Subject: HB Bill No. 4950 on the Amendments of P.D. 198 or the "Provincial Water Utilities Act of 1973"

Dear Ms. Rollan:

First of all we would like to thank you for your kind and generous help in seeing through the passage of LWUA's proposed amendments to its charter as contained in Presidential Decree No. 198 as amended.

We are submitting this joint declaration due to recent developments, particularly, from the discussions among the leaderships of LWUA and the Philippine Association of Water Districts (PAWD) which represents the 540 Water Districts all over the country and the prime stakeholders and partner of LWUA in the development of domestic water supply systems in the country sides.

We wish to categorically state that LWUA now stands in full support of the position of PAWD by deleting some of the proposed changes relating to the composition and manner of appointment of Water District Board of Directors as specified in the attached Position Paper/Resolution in the re-draft of the Bill.

The enclosed Resolution of PAWD was passed unanimously in plenary session during its Annual Convention in Iloilo City on January 20, 2006 after very thorough discussions in its Provincial and Regional bodies.

We are, therefore, submitting this supplement Position Paper or RESOLUTION NO. 2, S. 2006 for your consideration.

(Signed) LORENZO H. JAMORA
Administrator
Local Water Utilities Administration

Philippine Association of Water Districts, Inc.
2/F LWUA Bldg:, Katipunan Road, Balara, Quezon City 1104, Philippines
Telefax 927-5032 . Telephone 920-5453 . Trunkline 920-5581 to 99 Locals 244 & 296
E-mail: pawd@ultimate.info.com.ph

EXCERPTS FROM THE MINUTES OF THE PAWD GENERAL ASSEMBLY MEETING HELD LAST JANUARY 20, 2006 AT THE SARABIA MANOR HOTEL & CONVENTION CENTER IN ILOilO CITY

RESOLUTION NO. 2, S. 2006

RESOLUTION URGING LWUA AND CONGRESS TO MAINTAIN THE PRESENT SET-UP IN THE NUMBER AND COMPOSITION OF THE WATER DISTRICT BOARD OF DIRECTORS AS PROVIDED FOR UNDER SEC. 8 OF P.D. 198, AS AMENDED

"WHEREAS, there is a proposal to further amend certain provisions of P.D. 198, as amended, particularly on the number and composition of the water district board of directors, as advanced by LWUA;

WHEREAS, the said proposal is contained in the Senate and House Bill Nos. 2165 and 4950 sponsored by Senator Juan Ponce Enrile and Representative Eric D. Singson, respectively;

WHEREAS, the water districts collectively and vehemently oppose such change in the number and composition of the Board of Directors of water district;

WHEREAS, the water districts believe that the existing number and composition of the Board of Directors, as it now stands, is representative of the sectors in the community;

WHEREAS, the proposal would incur additional expenses for the water districts as it calls for additional members of the water district Board of Directors;

NOW THEREFORE, on motion of PAWD Region 2 governor and Metro Tuguegarao Water District GM Arnulfo P. Villania, duly seconded by Metro Cotabato Water District GM Delfin C. Hilario, be it -

RESOLVED, AS IT IS HEREBY RESOLVED, to urge LWUA and Congress to maintain the present number and composition of the Board of Directors of water district as provided for under Sec. 8 of P.O. 198, as amended;

RESOLVED FURTHER, to furnish copies of this resolution to LWUA, the House of Representatives and the Senate;

UNANIMOUSLY APPROVED."

CERTIFICATION

This is to certify that the above resolution was passed during the PAWD General Assembly Meeting on January 20, 2006 at the Sarabia Manor Hotel & Convention Center, Iloilo City and that the same is made part of the minutes of the said meeting.

January 20, 2006

POSITION PAPER

Prefatory Statements

Pertinent is the chronology of events, laws and related executive orders concerning the historical formation and operations of water districts:

May 25, 1973

P.D. No. 198 - "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".

August 15, 1975

P.D. 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 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".

March 30, 1978

Letter of Instructions No. 683 - "Establishing Basic Policies for the Water Supply Sector".

