Amidst the rising public liability, more taxpayers’ money will be utilized for debt servicing that will leave little for the provision of government services and the upgrade of infrastructure. Government must focus on improving transport facilities, power transmission, and energy utilities to attract foreign investment. Among the major risks hampering recovery are external factors like the prolonged conflict between Ukraine and Russia and a weaker peso against the dollar brought about by US Federal Reserve moves to hike interest rates to tame inflation in their country. These make it more expensive for businesses and consumers to borrow money and discourages demand for goods and services causing the surge in prices especially of fuel and food, which can stunt economic growth not only in the US but also globally.
Government Turns to Mining
Heeding the call of business groups, the Marcos administration is turning to mining that could help ensure a sustainable recovery of the Philippine economy from the disruptions of the COVID-19 pandemic and the threat of a global economic slowdown. The benefit of mobilizing investments for mine development has been underscored by Department of Finance (DOF) Secretary Benjamin E. Diokno, who assured the Marcos administration’s commitment to continue creating an enabling environment for mining activities. However, Diokno also pointed out that the government expects the mining industry to strictly adhere to responsible and sustainable practices. He further said that the industry should strike a balance between protecting the environment, uplifting local communities, and supporting the government’s socioeconomic agenda.
Diokno reported that the Marcos economic team presented the medium-term fiscal framework and for targets to succeed under the two-part framework, the mining industry would have to perform well. During the Philippine Economic Briefing in New York where President Marcos delivered a keynote message to American investors, Diokno emphasized the administration’s commitment to help maximize the mining sector’s potential in attracting more foreign investments.
Playing Catch Up
The mining industry considered the Duterte administration as another wasted era for realizing the full economic potential of the sector. The Marcos government inherited a mining industry reeling from the anti-mining stance of the previous administration with the appointment of the late Regina Paz Lopez, a staunch anti-mining advocate, to head the Department of Environment and Natural Resources (DENR). The appointment was bitterly opposed by the industry resulting in Lopez’s rejection by the powerful bicameral Commission on Appointments.
During her term, Lopez ordered the closure of mining operations and initiated a national mine audit conducted on behalf of the Mining Industry Coordinating Council. Mining stakeholders described the three years of closure of these companies as “arbitrary” and claim that at that time, the industry practically “gasped for breath.”
With COVID-19 bringing down the economy on its knees and a worsening economic fallout becoming inevitable, Duterte issued Executive Order No. 130 in April 2021, lifting the nine-year moratorium on the granting of new mining permits. Finally in December 2021, the Duterte administration succumbing to economic pressure, lifted the ban on open-pit mining.
It is well to note that at the height of the pandemic in 2021, the mining sector’s contribution to the gross domestic product (GDP) improved to 5.2% from 5.1% in 2020 driven mainly by nickel demand overseas and high gold prices. This was in stark contrast to other sectors which suffered a decline due to the lockdowns that were imposed because of COVID-19.
Early in the term of Duterte, then Senator Marcos lamented that the Duterte administration has failed to put up a vision for the mining industry. Worse, he said the government's anti-mining stance has slowed down the development of the mining industry, citing among others, the "use-it-or-lose-it" policy the DENR implemented in 2010 in a bid to open to new investors mines that have not been operated on.
At that time, Marcos noted that the DENR has not issued any new mining agreements. He also criticized the then proposed expansion of the "no-go" zones for mining and the proposed increase in the government's share of 10 percent of gross output or 55 percent of adjusted mining revenue. Marcos said that if the government’s reason is only to receive more taxes out of the mining industry, such move would only deter investments in that sector.
However, Marcos said the mining industry must also address other valid issues raised against it, apart from environmental concerns. He reminded the industry to ensure that affected local communities should derive more tangible benefits from mining and assure that necessary safeguards are in place for the protection of their environment and ecology.
Marcos Mining Policy Pronouncements
Now that he is at the helm of the presidency, Marcos said that he would push for "clean mining" and want to see some value added to mineral exports by selling processed materials rather than ores. Instead of increasing taxes on mining, Marcos is eyeing the collection of value-added taxes from the export of partially-processed ore.
The Marcos administration demonstrated its commitment to pursue transparency in natural resource governance by rejoining the Extractive Industry Transparency Initiative (EITI) following the Duterte administration's withdrawal in June 2022 over concerns on metrics and procedures used for assessing the country’s compliance with transparency requirements.
