Philippine DENR Secretary Defensor: REVITALIZING THE PHILIPPINE MINING INDUSTRY

An 'exhastive study'/white paper on the potentials of the mining industry as enunciated by Secretary Defensor obtained over the internet. Learn, appreciate and enjoy...

REVITALIZING THE PHILIPPINE MINING INDUSTRY
What Can Mining Companies Expect in 2005 and Beyond?

by

Secretary Michael T. Defensor
Department of Environment and Natural Resources
Philippines

(A paper presented during the Asia Mining Congress 2005 to on 21-24 March 2005 at the Oriental, Singapore)

Introduction

The Philippines — situated in the so-called Pacific “rim of fire” — is a mineral-rich country. However, its vast mineral reserves remain untapped for a variety of socio-economic, legal and environmental reasons.

Mindful of the potential of mining in jumpstarting the Philippine economy, the Government has embarked on a program to revitalize the industry, guided by the principle of balancing mining development with socio-environmental concerns. With the recent decision of the Supreme Court allowing foreign investment in mining projects in the Philippines, the mining industry has been given a new impetus to fulfill its role in the economic development of the country.

The Philippine Mining Sector: A Situationer

The Philippine mining industry has only two (2) big mines in operation. Added to these are three (3) medium-scale chromite mines, four (4) medium-scale nickel mines and five (5) medium-scale gold mines with fifteen (15) cement plants and quarries at work.

There are currently 442,268.72 hectares of land covered by approved mining tenements covering 206 Mineral Production Sharing Agreements (MPSAs), 13 Exploration Permits (EPs), 2 Financial or Technical Assistance Agreements (FTAAs), and 310 Mining Lease Contracts/Patents.

Despite this meager picture compared to its potentials and glorious past, the mining industry in 2003 contributed PhP18.0 billion to the economy or 1.6% of the GDP and employed 104,000 Filipinos who received wages and benefits of up to PhP5 Billion. For each mining job, 4 to 10 allied jobs are created upstream and downstream. In 2002, the industry paid the government in taxes and fees amounting to PhP2.1 Billion with a paid-up investment of PhP367 Million.

Mining Potentials

Such minor contributions to the Philippine economy by the mining sector would be a thing in the past once the country’s mining potentials, now lying hidden beneath its lands and waters, are tapped in a responsible manner.

On-shore, nine (9) million hectares are high potential sites for copper, gold, nickel, chromite, and other minerals. With this mineral wealth, the Philippines has the potential to be in the top 10 largest mining power in the world. Sadly, only 1.4% of potential sites are now covered by mining permits.

Off-shore, the Philippine’s Exclusive Economic Zone (EEZ) covers 2.2 million square kilometers with mineral resources of Placer including gold, chromite, magnetite, and silica. It has also aggregate resources, manganese nodules/encrustations with associated copper, gold, zinc, cobalt, and Polymetallic sulfide deposits containing copper, cobalt and other minerals.

As of 1996, the mineral reserves of the Philippines were comprised of 6.67 billion metric tons of metallic and 78.472 metric tons of non-metallic minerals. A large part of the metallic reserves is copper (70%) followed by nickel (16%). Limestone and marble account for almost 85% of the non-metallic mineral reserves. A study conducted by East-West Center in 1994 estimated that about 11 new deposits under a “conservative estimate” and 25 deposits under a “most likely estimate” might be developed during the period 1995-2015. Such figures are fairly large relative to the land area of the country. This is the reason why there has been a renewed interest in setting up investments in the Philippine mining industry in recent years.

Recently, the government has identified twenty-three (23) potential medium to large-scale metallic mining projects estimated to have a gross value of mineral deposits of US$ 90.8 billion. The Philippine Government is, thus, expecting around US$ 6.5 billion in foreign direct investments with an annual sales/foreign exchange of US$ 3.4 billion. Annual excise tax from these projects is estimated to be US$ 61.4 million with annual corporate income tax of US$ 432 million. Above all, an estimated 200,000 direct and indirect employment would be generated. For the job multiplier effect alone of 10 allied jobs per mining job created, around 2 million jobs will be generated by these 23 identified mining projects. That is why, of the many sectors the DENR has in its mandate, only mining has been explicitly included in President Gloria Macapagal Arroyo’s Ten-Point Program of Government.

Indeed, the mining sector is standing up to its lofty calling. Mines of world-class quality are emerging from Luzon to Mindanao. In Luzon is the Lepanto Far Southeast Copper-Gold deposit, which is open for joint-venture partnership. In Mindanao is the Philex Boyongan Copper-Gold deposits under the joint-venture partnership of Philex Gold and Anglo-American, and the Tampakan Copper-Gold deposit under the consortium of JV of Sagittarius, Indophil, Xstrata and J.P. Morgan.

