chairman
(SGD) ) EMILIA T. BONCODIN

Department of Budget & Management
Secretary
Member
(SGD) JOSE D. LINA, JR.

Department of Interior & Local Government
Secretary
Member
(SGD) GAMALIEL A. CORDOBA

Office of the President
Deputy Executive Secretary
Member
(SGD) LORENZO H. JAMORA

Local Water Utilities Administration
Administrator
Member
81
section 12
Malacañang
Manila
TRANSFERRING THE LOCAL WATER UTILITIES ADMINISTRATION FROM THE OFFICE OF

THE PRESIDENT TO THE DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS (DPWH) AND
STRENGTHENING THE SUPERVISION BY THE DPWH SECRETARY OVER THE METROPOLITAN
WATERWORKS AND SEWERAGE SYSTEM.
WHEREAS, the Local Water Utilities Administration (LWUA), which was created by virtue of Presidential
Decree No. 198, as amended, is currently attached to the Office of the President by virtue of Executive Order
No. 279, series of 2004;
WHEREAS, the Metropolitan Waterworks and Sewerage System (MWSS) was created by virtue of
Republic Act No. 6234, as amended, and is currently attached to the DPWH by virtue of Executive Order No.
124, series of 1987;
WHEREAS, there is a need for a concerted and well-coordinated effort in formulating policies as well as
planning and implementing programs and projects for the water sector;
WHEREAS, there is a need to speed-up the provision of potable water in every barangay;
WHEREAS, the DPWH is mandated to ensure that the planning, design, construction and maintenance
of infrastructure facilities such as national highways, flood control and water resource development systems are
in accordance with the highest level and safety and efficiency and with the overall national development
objectives;
WHEREAS, under Section 31, Chapter 10, Book III of Executive Order No. 292, series of 1987,
otherwise known as the “Administrative Code of 1987”, the President, in order to achieve simplicity, economy
and efficiency, has the continuing authority to reorganize the administrative structure of the Office of the
President.
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Republic of the Philippines,

by virtue of the powers vested in me by law, do hereby order:
SECTION 1. Transfer of LWUA to DPWH. The Local Water Utilities Administration (LWUA) is
hereby transferred from the Office of the President to the Department of Public Works and Highways
(DPWH).
SECTION 2. Authority to Exercise Administrative Supervision. The Secretary of Public

Works Highways is hereby authorized to exercise administrative supervision over the LWUA and the
MWSS, with the objective of providing a concerted and well-coordinated effort in formulating policies, as
well as planning and implementing programs and projects for the water sector.
82
For the purpose, the DPWH Secretary shall, among others:
a. Coordinate and oversee the policy-making processes of the respective governing boards of the
LWUA and the MWSS;
b. Require the submission of reports as the DPWH Secretary may deem necessary, including
periodic reports of their respective policies and the implementation of their major programs and
projects, and their respective audited financial statements within sixty (60) days after the close of
the fiscal year;
c. Initiate measures within the agency to promote efficiency and effectiveness, including, but not
limited to, the conduct of management audits, performance evaluations and inspections to determine
compliance with established policies, standards and guidelines;
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.
DONE in the City of Manila, this 18th day of November in the year of Our Lord, Two Thousand and Four.
By the President:
(SGD) EDUARDO R. ERMITA

Executive Secretary
83
section 13
MALACAÑANG
MANILA
IMPLEMENTING THE REFOCUSING OF FUNCTIONS AND ORGANIZATIONAL STRUCTURE

OF THE LOCAL WATER UTILITIES ADMINISTRATION UNDER EO 279 AND PROVIDING OPTIONS
AND BENEFITS FOR EMPLOYEES WHO MAY AFFECTED THEREON
WHEREAS, it is the policy of government of adopt institutional reforms and effect functional, operational
and organizational adjustments in the bureaucracy to continuously improve the quality and efficiency of public
service delivery and transform it into an efficient and results-oriented structure;
WHEREAS, Executive Order (EO) No. 279 provides for the rationalization of LWUA’s organizational
structure and refocusing its objectives to fully implement the reforms in the financing policies in the water supply
and sewerage sector and water service providers;
WHEREAS, Section 79 of the General Provisions of RA 9336 (General Appropriations Act of 2005)
mandates, among others, the adoption of institutional strengthening measures to improve service delivery and
enhance productivity; identification of areas where improvement are necessary; and implementation of
corresponding structure, functional and operational adjustments that will result in streamlined organization and
operation and improved performance and productivity.
NOW, THEREFORE, I, GLORIA MACAPAGAL ARROYO, President of the Philippines, by virtue of

the powers vested in me by law, do hereby order the following:
SECTION 1. Core functions. LWUA shall proved institutional development services, and strengthen
its, lending practices and policies on granting financial assistance grounded on sound development
banking principles aimed at graduating water districts (WDs) and other water service providers (WSPs),
allowing efficient use of financial resources, extend technical assistance to WDs/WSPs and addressing
the need for a greater number of WDs/WSPs.
SECTION 2. Specific Shifts in Policy Directions, Functions, Programs, Activities and

Strategies. To fully implement the reform objectives/policies in the water supply and sewerage sector,
LWUA shall:
a. Improve investor’s confidence in the water supply and sewerage sector;
b. Rationalize the allocation of financial resources in the water supply and sewerage sector through
classification and graduation initiatives;
c. Expand the freedom of choice of water service providers in sourcing their funding requirements;
d. Increase the participation of Local Government Units (LGUs), Government Financial Institutions
(GFIs), and Private Financial Institutions (PFIs) in financing the water supply and sewerage
sector;
84
e. Stimulate improved service and create financial self-sustainability for water service providers;
f. Encourage initiatives aimed at self-sufficiency of water service providers, including, but not limited
to, amalgamation, private sector participation, cost recovery tariffs, and resource pooling;
g. Grant initiatives for the improvement and graduation of water service providers;
h. Educate consumers towards treating water as a scarce economic good; and
i. Perform such other functions as are necessary for the implementation of the foregoing objectives/
policies.
SECTION 3. Organizational Structure. LWUA’s rationalized organization and management structure

shall be composed of the following:
3.1 Board of Trustees. - The LWUA Board of Trustees (BOT) shall formulate policy direction for
the over-all development of the country’s water supply program. It shall be composed of a Chairman
and four members with at least three (3) trustees coming from the National Government, provided that
DOF shall always be represented in the LWUA -BOT. The Administrator of LWUA shall be an ex-
officio Vice Chairman of the LWUA-BOT. There shall be a Board Secretariat, a Legal Counsel and an
Internal Audit Department under the Board of Trustees.
3.2 The LWUA Administrator. The LWUA shall be headed by an Administrator to be appointed
by the President. As chief executive officer of LWUA, the Administrator shall direct and supervise the
operation of LWUA and its corporate performance, execute and administer policies and guidelines
approved by the Board of Trustees.
3.3 Deputy Administrators. There shall be a Deputy Administrator for each of the following
major Groups:
1. Water Development Group (WDG) (Luzon),

2. WDG- Visayas/Mindanao,
3. Water Financier Group, and
4. Administrative Service Group.
3.3.1 Water Development Group (WDG). There shall be two WDGs: one group for Luzon and
another for Visayas/Mindanao.
The WDG shall be primarily responsible for the continuation of LWUA’s current institutional
development services aimed at graduating WDs/WSPs, as well as the classification of the credit
worthiness of WDs/WSPs for purposes of determining the appropriate source of financing; it shall
develop a graduation plan for semi-creditworthy, pre-creditworthy and non-creditworthy WDs/WSPs
based on the graduation initiatives provided under EO 279; and, it shall also monitor the implementation
of the graduation plan and evaluate the effectiveness of the graduation initiatives undertaken by WDs/
WSPs and other functions undertaken by WDs/WSPs.
The WDG shall operate in four (4) areas, as follows:
I. WDG-Luzon shall be handling Areas 1 and 2

Area 1 (covers Region I, 2, 3 and CAR), and Area 2 (covers Regions 4 and 5).
85
2. WDG- Visayas/Mindanao shall be handling Areas 3 and 4;

Area 3 (covers Regions 6, 7 and 8),
Area 4 (covers Regions 9, 10, II, 12 and ARMM region).
Each Area shall be composed of the following divisions namely:
2.1 Corporate Governance Division
2.2 Cost Recovery Tariff Division
2.3 Special Coordination Division
2.4 Engineering Division
3. Technical Assistance Department (TAD). The TAD shall continue LWUA’s program of
providing technical assistance to WDs/WSPs. Consistent with applicable laws, rules and regulations
on government procurement, the TAD shall extend project-related technical assistance to GFIs and
creditworthy WDs/WSPs on a competitive basis: provided that above a certain value threshold,
LWUA shall extend project related technical assistance to semi-creditworthy, WDs/WSPs on a
competitive basis. The TAD shall also extend project related assistance to non-creditworthy, pre-
creditworthy WDs/WSPs which may be with or without charge within a certain value threshold. The
TAD shall have three divisions, to wit:
3.1 Project Development Division
3.2 Water Services Training Division
3.3 Research/Water Laboratory Division
3.3.2 Water Development Finance Group (WDFG). - The WDFG shall enhance and/or
strengthen LWUA’s lending policies and functions for the purpose of carrying out and implementing its
mandate in providing financing, particularly to non-creditworthy, pre-creditworthy and semi-creditworthy
WDs/WSPs, grounded on sound development banking principles. It shall develop its own procedure
for the monitoring of its loan portfolio; it shall strengthen the collection functions from WDs/WSPs as
well as enhance its payment of loans to LWUA creditors. The WDF shall have three departments, to
wit:
3.3.2.1 Treasury Department
3.3.2.2 Loan Portfolio Management Department
3.3.2.3 Accounting Department
3.3.3 Administrative Services Group (ASG).The ASG shall provide the requisite support
and ancillary services to the organization, with the following departments:
3.3.3.1 Human Resources Management Department
3.3.3.2 Property Management Department
3.3.3.3 General Services Department
3.4 Abolition of the Office of the Senior Deputy Administrator. - The Office of the Senior
Deputy Administrator is hereby abolished and its functions subsumed under the Office of the Administrator
and the Deputy Administrators for each WDG.
SECTION 4. Staffing Pattern. Within 30 days after the issuance of this Order, the staffing pattern of
LWUA shall be submitted to the Department of Budget and Management (DBM) for review and approval.
LWUA is given the flexibility to make changes in its staffing pattern; Provided, that the number of
plantilla positions is maintained; Provided further, that the same shall be subject to the approval of
DBM.
SECTION 5. Options for Personnel Who May Be Affected by the Rationalization of Functions.
86
Personnel who may be affected by the rationalization of functions shall have the following options:
5.1 Remain in government service, provided that their appointments, whether permanent or
temporary, shall be attested by the Civil Service Commission (CSC); Provided further, that
those with temporary appointments shall be guaranteed tenure up to the expiration of their
appointment only, or
5.2 Avail of the retirement/separation benefits herein provided.
SECTION 6. Personnel Who Would Opt to Remain in Government Service. Affected personnel
who would opt to remain in government service shall either be:
a. placed by the CSC in other agencies where additional personnel are required; or
b. transferred to CSC, if not placed within two (2) months, to remain therein until a match could
be found.
Their compensation shall be transferred to the recipient agency or to CSC, as the may be.
Affected LWUA personnel who choose to remain in government service but would later object to
his/her new job assignment, without justifiable meritorious reasons approved by the CSC, shall be
deemed separated/retired and shall be paid the appropriate retirement, separation or unemployment
under existing retirement/separation laws, without the incentives provided herein.
SECTION 7. Benefits of Personnel Who Would Opt to Retire or Be Separated from the
Service. Affected personnel, with appointments attested by the CSC, whether hired on a permanent or
temporary basis, who would opt to retire or be separated from the service pursuant to Section 5 hereof and
those hired on a casual or contractual basis, if qualified, shall be given the option to avail themselves of
any of the following, whichever is beneficial to them:
7.1 Retirement gratuity provided under RA 1616, as amended, payable by the last employer of the
affected personnel, plus the refund of retirement premiums payable by the Government
Service Insurance Service (GSIS), without the incentive herein provided.
7.2 Retirement benefit under RA 660 or applicable retirement, separation or unemployment benefit
under RA 8291, if qualified, plus the following applicable incentives:
7.2.1 1/2 month of the present basic salary for every year of government service, for those who
have rendered 20 years of service and below;
7.2.2 3/4 month of the present basic salary for every year of government service, computed
starting from 1st year, for those who have rendered 21-30 years of service; and
7.2.3 one (1) month of the present basic salary for every year of government service, computed
starting from the 1st year, for those who have rendered more than 30 years of service.
For purpose of Section 7.2.1 to 7.2.3, employment for a fraction of the year shall be considered as
employment for the whole year.
PROVIDED: That for the purpose of computing the total amount of incentive that an affected personnel
would receive, only his/her government service up to age 59 and a fraction thereof would be counted:
government service starting at the age 60 would no longer be subject to the incentive herein provided;
87
PROVIDED FURTHER: That for the purpose of complying with the required number of years of
service under RA 8291, the portability scheme under RA 7699 (An Act Instituting Limited Portability
Scheme in the Social Security Insurance Systems by Totalizing the Workers’ Creditable Services or
Contributions in Each of the Systems) may be applied, subject to existing policies and guidelines;
PROVIDED FURTHERMORE: That on the day of separation, the GSIS shall pay the amount of
retirement/separation/unemployment benefits payable by the GSIS, to which an affected employee may
be entitled to under the provisions of this Order, subject to the submission of the required documents to the
GSIS one (1) month before the set date of retirement/separation.
7.3 Those with less than three (3) years of government service may opt to avail of the separation
gratuity under RA No. 6656; plus the appropriate incentive provided under Section 7.2.
No affected employee who opted for retirement/separation shall receive less than an aggregate
amount of Fifty Thousand Pesos (P50,000.00) as his retirement/separation gratuity benefit from both the
National Government and the GSIS.
SECTION 8. Return by the GSIS of the National Government’s Share in the Retirement
Premiums of Personnel Who Cannot Avail of RA No. 660 or RA 8291. The GSIS shall return to the
National Government the corresponding share of the government to the retirement premiums, with
interest, of employees who are not yet entitled to avail either RA 660 or RA 8291.
SECTION 9. Other Benefits of Retired/Separated Personnel. LWUA affected personnel who

