How Indonesia Beat the Philippines to Become the World’s Undisputed Nickel Pig Iron (NPI) Producer (and Likely to Replicate this as a Battery Feedstock Supplier)
Fernando Penarroyo - June 08, 2021
Renewables Can Make Mining a Sustainable Industry
There is no doubt that public perception of mining is that of a dirty, hazardous, and ecologically-destructive industry. Sustainable mining is non-existent to critics because of the industry’s perceived large carbon footprint brought about by deforestation and large contribution to greenhouse gas emissions. By its very nature, mining is also energy-intensive starting with the development and production processes requiring fuel for heavy equipment and machinery, up to the processing stage where metallurgical plants consume a huge amount of electricity. Energy expenses constitute approximately 30 percent of cash operating costs as majority of mining operations continue to rely on fossil fuel-based grid power or off-grid diesel-generated power. While accounting for up to 11% of global energy consumption, the industry is responsible for 22% of global industrial greenhouse gas emissions. Despite the pandemic, the mining index has now recovered by an astonishing US$636 billion thanks to a boom in spending brought about by the current green and digital transition, and unprecedented infrastructure-focused stimulus packages initiated by many governments. The Philippines also benefitted from this development. According to a report by the Mines and Geosciences Bureau, metallic mineral production value ended 2020 on a positive note with a 1.13% gain from PhP130.74 billion in 2019 to PhP132.21 billion, a PhP1.47 billion increase. As mining operations need a consistent and reliable source of power, and renewables becoming a mainstream energy source, mining companies have a material opportunity to lower costs and improve safety, reliability, and sustainability. The regulatory and risk mitigation landscape is also changing with many governments enacting legislation to bring their economies in accordance with the 21st Conference of the Parties to the 1992 United Nations Framework Convention on Climate Change or Paris Agreement goals of net-zero greenhouse gas emissions by 2050 and maintaining planetary warming below 2°C of preindustrial levels. The industry and its investors need to urgently promote less carbon-intensive energy consumption to address future pressures on the climate in order for the public and stakeholders to be more receptive and appreciative of the contributions of mining. This article discusses how mining and innovative renewable energy technologies can combine to achieve the transition to a more sustainable energy system. Attracting Investors’ Appetite Back to the Mining Industry While demand for renewable energy continues to grow, investors’ and lenders’ appetite in mining is shrinking. The sector is facing a market that is smaller, pricier, and subject to an increasing regulatory oversight to help manage its exposure to environmental and social risks. On the other hand, the cost of producing renewable energy has dropped dramatically making it more competitive with fossil fuels with technological innovation and huge investments from China pushing down the its costs. The opportunity lies in companies focusing on clean metal production and investors supporting cleaner and greener minerals extraction. While mining companies see the opportunity, they are in a catch-22 situation. According to an Ernst and Young report, environmental, social and governance (ESG) issues are getting in the way of the green transition because how the needed minerals are produced is under more scrutiny from governments, investors and end consumers. Institutional investors have pledged to completely remove fossil fuels from their portfolios by 2030 and banks have priced their loan products in correlation to the environmental risks of the borrower. BloombergNEF confirms the change in investor perspective most notably with the move by BlackRock – the world’s largest asset manager with $7.4tn on its books – to divest from companies not aligned with the policy goals of the low-carbon energy transition. Investors, governments and top companies like Amazon to JPMorgan Chase are injecting billions of dollars into sustainable projects. In addition, corporate directors are required to ensure compliance with all applicable environmental laws and regulation and consumers are demanding sustainable business practices, persuading hundreds of major companies to issue net zero emissions commitments. Clients of institutional investors are also pushing fund managers to create sustainability-focused portfolios and banks are requiring more rigorous covenant packages in their loan agreements with extractive industry businesses. Mining companies have no choice but to engage in decarbonization in order to access capital. How Renewable Energy is Transforming the Mining Industry Minerals are critical to the clean, green, and digital transition. The growth of renewable energy is heavily reliant on commodities like copper, gold, lithium, cobalt which are used in the manufacture of new technologies that could one day replace fossil fuels in the global energy mix. Copper supplies, for example, need to increase by as much as six percent (6%) per year to meet the goals laid out in the Paris Agreement. Copper is needed for wind farms, solar panels and electric vehicles, and generally essential to all power generation infrastructure. Solar power, expected by the International Renewable Energy Agency to reach 8,519 GW of capacity worldwide by 2050, relies on the supply of aluminium, copper and certain rare earth elements (including indium and cadmium) to produce photovoltaic (PV) panels. Wind turbines are made from steel and is therefore dependent on the production of iron. Certain rare-earth elements such as neodymium are needed for the magnets used inside turbine generators, as well as electric vehicle (EV) technology. Zinc and titanium are used mostly for wind and geothermal energy. Metals are also used in high tech devices like aircraft engines, rockets, and other military equipment, hence, the label of critical minerals. Driven by the demand for EV batteries and renewable energy infrastructure in battery storage, the need for lithium, graphite, nickel, cobalt, platinum-group and rare earth elements is primed to explode. The World Bank predicts that production of these minerals could increase nearly five hundred percent (500%) by 2050. For cobalt, lithium, and nickel, projected demand is greater than known reserves. As the demand for renewables continues to grow, the mining industry indeed faces a bright future in becoming a recognized vital contributor to the clean energy transition. With advancements in renewable energy technology and the commitment of some key industry players, there are many benefits for mining companies to switch to renewables. In addition to the financial botomline, renewables also offer important social, health, safety, and environmental benefits that are harder to quantify, which can potentially include: Stability in power price, increased energy security, and reduced reliance on fossil fuels that are vulnerable to global price fluctuations - Solar and wind facilities have high upfront costs to build but input costs drop to near-zero when operational. The cost of battery production is also predicted to halve in the next decade, making large-scale energy storage capable of powering a mine’s operations even in the absence of a consistent supply; Sustainable development support - Satisfaction of environmental and social criteria used to measure the sustainability and green credentials of a given project will be a pre-requisite for off-takers, investors, and lenders. Debt and capital markets will shift towards sustainable and green investments; Lower greenhouse gas emissions and reduced carbon liabilities; Energy efficiency in mine sites by