By: Roderick R.C. Salazar III

The Philippines is known for its rich reserves in copper, gold and nickel with about 9 million hectares out of the total land area of 30 million hectares identified as having high mineral potential. Despite such recognition in respect of its mineral endowment, however, the contribution of the mining industry to the Philippine economy is miniscule with a low 1% of GDP.

Philippines is also recognized as among the lowest ranked in terms of attracting mineral investments due to its policy regime. The Fraser Institute’s 2017 annual survey of mining and exploration companies which attempts to assess how mineral endowments and public policy factors such as taxation and regulatory uncertainty affect exploration investment gives the country low marks in such factors.

The Fraser Institute’s Policy Perception Index (PPI), a composite index that measures the overall policy attractiveness of 91 countries in the survey, considered policy factors such as “uncertainty concerning the administration of current regulations, environmental regulations, regulatory duplication, the legal system and taxation regime, uncertainty concerning protected areas and disputed land claims, infrastructure, socioeconomic and community development conditions, trade barriers, political stability, labor regulations, quality of the geological database, security, and labor and skills availability.” Unfortunately, Philippines is the 8th of the 10 least attractive jurisdictions for investment based on the PPI rankings.

This low ranking can be explained by the present and the immediate past government administrations’ hard stance towards the mining industry.

 

Author Dicky Salazar beams as he tries to cart away the processed ore from the Masbate Gold Project.

The industry woes started with the issuance by the previous government of Executive Order (EO) No. 79 which imposed a blanket moratorium on the issuance of new mineral agreements until such time that a new fiscal regime was enacted by the Philippine legislature. In addition, EO 70 prohibits mining in areas that were previously open to mining applications and the identification of “No-Go” Zones where no mining was allowed.

These challenges to the industry continued and became stronger with the first act of the present government in late 2016 being to order an audit of all the mining operations in the country. Such audit led to the closure and suspension of 28 mining projects. It further resulted in the declaration in April 2017 by the Department of Environment and Natural Resources (DENR) of a total ban on the use of open pit mining method for the extraction of gold, copper, silver and/or complex ores. The Mining Industry Coordinating Council (MICC) composed of various government agencies having some link to mining activities then went on to conduct a review of large-scale mining projects.

In the field of legislation, the threats to the mineral industry likewise manifested with a bill requiring a Legislative Franchise for large-scale metallic mines, a far cry from the mineral agreements allowed under the Philippine Constitution and the Philippine Mining Act of 1995. There were also proposals to impose an ore export ban; require mandatory environmental insurance; repeal the Mining Act and replace the same with a People’s Mining Bill; and declare “No-Go” mining areas in 10 provinces. Of recent note is the bill that proposes a new Mining Fiscal Regime that is quite different from the Mining Act provisions and which seeks to raise added revenues for the Philippine Government.

Author Dicky Salazar and Johann Raadsma, Chairman of Philippine Gold Processing and Refining Corp, inspect the Masbate Gold Project in Aroroy, Masbate.

While the MICC is ready to propose the lifting of the open pit mining ban for as long as mining laws are strictly enforced, the Philippine President maintains his negative view on mining. Similarly, the DENR is ready to recommend the removal of the moratorium on new mining projects imposed under EO 79 and DENR Memorandum Order (DMO) 2016-01, both orders being premised on the passage of a “legislation rationalizing existing revenue sharing schemes and mechanisms.” Thus, with the passage of a tax law that doubled the excise tax on mineral products from 2% to 4% of actual market value of gross output, it was thought to be the push needed to lift the moratorium. As a start, the DENR issued Administrative Order (DAO) 2018-13 signed by Secretary Roy A. Cimatu last July 3, 2018 lifting the moratorium on the acceptance, processing and/or approval of Exploration Permit applications for metallic and non-metallic minerals. The favorable DENR move is touted to be “also in line with the President’s economic agenda, particularly on increasing competitiveness and the ease of doing business to attract more local and foreign investors to the country.”

Moreover, the DENR confirmed the cancellation of mineral agreement and suspension of 13 out of the 28 mining projects earlier ordered closed and suspended by a much stricter DENR Secretary. The review of large-scale mining projects by the DENR also offered varied results in respect of the legal, technical, environmental, social, and economic compliance.

In the face of all these policy directives that make the Philippines less attractive to mining investors, the challenge is for the mining industry to “reinvent” itself to show the government that it can be a true partner for economic development and environmental protection. Towards this end, the mining sector adheres to principles toward sustainable mining as a start. It is hoped that the country soon recovers from its unattractiveness to investment and once again magnet back the long-term mining investments badly needed by the Philippine market.

[Editor’s note: A Philippine Daily Inquirer editorial dated March 25, 2019 agrees to the strict monitoring of the mining industry to ensure that only companies who have the capacity to comply with environmental requirements are allowed to operate in the country. Read the PDI editorial here. ]

(Senior Partner Dicky Salazar leads the Corporate and Commercial Law practice group of the Firm and represents foreign and Filipino mining companies involved in all aspects of mining from exploration, project financing, construction, development and processing. Dicky’s existing foreign and domestic mining clients range from operating companies to exploration entities. He can be reached at rrcsalazar@fnslaw.com.ph.)


MAIN OFFICE:

23rd Floor, Multinational Bancorporation Centre,
6805 Ayala Avenue, Makati City 1226 Philippines
Mailing Address : MCPO Box 2697 Makati City 1200 Philippines

E-mail Address: info@fnslaw.com.ph
Telephone No.: (632) 8812-8670 (connecting all departments)
Telefacsimile: (632) 8812-7199, (632) 8812-4251


LIAISON OFFICE:

Fortun Narvasa & Salazar (H.K.) Services Limited
16th Floor, Unit C-2 United Centre, 95 Queensway, Hongkong, China

E-mail Address: recsalazar@fnslaw.com.ph
Telephone No.: (852) 2520-1976
Telefacsimile: (852) 2865-5790

Website Policy Statement

© 2019 Fortun Narvasa & Salazar.