G.R. No. 185184 - Concurring Opinion

G.R. No. 185184, October 3, 2023,
♦ Decision, Inting, [J]
♦ Concurring Opinion, Gesmundo, [CJ]
♦ Concurring Opinion, Caguioa, [J]
♦ Separate Opinion, Leonen, [J]
♦ Concurring Opinion, Lazaro-Javier, [J]

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM, REPRESENTED BY ITS ADMINISTRATOR, DIOSDADO JOSE M. ALLADO, PETITIONER, VS. PROVINCIAL GOVERNMENT OF BULACAN, REPRESENTED BY GOV. JOSEFINA M. DELA CRUZ, RESPONDENT.

This is a Petition for Review on Certiorari filed by Metropolitan Waterworks and Sewerage System (MWSS) challenging the Decision of the Court of Appeals (CA) which affirmed, with modification, the Decision of Branch 82 of the Regional Trial Court of Malolos, Bulacan (RTC), upholding the position of the Province of Bulacan that it is entitled to receive its share in the proceeds derived by MWSS from the utilization and development of water in the Angat Dam pursuant to Article X, Section 71 of the Constitution, in relation to Sections 289, 291, and 2922 of the Local Government Code.

The ponencia grants the Petition. Reversing the assailed rulings, the ponencia finds that the MWSS is not liable to pay the Province of Bulacan. It notes that the requisites for a local government unit (LGU) to be entitled to a share in the proceeds of the utilization and development of national wealth are as follows: (1) there must exist a national wealth forming part of a natural resource; (2) the national wealth must be located within the LGU's territory; and (3) the proceeds must have been generated from the utilization and development of national wealth. These requisites do not concur in this case.3

First, the ponencia holds that dam water is appropriated water. It ceased to be part of the State's natural resource from the moment that the water from the Angat River was appropriated and impounded into the Angat Dam. Therefore, it can no longer be subject to national wealth tax.4 This is consistent with the Court's ruling in Initiatives for Dialogue and Empowerment through Alternative Legal Services, Inc. (IDEALS) v. Power Sector Assets and Liabilities Management Corporation5 that water ceases to form part of a natural resource once removed therefrom. The ponencia also remarks that "it would be highly unreasonable if national wealth tax were to be imposed on dam water given that it is already appropriated water" and "the water from the Angat River is subjected to appropriate tax upon its extraction and prior to its impounding."6

Second, the ponencia holds that the MWSS is not engaged in the utilization and development of water. The MWSS does not derive proceeds by the mere operation of the dam. Based on its Charter, the MWSS was created to perform regulatory functions, specifically to operate and maintain waterworks systems to ensure uninterrupted and sufficient supply and distribution of potable water to the consuming public. While the MWSS converts water in Angat Dam to good use, it is solely for the purpose of performing its governmental functions.7 Furthermore, the concession fees received by MWSS are not gross receipts or proceeds within the meaning of Section 291 of the Local Government Code, to which the LGU is entitled to a share.8

As held in IDEALS, water sourced from Angat Dam does not constitute "national wealth" as contemplated in the Constitution. In that case, this Court cited several opinions of the Department of Justice, which consistently indicate that water ceases to be a "natural resource" once it is collected and extracted from its source, to wit:

What is then clear in IDEALS ruling is that once the water is removed from its natural source, it ceases to be part of the natural resources of the country—therefore, it no longer forms part of the national wealth and becomes subject to ordinary commerce.

Moreover, I share the stance of Justice Alfredo Benjamin S. Caguioa, as incorporated in the ponencia, that the operations of MWSS do not involve the utilization and development of water resources.10 It is settled that MWSS is a government-owned and -controlled corporation (GOCC) with its own Charter, Republic Act No. 6234.11 Section 3 of Republic Act No. 6234 grants the MWSS the following powers and functions, among others:

MWSS was primarily created for the "proper operation and maintenance of waterworks system to insure an uninterrupted and adequate supply and distribution of potable water for domestic and other purposes and the proper maintenance of sewerage systems." Its main function is to provide basic services to the public.12 It is empowered to fix water rates and approve, regulate, and supervise the establishment, operation, and maintenance of waterworks and deep wells—which are currently done through their concessionaires. A significant portion of the functions of MWSS is, thus, similar to that of a regulator.

The enumeration of its powers and functions above clearly show that the MWSS is "vested with functions relating to public needs."13 Section 1 of Republic Act No. 6234 considers the operation and maintenance of waterworks and sewerage systems as essential public services because they are vital to public health and safety. Hence, the law declared it the policy of the state that the establishment, operation, and maintenance of waterworks systems be supervised and controlled by the State.14 Notably, the Water Code acknowledged the increasing necessity for the government to intervene in improving the management of water resources.15 These provisions are consistent with the State's constitutional mandate to promote the right to health of the people and to instill health consciousness among them.16

There is no question that the functions of MWSS are imbued with public interest and are geared towards public welfare. In the performance of its mandate, MWSS is not engaged in the utilization and development of national wealth. To my mind, these terms, as used in the pertinent provisions of the Constitution and the Local Government Code contemplate some kind of commercial endeavor that generates income or profit. This is not the thrust of the existence of MWSS, nor is it involved in such activities.

