“You can’t say that all the areas where there is going to be mining are ugly,” declared Regina (Gina) Paz L. Lopez, managing director of ABS-CBN Foundation.
“I did not say that,” retorted Manuel Pangilinan, CEO of conglomerate First Pacific. “Now you are lying.”
The pair was speaking at a conference in Manila on March 2, which brought together those for and against mining. The unusually heated exchange between two members of the normally muted Philippines elite immediately spread to Twitter and Facebook.
Mining is an emotive topic in the Philippines, thanks to a history replete with disaster: landslides, abandoned open-cast mines without rehabilitation, and human rights abuses against native peoples. Many mining companies maintain effectively private armies, and anti-mining activists are regularly assassinated.
It is precisely such incidents that many Filipinos hope will end under President Benigno S. Aquino III. His administration took office in mid-2010 on a clean government programme, and has assembled a line-up of respected (i.e. non-corrupt) ministers.
The government’s ideology is reformist and pro-market – get the institutions right, stop bribery and rip-offs, and development will flow. Mining is hard to fit into this picture – in particular open-cast mining, which tends to have a large environmental impact, making it unpopular with local communities.
But the Philippines is poor, and it has the world’s fifth-largest gold and copper reserves. The government knows the revenue potential, given commodity price rises of the past decade.
The challenge for Aquino’s government is to both encourage and regulate a divisive industry that could boost the economy.
A troubled industry
Mining in the Philippines has attracted some of the country’s worst corporate behaviour. The damage it can do has taken on mythic proportions due to the Marcopper mine on the island of Marinduque.
Through the 1970s and 1980s, Marcopper mine tailings – often toxic waste materials that result from separating the valuable fraction from the uneconomic fraction of an ore – were dumped into Calancan Bay, damaging the fishing industry. The greatest disaster at Marcopper occurred in March 1996, when millions of tonnes of tailings filled the Makulaquit and Boac river systems. Five villages were evacuated, with an estimated 20,000 villagers affected.
To combat mining sector abuses, the government enacted the 1995 Mining Act, which centralised decision-making in the palace and enacted tougher measures on mining companies.
Gloria Macapagal-Arroyo was the principal author, and when she became president in 2000 she sought to extend the industry.
Under the watch of Arroyo, now under investigation on multiple corruption counts, bribery proliferated, armed men were allocated to protect sites and many objectors permanently disappeared.
EO controversy
The country’s administration has changed for the better, with Aquino taking a credible stand against corruption. But he is not immune to the economic fillip the industry could offer – or the controversy it creates.
Five days before Aquino’s election, the Provincial Legislature of South Cotabato voted to ban open-pit mining in the province, with the enthusiastic support of the staunchly anti-mining Catholic church.
“[It’s] divine intervention,” declared Fr. Romeo Q. Catedral, who led the church’s opposition to large-scale mining.
The ban shredded the hopes of Sagittarius Mines’ proposed giant open-pit copper and gold mine in Tampakan – at US$5.9 billion, potentially the biggest mine in Southeast Asia.
But a victory for the church was a blow to the economy. Sagittarius, which owns 62.5% of the project, had predicted that the Tampakan mine would bring a 1% annual uplift to Philippine gross domestic product (GDP) for the project’s duration.
Early in his tenure, Aquino asked the Department of Environment and Natural Resources (DENR) to persuade South Cotabato to lift its ban on open-cast mining. A meeting took place, but nothing positive resulted.
So interior secretary Jess Robredo ordered the suspension of South Cotabato’s ban on the grounds that it conflicted with national laws – specifically the 1995 Mining Act.
This angered local officials. Other provinces joined the anti-mining bandwagon. Fourteen provinces out of 80 have now banned mining, or open-cast mining. And it remains uncertain whether federal law, which allows open-cast mining, trumps local law in provinces that ban it.
Fears of perception
In February 2011 the government met the protesters half-way and suspended the acceptance and processing of new mining applications, pending a review.
Meanwhile, Aquino refused to meet both mining industry stakeholders and opponents. Elected on a staunch anti-corruption, pro-people mandate, the government is particularly worried about being seen as supporting greedy multinationals against illiterate tribals backed by the church and non-givernmental organisations (NGOs), particularly with examples of mining’s lamentable history still so fresh.
In fact, the multinational versus tribals cliché is misleading. Pro-mining enthusiasts argue that the biggest problem is the 300,000- to 500,000-person ‘small-scale’ mining industry.
“If you check the accident rate, you will see that most accidents were due to the illegal use of heavy equipment and explosives in these supposedly small-scale mine sites,” says senior analyst Mars Buan of Pacific Strategies and Assessments.
The People’s Small Scale Mining Act (1991) requires “artisanal mines” to be owned by Filipinos, to work without heavy equipment. But many such companies use heavy equipment, explosives, and illegal poisons. Some operations are run by companies owned by non-Filipino Asians, who pay a retainer to the Filipino registered with the local government unit (LGU). The resulting chaos is dangerous, and impossible to regulate or tax.
The big mines are much better regulated, Buan argues. “Mining is capital intensive. It is only these large companies that have enough money to ensure that they follow environmental laws and use international best-practice technology. Xstrata, Gold Fields, Oceanagold – these companies are not just bound by Philippine laws, but because of pressures over the past decade, they are increasingly adhering to international laws with regards to international environmental protection and responsible mining.”
Shocking announcements
The government has decided that more needs to be done. Aquino shocked the mining industry in December 2011 with a draft presidential executive order (EO).
The EO envisaged reviewing all existing contracts, including getting all mining companies to provide total economic value assessments of the impact of mining operations on the environment, tourism, and other areas.
