The DOJ has consistently regarded hydropower generation by foreign entities as not constitutionally proscribed based on the definition of water appropriation under the Water Code, thus:

Opinion No. 173, 1984

This refers to your request for opinion on the possibility of granting water permits to foreign corporations authorized to do business in the Philippines[.]

[. . . .]

[W]hile the Water Code imposes a nationality requirement for the grant of water permits, the same refers to the privilege "to appropriate and use water." This should be interpreted to mean the extraction of water from its natural source (Art. 9, P.D. No. 1067). Once removed therefrom, they cease to be a part of the natural resources of the country and are the subject of ordinary commerce and may be acquired by foreigners (Op. No. 55, series of 1939) . . . in case of a contract of lease, the water permit shall be secured by the lessor and included in the lease as an improvement. The water so removed from the natural source may be appropriated/used by the foreign corporation leasing the property.^[9] (Emphasis in the original)

[a.]	[C]onstruct, maintain, and operate dams, reservoirs, [and other facilities] for the purpose of supplying water to the inhabitants of its territory, for domestic and other purposes; and to purify, regulate and control the use, as well as prevent the wastage of water;
[b.]	[C]onstruct, maintain and operate sanitary sewerages[;]
[c.]	[F]ix periodically water rates and sewerage service fees[;]
[d.]	[C]onstruct, develop, maintain and operate such artesian wells and springs[;]
[e.]	[C]onstruct works across, over, through, and/or alongside any stream, water-course, canal, ditch, flume, street, avenue, highway or railway, whether public or private, as the location of said works may require[;]
[f.]	[A]pprove, regulate, and supervise the establishment, operation and maintenance of waterworks and deep wells within its jurisdiction operated for commercial, industrial and governmental purposes, and to fix just and equitable rates or fees that may be charged to customers thereof;
[g.]	[A]ssist in the establishment, operation and maintenance of waterworks and sewerage systems within its jurisdiction[; and]
[h.]	[A]pprove and regulate the establishment and construction of waterworks and sewerage systems in privately owned subdivisions within its jurisdiction[.]

MR. NATIVIDAD.

The history of local governments shows that the usual weaknesses of local governments are: 1) fiscal inability to support itself; 2) lack of sufficient authority to carry out its duties; and 3) lack of authority to appoint key officials.

Under this Article, are these traditional weaknesses of local governments addressed to [sic]?

MR. NOLLEDO.

Yes. The first question is on fiscal inability to support itself. It will be noticed that we widened the taxing powers of local governments. I explained that exhaustively yesterday unless the Gentleman wants me to explain again.

MR. NATIVIDAD.

No, that is all right with me.

MR. NOLLEDO.

There is a right of retention of local truces by local governments and according to the Natividad, Ople, Maambong, de los Reyes amendment, local government units shall share in the proceeds of the exploitation of the national wealth within the area or region, etc[.]

[....]

MR. OPLE.

In the hinterland regions of the Philippines, most municipalities receive an annual income of only about P200,000 so that after paying the salaries of local officials and employees, nothing is left to fund any local development project. This is a prescription for a self-perpetuating stagnation and backwardness, and numbing community frustrations, as well as a chronic disillusionment with the central government. The thrust towards local autonomy in this entire Article on Local Governments may suffer the fate of earlier heroic efforts of decentralization which, without innovative features for local income generation, remained a pious hope and a source of discontent. To prevent this, this amendment which Commissioner Davide and I jointly propose will open up a whole new source of local financial self-reliance by establishing a constitutional principle of local governments, and their populations, sharing in the proceeds of national wealth in their areas of jurisdiction. The sharing with the national government can be in the form of shares from revenues, fees and charges levied on the exploitation or development and utilization of natural resources such as mines, hydro-electric and geothermal facilities, timber, including rattan, fisheries, and processing industries based on indigenous raw materials.

But the sharing, Madam President, can also take the form of direct benefits to the population in terms of price advantages to the people where, say, cheaper electric power is sourced from a local hydroelectric or geothermal facility. For example, in the provinces reached by the power from the Maria Cristina hydro electric facility in Mindanao, the direct benefits to the population cited in this section can take the form of lower prices of electricity. The same benefit can be extended to the people of Albay, for example, where volcanic steam in Tiwi provides 55 megawatts of cheap power to the Luzon grid.

The existing policy of slapping uniform fuel adjustment taxes to equalize rates throughout the country in the name of price standardization will have to yield to a more rational pricing policy that recognizes the entitlement of local communities to the enjoyment of their own comparative advantage based on resources that God has given them. And so, Madam President, I ask that the Committee consider this proposed amendment.^[18] (Emphasis supplied)

2.1 Grant of Concession

On the terms and subject to the conditions set forth herein, MWSS hereby grants to the Concessionaire, as contractor to perform certain functions and as agent for the exercise of certain rights and powers under the Charter, the sole right to manage, operate, repair, decommission and refurbish the Facilities in the Service Area, including the right to bill and collect for water and sewerage services supplied in the Service Area (the "Concession"). (Emphasis supplied)

2.1.1 Scope of Grant

The MWSS, subject to its to [sic] authority under its Charter, hereby assigns to the Concessionaire, the following rights and obligations solely in relation to the Service Area:  
 

(a)	finance, design and construct the Facilities, except as otherwise provided in this Agreement;
(b)	undertake the operation and maintenance of the Facilities in the Service Area;
(c)	treat Raw Water and wastewater in the Service Area;
(d)	provide and manage the services to the Customers;
(e)	bill and collect payment from the Customers for the services;
(f)	source Raw Water from catchment areas, watersheds, springs, wells and reservoirs in the Service Area, subject to the applicable Authorizations from the relevant Government Authorities; and
(g)	provide connections to public sewer and septic and [sic] sanitation cleaning as sewerage services. (Emphasis supplied)

1. As provided in IDEALS, water ceases to be a "natural resource" once it is collected and extracted from its source.
   
   
2. Operations of the MWSS do not involve the utilization and development of water resources.
   
   
   
   1. Deliberations of the 1987 Constitution show that 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."
      
      
   2. The MWSS is an instrumentality of the State that performs essential public services. In the performance of its duties, it cannot be considered as utilizing or exploiting the nation's wealth for its own advantage or profit.
   
   
3. Affirming the national wealth tax will create a twin ripple effect: (a) it will influence and encourage similarly-situated LGUs to claim their alleged share in the proceeds of the utilization and development of waters in their territory as part of the nation's wealth, which, in turn, (b) will lead to the increase of the concession fees and water rates, to the ultimate detriment of the consuming public.

SECTION 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant.

The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.

The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fishworkers in rivers, lakes, bays, and lagoons.

The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large -scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technical resources.

The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution. (Emphasis supplied)

SECTION 7. Local governments shall be entitled to an equitable share in the proceeds of the utilization and development of the national wealth within their respective areas, in the manner provided by law, including sharing the same with the inhabitants by way of direct benefits.