opted to retire or be separated shall, in addition to the applicable benefits above, be entitled to the following:
9.1 Refund of Pag-IBIG Contributions. All affected personnel who are members of the Pag-IBIG
shall be entitled to the refund of their contributions (both personal and government), pursuant to
existing rules and regulations of the Home Development Mutual Fund;
9.2 Commutation of Unused Vacation and Sick Leave Credits. All LWUA affected personnel shall
be entitled to the commutation of unused vacation and sick leave credits in accordance with
existing rules and regulations. They are also allowed to monetize their accumulated
compensatory time-off credits, if any.
SECTION 10. Resulting Staffing Pattern and Personnel. To ensure that the new rationalized
organization is staffed with competent and dedicated civil servants, the LWUA Management shall draw
up the deployment of personnel to the new OSSP with utmost care, subject to all pertinent Civil Service
rules and regulations. Further, LWUA Management shall ensure the implementation of appropriate personnel
action on affected employees in accordance with the corresponding guidelines as may be issued by the
DBM.
SECTION 11. Transition Plan. Towards the smooth and expeditious implementation of its plan, the
LWUA Management shall prepare and implement a step-by-step action plan for the transition from the old
structure to the new rationalized organization. In this regard, it shall closely supervise and properly
document turnover of responsibilities and accountabilities.
SECTION 12. Funding. Funds needed to implement this rationalization, as well as the payment of
the separation/retirement benefits, not covered by the GSIS, shall be taken from available LWUA
corporate funds, subject to the usual accounting and auditing rules and regulations. In case of funding
deficiency, the National Government may provide assistance in the payment of incentives to affected
88
personnel, in accordance with applicable laws, and subject to the usual accounting and auditing rules and
regulations.
SECTION 13. Effectivity of the Retirement/Separation Package. The option to avail of the
retirement /separation package shall be available up to two (2) months after the DBM approval of the
LWUA staffing pattern, provided that such period may be 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
hospitals, within a period of five (5) years. Reemployment in any other Branch of Government shall be
considered as new entry to the civil service.
SECTION 15. Repealing Clause. All issuances, order, rules and regulations or parts thereof that are
inconsistent with this Executive Order are hereby revoked, amended or modified accordingly.
SECTION 16. Effectivity. This Executive Order shall take effect immediately.
DONE in the City of Manila, this 13th day of April, in the year of our Lord two thousand and five.
By Authority of the President:
(SGD) EDUARDO R. ERMITA

Executive Secretary
89
ANNEX B
LOCAL WATER UTILITIES ADMINISTRATION ORGANIZATIONAL STRUCTURE
Board of Trustees
Administrator
Public Affairs Management Internal Control

Department Services Office Office
Senior Deputy
Administrator
Legal Special Projects WS Research &

Department Office Training Department
Deputy Administrator Deputy Administrator Deputy Administrator

for Administrations for Finance for Area Operations
Human Resources Treasury Area

Mgt. Department Department Managers (9)
Property Mgt. Accounting

General Services Loans Admin.

Water District Audit

Department
90
section 14
Republika ng Pilipinas
KAGAWARAN NG KATARUNGAN
Department of Justice
Manila
OFFICE OF THE SECRETARY
CAMARINES NORTE WATER DISTRICT (CNWD),

Petitioner,
-versus-
– Case No. OSJ-2005-03
BUREAU OF INTERNAL
REVENUE (BIR),
Respondent,
x————————————————-------------------x
DECISION
Subject herein is the petition for Arbitration filed by Camarines Norte Water District (CNWD), through its
statutory counsel, the Office of the Government Corporate Counsel (OGCC) against the Bureau of Internal
Revenue (BIR), represented by its Commissioner, pursuant to Chapter 14, Book IV of Executive Order (E.O.)
No. 292, which adopted the provisions of P. D. 242 prescribing the procedure for the administrative settlement
or adjudication of disputes, claims and controversies between and among government offices, agencies and
instrumentalities, including government-owned or controlled corporations.
In its Amended Petition, herein petitioner prays that this Office issue an Order against respondent to defer
from collecting the alleged tax deficiency amounting to Php 9,736,486.17, plus increments as contained 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 pursuant to Section 32 (B) (7) (b) of the National Internal Revenue Code (NIRC) of 1997, (b) to
declare that it is not subject to franchise tax, or, in the alternative, should it be liable for franchise tax, it should
no longer be liable for value added tax and (c) to declare that the petitioner is not liable for payment of increments
for deficiency income and value added taxes for taxable year 2000.
Petitioner alleges, among others, that it seeks from this Office “proper interpretation and application of laws
relative to the exemption, or liability, of the petitioner from payment of income tax, franchise tax, and other
internal revenue taxes;” that it is a public water utility performing an essential government function; that its
income is exempt from taxes pursuant to Section 32 (B) (7) (b) of the Tax Code, as amended; that BIR Ruling
No. 074-98 has already been superseded or abandoned by BIR Ruling Nos. 018-2000 and DA-088-2001; that
the assessments issued against it is contrary to the uniformity and equal protection clauses of the Constitution;
that P. D. No. 198 is a special law that should prevail over the Tax Code which is a general law and that the
assessments are contrary to the general welfare clause of the constitution and inimical to public interest.
As alleged in the pleadings, the following are the background facts relevant to petitioner’s claim for
exemption from payment of income tax, franchise tax, value added tax and other deficiency income and value
added taxes for taxable year 2000:
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1. On November 13, 2001, Letter of Authority No. 00061324 was issued authorizing and directing
Revenue Officer Romulo C. Baguid of Revenue District Office 64, Daet, Camarines Norte, to examine
the books of accounts and other accounting records of CNWD for all internal revenue tax purposes
covering the taxable year 2000.
2. As a result, it was determined that CNWD is liable to deficiency income and value added taxes
for the same year.
3.On February 3, 2003, a Preliminary Assessment Notice was issued followed by a Formal Letter
of Demand and the corresponding Final Assessment Notices on July 3, 2003, against CNWD demanding
payment allegedly of the total amount of P9,736,486.17.
4. CNWD disputed the assessments and on August 26, 2003, the BIR rendered as decision
denying the protest of CNWD.
5. On November 11, 2003, CNWD, through the OGCC, filed a request for reconsideration and on
April 19, 2005, the Commissioner of Internal Revenue denied with finality the protest of CNWD and
consequently ordered CNWD to pay the aggregate amount allegedly of P9,734,486.17 as deficiency
income and value added taxes for taxable year 2000, plus increments that have accrued thereon until the
actual date of payment.
6. On May 25, 2005, the petitioner elevated the matter to this Office as to the proper interpretation
or the correctness of ruling of the Commissioner of Internal Revenue.
In its Answer, dated October 20, 2005, which was filed beyond the reglementary period of fifteen (15)
days to file an answer, the respondent specifically denies the nature of this petition and prays for the dismissal
of this petition for lack of merit.
Respondent avers that petitioner seeks to dispute the decision rendered by respondent on its protest
against the assessments issued by it. It submits that this Office lacks jurisdiction to take cognizance of its
decision on disputed assessments; that it is the Court of Tax Appeals that has jurisdiction; that the appellate
jurisdiction of the Court of Tax Appeals is exclusive; and that the power to interpret the provisions of the Tax
Code is with the respondent and this interpretation is subject to review by the Secretary of Finance and not by
the Secretary of Justice.
Respondent also contends that when R. A. No. 7109, entitled “An Act Granting Tax Exemption Privileges
to Local Water Districts,” took effect, it expressly extinguished the tax exemption privileges of petitioner after the
lapse of five (5) years from its effectivity thereby making CNWD liable for income and franchise taxes.
Respondent further argues that in order for the petitioner to be exempt under section 32 (B) (7) (b) of the
Tax Code two conditions should be met: (1) the income derived must be from a public utility or from the exercise
of any essential government function, and (2) the income must accrue to the Government of the Philippines or
to any political subdivision thereof; and that failure to satisfy both two conditions makes the petitioner liable.
Finally, respondent argues, among others, that petitioner cannot contend that it is performing governmental
functions when the law creating it states that it is engaged in a proprietary functions; that its exemption privilege
cannot hinge on previous BIR Rulings; and that local water districts have different charters and are governed
by different laws.
By way of reply to the respondent’s Answer, petitioner maintains that this Office has jurisdiction over the
92
instant case; that respondent is estopped from assailing the jurisdiction of this Office; and that petitioner satisfies
the requirements of Section 32 (B) (7) (b) of the Tax Code.
No amicable settlement having been reached during the preliminary conference, the instant petition, on
motion of petitioner, duly concurred in by the respondent, was considered submitted for resolution based on the
pleadings and memoranda to be filed with this Office. However, while petitioner submitted its Memorandum, the
respondent failed to submit any.
Petitioner reiterated in its position paper that this Office has jurisdiction over the instant case; that
respondent is estopped from assailing the jurisdiction of this Office and that it complies with the requirements for
exemption under Section 32 (B) (7) (b) of the Tax Code.
We find for the petitioner.

It bears stress, at the outset, that while on its face, it appears that the instant petition was brought up to
question the validity of the disputed assessment made by the respondent against CNWD, the petitioner herein,
there is also here, in fact and on closer scrutiny, a question of law involved, i.e., the proper interpretation of
Section (B) (7) (b) of the NIRC of 1997, and both parties have conflicting interpretations thereof requiring,
therefore, this Office to interpret the same pursuant to its authority under Section 66 and 68, Chapter 14, Book
IV of E. O. No. 292, to wit:
“Chapter 14 – Controversies among Government Offices and Corporations
Sec. 66. How Settled. All disputes, claims and controversies, solely between or among the
departments, bureaus, office, agencies and instrumentalities of the National Government, including
government-owned or controlled corporations, such as those arising from the interpretation and application
of statutes, contracts or agreements, shall be administratively settled or adjudicated in the manner
provided in this Chapter. xxx
xxx
Sec. 68. Disputes Involving Questions of Fact and Law. Cases involving mixed questions of
law and of fact or only factual issues shall be submitted to and settled or adjudicated by:
(1) The Solicitor General, if the dispute, claim or controversy involves only departments, bureaus,
offices and other agencies of the National Government as well as government-owned or controlled
corporations or entities of whom he is the principal law officer or general counsel; and
(2) The Secretary of Justice in all other cases not falling under paragraph (1).” (underscoring
supplied)
The jurisdiction of this Department over the case cannot, thus, be disputed.
Moreover, assuming, argumentatively, that the provisions of E. O. No. 292, earlier-quoted, do not apply,
this Office can still assume jurisdiction over the case based on the principle of estoppel. Respondent, it must be
noted, had, on at least one occasion, which we take judicial notice of, involving the same issues that have been
raised in the instant case, assailed the jurisdiction of the Court of Tax Appeals (CTA) and claimed that since the
petitioner MCWD is a government-owned and controlled corporation, the dispute should be settled in accordance
with the provisions of Chapter 14, Book IV of the Administrative Code of 1987. As a result thereof, CTA
dismissed the petition for review in order to be filed before this Office.
“The operation of the principle of estoppel on the question of jurisdiction seemingly depends upon
93
whether the lower court actually had jurisdiction or not. If it had no jurisdiction but the case was tried and
decided upon the theory that it had jurisdiction, the parties are not barred, on appeal, from assailing such
jurisdiction, for the same ‘must exist as a matter of law, and may not be conferred by consent of the parties or
by estoppel’ (5C.J.S. 861-863). However, if the lower court had jurisdiction, and the case was heard and
decided upon a given theory, such, for instance, as the court had no jurisdiction, the party who induced it to
adopt such theory will not be permitted, on appeal, to assume an inconsistent position-that the lower court had
jurisdiction. Here, the principle of estoppel applies. The rule that jurisdiction is conferred by law, and does not
depend upon the will of the parties, have no bearing thereon.” (underscoring supplied)
Respondent, is therefore, estopped from assailing the jurisdiction of this Office. It does not matter if it is a
rule that government is never estopped by the mistakes or errors of its agents. The rationale is because certain
affirmative acts of public officials may give rise to estoppel, as what happened in this case.
Going now to the merits of the case, the subject provision of the National Internal Revenue Code, insofar
as pertinent, is clear and categorical:
“SEC. 32. Gross Income. –

