The Commission on Audit revealed the Toledo City Water District has bought bulk water from Carmen Copper Corp. without a contract for eight years, violating government rules.
State auditors also found TCWD pays AFC Fertilizer and Chemicals Inc. over three times its original 2003 rate without signed written contract amendments.
COA warned these uncontracted operations risk service disruptions and legal disputes, while TCWD management acknowledged the lapses and committed to executing updated agreements.
THE Toledo City Water District (TCWD) in southwestern Cebu has been buying bulk water from Carmen Copper Corp. (CCC) for more than eight years without a written contract, while it has also been paying another supplier more than three times the rate in its original agreement, with no signed amendment, the Commission on Audit (COA) said.
COA said the missing agreements run counter to Presidential Decree (PD) 1445, the Government Auditing Code, which requires claims against government funds to be supported by complete documentation. They also conflict with COA Circular 2009-001, which requires agencies to submit copies of their contracts to state auditors.
“This deficiency exposes TCWD to potential disputes over rates, billing, or service scope, which may disrupt operations or lead to legal issues,” COA said in its 2025 audit report.
Expired agreement
The arrangement between TCWD and CCC began 10 years ago. A timeline in the report shows that the two parties signed a memorandum of understanding on April 26, 2016, in which CCC offered to help the utility. On May 23, 2016, the National Water Resources Board (NWRB) allowed TCWD to connect to CCC’s water system for a provisional supply of up to six months.
The memorandum of agreement (MOA) in question was signed on July 4, 2017, by then CCC president Enrico Nera and former TCWD general manager Francisco Abellana.
Under the MOA, CCC would provisionally supply up to 1,500 cubic meters (cu.m) of water a day from its Abaca tank. That was on top of the water CCC was already supplying from what the report calls the government tank. TCWD agreed to pay P12.50 per cu.m, inclusive of value-added tax, to cover the cost of the water and of pumping it to the district’s reservoirs.
The MOA was valid only until Aug. 15, 2017. Any extension required the agreement of both parties and authority from the NWRB, and the MOA would end automatically unless renewed in writing. The report does not say whether the NWRB authority was later extended.
Agreement renewed
TCWD’s administrative and human resource department manager told auditors the agreement was being renewed. The manager said the district had kept following up with CCC’s legal department since general manager Mary Desiree Gottwald took office on Jan. 25, 2025.
In a Feb. 18, 2025, letter to CCC’s chief operating officer, Gottwald asked to keep using Tank 8 to supply Barangay Don Andres Soriano during morning peak hours and followed up on the renewal.
“However, until this writing, no contract has been released by CCC,” COA said.
The manager also told auditors that the district now relies heavily on the supply, saying that “following the abandonment of TCWD’s springs and deep wells years ago, there is now a critical dependency on the current water source, as 2,500 connections rely on this supply.”
Fertilizer firm rates
The second arrangement dates back to April 23, 2003, when former TCWD general manager Rogelio Yapha and Jesus V. Sy, senior vice president and resident manager of AFC Fertilizer and Chemicals Inc. (AFCI), signed an agreement for the supply of domestic water.
Under the agreement, AFCI would deliver 100 to 300 gallons of water per minute for 20 hours a day under normal operations. TCWD would pay P2.50 per cu.m for the first 15,000 cu.m each month and P2.00 per cu.m beyond that. The rates covered the cost of pumping water from AFCI’s deep wells to the interconnection point.
The rates later rose to P5.43 and then to P8.00 per cu.m. TCWD’s board approved AFCI’s request for the P8.00 rate through Board Resolution 38-2012. The resolution was dated July 7, 2012, but made the increase effective June 2012.
State auditors asked for the document authorizing the earlier increase, from P2.50 and P2.00 to P5.43, and management could not produce one. The department manager confirmed that the 2012 resolution was the only available document supporting a rate adjustment.
COA said the 2003 agreement had no expiration clause and remained in effect. But it said the price changes were never put into a written amendment signed by both parties.
“As a result, the current rates being implemented are not fully supported by updated contractual documentation,” it said.
Management’s response
TCWD management said the AFCI contract had no expiration date and that rate changes had been implemented solely through board resolutions. “Management admitted that this is a lapse on their part,” the report said.
Management also acknowledged the delay in renewing the CCC agreement despite follow-ups in previous years. It said it would draft an MOA for board approval and request a meeting with CCC officers.
COA acknowledged the commitment but said that because “substantial revisions to pricing and contractual arrangement have already been implemented,” the water district should secure signed agreements and amendments “at the soonest possible time.”
“The timely execution of updated contracts will provide a clear legal basis for payments, establish the respective obligations of the parties, and strengthen accountability and transparency in the procurement of bulk water supply,” COA said.
COA recommended that TCWD, through its administrative and human resources manager, sign updated agreements with both suppliers.
The AFCI agreement should clearly define key terms, including changes in cost or scope, and the CCC agreement should cover the purchase of bulk water. COA also asked the district to submit copies of the audit team once the agreements are signed. / KAL