SECTION 289. Share in the Proceeds from the Development and Utilization of the National Wealth. - Local government units shall have an equitable share in the proceeds derived from the utilization and development of the national wealth within their respective areas, including sharing the same with the inhabitants by way of direct benefits.

Protruding from the basic tenet that water is a vital part of human existence, this Court introduces the Public Trust Doctrine. It aims to put an additional strain upon the duty of the water industry to comply with the laws and regulations of the land.

A number of doctrines already protect and sanctify public welfare and highlight the State's various roles relative thereto. Article XII, Section 2, of the 1987 Philippine Constitution elaborates on the ownership of the State over the nation's natural resources and its right and duty to regulate the same:

All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant.

. . . .

The Public Trust Doctrine, while derived from English common law and American jurisprudence, has firm Constitutional and statutory moorings in our jurisdiction. The doctrine speaks of an imposed duty upon the State and its representative of continuing supervision over the taking and use of appropriated water. Thus, "[p]arties who acquired rights in trust property [only hold] these rights subject to the trust and, therefore, could assert no vested right to use those rights in a manner harmful to the trust." In National Audubon Society v. Superior Court of Alpine County, a California Supreme Court decision, it worded the doctrine as that which -

[T]he state had the power to reconsider past allocation decisions even though an agency had made those decisions after due consideration of their effect on the public trust. This conclusion reflected the view that water users could not acquire a vested property right in the water itself; they merely obtained a usufructuary right to the water.

Academic literature further imparts that "[p]art of this consciousness involves restoring the view of public and state ownership of certain natural resources that benefit all. [. . .]" The "doctrine further holds that certain natural resources belong to all and cannot be privately owned or controlled because of their inherent importance to each individual and society as a whole. A clear declaration of public ownership, the doctrine reaffirms the superiority of public rights over private rights for critical resources. It impresses upon states the affirmative duties of a trustee to manage these natural resources for the benefit of present and future generations and embodies key principles of environmental protection: stewardship, communal responsibility, and sustainability."

In this framework, a relationship is formed - "the [S]tate is the trustee, which manages specific natural resources - the trust principal - for the trust principal - for the benefit of the current and future generations - the beneficiaries." "[T]he [S]tate has an affirmative duty to take the public trust into account in the planning and allocation of water resources, and to protect public trust uses whenever feasible." But with the birth of privatization of many basic utilities, including the supply of water, this has proved to be quite challenging. The State is in a continuing battle against lurking evils that has afflicted even itself, such as the excessive pursuit of profit rather than purely the public's interest.

These exigencies forced the public trust doctrine to evolve from a mere principle to a resource management term and tool flexible enough to adapt to changing social priorities and address the correlative and consequent dangers thereof. The public is regarded as the beneficial owner of trust resources, and courts can enforce the public trust doctrine even against the government itself.^[16] (Citations omitted)

The concept of trust in a limited government is already real and implicit in the most fundamental concept articulated in Article II, Section 1 of the Constitution:

SECTION 1. The Philippines is a democratic and republican State. Sovereignty resides in the people and all government authority emanates from them.

....

While the State's relationship with its natural resources is not as expressly stated to be a public trust, it also flows from the fundamental nature of a constitutional republican state.

The constitutional provisions on national economy and patrimony, as found in Article XII of the 1987 Constitution, emphasizes that the State's power is always subject to the common good, public welfare, and public interest or benefit. Many of its provisions put primacy in favor of the State's citizens:

....

These constitutional provisions on the State's national patrimony and economy, on which the public trust doctrine is anchored, highlight that the common good, public interest, public welfare - the people - are of primary consideration.^[17]

SECTION 1. The goals of the national economy are a more equitable distribution of opportunities, income, and wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding productivity as the key to raising the quality of life for all, especially the underprivileged.

....

SECTION 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant.

The State shall protect the nation's marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.

The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fishworkers in rivers, lakes, bays, and lagoons.

The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technical resources. (Emphasis supplied)

The regalian doctrine emphasizes the State's ownership of all lands, irrespective of their ecology and the people who occupy them. The State acts as owner, exercising all rights of ownership over it, including the jus possidendi (right to possess), jus utendi (right to use), jus fruendi (right to its fruits), jus abutendi (right to consume), and jus disponendi (right to dispose). Cari o clarified, however, that after the Spanish occupation, all properties and rights of the State are now "to be administered for the benefit of the inhabitants[.]"

This shift in perspective - from unquestionable State ownership to the consideration of the inhabitants' rights - is affirmed by the application of the public trust doctrine. Under the regalian doctrine, the natural resources simply belong to the State, no qualifications. Under the public trust doctrine, the State's resources exist and are tempered for the benefit of the community.

....

Finally, as in police power, the public trust doctrine acknowledges that the people, as a community, hold an independent right that may be superior to private individual rights. Its objective may be to prevent widespread public harm and injury. Thus, while it may be used to regulate private rights, all still benefit from its application:

The public trust doctrine, viewed in this light, is a communitarian doctrine, protecting the broader and longer-term community interests against private exploitation that eventually can destroy both the community and the exploiters.... [U]nder the public trust doctrine ... individual members of a community may have to endure shorter-term pain in order to ensure that both they and, more importantly, the community as a whole avoid long-term diminishment or disaster.

Nothing in the public trust doctrine sets the government apart from communities or individuals to be the sole repository of that trust. Indeed, as a democracy, and in recognition of the reality that we are all beings that depend on each other and on the web of life in this pale blue dot in a vast universe, we are all both trustees and beneficiaries of all natural resources, especially its waters - without which we will cease to exist.^[18]

SECTION 3. Attributes, Powers and Functions. - The System shall have the following attributes, powers and functions:

....
(f)	To construct, maintain, and operate dams, reservoirs, conduits, aqueducts, tunnels, purification plants, water mains, pipes, fire hydrants, pumping stations, machineries and other waterworks for the purpose of supplying water to the inhabitants of its territory, for domestic and other purposes; and to purify, regulate and control the use, as well as prevent the wastage of water;
(g)	To construct, maintain, and operate such sanitary sewerages as may be necessary for the proper sanitation and other uses of the cities and towns comprising the System;
....
(i)	To construct, develop, maintain and operate such artesian wells and springs as may be needed in its operation within its territory;
....
(k)	To construct works across, over, through and/or alongside, any stream, water-course, canal, ditch, flume, street, avenue, highway or railway, whether public or private, as the location of said works may require: Provided, That, such works be constructed in such manner as to afford security to life and property and so as not to obstruct traffic: Provided, further, That the stream, water-course, canal, ditch, flume, street, avenue, highway or railway so crossed or intersected be restored without unnecessary delay to its former state. Any person or entity whose right may be prejudice[d] by said works shall not obstruct the same; however, he shall be given reasonable notice before the construction and shall be paid just compensation. The System shall likewise have the right to locate, construct and maintain such works on, over arid/or through any street, avenue, or highway and land and/or real rights of the Republic of the Philippines or any of its branches, agencies and political subdivisions upon due notice to the office, or entity concerned, subject solely to the condition that the street, avenue, or highway in which said works are constructed be restored without unnecessary delay to its former state unless otherwise agreed upon by the System and the office or entity concerned;
....
(n)	To approve, regulate, and supervise the establishment, operation and maintenance of waterworks and deepwells within its jurisdiction operated for commercial, industrial and governmental purposes and to fix just and equitable rates or fees that may be charged to customers thereof;
(o)	To assist in the establishment, operation and maintenance of waterworks and sewerage systems within its jurisdiction under cooperative basis;
(p)	To approve and regulate the establishment and construction of waterworks and sewerage systems in privately owned subdivisions within its jurisdiction[.]