xx xx
(B) Exclusion from Gross Income. The following items shall not be included in gross income and
shall be exempt from taxation under this Title:
xx xx
Miscellaneous Items. –
xx xx
(b) Income Derived by the Government or its Political Subdivisions. Income derived from any
public utility or from the exercise of any essential governmental function accruing to the Government
of the Philippines or to any political subdivision thereof.”
It is a basic rule in statutory interpretation that when the words and phrases of a statute are clear and
unequivocal, their meaning must be determined from the language employed and the statute must be taken to
mean exactly what it says. The probable intent cannot be speculated apart from the language used because
when the law is clear, it is not susceptible to interpretation-only to application.
A careful perusal of Section 32(B) (7) (b) of the NIRC, above-quoted, shows that income derived (a) from
any public utility and that derived (b) from the exercise of any essential government function accruing to the
Government of the Philippines or to any political subdivision thereof are two different items which shall not be
included in gross income and shall be exempt from taxation under the law. The subject NIRC provision is clear
enough as to require an interpretation.
Consequently, if the GOCC, as the petitioner herein, derives income from its operation as a public utility,
the income is excluded from gross income, irrespective of whether or not said income accrued to the
Government of the Philippines or to any political subdivision thereof. But if the income was derived from the
exercise of any essential government function, the above-quoted provision requires that the income must
accrue to the government or any of its political subdivision for it to be excluded from gross income.
The exemption in the first case is justified by its nature as a public utility. A public utility has been defined
as “1. a company that provides necessary services to the public, such as telephone lines and service,
electricity, and water, xxx, 2. a person, corporation or other association that carries on an enterprise for the
accommodation of the public, the members of which are entitled as a matter of right to use its facilities.”
Likewise, the Supreme Court, in one case, has had occasion to define a public utility as one organized for “hire
94
or compensation” to serve the public, which is given the right to demand its service.
Indeed, the income of the petitioner falls under the first category of income that is exempt from taxation
having derived the same from its operation as a public utility that renders necessary services to the public, and
which status had even been recognized and acknowledged by the respondent, albeit impliedly and indirectly,
when, in its ruling, respondent admitted that local water districts are public utilities.
Upon the other hand, the other exemption is justified by the fact that the income results from the exercise
of an essential government function and accrues to the government or its political subdivision. In both instances,
a contrary view would also be opposed to the rule that, generally, the government cannot tax itself for to do so
would not be beneficial to the government.
We cannot subscribe to the position advanced by the respondent that in order to satisfy the requirements
of said provision of law two conditions should be met, namely, (1) the income derived must be from a public
utility or from the exercise of any essential government function, and (2) the income must accrue to the
Government of the Philippines or to any political subdivision thereof, not only because the law is clear enough
to require an interpretation but also because of the use of the disjunctive article “or”.
In statutory construction, the use of the word “or” signifies “alternative”, “dissatisfaction” and “independence”
of one thing from each of the other things enumerated. When used, the various members of the sentence are to
be taken separately. This must be distinguished from the use of the conjunctive word “and” which, when used,
connotes that the various members of a sentence are to be taken jointly. Thus, we cannot but agree more with
the petitioner’s claim that the phrase “accruing to the Government of the Philippine or to any political subdivision
thereof ” only qualifies the income from the exercise of any essential government function to which it is attached
and does not qualify the income derived from a public utility.
Moreover, anent the section heading of Section 32 (B) (7) (b), suffice it to say that while the same can be
resorted to in the construction of statutes to determine or ascertain legislative intent, the same is not conclusive.
In the language of the Supreme Court:
It is a familiar law that when the text itself of a statute or a treaty is clear and unambiguous, there is neither
necessity nor propriety in resorting to the preamble or headings or epigraphs of a section for interpretation of the
text, especially where such epigraphs or headings of sections are mere catchwords or reference aids indicating
the general nature of the text that follows. xxx Being nothing more than a convenient index to the contents of the
articles of the Code, they cannot in any event have the effect of modifying or limiting the unambiguous words
of the text. Secondary aids may be consulted to remove, not to create doubt.
Neither are we prepared to subscribe to respondent’s claim that since under Section 3 of R.A. No. 7109,
the tax exemption privileges granted to “all water districts shall be enjoyed only for a period of five (5) years
from the effectivity of (the) Act,” “all LWD’s, such as herein peitioner, became liable for income and franchise
taxes,” among others.
It must be stressed that while in its ruling in Tanjay Water District vs. Gabaton, 172 SCRA 253, dated April
17, 1989, the Supreme Court, citing Hagonoy Water District vs. NLRC, said’ that local water districts are
quasi-public corporations, in Davao City Water District vs. Civil Service Commission, 201 SCRA 593, it
categorically stated that water districts are “government-owned or controlled corporations with original charter,
“that is, “government-owned or controlled corporations created under a special law and not under the Corporation
Code of the Philippines.” As the Court explicitly expounded in the much later case of Feliciano vs. Commission
on Audit, 419 SCRA 363, quoting Section 16, Article XII of the Constitution:
95
“In short, Congress cannot enact a law creating a private corporation with a special charter. Such
legislation would be unconstitutional. Private corporations may exist only under a general law. If the corporation
is private, it must necessarily exist under a general law. Stated differently, only corporations created under a
general law can qualify as private corporations. Under existing laws, that general law is the Corporation Code,
except that the Cooperative Code governs the incorporation of cooperatives.
The Constitution authorizes Congress to create government-owned or controlled corporations through

special charters. Since private corporations cannot have special charters, it follows that Congress can create
corporations with special charters only if such corporations are government-owned or controlled.
Obviously, LWDs are not private corporations because they are not created under the Corporation Code.
xxx.
At this point, it may significant to point out that while, as rightfully interpreted by the respondent in its Ruling
No. 074-98, under Section 27 (c) of the NIRC, which states that –
“Sec. 27 xxx
(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities The
provisions of existing special or general laws to the contrary not withstanding, all corporations,
agencies or instrumentalities owned or controlled by the Government, except the Government
Service Insurance System (GSIS), the Social Secutiry System (SSS), the Philippine Health
Insurance (PHIC), the Philippine Charity Sweepstakes Office (PCSO), and the Philippine
Amusement and Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable
income as are imposed by this Section upon corporations or associations engaged in similar
business, industry or activity.”
Only five (5) corporations, namely GSIS, SSS, PHIC, PCSO and PAGCOR are exempted from the
payment of regular corporate income tax, this Office has occasion to rule that the enumeration under the law is
not exclusive. In fact, respondent impliedly agreed with our view when it issued BIR Ruling No. 018-2000,
dated January 20, 2000, declaring that the income of the National Power Corporation (NPC), a government-
owned or controlled corporation at the same time a public utility engaged in the supply of electricity, is exempted
from income tax pursuant to Section 32 (B) (7) (b) of the Tax Code, and BIR Ruling No. DA 088, dated May
16, 2001, declaring that MWSS, a government-owned public utility, is equally exempted from income tax
pursuant to the same section.
We feel that it is timely at this point in time to set the record straight, that water districts all over the country
must be declared as exempt from tax as they are no different from MWSS that is engaged in the supply of
potable drinking water to the public in Metro Manila.
To rule otherwise violates the equal protection of the laws. The phrase equal protection of the laws signifies
that “all persons subject to legislation shall be treated alike under like circumstances and conditions both in the
privileges conferred and liabilities imposed.”
We do not see rational basis in exempting PAGCOR and PCSO vis-a-vis MWSS and Water Districts
from income tax where one proceeds from gambling while the other proceeds from basic necessity. This could
be the reason why the respondent find it wise to exempt MWSS and NAPOCOR in its ruling by breeching the
non-exclusivity of Section 27(c) of the NIRC. If respondent can exempt MWSS there is no reason why it
cannot exempt the water districts all over the country. There is no reason why a huge company can be exempt
while a small entity cannot be exempt.
96
On the issue of Franchise Tax and Value-Added Tax, Section 119, of the Tax Code of 1997 provides that:
“Sec. 119. Tax on Franchises. Any provision of general or special law to the contrary not withstanding,
there shall levied, assessed and collected in respect to all franchises on radio and/or television broadcasting
companies whose annual gross receipts of the preceding year does not exceed Ten Million pesos
(P10,000,000.00), subject Section 236 of this code, a tax of three percent (3%) and on electric, gas and water
utilities, a tax of two percent (2%) on the gross receipts derived from the business covered by the law granting
the franchise: xxx”
It is clear from the above provision that the CNWD is liable for Franchise Tax of two percent (2%) of its
gross receipts, however since it is now subject to franchise tax, they are exempt from VAT on their services
that are already subject to franchise.
WHEREFORE, premises considered, CNWD is declared exempt from payment of income tax as an
exclusion from gross income, liable for payment of franchise tax but exempt from VAT and all other increments
thereto.
With respect to the prayer of the petitioner that this Office issue a Cease and Desist Order against
respondent to defer from collecting the amount of Php 9,736,486.17 the same is hereby GRANTED.
No costs.
SO ORDERED.
Manila, Philippines, March 20, 2006
(SGD) RAUL M. GONZALES

Secretary
97
section 15
TRANSFERRING THE LOCAL WATER UTILITIES ADMINISTRATION FROM THE

DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS TO THE DEPARTMENT OF HEALTH
WHEREAS, under Executive Order (EO) No. 387 (s. 2004), the Local Water Utilities Administration
(LWUA) was transferred from the Office of the President (OP) to the Department of Public Works and
Highways (DPWH);
WHEREAS, the provision of potable water is a primary health concern which should be supervised by
the Department of Health (DOH);
WHEREAS, there is also a need to speed-up and ensure the provision of safe potable water in every
barangay; and
WHEREAS, under Section 31, Chapter 10, Title III, Book III of the Administrative Code of 1987, the
President has the continuing authority to reorganize the administrative 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 shall coordinate with the
Secretary of Public Works and Highways and the Metropolitan Waterworks Sewerage System (MWSS)
to ensure that there will be concerted efforts in formulating policies as well as planning and implementing
programs and projects for the water sector.
SECTION 3. Repealing Clause. The provisions of Executive Order No. 187 (s. 2004) which are
inconsistent with the provisions of this Executive Order are hereby repealed, amended or modified
accordingly.
All other executive issuances, rules, regulations or parts thereof, which are inconsistent with any of
the provisions hereof are hereby repealed, amended or modified accordingly.
SECTION 4. Effectivity. This Executive Order shall take effect immediately.
DONE. In the City of Manila, this 14th day of July, in the year of Our Lord, Two Thousand and Eight.
By the President:
(Sgd.) Sec. EDUARDO R. ERMITA

Executive Secretary
98
section 16
PHILIPPINE SUPREME COURT JURISPRUDENCE
G.R. No. 197146, December 06, 2016 - HON. MICHAEL L. RAMA, IN HIS CAPACITY AS MAYOR OF
CEBU CITY, METROPOLITAN CEBU WATER DISTRICT (MCWD), REPRESENTED BY ITS GENERAL
MANAGER, ARMANDO PAREDES; THE BOARD OF DIRECTORS OF MCWD, REPRESENTED
BY ITS CHAIR, ELIGIO A. PACANA; JOEL MARI S. YU, IN HIS CAPACITY AS MEMBER OF THE
MCWD BOARD; AND THE HONORABLE TOMAS R. OSMEÑA, IN HIS CAPACITY AS
CONGRESSIONAL REPRESENTATIVE OF THE SOUTH DISTRICT, CEBU CITY, Petitioners, v.
HON. GILBERT P. MOISES, IN HIS CAPACITY AS PRESIDING JUDGE OF REGIONAL TRIAL
COURT, BRANCH 18, CEBU CITY; AND HON. GWENDOLYN F. GARCIA, IN HER CAPACITY AS
GOVERNOR OF THE PROVINCE OF CEBU, Respondents.:
G.R. No. 197146, December 06, 2016 - HON. MICHAEL L. RAMA, IN HIS CAPACITY AS MAYOR OF
CEBU CITY, METROPOLITAN CEBU WATER DISTRICT (MCWD), REPRESENTED BY ITS GENERAL
MANAGER, ARMANDO PAREDES; THE BOARD OF DIRECTORS OF MCWD, REPRESENTED
BY ITS CHAIR, ELIGIO A. PACANA; JOEL MARI S. YU, IN HIS CAPACITY AS MEMBER OF THE
MCWD BOARD; AND THE HONORABLE TOMAS R. OSMEÑA, IN HIS CAPACITY AS
CONGRESSIONAL REPRESENTATIVE OF THE SOUTH DISTRICT, CEBU CITY, Petitioners, v.
HON. GILBERT P. MOISES, IN HIS CAPACITY AS PRESIDING JUDGE OF REGIONAL TRIAL
COURT, BRANCH 18, CEBU CITY; AND HON. GWENDOLYN F. GARCIA, IN HER CAPACITY AS
GOVERNOR OF THE PROVINCE OF CEBU, Respondents.
EN BANC
G.R. No. 197146, December 06, 2016
HON. MICHAEL L. RAMA, IN HIS CAPACITY AS MAYOR OF CEBU CITY, METROPOLITAN

