Miners and business join force in the Philippines

Australia is recognised as one of the most technologically advanced mining nations in the world.

So it it no surprise that it has been making closer ties with nations that are very prospective, but not as technically advanced, such as Mongolia, and the Philippines.

A recent visit by Australian foreign minister, Julie Bishop, to the Philippines was foreshadowed by a position paper put together by the Australian Philippines Business Council, the Chamber of Mines of the Philippines, the Philippine Chamber of Commerce and Industry and other various eminent stakeholders.

In this rare show of co-operation the paper shows a very unhappy view of the mining industry in the Philippines, unless there is government intervention by the Congress and the President of the Philippines. 

Adding to the gloomy picture is the Fraser Institutes’ recent international mining survey showing the Philippines in the bottom ten countries as far as jurisdiction for investment in mining goes.

Since 2010, the Philippines attracted AU$6.3 billion in FDI, Vietnam with AU$23.8 billion, Thailand with four times that of the Philippines at AU$25.5 billion, Malaysia with AU$31.4 billion and Indonesia, almost 10 times that of the Philippines, at AU$53 billion.

The position paper addressed the following situations such as:

  • Revenue-Sharing Bill
  • Integrated Land Use Managemen
  • Policy Process and Progress
  • Honouring Treaties and Contracts 

In the Philippines, Presidential Executive Order 79 ("EO 79") was issued in July 2012 with a view to "institutionalising and implementing reforms in the Philippine mining sector, providing policies and guidelines to ensure environmental protection and responsible mining in the utilisation of mineral resources."

The Implementing Rules and Regulations ("IRRs") to EO 79 were issued in September 2012.  Section 7 thereof states that no new mineral agreements shall be entered into until legislation by Congress, rationalising existing revenue sharing and mechanisms, shall have taken effect.Despite significant engagement with external bodies such as the International Monetary Fund ("IMF") and the Chamber of Mines of the Philippines ("COMP"), the Philippine Government has not yet implemented a revised revenue-sharing mechanism.

As a result, minerals development in the Philippines has stalled.

Delays to the issuances of new exploration and mining permits are resulting in a damaging climate of uncertainty for domestic and foreign mining investment in the Philippines.

According to the paper, a proposed regime in the mining industry for the Philippines desires to meet the following criteria

  • is internationally competitive, thereby encouraging investments in the Philippines’ mineral resource industry, and enabling the country to realize its resource potential;
  • achieves an equitable share of proceeds between government and investors;
  • delivers a higher and steady revenue stream to government;
  • is progressive in nature; and
  • is streamlined, enabling government to collect revenues in an efficient and transparent manner.

However, recent well-sourced media reports, buoyed by government statements, suggest that the Philippine Government is considering a revised tax regime that would increase government's share even further compared to the existing regimes, and result in the Philippines being even more uncompetitive internationally. 

The current fiscal regime is already onerous on investors by international standards. 

Further, the gross revenue-based revised model now being proposed by government is even more unreasonable as it implies that revenue be surrendered even when losses are made. 

If the reports are accurate, then there seems to be an effort to delay minerals development beyond the existing operations.

In the meantime, illegal small-scale mining enterprises that do not pay taxes, smuggle production offshore, encourage corruption, harm the natural environment as well as the local community, continue unabated.

For Australia, the Abbott Government recently announced a new approach to determining and managing its foreign aid program based on outcomes. 

The government has brought its foreign aid program back under the control of Department of Foreign Affairs and Trade.

The Abbott Government stated that it is positioning its aid program "to be more effective, efficient, with a focus on our region and aligned with our national interests." 

It continues by saying that "the program will promote economic development with a focus on aid for trade." 

This is akin to evaluating what is effective aid, which considers the circumstances where a sovereign nation has the asset base and capability to help itself yet does not avail itself of what some might consider as a 'god-given gift'. 

Australian investors in the offshore minerals sector are broadly supportive of this position. 

Players in the mining industry are not advocating for a decrease in existing Australian offshore aid, but rather an alignment. 

In this context, Australia’s foreign aid support for managing tragic natural and humanitarian disaster events in the Philippines like Typhoon Haiyan (Yolanda) should be commended, and maintained.  This high level of support for disaster assistance and relief has been clearly proven by the manner in which the mining industry swung into action in the immediate period after the typhoon. 

