Water

Code Case Digest

IDEALS, Inc. v. PSALM Corp., commenced by PSALM without having previously released to the public critical
G.R. No. 192088, [October 9, 2012] information such as the terms and conditions of the sale, the parties qualified to
bid and the minimum bid price, as laid down in the case of Chavez v. Public Estates
Authority; (2) PSALM refused to divulge significant information requested by
FACTS: Before us is a petition for certiorari and prohibition seeking to petitioners, matters which are of public concern; and (3) the bidding was not
permanently enjoin the sale of the Angat Hydro-Electric Power Plant (AHEPP) to conducted in an open and transparent manner, participation was indiscriminately
Korea Water Resources Corporation (K-Water) which won the public bidding restricted to the private sectors in violation of the EPIRA which provides that its
conducted by the Power Sector Assets and Liabilities Management Corporation provisions shall be "construed in favor of the establishment, promotion,
(PSALM). preservation of competition and people empowerment so that the widest
Respondent PSALM is a government-owned and controlled corporation created by participation of the people, whether directly or indirectly, is ensured."
virtue of Republic Act No. 9136, 1 otherwise known as the "Electric Power Petitioners also assail the PSALM in not offering the sale of the AHEPP to MWSS
Industry Reform Act of 2001" (EPIRA). The EPIRA provided a framework for the which co-owned the Angat Complex together with NPC and NIA. Being a mere co-
restructuring of the electric power industry, including the privatization of the owner, PSALM cannot sell the AHEPP without the consent of co-owners MWSS
assets of the National Power Corporation (NPC), the transition to the desired and NIA, and being an indivisible thing, PSALM has a positive obligation to offer its
competitive structure, and the definition of the responsibilities of the various undivided interest to the other co-owners before selling the same to an outsider.
government agencies and private entities. Said law mandated PSALM to manage Hence, PSALM's unilateral disposition of the said hydro complex facility violates
the orderly sale, disposition, and privatization of NPC generation assets, real the Civil Code rules on co-ownership (Art. 498) and Sec. 47 (e) of
estate and other disposable assets, and Independent Power Producer (IPP) the EPIRA which granted PSALM the legal option of transferring possession,
contracts with the objective of liquidating all NPC financial obligations and control and operation of NPC generating assets like the AHEPP to another entity
stranded contract costs in an optimal manner, which liquidation is to be in order "to protect potable water, irrigation and all other requirements imbued
completed within PSALM's 25-year term of existence. with public interest."
Sometime in August 2005, PSALM commenced the privatization of the 246- As to the participation in the bidding of and award of contract to K-Water which is
megawatt (MW) AHEPP located in San Lorenzo, Norzagaray, Bulacan. AHEPP's a foreign corporation, petitioners contend that PSALM clearly violated the
main units built in 1967 and 1968, and 5 auxiliary units, form part of the Angat constitutional provisions on the appropriation and utilization of water as a
Complex which includes the Angat Dam, Angat Reservoir and the outlying natural resource, as implemented by the Water Code of the Philippines limiting
watershed area. A portion of the AHEPP — the 10 MW Auxiliary Unit No. 4 water rights to Filipino citizens and corporations which are at least 60% Filipino-
completed on June 16, 1986 and the 18 MW Auxiliary Unit No. 5 completed on owned. Further considering the importance of the Angat Dam which is the source
January 14, 1993 — is owned by respondent Metropolitan Waterworks and of 97% of Metro Manila's water supply, as well as irrigation for farmlands in 20
Sewerage System (MWSS). The main units produce a total of 200 MW of power municipalities and towns in Pampanga and Bulacan, petitioners assert that PSALM
while the auxiliary units yield the remaining 46 MW of power. The Angat Dam and should prioritize such domestic and community use of water over that of power
AHEPP are utilized for power generation, irrigation, water supply and flood control generation. They maintain that the Philippine Government, along with its agencies
purposes. Because of its multi-functional design, the operation of the Angat and subdivisions, have an obligation under international law, to recognize and
Complex involves various government agencies, namely: (1) NPC; (2) National protect the legally enforceable human right to water of petitioners and the public
Water Resources Board (NWRB); (3) MWSS; (4) respondent National Irrigation in general.
Administration (NIA); and (5) Philippine Atmospheric, Geophysical and
Astronomical Services Administration (PAG-ASA). Petitioners thus argue that the protection of their right to water and of public
interest requires that the bidding process initiated by PSALM be declared null and
Petitioners contend that PSALM gravely abused its discretion when, in the conduct void for violating such right, as defined by international law and by domestic law
of the bidding it disregarded and violated the people's right to information establishing the State's obligation to ensure water security for its people.
guaranteed under the Constitution, as follows: (1) the bidding process was

Property – Atty. Fernando Apollo Julius S. Sta. Maria, CPA San Beda Law [2K |AY: 2017 – 2018] 1
 Water Code Case Digest