CEBU WATER DISTRICT (MCWD), REPRESENTED BY ITS GENERAL MANAGER, ARMANDO
PAREDES; THE BOARD OF DIRECTORS OF MCWD, REPRESENTED BY ITS CHAIR, ELIGIO A.
PACANA; JOEL MARI S. YU, IN HIS CAPACITY AS MEMBER OF THE MCWD BOARD; AND THE
HONORABLE TOMAS R. OSMEÑA, IN HIS CAPACITY AS CONGRESSIONAL
REPRESENTATIVE OF THE SOUTH DISTRICT, CEBU CITY, Petitioners, v. HON. GILBERT P.
MOISES, IN HIS CAPACITY AS PRESIDING JUDGE OF REGIONAL TRIAL COURT, BRANCH 18,
CEBU CITY; AND HON. GWENDOLYN F. GARCIA, IN HER CAPACITY AS GOVERNOR OF THE
PROVINCE OF CEBU, Respondents.
DECISION
BERSAMIN, J.:
A law enacted prior to the 1987 Constitution, like a presidential decree, is presumed to be valid and
constitutional on the theory that it was carefully studied by the Legislative and Executive Departments prior to
its enactment, and determined to be in accord with the Fundamental Law. However, the presumption of validity
and constitutionality is overturned and the law should be struck down once it becomes inconsistent with the
present Constitution and the later laws.
99
Antecedents
On May 25, 1973, President Ferdinand E. Marcos issued Presidential Decree No. 198 (Provincial
Water Utilities Act of 1973). By virtue of P. D. No. 198, Cebu City formed the Metro Cebu Water District
(MCWD) in 1974. Thereafter, the Cities of Mandaue, Lapu-Lapu and Talisay, and the Municipalities of Liloan,
Compostela, Consolacion, and Cordova turned over their waterworks systems and services to the MCWD.
Since then, the MCWD has distributed water and sold water services to said cities and municipalities. From
1974 to 2002, the Cebu City Mayor appointed all the members of the MCWD Board of Directors in accordance
with Section 3 (b) of P. D. No. 198, to wit:
Section 3. Definitions. - As used in this Decree, the following words and terms shall have the
meanings herein set forth, unless a different meaning clearly appears from the context. The definition
of a word or term applies to any of its variants.
(a) Act. This is the Provincial Water Utilities Act of 1973.
(b) Appointing authority. The person empowered to appoint the members of the board of Directors of
a local water district, depending upon the geographic coverage and population make-up of the
particular district. In the event that more than seventy-five percent of the total active water service
connections of a local water district are within the boundary of any city or municipality, the appointing
authority shall be the mayor of that city or municipality, as the case may be; otherwise, the appointing
authority shall be the governor of the province within which the district is located. If portions of more
than one province are included within the boundary of the district, and the appointing authority is to
be the governors then the power to appoint shall rotate between the governors involved with the initial
appointments made by the governor in whose province the greatest number of service connections
exists. (bold underscoring supplied for emphasis)
In July 2002, Cebu Provincial Governor Pablo L. Garcia wrote to the MCWD to assert his authority and
intention to appoint the members of the MCWD Board of Directors.1 He stated in his letter that since 1996, the
active water service connections in Cebu City had been below 75% of the total active water service
connection of the MCWD; that no other city or municipality under the MCWD had reached the required
percentage of 75%; and that, accordingly, he, as the Provincial Governor of Cebu, was the appointing authority
for the members of the MCWD Board of Directors pursuant to Section 3 (b) of P. D. No. 198.
Later on, the MCWD commenced in the Regional Trial Court in Cebu City (RTC) its action for declaratory
relief seeking to declare Section 3(b) of P.D. No. 198 unconstitutional; or, should the provision be declared valid,
it should be interpreted to mean that the authority to appoint the members of the MCWD Board of Directors
belonged solely to the Cebu City Mayor.
The RTC (Branch 7) dismissed the action for declaratory relief without any finding and declaration as to
the proper appointing authority for the members of the MCWD Board of Directors should none of the cities and
municipalities reach 75% of the total water service connections in the areas under the MCWD.
In the meanwhile, the terms of two members of the MCWD Board of Directors ended, resulting in two
vacancies. To avoid a vacuum and in the exigency of the service, Provincial Governor Gwendolyn F. Garcia
and Cebu City Mayor Tomas R. Osmeña jointly appointed Atty. Adelino Sitoy and Leo Pacaña to fill the
vacancies.4 However, the position of Atty. Sitoy was deemed vacated upon his election as the Municipal
Mayor of Cordova, Cebu in the 2007 elections.
100
Consequently, Governor Garcia commenced an action for declaratory relief to seek the interpretation of
Section 3 (b) of P.D. No. 198 on the proper appointing authority for the members of the MCWD Board of
Directors.
It appears that on February 7, 2008, the Cebu Provincial Legal Office, upon being informed that Mayor
Osmeña would be appointing Joel Mari S. Yu to replace Atty. Sitoy as a member of the MCWD Board of
Directors, formally advised in writing Cynthia A. Barrit, the MCWD Board Secretary, to defer the submission
of the list of nominees to any appointing authority until the RTC rendered its final ruling on the issue of the proper
appointing authority.6 On February 22, 2008, however, Mayor Osmeña appointed Yu as a member of the
MCWD Board of Directors.7 Accordingly, on May 20, 2008, the RTC dismissed the action for declaratory relief
on the ground that declaratory relief became improper once there was a breach or violation of the provision.
On June 13, 2008, Governor Garcia filed a complaint to declare the nullity of the appointment of Yu as a
member of the MCWD Board of Directors (docketed as Civil Case No. CEB-34459), alleging that the
appointment by Mayor Osmeña was illegal; that under Section 3(b) of P.D. No. 198, it was she as the
Provincial Governor of Cebu who was vested with the authority to appoint members of the MCWD Board of
Directors because the total active water service connections of Cebu City and of the other cities and municipalities
were below 75% of the total water service connections in the area of the MCWD. She impleaded Mayor
Osmeña, the MCWD, and Yu as defendants.
In his answer, Mayor Osmeña contended that the authority to appoint the members of the MCWD Board
of Directors solely belonged to him; that since the creation of the MCWD in 1974, it was the Cebu City Mayor
who had been appointing the members of the MCWD Board of Directors; that the Province of Cebu had not
invested or participated in the creation of the MCWD; and that Cebu City, being a highly urbanized city (HUC),
was independent from the Province of Cebu under the provisions on local autonomy of the 1987 Constitution.
The RTC (Branch 18), to which the case was raffled, required the parties to submit their memorandum.
In their joint memorandum, Osmeña and Yu posited that the Province of Cebu did not participate in the
organization of the MCWD; that the words and sentences of Section 3(b) of P.D. No. 198 should not be read
and understood or interpreted literally; and that the case should be dismissed because: (1) Section 3(b) of P.D.
No. 198 was unconstitutional for being arbitrary and unreasonable; (2) Governor Garcia had no authority to
appoint any members of the MCWD Board of Directors; and (3) that the Mayor of the city or municipality having
the majority of water connections within the area under the MCWD had the power to appoint the members of
the MCWD Board of Directors.
On November 16, 2010, the RTC rendered the assailed judgment declaring the appointment of Yu as
illegal and void, holding as follows:
The questioned provision, paragraph (b) of Section 3 of P.O. 198 is clear enough that it needs no
interpretation. It expressly states in unequivocal terms the appointing authority in the water district's
board of directors --- if more than seventy-five percent of the total active water service connections
of a local water district are within the boundary of any city or municipality, the appointing authority
shall be the mayor of the city or municipality, as the case may be; otherwise, the appointing authority
shall be the governor of the province within which the district is located.
It has not been belied by defendants that the active water service connections of Cebu City in the
Metropolitan Cebu Water District (MCWD), at 61.28%, have gone below the required 75% required
101
by law for the city mayor to have the authority to appoint members of the board of directors of the
water district. Lacking such percentage requisite, the appointing power is now vested with the
governor of the Province of Cebu. While it may be true that the governor had not participated in
organizing MCWD and neither did the Province of Cebu invest in establishing waterworks in the
component local governments, the law, however, does not impose any condition or restriction in
transferring the power to the governor to appoint members of the board of directors when the
percentage falls below 75%. Thus, there is no doubt that when any of the water district's participating
city or municipality could not obtain 75% of the active water service connections, the governor shall
appoint the members of the board of directors of the water district, whether it is a participant or not, in
its organization.
As to the constitutionality of the questioned provision, the Court finds that Sec. 3 of P.O. 198 does
not violate the Constitution or the Local Government Code. Vesting the authority in the governor to
appoint a member of the board of directors of a water district is not intruding into the affairs of the highly
urbanized cities and component cities which comprise the district, and neither is it a threat to their
autonomy. It does not interfere with their powers and functions and neither can it be considered an
exercise of the provincial government's supervisory powers. At most, it is simply giving the
authority to appoint the head of the government unit (the governor) where all the members of the water
district are geographically located, and only when none of these cities and municipalities has the
required 75% of the active water service connections. Nevertheless, the issue is not whether the
governor took any part in organizing the water district or has contributed to its formation, but that by
law, she has been made the appointing authority even if she has no participation or involvement in
the cooperative effort of the members of the water district. This may not be the most expedient and
appropriate solution, but still, it is not illegal. As to why this is so is a question only our lawmakers
could answer.
All presumptions are indulged in favor of constitutionality, one who attacks a statute, alleging
constitutionality must prove its invalidity beyond a reasonable doubt; that a law may work hardship
does not render it unconstitutional, that if any reasonable basis may be conceived which supports
the statute, it will be upheld and the challenger must negate all possible bases; that the courts are
not concerned with the wisdom, justice, policy or expediency of a statute, and that a liberal
interpretation of the constitution in favour of the constitutionality of legislation should be adopted.
Notably, among the admissions found in the Answer for defendants Yu and MCWD states: "x x x
with respect to the two (2) vacancies in the Board of MCWD and that joint appointment was made
by the plaintiff and defendant Mayor Osmeña to Atty. Adelino Sitoy and Mr. Eligio Pacana." The
Court surmises from this statement that as early as the previous appointments (of Mr. Pacana and
Atty. Sitoy) defendants have already recognized the appointing authority of the governor for
members of the MCWD board of directors, considering Cebu City's failure to reach the 75%
benchmark on active water service connections.
In sum, the Court has not been able to find any constitutional infirmity in the questioned provision
(Sec. 3) of Presidential Decree No. 198. The fundamental criterion is that all reasonable doubts
should be resolved in favor of the constitutionality of a statute. Every law has in its favor the
presumption of constitutionality. For a law to be nullified, there must be shown that there is a clear
and unequivocal breach of the Constitution. The ground for nullity must be clear and beyond
reasonable doubt. Those who seek to declare the law, or parts thereof unconstitutional, must clearly
establish the basis therefore. Otherwise, the arguments fall short.
102
Based on the grounds raised by defendants to challenge the constitutionality of Section 3 of P.D. 198,
the Court finds that defendants have failed to overcome the presumption of constitutionality of the law.
As to whether the questioned section constitutes a wise legislation, considering the issues being
raised by petitioners, is for Congress to determine.
WHEREFORE, Judgment is hereby rendered in favour of plaintiff and against defendants, finding the
appointment of defendant Joel Mari S. Yu as member of the Metropolitan Cebu Water District
(MCWD) as illegal, null and void.
Mayor Osmeña and Yu jointly moved for reconsideration, but the RTC denied their motion.
Issues
Hence, the petitioners have instituted this special civil action for certiorari,16 contending that:
I.
THE RESPONDENT COURT ABDICATED ITS CONSTITUTIONAL DUTY IN REFUSING

