EXPLAINER: Opinion of Office of Government Corporate Counsel misses or skips LWUA rule on declaring default, a host of causes. OGCC sees only one from PD 198: non-payment of loan. LWUA takes over MCWD for its alleged failure and irregularities and LGU Cebu City's request for intervention.

EXPLAINER: Opinion of Office of Government Corporate Counsel misses or skips LWUA rule on declaring default, a host of causes. OGCC sees only one from PD 198: non-payment of loan. LWUA takes over MCWD for its alleged failure and irregularities and LGU Cebu City's request for intervention.

[] The OGCC opinion fails to tackle adequately the issue of default, mainly on what constitutes default of the local water district.

[] Instead of OGCC'S view that the law provides only one cause of default -- non-payment of MCWD debt -- LWUA board of trustees Resolution #35, series of 2023, says valid causes for declaring default include (1) irregularities and failures under the FAC or financial assistance contract; (2) 'irreconcilable' relations with LGU Cebu City, which 'expressly' requested intervention.

[] LWUA also tackles in the resolution the matter of due process: LWUA claims due process was observed in negative findings of COA, OGCC, and Cebu City Government, meaning the side of the MCWD directors concerned was given or heard. Also, the resolution says, LWUA had on several occasions interacted with MCWD on issues raised against it.

WHAT JUST HAPPENED. Released Tuesday, April 2, 2024, was an opinion of the Office of Government Corporate Counsel (OGCC) dated March 26.

Sought last March 18 by Metropolitan Cebu Water District (MCWD), the opinion was to answer its inquiry on the March 15 "partial takeover" of the local water district by Local Water Utilities Administration (LWUA).

WHAT OGCC OPINION CLARIFIES. The eight-page opinion (#046, series of 2024) -- signed by Solomon M. Hermosura, government corporate counsel, and Owen M. David, government corporate attorney and officer-in-charge of OGCC's Team Environment & Water -- was clear that LWUA under its charter "has the power to take over or intervene in the operations, management and policy-making of MCWD. The power though is not absolute, limitations and conditions must be followed, procedures and remedies exhausted, and subject to due process. It is a remedy that must be exercised with caution and prudence within the limits of the law."

DOES IT SETTLE THE DISPUTE, which has troubled MCWD since October 2023? The OGCC opinion may not help change the picture of disorder and conflict between the water district and the local government unit (LGU), amid fear of worsening effects of El Ni o drought. The reason: LWUA and MCWD look at the OGCC opinion differently.

* Tuesday, April 2, LWUA said the OGCC opinion affirmed the legality of its intervention. Meaning, it was legally right and the takeover would continue.

* On the same day, Jose Daluz III, who was fired by Cebu City Mayor Michael Rama and sidelined by LWUA's interim board, speaking for MCWD, said he interprets the OGCC opinion as "favorable to us," they who resist LWUA's intervention. "Status quo," he said, a stock response repeatedly used to meet the moves against him and two other directors.

Settlement and peace at last? Not even close. LWUA and MCWD, major players in this stage of the running feud, see the OGCC opinion in different lenses: Which interpretation would be enforced and followed?

OGCC OPINION RESTS ON 'WRONG' PREMISE? It would seem so. The government lawyers think there's only one cause for default while LWUA thinks its basis for declaration of default is much wider.

The OGCC opinion says LWUA may take over and intervene in management and operations of a local water district "only when the district is default of its loan obligation." The LWUA law, it says, provides for "a single instance for intervention or takeover: "and that is when the district is in default of its loan obligation." And citing Section 61 of Presidential Decree 198, the OGCC says LWUA should've checked out first if MCWD was "in default of any loan obligation."

But LWUA did just that. In its Resolution #35, LWUA says MCWD obtained on August 11, 2015, under a financial assistance contract (FAC), the sum of P33 million, 50 percent of which or P16.5 million is grant and the other 50 percent or P16.5 million as loan. As of August 2023, the loan balance was P13,805,000, with MCWD paying P55,000 a month.