synchronizing peak load with cheaper renewable energy sources, thus bringing down the overall cost of mining operations and maintenance; and Additional revenue from selling excess generation capacity and providing ancillary services to grid operators. RE Projects at Minesites Around the World Realizing the benefits from efficient energy management systems, some miners are now driving down their energy costs by up to 25% in existing operations and 50% in new mines. Renewables, whose levelized costs have achieved parity with traditional fossil fuels, is a major component. These developments in the mining sector are part of a larger, global trend toward greater procurement of renewables by corporations. A report by Fitch Solutions Macro Research revealed that around 1 GW of renewables was already built at mining sites across the world, and that another 1 GW is in the pipeline. Solar PV and wind are leading the way in installed renewables generation among mining companies, with thirty percent (37%) and fifty-nine percent (59%) share in 2017 respectively. By one estimate, investment in renewables just for mining will reach nearly US$4 billion by 2022, which represents more than a tenfold increase from a decade before. Several large mining companies have been integrating renewables at progressively higher ratios, and all four of the world’s biggest miners plan to source more of their energy needs from renewables. Table No. 1. Renewable Energy Projects at Minesites Around the World Mining Company Renewable Energy Project Anglo American Signed a deal to run its Quellaveco copper mine in Peru 100% on renewables, effectively allowing the miner to deliver on its promise of powering all of its Latin American operations by green energy by 2022. The facility is expected to provide 150 MW for an initial eight-year period to Anglo’s Quellaveco, located in the Moquegua region. Also inked a 15-year contract in Brazil to buy 70 MW of solar power from Atlas Renewable Energy as of 2022 for its iron ore operation in Minas Gerais. Rio Tinto Announced that it would reduce the annual carbon footprint associated with its Kennecott Utah copper mine by as much as 65%, by purchasing renewable energy certificates and permanently shutting its coal power plant. The mine’s electricity needs will now be supplied with 1.5 million megawatt hours (MWh) of renewable energy certificates supplied by energy company Rocky Mountain Power, primarily sourced from its renewables portfolio in Utah and including wind power from Wyoming. Supported a 9MW wind farm in the Arctic near its mine. Added an additional 5MW of solar panels, and advanced battery storage, to an existing solar/diesel microgrid to further decrease diesel use at a bauxite mine. Gold Fields Announced plans to predominantly operate its Agnew gold mine in Western Australia (WA) using renewable energy in partnership with global energy group EDL and involving an AUD112m ($77.59m) investment in an energy microgrid combining wind, solar, gas and battery storage. In February 2019, Aggreko was contracted to create a hybrid solar-battery generation system to power the Granny Smith mine. The hybrid system will be integrated with the 24.2MW already generated by the natural gas engine station. Antofagasta Signed an agreement in June 2018 with utility company Colbún to make the Zaldívar mine the first Chilean mine to operate with 100% renewable energy. From 2020 the mine will be powered by a mix of hydro, solar and wind power producing 550 gigawatt hours per year, which is expected to remove emissions equivalent to 350,000 tons of greenhouse gases per year. Newmont In September 2018, UK-based solar company Cambridge Energy Partners (CEP) announced that American mining corporation Newmont had deployed CEP’s Nomad mobile solar power array at the Akyem gold mine in Ghana. Zijin In May 2017, UK-based power generation company Aggreko announced that it had signed a ten year deal to provide solar-diesel hybrid power to the Bisha mine in Eritrea owned by Chinese mining group Zijin. Aggreko provides 22MW of diesel and 7.5MW of solar-generated power for the Bisha mine’s copper and zinc operations. Sandfire Resources Added a 10.6MW solar power plant at the DeGrussa mine in Australia. B2Gold Added 7MW of solar panels to its Namibia mine to complement existing heavy fuel oil generators. Caterpillar Began marketing hybrid microgrids that incorporate solar, diesel and natural gas generators, and advanced storage options. Target customers include remote mines and drill sites. While energy management practices using renewables are becoming more prevalent in the sector, some have yet to integrate renewable energy sources and enabling technologies. This may be due to the existing perceptions of renewables in terms of complexity, cost, reliability, and performance. Many miners still think of renewables like solar and wind, as the higher cost option for mines operating both on and off the grid. In addition to cost, reliability is another often-cited reason for not considering renewables. However, these concerns have largely been addressed. When speaking of renewables, there are two facets to reliability. The first relates to the efficacy of the technology itself, while the second relates to intermittency. Intermittency is being addressed and demonstrated to be manageable since the viability of battery storage is now enhanced by new technologies and the cost of utility-scale batteries is starting to decline. Incentivizing RE Technologies Various factors are influencing the optimal electricity generation at mining sites. Some of these are external factors such as sun and wind conditions, grid-availability or grid stability, while some are directly related to the mining company like environmental sustainability policies and availability of capital. Other factors are related to the mining site, among which are the remaining lifetime of the mine, the load-profile or the need of process-heat. Depending on several internal or external factors, a mining company may apply various business models for renewable energy: Plant Ownership Self-consumption (plant ownership). The power plant is constructed on-site and the mine consumes the energy (electricity or process heat). An added option is selling excess electricity to the grid or to adjacent consumers. Co-ownership (joint venture). The mining company and a third-party investor create a joint venture, which then acts similarly as an IPP and sells electricity to the mine. Leasing or rental agreements. The mine has no investment costs, but instead pays a leasing rate, operates the renewable energy plant and consumes or sells excess electricity that is produced from the leased power plant. Power Purchase Agreement (PPA) Standard PPA. The mine purchases the electricity at a predefined price from an independent power producer (IPP). The IPP can be off-grid or grid-connected and the PPA may contain flexible mechanisms such as link to diesel price or spot market price. Synthetic PPA. Even if it is not viable for a mine to establish its own renewable energy source in close proximity to its operations, the rise in so-called synthetic or virtual PPAs provides an incentive for mining companies to invest in renewables. The IPP sells at market price and power marketers provide a guaranteed price and compensate for certain deviations. This business model requires a grid-connection and a functioning spot-market. A mine enters into an agreement directly with a renewable energy producer at a fixed price but pays a fee to the utility, via which electricity will pass through to cover the cost of managing the grid. Energy-metal Swap. Basically it is a PPA, but the electricity is paid with mining products, which may eliminate some of the metals market price risk. Hybrid Microgrids. A key advantage of renewable energy is that it can power the energy needs of mining operations in remote areas, where the cost of building the infrastructure required