TO DELVE ON THE ISSUE OF CONSTITUTIONALITY.
II.
THE JUDGMENT IS VOID ON ITS FACE BECAUSE OF CLEAR CONSTITUTIONAL

VIOLATIONS APPARENT BY A MERE READING OF THE DECREE.
III.
THE JUDGMENT VIOLATES DUE PROCESS AND THE EQUAL PROTECTION CLAUSE
OF THE CONSTITUTION.
Ruling of the Court
The petition for certiorari is granted.
1.
Preliminary Matter:
Yu's expiration of term did not render
case moot and academic
We note that respondent Yu's term as a member of the MCWD Board of Directors expired on December
31, 2012.18 However, this fact does not justify the dismissal of the petition on the ground of its being rendered
moot and academic. The case should still be decided, despite the intervening developments that could have
rendered the case moot and academic, because public interest is involved, and because the issue is capable
of repetition yet evading review.
For sure, the appointment by the proper official of the individuals to manage the system of water
distribution and service for the consumers residing in the concerned cities and municipalities involves the
interest of their populations and the general public affected by the services of the MCWD as a public utility.
Moreover, the question on the proper appointing authority for the members of the MCWD Board of Directors
should none of the cities and municipalities have at least 75% of the water consumers will not be definitively
resolved with finality if we dismiss the petition on the ground of mootness. It is notable that the two cases for
103
declaratory relief filed for the purpose of determining the proper appointing authority were dismissed without any
definitive declaration or ultimate determination of the merits of the issue. The issue festers. Hence, the Court
needs to decide it now, not later.
2.
First Issue:
RTC explained its holding of the assailed provision
as valid and constitutional but it thereby erred nonetheless
The petitioners take the RTC to task for not explaining why it held Section 3(b) of P.D. No. 198 to be not
violative of the constitutional provision on local autonomy and HUCs, and why it only opined that the question
of constitutionality of the provision should be left to Congress; that it did not determine whether the requisites for
raising the constitutional issue had been met; that it did not discuss the reasons for holding that the issue about
Section 3(b) of P.D. No. 198 was a political question; that no political question was involved because what was
being inquired into was not the wisdom of the provision but its validity; and that because it did not perform its
constitutional duty of reviewing the provision, its judgment was void.
The petitioners are mistaken on the first issue. The records show that the RTC, which indisputably had the
power and the duty to determine and decide the issue of the constitutionality of Section 3(b) of P.D. No. 198,21
fully discharged its duty. In its assailed decision of November 16, 2010, the RTC ruled as follows:
As to the constitutionality of the questioned provision, the Court finds that Sec. 3 of P.D. 198 does not
violate the Constitution or the Local Government Code. Vesting the authority in the governor to
appoint a member of the board of directors of a water district is not intruding into the affairs of the highly
urbanized cities and component cities which comprise the district, and neither is it a threat to their
autonomy. It does not interfere with their powers and functions and neither can it be considered an
exercise of the provincial government's supervisory powers. At most, it is simply giving the
authority to appoint the head oftbe government unit (the governor) where all the members of the water
district are geographically located, and only when none of these cities and municipalities has the
required 75% of the active water service connections. Nevertheless, the issue is not whether the
governor took any part in organizing the water district or has contributed to its formation, but that by
law, she has been made the appointing authority even if she has no participation or involvement in
the cooperative effort of the members of the water district. This may not be the most expedient and
appropriate solution, but still, it is not illegal. As to why this is so is a question only our lawmakers
could answer.
All presumptions are indulged in favor of constitutionality; one who attacks a statute, alleging
constitutionality must prove its invalidity beyond a reasonable doubt; that a law may work hardship
does not render it unconstitutional; that if any reasonable basis may be conceived which supports the
statute, it will be upheld and the challenger must negate all possible bases, that the courts are not
concerned with the wisdom, justice, policy or expediency of a statute; and that a liberal interpretation
of the constitution in favor of the constitutionality of legislation should be adopted.
xxxx
In sum, the Court has not been able to find any constitutional infirmity in the questioned provision
(Sec. 3) of Presidential Decree No. 198. The fundamental criterion is that all reasonable doubts
should be resolved in favor of the constitutionality of a statute. Every law has in its favor the
presumption of constitutionality. For a law to be nullified, there must be shown that there is a clear and
104
unequivocal breach of the Constitution. The ground for nullity must be clear and beyond reasonable
doubt. Those who seek to declare the law, or parts thereof, unconstitutional, must clearly establish
the basis therefore. Otherwise, the arguments fall short.
Nonetheless, the petitioners rightly contend that the RTC improperly regarded the matter about Section
3(b) of P.D. No. 198 as a political question; hence, not justiciable. It was not.
Political questions refer to "those questions which, under the Constitution, are to be decided by the people
in their sovereign capacity; or in regard to which full discretionary authority has been delegated to the legislature
or executive branch of the government." They are "neatly associated with the wisdom" of a particular act.
The difference between the political and the justiciable questions has been noted in Sanidad v. Commission
on Elections, cralawred as follows:
x x x The implementing Presidential Decree Nos. 991, 1031, and 1033, which commonly purport
to have the force and effect of legislation are assailed as invalid, thus the issue of the validity of said
Decrees is plainly a justiciable one, within the competence of this Court to pass upon. Section 2 (2),
Article X of the new Constitution provides: "All cases involving the constitutionality of a treaty,
executive agreement, or law may shall be heard and decided by the Supreme Court en bane and
no treaty, executive agreement, or law may be declared unconstitutional without the concurrence of
at least ten Members...." The Supreme Court has the last word in the construction not only of treaties
and statutes, but also of the Constitution itself. The amending, like all other powers organized in the
Constitution, is in form a delegated and hence a limited power, so that the Supreme Court is vested
with that authority to determine whether that power has been discharged within its limits. (Emphasis
supplied)
The petitioners have averred the unconstitutionality or invalidity of Section3 (b) of P.D. No 198 based on
the provision's arbitrariness in denying substantive due process and equal protection to the affected local
government units (LGUs). Such issue, being justiciable, comes within the power of judicial review. As such,
the RTC skirted its duty of judicial review by improperly relying on the political question doctrine. It should have
instead adhered to the pronouncement in Estrada v. Desierto, to wit:
To a great degree, the 1987 Constitution has narrowed the reach of the political question doctrine
when it expanded the power of judicial review of this court not only to settle actual controversies
involving rights which are legally demandable and enforceable but also to determine whether or not
there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of
any branch or instrumentality of government. Heretofore, the judiciary has focused on the "thou shalt
not's" of the Constitution directed against the exercise of its jurisdiction. With the new provision,
however, courts are given a greater prerogative to determine what it can do to prevent grave abuse
of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality
of government. Clearly, the new provision did not just grant the Court power of doing nothing. x x
x (Italics omitted)
3.
Second Issue:
Section 3(b) of P.D. 198 is already superseded
The petitioners argue that the MCWD became a water district by the pooling of the water utilities belonging
to several HUCs and municipalities; that the active water connections in the MCWD have been distributed as
105
follows: Cebu City: 61.28%; Mandaue City: 16%; Lapulapu City: 6.8%; Talisay City and the Municipalities
of Liloan, Consolacion, Compostela, and Cordova: 16.92%; that Section 3 (b) of P.D. No. 198 was
unconstitutional on its face for being unreasonable and arbitrary because the determination of who would
exercise the power to appoint the members of the MCWD Board of Directors was thereby made to depend on
the shifting number of water users in the water district's component LGUs; that the provision on the authority of
the Provincial Governor to appoint in cases where the water connections of any of the water district's cities or
municipalities were below 75% was arbitrary for not distinguishing whether or not the province had contributed
any waterworks to the water district; that the provision did not consider whether a city or municipality comprised
the majority or more of the water consumers; that the provision was irrational as it gave the Provincial Governor
the power to appoint regardless of whether the province had participated in the organization of the water district
or not; that in a democracy, the principle that if power or authority was conferred through determination of
numerical figures then the numerical superiority or the rule of the majority should apply; that the rule of the
majority was being applied in electing government leaders as well as in choosing the leaders in the private
sector; that the provision violated the rule of the majority; that at the time of the filing of this case, the majority of
MCWD water service connections were in Cebu City (61.28%); and that the appointing power should
necessarily remain in the City Mayor of Cebu City because the appointing power was based on the number
of water service connections.
The petitioners asseverate that the provision or any part of P.D. No. 198 did not state any reason for
departing from the rule of the majority; that the provision failed reasonableness as a standard of substantive due
process; that the appointing authority should be the mayor of the city or municipality having the majority of the
water connections; that if such majority could not be attained, there must be a power sharing scheme among
those having the largest number of water connections conformably with the rule of the majority; that the
temporary alternative was the Board of Directors themselves, who, under Section 10 of P.D. No. 198, could
appoint upon failure of the appointing authority to do so; that the assailed provision was void on its face for
violating the constitutional provision on local autonomy and independence of HUCs under Article X of the 1987
Constitution; that the provision unduly interfered with the internal affairs of Cebu City, and diminished the
autonomy of the LGUs; that the provision undermined the independence of HUCs; that both the Office of the
Government Corporate Counsel and the Office of the Solicitor General have opined that because Cebu City
was an HUC, the City Mayor of Cebu City should retain the right to appoint the members of the MCWD Board
of Directors; that the chief executive of the LGU having the majority of water consumers was in the best position
to exercise the discretion of choosing the most competent persons who could best serve the constituents; that
because the largest number of water consumers were in Cebu City, any intrusion on the City Mayor's power
to appoint would violate its independence and autonomy; that the Province of Cebu could not exercise powers
that affected the constituents of HUCs; that providing water to constituents was the sole responsibility of the
concerned LGU; that the water utility of the LGU was a patrimonial property that was not for public use; that as
such, the operation, ownership and management of the public utility should belong to the LGU; and that the
operation of the water utilities involved the private rights of the LGUs that could not be amended or altered by
a statute.
The Court opines that Section 3(b) of P.D. No. 198 should be partially struck down for being repugnant
to the local autonomy granted by the 1987 Constitution to LGUs, and for being inconsistent with R.A. No. 7160
(1991 Local Government Code) and related laws on local governments.
P.D. No. 198 - issued by President Marcos in the exercise of his legislative power during the period of
Martial Law proclaimed under the 1973 Constitution - relevantly provided:
106
MALACAÑANG
Manila
PRESIDENTIAL DECREE No. 198 May 25, 1973
DECLARING A NATIONAL POLICY FAVORING LOCAL OPERATION AND CONTROL OF

WATER SYSTEMS; AUTHORIZING THE FORMATION OF LOCAL WATER DISTRICTS
AND PROVIDING FOR THE GOVERNMENT AND ADMINISTRATION OF SUCH DISTRICTS;
CHARTERING A NATIONAL ADMINISTRATION TO FACILITATE IMPROVEMENT OF
LOCAL WATER UTILITIES; GRANTING SAID ADMINISTRATION SUCH POWERS AS
ARE NECESSARY TO OPTIMIZE PUBLIC SERVICE FROM WATER UTILITY OPERATIONS,
AND FOR OTHER PURPOSES
WHEREAS, one of the pre-requisites to the orderly and well- balanced growth of urban areas is an
effective system of local utilities, the absence of which is recognized as a deterrent to economic
growth, a hazard to public health and an irritant to the spirit and well-being of the citizenry;
WHEREAS, domestic water systems and sanitary sewers are two of the most basic and essential
elements of local utility system, which, with a few exceptions, do not exist in provincial areas in the
Philippines;
WHEREAS, existing domestic water utilities are not meeting the needs of the communities they
serve; water quality is unsatisfactory; pressure is inadequate; and reliability of service is poor; in fact,
many persons receive no piped water service whatsoever;
WHEREAS, conditions of service continue to worsen for two apparent reasons, namely: (1) that key
element of existing systems are deteriorating faster than they are being maintained or replaced, and
(2) that they are not being expanded at a rate sufficient to match population growth; and
WHEREAS, local water utilities should be locally-controlled and managed, as well as have support
on the national level in the area of technical advisory services and financing;