June 01, 1978

Letter of Instructions No. 700 - "Providing Measures to Control and Regulate Increases in Water Rates".

June 11, 1978

P.D. 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".

September 28, 1978

Letter of Instructions No. 744 - "Relative to Reliable Water Supply at Reasonable Rates in Countryside".

February 07, 2004

R.A. No. 9286 - "An Act Further Amending Presidential Decree No. 198, Otherwise Known as The Provincial Water Utilities Act of 1973, as Amended"

Except for R.A. No. 9286, the full texts of all the above amendments are basically incorporated in all available copies of P.D. 198, as amended. Moreover, to date, there is no clear implementing rules and regulations to effectively carry out the true intention and spirit of R.A. 9286 particularly the salaries of the General manager and other benefits to the members of the Board being that different government agencies connected with the water district operations such as DBM, OGCC, LWUA, COA an CSC, have several interpretations and inconsistent positions regarding the matter.

As early as 1950's, water supply networks outside Metro Manila were constructed by the then Bureau of Public Works (now the Department of Public of Works and Highways). After which, management and operation of said water system was under the defunct National Waterworks and Sewerage Authority (NAWASA). With the advent of P.D. 198, as amended, in 1973, all waterworks managed and operated by NAWASA, through the local government, were authorized and mandated to form and/or create water districts by enacting a resolution by the respective legislative bodies within the territorial area being served by the waterworks system completely transferring any and all waterworks and/or sewerage facilities managed, operated by or under the control of such local government to such water district, and file said resolution to LWUA. Upon such filing, the local government concerned shall lose ownership, supervision and control or any right whatsoever except as provided by P.D. 198 especially in the appointment of directors. Thus, the birth of local water district upon issuance of Certificate of Conditional Conformance by LWUA to be governed by Board of Directors duly appointed in accordance with P.D. 198.

Issues

I. WHETHER OR NOT THERE IS A NEED TO CHANGE THE NUMBER AND COMPOSITION OF THE MEMBERS OF THE BOARD OF DIRECTORS OF A WATER DISTRICT

II. WHETHER OR NOT THERE IS A NEED TO CHANGE THE APPOINTING AUTHORITY OF THE BOARD OF DIRECTORS

III. WHETHER OR NOT THERE IS A NEED TO CHANGE THE TERM OF OFFICE OF THE BOARD OF DIRECTORS

IV. WHETHER OR NOT LWUA IS ENTITLED TO THE IMPOSITION OF FEES AND CHARGES IN PRODUCTION ASSESSMENT

V. WHETHER OR NOT THE LWUA AND/OR WATER DISTRICTS SHALL CONTINUE TO BE EXEMPT FROM TAXATION OF ANY KIND AND FORM WHATSOEVER, NATIONAL OR LOCAL.

VI. WHETHER OR NOT LWUA AND/OR WATER DISTRICTS ARE ENTITLED TO BE EXEMPT FOM THE SALARY STANDARDIZATION LAW

VII. WHETHER OR NOT LWUA IS ENTITLED TO INCREASE ITS CAPITALIZATION FROM TWO BILLION PESOS TO FIIFTY BILLION PESOS

VIII. WHETHER OR NOT TO TRANSFER EXISTING WATERWORKS PROJECTS FROM OTHER GOVERNMENT AGENCIES EXCEPT WATER DISTRICTS PROJECTS TO LWUA

Discussions

I. WHETHER OR NOT THERE IS A NEED TO CHANGE THE NUMBER AND COMPOSITION OF THE MEMBERS OF THE BOARD OF DIRECTORS OF A WATER DISTRICT

Section 8 of PD 198 provides the present composition of the Board of Directors of a water district consisting of five (5) members who are citizens of the Philippines, of voting age and residents within the district. They shall come from the various organizations which are as follows:

a) One member shall be a representative of civic-oriented service clubs;
b) One member shall be a representative of professional associations;
c) One member shall be a representative of business, commercial, or financial organizations;
d) One member shall be a representative of educational institutions; and,
e) One member shall be a representative of the women's organization.