to hook the mine up to the grid network or building a conventional power station will be significant. By having a dedicated off-grid renewable power source, a mining operation can meet all its energy requirements from green sources and make significant cost savings in the price it pays for electricity. Micro-grids involve a combination of power sources, usually diesel or natural gas generators combined with some renewable resources. Several mines have started down this path, integrating wind or solar PV generation with short duration lithium-ion batteries that produces 10-25% of a mine’s total electricity needs. The microgrid continues to be controlled by the diesel gensets with renewables acting as a reduction to the overall mine load. Fortunately, battery technology has advanced rapidly in recent years to keep up with the need to store increasingly large amounts of renewable energy at a lower cost and lesser physical footprint. One of the keys to this relationship is the rapid development of suitable renewable power supplies to both existing and new mining operations. The sooner mining operators adapt their models to accommodate this development, the sooner they will be able to persuade investors, lenders, and off-takers to support them. Miners must soon decide whether to push forward in the direction of renewables or else they risk becoming high-cost producers in their respective commodities as renewables are increasingly becoming factors for competitiveness. Renewables should also be examined as part of a broader social and environmental agenda in addition to their financial proposition as a replacement for existing traditional energy sources. Legacy Mines as RE Sites Mine site conversion can provide ongoing and long term value in the form of an alternative income stream well after mining operations have ceased. Specific benefits can include reusing infrastructure, reduced cleanup and decommissioning costs, re-employment of a skilled mining workforce and/or new local employment opportunities, and a clean after-use for a mine site that can also create a potential source of carbon credits with tradable value. Mine sites may prove to be ideal locations for the generation of renewable energy because they often cover extensive areas where wind and solar power structures will have less environmental impact and are therefore less likely to meet opposition. In addition, mine sites often already have the necessary electricity transmission lines and transport infrastructure in place, avoiding extra capital costs. Other forms of redevelopment may not be an option due to the remoteness of the site, or environmental conditions may rule out residential or commercial use without significant extra development cost. Although interest is increasing, the re-use of mine sites for alternative energy generation remains at a small scale but already in place in some sites. Table No. 2. Renewable Energy Technologies at Former Mines Sites Technology Former Mine Sites Wind Power In the largest wind farm planned in Virginia, 166 turbines will be sited on over 4000 hectares of land disturbed by coal and hard rock mining activities. 99% of the land remains usable for other activities including farming. In Scotland, Black Law Wind Farm near Forth covers 1850 hectares of abandoned coal mine land, grazing land and commercial forestry, with 42 wind turbines generating 97 MW, and plans for expansion potentially increasing the total generating capacity to 193 MW. At the Hazlehead Wind Farm site in West Yorkshire, wind power is now being generated on the site of a former clay quarry spoil tip and landfill site, with three turbines and a proposed installed capacity of 6 MW. Solar Power The Geosol solar plant at Espenhain, Leipzig, constructed on a former lignite mine ash site, generates 5 MW and saves around 3700 tonnes of CO2 every year. UK’s first large-scale solar PV farm developed by Lightsource Renewable Energy is located on the south-facing site of the former Wheal Jane tin mine near Truro in Cornwall. The solar farm houses 5680 panels with a peak generating capacity of 1437 MWh. If not done responsibly, researchers have found that the mining necessary for producing more metals and creating the required renewable energy infrastructure could exacerbate threats to ecosystems. While they fully support the move away from fossil fuel production as an essential part of the fight against climate change, alternative energy production must not happen at the expense of biodiversity, rainforests, and the livelihoods of indigenous peoples. In response to increasing corporate demand for clean energy, industry associations and coalitions have sprung up to make it easier for mining companies to enter into power PPAs with developers and utilities, or to self-generate their own electricity. There’s an optimal point in any proposed mining project where a decision needs to be made to integrate renewables, or else the mine life will expire before the full benefits of renewables can be realized. Conclusion If the mining and renewable energy industries pursue a strong symbiotic relationship, both will benefit in cost savings, reduced emissions and more importantly, preserving their social license to operate. This will be a very long transformation process but with new technologies in commercial development especially in battery storage, the mining industry has an incredible opportunity to drastically curb climate change impacts in its operations. Investors and lenders will also need to be part of the solution by revisiting the mining industry as an investment opportunity. They have to work with mining companies to implement ESG improvements and transition to sustainability. Instead of dismissing these efforts as industry “greenwashing”, critics and skeptics must exercise open mindedness in giving a chance to mining that, whilst historically perceived as dirty, is essential for the global aspiration of a clean and green energy transition. Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and Business Development. He may be contacted at email@example.com for any matters or inquiries in relation to the Philippine resources industry. Atty. Penarroyo’s commentaries are also archived at his professional blogsite at www.penarroyo.com References Ali, Umar, Going green: renewable energy projects at mines around the world, Mining Technology, April 15, 2021, https://www.mining-technology.com/features/going-green-renewable-energy-projects-at-mines-around-the-world/ Better fit for mining and renewable energy, THEnergy, 2020, https://www.th-energy.net/english/platform-renewable-energy-and-mining/business-models/ Cormack, David and Wood, Michael, Renewables in Mining: Rethink, Reconsider, Replay, Deloitte, 2017, https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Energy-and-Resources/gx-renewables-in-mining-final-report-for-web.pdf Fawthrop, Andrew, Why the mining industry must continue to embrace renewable energy, NS Energy, 20 March 2020, https://www.nsenergybusiness.com/features/renewable-energy-mining-bnef/#:~:text=Financial%20incentives%20for%20mining%20industry%20to%20embrace%20renewable%20energy&text=%E2%80%9CThis%20means%20miners%20can%20negotiate,the%20volatility%20of%20energy%20markets. Gracey, Kyle, How can renewable energy technologies support mining and drilling?, Prescouter, October 2017, https://www.prescouter.com/2017/10/renewable-energy-mining-drilling/ Jamasmie, Cecilia, Anglo American to run South America mines 100% on renewables, MINING.COM. April 15, 2021 https://www.mining.com/anglo-to-run-south-america-mines-100-on-renewables/#:~:text=Anglo%20American%20(LON%3AAAL),by%20green%20energy%20by%202022. Kostigen, Thomas M., The might of metals in the clean energy transition, GreenBiz, 10 February 2021, https://www.greenbiz.com/article/might-metals-clean-energy-transition#:~:text=Here's%20why%3A%20Minerals%20are%20critical,in%20the%20Paris%20Climate%20Agreement. Maisch, Marija, Mining sector to rely increasingly on renewables, report finds, PV Magazine,11 September 2018, https://www.pv-magazine.com/2018/09/11/mining-sector-to-rely-increasingly-on-renewables-report-finds/ Mining & Renewable Energy – A Greener Way Forward, Watson, Farley, and Williams, 23 November 2020, https://www.wfw.com/articles/mining-renewable-energy-a-greener-way-forward/ Sonter, Laura, Watson, James and Valenta, Richard, Renewable energy can save the natural world – but if we’re not careful, it will also hurt it, The Conversation, 02 September 2020, https://theconversation.com/renewable-energy-can-save-the-natural-world-but-if-were-not-careful-it-will-also-hurt-it-145166 Thomas, Tobi, Mining needed for renewable energy 'could harm biodiversity’, The Guardian, 01 September 2020, https://www.theguardian.com/environment/2020/sep/01/mining-needed-for-renewable-energy-could-harm-biodiversity#:~:text=The%20mining%20necessary%20for%20producing,to%20biodiversity%2C%20researchers%20have%20found.