In 23 August 2022, EITI invited the Philippines to re-state its commitment to the EITI and build on the progress that the country has achieved in the past nine years. By returning to the EITI fold, the Marcos administration cited the value of good governance and anti-corruption measures in maximizing the extractive sector’s contribution to resource mobilization and sustainable economic growth. The government hopes that its return to EITI will complement the Marcos administration’s agenda on transparency and accountability.
The government implemented the PH-EITI, a multi-stakeholder group chaired by the DOF and composed of representatives from government, industry, and civil society in 2013 pursuant to Section 14 of Executive Order No. 79, s. 2012 and Executive Order No. 147, s. 2013. Annual disclosure of contracts, financial, economic, social and environmental data is mandatory for extractive industries pursuant to the DENR Administrative Order No. 2017-07.
Marcos in his first State of the Nation Address (SONA) declared that infrastructure development will remain “a very high priority” with emphasis placed on enabling private sector contracts and investment incentives in the energy sector. Several experts in their post-SONA analysis, however, agreed that Marcos failed to mention issues arising from mining. There were plans to look for additional energy sources like natural gas reserves, build new nuclear power plants and invest in the renewable energy sector. This was unwelcome news for environmental and climate activists.
Civil society groups criticized Marcos for paying lip service to climate action in his SONA. They urged Marcos to revoke his predecessor’s mining policies that relaxed restrictions on mining. They also asked Marcos to convene an environmental summit that involves the Mines and Geosciences Bureau, the mining industry, and communities affected by mining operations to discuss current mining issues, stressing a need to prioritize environmental concerns. The purpose of the summit according to civil society groups is to craft the government’s environmental program, instruct lawmakers to prioritize the legislation of environmental bills, and launch a review on the categorization of mining as an “essential industry.”
Marcos assured that the country’s resiliency and adaptation to the challenges pose by climate change will be on top of his administration’s national agenda. Speaking at the 2022 DENR Multi-Stakeholder Forum on Oct. 5, Marcos vowed to ensure environmental initiatives to combat climate change will be undertaken under his watch.
Industry groups continue to call for legislation to allow 100% ownership of certain businesses by foreigners. They emphasized that full foreign ownership would create massive incentives for foreign investment and entice a lot of successful foreign businesses to expand their operations in the Philippines.
Marcos is expected to be in favor of policies that will promote exports, and expand new and established businesses. He will focus on the most lucrative industries which include mining and mineral processing, which are poised to make the fastest and largest increases in revenues and productivity.
Despite the administration’s assurance of a conducive investment climate for the industry, the House of Representatives' Committee on Ways and Means approved a bill proposing a new fiscal regime for the Philippine mining industry in August 2022. Representative Jose Ma. Clemente Salceda, Chair of the House Ways and Means Committee, filed House Bill 5022, which proposes an imposition of royalty on mining operations within and outside mineral reservations.
Under the committee-approved measure, a royalty tax of 5% will be imposed on the market value of the gross output of large-scale mining operations. The present law requires payment of 5% royalty based on gross output only in mining sites declared as mineral reservations. The bill also seeks to impose a windfall profit tax on a mining company if its total tax payments fail to meet the specified minimum government share from mining contracts. Under the bill, the minimum government share from all mining contracts would be 60% of net mining revenues. Mining companies operating under Mineral Production Sharing Agreements are not subject to windfall profit tax.
The bill seeks to impose a 10% export tax based on the market value of mineral ore exports. A mining company will be treated as a separate taxpayer with respect to each of its mining contracts, which seeks to increase the tax base by ensuring that losses from other mining projects will not be deducted from the more profitable ones. Likewise, to institutionalize transparency standards, the government will implement a mechanism for the public disclosure and scrutiny of all mining tax and revenue data in the extractives value chain.
While Salceda said the bill will raise additional P37.5 billion revenues in just the first full year of its implementation, the Chamber of Mines of the Philippines (COMP) said a law raising taxes on mining will once again set back the revitalization of the industry. COMP described the consolidated bill as onerous, raising the effective tax rate on mining to 51 percent from the current 38 percent. Initially withdrawn by the sponsor, the bill has been reportedly resubmitted to the Committee for further discussion including the possibility of being watered down.