The above sectoral representation in the members of the board of directors of water districts provides a very peculiar organizational set-up wherein variety of minds are put together towards a more responsible and accountable public service. The duties and obligations of each member board of directors are limited to policy making based on their own individual background and perception of facts as they find applicable to every issue affecting the operations of the water districts.

At the outset of the formation of water districts and up to the present time, water districts have been very effective and stable. Notwithstanding the change of appointing authority whenever there are new local chief executives elected during the interim of the term of the directors, the operations of the water districts have been generally productive and sustainable. This is due to security of tenure provided for under the PD 198 wherein once appointed will always be appointed until he/she completes his/her term of six (6) years . Although there are certain isolated situations arising from political differences, but substantial number of water districts are generally free from political interventions. Thus, making water district operation viable and sustainable.

The women sector plays a very important role in the composition of the board of directors of every water district. The nature and character of being a woman usually affects major decisions of the board especially when it comes to sensitive and controversial policies that are proposed to be implemented. The soft heart of a woman can either make or break a significant decision.

The proposed replacement of the women sector by a youth has no place in the operation of water districts and cannot be given due considerations being that the business of water districts is a plain and simple public service which requires matured thinking of every stakeholder. Thus, a youth of tender age is not capable of comprehending the sentiments of the consuming public as well as the working relationships of employees in the management.

Henceforth, there are no valid and overwhelming reasons or justifications to change the present composition of the board of directors of water districts. It is the position of PAWD to retain the composition as they are stated in the original provisions of PD 198.

II. WHETHER OR NOT THERE IS A NEED TO CHANGE THE APPOINTING AUTHORITY OF THE BOARD OF DIRECTORS

Section 2 (b) of PD 198 vests the appointing authority to the mayor of the city or municipality, as the case may be, otherwise the appointing authority shall be the governor of the province wherein which the district is located.

The territorial and operational jurisdiction of a water district is geographically linked to the political boundaries of a particular municipality. Considering that water is one of the basic needs of man for sustenance, it becomes indispensable to establish a closer relationship with the local chief executives by the water district in order to carry out smoothly the development and infrastructure projects implemented by water districts. This can be realized by recognizing the authority of the local chief executive as the sole appointing authority of the members of the board of directors of water districts. To appoint the member of the governing board of an organization is a big deal for every local executive. It is only thorough this power of appointment that one can feel and sense the obligation of being a leader in the community where the operation of water is entrusted to the appointee. Any plans and programs that the local chief executive intends to accomplish in the water sector will definitely be an easy task.

Moreover, it is the local chief executive who is personally familiar and acquainted with the people whom he is entrusting to do the task for him as far as water supply is concerned. Thus, any problem that may arise in the course of the process of operation of the water district, the local chief executive can easily and personally relay the matter to his appointee who a director of a water district.

The proposed amendment to change the appointing authority from the local chief executive to LWUA is not an acceptable proposition to water districts because of the reasons cited in the preceding paragraphs. Moreover, if LWUA be the appointing authority a problem may arise in cases where a water district covers two or more municipalities. Whom to appoint from the said municipalities becomes a problem.

Henceforth, it is the position of PAWD to retain the appointing power of the board of directors of water district to the local chief executive of the service area being served by the district. The original provision of PD 198 on appointing authority is proposed to be retained.

III. WHETHER OR NOT THERE IS A NEED TO CHANGE THE TERM OF OFFICE OF THE BOARD OF DIRECTORS

Section 11 of PD 198 fixes the term of boards of directors to six (6) years. The same provision also provides that directors may be removed for cause only but subject to review and approval by LWUA.

While the law fixes the term of office of the board of directors to six (6) years, the said tenure of the board of directors makes the water district operations stable and feasible. As discussed in the preceding paragraph, the appointment of the board of directors is acceptable to the water districts. Henceforth, it is the position of PAWD to retain the original provision of PD 198 on the term of office of the board of directors.

IV. WHETHER OR NOT LWUA IS ENTITLED TO THE IMPOSITION OF FEES AND CHARGES IN PRODUCTION ASSESSMENT

Section 39 of PD 198 authorizes the water districts to impose and levy production assessment to any entities using groundwater for commercial or industrial uses which tend to injure or reduce the financial condition of a water district.