&text=The%20scientists%20found%20mining%20potentially,used%20in%20renewable%20energy%20production Whitbread-Abrutat, Peter and Coppin, Nick, Wardell Armstrong International, Renewables Revive Abandoned Mines, Renewable Energy World, 13 April 2021, https://www.renewableenergyworld.com/baseload/renewables-revive-abandoned-mines/#gref Zuliani, Jocelyn and Guilbaus, Joel, Renewable energy in mining: A practical application for active operations, Canadian Mining Journal, 01August 2020, http://www.canadianminingjournal.com/features/renewable-energy-in-mining-a-practical-application-for-active-operations/
Patricia A. O. Bunye - March 17, 2021
International Women in Mining and the Wawa Weir 2 Project
Kicking off International Women’s Month, the International Women in Mining Alliance (IWIM) Alliance held its first ever-virtual Global WIM Summit on March 1-2. Through the wonder of technology, I had the pleasure of connecting with other IWIM leaders throughout the world without having to hop on a plane and despite our differences in time zones. The summit also combined live and pre-recorded sessions which made it possible to view sessions at leisure. Diwata-Women in Resource Development, Inc, of which I was Founding President, is IWIM’s member organization in the Philippines. There are currently at least 37 IWIM organizations throughout the world. The Alliance is a pioneering initiative that brings IWIM organizations together to leverage their collective strength to provide a global, multilateral platform that will facilitate collaboration among them and promote the emergence of a strong, unified IWIM voice. Prior to its launch, the different IWIM organizations were under a loose umbrella, getting together only occasionally for teleconferences to exchange ideas and experiences. Last year, IWIM embarked on a strategic partnership with the World Bank on a research project to gather information to understand the opportunities and constraints women in mining organizations face. Results of the research project have been collated in a report to be published online and presented at international mining conferences starting with the Global WIM Summit. It will also be presented at Mining Indaba, PDAC, the World Bank's 2nd Gender Conference, and other events. In November last year, Diwata’s core group, led by our President, Atty. Joan Adaci-Cattiling, were interviewed by the World Bank’s researcher on the challenges we have faced, the lessons we have learned and our recommendations for strengthening IWIM organizations. Hearing excerpts of the final report, it was heartening to know that our sisters in other IWIM organizations face the same challenges, including difficulty in obtaining funding, dependence on the efforts of volunteers and getting members who are busy with their day jobs to engage. One session that I would have wanted to attend, but missed was on “Role Models and Mentors for Women in Mining”. While women are very well represented in all facets of the mining industry (as geologists, mining engineers, metallurgists, environmental scientists, community relations officers, lawyers, accountants, human resources professionals, adminstrative staff, truck drivers, etc.), we want to see the numbers of women at the very top increase. Recently, the Philippines topped Grant Thornton International’s 2021 Women in Business Report, a global survey among 29 economies on the role of women in senior management. While I do not have the figures for the mining industry, a quick “scan of the room” will show the male mining CEOs still outnumber the women. Thankfully, we have strong figures likes Gloria Tan Climaco, Chairman of the Board of Filminera Resources Corporation and Mt. Labo Exploration and Development Corporation, and Diwata’s own Joan Adaci-Cattiling, President of OceanaGold (Philippines), Inc., as exemplars. Before the March 2020 lockdown, Diwata was scheduled to launch its 'Industry Leaders' professional mentorship & networking program (with Gloria Tan Climaco as the first speaker), which is designed to benefit female professionals through interaction with respected resource persons, professional mentorship and networking opportunities. While it is entirely possible to hold this activity online in the near future, we are still looking forward to in-person connections with our members soon, particularly young women mining professionals who will most benefit from the program. In the eight years of Diwata’s existence, perhaps we have focused on the word “resources” in its name to refer to natural resources, but we have not lost sight of our equally valuable human resources. To build and sustain the mining industry, we must support the professional development and career progression of the women who “hold up half the sky”. On February 26, I had the pleasure of emceeing the Philippine Infrastructure & Construction Club’s webinar on the Prime BMD Wawa Weir 2 Project featuring Prime BMD’s CEO J.V. Emmanuel A. “Jocot” De Dios and Director of Operations, Jeff Gallus. They were joined by their colleague, Gisoue (Jeff) Pani, who focused on the technical aspects of the project. Once completed, the Wawa Weir 2 Project is expected to deliver 518 million liters per day (MLD) of water to 500,000 households within Manila Water Co. Inc.’s franchise area. The presentation was very timely as water is a basic necessity that cannot be taken for granted, especially as pointed out by Jocot, our population grows and migration into Metro Manila increases the demand for water. In the webinars that I have hosted and attended, I have noted that the attendees are less shy about asking questions. Perhaps this is because 99% of webinars start punctually compared to live events, and more time can be devoted to the Q&A. In the Q&A on the Wawa Weir 2 Project, the questions ranged from technical to practical (“who do we contact in your company”), but what I found most interesting were Jocot’s responses to observations that Prime BMD appears to have handled its community relations well. In the case of Prime BMD, Jocot says that there is no tried and tested formula or template, but what has worked well for them is ensuring respect for the communities, particularly the indigenous communities, in their project area, constantly engaging with them to understand their needs, and upholding their culture and traditions. This is of course easier said than done, but it seems, at least in this respect, Prime BMD has succeeded where other companies have faced much difficulty. Patricia A. O. Bunye is a Senior Partner at Cruz Marcelo & Tenefrancia where she heads its Mining & Natural Resources Department and Energy practice group. She is also the Founding President of Diwata-Women in Resource Development, Inc., a non-government organization advocating the responsible development of the Philippines’ wealth in resources, principally through industries such as mining, oil and gas, quarrying, and other mineral resources from the earth for processing.