2.1 Grant of Concession

On the terms and subject to the conditions set forth herein, MWSS hereby grants to the Concessionaire, as a public utility to perform certain functions and as a public utility for the exercise of certain rights and powers under the Charter, the right to manage, operate, repair, decommission and refurbish the Facilities in the Service Area, including the right to bill and collect for water and sewerage services supplied in the Service Area (the "Concession"). The Concessionaire shall perform its functions and exercise its rights under this Agreement directly or, in respect of functions and rights delegated to the Common Purpose Facilities Agreement.

2.1.1 Scope of Grant

The MWSS, subject to its to [sic] authority under its Charter, hereby assigns to the Concessionaire, the following rights and obligations solely in relation to the Service Area:

(a)	finance, design and construct the Facilities, except as otherwise provided in this Agreement;
(b)	undertake the operation and maintenance of the Facilities in the Service Area;
(c)	treat Raw Water and wastewater in the Service Are;
(d)	provide and manage the services to the Customers;
(e)	bill and collect payment from the Customers for the services;
(f)	source Raw Water from catchment areas, watersheds, springs, wells and reservoirs in the Service Area, subject to the applicable Authorizations from the relevant Government Authorities; and
(g)	provide connections to public sewer and septic and sanitation cleaning as sewerage services.[19]

6.4 Concession Fee

By January 15 of each calendar year, MWSS shall provide the Concessionaire with a schedule of all anticipated amounts due in connection with the Concession Fee payable during that year, as described in paragraphs (a) and (b) below:

(a)	Not later than fourteen (14) days prior to the date on which any scheduled payment of principal, interest, fees or other amount is due under a MWSS Loan, MWSS shall notify the Concessionaire in writing of the total amount due on that payment date and of the Peso equivalent thereof (the "Peso Equivalent") calculated at the then prevailing exchange rate. Not later than one (1) business day prior to each such payment date, the Concessionaire shall remit to such account as MWSS shall instruct an amount, in Pesos, exclusive of any penalties or default interest charges not attributable to a late payment of the Concession Fee by the Concessionaire (each such payment being referred to herein as a "Concession Fee"), equal to the sum of:
	(i)	The percentage of the aggregate Peso Equivalent due under any MWSS Loan which has been disbursed during the Concession Period (including MWSS Loans for Existing Projects and the [Umiray-Angat Transbasin Project] on the relevant payment date set forth in Schedule 13, shall be agreed with MWSS on a case by case basis.
(b)	In addition, the Concessionaire shall pay to MWSS on the first business day of January 1998 and the succeeding years thereafter an amount equal to one-half (1/2) of the annual budget for MWSS for that year, provided that such annual budget shall not, for any year, exceed Two Hundred Million Pesos (Php 200,000,000.00), subject to annual [Consumer Price Index] adjustments.

As of January 2021, the fee set under this paragraph is Five Hundred Seventy-Six Million, Six Hundred Fifty-five Thousand, Six Hundred Twenty-three Pesos (Php576,655,623.00[).]

Each Concession Fee shall be treated as an Expenditure of the Concession and the Concessionaire's payment obligation in respect thereof shall rank at least pari passu with its unsecured payment obligations under all other debt instruments that may be executed by the Concessionaire.^[22] (Emphasis supplied)

"Expenditures" includes pre-operating and operating expenditures, capital maintenance and investments expenditures, working capital requirements, business taxes, and concession fees; but excludes: penalties, interest charges on late payments, financing costs, bad debt provisions, depreciation provisions and tax on income. Expenditures "efficiently and prudently incurred" does not include, among other things, payments for (X) Disapproved Assets or (Y) fees for management or consulting services required by the Concessionaire in order to carry out its obligations under this Agreement payable to any shareholder or affiliate of the Concessionaire to the extent, in the judgment of the Regulatory Office, that such fees do not represent the best value available in the market for such services.^[27] (Emphasis supplied) 

SECTION 3. Dividends. - All government-owned or -controlled corporations shall declare and remit at least fifty percent (50%) of their annual net earnings as cash, stock or property dividends to the National Government. This section shall also apply to those government-owned or -controlled corporations whose profit distribution is provided by their respective charters or by special law, but shall exclude those enumerated in Section 4 hereof: Provided, That such dividends accruing to the National Government shall be received by the National Treasury and recorded as income of the General Fund.

SECTION 4. Exemptions. - The provisions of the preceding section notwithstanding, government-owned or -controlled corporations created or organized by law to administer real or personal properties or funds held in trust for the use and the benefit of its members, shall not be covered by this Act such as, but not limited to: the Government Service Insurance System, the Home Development Mutual Fund, the Employees Compensation Commission, the Overseas Workers Welfare Administration, and the Philippine Medical Care Commission.

SECTION 5. Flexible Clause. - In the interest of national economy and general welfare, the percentage of annual net earnings that shall be declared by a government-owned or -controlled corporation may be adjusted by the President of the Philippines upon recommendation by the Secretary of Finance.

Issuance	Dividend Rate	Year
Executive Order No. 167, series of 2003[30]	30%	2001
Executive Order No. 529, series of 2006[31]	11% or an equivalent amount of not less than PHP 65.31 Million	2002
Executive Order No. 529, series of 2006	10% or an equivalent amount of not less than PHP 109.97 Million	2003
Executive Order No. 529, series of 2006	10% or an equivalent amount of not less than PHP 66.20 Million	2004
Executive Order No. 591, series of 2006[32]	5% or an equivalent amount of not less than PHP 57.06 Million	2005
Executive Order No. 741, series of 2008[33]	5% or an equivalent amount of not less than PHP 130.80 Million	2006

Thus, to create a buffer against the shortfall that will be caused by the diversion of a portion of the concession fees to the LGUs, MWSS will have to call for an increase in its annual budget for operating expenses, which is the only variable component of the concession fees. As a result, the increase in concession fees will trigger an increase in water supply and sewerage prices, as these fees are among the costs that are factored into the determination of standard rates chargeable against the end-consumers.