While it is true that water districts are vested with authority under Sec. 39 of PD 198, yet the procedural aspect of authority to levy production assessment is tedious and always confrontational in most, if not all, cases. There are only very few, if ever there are, water districts who are able to exercise said authority nowadays. The proposed amendment focuses on the assistance to be extended by LWUA to water districts in the procedural aspect of the authority in production assessment. However, LWUA is imposing fixed percentage out of the fees that may be collected by water districts as a result of a successful production assessment.

The position of PAWD in this matter is to consider not only groundwater but also surface water as a source of water for utilization by entities for commercial or industrial uses. This is so because there are water districts that use surface water as primary source of water supply, thus the utilization by other entities of the surface water may tend to injure or prejudice the source and ultimately the availability of sources of water by the concerned water district.

Moreover, it is the position of PAWD not to allow LWUA to intervene as much as possible so that the district will no longer be exposed to additional financial burden. The most that LWUA can do is to extend its support in whatever way to water districts on a "best effort" basis and likewise minimize if not totally discard away the commission that LWUA is charging to water district if ever the procedure materializes.

Henceforth, PAWD is not amenable to allow or authorize LWUA to impose a commission on production assessment. Thus, PAWD is recommending the retention of the original provision of Section 39 with slight modification to include surface water as production or utilization fee as the case may be. Also, PAWD is recommending the removal of the burden of proof of showing to the proper authority such as the court that it has materially injured or prejudiced its financial statements as a result of drawing out of water from groundwater or utilization from surface water.

V. WHETHER OR NOT THE LWUA AND/OR WATER DISTRICTS SHALL CONTINUE TO BE EXEMPT FROM TAXATION OF ANY KIND AND FORM WHATSOEVER, NATIONAL OR LOCAL.

Section 46 of PD 198 provides for exemption from taxes of water districts, such as payment of incomes taxes; national, 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 or administrative proceedings in which the district maybe a party. Also, the water districts are exempt from payment of duties or imposts on imported machinery, equipment and materials required for its operations.

Conversely, Republic Act No. 7109, specifically provides the following:

"Section 3, Period and Conditions of Exemptions. - The tax exemption privileges provided for in Sections 1 and 2 to all water districts shall be enjoyed only for a period of five (5) yeas from the effectivity of this Act: Provided, That the water districts shall adopt internal control reforms that would bring about their economic and financial viability: Provided further, That, for a water district to be entitled to the tax exemption, its appropriation for personal services, as well as fro travel, transportation or representation expenses and purchase of motor vehicles, shall not be increase by more than twenty-five percent (25%) a year during the period of exemption"

RA 7109 became effective on August 13, 1991 and therefore five (5) years later which is August 13, 1996, the BIR was prompted to issue Revenue Memorandum Circular (RMC) No. 63-2003 dated October 10, 2003 subjecting the water districts to franchise and corporate income taxes, among others. Further, BIR issued RMC No.39-2004, undated, urging the water districts to settle their corporate and franchise taxes for the taxable years 1996 to 2002 with certain incentives and conditions.

With the above cited law and revenue circulars, the water districts continuously claims that water districts, just like National Power Corporation and the Metropolitan Water and Sewerage System, being a government owned and controlled public corporations, are exempted from internal revenue taxes by virtue of RA 8424 or the Tax Code particularly Sec 32(B)(7)(b) thereof.

The income derived by local water districts operating as public utilities or exercising essential government functions shall not be included in the gross income and shall be exempt from taxation. Likewise, Section 119 of RA 8424 on franchise tax does not apply to local water districts since they are not grantees of legislative franchise and therefore not subject to franchise tax as imposed by said law.