Fernando Penarroyo - March 17, 2021
Let’s Make It A Better 2021
COVID-19 and its impact on the world provided a harsh lesson and wake-up call for all of us. People lost their jobs, businesses and entire fortunes on account of a virus whose origins remain a mystery. We worked from home, home schooled our kids, stayed away from senior members of our families, canceled special celebrations and well-planned vacations, and restricted our mobilities because we were afraid to catch and spread the virus. But the one thing that we will never forget is loved ones and friends losing their battle to this horrible illness. In 2020, the Philippine economy started on the wrong foot. It began with the eruption of the Taal Volcano creating a setback in the agriculture and tourism industries in Cavite and Batangas. Typhoons Rolly (international name Goni), Siony (Atsani), and Ulysses (Vamco) that hit the country in November in just a span of two weeks also brought considerable devastation to a large area in Luzon. These natural calamities and the pandemic caused a plunge in private domestic demand, deep contraction in investment activities, and weak exports bringing down the economy to -9.5%, its worst performance since the country began releasing growth data in 1947. After a long bout of physical exhaustion, mental fatigue, emotional stress, and apprehension, somehow we felt a bit of relief that the long and dragging 2020 ended. There was a feeling of ambivalence as we reminisced the past year. We felt exuberant that we made it out alive from 2020 but melancholy for those who continued to suffer or didn’t make it through. However, the same mixed reactions and emotions continue to haunt us in 2021 as we are fully aware that though vaccines are being rolled out in succession, emerging variants of the virus bring uncertainties to our lives. Like a ship in a raging storm coasting along the shore, we can see the lighthouse but the waves prevent our vessel from getting to safe harbor. Certainly, there are still challenges that should not put us in complacency. If there is indeed a rebound that will return us to some semblance of normalcy, I don’t believe that we’ll ever return to where we were before. We will continue to wear masks, limit in-person meetings, and practice physical distancing, afraid that there will be another virus waiting to unleash its force with more tenacity and strength. We will continue to adjust our daily existence depending on how new developments in science will provide the safeguards to physical interaction and provide adequate disease prevention and cure. Coping with the pandemic “What happens to me now that my livelihood is gone? How will I pay my suppliers, creditors, and employees? Will the banks foreclose on my mortgages? Where will I get the capital to start all over again? Am I still employable? Will my kids have to stop going to school? How is my family going to survive? How will I get back on my feet?” We are all saddled with negative thoughts. Sometimes the more we think about negativity, the less we become creative and confident. Acting unkind to ourselves during these difficult times serves no purpose but to pile on more anxiety. We must confront the brutal realities head-on by resolving to be patient and steadfast. Undoubtedly 2021 will hold new challenges. This is the reality of life. Yet like those we’ve faced before, what matters most is not the problems themselves, but how well we’ve responded to them and how we’ve applied their lessons to grow and thrive in our lives. There are probably a million reasons not to smile during the pandemic. Some people struggle on a daily basis to look for the next meal, payment for rents, and money to buy the bare necessities. Some people vented their anger and frustration in social media. If you’re actually doing it, take a minute to realize that you have the literacy, luxury of time, and internet connectivity to read and type in your device. You have the ability to access the whole world with your gadget while others struggle to meet their most essential needs and probably wish for things you are currently enjoying. In many ways, all the reasons for complaining seem to be trivial and certainly no reason to bicker about. It is definitely better to flash that smile behind the mask than rant online. It is better to be content with what you have and strive hard to survive for the future. We’re all on the same team in the same boat. All of us need some form of encouragement and everyone will benefit if we decide to argue less and understand more. We are often tempted to be couch potatoes during these times when our mobility is hampered. We tend to binge on online entertainment and video games, which does not physically or mentally nurture us. Being busy is the best way to avoid feeling empty and dull. 2020 was touted by astrologers and feng shui masters to be an auspicious year for wealth building and the year people would get everything they wanted. No one predicted that 2020 will be the exact opposite. COVID-19 made us realize that there are certain aspects of our life that are uncontrollable. Instead of losing ourselves in despair and anxiety by focusing on situations beyond our control, it was our moment to reconnect to a deeper sense of purpose, promote our individual faith, and commune with nature. Hoping for a better 2021 In 2020, we lost the ability to physically connect with others at our usual places of congregation in offices, schools, restaurants, concerts, sporting events, homecomings, and church services. Now we look forward to reconnecting in-person with others including people who we often took for granted before. Though we may realize that returning to the old normal is not possible in the near future, at least there is hope that 2021 will bring us some respite from the virus. Most people expect things to start to return to a restrictive new normal as vaccines have arrived and inoculations began. For some of us, it will take some time until we have access to the vaccine, but as more people get it, there is a bigger chance that fewer people will acquire or die from the virus. The good news is that science has made us understand the virus better and will help humanity prepare for the next virus outbreak. We now see things from a different perspective. We appreciate our families, our friends, and everything that we have. We cherish not only our own lives but simple things like our environment and nature as a whole. We indulge in activities that nourish our physical and mental well-being. We start to have leisurely walks, road tours by bike, and indulge in our hobbies like growing plants and cooking. We see brand new clothes and shoes, unused and gathering dusts in our closets. We see cars parked idly in our garage because our movement is restricted. Nature has decided for us that now we need to own less. The pandemic has given us the opportunity to heal, preserve, and strengthen our bodies. It was also a time to cultivate more positive emotions – gratitude, compassion for self and others, connection and intimacy with family and optimism. It taught us to refocus on the most important things in life. What should we expect for 2021? 2021 is the time to dedicate ourselves to reflect, renew, and reset our lives after a tumultuous 2020 beset by failures and disappointments. It is a propitious time to reflect on where we’re at and where we want to be. It is the moment to renew our commitment to be a better person and make positive choices in life. It is the point of realization to reset everything and start anew after embracing our failures and making sure that things will turn out differently. Some people experience a positive change as a result of their struggle with a major life crisis or traumatic event. Success waits for people who can cope with the ongoing uncertainty. “What have we done differently in 2020 to cope with the pandemic?” For some of us who managed to navigate the pandemic with a positive attitude, the ongoing crisis honed our adaptability, resilience, agility, and tenacity. Just because our plans got derailed last year is no reason not to set our sights on our goals. Consider 2020 as a temporary setback and continue to believe in ourselves and trust our abilities to recover. We have to set a daily goal to keep us on our toes and motivate us to continue studying, and working. We must make it a point not to waste any day, any moment, or any amount of energy remaining as we continue to live on. Our inner confidence will allow us to direct our time and talent to our vision and ultimate goals. Our purpose should not be limited by the plans that fell through in 2020 or what we were unable to do. If we