powers vested in my by the Constitution, as Commander-in-Chief of all the Armed Forces of the
Philippines, and pursuant to Proclamation No. 1081 dated September 21, 1972 and General Order
No. 1 dated September 22, 1972, as amended, do hereby decree, order and make as part of the law
of the land the following measure:
TITLE I
PRELIMINARY PROVISIONS
Section 1. Title. - This Decree shall be known and referred to as the "Provincial Water Utilities Act
of 1973."
Section 2. Declaration of Policy. - The creation, operation, maintenance and expansion of reliable
and economically viable and sound water supply and wastewater disposal system for population
centers of the Philippines is hereby declared to be an objective of national policy of high priority. For
purpose of achieving said objective, the formulation and operation of independent, locally controlled
107
public water districts is found and declared to be the most feasible and favored institutional structure.
To this end, it is hereby declared to be in the national interest that said districts be formed and that local
water supply and wastewater disposal systems be operated by and through such districts to the
greatest extent practicable. To encourage the formulation of such local water districts and the transfer
thereto to existing water supply and wastewater disposal facilities, this Decree provides the general
act the authority for the formation thereof, on a local option basis. It is likewise declared appropriate,
necessary and advisable that all funding requirements for such local water systems, other than those
provided by local revenues, should be channeled through and administered by an institution on the
national level, which institution shall be responsible for and have authority to promulgate and enforce
certain rules and regulations to achieve national goals and the objective of providing public waterworks
services to the greatest number at least cost, to effect system integration or joint investments and
operations whenever economically warranted and to assure the maintenance of uniform standards,
training of personnel and the adoption of sound operating and accounting procedures.
Section 3. Definitions. - As used in this Decree, the following words and terms shall have the
meanings herein set forth, unless a different meaning clearly appears from the context. The definition
of a word or term applies to any of its variants.
(a) Act. This Provincial Water Utilities Act of 1973.
(b) Appointing authority. The person empowered to appoint the members of the Board of
Directors of a local water district, depending upon the geographic coverage and population make-
up of the particular district. In the event that more than seventy-five percent of the total active water
service connections of a local water district are within the boundary of any city or municipality, the
appointing authority shall be the mayor of that city or municipality, as the case may be; otherwise,
the appointing authority shall be the governor of the province within which the district is located. If
portions of more than one province are included within the boundary of the district, and the
appointing authority is to be the governors then the power to appoint shall rotate between the
governors involved with the initial appointments made by the governor in whose province the
greatest number of service connections exists. (Emphasis supplied)
xxxx
The enactment of P.D. No. 198 on May 25, 1973 was prior to the enactment on December 22, 1979 of
Batas Pambansa Blg. 51 (An Act Providing for the Elective or Appointive Positions in Various Local Governments
and for Other Purposes) and antedated as well the effectivity of the 1991 Local Government Code on January
1, 1992. At the time of the enactment of P.D. No. 198, Cebu City was still a component city of Cebu Province.
Section 328 of B.P. Blg. 51 reclassified the cities of the Philippines based on well-defined criteria. Cebu City
thus became an HUC, which immediately meant that its inhabitants were ineligible to vote for the officials of
Cebu Province. In accordance with Section 12 of Article X of the 1987 Constitution, cities that are highly
urbanized, as determined by law, and component cities whose charters prohibit their voters from voting for
provincial elective officials, shall be independent of the province, but the voters of component cities within a
province, whose charters contain no such prohibition, shall not be deprived of their right to vote for elective
provincial officials. Later on, Cebu City, already an HUC, was further effectively rendered independent from
Cebu Province pursuant to Section 29 of the 1991 Local Government Code, viz.:
Section 29. Provincial Relations with Component Cities and Municipalities. -The province,
through the governor, shall ensure that every component city and municipality within its territorial
jurisdiction acts within the scope of its prescribed powers and functions. Highly urbanized cities and
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independent component cities shall be independent of the province. (Emphasis supplied)
Hence, all matters relating to its administration, powers and functions were exercised through its local
executives led by the City Mayor, subject to the President's retained power of general supervision over
provinces, HUCs, and independent component cities pursuant to and in accordance with Section 25 of the
1991 Local Government Code, a law enacted for the purpose of strengthening the autonomy of the LGUs in
accordance with the 1987 Constitution.
Article X of the 1987 Constitution guarantees and promotes the administrative and fiscal autonomy of the
LGUs. The foregoing statutory enactments enunciate and implement the local autonomy provisions explicitly
recognized under the 1987 Constitution. To conform with the guarantees of the Constitution in favor of the
autonomy of the LGUs, therefore, it becomes the duty of the Court to declare and pronounce Section 3(b) of
P.D. No. 198 as already partially unconstitutional. We note that this pronouncement is also advocated by the
National Government, as shown in the comment of the Solicitor General.
In Navarro v. Ermita, the Court has pointed out that the central policy considerations in the creation of local
government units are economic viability, efficient administration, and capability to deliver basic services to their
constituents. These considerations must be given importance as they ensure the success of local autonomy.
It is accepted that the LGUs, more than the National Government itself, know the needs of their constituents,
and cater to such needs based on the particular circumstances of their localities. Where a particular law or
statute affecting the LGUs infringes on their autonomy, and on their rights and powers to efficiently and
effectively address the needs of their constituents, we should lean in favor of their autonomy, their rights and their
powers.
Water and its efficient supply are among the primary concerns of every LGU. Issues that tend to reduce
or diminish the authority of the boards of directors to manage the water districts are imbued with public interest.
Bearing this in mind, and recalling that the MCWD had been established from the erstwhile Osmeña Waterworks
Systems (OWS) without any investment or contribution of funds and material from the Province of Cebu
towards the creation and maintenance of OWS and the MCWD, and considering that it had always been the
City Mayor of the City of Cebu who appointed the members of the MCWD Board of Directors regardless of the
percentage of the water subscribers, our pronouncement herein rests on firm ground.
4.
Third Issue:
Section 3(b) of P.D. 198 is unconstitutional for violating
the Due Process Clause and the Equal Protection Clause
The petitioners assert that Section 3(b) of P.D. No. 198, being unfair, violated substantive due process;
that Governor Garcia could not determine the water needs of each of the LGUs within the MCWD; that the
provision allowed inequality of treatment of the cities and municipalities in relation to the province, and thus
violated the Equal Protection Clause of the Constitution; that the provision unduly deprived Cebu City of the
power to determine the membership in the MCWD Board of Directors despite Cebu City having the majority
of the water service connections; that the Province of Cebu was given unreasonable and unwarranted benefit
despite Cebu City being independent from the Province of Cebu; that Section 3(b) of P.D. No. 198 did not
distinguish whether the province contributed any resource to the water district or not; that under the provision,
if two or more provinces contributed to the water district, they were not subject to the 75% requirement to avail
of the power of appointment, indicating that the power to appoint devolved only in the provinces; that this violated
the guarantee of equality of treatment in favor of the participating LGUs; that the provision created a privileged
class (the provinces) without any justification in reason; and that "the classification is not germane to the purpose
109
of the law and is not based on substantial distinctions that make real differences."
Substantive due process "requires that the law itself, not merely the procedures by which the law would
be enforced, is fair, reasonable, and just." It demands the intrinsic validity of the law in interfering with the rights
of the person to life, liberty or property. In short, to be determined is whether the law has a valid governmental
objective, like the interest of the public as against that of a particular class.
On the other hand, the principle of equal protection enshrined in the Constitution does not require the
territorial uniformity of laws. According to Tiu v. Court of Appeals,37 the fundamental right of equal protection of
the law is not absolute, but subject to reasonable classification. Classification, to be valid, must: (1) rest on
substantial distinctions; (2) be germane to the purpose of the law; (3) not be limited to existing conditions only;
and (4) apply equally to all members of the same class.
We opine that although Section 3(b) of P.D. No. 198 provided for substantial distinction and was germane
to the purpose of P.D. No. 198 when it was enacted in 1973, the intervening reclassification of the City of Cebu
into an HUC and the subsequent enactment of the 1991 Local Government Code rendered the continued
application of Section 3(b) in disregard of the reclassification unreasonable and unfair. Clearly, the assailed
provision no longer provided for substantial distinction because, firstly, it ignored that the MCWD was built
without the participation of the provincial government; secondly, it failed to consider that the MCWD existed to
serve the community that represents the needs of the majority of the active water service connections; and,
thirdly, the main objective of the decree was to improve the water service while keeping up with the needs of
the growing population.
The Whereas Clauses of P.D. No. 198 essentially state the raison d'etre of its enactment, to wit:
WHEREAS, existing domestic water utilities are not meeting the needs of the communities they
serve; water quality is unsatisfactory; pressure is inadequate; and reliability of service is poor; in
fact, many persons receive no piped water service whatsoever;
WHEREAS, conditions of service continue to worsen for two apparent reasons, namely: (1) that key
element of existing systems are deteriorating faster than they are being maintained or replaced, and
(2) that they are not being expanded at a rate sufficient to match population growth; and
WHEREAS, local water utilities should be locally-controlled and managed, as well as have support
on the national level in the area of technical advisory services and financing; (bold emphasis
supplied)
Verily, the decree was enacted to provide adequate, quality and reliable water and waste-water services
to meet the needs of the local communities and their growing populations. The needs of the communities served
were paramount. Hence, we deem it to be inconsistent with the true objectives of the decree to still leave to the
provincial governor the appointing authority if the provincial governor had administrative supervision only over
municipalities and component cities accounting for 16.92% of the active water service connection in the
MCWD. In comparison, the City of Cebu had 61.28% of the active service water connections; Mandaue,
another HUC, 16%; and Lapu Lapu City, another HUC, 6.8%. There is no denying that the MCWD has been
primarily serving the needs of Cebu City. Although it is impermissible to inquire into why the decree set 75%
as the marker for determining the proper appointing authority, the provision has meanwhile become unfair for
ignoring the needs and circumstances of Cebu City as the LGU accounting for the majority of the active water
service connections, and whose constituency stood to be the most affected by the decisions made by the
MCWD's Board of Directors. Indeed, the classification has truly ceased to be germane or related to the main
110
objective for the enactment of P.D. No. 198 in 1973.
Grave abuse of discretion means either that the judicial or quasi- judicial power was exercised in an
arbitrary or despotic manner by reason of passion or personal hostility, or that the respondent judge, tribunal or
board evaded a positive duty, or virtually refused to perform the duty enjoined or to act in contemplation of law,
such as when such judge, tribunal or board exercising judicial or quasi-judicial powers acted in a capricious or
whimsical manner as to be equivalent to lack of jurisdiction. Mere abuse of discretion is not enough to warrant
the issuance of the writ. The abuse of discretion must be grave.
Under the foregoing circumstances, therefore, the RTC gravely abused its discretion in upholding Section
3(b) of P.D. No. 198. It thereby utterly disregarded the clear policies favoring local autonomy enshrined in the
1987 Constitution and effected by the 1991 Local Government Code and related subsequent statutory enactments,
and for being violative of the Due Process Clause and the Equal Protection Clause of the 1987 Constitution.
WHEREFORE, we GRANT the petition for certiorari; ANNUL and SET ASIDE the decision rendered
in Civil Case No. CEB-34459 on November 16, 2010 by the Regional Trial Court, Branch 18, in Cebu City;
and DECLARE as UNCONSTITUTIONAL Section 3(b) of Presidential Decree No. 198 to the extent that it
applies to highly urbanized cities like the City of Cebu and to component cities with charters expressly
providing for their voters not to be eligible to vote for the officials of the provinces to which they belong for being
in violation of the express policy of the 1987 Constitution on local autonomy, the 1991 Local Government Code
and subsequent statutory enactments, and for being also in violation of the Due Process Clause and the Equal
Protection Clause.
ACCORDINGLY, the Mayor of the the City of Cebu is declared to be the appointing authority of the
Members of the Board of Directors of the Metro Cebu Water District.
No pronouncement on costs of suit.
SO ORDERED.
(Note: Citations deleted; please refer to the original text for the citations.)
111
section 17
G.R. No. 190147 - Civil Service Commission v. Pililla Water District
PHILIPPINE SUPREME COURT DECISIONS
EN BANC
G.R. No. 190147 : March 5, 2013
CIVIL SERVICE COMMISSION, Petitioner, v. PILILLA WATER DISTRICT, Respondent.
DECISION
VILLARAMA, JR, J.:
Assailed in this petition for review on certiorari under Rule 45 are the Decision dated July 28, 2009 and
Resolution dated November 9, 2009 of the Court of Appeals (CA) in CA-G.R. SP No. 106031 which annulled
and set aside Resolution Nos. 080942 and 081846 of the Civil Service Commission (CSC).
The factual background of this case is as follows:
Paulino J. Rafanan was first appointed General Manager on a coterminous status under Resolution No.
12 issued on August 7, 1998 by the Board of Directors (BOD) of respondent Pililla Water District (PWD). His
appointment was signed by the BOD Acting Chairman and attested by the CSC Field Office-Rizal.
On October 4, 2001, petitioner issued Resolution No. 011624 amending and clarifying Section 12, Rule
XIII of CSC Memorandum Circular No. 15, s. 1999, as follows:
Section 12. a) No person who has reached the compulsory retirement age of 65 years can be
appointed to any position in the government, subject only to the exception provided under sub-
section (b) hereof.
However, in meritorious cases, the Commission may allow the extension of service of a person
who has reached the compulsory retirement age of 65 years, for a period of six (6) months only
unless otherwise stated. Provided, that, such extension may be for a maximum period of one (1)
year for one who will complete the fifteen (15) years of service required under the GSIS Law.
A request for extension shall be made by the head of office and shall be filed with the Commission
not later than three (3) months prior to the date of the official/employees compulsory retirement.
Henceforth, the only basis for Heads of Offices to allow an employee to continue rendering service
after his/her 65th birthday is a Resolution of the Commission granting the request for extension.
Absent such Resolution, the salaries of the said employee shall be for the personal account of the
responsible official.
xxx
b) A person who has already reached the compulsory retirement age of 65 can still be appointed to
a coterminous/primarily confidential position in the government.
112
A person appointed to a coterminous/primarily confidential position who reaches the age of 65 years
is considered automatically extended in the service until the expiry date of his/her appointment or until
his/her services are earlier terminated. (Emphasis supplied)
On April 2, 2004, Republic Act (R.A.) No. 9286 was approved and signed into law, Section 2 of which
provides:
SEC. 2. Section 23 of Presidential Decree No. 198, as amended is hereby amended to read as
follows:
"SEC. 23. The General Manager.At the first meeting of the Board, or as soon thereafter as
practicable, the Board shall appoint, by a majority vote, a general manager and shall define [his]
duties and fix his compensation. Said officer shall not be removed from office, except for cause and
after due process." (Emphasis supplied)
On June 16, 2004, the BOD approved Resolution No. 19, Series of 2004, which reads:
EXTENSION OF SERVICES OF MR. PAULINO J. RAFANAN AS GENERAL MANAGER OF

PILILLA WATER DISTRICT
WHEREAS, the General Manager, Mr. Paulino J. Rafanan, is reaching his age 65 this month of this
year the Board, because of his good and honest performance in faithfully carrying out the policies of
the Board resulting in the success of the Districts expansion program, unanimously agreed to retain
his services as General Manager at least up to December 31, 2008 co-terminus with the term of the
Director last appointed after which period he may stay at the pleasure of the other Board.
THEREFORE[,] THE BOARD RESOLVED[,] AS IT HEREBY RESOLVED that the services of

Mr. Paulino J. Rafanan as General Manager of Pililla Water District is extended up to December 31,
2008 as a reward for his honest and efficient services to the District.
In its Resolution No. 04-1271 dated November 23, 2004, petitioner denied the request of BOD Chairman
Valentin E. Paz for the extension of service of Rafanan and considered the latter "separated from the service at
the close of office hours on June 25, 2004, his 65th birthday." Petitioner also denied the motion for reconsideration
filed by Chairman Paz under its Resolution No. 05-0118 dated February 1, 2005.
On April 8, 2005, the BOD issued Resolution No. 09, Series of 2005 reappointing Rafanan as General
Manager on coterminous status. Said reappointment was signed by Chairman Paz and attested by the CSC
Field Office-Rizal. A year later, the BOD approved Resolution No. 20 declaring the appointment of General
Manager Rafanan as permanent but this resolution was not implemented.
In a letter dated November 19, 2007, Pililla Mayor Leandro V. Masikip, Sr. questioned Rafanans
coterminous appointment as defective and void ab initio considering that he was appointed to a career position
despite having reached the compulsory retirement age. Said letter-complaint was treated as an appeal from the
appointment made by the BOD Chairman of respondent.
On May 19, 2008, petitioner issued Resolution No. 080942 invalidating the coterminous appointment
issued to Rafanan as General Manager on April 8, 2005 on the ground that it was made in violation of Section
2 of R.A. No. 9286. Petitioner further observed that the appointment was issued to circumvent the denial of the
several requests for extension of service of Rafanan. Rafanan filed a motion for reconsideration which was
denied by petitioner under its Resolution No. 081846 dated September 26, 2008.
113
Respondent filed in the CA a petition for review with application for temporary restraining order and/or writ
of preliminary injunction under Rule 43 of the 1997 Rules of Civil Procedure, as amended. Insisting that
Rafanans coterminous appointment was based on CSC Resolution No. 011624, respondent contended that
petitioner cannot usurp the power of appointment and removal of the appointing authority, and that petitioner failed
to observe due process.
In the assailed Decision, the CA reversed the CSC and ruled that the position of General Manager in
water districts remains primarily confidential in nature and hence respondents BOD may validly appoint
Rafanan to the said position even beyond the compulsory retirement age.
Petitioner filed a motion for reconsideration which the CA denied.
Hence, this petition submitting the following issues:cralawlibrary
WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN IT RULED