SECTION 7. Local governments shall be entitled to an equitable share in the proceeds of the utilization and development of the national wealth within their respective areas, in the manner provided by law, including sharing the same with the inhabitants by way of direct benefits.

SECTION 289. Share in the Proceeds from the Development and Utilization of the National Wealth. - Local government units shall have an equitable share in the proceeds derived from the utilization and development of the national wealth within their respective areas, including sharing the same with the inhabitants by way of direct benefits.

MR. OPLE. Madam President, the issue has to do with Section 8 on page 2 of Committee Report No. 21:

Local taxes shall belong exclusively to local governments and they shall likewise be entitled to share in the proceeds of the exploitation and development of the national wealth within their respective areas.

Just to cite specific examples, in the case of timberland within the area of jurisdiction of the Province of Quirino or the Province of Aurora, we feel that the local governments ought to share in whatever revenues are generated from this particular natural resource which is also considered a national resource in a proportion to be determined by Congress. This may mean sharing not with the local government but with the local population. The geothermal plant in the Macban, Makiling-Banahaw area in Laguna, the Tiwi Geothermal Plant in Albay, there is a sense in which the people in these areas, hosting the physical facility based on the resources found under the ground in their area which are considered national wealth, should participate in terms of reasonable rebates on the cost of power that they pay. This is true of the Maria Cristina area in Central Mindanao, for example. May I point out that in the previous government, this has always been a very nettlesome subject of Cabinet debates. Are the people in the locality, where God chose to locate His bounty, not entitled to some reasonable modest sharing of this with the national government? Why should the national government claim all the revenues arising from them? And the usual reply of the technocrats at that time is that there must be uniform treatment of all citizens regardless of where God's gifts are located, whether below the ground or above the ground. This, of course, has led to popular disenchantment. In Albay, for example, the government then promised a 20-percent rebate in power because of the contributions of the Tiwi plant to the Luzon grid. Although this was ordered, I remember that the Ministry of Finance, together with the National Power Corporation, refused to implement it. There is a bigger economic principle behind this, the principle of equity. If God chose to locate the great rivers and sources of hydroelectric power in Iligan, in Central Mindanao, for example, or in the Cordillera, why should the national government impose fuel adjustment taxes in order to cancel out the comparative advantage given to the people in these localities through these resources? So, it is in that sense that under Section 8, the local populations, if not the local governments, should have a share of whatever national proceeds may be realized from this natural wealth of the nation located within their jurisdictions.^[41]

It is the position of PSALM that as the new owner only of the hydroelectric power plant, K-Water will be a mere operator of the Angat Dam. In the power generation activity, K-Water will have to utilize the waters already extracted from the river and impounded on the dam. This process of generating electric power from the dam water entering the power plant thus does not constitute appropriation within the meaning of natural resource utilization in the Constitution and the Water Code.

The operation of a typical hydroelectric power plant has been described as follows:

Hydroelectric energy is produced by the force of falling water. The capacity to produce this energy is dependent on both the available flow and the height from which it falls. Building up behind a high dam, water accumulates potential energy. This is transformed into mechanical energy when the water rushes down the sluice and strikes the rotary blades of turbine. The turbine's rotation spins electromagnets which generate current in stationary coils of wire. Finally, the current is put through a transformer where the voltage is increased for long distance transmission over power lines.

....

The DOJ has consistently regarded hydropower generation by foreign entities as not constitutionally proscribed based on the definition of water appropriation under the Water Code, thus:

Opinion No. 173, 1984

This refers to your request for opinion on the possibility of granting water permits to foreign corporations authorized to do business in the Philippines[.]

....

... while the Water Code imposes a nationality requirement for the grant of water permits, the same refers to the privilege "to appropriate and use water." This should be interpreted to mean the extraction of water from its natural source (Art. 9, P.D. No. 1067). Once removed therefrom, they cease to be a part of the natural resources of the country and are the subject of ordinary commerce and may be acquired by foreigners (Op. No. 55, series of 1939) .... in case of a contract of lease, the water permit shall be secured by the lessor and included in the lease as an improvement. The water so removed from the natural source may be appropriated/used by the foreign corporation leasing the property.

Opinion No. 14, S. 1995

The nationality requirement imposed by the Water Code refers to the privilege "to appropriate and use water." This, we have consistently interpreted to mean the extraction of water directly from its natural source. Once removed from its natural source the water ceases to be a part of the natural resources of the country and may be subject of ordinary commerce and may even be acquired by foreigners. (Secretary of Justice Op. No. 173, s. 1984; No. 24, s. 1989; No. 100, s. 1994)

In fine, we reiterate our earlier view that a foreign entity may legally process or treat water after its removal from a natural source by a qualified person, natural or juridical.

Opinion No. 122, s. 1998

The crucial issue at hand is the determination of whether the utilization of water by the power plant to be owned and operated by a foreign-owned corporation (SRPC) will violate the provisions of the Water Code.

As proposed, the participation of SRPC to the arrangement commences upon construction of the power station, consisting of a dam and a power plant. After the completion of the said station, its ownership and control shall be turned over to NPC. However, SRPC shall remain the owner of the power plant and shall operate it for a period of twenty-five (25) years.

It appears that the dam, which will be owned and controlled by NPC, will block the natural flow of the river. The power plant, which is situated next to it, will entirely depend upon the dam for its water supply which will pass through an intake gate situated one hundred (100) meters above the riverbed. Due to the distance from the riverbed, water could not enter the power plant absent the dam that traps the flow of the river. It appears further that no water shall enter the power tunnel without specific dispatch instructions from NPC, and such supplied water shall be used only by SRPC for power generation and not for any other purpose. When electricity is generated therein, the same shall be supplied to NPC for distribution to the public. These facts ... viewed in relation to the Water Code, specifically Article 9 thereof, ... clearly show that there is no circumvention of the law.

This Department has declared that the nationality requirement imposed by the Water Code refers to the privilege "to appropriate and use water" and has interpreted this phrase to mean the extraction of water directly from its natural source (Secretary of Justice Opinion No. 14, s. 1995). "Natural" is defined as that which is produced without aid of stop, valves, slides, or other supplementary means (see Webster's New International Dictionary, Second Edition, p. 1630). The water that is used by the power plant could not enter the intake gate without the dam, which is a man-made structure. Such being the case, the source of the water that enters the power plant is of artificial character rather than natural. This Department is consistent in ruling, that once water is removed from its natural source, it ceases to be a part of the natural resources of the country and may be the subject of ordinary commerce and may even be acquired by foreigners.

....

