Beyond Responsible Mining in the Philippines

Dr. Cielo Magno

Posted at Jul 06 2016 04:48 AM | Updated as of Jul 06 2016 05:00 AM

(Editor's note: Cielo Magno, Ph.D. is an assistant professor at the University of the Philippines School of Economics. She is a member of the board of trustees of several national and international organizations, including the global EITI and Action for Economic Reforms. She gave permission to news.abs-cbn.com to publish her article.)

The appointment of Ms. Gina Lopez, an environmentalist and an anti-mining advocate worries the business sector. Cynics have been claiming that her appointment could spell the end of mining in the Philippines. This may be an exaggeration. So long as there is demand for raw minerals there will be mining, legal or illegal. It will take more than the appointment of Ms. Gina Lopez in the Department of Environment and Natural Resources (DENR) to stop mining.

President Rodrigo Duterte has called for “responsible mining.” It is a good call for the companies to be proactive to address the damages caused by mining to the environment and communities.

With around $800 billion worth of potential minerals, “responsible mining” as a policy framework, however, is insufficient. There are several reforms we must consider to ensure that mining contributes to sustainable development.

Responsible mining as a policy framework...is insufficient.

Strengthening Oversight

The mining sector is poorly regulated and monitored. Mines and Geosciences Bureau (MGB) Director Leo Jasareno recently said that half of the 44 metal mines frequently violate environmental rules, and some have been slapped with suspension orders, although he refuses to identify these companies. This indicates ineffective government regulation and corruption.

The reality is that despite violations of environmental rules, companies are allowed to ship the ore they extract. They continue to profit from our minerals. An example is the case of Shenzou Mining Group Corp. operating in Claver, Surigao del Norte. The company used the seashore as a waste pond. The company’s operation was suspended, but it was still allowed to ship the P174 million worth of minerals to China. There is clearly no disincentive for violating environmental regulations. The state should have seized the ore in its favor. After all, we are the beneficial owners of these resources and the company violated laws in extracting these minerals.

...despite violations of environmental rules, companies are allowed to ship the ore they extract. 

Why does MGB refuse to publicly disclose the identities of these violators? Either because it does not want to affirm what the communities and anti-mining groups are saying all along that the MGB has allowed these companies to destroy the environment, or the regulator has been captured.

The Mining Act of 1995 provides for multi-stakeholder approach in monitoring mining operations. The law requires the formation of mining monitoring teams (MMT) and Mining Rehabilitation Fund Committees (MRFC) to monitor the environmental programs of large-scale mining companies. The selection of the members of the committees, particularly civil society representatives, was never transparent. In fact, the mining companies, aside from funding these committees, can influence the selection of the civil society representatives. While the idea behind the multi-stakeholder monitoring teams is a noble one, conflicts of interest hobble the implementation.

Civil society should have independent and transparent mechanisms for selecting their representatives. The committees should disclose how they were funded by the companies and how they spent the money. Committee reports should be publicly available and accessible in a timely manner. Capacity building should be provided so that the members of the monitoring teams will have the technical capacity in fulfilling their duties.

The DENR should strictly implement the 'no-go' zone areas.

The government has also identified “no-go” zones that should not be open to mining such as areas critical for other economic activities like agriculture and tourism, biodiversity, island ecosystems, and protected areas. DENR-MGB has released the maps of these “no-go” zones on the Internet. But according to MGB, these maps cannot be used for litigation or referenced for decision-making by local government officials because they are not “officially released” yet. The DENR should strictly implement the “no-go” zone areas. Applications for exploration permits and mining agreements over these areas should be rejected.

The monitoring of the mining production should be improved. The MGB currently relies on reports of companies. Independent validation of reports should be pursued.

For example, we have examined 16 large-scale nickel mining companies, using the 2012 data available from the MGB web site. Their total production is 254,741 metric tons. Multiplying this figure with the lowest possible price of nickel for that year based on MGB reports yields a value of about P169 billion. However, based on their 2012 excise tax payment, which is two percent of the gross value of minerals, the gross value of their production is only about P33 billion.

...companies are underdeclaring their exports, or have stockpiles of ore that are not sold that year, or are selling minerals at very low prices, way below the market rate, which indicates transfer pricing.

What can explain the discrepancy? The companies are under-declaring their exports, or have stockpiles of ore that are not sold that year, or are selling the minerals at very low prices, way below the market rate, which indicates transfer pricing. We cannot say for certain what the cause of discrepancy is because of limited information available to pursue further research. Each company will have its excuse.

But does MGB know this? The MGB should have an independent monitoring and validation of production and sales figures of companies. It should publicly disclose in real time the ore transport permits of companies, showing the amount of minerals they sold, to whom they sell them to and the amount of payments. The MGB should also publicly disclose the monitoring reports on the inventory of stockpiles of companies.

Non-disclosure of information regarding auxiliary rights awarded to companies is the practice. Auxiliary rights include timber rights, water rights, right to possess explosives, easement right, and right to entry into private lands, and concession areas. This information should be made public for proper monitoring. Feasibility studies, environmental impact assessments, and maps and coordinates of proposed mine sites should be readily available online so that communities that are directly affected by the proposed operations can make informed decisions.

The MGB and the DENR can significantly improve access to information by publishing disaggregated data in a timely manner in a form that is usable for further analysis. Public disclosure of information will strengthen the accountability of both the MGB and the companies.

Impact Assessments

Had disaster risks such as these been diligently accounted for, mining-affected communities would not be suffering the brunt of the double-whammy effects of both man-made and natural disasters exacerbated by climate change.