Also, RA 7656 requires all government-owned and controlled corporations to remit 50% of their annual net income to the National Government. The fact that water districts do not receive any amount of subsidy either from the local or national government, the remittance of 50% of the net income of the water districts to the national government is absurd and sort of dissolving the existence of water districts in its sense. It must be stressed that water districts do not operate for profit but for public service and self reliance. Any amount in excess of the operating budget by the water districts reverts to the consumers in the form of expansion projects, upgrading and rehabilitation of facilities in order that more people could enjoy the good quality and adequacy of safe and potable water for their sustenance. The very basic principle of water district operation is sustainability. Thus, practically no amount of income could be derived from the operations of water districts being that it is for public service and it is not allowed to maintain retained earnings. All funds generated go back to the operations and capital expenses.

Henceforth, it is the position of PAWD to confirm and express categorically by virtue of the proposed amendment to PD 198 the exemption of water districts from all forms and kinds of remittances and taxes of whatever nature at all times. Simply put, to retain and recognize the original provision of Section 46 of PD 198 and declare all laws deemed repealed inconsistent therewith.

VI. WHETHER OR NOT LWUA AND/OR WATER DISTRICTS ARE ENTITLED TO BE EXEMPT FOM THE SALARY STANDARDIZATION LAW

RA 6758 dated July 1, 1989 provides for the compensation and position classification system to all positions, appointive or elective, in the government, including government-owned or controlled corporations and government financing institutions. By virtue of the Supreme Court en banc decision on September 13, 1991, water districts were declared government owned or controlled corporations with original charter. Thus, water districts are presently covered by the so-called uniform salary standardization system in the government.

Basically, the operating budget of water districts is derived from their own internally generated funds. No part of the said budget is taken from the yearly general appropriations of the national government or local budget. The corporate budget is submitted to the governing board of every water district for approval every year. This budget preparation is subject to certain set of policies imposed by LWUA especially the operating ratio on capital expenditure versus operation and maintenance expenses.

As a general guiding principle, compensation in the government and government-owned and controlled corporations shall be generally comparable with those in the private sector doing comparable work and in accordance with the prevailing laws on minimum wages. Water districts really strive hard to attain their corporate goals and in return are able to generate revenues and attain budget surpluses at the end of every fiscal year. It is at this point where the policy of the state to provide equal pay for substantially equal work and to base differences in pay upon substantive differences in duties and responsibilities, and qualification requirements of the position applies.

Moreover, the amendment in exemption from the salary standardization law of water districts will complement Republic Act 9286 dated February 7, 2004, amending PD 198 which clearly defines the salaries of the General Managers and other benefits due to the board. Said amendment will clearly support and express the true and real intent of RA 9286 when it comes to the salary of the General Managers by removing or exempting the water districts from the bondage of salary standardization law.

Water districts deserve to be expunged from the salary standardization in order to give recognition to achievements attained by respective water districts in their effort to develop and serve a greater number of people in the shortest possible time and resources available to them.

VII. WHETHER OR NOT LWUA IS ENTITLED TO INCREASE ITS CAPITALIZATION FROM TWO BILLION PESOS TO FIIFTY BILLION PESOS

Section 67 of PD 198 provides that the authorized capital of LWUA is Two Billion, Five Hundred Million Pesos divided into Twelve Million Five Hundred Thousand shares of stocks with a par value of Two Hundred Pesos per share. This amount has been fully subscribed by the national government, thus fixing the financial capitalization of LWUA to only said amount. To increase the amount of authorized capitalization of LWUA will eventually benefit the water districts in as much that more loans can be extended to the latter thus increasing the number of population served through various expansion projects.

Henceforth, it is the position of PAWD to fully support the increase in authorized capitalization of LWUA.

VIII. WHETHER OR NOT TO TRANSFER EXISTING WATERWORKS PROJECTS FROM OTHER GOVERNMENT AGENCIES EXCEPT WATER DISTRICTS PROJECTS TO LWUA

This is an entirely new provision in the proposed amendment. The proposed transfer of all water works by other government agencies outside metro Manila to LWUA will ultimately redound to the benefit of water districts. However, projects undertaken by water districts should not be included in the transfer. LWUA and water districts shall be partners in the prosecution of these projects.

Henceforth, it is the position of PAWD to fully support the proposed new provision on the transfer of all waterworks projects undertaken by government agencies with the exception of water districts.

PHILIPPINE ASSOCIATION OF WATER DISTRICTS: