Whether the Zamboanga City Water District May Enter into a Joint Venture Agreement with a Private Entity under the 2013 NEDA JV Guidelines for Certain Activities

DOJ OPINION NO. 10, s. 2020 March 11, 2020 Secretary Ernesto M. Pernia National Economic and Development Authority (NEDA) NEDA sa Pasig 12 Saint Josemaria Escriva Drive Ortigas Center, Pasig City Dear Secretary Pernia : This is with reference to NEDA's letter requesting this Department's opinion on the queries raised to your Office by the Zamboanga City Water District (ZCWD) on whether it may enter into a Joint Venture (JV) Agreement with a private entity, following the 2013 NEDA JV Guidelines, for the following activities: HTcADC 1. Specific activities which are part of the ZCWD's mandate, such as: a. sale and distribution of potable water (bulk water sales projects); b. water meter reading and bill-handling to ZCWD's customers; c. detection and repair of leaks and restoration of road breakages; and d. management of wastewater system (including the construction of a Sewage Treatment Facility). 2. Its entire operation, such as the design, construction, rehabilitation, operation, maintenance, financing, expansion and management of the water and wastewater of the City of Zamboanga. It is stated in the query that: a. Pursuant to Executive Order (EO) No. 423, series of 2005, 1 the National Economic and Development Authority (NEDA) is mandated to issue guidelines in entering into JV Agreements with private entities, in consultation with the Government Procurement Policy Board, with the objective of promoting transparency, competitiveness and accountability in government transactions, and, where applicable, complying with the requirements of an open and competitive public bidding. b. The JV Guidelines apply to all government-owned and/or -controlled corporations (GOCCs), government corporate entities (GCEs), government instrumentalities with corporate powers (GICPs), state universities and colleges (SUCs), and government financial institutions (GFIs) created by law, executive issuances or pursuant to Batas Pambansa Bilang 68 , 2 as amended, and defined under Republic Act (RA) No. 10149. 3 c. Local Water Districts (LWDs), classified as GOCCs with original charter, derive all of its powers from Presidential Decree (PD) No. 198, as amended or the Provincial Water Utilities Act of 1973, as amended. It is also stated in the query that the NEDA deems it prudent to consult this Department on the issues raised by the ZCWD in anticipation that such concern is likely to be raised again by other LWDs. Hence this query. DISCUSSION LWD's power to enter into contracts Pursuant to Section 30 of PD 198, as amended, LWDs have the power to enter into contracts with any person for the purpose of performing any function of a water district, to wit: "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. x x x" (Emphasis supplied) This power is subject only to the limitation that the Board of Directors may not, by contract, delegate any of the discretionary powers vested in the Board. 4 The Board may not delegate the following powers: 1. to determine the schedule of rates and charges of water that is sold under its control; 5 2. to establish the area to be benefited by the installation of a sanitary sewerage; 6 3. to levy and collect assessment, or stand-by charges; 7 4. to exclude any territory within the boundary of the district; 8 5. to determine the per diem to be received by each director; 9 6. to prescribe other allowances and benefits; 10 7. to adopt and levy a groundwater production assessment to compensate for loss due to the production of groundwater production by other entities; 11 8. to appoint, to define the duties and to fix the compensation of the General Manager; 12 9. to dissolve a district; 13 and 10. all other powers, privileges, and duties of the district that are to be exercised and performed by and through the board, except those executive, administrative or ministerial power which may be delegated and redelegated by the board. 14 2013 NEDA JV Guidelines However, pursuant to EO No. 423, the NEDA issued guidelines with regard to the Philippine Government entering into JV Agreements with private entities, which in effect further qualified how such power is to be exercised. The 2013 NEDA JV Guidelines are applicable to those entities covered by the definition provided therein of a "Government Entity," 15 subject to certain exceptions. 16 The 2013 NEDA JV Guidelines clearly provide for the objectives sought to be achieved by the Government Entity in entering into a JV Agreement as provided in Items 3.1 to 3.3 thereof, to wit: aScITE "3.1 To prescribe the rules, guidelines and procedures forging JV Agreements between government corporations x x x, and private entities; 3.2 To encourage pooling of resources and expertise between government and private sector entities through JVs as a viable, efficient, and practical alternative in pursuing development goals of the government; and 3.3 To ensure that all JV Agreements are entered into under the policy that all government contracts shall be awarded through a transparent process." Item 7.0 of the Guidelines provides for the approvals that a JV proposal must obtain and a general checklist or standard by which a JV Proposal will be assessed to determine whether such should be denied or approved for implementation. ZCWD is a GOCC that is covered by the 2013 NEDA JV Guidelines In the case of Davao City Water District vs. Civil Service Commission (201 SCRA 593 [1991]), the Supreme Court categorically held that local water districts are "government-owned or controlled corporations with original charter." In the same ruling, it held: "x x x 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. x x x" (Emphasis supplied) Applying such case would properly classify ZCWD as a GOCC with an original charter. Item 4.1 of the 2013 NEDA JV Guidelines provides that GOCCs are covered entities and the 2013 NEDA JV Guidelines applies to them. Thus, Joint Venture Agreements to be entered into between the ZCWD and a private entity must comply therewith. Furthermore, the specific activities being inquired into by the ZCWD are not among the entities and activities enumerated in Item 4.2 that are not covered by the 2013 NEDA JV Guidelines, namely: (a) transactions of GFIs in the ordinary course of business as part of their normal and ordinary banking, financial or portfolio management operations; (b) JV activities of government corporate entities in the exercise of their primary mandate to dispose government assets or properties; and (c) JV activities or undertakings of the Local Government Units (LGUs). ZCWD's activities to be covered by a JV are allowed by the 2013 NEDA JV Guidelines Item 6.1 17 of the 2013 NEDA JV Guidelines requires that the JV Agreements entered into between a Government Entity, such as the ZCWD, and its private sector partner, "should be clear in its intent to undertake a specific activity that is responsive to national development goals and objectives." Similarly, Item 7.1 18 of the 2013 NEDA JV Guidelines requires, among others, for the JV activity to be within the mandate and charter of the Government Entity concerned and is responsive in meeting national or specific development goals and objectives. The relevant provisions of PD 198, as amended, that provide, among others, its mandate and relevant portion of its charter read, as follows: "SECTION 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 . xxx xxx xxx 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. x x x 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. x x x SEC. 27. Sale of Water . The district shall have the power to sell water, pursuant to generally acceptable rules and regulations, to any person for use within the district. x x x 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." (emphasis supplied) CONCLUSION In sum, it can be concluded that the activities mentioned by the ZCWD in its query are within the mandate and charter of LWDs and hence: (i) the sale and distribution of potable water (bulk water sales projects); (ii) water meter reading and bill-handling to ZCWD's customers; (iii) detection and repair of leaks and restoration of road breakages; and (iv) management of wastewater system (including the construction of a Sewage Treatment Facility), are activities that may be pursued through a JV Agreement, pursuant to Section 30 of PD 198, as amended; provided that it complies with the 2013 NEDA JV Guidelines; provided further that its Board of Directors do not, by contract, delegate any of the discretionary powers vested in the Board. HEITAD As regards undertaking a JV Agreement for its entire operations, such as the design, construction, rehabilitation, operation, maintenance, financing, expansion and management of the water and wastewater of the City of Zamboanga, it bears stressing that LWDs, such as the ZCWD, are formed for the purpose of: (i) 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, (ii) providing, maintaining and operating wastewater collection, treatment and disposal facilities; and (iii) 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. If upon its determination, it deems it best in the performance of its mandate, as the most appropriate method/means based on the identified needs and requirements of its district, to pursue its entire operations under a JV Agreement, then it may do so; provided that it complies with the 2013 NEDA JV Guidelines; and provided further that its Board of Directors do not, by contract, delegate any of the discretionary powers vested in the Board. Please be guided accordingly. Very truly yours, (SGD.) MENARDO I. GUEVARRA Secretary Footnotes 1. Repealing Executive Order No. 109-A Dated September 18, 2003 Prescribing the Rules and Procedures on the Review and Approval of All Government Contracts to Conform with Republic Act No. 9184, Otherwise Known as "The Government Procurement Reform Act." 2. B.P. Blg. 68 has been repealed by Republic Act No. 11232 (Revised Corporation Code of the Philippines) which was signed into law on 20 February 2019. 3. GOCC Governance Act of 2011. 4. Pertains to the board of directors of a district (See paragraph (e), Sec. 3 (Definitions) of PD 198, as amended. 5. Section 37 of Presidential Decree (PD) No. 198, as amended or the Provincial Water Utilities Act of 1973, as amended. 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"; "(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." 6. Section 40 of PD No. 198, as amended. 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. 7. Id. at 6. 8. Section 42 of PD 198, as amended. SEC. 42. Exclusion of a Territory. Any territory within the boundary of a district may be excluded by resolution of the board of directors after notice to landowners 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. 9. Section 13 of PD 198, as amended. 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. 10. Id. at 9. 11. Section 39 of PD 198, as amended. 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 is 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. 12. Section 23 of PD 198, as amended. 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. 13. Section 45 of PD 198, as amended. 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. 14. Section 17 of PD 198, as amended. 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. 15. 5.0 Definition of Terms. 5.5 Government Entity. Refers to GOCCs, GCEs, GICPs, SUCs, and GFIs, created by law, executive issuances, or pursuant to Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines, as amended, and defined under Republic Act (RA) No. 10149, otherwise known as the GOCC Governance Act of 2011, among others. x x x 16. 4.0 Coverage. 4.1 These guidelines shall apply to all government-owned and/or controlled corporations (GOCCs), government corporate entities (GCEs), government instrumentalities with corporate powers (GICPs), government financial institutions (GFIs), state universities and colleges (SUCs), as defined under Section 5.0. 4.2 These Guidelines shall not apply to the following: a. Transactions of GFIs in the ordinary course of business as part of their normal and ordinary banking, financial or portfolio management operations; b. JV activities of government corporate entities in the exercise of their primary mandate to dispose government assets or properties; and c. JV activities or undertakings of the Local Government Units (LGUs). 17. JV Agreements entered into by the Government Entity concerned with the private sector partner , whether through contractual agreement or through the formation of a JV Company (Corporate JV) as provided in these Guidelines, should be clear in its intent to undertake a specific activity that is responsive to national development goals and objectives . (Emphasis supplied) xxx xxx xxx 18. 7.1 Requirements/Conditions for JV Proposals . JV proposals shall comply with the following requirements/conditions: a. The JV activity is within the mandate and charter of the Government Entity concerned; b. The JV activity is responsive in meeting national or specific development goals and objectives; c. The JV proposal clearly describes the proposed investment, including its total cost, activities, objectives, sources of funding, extent and nature of the proposed participation of the Government Entity concerned, and the relevant terms and conditions; d. The JV proposal establishes all the components in determining the overall feasibility of the JV proposal which include, among others, the technical, financial, economic, and legal aspects; and e. The terms and conditions of the approval of the [Privatization Council], if applicable.