In its Comment With Urgent Motion to Lift Status Quo Ante Order, Nationality. PSALM further debunks the nationality issue raised by petitioners,
respondent PSALM prayed for the dismissal of the petition on the following citing previous opinions rendered by the Department of Justice (DOJ) consistently
procedural grounds: (a) a petition for certiorari is not the proper remedy holding that the utilization of water by a hydroelectric power plant does not
because PSALM was not acting as a tribunal or board exercising judicial or quasi- constitute appropriation of water from its natural source considering that the
judicial functions when it commenced the privatization of AHEPP; (b) the present source of water (dam) that enters the intake gate of the power plant is an artificial
petition is rendered moot by the issuance of a Notice of Award in favor of K- structure. Moreover, PSALM is mindful of the State's duty to protect the public's
Water; (c) assuming the petition is not mooted by such contract award, this Court right to water when it sold the AHEPP. In fact, such concern as taken into
has no jurisdiction over the subject matter of the controversy involving a political consideration by PSALM in devising a privatization scheme for the AHEPP whereby
question, and also because if it were the intent of Congress to exclude the AHEPP the water allocation is continuously regulated by the NWRB and the dam and its
in the privatization of NPC assets, it should have clearly expressed such intent as it spillway gates remain under the ownership and control of NPC.
did with the Agus and Pulangui power plants under Sec. 47 of the EPIRA; (d)
petitioners' lack of standing to question the bidding process for failure to show ISSUES:
any injury as a result thereof, while Rep. Walden Bello likewise does not have such xxx
legal standing in his capacity as a duly elected member of the House of
Representatives as can be gleaned from the rulings in David v. 5) WON Sec. 2, Art. XII of the Constitution was violated;
Arroyo and Philippine Constitutional Association v. Enriquez.
6) WON the Water Code provisions on the grant of water

rights violated
CONTENTIONS OF RESPONDENT
xxx
Co-owned. PSALM further refutes the assertion of petitioners that the Angat

Complex is an indivisible system and co-owned with MWSS and NIA. It contends
that MWSS's contribution in the funds used for the construction of the AHEPP did HELD: NO. Sale of Government-Owned AHEPP to a Foreign Corporation Not
not give rise to a regime of co-ownership as the said funds were merely in Prohibited But Only Filipino Citizens and Corporations 60% of whose capital is
exchange for the supply of water that MWSS would get from the Angat Dam, owned by Filipinos May be Granted Water Rights
while the Umiray-Angat Transbasin Rehabilitation Project the improvement and The core issue concerns the legal implications of the acquisition by K-Water of the
repair of which were funded by MWSS, did not imply a co-ownership as these AHEPP in relation to the constitutional policy on our natural resources.
facilities are located in remote places. Moreover, PSALM points out that PSALM,
MWSS and NIA each was issued a water permit, and are thus holders of separate Sec. 2, Art. XII of the 1987 Constitution provides in part:
water rights.
SEC. 2. All lands of the public domain, waters, minerals, coal,
Right to Water. On the alleged violation of petitioners' and the people's right to petroleum, and other mineral oils, all forces of potential
water, PSALM contends that such is baseless and proceeds from the mistaken energy, fisheries, forests or timber, wildlife, flora and fauna,
assumption that the Angat Dam was sold and as a result thereof, the continuity and other natural resources are owned by the State. With the
and availability of domestic water supply will be interrupted. PSALM stresses that exception of agricultural lands, all other natural resources
only the hydroelectric facility is being sold and not the Angat Dam which remains shall not be alienated. The exploration, development, and
to be owned by PSALM, and that the NWRB still governs the water allocation utilization of natural resources shall be under the full control
therein while the NPC-FFWSDO still retains exclusive control over the opening of and supervision of the State. xxx xxx xxx (Emphasis supplied.)
spillway gates during rainy season. The foregoing evinces the continued collective
The State's policy on the management of water resources is implemented through
control by government agencies over the Angat Dam, which in the meantime, is in
the regulation of water rights. Presidential Decree No. 1067, otherwise known as
dire need of repairs, the cost of which cannot be borne by the Government.
"The Water Code of the Philippines" is the basic law governing the ownership,

Property – Atty. Fernando Apollo Julius S. Sta. Maria, CPA San Beda Law [2K |AY: 2017 – 2018] 2
 Water Code Case Digest

appropriation utilization, exploitation, development, conservation and protection or PSALM may also impose additional conditions in the
of water resources and rights to land related thereto. shareholding agreement with the winning bidders to ensure
national security, including, but not limited to, the use of
It is clear that the law limits the grant of water rights only to Filipino citizens and
water during drought or calamity.
juridical entities duly qualified by law to exploit and develop water resources,
including private corporations with sixty percent of their capital owned by (c) Consistent with Section 34(d) of the Act, the NPC shall
Filipinos. In the case of Angat River, the NWRB has issued separate water permits continue to be responsible for watershed rehabilitation and
to MWSS, NPC and NIA. management and shall be entitled to the environmental
charge equivalent to one-fourth of one centavo per kilowatt-
Under the EPIRA, the generation of electric power, a business affected with public hour sales (P0.0025/kWh), which shall form part of the
interest, was opened to private sector and any new generation company is Universal Charge. This environmental fund shall be used solely
required to secure a certificate of compliance from the Energy Regulatory for watershed rehabilitation and management and shall be
Commission (ERC), as well as health, safety and environmental clearances from managed by NPC under existing arrangements. NPC shall
the concerned government agencies. Power generation shall not be considered a submit an annual report to the DOE detailing the progress of
public utility operation, and hence no franchise is necessary. Foreign investors
the watershed rehabilitation program.
are likewise allowed entry into the electric power industry. However, there is no
mention of water rights in the privatization of multi-purpose hydropower (d) The NPC and PSALM or NIA, as the case may be, shall
facilities. Section 47 (e) addressed the issue of water security, as follows: continue to be responsible for the dam structure and all
other appurtenant structures necessary for the safe and
(e) In cases of transfer of possession, control, operation or reliable operation of the hydropower plants. The NPC
privatization of multi-purpose hydro facilities, safeguards shall and PSALM or NIA, as the case may be, shall enter into an
be prescribed to ensure that the national government operations and maintenance agreement with the private
may direct water usage in cases of shortage to protect operator of the power plant to cover the dam structure and all
potable water, irrigation, and all other requirements imbued
other appurtenant facilities. (Emphasis supplied.)
with public interest; xxx xxx xxx (Emphasis supplied.)
In accordance with the foregoing implementing regulations, and in furtherance of
Rule 23, Section 6 of the Implementing Rules and Regulations (IRR) of the Asset Purchase Agreement (APA), PSALM, NPC and K-Water executed on April
the EPIRA provided for the structure of appropriation of water resources in multi- 28, 2010 an Operations and Maintenance Agreement (O & M Agreement) for the
purpose hydropower plants which will undergo privatization, as follows: administration, rehabilitation, operation, preservation and maintenance, by K-
Section 6. Privatization of Hydroelectric Generation Plants. — Water as the eventual owner of the AHEPP, of the Non-Power Components
meaning the Angat Dam, non-power equipment, facilities, installations, and
(a) Consistent with Section 47(e) of the Act and Section 4(f) of appurtenant devices and structures, including the water sourced from the Angat
this Rule, the Privatization of hydro facilities of NPC shall cover Reservoir.
the power component including assignable long-term water
rights agreements for the use of water, which shall be passed It is the position of PSALM that as the new owner only of the hydroelectric
onto and respected by the buyers of the hydroelectric power power plant, K-Water will be a mere operator of the Angat Dam. In the power
plants. 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
(b) The National Water Resources Board (NWRB) shall ensure power from the dam water entering the power plant thus does not constitute
that the allocation for irrigation, as indicated by the NIA and appropriation within the meaning of natural resource utilization in
requirements for domestic water supply as provided for by the Constitution and the Water Code.
the appropriate Local Water District(s) are recognized and
provided for in the water rights agreements. NPC
Property – Atty. Fernando Apollo Julius S. Sta. Maria, CPA San Beda Law [2K |AY: 2017 – 2018] 3
 Water Code Case Digest