In this regard, the mining industry urges the Australian Government to provide expertise, continuing training, equipment, and other resources to the Philippine Government to bolster the disaster and emergency capability of the government.

Apart from its declared intention of "rationalising existing revenue sharing and mechanisms," EO 79 formalised the Aquino Administration’s position on the superiority of national laws and policies over local ordinances that ban mining, enhanced government’s control over mineral resources, decreed improvements in the regulation of small-scale mining activities and mandated stiffer penalties for mining-related offences.However, while EO 79 was clear in its recognition of existing mining tenement rights, the future of the mining industry remains unclear. 

This is in large part due to EO 79’s expansion of the areas closed to mining and the moratorium on new mining agreements. 

It appears that this will continue to be the case until a new revenue-sharing scheme is passed by the national legislature and the creation of a new inter-agency body tasked to review the performance of existing mining operations, in addition to a number of multi-partite monitoring groups having the same functions.

The position paper urged the Australian Government to share its experiences and expertise, and provide funding to address outstanding issues like land use management and a more effective process to determine "no go" zones, the process surrounding national wealth valuation planning, the training and funding for successful and efficient interaction with IPs for FPIC and land access, a refreshed and new approach to foreign aid with a link to Australian interests and trade outcomes, continuing assistance to and capacity-building of the Philippine Government in humanitarian disaster relief, and ongoing pursuit by the Philippines of EITI membership.

It has been more than a year and the Philippine Government has not firmed up the revenue-sharing scheme. 

This put on hold a considerable number of projects in an uncertain investment environment. 

With the exception of the formation of the Mining Industry Coordinating Committee ("MICC") and the Philippines’ EITI, government action on the other "action items" enumerated in EO 79 and its IRRs has been slow, if not absent. 

To date:

  • the Philippine Government’s Department of Environment and  Natural Resources ("DENR") and Climate Change Commission have not finalised a "no-go zones" map for mining applications, despite this being marked for ‘immediate implementation perhaps because of the wrong framework;
  • there has been no action to expedite the cultural mapping and delineation of IPs (Indigenous Peoples) areas, and the continuing grant of Certificate of Ancestral Land Titles or Certificate of Ancestral Domain Titles even in government areas has added problems;
  • despite circulation of a draft, no real progress has been made on the drafting of a new revenue-sharing bill. There is paucity of consultations with stakeholders and consideration of the independently-verifiable data in respect of what a competitive fiscal regime would be, which the stakeholders have painstakingly put together and provided to the Philippine Government in the formulation of the new revenue-sharing regime.
  • there is slow progress in the DENR in reviewing tenurial applications that have been denied in the implementation of regulation reforming the Tenement Mining System, but which were appealed by the applicant; a quick and fair resolution of these appeals would resolve the cloud hanging over these applications which has further stalled the mining industry and its ability to contribute to growth in the Philippine economy.
  • no clear actions have been taken to ensure that, under the Philippine unitary system of government, local ordinances conform with national laws. This has caused tremendous uncertainty to investors.  While certain agencies of the Philippine Government have affirmed in certain issuances the principle that local ordinances must conform with national laws, and that local officials must act accordingly, the same have fallen on deaf ears.  With urgency and commitment, the Philippine Government needs to take the next step of initiating the necessary legal challenges to the validity of local ordinances that contravene national laws.
  • informal and illegal small-scale mining operations continue unabated, damaging the natural environment, as well as evading taxes, and depriving government of revenues from the Philippines mineral wealth; 

The Philippine Government is urged to enforce through action in court, if necessary, the legal position that it has enunciated under EO 79 that no new small-scale mining permits can be issued under the old and outdated Presidential Decree No. 1899, but that all small-scale mining operations must now comply with the requirements of Republic Act No. 7076 which established the Minahang Bayan or Small-Scale Mining Contract system.

For the Philippine mining industry to realize the potential enormous wealth creation from its mineral resource base, a revised and internationally-competitive revenue sharing mechanism needs to be enacted quickly and certified as urgent by President Aquino. 

The Philippine Government is also urged to arrest the downtrend and spur investments in the mineral resource industry and to act decisively and promptly to resolve and make equitable the issues on revenue sharing, and make them truly fair and equitable, lift the moratorium on new mining agreements and build the capacity of the bureaucracy to efficiently process same, and enforce a clear national policy to promote responsible minerals development. 

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