THAT THE POSITION OF GENERAL MANAGER OF A LOCAL WATER DISTRICT
IS PRIMARILY CONFIDENTIAL IN NATURE.
II
WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN IT RULED THAT THE
APRIL 8, 2005 APPOINTMENT OF RAFANAN IN A CO-TERMINOUS CAPACITY WAS VALID.
Under Section 13, Rule V of the Omnibus Rules Implementing Book V of Executive Order No. 292 and
other Pertinent Civil Service Laws and CSC Resolution No. 91-1631 issued on December 27, 1991,
appointments in the civil service may either be of permanent or temporary status. A permanent appointment is
issued to a person who meets all the requirements for the position to which he is being appointed/promoted,
including the appropriate eligibility prescribed, in accordance with the provisions of law, rules and standards
promulgated in pursuance thereof, while a temporary appointment may be extended to a person who possesses
all the requirements for the position except the appropriate civil service eligibility and for a limited period not
exceeding twelve months or until a qualified civil service eligible becomes available.
Section 14 of the same resolution provides for a coterminous appointment:
Sec. 14. An appointment may also be co-terminous which shall be issued to a person whose
entrance and continuity in the service is based on the trust and confidence of the appointing authority
or that which is subject to his pleasure, or co-existent with his tenure, or limited by the duration of
project or subject to the availability of funds.
The co-terminous status may be further classified into the following:
(1) co-terminous with the project - when the appointment is co-existent with the duration of a particular
project for which purpose employment was made or subject to the availability of funds for the same;
(2) co-terminous with the appointing authority - when appointment is co-existent with the tenure of the
appointing authority or at his pleasure;
(3) co-terminous with the incumbent - when the appointment is co-existent with the appointee, in that
after the resignation, separation or termination of the services of the incumbent the position shall be
114
deemed automatically abolished; and
(4) co-terminous with a specific period - appointment is for a specific period and upon expiration
thereof, the position is deemed abolished.
For the purpose of coverage or membership with the GSIS, or their right to security of tenure, co-
terminous appointees, except those who are co-terminous with the appointing authority, shall be
considered permanent. (Emphasis supplied)
Section 23 of Presidential Decree (P.D.) No. 198, otherwise known as "The Provincial Water Utilities Act
of 1973" reads:
SEC. 23. Additional Officers.At the first meeting of the board, or as soon thereafter as practicable,
the board shall appoint, by a majority vote, a general manager, an auditor, and an attorney, and shall
define their duties and fix their compensation. Said officers shall serve at the pleasure of the board.
(Emphasis supplied)
The provision was subsequently amended by P.D. No. 768
SEC. 23. The General Manager.At the first meeting of the board, or as soon thereafter as practicable,
the board shall appoint, by a majority vote, a general manager and shall define his duties and fix his
compensation. Said officer shall serve at the pleasure of the board. (Emphasis supplied)
In the case of Paloma v. Mora, we held that the nature of appointment of General Managers of Water
Districts under Section 23 of P.D. No. 198 falls under Section 14 of the Omnibus Rules Implementing Book V
of Executive Order No. 292, otherwise known as the "Administrative Code of 1987", that is, the General
Manager serves at the pleasure of the BOD.
As mentioned, Section 23 of P.D. No. 198 was already amended by R.A. No. 9286 which now provides
that the General Manager of a water district shall not be removed from office except for cause and after due
process. Said law, however, cannot be retroactively applied as to preclude the BOD from terminating its
General Manager at the time the governing law was still P.D. No. 198, thus:
Unfortunately for petitioner, Rep. Act No. 9286 is silent as to the retroactivity of the law to pending
cases and must, therefore, be taken to be of prospective application. The general rule is that in an
amendatory act, every case of doubt must be resolved against its retroactive effect. Since the
retroactive application of a law usually divests rights that have already become vested, the rule in
statutory construction is that all statutes are to be construed as having only a prospective operation
unless the purpose and intention of the legislature to give them a retrospective effect is expressly
declared or is necessarily implied from the language used.
First, there is nothing in Rep. Act No. 9286 which provides that it should retroact to the date of
effectivity of P.D. No. 198, the original law. Next, neither is it necessarily implied from Rep. Act No.
9286 that it or any of its provisions should apply retroactively. Third, Rep. Act No. 9286 is a
substantive amendment of P.D. No. 198 inasmuch as it has changed the grounds for termination of
the General Manager of Water Districts who, under the then Section 23 of P.D. No. 198, "shall serve
at the pleasure of the Board." Under the new law, however, said General Manager shall not be
removed from office, except for cause and after due process. To apply Rep. Act No. 9286 retroactively
to pending cases, such as the case at bar, will rob the respondents as members of the Board of the
Palompon, Leyte Water District of the right vested to them by P.D. No. 198 to terminate petitioner at
115
their pleasure or discretion. Stated otherwise, the new law can not be applied to make respondents
accountable for actions which were valid under the law prevailing at the time the questioned act was
committed.
Prescinding from the foregoing premises, at the time petitioner was terminated by the Board of
Directors, the prevailing law was Section 23 of P.D. No. 198 prior to its amendment by Rep. Act No.
9286.15 (Italics in the original; emphasis supplied)
In this case, respondents BOD reappointed Rafanan as General Manager on April 8, 2005 when R.A.
No. 9286 was already in force and the BOD no longer had the authority to terminate the General Manager at
its pleasure or discretion.
Petitioner assails the CA in upholding the April 8, 2005 reappointment of Rafanan as General Manager on
coterminous status, arguing that the change of phraseology of Section 23 under R.A. No. 9286 ipso facto
reclassified said position from non-career to career position. Petitioner points out that it issued CSC Memorandum
Circular No. 13, Series of 2006 entitled "Considering the Position of General Manager Under the Career
Service and Prescribing the Guidelines and Qualification Standards for the said Position Pursuant to R.A. No.
9286," which applies to respondent under local water district Medium Category:
D (SG-24) - Medium
Education : Masters degree
Experience : 4 years in position/s involving management and supervision
Training : 24 hours of training in management and supervision
Eligibility : Career Service (Professional)/Second Level Eligibility
Respondent contends that the amendment introduced by R.A. No. 9286 is not in conflict with the
coterminous appointment of Rafanan since the latter can be removed for "loss of confidence," which is "cause"
for removal. As to the above-cited CSC Memorandum Circular No. 13, Series of 2006, the same should be
applied only to appointments made after its issuance, and not to Rafanan who was already the incumbent
General Manager before August 17, 2006. Respondent maintains that since the General Manager of a water
district holds a primarily confidential position, Rafanan can be appointed to or remain in said position even
beyond the compulsory retirement age of 65 years.
The threshold issue is whether under Section 23 of P.D. No. 198 as amended by R.A. No. 9286, the
position of General Manager of a water district remains as primarily confidential.
In the 1950 case of De los Santos v. Mallare a position that is primarily confidential in nature is defined
as follows:
x x x. These positions [policy-determining, primarily confidential and highly technical positions],

involve the highest degree of confidence, or are closely bound up with and dependent on other
positions to which they are subordinate, or are temporary in nature. It may truly be said that the good
of the service itself demands that appointments coming under this category be terminable at the will
of the officer that makes them.
xxx
116
Every appointment implies confidence, but much more than ordinary confidence is reposed in the
occupant of a position that is primarily confidential. The latter phrase denotes not only confidence
in the aptitude of the appointee for the duties of the office but primarily close intimacy
which insures freedom of [discussion, delegation and reporting] without embarrassment
or freedom from misgivings of betrayals of personal trust or confidential matters of state.
x x x. (Emphasis supplied)
From the above case the "proximity rule" was derived. A position is considered to be primarily confidential
when there is a primarily close intimacy between the appointing authority and the appointee, which ensures the
highest degree of trust and unfettered communication and discussion on the most confidential of matters.
Moreover, in classifying a position as primarily confidential, its functions must not be routinary, ordinary and day
to day in character. A position is not necessarily confidential though the one in office may sometimes hold
confidential matters or documents.
The case of Piñero v. Hechanova laid down the doctrine that it is the nature of the position that finally
determines whether a position is primarily confidential, policy determining or highly technical and that executive
pronouncements can be no more than initial determinations that are not conclusive in case of conflict. As
reiterated in subsequent cases, such initial determination through executive declaration or legislative fiat does
not foreclose judicial review.
More recently, in Civil Service Commission v. Javier, we categorically declared that even petitioners
classification of confidential positions in the government is not binding on this Court:
At present, there is no law enacted by the legislature that defines or sets definite criteria for
determining primarily confidential positions in the civil service. Neither is there a law that gives an
enumeration of positions classified as primarily confidential.
What is available is only petitioner's own classification of civil service positions, as well as
jurisprudence which describe or give examples of confidential positions in government.
Thus, the corollary issue arises: should the Court be bound by a classification of a position as
confidential already made by an agency or branch of government?
Jurisprudence establishes that the Court is not bound by the classification of positions in the civil
service made by the legislative or executive branches, or even by a constitutional body like the
petitioner. The Court is expected to make its own determination as to the nature of a particular
position, such as whether it is a primarily confidential position or not, without being bound by prior
classifications made by other bodies. The findings of the other branches of government are merely
considered initial and not conclusive to the Court. Moreover, it is well-established that in case the
findings of various agencies of government, such as the petitioner and the CA in the instant case, are
in conflict, the Court must exercise its constitutional role as final arbiter of all justiciable controversies
and disputes. (Emphasis supplied)
Applying the proximity rule and considering the nature of the duties of the office of the Corporate Secretary
of the Government Service Insurance System (GSIS), we held in the above-cited case that said position in the
GSIS or any government-owned or controlled corporation (GOCC) for that matter, is a primarily confidential
position.
In holding that the position of General Manager of a water district is primarily confidential in nature, the CA
said:
117
x x x we rule that the position of general manager remains primarily confidential in nature
despite the amendment of Section 23 of P.D. No. 198 by R.A. No. 9286, which gave the
occupant of said position security of tenure, in that said officer could only be removed
from office for cause and after due process. The nature of the duties and functions attached to the
position points to its confidential character. First, the general manager is directly appointed by the
board of directors. Second, the general manager directly reports to the board of directors. Third, the
duties and responsibilities of a general manager are determined by the board of directors, which is
a clear indication of a closely intimate relationship that exists between him and the board. Fourth,
the duties and responsibilities of a general manager are not merely clerical and routinary in nature.
His work involves policy and decision making. Fifth, the compensation of the general manager is
fixed by the board of directors. And last, the general manager is directly accountable for his actions
and omissions to the board of directors. Under this situation, the general manager is expected to
possess the highest degree of honesty, integrity and loyalty, which is crucial to maintaining trust and
confidence between him and the board of directors. The loss of such trust or confidence could easily
result in the termination of the general managers services by the board of directors. To be sure,
regardless of the security of tenure a general manager may now enjoy, his term may still be ended
by the board of directors based on the ground of "loss of confidence." (Emphasis in the original)
We sustain the ruling of the CA.
We stress that a primarily confidential position is characterized by the close proximity of the positions of
the appointer and appointee as well as the high degree of trust and confidence inherent in their relationship. The
tenure of a confidential employee is coterminous with that of the appointing authority, or is at the latters pleasure.
However, the confidential employee may be appointed or remain in the position even beyond the compulsory
retirement age of 65 years.
Among those positions judicially determined as primarily confidential positions are the following: Chief
Legal Counsel of the Philippine National Bank; Confidential Agent of the Office of the Auditor, GSIS; Secretary
of the Sangguniang Bayan; Secretary to the City Mayor; Senior Security and Security Guard in the Office of
the Vice Mayor; Secretary to the Board of a government corporation; City Legal Counsel, City Legal Officer
or City Attorney; Provincial Attorney; Private Secretary; and Board Secretary II of the Philippine State College
of Aeronautics. The Court in these instances focused on the nature of the functions of the office characterized by
such "close intimacy" between the appointee and appointing power which insures freedom of intercourse
without embarrassment or freedom from misgivings of betrayals of personal trust or confidential matters of state.
In the case of the General Manager of a water district, Section 24 in relation to Section 23 of P.D. No. 198,
as amended, reveals the close proximity of the positions of the General Manager and BOD.
SEC. 24. Duties.The duties of the General Manager and other officers shall be determined and
specified from time to time by the Board. The General Manager, who shall not be a director, shall
have full supervision and control of the maintenance and operation of water district facilities, with
power and authority to appoint all personnel of the district: Provided, That the appointment of
personnel in the supervisory level shall be subject to approval by the Board. (As amended by
Sec.10, PD 768) (Emphasis supplied)
While the BOD appoints by a majority vote the General Manager and specifies from time to time the duties
he shall perform, it is the General Manager who exercises full supervision and control of the maintenance and
operation of water district facilities. The BOD is confined to policy-making and prescribing a system of business
118
administration and accounting for the water district patterned upon and in conformity to the standards established
by the Local Water Utilities Administration (LWUA), and it is the General Manager who implements the plans
and policies approved by the BOD. And while the BOD may not engage in the detailed management of the
water district, it is empowered to delegate to such officers or agents designated by it any executive, administrative
or ministerial power, including entering into contracts under conditions and restrictions it may impose. Moreover,
though the General Manager is vested with the power to appoint all personnel of the water district, the
appointment of personnel in the supervisory level shall be subject to the approval of the BOD. It is likewise
evident that the General Manager is directly accountable to the BOD which has disciplinary jurisdiction over
him. The foregoing working relationship of the General Manager and BOD under the governing law of water
districts clearly demands a high degree of trust and confidence between them. The CA therefore correctly
concluded that the position of General Manager is primarily confidential in nature.
Petitioner contends that the amendment introduced by R.A. No. 9286 in effect placed the position of
General Manager of a water district in the category of career service. It posits that this can be inferred from the
removal of the sentence "Said officer shall serve at the pleasure of the Board," and replaced it with the sentence
"Said officer shall not be removed from office, except for cause and after due process." Accordingly, petitioner
said it issued CSC MC No. 13, Series of 2006 prescribing guidelines for the implementation of the new law and
qualification standards for the position of General Manager of a water district, whereby all incumbent general
managers who hold appointments under coterminous status upon the effectivity of R.A. No. 9286 were given
two years to meet all the requirements for permanent status.
Such interpretation is incorrect.
To our mind, the amendment introduced by R.A. No. 9286 merely tempered the broad discretion of the
BOD. In Paloma v. Mora we noted the change brought about by the said law insofar as the grounds for
terminating the General Manager of a water district. Whereas previously the General Manager may be
removed at the pleasure or discretion of the BOD even without prior notice and due hearing, the amendatory law
expressly demands that these be complied with. Such condition for the exercise of the power of removal
implements the fundamental right of due process guaranteed by the Constitution. In De los Santos v. Mallare,
the Court simply recognized as a necessity that confidential appointments be "terminable at the will" of the
appointing authority.
It is established that no officer or employee in the Civil Service shall be removed or suspended except
for cause provided by law. However, this admits of exceptions for it is likewise settled that the right to security
of tenure is not available to those employees whose appointments are contractual and coterminous in nature.
Since the position of General Manager of a water district remains a primarily confidential position whose term
still expires upon loss of trust and confidence by the BOD provided that prior notice and due hearing are
observed, it cannot therefore be said that the phrase "shall not be removed except for cause and after due
process" converted such position into a permanent appointment. Significantly, loss of confidence may be
predicated on other causes for removal provided in the civil service rules and other existing laws.
In Tanjay Water District v. Quinit, Jr., we said:
Indeed, no officer or employee in the Civil Service shall be removed or suspended except for cause
provided by law. The phrase "cause provided by law," however, includes "loss of confidence." It
is an established rule that the tenure of those holding primarily confidential positions ends upon loss
of confidence, because their term of office lasts only as long as confidence in them endures. Their
termination can be justified on the ground of loss of confidence, in which case, their cessation from
office involves no removal but the expiration of their term of office.
119
The Civil Service Law classifies the positions in the civil service into career and non-career service
positions. Career positions are characterized by: (1) entrance based on merit and fitness to be determined as
far as practicable by competitive examinations, or based on highly technical qualifications; (2) opportunity for
advancement to higher career positions; and (3) security of tenure.
The Career Service shall include:
(1) Open Career positions for appointment to which prior qualification in an appropriate examination
is required;
(2) Closed Career positions which are scientific, or highly technical in nature; these include the
faculty and academic staff of state colleges and universities, and scientific and technical
positions in scientific or research institutions which shall establish and maintain their own merit
systems;
(3) Positions in the Career Executive Service; namely, Undersecretary, Assistant Secretary,
Bureau Director, Assistant Bureau Director, Regional Director, Assistant Regional Director,
Chief of Department Service and other officers of equivalent rank as may be identified by the
Career Executive Service Board, all of whom are appointed by the President;
(4) Career officers, other than those in the Career Executive Service, who are appointed by the
President, such as the Foreign Service Officers in the Department of Foreign Affairs;
(5) Commissioned officers and enlisted men of the Armed Forces which shall maintain a separate
merit system;
(6) Personnel of government-owned or controlled corporations whether performing governmental