There are six (6) pipeline projects that are online nationwide. These are the Didipio Copper-Gold Project in Nueva Vizcaya, the Rapu-Rapu Polymetallic deposit and the Aroroy gold deposit, both in the Bicol area. The Palawan HPP Project in Palawan, the Canatuan gold project in Zamboanga del Norte, and the Diwalwal gold deposit in Davao.

Several other Copper-Gold projects are now in various stages of exploration. In Luzon, the Teresa gold project of Lepanto Consolidated; Padcal copper expansion project of Philex mines; the government-owned Batong-Buhay Copper-Gold project; and the San Antonio copper project of Marcopper. In the Visayas is the Atlas Copper project of Alakor Corporation while in Mindanao, are the government-owned Amakan copper-gold project and KingKing copper gold project of Benguet Corporation.

In addition, seven (7) other projects are also in the pipeline. The Itogon gold project in Benguet, the Mindoro nickel project in Mindoro island, the Siana gold project, Adlay nickel project, Nonoc nickel project and Nonoc iron fines projects, all in Surigao, as well as the Pujada nickel project in Davao.

Revitalizing the Mining Industry

Given the potential of mining in addressing both the fiscal difficulties facing the government and boosting the Philippine economy, the President has initiated a new paradigm from tolerance to active promotion of mining. This paradigm shift, however, is geared towards responsible mining, that adheres to the principles of sustainable development.

This led to the issuance of Executive Order No. 270 that provided for a set of principles that will govern the revitalization of the mining industry. Issued on January 2004, it has 12 guiding principles for responsible mining towards sustainable development, and calls for the formulation of a Minerals Action Plan.

The Minerals Action Plan was prepared by the Department of Environment Natural Resources (DENR) in collaboration with other government agencies and stakeholders. It contains 57 strategies and 126 activities to address the problems of mining, such as, the permitting system.

The 12 guiding principles – which are the points of convergence among the various positions of the stakeholders – further emphasize the government’s sincerity to only pursue responsible mining. These are:

1. Recognition of the critical role of investments in the minerals industry in support of national development and poverty alleviation goals;
   

2. Provision of clear, stable and predictable investment and regulatory policies to facilitate investments;
   

3. Development of downstream industries or value-adding of minerals;
   

4. Support to small-scale mining in order to rationalize their activities;
   

5. Adoption of efficient technologies to ensure judicious extraction and optimum utilization of non-renewable mineral resources;
   

6. Protection of the environment in every stage of mining operations;
   

7. Safeguarding the ecological integrity of areas affected by mining;
   

8. Pursuing mining within the framework of multiple land use;
   

9. Rehabilitation of abandoned mines;
   

10. Ensuring the equitable of benefits among direct stakeholders;
    

11. Sustained information, education and communication ((IEC) programs and respect for the rights of the indigenous people and communities; and
    

12. Continuous and meaningful consultations with stakeholders.
    

Recent Developments

Recent developments in the Philippine mining industry could be considered as bullish. Just before the end of 2004, the Supreme Court decided that the provision of the Philippine Mining Act of 1995 on foreign ownership in mining activities is legal. The High Tribunal affirmed the President’s prerogative to enter into Financial or Technical Assistance Agreement (FTAA) with foreign corporations to explore, develop and utilize the mineral resources “for the greater good of the greatest number of people.”

The Supreme Court decision paved the way for a more business-friendly investment climate and reduced the risks and apprehensions of investors, both foreign and Filipino business groups. The Highlight of the Decision is the affirmation that the Mining Act’s Implementing Rules and Regulations (IRR) and the Financial and Technical Assistance Agreement (FTAA) of Western Mining Corporation do not contravene the Philippine Constitution. It also noted that the Constitution expressly allows service contracts in the large-scale exploration, development and utilization of minerals, petroleum and mineral oils and that the State may undertake these activities via “agreements with foreign-owned corporations involving either technical or financial assistance” as provided by law. Likewise, the Supreme Court emphasized the need for an appropriate balancing of interest and needs – the need to develop the stagnating mining industry in order to jumpstart the floundering economy on the one hand, and on the other, the need to enhance nationalistic aspirations, protect indigenous communities, and prevent irreversible ecological damage.

Seeing the road clear, the Philippine Government conducted a mining roadshow to China this January, which generated around US$ 1.6 Billion in investment commitments. Together with the Philippine Chamber of Mines, an International Mining Investment conference was held at the New World Heritage Hotel in February 2-4 that saw the attendance of around 150 foreign investors and committed more than US$ 300 million in mining investments.

Significantly, the permitting system has been streamlined. It reduced by 57% the permitting process covering Exploration Permits; 54% covering the Mineral Production Sharing Agreements; 27% the process covering the certification of the National Commission on Indigenous Peoples (NCIP); and cut to 120 days the approval of the Environmental Compliance Certificate (ECC).

As a result, for the period covering January 2004 to February 2005, the DENR was able to issue twenty (20) Mineral Production Sharing Agreements; three (3) Mineral Processing Permits; One (1) Special Mines Permit; two (2) Exploration Permits renewals; and five (5) new Exploration Permits.