The operation of a typical hydroelectric power plant has been described as . . . while the Water Code imposes a nationality requirement
follows: for the grant of water permits, the same refers to the privilege
"to appropriate and use water." This should be interpreted to
Hydroelectric energy is produced by the force of falling mean the extraction of water from its natural source (Art. 9,
water. The capacity to produce this energy is dependent on P.D. No. 1067). Once removed therefrom, they cease to be a
both the available flow and the height from which it falls. part of the natural resources of the country and are the
Building up behind a high dam, water accumulates potential subject of ordinary commerce and may be acquired by
energy. This is transformed into mechanical energy when foreigners (Op. No. 55, series of 1939). . . . in case of a
the water rushes down the sluice and strikes the rotary contract of lease, the water permit shall be secured by the
blades of turbine. The turbine's rotation spins lessor and included in the lease as an improvement. The
electromagnets which generate current in stationary coils of water so removed from the natural source may be
wire. Finally, the current is put through a transformer where appropriated/used by the foreign corporation leasing the
the voltage is increased for long distance transmission over
property.
power lines.
Opinion No. 14, S. 1995
Foreign ownership of a hydropower facility is not prohibited under existing laws.
The construction, rehabilitation and development of hydropower plants are The nationality requirement imposed by the Water
among those infrastructure projects which even wholly-owned foreign Code refers to the privilege "to appropriate and use water."
corporations are allowed to undertake under the Amended Build-Operate- This, we have consistently interpreted to mean the extraction
Transfer (Amended BOT) Law (R.A. No. 7718). Beginning 1987, the policy has been of water directly from its natural source. Once removed from
openness to foreign investments as evident in the fiscal incentives provided for its natural source the water ceases to be a part of the natural
the restructuring and privatization of the power industry in the Philippines, under resources of the country and may be subject of ordinary
the Power Sector Restructuring Program (PSRP) of the Asian Development Bank. commerce and may even be acquired by foreigners. (Secretary
of Justice Op. No. 173, s. 1984; No. 24, s. 1989; No. 100, s.
With respect to foreign investors, the nationality issue had been framed in terms
1994) IcCEDA
of the character or nature of the power generation process itself, i.e., whether the
activity amounts to utilization of natural resources within the meaning of Sec. 2, In fine, we reiterate our earlier view that a foreign entity may
Art. XII of the Constitution. If so, then foreign companies cannot engage in legally process or treat water after its removal from a natural
hydropower generation business; but if not, then government may legally allow source by a qualified person, natural or juridical.
even foreign-owned companies to operate hydropower facilities.
Opinion No. 122, s. 1998
The DOJ has consistently regarded hydropower generation by foreign entities as
not constitutionally proscribed based on the definition of water appropriation The crucial issue at hand is the determination of whether the
under the Water Code, thus: utilization of water by the power plant to be owned and
operated by a foreign-owned corporation (SRPC) will violate
Opinion No. 173, 1984 the provisions of the Water Code.
This refers to your request for opinion on the possibility of As proposed, the participation of SRPC to the arrangement
granting water permits to foreign corporations authorized to commences upon construction of the power station,
do business in the Philippines . . . consisting of a dam and a power plant. After the completion
of the said station, its ownership and control shall be turned
xxx xxx xxx over to NPC. However, SRPC shall remain the owner of the