Perhaps the greatest challenge for Marcos is how to balance diplomatic and economic relations between the United States and China. He acknowledged that the Philippines and the US have strong and enduring ties in trade and commerce with the US as the Philippines’ third largest trading partner and second major source of foreign direct investments in 2021. Marcos and US President Joe Biden during a meeting in September 2022 also underscored the freedom of navigation in the South China Sea.
On the other hand, Marcos is keen in renewing talks with China on joint oil and gas exploration in the disputed West Philippine Sea to seek a compromise with China as long as any agreement do not violate Philippine laws. While pledging to foster closer ties with China, and describing Beijing as Manila’s “strongest partner” in the pandemic recovery, the Marcos administration has been stepping up diplomatic protests against China’s alleged “incursions” in the disputed territory.
The real test for Marcos, however, is his government’s willingness to assert the country’s economic rights over the Reed (Recto) Bank and lift the moratorium on exploration and drilling activities in the area. Petroleum exploration companies with service contracts awarded by the Philippine government have been unable to conduct seismic surveys in the area because of harassment by Chinese coast guards. There is an urgency on this matter as the Malampaya natural gas field is being rapidly depleted and imported liquefied natural gas may not be enough to fuel the power plants in the short term, which may then have to resort to diesel fuel, a more expensive alternative.
Another issue that needs to be resolved by the Marcos administration is the controversial open-pit mine in Tampakan, South Cotabato. Taking the cue from the Duterte government’s lifting of the open pit mining ban, the previous members of the Sangguniang Panlalawigan of South Cotabato lifted its 12-year-old provincial ban last May 16, despite strong opposition from civil society, the church, and some traditional landowners. However, on June 3, Gov. Reynaldo Tamayo, Jr. vetoed the measure paving the way for the resumption of the ban on open-pit mining.
During the presidential campaign, Marcos said that he is open to allow "sustainable" mining while expressing wariness toward open-pit mining operations. He believed that even if such mines are closed, harmful chemicals could leak out of the former sites. It remains to be seen how Marcos is going to handle the US$5.9 billion Tampakan Copper-Gold Project, touted as the largest undeveloped copper-gold mine in Southeast Asia and among the biggest of its kind in the world.
The good news is that if there are any indications of the Marcos administration’s seriousness in attracting foreign investments, then we can consider the reforms currently being implemented in renewable energy sector as an encouraging sign.
The Department of Energy (DOE) announced that a legal opinion provided by the Department of Justice (DOJ) paved the way for the opening of foreign investments in renewable energy. The DOJ said that exploration, development, and utilization of “inexhaustible” renewable energy source are not subject to the 60:40 foreign equity limitation as provided under Section 2, Article XII of the Constitution.
The DOJ further opined that in order to implement the full ownership of RE resources by foreigners, the implementing rules and regulations of Republic Act 9513 or the “Renewable Energy Act of 2008” particularly Rule 6, Section 19 must be amended to amend the 40-percent equity limit for foreign investors.
The DOE has also made all qualified and registered renewable energy generating plants as preferential dispatch in the wholesale electricity spot market (WESM), used for centralized trading of electricity. This will encourage investments for additional capacities in geothermal, biomass, and impounding hydroelectric power plants. The guaranteed dispatch in the grid at the power plant’s full available capacities under merchant pricing, will allow recovery of investments by renewable energy developers.
Finally, the DOE has also raised the percentage of the utilization of renewable energy for on-grid areas from one percent to 2.52 percent. The Renewable Portfolio Standard, a policy mechanism which aims to increase the use of renewable energy sources for electricity generation, requires electricity suppliers, particularly the distribution utilities, to source or produce a specified fraction of their power supply from eligible renewable energy resources.
If the Marcos government is indeed serious to walk the talk, then now is the right time to take advantage of the current upswing of global spending in support of post-pandemic reconstruction, creating a resurgence of demand for mineral and energy commodities. Inviting investors to put their money in our mining industry only to welcome them with the imposition of new taxes is always a zero sum proposition. Hopefully this time, our regulators will not cause the mining industry to miss the boat again.
Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and Business Development. He is also currently the Chair of the Professional Regulatory Board of Geology. He may be contacted at email@example.com for any matters or inquiries in relation to the Philippine resources industry and suggested topics for commentaries. Atty. Penarroyo’s commentaries are also archived at his professional blogsite at www.penarroyo.com
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