learn from our failures and take full responsibility, our trials will make us successful. And in time, we'll be even more successful, because we'll never stop trying to be better than we are today. Successful people have a purpose in life. They generate excitement, dedication and passion and these they share their passions with others. If we've found a purpose, something that inspires and fuels us to stand up and achieve, then we’re living life the way we want it. We are now witnessing the unprecedented development of different vaccines produced by both private and state-sponsored companies. Science-based and democratic institutions are much needed to address the vaccine development and roll-out. It is now government’s responsibility to procure them cheaply and distribute them within the soonest possible time. Hopefully, the end to the pandemic is near at hand though we’re not there yet. In the meantime, we should continue to be vigilant about our own safety and that of others. The challenge now is to educate a misinformed populace about the enduring risks of the coronavirus and the disinformation that circulates on social media on the necessity to be vaccinated. Vaccine hesitancy is a global health threat especially in developing countries. Even if a coronavirus vaccine is made available to everyone, people especially our front liners and elders need to be convince to get it. Personal reflections There were some silver linings in the clouds despite the pale and gloom that came in 2020. People learned how to become creative in augmenting their incomes and made use of their time for self-improvement. Since people no longer have to endure wasted hours spent in traffic, people working from home have become more productive. Meetings and conferences are easier to organize and attend. People actually looked forward to seeing their colleagues online to break the monotony of working alone. Attending professional and self-improvement webinars and getting accreditation from such became easier. Parents and children shared meals, bonded, and communicated forging stronger relationships never experienced during the time before the pandemic. Parents suddenly were getting involved in school work making sure that the kids are not getting shortchanged in their online schooling. People learned new skills and pursued a variety of home-based businesses and recreational activities. I know of some friends who renewed their passion in reading, cooking, gardening, painting and other personal pursuits which they have passed off in favor of the corporate rat race in their concrete jungles. Some of them turned their passions into successful online businesses. I discovered myself, learned to understand my quirks, and made it easy on myself. I believed we were brought up in a culture of accumulating material possessions which paled in comparison to the actual life-giving pursuits we have taken for granted. I see each day as a gift of life and another opportunity to live because many people had such chance taken from them. To keep myself busy, I made a thorough search of all the articles and photographs I have saved in my computer through the years. I compiled my Master or Laws research papers, notes, and powerpoint presentations accumulated in my teaching and lecturing vocation. I organized them, created my website and uploaded them in my blog site. It was the next best thing to writing and publishing a book. I also wrote blogs about music, films, arts, and even K-dramas. I tried perfecting my pasta recipes. I made a point to walk around the village everyday and converted part of our garage to a mini-gym. I continued to look after my health through video consultations with my doctors. Due to the physical distancing and travel restriction guidelines during the pandemic, what I really missed was our trekking group’s outdoor activities. I missed climbing mountains and camping in forests and mountain base camps. Nevertheless, with my new found time, it allowed me to take in the beauty of nature right in my own surroundings. I learned to slow down, relax and appreciate the good and simple things in my mundane life. I enjoyed staying under the sun and proverbially stopped to smell the flowers. The air was noticeably clean. During a lakeshore drive, I could clearly gaze at both the high-rises of Bonifacio Global City and the wind farms nestled on the Sierra mountain range of Rizal while taking a whiff of fresh air. Despite the pandemic, I continued to write articles for Philippine Resources as a way of getting myself updated with the resources and infrastructure industries. I did a lot of online lectures and webinars, gave interviews, and acted as resource speaker for online forums and conferences as part of my advocacy for renewable energy and responsible mining. My audience were varied - leaders of various industries, law school organizations, students and professionals involved in the mining and renewable energy industry, and geology majors reviewing for their board exams. These activities were my mental exercises. Though I certainly prefer in-person interaction, the good thing about my online lectures was that participants have overcome their nerves by interacting virtually compared to a physical seminar or conference. I noticed that participants in my webinars and lectures were more active in engaging me with their questions and comments. Surprisingly, even technically-challenged seniors have learned to master the internet and online meetings, including screen sharing of their presentations and files. I wish an instant reboot of life if not a total deletion from my memory of the enduring tragedies we experienced in 2020. I desire to return to people interacting without wearing wearing face masks and not conscious of any physical distance. But I realize that our lives will not return to our previous normal overnight. My motto is to survive in order to strive and prepare myself for the new normal. It will be a gradual and slow learning process beset with both small victories and temporary setbacks. Chaos and crises will not follow a timeline. The underlying challenges we encountered in 2020 will continue to haunt us well into the forthcoming years until the virus has totally been eradicated and the traumatic memories would just become a mere footnote in mankind’s history like the Spanish flu of the previous century. In 2020, we see how quickly our lives changed with the blink of our eyes. We realized that we are not in total control of the world. But the best part is that we are in total control of ourselves and we can certainly control how we interact with the world around us. That basically makes all the difference. We hope that 2021 will be a brighter and better year. Perhaps we can find inspiration in the biblical story of Job. After Job was made to suffer all misfortunes and tragedies in life, “…the Lord blessed the later days of Job more than his earlier ones ... Job lived a hundred and forty years; and he saw his children, his grandchildren, and even his great-grandchildren. Then Job died, old and full of years.” A better 2021 starts with a better “me”. Perhaps after a full year of a better 2021, we can look forward to a 2022 that will be even better. Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and Business Development. He may be contacted at firstname.lastname@example.org for any matters or inquiries in relation to the Philippine resources industry. Atty. Penarroyo’s commentaries are also archived at his professional blogsite at www.penarroyo.com
Patricia A. O. Bunye - December 01, 2020
Zooming (and more) in the Pandemic