Property – Atty. Fernando Apollo Julius S. Sta. Maria, CPA San Beda Law [2K |AY: 2017 – 2018] 4
 Water Code Case Digest

power plant and shall operate it for a period of twenty-five of the power tunnel and through the power plant, to be used
(25) years. for the generation of electricity, only when the Downstream
Gates are opened, which occur only upon the specific water
It appears that the dam, which will be owned and controlled release instructions given by NPC to SRPC. This specific feature
by NPC, will block the natural flow of the river. The power of the agreement, taken together with the above-stated
plant, which is situated next to it, will entirely depend upon analysis of the source of water that enters the plant, support
the dam for its water supply which will pass through an intake the view that the nationality requirement embodied in Article
gate situated one hundred (100) meters above the riverbed. XII, Section 2 of the present Constitution and in Article 15 of
Due to the distance from the riverbed, water could not enter the Water Code, is not violated. 69 (Emphasis supplied.)
the power plant absent the dam that traps the flow of the
river. It appears further that no water shall enter the power Appropriation of water, as used in the Water Code refers to the "acquisition of
tunnel without specific dispatch instructions from NPC, and rights over the use of waters or the taking or diverting of waters from a natural
such supplied water shall be used only by SRPC for power source in the manner and for any purpose allowed by law." This definition is not
generation and not for any other purpose. When electricity is as broad as the concept of appropriation of water in American jurisprudence:
generated therein, the same shall be supplied to NPC for
distribution to the public. These facts . . . viewed in relation to An appropriation of water flowing on the public domain
the Water Code, specifically Article 9 thereof, . . . consists in the capture, impounding, or diversion of it from
its natural course or channel and its actual application to
clearly show that there is no circumvention of the law. some beneficial use private or personal to the appropriator,
to the entire exclusion (or exclusion to the extent of the water
This Department has declared that the nationality appropriated) of all other persons. . . .
requirement imposed by the Water Code refers to the
privilege "to appropriate and use water" and has interpreted On the other hand, "water right" is defined in the Water Code as the privilege
this phrase to mean the extraction of water directly from its granted by the government to appropriate and use water. Black's Law Dictionary
natural source (Secretary of Justice Opinion No. 14, s. 1995). defined "water rights" as "[a] legal right, in the nature of a corporeal
"Natural" is defined as that which is produced without aid of hereditament, to use the water of a natural stream or water furnished through a
stop, valves, slides, or other supplementary means ditch or canal, for general or specific purposes, such as irrigation, mining, power,
(see Webster's New International Dictionary, Second Edition, or domestic use, either to its full capacity or to a measured extent or during a
p. 1630). The water that is used by the power plant could not defined portion of the time," or "the right to have the water flow so that some
enter the intake gate without the dam, which is a man-made portion of it may be reduced to possession and be made private property of
structure. Such being the case, the source of the water that individual, and it is therefore the right to divert water from natural stream by
enters the power plant is of artificial character rather than artificial means and apply the same to beneficial use."
natural. This Department is consistent in ruling, that once
water is removed from its natural source, it ceases to be a part Under the Water Code concept of appropriation, a foreign company may not be
of the natural resources of the country and may be the subject said to be "appropriating" our natural resources if it utilizes the waters collected in
of ordinary commerce and may even be acquired by the dam and converts the same into electricity through artificial devices. Since the
foreigners. (Ibid., No. 173, s. 1984; No. 24, s. 1989; No. 100, s. NPC remains in control of the operation of the dam by virtue of water rights
1994). 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
It is also significant to note that NPC, a government-owned power using waters already appropriated by NPC, the holder of water permit. Such
and controlled corporation, has the effective control over all was the situation of hydropower projects under the BOT contractual
elements of the extraction process, including the amount arrangements whereby foreign investors are allowed to finance or undertake
and timing thereof considering that . . . the water will flow out construction and rehabilitation of infrastructure projects and/or own and operate
Property – Atty. Fernando Apollo Julius S. Sta. Maria, CPA San Beda Law [2K |AY: 2017 – 2018] 5
 Water Code Case Digest

the facility constructed. However, in case the facility requires a public utility even as the operational control and day-to-day management of the AHEPP is
franchise, the facility operator must be a Filipino corporation or at least 60% turned over to K-Water under the terms and conditions of their APA and O & M
owned by Filipino. 75 Agreement, whereby NPC grants authority to K-Water to utilize the waters
diverted or collected in the Angat Dam for hydropower generation. Further, NPC
To reiterate, there is nothing in the EPIRA which declares that it is mandatory and K-Water shall faithfully comply with the terms and conditions of the
for PSALM or NPC to transfer or assign NPC's water rights to buyers of its multi- Memorandum of Agreement on Water Protocol, as well as with such other
purpose hydropower facilities as part of the privatization process. regulations and issuances of the NWRB governing water rights and water usage.
While PSALM was mandated to transfer the ownership of all hydropower plants
except those mentioned in Sec. 47 (f), any transfer of possession, operation and WHEREFORE, the present petition for certiorari and prohibition with prayer for
control of the multi-purpose hydropower facilities, the intent to preserve water injunctive relief/s is PARTLY GRANTED.
resources under the full supervision and control of the State is evident
when PSALM was obligated to prescribe safeguards to enable the national The following DISPOSITIONS are in ORDER:
government to direct water usage to domestic and other requirements "imbued 1) The bidding conducted and the Notice of Award issued by PSALM in favor of the
with public interest." There is no express requirement for the transfer of water winning bidder, KOREA WATER RESOURCES CORPORATION (K-WATER), are
rights in all cases where the operation of hydropower facilities in a multi-purpose declared VALID and LEGAL;
dam complex is turned over to the private sector.
2) PSALM is directed to FURNISH the petitioners with copies of all documents and
As the new owner of the AHEPP, K-Water will have to utilize the waters in the records in its files pertaining to K-Water;
Angat Dam for hydropower generation. Consistent with the goals of the EPIRA,
private entities are allowed to undertake power generation activities and acquire 3) Section 6 (a), Rule 23, IRR of the EPIRA, is hereby declared as
NPC's generation assets. But since only the hydroelectric power plants and merely DIRECTORY, and not an absolute condition in all cases where NPC-owned
appurtenances are being sold, the privatization scheme should enable the buyer hydropower generation facilities are privatized; ATCaDE
of a hydroelectric power plant in NPC's multi-purpose dam complex to
4) NPC shall CONTINUE to be the HOLDER of Water Permit No. 6512 issued by the
havebeneficial use of the waters diverted or collected in the Angat Dam for its
National Water Resources Board. NPC shall authorize K-Water to utilize the waters
hydropower generation activities, and at the same time ensure that the NPC
in the Angat Dam for hydropower generation, subject to the NWRB's rules and
retains full supervision and control over the extraction and diversion of waters
regulations governing water right and usage. The Asset Purchase Agreement and
from the Angat River.
Operation & Management Agreement between NPC/PSALM and K-Water are thus
In fine, the Court rules that while the sale of AHEPP to a foreign corporation amended accordingly.
pursuant to the privatization mandated by the EPIRA did not violate Sec. 2, Art. XII
Except for the requirement of securing a water permit, K-Water
of the 1987 Constitution which limits the exploration, development and utilization
remains BOUND by its undertakings and warranties under the APA and O & M
of natural resources under the full supervision and control of the State or the
Agreement;
State's undertaking the same through joint venture, co-production or production
sharing agreements with Filipino corporations 60% of the capital of which is 5) NPC shall be a CO-PARTY with K-Water in the Water Protocol Agreement with
owned by Filipino citizens, the stipulation in the Asset Purchase Agreement and MWSS and NIA, and not merely as a conforming authority or agency; and
Operations and Maintenance Agreement whereby NPC consents to the transfer of
water rights to the foreign buyer, K-Water, contravenes the aforesaid 6) The Status Quo Ante Order issued by this Court on May 24, 2010 is
constitutional provision and the Water Code. hereby LIFTED and SET ASIDE.

