OFFICIAL POSITION OF THE NASUGBU WATER DISTRICT

ON THE ISSUE OF ALLEGED BREACH OF CONTRACT (MOU)

The Nasugbu Water District entered into a Memorandum of Understanding (MOU) with
Tuy Water District (TWD) back in Sept. 1, 2009 for the utilization of groundwater sources
located in the Municipality of Tuy, Batangas for a period of twenty-five (25) years. Per the
agreement, TWD shall be paid a production assessment fee of P1.00 for every cubic meter of
water supplied to NAWAD during the first ten (10) years, which shall increase to P1.50/cu.m.
for the next ten (10) years, and P2.00/cu.m. for the last five (5) years of the contract. Starting
January 2020, the production assessment fee shall be raised to P1.50/cu.m. as provided for in the
MOU.

A separate Memorandum of Agreement was then executed by and between NAWAD and
AM Gatbonton Drilling Corp. wherein the latter shall be responsible for the full funding and
construction of a bulk water supply facility which included, among others, well drilling, electro-
mechanical facilities, and installation of pipelines as well as trenchless boring. NAWAD shall
then operate, manage, and maintain the infrastructure, facilities, machineries, and equipment of
the project in utilizing Tuy’s groundwater sources in barangays Rillo and Mataywanac. All assets
invested by AM Gatbonton shall be turned over to NAWAD and then NAWAD shall
automatically transfer its ownership to TWD at no cost upon expiration of the 25-year contract.

To operate the bulk water supply facility, NAWAD shoulders the electricity expenses and
chemicals of the Rillo and Mataywanac pumping stations apart from the production cost paid to
the private investor and production assessment fee to TWD. Needless to say, apart from the well
site, Tuy WD has zero spending and no amount invested in the construction, operation, and
maintenance of the bulk water supply facility and merely receives production assessment fees
per the MOU.

In July 26, 2018, NAWAD signed a 25-year contractual joint venture agreement with
PrimeWater Infrastructure Corp., and the project formally commenced Oct. 1, 2018. Under the
CJVA, the partnership allows PrimeWater to operate the water supply facilities on behalf of the
Water District; the JV partner shall honor all existing NAWAD contracts including the MOU
with TWD. PrimeWater proceeded to pay TWD the monthly production assessment in lieu of
NAWAD in accordance to its obligations under the JV contract, payment of which Tuy WD
accepted for almost a year, although there had been issues regarding the deduction by
PrimeWater of withholding taxes which was later rectified and adjusted.

I personally met with TWD GM Panaligan, in the presence of Lian GM Jonson, after the
regular BAWD meeting last June 14, 2019 in Tanauan City Water District to discuss the possible
adjustment in the production assessment fee. GM Panaligan mentioned a possible breach in the
MOU and floated a P10/cu.m. demand which we countered with a Php2.00 additional which we
deem is most reasonable considering the total production cost NAWAD incurs in the operation
of the bulk water facilities. Before I left the meeting, I asked her to communicate in writing their
demand for us to formally reply and seek legal guidance from competent authority regarding
their claim of contract breach.

We received last Oct. 10, 2019 a transmittal dated September 30, 2019 from Tuy WD
informing us of Board Resolution No. 04-05 (S. 2019) terminating the MOU on the use of
groundwater sources for alleged breach of contract, giving NAWAD a 1-month grace period. We
wrote a letter to TWD stating our position disagreeing with the pre-termination of the MOU for
lack of any basis, and asked TWD to maintain the status quo and to meet at the OGCC for
mediation between the parties and amicably settle the issue; TWD declined and insisted that the
meeting be held in their office instead. PrimeWater met with TWD Nov. 20, 2019 wherein the
latter imposed a P25 per cubic meter charge; in the succeeding meeting last Nov. 27, 2019,
PrimeWater countered with a P2/cu.m. additional on top of the prevailing P1/cu.m. production
assessment fee while talks are being held and while there is no clear decision yet from competent

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authority to determine whether the contract was indeed violated. TWD dropped its demand to
P22.50/cu.m., and threatened to shut down the aforementioned pumping stations.

Since NAWAD simply sells its production to its concessionaires at P21.50/cu.m, paying
TWD P22.50/cu.m. is unacceptable and far too unreasonable. To secure the unimpeded operation
of the bulk water system, we sought the assistance of the OGCC to intervene as the statutory
counsel of both water districts with appropriate jurisdiction pursuant to the OGCC’s mandate
under Presidential Decree No. 242, in relation to relevant provisions of Republic Act No. 9285
and the Administrative Code of 1987, to mediate disputes, claims and controversies between and
among GOCC upon the request of the latter and conduct fact-finding and preliminary
investigation in appropriate referred cases.

In addition, as the PNP’s existing Memorandum No. PSS 19-1025-090 directs all Chiefs
of Police in Region 4A to secure all water distribution centers/areas, we sought police assistance
from the PNP Batangas Provincial Director to secure the bulk water supply facility on Dec. 2-3,
2019 pending settlement of the issue. This was in response to Tuy WD’s text message to our
PrimeWater Branch Manager threatening to close the water facility on Dec. 2, 2019 which
coincides with the town fiesta of the Municipality of Nasugbu, Batangas and when athletes
participating in the on-going SEA Games are billeted in Canyon Cover Resort-Hotel, one of
NAWAD’s concessionaires.

Considering all facts herein presented and pursuant to NAWAD Board Resolution No.
__(S. 2019), we reiterate our earlier offer, in concurrence with our JV partner, PrimeWater
Infrastructure Corp., of a P2/cu.m. additional increase to the prevailing production assessment
fee paid to TWD. Should our offer be refused, we will be constrained to let due process take its
course in determination of the merits of the case and we shall respect whatever verdict the
competent authority shall render.

ENGR. ABELARDO L. ROJALES

General Manager

CONFORME:

BALTAZAR JUAN R. ILAGAN

Chairman - BOD

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