During the deliberations in this case, a position was raised that MWSS is responsible for harvesting, gathering, channeling, and impounding waters from their natural sources. Thus, the extraction of water from its natural source constitutes an act of utilization of a natural resource and national wealth as contemplated under Article X, Section 7 of the Constitution and Sections 289, 290, and 291 of the Local Government Code.

In the case of Republic v. Provincial Government of Palawan,17 therein respondent Provincial Government of Palawan sought to claim its share in the proceeds of the Camago-Malampaya natural gas project on the basis of Article X, Section 7 of the Constitution. To resolve the issue, this Court examined the rationale behind Article X, Section 7—the same provision which the Provincial Government of Bulacan (Province of Bulacan), respondent in the present case, bases its claim:

A reading of the deliberations of the Constitution quoted above reveals that the conjunctive term "utilization and development" was intended to mean more than how it is commonly used and understood. The framers repeatedly used the term "exploit" in explaining the rationale behind Article X, Section 7 of the Constitution. The term "exploit" or "exploitation" is generally defined as "to take advantage of" or to "make use of meanly or unjustly for one's own advantage or profit."19

Evidently, it is necessary that raw water must be, to some extent, exploited by MWSS or used by MWSS to its advantage in order to fall within the purview of Article X, Section 7 of the Constitution, and consequently, Articles 289, 291, and 292 of the Local Government Code. However, MWSS does not exploit natural resources for its advantage. Rather, it delivers essential services that are so vital to public health and safety that it is required by law to be supervised and controlled by the State itself.20 Justice Caguioa aptly pointed out that the provision of essential public services does not constitute utilization and development of national wealth.21 It follows that the Province of Bulacan is not entitled to any proceeds from the activities of MWSS. To rule otherwise would be akin to charging or imposing a tax22 on a government instrumentality for discharging public service in faithful compliance of its statutory mandate.

It is likewise my humble opinion that granting the Province of Bulacan a share in the proceeds of the utilization and development of water located within its territorial boundaries would inevitably diminish consumer welfare, as it will necessarily affect the concession fees received by MWSS, and by association, lead to the increase of the rates charged on consumers.

A perusal of the provisions of the concessionaire agreements of MWSS is necessary to fully comprehend the implications of the grant of proceeds from the utilization and development of the national wealth to the LGUs. The original Concession Agreement23 of MWSS with Manila Water Company, Inc. (Manila Water) for the East Service Zone reveals that it has completely "contracted" out services to Manila Water (as its concessionaire) to provide uninterrupted and adequate supply and distribution of potable water in the designated service areas. Article 2.1 of the Concession Agreement provides:

Meanwhile, the Revised Concession Agreement24 explicitly outlines the scope of the rights and obligations granted to Manila Water as a concessionaire:

A concessionaire agreement is mutually beneficial to both parties involved. In the case of MWSS, it receives payment in the form of annual concession fees from its concessionaire, while the concessionaire is granted the rights to the operation and management of the facilities, and the right to bill and collect payment from the consumers.25

The annual concession fee under both the original and the Revised Concession Agreements consists of two main components: maturing payments on the existing loans of MWSS, and an annual budget to be determined on the first business day of every year.26 This concession fee is likewise treated as an expenditure of the concession. Meanwhile, the standard rates that the concessionaire may bill and collect from the customers are generally defined in the Concession Agreement itself. However, these standard rates may be subject to several adjustments.

Adjustments may be made yearly based on the concessionaire's operational performance (i.e., when the agreed service obligation standards and targets have been met) and its historical cash flows.27 An Extraordinary Price Adjustment may be made where the concessionaire has incurred significant additional costs as a result of an event of force majeure which are not covered by insurance.28 The Concession Agreement likewise provides a policy for rate rebasing determination, which permits the concessionaire to recover the expenditures it incurred over the term of the concession, and to earn a reasonable rate of return.29 It is clear then that the rates charged upon the consuming public are somewhat dependent on the cash flows of the concession and its expenditures.

Primarily a regulator, the primary source of income of MWSS comes in the form of concession fees from its various concessionaires, and the disposition of its income is limited to the payment of its contractual and statutory obligations, expansion and development, and enhancement of its efficient operation.30 As correctly pointed out by Justice Caguioa, to suddenly ask MWSS to earmark portions of its concession fees as payment to several LGUs will necessitate an increase of the annual concession fees, insofar as the variable annual budget is concerned. This creates a ripple effect. Higher concession fees equate to higher expenditures, which under the Concession Agreement may justify increase in the standard rates chargeable to the consumers.31

The Court must exercise utmost caution in deciding this case, as a decision to uphold the national wealth tax against MWSS will undoubtedly encourage similarly-situated LGUs to claim their alleged share in the proceeds of the utilization and development of waters within their territory. It follows that the reallocation of portions of the concession fees of MWSS for payment to several LGUs will increase the chargeable water rates, to the ultimate detriment of the consumers. Thus, while the Court acknowledges the LGU's constitutionally-granted fiscal autonomy, its rights must be placed in perspective and not taken in isolation of our existing legal regimes. In any event, the promotion of public welfare remains an overriding consideration.