Section 6, Rule 23 of the IRR of EPIRA, insofar as it ordered NPC's water rights in No pronouncement as to costs.
multi-purpose hydropower facilities to be included in the sale thereof, is declared SO ORDERED.
as merely directory and not an absolute condition in the privatization scheme. In
this case, we hold that NPC shall continue to be the holder of the water permit
Property – Atty. Fernando Apollo Julius S. Sta. Maria, CPA San Beda Law [2K |AY: 2017 – 2018] 6
 Water Code Case Digest

City of Batangas v. Philippine Shell Petroleum Corp., JG Summit Petrochemical Corporation (JG Summit) and First Gas Power
G.R. No. 195003, [June 7, 2017] Corporation (First Gas) filed similar petitions docketed as SP Civil Case Nos. 7925
(JG Summit Petition) and 7926 (First Gas Petition), respectively. These petitions
FACTS: Shell Philippines Exploration, B.V. (SPEX) is a foreign corporation
were likewise raffled to Branch 84, and consolidated with the PSPC Petition for
licensed to do business in the Philippines. In furtherance of the mandate
joint trial.
ofPresidential Decree No. 87 (PD 87) to promote the discovery and production
of indigenous petroleum, the Department of Energy (DOE) executed Service For its part, PSPC averred that the Assailed Ordinance constitutes an invalid
Contract No. 38 (SC 38) with SPEX under which SPEX was tasked to explore and exercise of police power as it failed to meet the substantive requirements for
develop possible petroleum sources in North Western Palawan. SPEX's validity. Particularly, PSPC argued that the Assailed Ordinance contravenes
exploration led to the discovery of an abundant source of natural gas in the the Water Code of the Philippines (Water Code), and encroaches upon the
Malampaya field off the shores of Palawan, which thereafter gave rise to the power of the National Water Resources Board (NWRB) to regulate and control
Malampaya Project. The Malampaya Project required the construction of a 504- the Philippines' water resources. In addition, Batangas City and theSangguniang
kilometer offshore pipeline for the transport of natural gas from Malampaya Panlungsod failed to sufficiently show the factual or technical basis for its
field to Batangas, for treatment in PSPC's Tabangao Refinery. enactment. In this connection, PSPC alleged that the Assailed Ordinance unduly
singles out heavy industries, and holds them solely accountable for the loss of
On May 28, 2001, the Sangguniang Panlungsod enacted the Assailed Ordinance
water and destruction of aquifers without basis, resulting in the deprivation of
which requires heavy industries operating along the portions of Batangas Bay
their property rights without due process of law.
within the territorial jurisdiction of Batangas City to construct desalination
plants to facilitate the use of seawater as coolant for their industrial facilities. In response, Batangas City and the Sangguniang Panlungsod maintained that they
The pertinent portions of the Assailed Ordinance state: have the power to enact the Assailed Ordinance pursuant to the general welfare
clause under the LGC. According to them, the rationale of the Assailed Ordinance
SECTION 3. MANDATORY REQUIREMENT FOR THE APPROVAL
is to stop PSPC and other industries similarly situated from relying "too much" on
OF HEAVY INDUSTRIES ALONG THE BATANGAS CITY PORTION OF
ground water as coolants for their machineries, and alternatively promote the use
BATANGAS BAY AND OTHER AREAS. — In addition to the requirements
of seawater for such purpose, considering that fresh ground water is a "perishable
provided by laws and ordinances, the City Government shall not grant
commodity." Further, Batangas City and the Sangguniang Panlungsod countered
permit or clearance or its approval for any project or program involving
that the "regulation or prohibition" on the use of ground water is merely
the construction or establishment of heavy industries along the
incidental to the main purpose of the Assailed Ordinance, which is to compel
Batangas City portion of the Batangas Bay and other areas delineated
heavy industries such as PSPC to construct desalination plants. Hence, provisions
as Heavy Industrial Zone without the required DESALINATION PLANT
having regulatory and prohibitive effect may be taken out of the Assailed
for use of sea water instead of underground fresh water for cooling
Ordinance without entirely impairing its validity.
system and industrial purposes.
Finally, Batangas City and the Sangguniang Panlungsod averred that
Heavy industries subject of the Assailed Ordinance had until May 28, 2006 to
since PSPC and SPEX, along with other concerned heavy industries, essentially
comply with its provisions. Among the facilities affected by the Assailed
question the former's authority to regulate and prohibit the use of fresh
Ordinance is PSPC's Tabangao Refinery.
ground water, they should have first referred their grievances to NWRB by
Proceedings before the RTC filing a complaint for adjudication on the threatened revocation of their
existing water permits.
On May 23, 2006, PSPC filed against Batangas City and the Sangguniang
Panlungsod a Petition for Declaration of Nullity (PSPC Petition) before the RTC On June 21, 2007, the RTC resolved the First Gas Petition by issuing a
praying that the Assailed Ordinance be declared null and void. The PSPC Petition Decision declaring the Assailed Ordinance null and void
was raffled to Branch 84, and docketed as SP Civil Case No. 7924. Thereafter,
The RTC also noted that the Sangguniang Panlungsod failed to
SPEX filed a petition-in-intervention (Intervention) praying for the same relief.
consult the NWRB before enacting the Assailed Ordinance, thereby
encroaching upon its authority.
Property – Atty. Fernando Apollo Julius S. Sta. Maria, CPA San Beda Law [2K |AY: 2017 – 2018] 7
 Water Code Case Digest