The latest executive interpretation is stated in DOJ Opinion No. 52, s. 2005 which was rendered upon the request of PSALM in connection with the proposed sale structure for the privatization of hydroelectric and geothermal generation assets (Gencos) of NPC. PSALM sought a ruling on the legality of its proposed privatization scheme whereby the non-power components (dam, reservoir and appurtenant structures and watershed area) shall be owned by the State through government entities like NPC or [the National Irrigation Administration (NIA)] which shall exercise control over the release of water, while the ownership of the power components (power plant and related facilities) is open to both Filipino citizens/corporations and 100% foreign-owned corporations.

Sustaining the position of PSALM, then Secretary Raul M. Gonzalez opined:

Premised on the condition that only the power components shall be transferred to the foreign bidders while the non-power components/structures shall be retained by state agencies concerned, we find that both PSALM's proposal and position are tenable.

....

Applied to the instant case, and construed in relation to the earlier-mentioned constitutional inhibition, it would appear clear that while both waters and geothermal steam are, undoubtedly "natural resources", within the meaning of Section 2[,] Article XII of the present Constitution, hence, their exploitation, development and utilization should be limited to Filipino citizens or corporations or associations at least sixty per centum of the capital of which is owned by Filipino citizens, the utilization thereof can be opened even to foreign nationals, after the same have been extracted from the source by qualified persons or entities. The rationale is because, since they no longer form part of the natural resources of the country, they become subject to ordinary commerce.

A contrary interpretation, i.e., that the removed or extracted natural resources would remain inalienable especially to foreign nationals, can lead to absurd consequences, e.g., that said waters and geothermal steam, and any other extracted natural resources, cannot be acquired by foreign nationals for sale within or outside the country, which could not [have] been intended by the framers of the Constitution.

....

Appropriation of water, as used in the Water Code refers to the "acquisition of rights over the use of waters or the taking or diverting of waters from a natural source in the manner and for any purpose allowed by law."

....

On the other hand, "water right" is defined in the Water Code as the privilege granted by the government to appropriate and use water. Black's Law Dictionary defined "water rights" as "[a] legal right, in the nature of a corporeal hereditament, to use the water of a natural stream or water furnished through a ditch or canal for general or specific purposes, such as irrigation, mining, power, or domestic use, either to its full capacity or to a measured extent or during a defined portion of the time," or "the right to have the water flow so that some portion of it may be reduced to possession and be made private property of individual, and it is therefore the right to divert water from natural stream by artificial means and apply the same to beneficial use."

Under the Water Code concept of appropriation, a foreign company may not be said to be "appropriating" our natural resources if it utilizes the waters collected in the dam and converts the same into electricity through artificial devices. Since the NPC remains in control of the operation of the dam by virtue of water rights granted to it, as determined under DOJ Opinion No. 122, s. 1998, there is no legal impediment to foreign-owned companies undertaking the generation of electric power using waters already appropriated by NPC, the holder of water permit. Such was the situation of hydropower projects under the BOT contractual arrangements whereby foreign investors are allowed to finance or undertake construction and rehabilitation of infrastructure projects and/or own and operate the facility constructed. However, in case the facility requires a public utility franchise, the facility operator must be a Filipino corporation or at least 60% owned by Filipino.^[47] (Emphasis supplied; some citations omitted)

MR. MAAMBONG. Let me put it this way, Mr. Presiding Officer.

The flagship provision of local government, from our standpoint, is the provision that local governments will be given local autonomy.

MR. NOLLEDO. I agree, Mr. Presiding Officer.

MR. MAAMBONG. Because of that, right after Section 1 when we talk about territorial and political subdivisions, we immediately place the flagship provisions on local autonomy in Section 2. In view of this concept of local autonomy, it necessarily follows that we have to put after Section 2, Sections 12, 13 and 14 because when the local government units have local autonomy, we give them the power to create sources of revenue, which is Section 12. We give them the power to have a just share in national taxes, which is Section 13, and we give them the power to have a share in the proceeds of the national wealth. That is precisely the concept that we have tried to present, Mr. Presiding Officer.^[48] (Emphasis supplied)

MR. OPLE....

....

Just to cite specific examples, in the case of timberland within the area of jurisdiction of the Province of Quirino or the Province of Aurora, we feel that the local governments ought to share in whatever revenues are generated from this particular natural resource which is also considered a national resource in a proportion to be determined by Congress. This may mean sharing not with the local government but with the local population. The geothermal plant in the Macban, Makiling-Banahaw area in Laguna, the Tiwi Geothermal Plant in Albay, there is a sense in which the people in these areas, hosting the physical facility based on the resources found under the ground in their area which are considered national wealth, should participate in terms of reasonable rebates on the cost of power that they pay. This is true of the Maria Cristina area in Central Mindanao, for example. May I point out that in the previous government, this has always been a very nettlesome subject of Cabinet debates. Are the people in the locality, where God chose to locate His bounty, not entitled to some reasonable modest sharing of this with the national government? Why should the national government claim all the revenues arising from them? And the usual reply of the technocrats at that time is that there must be uniform treatment of all citizens regardless of where God's gifts are located, whether below the ground or above the ground. This, of course, has led to popular disenchantment. In Albay, for example, the government then promised a 20-percent rebate in power because of the contributions of the Tiwi plant to the Luzon grid. Although this was ordered, I remember that the Ministry of Finance, together with the National Power Corporation, refused to implement it. There is a bigger economic principle behind this, the principle of equity. If God chose to locate the great rivers and sources of hydroelectric power in Iligan, in Central Mindanao, for example, or in the Cordillera, why should the national government impose fuel adjustment taxes in order to cancel out the comparative advantage given to the people in these localities through these resources? So, it is in that sense that under Section 8, the local populations, if not the local governments, should have a share of whatever national proceeds may be realized from this natural wealth of the nation located within their jurisdictions.^[49] (Emphasis supplied)

Based on the NAMRIA Topographic Map with a scale of 1:50,000, our calculations on the watershed areas of Angat dam/reservoir showed the following:  
 

Angat Dam Watershed Area under Quezon Province	39 Sq.km.	6.9%
Angat Dam Watershed Area under N. Ecija Province	2 Sq.km.	0.3%
Angat Dam Watershed Area under Rizal Province	24 Sq.km.	4.3%
Angat Dam Watershed Area under Bulacan Province	499 Sq.km.	88.5%
Total Watershed Area [o]f Angat Dam	564 Sq.km.	100.0%

....

On the other hand, considering the trans-basin inflows from Umiray River Basin to Angat dam/reservoir since July 2000 resulted in the watershed area distribution as follows:  
 

Umiray Watershed Area	130 Sq.km.	18.7%
Angat Dam Watershed Area under Quezon Province	39 Sq.km.	5.6%
Angat Dam Watershed Area under N. Ecija Province	2 Sq.km.	0.3%
Angat Dam Watershed Area under Rizal Province	24 Sq.km.	3.5%
Angat Dam Watershed Area under Bulacan Province	499 Sq.km.	71.9%
Total Watershed Area [o]f Angat Dam + Umiray	694 Sq.km.	100.0%[52]

The average monthly contributions in Million Cubic Meters (MCM) of water exclusively sourced from the Province of Bulacan based on the 88.5% watershed area [without the Umiray River Basin] under the province are as follows:   
 

Month	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
MCM	94.7	56.3	44.2	32.9	53.2	95.0	168.8	195.0	169.7	274.8	259.7	213.2

....