The Chamber of Mines of the Philippines was outraged; it had not been consulted, and the rules were being changed mid-game, licenced mines having already undergone environmental impact assessments.
Two more draft EOs followed, with retrospective reviews dropped in the February 2012 draft. But the new order stipulated a 5% ‘royalty tax’ on the market value of minerals, at the insistence of Finance Secretary Cesar Purisima.
“In the past, the way the laws were implemented, it was not a true win-win situation where the government was able to get its fair share from mining activities,” said Purisima at the time.
He told reporters that the government collected a mere PHP2 billion (US$47 million) from the industry in 2011, compared with about PHP1.2 trillion in national tax collections, or just 0.17% of total taxes.
Meanwhile in January the Department for the Environment and Natural Resources denied an Environmental Compliance Certificate to the Tampakan Project, citing South Cotabato’s open mining ban.
Adding red tape
A new draft EO followed in January, which held another shock: it required removal from mines of private militias (the CAFGUs), which emerged as a big issue at the March 2 conference.
Private armies are a problem in the Philippines (see box on previous page), but many mining companies argue that they need the security, given that the mines are in the country’s unstable south.
Also in January, the National Commission on Indigenous Peoples (NCIP) revised its guidelines on Free and Prior Informed Consent (FPIC). Instead of a one-off consent by indigenous people in areas potentially affected by mining, new rules require new consents at each major mining phase (exploration and development).
There are estimated to be more than one million indigenous people in the Philippines, of which 912,395 are estimated by the NCIP to live in the 4.2 million hectares covered by certificate of ancestral domain titles, where mining companies require assent to operate. Requiring such assent at each step marks another regulatory hurdle.
Meanwhile tensions have continued to rise around Tampakan. In June, Sagittarius Mines was forced to suspend activities in Kiblawan, Davao del Sur, following ambushes on mining personnel by armed B’laan natives. Tribal communities set up barricades, objecting to forced relocation without consent by CAFGUs employed by Sagittarius.
The government was expected to issue its final EO on the mining sector in the same month. Days before the expected release, Albay Governor Joey Salceda announced that 40 anti-mining governors would challenge the Aquino administration’s mining policy in the Supreme Court, arguing that the provinces’ wishes could not be overridden by national government.
“It [mining] will breed inequality of income and assets, it will destroy the countryside,” Salceda said. His province, which hosts the Rapu-Rapu Polymetallic Project, received only PHP3.4 million in taxes last year, or 0.04% of the PHP7.7 billion in exports from the project, which is controlled by three shareholders, LG International, Korea Resources Corp. and Malaysia Smelting Corp.
“The revenues…could be invested in things that would benefit at least three generations after you, like roads, bridges, enterprise development. But you can’t do that with PHP3.4 million,” he said.
Salceda added that the provinces with big mines are also the poorest. Previous mining companies had failed to rehabilitate their abandoned mine sites. Furthermore, mining operations are often militarised, either by CAFGUs or effectively by the army as it frequently conducts anti-insurgency operations where mines are based.
An EO emerges
The final EO did not emerge until July 9. A work in progress, EO 79 envisages that substantial new legislation will follow.
For now, all existing mining contracts will be respected, but much wider ‘no mining’ zones will be introduced, and particularly, no new mining operations will be approved in Palawan.
Additionally, no new mineral agreements will be granted until the amended laws are introduced, stricter financial reporting requirements will be set, and the government is envisaging higher taxes on future agreements.
Perhaps most importantly, all future agreements will be via competitive public bidding, instead of the present ‘first-come, first-served’ arrangement, which often leaves mining areas un-exploited. Stronger regulation of small-scale miners is also envisaged.
All this is consistent with the emerging international best practice consensus on the regulation of extractive industries.
On the issue of the conflict between local government and national laws, the EO requires local governments only to pass rules consistent with the constitution and national laws, but clearly envisages a compromise on the basis of a greater share for LGUs and quicker release of funds – which wisely pre-empts backhanders to LGU politicians.
The status of the Tampakan project is unclear.
Inevitably, the long wait for an EO and the government’s tougher stance have affected investment. The Philippines has missed the Mine and Geosciences Bureau’s target of investing US$1.4 billion in mining in 2011, only reaching $618.5 million in 2011 – 43.96% below its estimate.
“This was definitely a reflection of the uncertainties in the mining industry under the Aquino administration,” says Buan. “It adversely affected mining investments. There is confusion among both local and foreign mining investors.”
Missed opportunities
The Philippine government is taking a piecemeal approach to mining regulation. But is there an alternative?
Oil and mining wealth has had devastating effects on many countries. ‘Dutch disease’, in which resource extraction raises a host country’s currency value and kills other high-value industries, is well understood.
Less often discussed are political effects. Mining wealth encourages rent-seeking by politicians, hoping they will recoup their spending on buying votes by corrupt capture of mining profits. The more resource profits that exist, the more democracy tends to get subverted, suggests research by the World Bank’s former director of development research Paul Collier.
Unless strong democratic institutions already exist, the temptation posed by mining’s concentrated money flow adds fuel to pre-existing tendencies to corrupt money-politics.
Mining is likely to be an issue in the run-up to May 13, 2013, when Philippine voters go to the polls to replace half the country’s elected officials.
The issues around mining are complex. Yet for all the complaints from mining companies about more stringent rules, it’s hard to argue with the fact that the sector has been poorly regulated, bedevilled by graft and that the government has failed to ensure either sufficient environmental controls and tax revenues, and protection for local people.
Aquino’s government is doing a confusing job of reaching these targets, but it is trying. That must be seen as a positive step.