Anent Section 8, the RTC concluded that the power granted to the PSPC's and SPEX's right to use ground water, as continued use would be
city mayor to cause the issuance of cease and desist orders against the use of injurious to public interest.
ground water without prior notice and hearing constitutes a violation of the
ISSUE: WON the CA erred in affirming the RTC Decision which declared the
due process clause.
Assailed Ordinance invalid.
On the basis of the submissions of the parties, the CA Tenth Division
HELD: NO. The Assailed Ordinance is void for being ultra vires, for being
issued the Assailed Decision dismissing the appeal filed against PSPC and SPEX
contrary to existing law, and for lack of evidence showing the existence of
for lack of merit. The relevant portions of the Assailed Decision read:
factual basis for its enactment.
City Ordinance No. 3, S. 2001
The requisites for a valid ordinance are well established. Time and
contravenes Presidential Decree No. 1067, better known
again, the Court has ruled that in order for an ordinance to be valid, it must
as "The Water Code of the Philippines" as it is an
not only be within the corporate powers of the concerned LGU to enact, but
encroachment into the authority of the [NWRB]. The use
must also be passed in accordance with the procedure prescribed by law.
of water resources is under the regulatory power of the
Moreover, substantively, the ordinance (i) must not contravene the
national government. This is explicit from the provisions of
Constitution or any statute; (ii) must not be unfair or oppressive; (iii) must not
the Water Code which states that —
be partial or discriminatory; (iv) must not prohibit, but may regulate trade; (v)
"The utilization, explo[i]tation, must be general and consistent with public policy; and (vi) must not be
development, conservation and unreasonable.
protection of water resources shall be
Batangas City claims that the enactment of the Assailed Ordinance
subject to the control and regulation of
constitutes a valid exercise of its police power. This claim is erroneous.
the government through the [NWRB]."
Police power is the power to prescribe regulations to promote the
Although respondents-appellants insist that the city ordinance is not
health, morals, peace, education, good order, safety, and general welfare of
an absolute prohibition but merely a regulation on the use of fresh
the people. As an inherent attribute of sovereignty, police power primarily
groundwater for cooling systems and industrial purposes the argument
rests with the State. In furtherance of the State's policy to foster genuine and
cannot justify the attempt to usurp the NWRB's power to regulate and control
meaningful local autonomy, the national legislature delegated the exercise of
water resources. Moreover, not only does the city ordinance prohibit or
police power to local government units (LGUs) as agents of the State. Such
regulate the use of fresh groundwater in disregard of previously granted
delegation can be found in Section 16 of the LGC,which embodies the general
water permits from the NWRB but also directs the installation of desalination
welfare clause.
plants for purposes of utilizing sea water, without the requisite water permit
from the NWRB. The Water Code governs the ownership, appropriation, utilization,
exploitation, development, conservation and protection of water resources.
x x x The police power of the Sangguniang
Under Article 3 thereof, water resources are placed under the control and
Panglungsod is subordinate to the constitutional limitations
regulation of the government through the National Water Resources Council,
that its exercise must be reasonable and for the public
now the NWRB. In turn, the privilege to appropriate and use water is one
good. Without the concurrence of these two requisites, the
which is exclusively granted and regulated by the State through water permits
ordinance will not muster the test of a valid police measure
issued by the NWRB. Once granted, these water permits continue to be valid
and should be struck down.
save only for reasons spelled out under the Water Code itself.
Batangas City contends that it has the legal authority to enact ordinances in
Conversely, the power to modify, suspend, cancel or revoke water
the exercise of its police power for the purpose of promoting the general
permits already issued also rests with NWRB.
welfare of its inhabitants. Thus, it asserts that it has the power to regulate

Property – Atty. Fernando Apollo Julius S. Sta. Maria, CPA San Beda Law [2K |AY: 2017 – 2018] 8
 Water Code Case Digest

