OGCC: LWUA has power to intervene in water district ops but with conditions

OGCC: LWUA has power to intervene in water district ops but with conditions
MCWD

THE Office of the Government Corporate Counsel (OGCC) says the Local Water Utilities Administration (LWUA) has the authority to intervene in the operations and management of a water district, including policy-making, but emphasizing this power is subject to limitations imposed by its charter.

In a statement dated March 26, 2024 signed by Solomon M. Hermosura, government corporate counsel, and Owen M. Vidad, government corporate attorney and officer-in-charge of the Team Environment and Water of the OGCC, explained that before LWUA could intervene, it must establish the existence of default by the water district and provide the district with an opportunity to remedy the default.

The OGCC added that LWUA must exhaust the procedures and remedies outlined in the loan agreement before resorting to intervention, ensuring compliance with due process requirements.

This came after the Metropolitan Cebu Water District (MCWD) requested the OGCC for an opinion regarding the “partial intervention” of the LWUA in MCWD and the appointment of an Interim Board of Directors (BODs) last March 15, 2024.

In their request for opinion, MCWD specifically asked the following:

1.The legal foundation for LWUA’s intervention in the management, operations, and policy-making of a local water district.

2.If LWUA has the authority to intervene, considerations include whether LWUA can appoint an interim board of directors even if there is an existing valid board, and the parameters governing the duration, scope, functions, and procedure of LWUA’s intervention.

LWUA implemented the partial intervention in MCWD based on Resolution No. 35, s. 2023, approved by the LWUA Board of Trustees, appointing an Interim BOD for MCWD for a period of six months.

Legal Basis for Intervention

The OGCC said the legal issues raised require an examination of the powers and functions of the LWUA under Presidential Decree (PD) No. 198, also known as the Provincial Water Utilities Act of 1973.

Title III of PD No. 198 establishes the Local Water Utilities Administration (LWUA) Law, wherein Section 49 it establishes the charter of the Administration.

As mandated in Section 50 of the LWUA Law, the administration is primarily designated as a specialized lending institution for the promotion, development, and financing of local water utilities.

The provision allows LWUA to provide loans from its Revolving Loan Fund to qualified local water utilities, with Section 61 outlining the conditions and procedures for such loans.

Citing Section 61 (e), OGCC explained LWUA may, without the necessity of judicial process, take over and operate the facilities or properties in the event of default by the local water district in the payment of principal or interest on its outstanding bonds or other obligations.

The OGCC said it is consistent with OGCC Opinion No. 223, Series of 2023.

It also noted that to ascertain whether MCWD is in default of its loan obligation and the legitimacy of LWUA’s intervention, it is necessary to examine any loan or financial agreement between MCWD and LWUA, saying the examination should consider various aspects of the agreement, such as the loan amount, payment schedules, interest rates, fees, events of default, default procedures, and other obligations of MCWD outlined in the agreement.

However, in their manifestation last March 18, 2024, MCWD noted that they did not receive LWUA Board of Trustees Resolution No. 35 and 36, purportedly authorizing LWUA’s intervention through the appointment of an Interim Board of Directors.

Additionally, OGCC pointed out that LWUA’s letter dated March 15, 2024, did not mention any loan obligation of MCWD to LWUA or any default by MCWD regarding such loan obligation.

Can LWUA appoint an Interim Board?

According to the OGCC, LWUA may appoint an interim board of directors during the period of its takeover or intervention of a local water district when the conditions for LWUA's takeover of, or intervention in, a local water district are present.

“It must be emphasized that the takeover or intervention of a water district is authorized only to ensure payment of its overdue accounts, the satisfaction of its reserve requirements and the resolution of all its causes of default,” OGCC reiterated.

OGCC also noted that during the takeover, there (is) no removal of the members of the board of directors of the water district, as specified in Section 61 (e) of the LWUA Law.

“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.”

Citing Sections 17 and 18 of Title II of PD No. 198, which outlines the powers and limitations of local water district boards, emphasizing their role in policy-making rather than detailed management.

OGCC said LWUA may appoint an interim board of directors during intervention, which can persist until the district's default is resolved and returning to the original board upon default resolution. (AML)

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