By: Patricia A. O. Bunye I have always wondered how the founder of Zoom, Eric Yuan, feels about making over USD12 billion since March 2020, when the pandemic began and practically everyone on the planet has been ‘Zoom-ing’ for work or play. With its simple features, Zoom has left competitors like Skype in the dust. Yuan is now ranked No. 85 on Bloomberg's list of the 500 richest people in the world. Before 2020, he wasn't even on the list. He is also number 43 in the Forbes 400, the magazine's annual ranking of the 400 wealthiest people in America, for the first time in 2020. He also made it to Time’s 100 Most Influential this year. It is not a fortune built overnight or by taking advantage of Covid 19, as some may wrongly assume. Yuan says he got the idea for Zoom while trying to find a way to connect with his long-distance girlfriend (now his wife) as a student. He was one of the original hires of WebEx, a videoconferencing startup, when he first moved to the US. When WebEx was acquired by Cisco Systems, Yuan pitched a new smartphone-friendly video conferencing system to Cisco management, but it was rejected. Cisco apparently preferred to concentrate on enterprise systems which was not the direction Yuan wanted to take, so Yuan left to establish his own company, Zoom Video Communications. It is not widely known that Yuan has a connection to the mining industry: his parents are mining engineers and Yuan himself has a master’s degree in geology engineering from the China University of Mining and Technology in Beijing. Thanks to Zoom, there a semblance of normalcy in our lives as it enables us to hold meetings, teleconferences, classes, negotiations, and lectures. I have attended masses, Holy Week services, a wedding, a wake, and reunions. This Christmas, I will likely see friends and family online there as well. Not a day has passed since the declaration of the lockdown in March that I have not connected with others via Zoom. The silver lining of the pandemic, if you could call it that, is that it has opened many opportunities for online learning. Students are not the only ones who have classes to attend online. There is a wide array of webinars pertaining to my areas of practice available at the click of a mouse, as well as many other topics such as politics (starting with the US elections), economics and finance, as well as a number of my (nerdy) pursuits. In fact, it has developed in me FOMO: a fear of missing out on the sheer variety of offerings. The Financial Times, for example, ran “The Commodities Mining Summit” online in October with the theme “A New Narrative for Mining”. With the 17 sessions featuring the CEOs of BHP, Anglo American, Glencore and Vale, among others, still available on demand, it is an unparalleled resource. In his opening keynote, BHP’s CEO Mike Henry underscored that mining remains an essential industry, something that we know too well, but the larger population still fails to appreciate. He says that Covid 19 has given the industry an opportunity to demonstrate its capabilities: how quickly it can mobilize, particularly in safeguarding the health of the companies’ workforces, to support the communities and business partners. According to him, the value created is not just for direct stakeholders, but the resources produced, the ability to generate employment, taxes, royalties, and dividends in a time of crisis is a “positive differentiator” relative to other industries, which produces economic development and an improvement in living standards throughout the world. He further stressed that there is little choice as to whether mining happens or not, but the choice is as to how it happens and who does it. In this regard, Mike Henry highlighted the role that commodities play in “rebuilding a better world”, particularly in addressing climate change and de-carbonization. He also emphasized the “build back better” (BBB) approach in relation to recovering after Covid 19, i.e., continuing to ensure sustainability as the mining industry bounces back. That commodities are essential was seconded by Glencore’s Ivan Glasenberg in a succeeding panel. He said that “new generation companies” like Tesla all depend on mining for the commodities that they require for batteries, solar panels, windmills and like. Unfortunately, he said, mining companies “get it wrong” by building new mines and underestimating the cost. Mark Cutifani of Anglo American, for his part, said that it is time for mining companies to stop thinking in terms of B2B (business to business) and start thinking in terms of B2C (business to consumer) so that the dialogue around mining shifts, i.e., when people talk about the provenance of products, they will become more comfortable with the idea that when they drive a car, build a house, use electrical power, or even drink water, the mining industry is involved in everything. Apart from this outstanding series of the FT, I have enjoyed the Wall Street Journal’s Women in the Workplace Forum where Facebook’s Sheryl Sandberg was one of the many speakers. It was also an occasion to launch “Women in the Workplace 2020” LeanIn.org’s comprehensive study on women in corporate America in collaboration with McKinsey & Co. What struck me in the study was that, notwithstanding the many gains made by women, Covid 19 has presented more challenges or demands on them in terms of additional child care or home schooling responsibilties, the health/illnesses of family members, mental issues/burnout, and other unique issues brought by the pandemic. One of the best online engagements I’ve had so far was a networking evening where the participants received cocktail making kits at home prior to the event and a bartender demonstrated how to mix drinks via Zoom. Next May, a conference that I attend annually may possibly be held 24/7 by Zoom to enable its members worldwide to participate from different timezones in 6 hour shifts. A radical idea, but with the world turned upside down by Covid 19, anything is possible these days. Patricia A. O. Bunye is a Senior Partner at Cruz Marcelo & Tenefrancia where she heads its Mining & Natural Resources Department and Energy practice group. She is also the Founding President of Diwata-Women in Resource Development, Inc., a non-government organization advocating the responsible development of the Philippines’ wealth in resources, principally, through industries such as mining, oil and gas, quarrying, and other mineral resources from the earth for processing.
Fernando Penarroyo - December 01, 2020
Infrastructure Investments to Return Philippine Economy to Growth
By: Fernando Penarroyo The Philippine economy grew on average by 6.3 percent annually over the last decade due to the country’s sound macroeconomic policies and structural economic reforms under President Rodrigo Duterte and his predecessor Benigno Aquino III. Before the COVID-19 pandemic, the Philippine economy ranked among the best performers in Asia. A December 2019 survey showed that most Filipinos deemed that the Duterte administration was building infrastructure “better” than previous administrations through the “Build Build Build” (BBB) program. The Philippines is among the most vulnerable countries in the world susceptible to risks from climate change, and volcanic, and tectonic activities. Hazard-resilient infrastructure will help lessen the impact of natural disasters. Regulators have markedly scaled-up public infrastructure investment, from an average of 3% of gross domestic product (GDP) during 2011–2016 to 5.1% in 2018. They plan to boost investment further to over 6% of GDP by 2022. The Duterte administration is banking on its infrastructure development program to be the main driver of the country’s economic recovery as the Philippines is currently in economic recession caused by the COVID-19 pandemic. The Philippines has suffered from one of the region's worst COVID outbreaks and among the top 25 countries with infections and fatalities, and with the longest government-imposed lockdown. To the credit of the government, a number of infrastructure projects has seen completion despite the quarantine measures in the past months. The two most anticipated infrastructure projects - the Metro Manila Skyway and the Metro Manila Subway, are expected to decongest the worsening transportation situation in the National Capital Region. To address capital's notoriously gridlocked roads particularly along the main artery traversing the city, the Metro Manila Skyway System (Skyway) is a 40-km long elevated expressway that cuts through greater Metro Manila. The Skyway, will connect the South Luzon Expressway with the North Luzon Expressway passing through the major cities of the National Capital Region including, Makati, Manila, Muntinlupa, Paranaque, Taguig, Quezon City, Caloocan, Pasay City and San Juan. With the completion of the Skyway Stage 3, the elevated expressway will also help cut the travel time between Metro Manila and Clark International Airport in Pampanga. On the other hand, the Metro Manila Subway (Subway) is the most expensive transportation project undertaken by the Duterte administration. The Subway, an underground rapid transit line currently under construction, spans a 36-kilometer line, which will run north–south between Quezon City, Pasig, Makati, Taguig, and Pasay consisting of 17 stations. It will become the country's second direct airport rail link after the North–South Commuter Railway, with a branch line to Ninoy Aquino International Airport Terminal 3. It is scheduled to be partially operational in 2022 and fully operational by 2025. In addition, construction of six railway projects is also underway. Once all the railway projects are completed, the number of stations across all railway systems will increase to 169 