On the other hand, the avowed purpose of the Assailed Ordinance, salination was due to the "heavy industries'" use of
as stated in its whereas clauses, is the protection of local aquifers for the groundwater.
benefit of the inhabitants of Batangas City. Accordingly, the Assailed
In addition, if appellants were convinced that those
Ordinance mandates all heavy industries operating along Batangas Bay to use
industries adversely affect the environment and specifically
seawater in the operation of their respective facilities, and install desalination
the water resource in Batangas City, there would be no
plants for this purpose. Failure to comply with this mandatory requirement
exemptions, as provided in Section 5 of the Ordinance, as it
would have the effect of precluding continuous operation, and exposing non-
would negate the purpose of the law.
compliant parties to penal and administrative sanctions.
It thus becomes apparent that the ordinance was
There is no doubt, therefore, that the Assailed Ordinance effectively
come up with in an arbitrary manner, if not based purely on
contravenes the provisions of the Water Code as it arrogates unto Batangas
emotive or flawed premises. There was no scientific
City the power to control and regulate the use of ground water which, by
standard or any acceptable standard at all that the
virtue of the provisions of the Water Code, pertains solely to the NWRB. By
ordinance was based on. x x x
enacting the Assailed Ordinance, Batangas City acted in excess of the powers
granted to it as an LGU, rendering the Assailed Ordinance ultra vires. acEHCD This Court, not being a trier of facts, accords the highest degree of
respect to the findings of fact of the trial court, especially where, as here,
Being ultra vires, the Assailed Ordinance, in its entirety, is null and
they have been affirmed by the CA; accordingly, these findings will not be
void. Thus, it becomes unnecessary to still determine if it complies with the
disturbed. To be sure, such findings are binding and conclusive upon this
other substantive requirements for a valid ordinance — i.e., that the
Court, and it is not the Court's function in a petition for review on certiorari to
ordinance is fair and reasonable.
examine, evaluate or weigh anew the probative value of the evidence
In any case, it bears emphasizing that the measure of the substantive presented before the trial court. While there are recognized exceptions to
validity of an ordinance is the underlying factual basis for which it was this rule, the Court finds that none is present in this case.
enacted. Hence, without factual basis, an ordinance will necessarily fail the
Consequently, since it has been established that Batangas City did
substantive test for validity.
not have factual basis to justify the purpose of the Assailed Ordinance,
Batangas City's failure to prove the existence of factual basis to Batangas City cannot invoke the presumption of validity. As held in Ermita-
justify the enactment of the Assailed Ordinance had already been passed Malate Hotel and Motel Operators Association, Inc. v. City Mayor of Manila,
upon by the lower courts. The Court quotes, with approval, the Joint Decision which Batangas City itself cites in its Petition, the presumption of validity
of the CA Fourth Division: ascribed to an ordinance prevails only in the absence of some factual
foundation of record sufficient to overthrow the assailed issuance. 90 In this
To prohibit an act or to compel something to be
case, the presumption of validity ascribed to the Assailed Ordinance had been
done, there must be a shown reason for the same. The
overturned by documentary and testimonial evidence showing that no
purpose must also be cogent to the means adopted by the
substantial diminution in the supply of ground water in the Tabangao-
law to attain it. In this case, as seen in the "whereas clause,"
Malitam watershed had occurred in the last three (3) decades, and that no
the purpose of the ordinance is to protect the environment
threat of depletion of ground water resources in said watershed existed.
and prevent ecological imbalance, especially the drying up
of the aquifers of Batangas City. In effect, the drying up of WHEREFORE, premises considered, the petition for review
aquifers is being blamed on the establishments and on certiorari is DENIED. The Decision dated May 25, 2010 and Resolution
industries such as petitioners-appellees here. It would have dated December 30, 2010 of the Court of Appeals in CA-G.R. CV No. 90373
been acceptable had there been a specific study or findings are AFFIRMED.
that the local government conducted (sic) and not just its
SO ORDERED.
reliance on the complaints of some constituents who
merely made its conclusion that the drying up of wells or its
Property – Atty. Fernando Apollo Julius S. Sta. Maria, CPA San Beda Law [2K |AY: 2017 – 2018] 9
 Water Code Case Digest

G.R. No. 96401 April 6, 1992 In his Report dated 13 April 1987, the Commissioner recommended "the
immediate demolition of all dykes, obstructions and the like introduced in August,
NEMESIO N. ATIS, petitioner, 1986 and thereafter by defendant Delatina."
vs.
COURT OF APPEALS, ORLANDO S. DELATINA (DECEASED), SUBSTITUTED BY HIS On 30 June 1987, Respondent Delatina filed a Motion to Dismiss the case on the
HEIRS, NAMELY: MANSUETA BAGON VDA. DE DELATINA & THEIR CHILDREN, following grounds: (1) the Trial Court has no jurisdiction over the subject matter or
DELIA, ELSIE & ORLANDO, JR., SURNAMED DELATINA, respondents. nature of the action, the same being vested in the National Water Resources
2
Council by Pres. Decree No. 424; and (2) Petitioner failed to exhaust
SPS. ARTURO M. PACULANANG and ELEUTERIA (LILIAN) B. administrative remedies as no prior recourse was made to said Council.
PACULANANG, Intervenors.
Acting on said Motion, the Trial Court dismissed the case on 30 July 1987, for
FACTS: Lot 1 of the plaintiff, together with Lots 2, 3 & 4 of the persons named, Petitioner's "failure to exhaust administrative remedies under Presidential Decree
have been devoted primarily, directly and solely for fishpond purposes, the nature No. 1067."
of the realty being for these purposes as there is a natural watercourse, stream, or
continuous water between the banks; Since time immemorial the water flows As the Court of Appeals, to which Petitioner appealed, affirmed "in full" the Trial
from these higher estates down to the sea of Dapitan Bay, passing through a Court's order of dismissal, herein Petitioner availed of this recourse claiming that
lower estate claimed by one Eleuteria Lilian Bobis, the wife of Arturo M. the Court of Appeals erred: (1) in failing to consider the main issue raised by the
Paculanang, municipal trial judge of Liloy and Sindangan, Zamboanga del Norte; ultimate facts which is whether the acts of Private Respondents/Intervenors
caused damage or injury to the rights of Petitioner, no "dispute as to water rights"
The natural watercourse, since time immemorial, has been freely flowing from the being involved; (2) in applying the general rule on exhaustion of administrative
upper estates aforestated, unimpeded and continuously into the sea, through the remedies, the instant case being an exception thereto; and (3) in not ruling that
land claimed by the said Eleuteria Lilian Bobis-Paculanang, even as during high Private Respondents/Intervenors could no longer question the jurisdiction of the
tide of the sea, sea water also goes upwards into the fishpond of plaintiff. This Trial Court after submitting to its jurisdiction and seeking reliefs from it.
condition has been by nature, existing since time immemorial and all riparian or
littoral estate owners have recognized it, since as the public and government ISSUE: WON under the material allegations of the Complaint, the case falls
authorities have also respected it; under the jurisdiction of the Trial Court.