Therefore, the average monthly contributions in Million Cubic Meters (MCM) of water exclusively sourced from the Province of Bulacan based on the 71.9% watershed area [with the Umiray Basin] under the province are tabulated as follows:   
 

Month	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
MCM	56.2	74.5	43.2	25.1	63.5	54.8	221.5	165.4	120.0	126.5	226.8	207.3[53]

A scrutiny of the evidence marked and formally offered by respondent before the court a quo shows that the former failed to prove that there was sufficient basis to allow the correction of the area of the subject property in OCT No. 46417 from 20,948 square meters to 21,248 square meters.

Records reveal that respondent offered in evidence the following documents: (a) the Certification issued by a certain Althea C. Acevedo (Acevedo), Engineer IV, Chief of the Technical Services Section of the Office of the Regional Technical Director, Land Management Services of the DENR in Iloilo City, which states that "the true and correct area of [L]ot 2285, Cad. 246 Dingle Cadastre is 21,928 square meters;" (b) the technical description of Lot No. 2285, a copy of which was certified by Ameto Caballero (Caballero), Chief of the Surveys Division, while another copy was certified correct by Acevedo; and (c) the approved subdivision plan of Lot No. 2258, certified by Rogelio M. Santome (Santome), Geodetic Engineer; Alfredo Muyarsas (Muyarsas), Chief of the Regional Surveys Division, and Edgardo R. Gerobin (Gerobin), OIC, Regional Technical Director of the Land Management Services, DENR. On the strength of these pieces of evidence, respondent sought a reconciliation of the area of the subject property with the records of the DENR.

Unfortunately, the foregoing documentary evidence are not sufficient to warrant the correction prayed for. The Court cannot accord probative weight upon them in view of the fact that the public officers who issued the same did not testify in court to prove the facts stated therein.

In Republic v. Medida, the Court held that certifications of the Regional Technical Director, DENR cannot be considered prima facie evidence of the facts stated therein, holding that:

Public documents are defined under Section 19, Rule 132 of the Revised Rules on Evidence as follows:

(a) The written official acts, or records of the official acts of the sovereign authority, official bodies and tribunals, and public officers, whether of the Philippines, or of a foreign country;

(b) Documents acknowledged before a notary public except last wills and testaments; and

(c) Public records, kept in the Philippines, of private documents required by law to be entered therein.

Applying Section 24 of Rule 132, the record of public documents referred to in Section 19(a), when admissible for any purpose, may be evidenced by an official publication thereof or by a copy attested by the officer having legal custody of the record, or by his deputy.

Section 23, Rule 132 of the Revised Rules on Evidence provides:

"Sec. 23. Public documents as evidence. - Documents consisting of entries in public records made in the performance of a duty by a public officer are prima facie evidence of the facts stated therein. All other public documents are evidence, even against a third person, of the fact which gave rise to their execution and of the date of the latter."

The CENRO and Regional Technical Director, FMS-DENR, certifications (do) not fall within the class of public documents contemplated in the first sentence of Section 23 of Rule 132. The certifications do not reflect "entries in public records made in the performance of a duty by a public officer," such as entries made by the Civil Registrar in the books of registries, or by a ship captain in the ship's logbook. The certifications are not the certified copies or authenticated reproductions of original official records in the legal custody of a government office. The certifications are not even records of public documents.

As such, sans the testimonies of Acevedo, Caballero, and the other public officers who issued respondent's documentary evidence to confirm the veracity of its contents, the same are bereft of probative value and cannot, by their mere issuance, prove the facts stated therein. At best, they may be considered only as prima facie evidence of their due execution and date of issuance but do not constitute prima facie evidence of the facts stated therein.

In fact, the contents of the certifications are hearsay because respondent's sole witness and attorney-in-fact, Lea Galeno Barraca, was incompetent to testify on the veracity of their contents, as she did not prepare any of the certifications nor was she a public officer of the concerned government agencies. Notably, while it is true that the public prosecutor who represented petitioner interposed no objection to the admission of the foregoing evidence in the proceedings in the court below, it should be borne in mind that "hearsay evidence, whether objected to or not, has no probative value unless the proponent can show that the evidence falls within the exceptions to the hearsay evidence rule," which do not, however, obtain in this case. Verily, while respondent's documentary evidence may have been admitted due to the opposing party's lack of objection, it does not, however, mean that they should be accorded any probative weight.^[56] (Emphasis supplied; citations omitted)

SECTION 20. Proof of private document. - Before any private document offered as authentic is received in evidence, its due execution and authenticity must be proved either:

(a) By anyone who saw the document executed or written; or

(b) By evidence of the genuineness of the signature or handwriting of the maker.

Any other private document need only be identified as that which it is claimed to be.

The legal issues cannot be resolved without associating them to the facts. The facts can not be distanced from the issues. This [c]ourt is not unmindful that only those evidence formally offered can be considered (Sec. 34, Rule 132 of the Rules) but it takes note that to prove its point, [the Province of Bulacan] identified, marked and formally offered the assailed document, Exhibit "L". [The Province of Bulacan's] Pre-trial Brief contains a reservation for additional evidence. The document [was] evidently not available during the preliminary conference of [p]re-trial as could be read from its date of request (March 14, 2005) and reply (April 4, 2005)[. I]n relation to the held preliminary conference[, this document] may be allowed for good cause shown under the . . . Guidelines by Trial Court Judges and Clerks of Court in the Conduct of Pre-trial Conference. [MWSS'] arguments are not persuasive [to the effect] that there was a denial of its right to confront the pleader (of Exhibit "L"). Counsels during the preliminary conference have agreed that witnesses need not be presented ... Counsels went further by mutually agreeing to submit issues determinative of the main case through position papers.... MWSS could not now be heard to complain of the procedure taken. This, notwithstanding, ... MWSS has not totally foreclosed its right as [it] strongly opposed the conclusions given in the NAMRIA Topographical Map of the [NPC].^[60] (Emphasis supplied)

SECTION 3. Attributes, Powers and Functions. - The System shall have the following attributes, powers and functions:

