201 SCRA 593

G.R. No. 95237-38 September 13, 1991

DAVAO CITY WATER DISTRICT, CAGAYAN DE ORO CITY WATER DISTRICT, METRO
CEBU WATER DISTRICT, ZAMBOANGA CITY WATER DISTRICT, LEYTE METRO WATER
DISTRICT, BUTUAN CITY WATER DISTRICT, CAMARINES NORTE WATER DISTRICT,
LAGUNA WATER DISTRICT, DUMAGUETE CITY WATER DISTRICT, LA UNION WATER
DISTRICT, BAYBAY WATER DISTRICT, METRO LINGAYEN WATER DISTRICT, URDANETA
WATER DISTRICT, COTABATO CITY WATER DISTRICT, MARAWI WATER DISTRICT,
TAGUM WATER DISTRICT, DIGOS WATER DISTRICT, BISLIG WATER DISTRICT, and
MECAUAYAN WATER DISTRICT, petitioners,
vs.
CIVIL SERVICE COMMISSION, and COMMISSION ON AUDIT, respondents.

FACTS

Presidential Decree No. 198, as amended by Presidential Decrees Nos. 768

and 1479, also known as the “Provincial Utility Act of 1973” was created by the
then President Ferdinand E. Marcos by his bestowed legislative power under
Proclamation No. 1081.

PD. 198, as amended gave the local legislative bodies the authority to
form and create their own water district through a resolution which is in
agreement with the rules, regulations and guidelines laid down. The petitioners
who are among the more than 500 water districts in the country are created in
pursuant to PD. 198, as amended. The decree further created and formed the
"Local Water Utilities Administration" (LWUA), a national agency attached to the
National Economic and Development Authority (NEDA), and granted with
regulatory power necessary to optimize public service from water utilities
operations.
 A ruling on the April of 1989 provides that “Civil Service embraces all
branches, subdivisions, instrumentalities, and agencies of the government,
including government-owned and controlled corporations with original
charters”. Through the ruling, the CSC issued a resolution “the Commission
resolved, as it hereby resolves to rule that Local Water Districts, being quasi-
public corporations created by law to perform public services and supply public
wants, the matter of hiring and firing of its officers and employees should be
governed by the Civil Service Law, rules and regulations. Henceforth, all
appointments of personnel of the different local water districts in the country
shall be submitted to the Commission for appropriate action.”.

However, a ruling on the May of 1990, Metro Iloilo case, reversed the ruling
by stating that PD. 198 is a general law that only gives power to create water
districts, thus water districts are not covered by the CSC for they do not have an
original Charter.

The CSC immediately stopped the promulgation of its resolution until the
Supreme Court clarifies the issue. COA on the other hand has disputes with
LWUA, COA claims that auditing the water district is within the scope of their
power, LWUA claims that it is not and it is only limited to water districts with
subsidies from the government fall within the COA's jurisdiction.

To solve the issues of CSC’s and COA’s jurisdiction the determination of

whether or not the different water districts are government-owned or controlled
corporations with original charter.

Whether or not

Whether or not the Local Water Districts formed and created pursuant to
the provisions of Presidential Decree No. 198, as amended, are government-
owned or controlled corporations with original charter falling under the Civil
Service Law and/or covered by the visitorial power of the Commission on Audit

Decision

The Water Districts, the petitioners, main contention is that they are private
corporations without an original charter thus should not be covered by the CSC
and COA. Upholding the Metro Iloilo case, the petitioners’ claim is that PD. 198 is
a general law and it didn’t give the various water districts an original charter, for
it was only made through the respective Sanggunian’s resolution.

The Sanggunian’s resolution in creating their respective water district is in

pursuant to PD. 198 which is, as we previously ruled, a special law. PD. 198
provided an exemption from the Civil Service, however after being amended by
PD. 1479 such exemption has been wiped out.

Regarding "government-owned or controlled corporation with original

charter," It means being created by a special law and not under the
Corporation Code of the Philippines. PD. 198, as amended contains all the
necessary terms that will constitute a charter creating a judicial person. The
necessary terms are as follows; Sec. 6. Formation of District, Sec. 8. Number and
Qualificatio, Sec. 9. Appointment, Sec.10. Nominations, Sec. 11. Term of Office,
Sec. 12. Vacancies, Sec. 13. Compensation, and Sec. 14. Personal Liability. It is
equally important to mention Section 3, par. (b) of the same decree which
reads:

Sec. 3(b). Appointing authority. — The person empowered to appoint the

members of the Board of Directors of a local water district, depending
upon the geographic coverage and population make-up of the
particular district. In the event that more than seventy-five percent of the
total active water service connections of a local water districts are within
 the boundary of any city or municipality, the appointing authority shall be
the mayor of that city or municipality, as the case may be; otherwise, the
appointing authority shall be the governor of the province within which
the district is located: Provided, That if the existing waterworks system in
the city or municipality established as a water district under this Decree is
operated and managed by the province, initial appointment shall be
extended by the governor of the province. Subsequent appointments
shall be as specified herein.

If portions of more than one province are included within the boundary of
the district, and the appointing authority is to be the governors then the
power to appoint shall rotate between the governors involved with the
initial appointments made by the governor in whose province the
greatest number of service connections exists (as amended by PD 768).

The quoted section above renders the petitioners’ claim naught. For how
can it be a private corporation when the power to appoint the members who
will comprise the Board of Directors belongs to the local executives of the local
subdivision units where such districts are located.

Presidential Decree No. 198, as amended acts as the original charter for
the various Water Districts in the country and thus falls under the
CSC and visitorial power of the COA. However, to protect the constitutional
guarantee of the security of tenure of the employees of the water districts, those
who have already acquired their permanent employment status before the
promulgation of this decision cannot be removed by the reason that they do
not have the necessary civil service eligibilities.