Sometime in the middle of August 1986, without plaintiff's knowledge or HELD: YES. Presidential Decree No. 1067 otherwise known as "The Water Code of
permission, defendant closed the natural waterway by constructing and building the Philippines" has spelled out in Article 3 thereof the underlying principles of the
a dike on the land claimed by Eleuteria Lilian Bobis-Paculanang thereby Code, one of which is:
completely blocking and obstructing the flow of the water from the higher
estate of plaintiff and his relatives, and thus causing the water in plaintiff's d. The utilization, exploitation, development, conservation and
fishpond to remain stagnant, and leading to the poisoning of plaintiff's growing protection of water resources shall be subject to the control and
shrimps, prawns, bangus (milkfish) and others to the great and irreparable regulation of the government through the National Water
damage and injury to plaintiff; Resources Council,herein referred to as the Council. (Emphasis
supplied.)
In an Order bearing the same date, or on 8 January 1987, the Trial Court directed
its Clerk of Court, who was earlier designated as Commissioner, to supervise the
drainage experiment on the fishponds involved.

Property – Atty. Fernando Apollo Julius S. Sta. Maria, CPA San Beda Law [2K |AY: 2017 – 2018] 10
 Water Code Case Digest

Article 88 of the same Code provides that: irrigation canal, it is the enjoyment of the right emanating from the grant that is in
litigation, and the case is not within the jurisdiction of the National Water
Art. 88. The Council shall have original jurisdiction over all Resources Council.
disputes relating to appropriation, utilization, exploration,
development, control, conservation and protection of waters In fine, it is the Regional Trial Court, Branch X, Dipolog City, and not the National
within the meaning and context of this Code. (Emphasis Water Resources Council, that has jurisdiction over the instant case. It follows that
supplied) the doctrine of exhaustion of administrative remedies on the basis of which the
case was dismissed by both Courts below, does not come into play.
The case at bar does not involve any dispute relating to appropriation or use of
waters. "Appropriation" as used in the Water Code means that "acquisition of WHEREFORE, the Decision of the Court of Appeals is SET ASIDE and the case is
rights over the use of waters or the taking or diverting of waters from a natural ordered REMANDED to the Trial Court for further proceedings, with costs against
source" (Art. 9); while "use of water for fisheries is the utilization of water for the respondents/intervenors.
propagation and culture of fish as a commercial enterprise." In fact, Petitioner is
the holder of: (1) WATER PERMIT NO. 10974 to use water from the San Pedro SO ORDERED.
Creek, Dapitan City, and (2) WATER PERMIT NO. 10975 to use sea water, "for
purposes of Fisheries," issued to him by no less than the National Water
Resources Council on January 4, 1988 (pp. 93 and 94, Rollo). The issuance of said
permits served to grant petitioner water rights or the privilege to appropriate and
use water (Art. 13, Pres. Decree No. 1067) from the San Pedro Creek and sea
water from Dapitan Bay for his fishpond.

Private Respondents/Intervenors do not dispute the water rights petitioner had

acquired by reason of those permits but maintain that said licenses were issued
by the National Water Resources Council to Petitioner only on 4 January 1988, or
more than a year after the case was filed in Court. The crucial point is, however,
that "since time immemorial" water had been flowing from the higher estates
down to Dapitan Bay and to the sea passing through the lower estate belonging to
the Intervenors. There is nothing in the records before us controverting this
statement of fact.

Obviously, therefore, no dispute lies relative to the use or appropriation by

Petitioner of water from the San Pedro Creek and sea water from the Dapitan Bay.
The case does not involve a determination of the parties' respective water rights,
which would otherwise be within the competence and original jurisdiction of the
National Water Resources Council. Rather, the issue is whether or not the
construction of the dike, obstructed the natural water course or the free flow of
water from Petitioner's higher estate to Intervenors' lower estate thereby causing
injury to petitioners' rights and impairing the use of his fishpond. This issue
necessitates resort to judicial intervention. As held in the case of Amistoso v.
Ang (L-60219, 29 June 1984, 130 SCRA 228), where there is a grant existing in
favor of the petitioner, and there is a violation of grantee's right by closure of the
Property – Atty. Fernando Apollo Julius S. Sta. Maria, CPA San Beda Law [2K |AY: 2017 – 2018] 11