LWUA, MCWD disagree on OGCC opinion

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THE Office of the Government Corporate Counsel (OGCC) has released its opinion on the partial intervention of the Local Water Utilities Administration (LWUA) in the Metropolitan Cebu Water District (MCWD).

But the LWUA and the MCWD are interpreting it differently.

The LWUA, in a statement issued on Tuesday, April 2, 2024, said the OGCC’s opinion affirmed the legality of its partial intervention.

The OGCC said the LWUA is authorized to intervene in the operations and management of a water district, including policy-making. However, this power is subject to limitations imposed by its charter.

In a statement dated March 26 and signed by Solomon Hermosura, government corporate counsel, and Owen Vidad, the officer-in-charge who handles the legal affairs of water districts, the OGCC explained that before the LWUA can intervene, it must establish that the water district has defaulted on its loan and it has provided the water district with an opportunity to remedy the default.

Authorized

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

The LWUA said the MCWD had defaulted on its loan, adding that the water district violated the terms of its Financial Assistance Contract (FAC).

It cited the MCWD’s failure to address high non-revenue water that resulted in an annual loss of revenue of at least P117.759 million annually. This violated the agreement that both parties signed under Article IV, Section 7 of the existing FAC, it said.

The LWUA issued a demand letter to MCWD board chairman Jose Daluz III and MCWD general manager Edgar Donoso titled “To Explain/Show Cause, To Turn Over Documents and To Stop the Usurpation of the Authority of the MCWD Interim Board of Directors and the Unauthorized Use of Facilities and Resources of MCWD.”

“Prudent approach”

LWUA Administrator Jose Moises Salonga said MCWD’s FAC with the LWUA provided several options for the LWUA in case the MCWD defaulted.

“However, (the) LWUA decided to take a prudent approach by issuing an intervention order that is not only for (the) MCWD’s best interest but more so for the Cebuanos. (The) LWUA is offering a more holistic approach with (the) MCWD through partial intervention,” he said.

LWUA Chairman Ronnie Ong issued a statement saying the agency has followed due process, adding that it even agreed with the MCWD’s request to wait for the OGCC’s opinion.

“Now that it’s released, (the) LWUA takes note of their legal opinion affirming (the) LWUA’s power to intervene in water districts following that due process has been observed,” Ong said.

He pointed out that they informed the MCWD of the partial intervention last March 15, while the FAC between the MCWD and the LWUA empowers the LWUA to implement intervention upon default without the need for judicial procedures or any administrative hearing or any negotiation steps in the LWUA.

Assurance

He said the LWUA provided various opportunities to the MCWD in 2023 to air its side in their various meetings and correspondences regarding finances, water rate and bidding issues.

Ong assured that the LWUA’s partial intervention only involves the setting aside and the investigation of the MCWD’s regular board of directors (BOD) and shall not, in any way, affect rank-and-file employees and the delivery of services.

“Accessible, uninterrupted and safe water supply to the Cebuanos will remain during the investigation and throughout the partial intervention,” he said.

Daluz, in a phone interview on Tuesday, said he interpreted OGCC’s opinion as favorable to them.

He said the status quo will remain in the MCWD’s regular BOD.

He urged the LWUA to fulfill its earlier agreement to respect the OGCC’s opinion.

Daluz explained that the MCWD has never defaulted on its loan, saying it has diligently paid the amortization for its about P12 million loan to LWUA.

The MCWD had requested the OGCC for an opinion regarding LWUA’s partial intervention when it appointed an interim BOD last March 15.

LWUA Administrator Salonga used Resolution 35, which was approved last September yet, as his authority to implement the agency’s “partial intervention” in the MCWD.

The OGCC cited Section 61 (e) of the LWUA Law, which was established under Presidential Decree 198, also known as the Provincial Water Utilities Act of 1973, which allows the LWUA, without the necessity of judicial process, to take over and operate the facilities or properties in the event of a loan default by the local water district in the payment.

To ascertain whether the MCWD has defaulted on the loan and the legitimacy of the LWUA’s intervention, the OGCC said it is necessary to examine any loan or financial agreement between the MCWD and the LWUA.

No mention of the loan

It said 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 the MCWD outlined in the agreement.

The OGCC pointed out that the LWUA’s letter dated March 15 did not mention the MCWD’s loan obligation to the LWUA or any default by the MCWD regarding the loan obligation.

However, it said the LWUA may appoint an interim BOD during the period of its takeover or intervention of a local water district when the conditions for the 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,” the OGCC reiterated.

Old board “remains”

The OGCC noted that during the takeover, the water district’s board members are not removed, 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,” it said.

It also cited Sections 17 and 18 of Title II of PD 198, which outline the powers and limitations of local water district boards, emphasizing their role in policy-making rather than detailed management.

The OGCC said the original board can return when the default is resolved. / EHP, AML

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