or proprietary functions, who do not fall under the non-career service; and
(7) Permanent laborers, whether skilled, semi-skilled or unskilled. (Emphasis supplied)
On the other hand, non-career positions are defined by the Administrative Code of 198738 as follows:
SEC. 9. Non-Career Service. The Non-Career Service shall be characterized by (1) entrance on bases
other than those of the usual tests of merit and fitness utilized for the career service; and (2) tenure which is
limited to a period specified by law, or which is coterminous with that of the appointing authority or subject to his
pleasure, or which is limited to the duration of a particular project for which purpose employment was made.
The Non-Career Service shall include:
(1) Elective officials and their personal or confidential staff;
(2) Secretaries and other officials of Cabinet rank who hold their positions at the pleasure of the
President and their personal or confidential staff(s);
(3) Chairman and members of commissions and boards with fixed terms of office and their
personal or confidential staff;
(4) Contractual personnel or those whose employment in the government is in accordance with a
special contract to undertake a specific work or job, requiring special or technical skills not
available in the employing agency, to be accomplished within a specific period, which in no
120
case shall exceed one year, and performs or accomplishes the specific work or job, under his
own responsibility with a minimum of direction and supervision from the hiring agency; and
(5) Emergency and seasonal personnel. (Emphasis supplied)
As can be gleaned, a coterminous employment falls under the non-career service classification of
positions in the Civil Service, its tenure being limited or specified by law, or coterminous with that of the
appointing authority, or at the latters pleasure. Under R.A. No. 9286 in relation to Section 14 of the Omnibus
Rules Implementing Book V of the Administrative Code of 1987, the coterminous appointment of the General
Manager of a water district is based on the majority vote of the BOD and whose continuity in the service is
based on the latters trust and confidence or co-existent with its tenure.
The term of office of the BOD members of water districts is fixed by P.D. No. 198 as follows:
SEC. 11. Term of Office. -- Of the five initial directors of each newly-formed district, two shall be
appointed for a maximum term of two years, two for a maximum term of four years, and one for a
maximum term of six years. Terms of office of all directors in a given district shall be such that the
term of at least one director, but not more than two, shall expire on December 31 of each even-
numbered year. Regular terms of office after the initial terms shall be for six years commencing on
January 1 of odd-numbered years. Directors may be removed for cause only, subject to review and
approval of the Administration. (As amended by Sec. 5, P.D. No. 768.) (Emphasis supplied)
On the basis of the foregoing, the logical conclusion is that the General Manager of a water district who
is appointed on coterminous status may serve or hold office for a maximum of six years, which is the tenure
of the appointing authority, subject to reappointment for another six years unless sooner removed by the BOD
for loss of trust and confidence, or for any cause provided by law and with due process.
It may also be mentioned that under Section 36 of P.D. No. 198, as amended, the LWUA is empowered
to take over the operation and management of a water district which has defaulted on its loan obligations to L
WUA. As the bondholder or creditor, and in fulfillment of its mandate to regulate water utilities in the country,
LWUA may designate its employees or any person or organization to assume all powers or policy-decision and
the powers of management and administration to undertake all such actions as may be necessary for the water
district's efficient operation. This further reinforces the conclusion that the position of General Manager of a water
district is a non-career position.
In fine, since the position of General Manager of a water district remains a primarily confidential position,
Rafanan was validly reappointed to said position by respondent's BOD on April 8, 2005 under coterminous
status despite having reached the compulsory retirement age, which is allowed under Section 12 (b), Rule XIII
of CSC Memorandum Circular No. 15, s. 1999, as amended by Resolution No. 011624 dated October 4,
2001.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated July 28, 2009 and
Resolution dated November 9, 2009 of the Court of Appeals in CA-G.R. SP No. 106031 are AFFIRMED and
UPHELD. No costs.
SO ORDERED.
(Note: Citations deleted; please refer to the original text for the citations.)
121
section 18
DEPARTMENT OF THE INTERIOR AND LOCAL GOVERNMENT
MEMORANDUM CIRCULAR NO.: 2019-03
TO: ALL PROVINCIAL GOVERNORS, CITY/MUNICIPAL MAYORS, DILG REGIONAL

DIRECTORS AND OTHERS CONCERNED
SUBJECT: REITERATING DILG MC NO. 2016-146 ON THE OPERATIONAL AUTONOMY OF THE

LOCAL WATER DISTRICTS
DATE: 10 JAN. 2019
In the interest of realizing the full functions of the Local Water Districts, the followiing laws, rules and regulations
as embodied in the Memorandum Circular 2016-146 on the Operational Autonomy of Local Water Districts are
hereby reiterated for strict compliance by all local government units:
1. Water District once formed, are subject to provisions of Presidential Decree (PD) No. 198, s amended
and not under the jurisdiction of any political subdivision (Section 6 of PD 198, DILG Memorandum
Circular No. 97-98 dated April 15, 1977 and DILG Memorandum Circular No. 2005-21 dated March
4, 2005);
2. Water Districts are autonomous agencies independent of local governments. It should be best that
they are allowed to operate the least hindrance and interference from the local officials but with a
maximum support and assistance (section 6, PD 198, DILG Memorandum Circular No. 88-15 dated
01 March 1988, DILG Memorandum Circular No. 97-98 dated April 14, 1987 and DILG Memorandum
Circular No. 2005-21 dated Narch 4, 2005); and
3. While the Local Government Code provides for the legal basis relative to the devolution powers,
functions and attributes granted by law to the Local Water Utilities Administration to local water districts,
should they opt to exercise such powers, functions and atttibutes, there is nothing in the Code that
indicates that it has repeated the pertinent provisions of Presidential Decree No. 198, as amended
(Sections 530 and 534 of Local Government Code (RA 7160), DILG Memorandum Circular No. 97-
98 dated April 14, 1997 and DILG Memorandum Circular No. 2005-21 dated March 4, 2005).
Further, Water Districts have the autonomy to enter into Public-Private Partnership or Joint Venture Agreements
with private water utility companies as stipulated in Section 6 of Presidential Decree No. 198 (PD 198) which
provides that Local Water Districts (LWDs), once formed, are not under the jurisdiction of any political subdivision.
Moreover, LWDs are given by PD 198 the authority to enter into contracts.
Section 31. Contracts. A district shall have the power to enter into contracts with any person for
the purpose of performing any functions of the district: Provided, that the Board of Directors may
not by contract delegate any of the discretionary powers vested in the board by this Title. xxx”
For strict compliance.
SGD. EDUARDO M. AÑO

Secretary
122
Local Water Utilities Administration

Katipunan Avenue, Balara, Quezon City
Tel. Nos. 84334656 or 89205581 to 89
www.lwua.gov.ph
123
124

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amended pd 198 and other related issuances

amended presidential decree no. 198

PRESIDENTIAL DECREE NO. 198

DECLARING A NATIONAL POLICY FAVORING LOCAL OPERATION

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the

(a) Act. This Provincial Water Utilities Act of 1973.

(e) Board or Board of Directors. The board of directors of a district.

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

(l) The Board of Trustees of the Administration

LOCAL WATER DISTRICT LAW

CHAPTER II Purpose and Formation

CHAPTER IV The Board

CHAPTER V Powers and Duties of Board

CHAPTER VI Officers and Employees

CHAPTER VII Powers of District

“(c) Pay the operating expenses of the district;

“(d) Provide for the maintenance and repairs of the works;

CHAPTER XI Protection to Districts

CHAPTER II Charter and Purpose

CHAPTER III - Board of Trustees

CHAPTER V Officers and Employees

(c) Annual operating expense of the district;

(d) The maintenance and repairs of the works;

(e) A reasonable surplus for replacement, extension and improvement; and

SGD) FERDINAND E. MARCOS

(SGD) ALEJANDRO MELCHOR

Presidential Decree No. 768 was promulgated on August 15, 1975.

Presidential Decree No. 1479 was promulgated on June 11, 1978.

Presidential Decree No. 768

AMENDING PRESIDENTIAL DECREE NO.198 ENTITLED “DECLARING A NATIONAL POLICY

NOW, THEREFORE, I, FERDINAND E . MARCOS, President of the Philippines, by virtue of the

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

SEC. 4. Section 8 of the same decree is hereby amended to read as follows:

SEC. 5. Section 11 of the same decree is hereby amended to read as follows:

SEC. 6. Section 12 of the same decree is hereby amended to read as follows:

SEC. 7. Section 13 of the same decree is hereby amended to read as follows:

SEC. 8. Section 20 of the same decree is hereby amended to read as follows:

SEC. 9. Section 23 of the same decree is hereby amended to read as follows:

SEC. 14. Section 35 of the same decree is hereby repealed.

“(c) Pay the operating expenses of the district;

“(d) Provide for the maintenance and repairs of the works;

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

“SEC. 61. Loans x x x x

“SEC. 62. Regulations. x x x x

“SEC. 63. Rate Review. x x x x

SEC. 35. Section 70 of the same decree is hereby repealed.

SEC. 40. This Decree shall take effect immediately.

(SGD) ALEJANDRO MELCHOR

Letter of Instructions No. 683

ESTABLISHING BASIC POLICIES FOR

WHEREAS, drinking water is a basic requirement to sustain life;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the

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

(SGD) FERDINAND E. MARCOS

Letter of Instructions No. 700

PROVIDING MEASURES TO CONTROL

(1) The Local Water Utilities Administration (LWUA) shall:

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