....
(f)	To construct, maintain, and operate dams, reservoirs, conduits, aqueducts, tunnels, purification plants, water mains, pipes, fire hydrants, pumping stations, machineries and other waterworks for the purpose of supplying water to the inhabitants of its territory, for domestic and other purposes; and to purify, regulate and control the use, as well as prevent the wastage, of water;
(g)	To construct, maintain, and operate such sanitary sewerages as may be necessary for the proper sanitation and other uses of the cities and towns comprising the System;
(h)	To fix periodically water rates and sewerage service fees as the System may deem just and equitable in accordance with the standards outlined in Section 12 of this Act;
(i)	To construct, develop, maintain and operate such artesian wells and springs as may be needed in its operation within its territory;
(j)	To acquire, purchase, hold, transfer, sell, lease, rent, mortgage, encumber, and otherwise dispose of real and personal property, including rights and franchises, consistent with the purpose for which the System is created and reasonably required for the transaction of the lawful business of the same;
(k)	To construct works across, over, through and/or alongside, any stream, water-course, canal, ditch, flume, street, avenue, highway or railway, whether public or private, as the location of said works may require; Provided, That, such works be constructed in such manner as to afford security to life and property and so as not to obstruct traffic: Provided, further, That the stream, water-course, canal, ditch, flume, street, avenue, highway or railway so crossed or intersected be restored without unnecessary delay to its former state. Any person or entity whose right may be prejudice by said works shall not obstruct the same; however, he shall be given reasonable notice before the construction and shall be paid just compensation. The System shall likewise have the right to locate, construct and maintain such works on, over and/or through any street, avenue, or highway and land and/or real rights of the Republic of the Philippines or any of its branches, agencies and political subdivisions upon due notice to the office, or entity concerned, subject solely to the condition that the street, avenue, or highway in which said works are constructed be restored without unnecessary delay to its former state unless otherwise agreed upon by the System and the office or entity concerned;
....
(n)	To approve, regulate, and supervise the establishment, operation and maintenance of waterworks and deepwells within its jurisdiction operated for commercial, industrial and governmental purposes and to fix just and equitable rates or fees that may be charged to customers thereof;
(o)	To assist in the establishment, operation and maintenance of waterworks and sewerage systems within its jurisdiction under cooperative basis;
(p)	To approve and regulate the establishment and construction of waterworks and sewerage systems in privately owned subdivisions within its jurisdiction;
(q)	To have exclusive and sole right to test, mount, dismount and remount water meters within its jurisdiction[.]

MR. NATIVIDAD. The history of local governments shows that the usual weaknesses of local governments are: 1) fiscal inability to support itself; 2) lack of sufficient authority to carry out its duties; and 3) lack of authority to appoint key officials.

Under this Article, are these traditional weaknesses of local governments addressed to [sic]?

MR. NOLLEDO. Yes. The first question is on fiscal inability to support itself. It will be noticed that we widened the taxing powers [o]f local governments. I explained that exhaustively yesterday unless the Gentleman wants me to explain again.

MR. NATIVIDAD. No, that is all right with me.

MR. NOLLEDO. There is a right of retention of local taxes by local governments and according to the Natividad, Ople, Maambong, de los Reyes amendment, local government units shall share in the proceeds of the exploitation of the national wealth within the area or region, etc.

....

MR. OPLE....

In the hinterland regions of the Philippines, most municipalities receive an annual income of only about [PHP 200,000.00] so that after paying the salaries of local officials and employees, nothing is left to fund any local development project. This is a prescription for a self-perpetuating stagnation and backwardness, and numbing community frustrations, as well as a chronic disillusionment with the central government. The thrust towards local autonomy in this entire Article on Local Governments may suffer the fate of earlier heroic efforts of decentralization which, without innovative features for local income generation, remained a pious hope and a source of discontent. To prevent this, this amendment which Commissioner Davide and I jointly propose will open up a whole new source of local financial self-reliance by establishing a constitutional principle of local governments, and their populations, sharing in the proceeds of national wealth in their areas of jurisdiction. The sharing with the national government can be in the form of shares from revenues, fees and charges levied on the exploitation or development and utilization of natural resources such as mines, hydro-electric and geothermal facilities, timber, including rattan, fisheries, and processing industries based on indigenous raw materials.^[64] (Emphasis supplied)

THE PRESIDENT. Commissioner Bennagen is recognized.

MR. BENNAGEN. Thank you, Madam President.

On Section 13, page 3, I propose to change the word "exploitation" to UTILIZATION in order to temper the unsavory connotation of the word "exploitation," which, incidentally, has already been deleted in the other provisions for consistency.

MR. MONSOD. Madam President.

THE PRESIDENT. Commissioner Monsod is recognized.

MR. MONSOD. I agree with Commissioner Bennagen. As a matter of fact, in the interest of harmonizing the words with the wording of the Article on National Economy and Patrimony, we are already avoiding the word "exploitation" and instead we are using the words "UTILIZATION and development." So, is it all right if we harmonize it that way, Madam President?

THE PRESIDENT. Yes.

MR. NOLLEDO. The Committee accepts the amendment.

MR. MONSOD. Thank you.

MR. OPLE. I also support the amendment.

THE PRESIDENT. What is the word to be used?

MR. BENNAGEN. "UTILIZATION and development" and delete the word "exploitation."

THE PRESIDENT. The Acting Floor Leader is recognized.

MR. SARMIENTO. Madam President, may I ask that the Chairman, Commissioner Nolledo, read the whole of Section 13 before we vote on it.

MR. NOLLEDO. Madam President, Section 13, as amended, now reads as follows: "Local governments shall be entitled to EQUITABLY share in the proceeds of the UTILIZATION and development of the national wealth within their respective areas IN THE MANNER PROVIDED BY LAW, INCLUDING THEIR SHARING WITH THE INHABITANTS BY WAY OF DIRECT BENEFITS TO THEM."

MR. MONSOD. Madam President.

THE PRESIDENT. Commissioner Monsod is recognized.

MR. MONSOD. Can we delete the words "TO THEM" in the last sentence of the Section?

THE PRESIDENT. Is there any objection?

MR. OPLE. I support the amendment, Madam President.

MR. DAVIDE. Madam President.

THE PRESIDENT. Commissioner Davide is recognized. Is it still on Section 13?

MR. DAVIDE. Yes, Madam President. This is just to transpose the Guingona amendment. Instead of the phrase "to EQUITABLY share in," I propose TO AN EQUITABLE SHARE so that it will harmonize with the just share in the national taxes.

MR. NOLLEDO. I accept the amendment, Madam President.

MR. OPLE. I support the amendment.

MR. SARMIENTO. May I ask the Chairman of the Committee to read the whole of Section 13, as amended, so we can vote on it?

MR. NOLLEDO. Madam President, Section 13, as amended very recently, now reads as follows: "Local governments shall be entitled TO AN EQUITABLE SHARE in the proceeds of the UTILIZATION and development of the national wealth within their respective areas IN THE MANNER PROVIDED BY LAW, INCLUDING THEIR SHARING WITH THE INHABITANTS BY WAY OF DIRECT BENEFITS."