No past-due debt mentioned. But then to LWUA, the default is not about the debt. No one in LWUA says MCWD has been remiss in its monthly amortization. Default was declared over alleged failure in performance or violation of terms under the FAC or financial assistance contract.

CONTRACT DEFINES DEFAULT. The loan agreement apparently supplemented the law. While the PD 198 mentions only default caused by non-payment of a loan, the FAC or loan contract and LWUA rules add other causes of default.

Section 1 (a), Article VI of the FAC on "Events of Defaults and Remedies," signatory MCWD "committed that its failure to perform, or its violation of any term, covenant, promise or condition" in the loan contract, or any rule or regulation, or standard promulgated by LWUA "constitutes default on the part of MCWD."

What OGCC could've looked into was the validity of the causes of default that are added by contract and LWUA rules. Would alleged irregularities in bulk water contracts or increasing level of non-revenue water be basis for declaration of default? As a lending institution, LWUA probably sees it as preemptive measure against inability to pay, both actual and potential.

RESOLUTION #35 WASN'T READ BY OGCC? By not addressing the major argument of LWUA regarding MCWD's default, OGCC lawyers appear not to have read LWUA's Resolution #35. And they may not have also read a copy of the FAC or loan contract, which adopts an all-embracing reason to declare default.

MCWD official may not also have read the resolution, as they complained that LWUA's March 15 letter to intervene in the local water district didn't bring with it a copy of Resolution #35 (and #36), which authorized the takeover.

But MCWD must have known about the loan contract, which it signed in 2015. And board directors were duty bound to learn about obligations and commitments existing during their term.

One wonders though if it was due to mere oversight that Resolution #35 wasn't attached to the March 15 takeover letter to MCWD officials.

CONDITIONS BEING MET: A MATTER OF EVIDENCE. Resolution #35 claims that such conditions as defining rules on the process of default and intervention and affording the local water district due process have been met. The "whereases" in the 15-page resolution extensively explain all that. Resolution #35 cited worsening level of non-revenue water flagged by Commission on Audit on non-revenue water, the OGCC finding of "irregularities" in bulk-water contracts, and several uncompleted projects.

On the other hand, the MCWD camp led by Daluz contends that the conditions are not being met, thus rendering the intervention legally questionable.

The OGCC opinion labels the MCWD letter a "request for advice and opinion," indicating that it binds no one and may be rejected by LWUA or MCWD. Court litigation, which requires evidence from the paper and digital trail, may ultimately decide if the intervention is legally valid.

SO WHAT HAPPENS NEXT? It will depend upon whether LWUA as regulating agency of MCWD and other water districts in the country will enforce and can enforce its decision to run things and solve the mess at MCWD even if the case won't reach the courts.

Would LWUA be as helpless as LGU Cebu City, whose mayor couldn't enforce the chief executive's authority to dismiss MCWD directors, a power affirmed by the Regional Trial Court but still being litigated before the Supreme Court?

Cebu RTC upheld last June 30, 2023 then mayor Edgardo Labella's dismissal of three MCWD directors: Augustus Pe Jr., Ralph Sevilla and Cecilia Adlawan. That ruling didn't help in last October's mayor's firing of another set of three directors, this time by Mayor Rama. An SC ruling on the Jun Pe et al. case will put the issue to rest but when will it come?

ORIGINAL ISSUE SET ASIDE. The issue of legality of Mayor Rama's firing Daluz and two directors and appointing three other persons in their stead has been pushed aside by MCWD's assault on the legality of LWUA's recent intervention in the local water district.

The nine-point mission of the interim board that LWUA flew in from Manila included #6, "Mitigate, if not completely address the hostile environment between MCWD and LGU Cebu City." That must include resolving the question of mayor's authority to terminate directors as consequence of his power to appoint them. But until the SC decides the Jun Pe et al. case, new litigation before the local court may not bring substantial relief.


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