In a similar way, the government has opened new areas for investments by cancelling eighty-four (84) dormant mining permits and contracts covering 100,000 hectares to give way to serious investors. It is now in the process of cleansing mining applications including FTAAs covering 1.8 million hectares. Administratively, the DENR has significantly reduced the number of pending cases in the Mines Adjudication Board and the Panel of Arbitrators, both quasi-judicial bodies, handling the resolution of mining cases.

In a strategic manner, the government has identified its legislative agenda in support of responsible mining, which is crucial to win the support of the Local Government Unit (LGU). The DENR is supporting House Bill 1445 involving the direct remittance of LGU share on excise taxes. It is also supporting the proposed National Land Use Act to provide guidelines for the use and allocation of lands for mining purposes, and have recommended various incentives for pollution control devices.

Against the backdrop of the bullish scenario for the mining industry in view of the recent developments cited above, the government is aware that a large part of the population has some apprehensions, even strong opposition, in its revitalization for a number of legal and environmental reasons. That is why during the Mining Investment Conference in the Heritage Hotel, a parallel Stakeholders Forum on Mining was also conducted by the government on February 3 at Malacanang Palace with representatives from the industry, civil society, indigenous peoples, LGUs and church groups wherein the President gave assurance that her government will not sacrifice the rights of same stakeholders in the face of the capital flowing in for mining.

On the terrible side that mining has imprinted on the minds of the Filipino people, the DENR has already directed Marcopper, in a demand letter to fully undertake the recommendations made by the United States Geological Society (USGS) to rehabilitate the affected areas of Marinduque. The USGS recommendations fully address the engineering, environmental, social, health, and geological aspects of rehabilitating the areas affected by the accident of Marcopper in 1996.

Major Types of Mining Tenements in the Philippines

The Philippine Mining Act of 1995 provides for a variety of mining tenements designed to cater to the needs of foreign and local investors alike. The Exploration Permit is a two-year contract renewable for up to 8 years and grants exclusive right to explore and eventually enter into Mineral Agreement or Financial or Technical Assistance Agreement. The Mineral Agreement, on the other hand, is a 25-year permit and renewable for another 25 years consisting of Mineral Production Sharing; Co-Production; and Joint Venture modes of agreement with the government. The FTAA, which was recently considered by the Supreme Court as legal, is also a 25-year agreement renewable for another 25 years that needs the approval of the President. It involves large-scale mining operations with minimum committed investment of $50 Million for infrastructure and development. For mineral processing operations, a Mineral Processing Permit is issued covering a 5-year period but renewable up to 25 years. On the other hand, a 100% foreign participation is allowed under the Exploration Permit, FTAA and Mineral Processing Permit except for the Mineral Agreement which requires at least 60% Filipino ownership.

Mining Incentives

Mining companies can avail of fiscal and non-fiscal incentives granted under the Omnibus Investment Code of 1987.

These incentives are availed through tax exemptions in the form of Income Tax Holiday (ITH); exemption from taxes and duties on imported spare parts; and exemption from wharfage dues, and export tax, duty, impost and fees; tax credit on raw materials and supplies; and additional deductions from taxable income for labor expense and necessary and major infrastructure works. Non-fiscal incentives may also be availed of through employment of foreign nationals; simplified customs importation procedures and importation of consigned equipment for a period of 10 years.

In addition to these incentives, the Mining Act also grants incentives for pollution control devices; income tax carry forward of losses; income tax accelerated depreciation on fixed assets; and investment guarantees, such as, investment repatriation, earnings remittance, freedom from expropriation and requisition of investment and confidentiality of information.

For FTAA contractors (foreign-owned companies), an additional incentive, in the form of a tax holiday on national taxes, is granted from the start of the construction and development period up to the end of the cost recovery period, but not to exceed five years from the start of commercial operation. After the recovery period, the contractor starts paying these taxes, including an additional government share based on negotiated scheme.

Fortifying the Foundations for a Revitalized Minerals Industry

The Philippine Government remains steadfast in its thrusts to further fortify the foundations for a revitalized minerals industry by providing clear, stable and predictable policies, and further streamlining the procedures for mining applications and by providing a more stable fiscal regime and equitable sharing of benefits.

The DENR hopes to address the remaining environmental and social concerns by rationalizing environmental standards and further strengthening the protection measures and sureties provided in our laws.

Finally, with the implementation of the Minerals Action Plan the Government has now provided strategic direction for the development of our mineral resources.

Conclusion

With the easing out of the obstacles in eventually developing the Philippine’s mining potentials, the Government welcomes foreign companies to invest their money and expertise in achieving responsible mining in the country.

In partnership with the best in the global mining arena, the Philippines hopes to realize its vision for a minerals industry that is not only prosperous but also socially, economically and environmentally sustainable, with broad community and political support, while positively and progressively assisting in the government’s program on poverty alleviation and contributing to the general well-being of the nation.