VOTING
THE PRESIDENT. As many as are in favor of this Section 13, as read by the Chairman, please raise their hand. (Several Members raised their hand.)

As many as are against, please raise their hand. (One Member raised his hand.)

The results show 31 votes in favor and 1 against; the amendment is approved.^[67] (Emphasis in the original)

[MWSS] is thus not engaged in the "utilization and development of national wealth" but in the operation and maintenance of waterworks and sewerage systems. It is clear that the equitable share referred to in Section 18 of the LGC is the direct result of the development and utilization of a natural resource (in this case, water) within the local government's boundaries or territories.

... Indeed, there is a significant, quantitative difference between "utilization and development of national wealth," on the one hand, and "operation and maintenance of waterworks and sewerage system," on the other. The former contemplates a situation where the government utilizes or exploits the country's resources primarily to generate income or derive profits. The use of the term "national wealth" in Article X, Section 7 of the Constitution suggests that the said provision applies in cases where the utilization of the country's wealth begets more wealth. Since the government profits from such wealth, the framers of the Constitution deemed it fair for the government to share profits with the LGUs where the national wealth is situated.

... In contrast, the government's "operation and maintenance of waterworks and sewerage systems" (through the defendant) is not primarily intended to generate income or derive profits. The primary purpose is to provide a basic necessity - adequate supply of clean water and a sanitary sewerage system. In fact, even if the operation and maintenance of waterworks and sewerage systems do not bring profits to the government, the latter would still have to engage in them, for they are essential to the proper operation of society. As [MWSS'] Charter states, "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 operation and maintenance of sewerage systems are essential public services because they are vital to public health and safety." This is not the activity contemplated by the clause "development and utilization of national wealth" in Article X, Section 7 of the Constitution.^[68] (Emphasis supplied)

SECTION 13. Disposition of Income. - The income of the System shall be dispose[d] of according to the following priorities:

First, to pay its contractual and statutory obligations and to meet its essential current operating expenses;

Second, to serve at least fifty [percent] (50%) of the balance exclusively for the expansion, development and improvement of the System; and

Third, to allocate the residue enhancing the efficient operation and maintenance of the System which include increases of administrative expenses or increases or adjustment of salaries and other benefits of the employees.

9.4 General Rates Setting Policy/Rate Rebasing Determination

The maximum rates chargeable by the Concessionaire for water and sewage services hereunder applicable to the period through the Second Rate Rebasing Date (subject to interim adjustment's as described in this Article 9) are set out in Schedule 6 to this Agreement.

It is the intention of the parties that, from and after the Second Rate Rebasing Date, the rates for water and sewerage services provided by the Concessionaire shall be set at level that will permit the Concessionaire to recover over the term of the Concession (net of any grants from third parties and any possible Expiration Payment) Expenditures efficiently and prudently incurred and to earn a reasonable rate of return (referred to herein as the "Appropriate Discount Rate").

The Expenditures are those connected with the provision of water and wastewater being provided by the Concessionaire.^[75] (Emphasis supplied)

Under the Water Code concept of appropriation, a foreign company may not be said to be "appropriating" our natural resources if it utilizes the waters collected in the dam and converts the same into electricity through artificial devices. Since the NPC remains in control of the operation of the dam by virtue of the water rights granted to it, as determined under DOJ Opinion No. 122, s. 1998, there is no legal impediment to foreign -owned companies undertaking the generation of electric power using waters already appropriated by NPC, the holder of water permit. x x x (Emphasis supplied, citations omitted).

That national wealth refers to "natural resources" is echoed in Article 386(b) of the Implementing Rules and Regulations of the LGC as follows:

Article 386(b) of the Implementing Rules and Regulations of RA 7160 provides:

Article 386. Share in the Proceeds from the Development and Utilization of the National Wealth. -

x x x

(b) The term national wealth shall mean all natural resources situated within the Philippine territorial jurisdiction including lands of public domain, waters, minerals, coal, petroleum, mineral oils, potential energy forces, gas and oil deposits, forest products, wildlife, flora and fauna, fishery and aquatic resources, and all quarry products.

There is therefore no question that water, being a natural resource, is national wealth. However, water is deemed "appropriated water" when taken or diverted from a natural resource. As explicitly provided under the Water Code of the Philippines, as amended (Water Code), appropriation of water is the "acquisition of rights over the use of waters or the taking or diverting of waters from [natural resources]." These natural resources are enumerated in Articles 5 and 6 of the Water Code: x x x (Emphases supplied)

MR. OPLE: x x x

In association with Commissioner Davide, I propose the amendment which reads as follows: "Local governments shall be entitled to share in the proceeds of the exploitation and development of the national wealth within their respective areas x x x In view of the significance of this new section, may I ask the Committee's leave to give a brief explanation, Madam President.

x x x

In the hinterland regions of the Philippines, most municipalities receive an annual income of only about P200,000 so that after paying the salaries of local officials and employees, nothing is left to fund any local development project. This is a prescription for a self-perpetuating stagnation and backwardness, and numbing community frustrations, as well as a chronic disillusionment with the central government. The thrust towards local autonomy in this entire Article on Local Governments may suffer the fate of earlier heroic efforts of decentralization which, without innovative features for local income generation, remained a pious hope and a source of discontent. To prevent this, this amendment which Commissioner Davide and I jointly propose will open up a whole new source of local financial self-reliance by establishing a constitutional principle of local governments, and their populations, sharing in the proceeds of national wealth in their areas of jurisdiction. The sharing with the national government can be in the form of shares from revenues, fees and charges levied on the exploitation or development and utilization of natural resources such as mines, hydroelectric and geothermal facilities, timber, including rattan, fisheries, and processing industries based on indigenous raw materials. x x x (Emphasis and underscoring supplied)

Opinion No. 122, s. 1988

It is also significant to note that NPC, a government-owned and controlled corporation, has the effective control over all elements of the extraction process, including the amount and timing thereof considering that x xx the water will flow out of the power tunnel and through the power plant, to be used for the generation of electricity, only when the Downstream Gates are opened, which occur only upon the specific water release instructions given by NPC to SRPC. This specific feature of the agreement, taken together with the above-stated analysis of the source of water that enters the plant, support the view that the nationality requirement embodied in Article XII, Section 2 of the present Constitution and in Article 15 of the Water Code, is not violated.

x x x

Since the NPC remains in control of the operation of the dam by virtue of water rights granted to it, as determined under DOJ Opinion No. 122, s. 1998, there is no legal. impediment to foreign-owned companies undertaking the generation of electric power using waters already appropriated by NPC, the holder of water permit. Such was the situation of hydropower' projects under the BOT contractual arrangements whereby foreign investors are allowed to finance or undertake construction and rehabilitation of infrastructure projects and/or own arid operate the facility constructed. However, in case the facility requires a public utility franchise, the facility operator must be a Filipino corporation or at least 60% owned by Filipino. (Emphasis supplied)