Mining companies should also be required to incorporate the impact of their operations on the vulnerabilities of the area to climate change and include this in their risk reduction strategies. The people of Sta. Cruz, Zambales living near mining operations witnessed horrendous flooding after tropical cyclone Koppu hit Luzon in 2015. In 2012, typhoons Ferdie and Gener hit Benguet. Philex Mining’s decades-old tailings dam released the biggest mine spill in Philippine history that affected the people living along Balog Creek and Agno River in northern Philippines. Had disaster risks such as these been diligently accounted for, mining-affected communities would not be suffering the brunt of the double-whammy effects of both man-made and natural disasters exacerbated by climate change.

Extractive Industries Transparency Initiative (EITI)

President Duterte stated that companies should be held to international standards. One international standard that is currently being implemented by a multi-stakeholder group is the Extractive Industries Transparency Initiative (EITI). It is an international initiative to improve the governance of the extractive sector by disclosing important information and requiring companies and governments to account the payments of industries to the government.

Additional disclosure includes contracts, beneficial owners of mining operations, social contributions and other pertinent documents that the multi-stakeholder group identifies as important. It is an international commitment of the Philippine government, implemented through Executive Order No. 147. Some companies refuse to participate in this initiative, but non-participation has never been a ground for their suspension.

In addition, the confidentiality clause of our tax code limits the capacity of the Bureau of Internal Revenue to disclose tax payments. In other cases, some government agencies refuse to disclose or share information. Companies that refuse to participate are not penalized, but there is reputational damage to the country if we are not able to meet the international standards.

The Duterte administration should legislate EITI, amend the confidentiality provision of the tax code and suspend companies that refuse to participate in EITI.

The Filipino people own the mineral resources. Unfortunately, the current law does not provide for payment for these resources.

Fair Share from Mining

The Filipino people own the mineral resources. Unfortunately, the current law does not provide for payment for these resources. Mining companies are required to pay taxes, just like any other business operating in the Philippines. Some companies are required to pay royalties, but only if they are operating in mineral reservation areas.

The royalty is the unique payment for the mineral resources. Because some companies are not paying royalties, we are not compensated for the mineral resources we own. Based on our estimate, the amount of royalty we received in 2013 is only 1.21% of the estimated revenue of the industry in 2013. Clearly, this is not a fair payment of our mineral resource considering the negative social and environmental impacts of mining to the country.

...mining contributes little to the economy. Mining is not a huge employment generator.

Furthermore, mining contributes little to the economy. Mining is not a huge employment generator. MGB data show that the total employment contribution of mining is only at 234,000 in 2015 or 0.6% of total employment in the country.

To increase the benefit of mining, the government should collect royalties from all mining operations and ensure that the rate of the royalty will guarantee fair share to the Filipino people as owner of the resource. The fair share we receive from the mining industry should also take into account the social and environmental costs of extraction.

Incentives awarded to companies should also be rationalized. In 2013 alone, the government lost around P3 billion due to income tax holidays granted to seven mining companies. The awarding of these fiscal incentives is not even linked to the performance of the companies.

The government should formulate policies that will maximize the economic benefits of its minerals. Indonesia banned the export of raw ore and imposed a stiff tax if raw ore is exported to encourage companies to process the minerals in Indonesia and develop its downstream sector. Bulk of our minerals is exported as raw ore. We do not have an established downstream sector. We can further maximize the value of our minerals if we link mining to manufacturing and require the processing of raw ore in the country.

Unfortunately, local governments do not get their share from mining in a timely manner.

In addition to the issue of fair share is the share of local governments from the extraction of resources in their area. According to the Code, local governments get 40% of the proceeds from the utilization of national wealth. Unfortunately, local governments do not get their share from mining in a timely manner. Local governments also have no mechanism to monitor if they are receiving what is actually due them. The concerned government agencies have reviewed this, hopefully, the new administration will be able to ensure that share from national wealth will be released in a timely manner and that LGUs will have mechanisms to monitor the release of their share.

Resource Funds and Strategic Spending of Proceeds

Another important question is how the extraction of non-renewable resources will benefit future generations. Other countries have established a resource fund to manage the proceeds from mining and ensure that their utilization benefits not only the present but future generations as well. The closest we have to a resource fund is the Malampaya fund. However, because of lack of transparency and accountability, the fund was abused. It also has very limited features.

Countries usually set up an independent board to manage the resource fund. Only a portion of the proceeds from extractives is used for the annual budget. The significant portion of the proceeds is invested so that the money will grow and will benefit future generation. A popular version of the resource fund is the Sovereign Wealth Fund of Norway.

The challenge for the current administration is to champion and institutionalize the genuine reforms in the mining sector.

We also have very limited monitoring of how the proceeds from mining are being spent. In other countries like Botswana, proceeds from the extractive sector are invested in education. Our Local Government Code (LGC) requires LGUs to invest their share from national wealth to local development, livelihood projects, and lowering the cost of electricity in the LGU. The Commission on Audit (CoA) Memorandum in 2014 stated that it will audit the LGUs regarding how they spend their share from national wealth according to the LGC. This is a welcome development, but I have yet to see a CoA report that has implemented this.

In addition, money allocated to LGUs should be disaggregated so that communities can participate in the budgeting and monitoring processes to ensure that money is properly spent.

By itself, responsible mining, which can mean many things to different stakeholders, will just be hollow rhetoric. The reality is that natural resource management in the country is characterized by corruption, poor governance, and agency capture. There are serious governance reforms that we have to consider in ensuring that mining benefits the people. The challenge for the current administration is to champion and institutionalize the genuine reforms in the mining sector.