Local government units, including five in Catanduanes, who run their own water supply systems will have to operate the same like a economic enterprise, along with the crafting of a five-year business plan.
This is pursuant to DILG-DOF Joint Memorandum Circular No. 01 issued last Feb. 23, 2026 by Local Government Secretary Juanito Victor Remulla and Finance Secretary Frederick Go.
It noted that as of 2025, over 560 LGU-operated utilities were providing safely managed local water supply and sanitation (WSS) services and collecting corresponding fees and charges as a devolved function in compliance with the Local Government Code of 1991.
The circular cited a key finding in the Philippines Water Supply and Sanitation Masterplan (PWSSMP) that many LGU-operated utilities lag in terms of service and financial performance compared to water districts and privately operated WSS systems.
“This is primarily due to poor utility governance, insufficient capacity and inadequate tariffs,” the masterplan stated.
The 2026 circular provides implementing guidelines for JMC No. 2 issued in September 2024 by DENR, NEDA, DILG, DOF and DBM that mandates LGU-operated utilities to create a Public Utility-Local Water Supply and Sanitation Services (PU-LWSSS) in accordance with the DBM Manual on the Setting-Up and Operation of Local Economic Enterprise (LEE).
The new public utility would have to comply with the Philippine National Standards for Drinking Water (PNSDW) and effluent standards under the Clean Water Act.
It would adopt the minimum technical standards, procedures, organizational structure, and staffing plan consistent with the National Water Resources Board (NWRB) Standard Rules and Regulations in the Operation of Waterworks and industry practice, and incorporate climate-resilient design and operation.
The PU-LWSSS will utilize the DOF-Bureau of Local Government Finance (BLGF) Toolkit for the review, updating, and/or adoption of local fees and charges.
JMC No. 2 provides that the national government will prioritize fiscal support to provide equitable and sustainable access to affordable WSS services, help water utilities become financially viable, self-sustainable, and self-funding, and use performance-based grants to encourage utility-level governanace reform.
On the other hand, the implementing guidelines of the Unified Resource Allocation Framework for Water Supply and Sanitation (URAF-WSS) provides that the setting-up and operation of a “ring-fenced” PU-LWSSS and adoption pf the NWRB Tariff Setting Methodology are among the requirements for LGUs with LGU-operated utilities to become eligible for performance-based financial and technical assistance under the URAF-WSS.
Under the ring-fencing financial and management arrangement, the activities and financial accounts of the PU-LWSSS, as well as its assets, costs and revenues, and obligations for goods and services, will be separated from the general accounts of the LGU.
Similar to an eco-enterprise, it will utilize its resources primarily for operations and maintenance, as well as for capital investment,
In Catanduanes, the five LGUs which operate their own water supply systems are Bagamanoc, Caramoran, Gigmoto, Panganiban and San Miguel.
On the other hand, the other six municipalities – Bato, Baras, Pandan, San Andres, Viga and Virac – are served by their respective water districts which are being supervised by the Local Water Utilities Administration (LWUA).
According to Virac Water District (ViWaD) General Manager Gabriel Tejerero, who also heads the United Catanduanes Water Districts Association (UCAWADA), technical assistance was provided to the Caramoran Water Supply Association (CARWASA) for its reorganization into a water district under LWUA but the plan fell through due to resistance from the latter’s board of directors.
Recently, the Baras Water District, which used to be LGU-operated, came under fire from the public after it got the approval of LWUA for a considerable increase in water rates.
On the other hand, Viga Water District has been left without a general manager after the last GM resigned due to a conflict with the board who allegedly micromanages the activities of the district.
Of the five LGUs with LGU-operated water supply systems, Panganiban and Bagamanoc have expressed their intention not to convert their utilities into a water district.
Under the new circular, the local chief executive would have to issue an executive order creating a Technical Working Group (TWG) to prepare a feasibility study or assessment.
The EO would have to allocate resources and mandate the cooperation and support of the other units of the LGU.
The feasibility study would cover a technical assessment and analysis, including the current status of the WSS services, current LGU assets used in the operation, current level of water losses or non-revenue water (NRW), water supply-demand analysis, identification of potential water sources, and current capacity to provide an alternative water supply during emergencies, among others.
A financial assessment and analysis will be done on the annual operating cost of the utility, annual revenue, current average tariffs or fees, capital expenditures, and debts incurred and grants received.
The study likewise covers a commercial assessment (service connections and billed volume, average billed volume or consumption, billing and collection system, annual collection efficiency and customer complaints) and an organizational assessment (current LGU staff involved in the WSS operation, assessment of compliance with DBM or Civil Service Commission rules and regulations, and number of full-time staff per 100 connections).
The FS should have an analysis of strengths, weaknesses, opportunities, and threats (SWOT) for WSS service provision for the next 10 years.
In addition, the study must have a 10-year Strategic Action Plan to provide, improve, and/or expand efficient, inclusive, resilient, and self-sustaining, safely-managed WSS services.
For the 5-Year Business Plan, the TWG shall prepare the plan to guide the operation of the PU-LWSSS and as basis for setting tariffs, including: service standards and targets; WSS projects with estimated cost; estimated costs for operations and maintenance; cost recovery tariffs and implementation plan; inclusive tariff design; and gender- and poverty-sensitive needs assessment.
The PU-LWSSS organizational structure should include an overall manager, technical operations head, commercial operations head, and administration and financial management head, all with permanent appointments.
The budget for personal services shall be charged to the annual budget of the LGU, with the PS requirement not included in the computation of the maximum number of PS of the concerned LGU.
Regular positions for the PU-LWSSS to be funded from its income, meanwhile, may be created once the LGU determines that the utility is financially self-sustainable.
Upon recommendation of the TWG and the endorsement of the LCE, the Sangguniang Bayan shall enact the ordinance on the establishment of the PU-LWSSS and the adoption of the utility, among others.