from 59, the number of trains to 1,425 from 221, and daily ridership to 3.26 million from 1.02 million. Following the COVID-19 pandemic however, the “BBB” program encountered setbacks with the realignment of part of its budget to finance the government’s response to the health and socio-economic crises. In the first semester of 2020, the government’s spending on infrastructure fell by 4.3% year on year to P297.9 billion. The 2020 budgets of the implementing agencies of the BBB program were also cut to fund dole-outs and medical response costing around PHP 121.9 billion (US$2.5 billion). The Department of Public Works and Highways (DPWH) was left with a much-lowered infrastructure program spending budget for 2020 at around PHP 458.9 billion (US$9.4 billion) down from PHP 580.9 billion (US$11.9 billion) while the Department of Transportation suffered a budget cut of around PHP 8.8 billion (US$181.2 million) from its original budget of around PHP147 billion (US$3.02 billion). Despite budget cuts in public spending on infrastructure projects, the government has revised the list of flagship projects and reprioritized its infrastructure program. The National Economic and Development Authority Board approved a revised list of 104 projects worth P4.1 trillion under the “BBB” program. In response to the country’s post-pandemic needs, the government came out with a new list that included the national broadband program, an irrigation project, transportation infrastructure projects, health care systems, and the construction of the Virology Science and Technology Institute of the Philippines with an estimated total value of around PHP 4.1 trillion (US$84.4 billion) Under the proposed P4.5-trillion national budget for 2021, the government increased the budget for infrastructure development by 41% to P1.107 trillion from the reduced P785.5-billion budget this year, with the biggest allocation of P157.5 billion going to the DPWH. Reverting to PPPs Public-Private Partnership (PPP) will play an increasingly important role in the “BBB” infrastructure plan to tap on private capital as the government’s ambitious infrastructure plans face fiscal challenges. This marks a shift back to the investment policy previously adopted by the Aquino administration and will offer more opportunities for private sector participation. However, the present administration has tighten provisions employed by the Aquino government which present regulators deem to be ‘detrimental’ to public interest, including automatic rate increases, commitments of non-interference, and non-compete clauses. Since the start of 2020, PPP projects have reportedly raised Php1 trillion ($20.62 billion) worth of investments as approved by the Interagency Investment Coordination Committee-Cabinet Committee. These include the $15-billion second airport for Manila signed in September 2020. San Miguel Corp. entered into a $15-billion contract with the government to build Manila’s second aviation gateway in Bulacan province, 30 minutes north of the capital. The build-operate-transfer project, covered by a 50-year concession deal, calls for a new airport designed to accommodate up to 200 million passengers annually aim at decongesting the overcrowded Ninoy Aquino International Airport. On the power side, ongoing projects include the LNG Import Facility in Batangas at the cost of $2 billion. The Department of Energy recently issued an order calling for a moratorium on the endorsements of the construction of future coal-fired power plants. Also, the DOE has finally confirmed that foreign-owned companies can engage in geothermal exploration, development, and utilization. This is provided under the Renewable Energy Law of 2008 which defined geothermal as mineral resources. The Philippine Constitution allows foreign ownership of large-scale petroleum, minerals, and mineral oils projects. These two developments are expected to benefit the incipient imported LNG and renewable energy industries. According to the “Procuring Infrastructure PPP” component of Fitch Solutions Country Risk & Industry Research’s Project Risk Index (Fitch PRI), the Philippines has a relatively well-structured PPP framework compared to other major South-East Asian emerging markets,. Its well-developed PPP program is mainly driven by the Philippine PPP Center, an administrative body tasked with providing technical assistance to various stakeholders involved in the PPP transaction and advocating policy reforms to improve the PPP framework. There currently exists three pieces of legislature - Republic Act Nos. 9184, 6957 and 7718, which provides the legal framework in the implementation of PPP projects. Challenges and Risks While the PPP business environment for infrastructure has a supportive institutional framework for private sector participation, the World Economic Forum’s global competitiveness report places the Philippines among the lowest in ASEAN in key infrastructure services and substantially lower than the ASEAN average in overall infrastructure. Given the prospects of a high demand for infrastructure from economic and demographic growth, there is a need for a significant upgrade. According to Fitch PRI, the Philippines rank lowly in both indicators of construction timeliness (Bureaucratic Environment and Construction Permit), pointing to a heightened risk of completion delays. In addition to project risk, there exists high operational risk, mainly attributable to crime and security risks, as the country suffers from high levels of crime and is vulnerable to terrorist attacks. In the 2018 Corruption Perception Index, the Philippines was ranked 99 out of 180 countries, indicating a high level of corruption which undermines the effectiveness of laws and regulations in place. Electricity generation capacity per capita is among the lowest in ASEAN while power transmission and distribution loss is at the ASEAN average. The government must address the need to enhance capacity with the expected continuous high economic growth. Also, with the impending depletion of the Malampaya natural gas field, there is a need to replace this energy source. The Malampaya gas-to-power facility comprises 21% of the total generation mix in the country and fuels five power plants with a total generating capacity of 3,211 megawatts. Internet speed in the Philippines is among the slowest and most expensive in the world, no thanks to under-investment, poor government policy and the country’s archipelagic nature. In a 2018 test measuring the average download speed of a 5GB file, the Philippines ranked 97th in the world (at 1hr 52min) compared to 8 min in Taiwan, 9 min in its ASEAN neighbor Singapore, and Thailand at 37 minutes. Slow internet speed puts the country at a great disadvantage. Industry consolidation in the last 30 years has resulted to the virtual duopoly of Globe Telecom and Smart Telecom. The Duterte government recently gave the third franchise to a new operator, Dito Telecom, which promised to use the latest 5G technology, install 10,000 cell sites and roll out services by March 2021. Investors continues to face a high degree of risks as the infrastructure program is undermined by a number of major impediments, particularly the four Cs - inadequate cost recovery, corruption, insufficient competition, and low credibility of institutions. Despite having one of the most comprehensive PPP frameworks in the region, the government must institute reforms to tackle these impediments. Improving Infrastructure Investments Management Ensuring that the government properly manages its infrastructure spending will be a challenge. Enhancing public investment management would contribute to timely and cost-effective planning and execution of infrastructure projects. A recent IMF Public Investment Management Assessment ranks the Philippines similarly to its regional peers, but observes an efficiency gap of about 23% compared with best practices in translating public investment into infrastructure. As recommended in the report, project appraisals can be enhanced by requiring upfront identification of risk mitigation measures and publishing appraisal analyses to elicit comments from the public. An adequate identification and management of risks will complement public sector efforts in infrastructure promotion. Regulators can also embark on an update of the legal framework to include encouraging new forms of PPPs and developing domestic capital markets that will entice more private-sector participation, as long as financial risks to the government are well managed. Measures to promote competition and trade would reinforce the benefits of other reforms. Recent reforms have focused on reducing the costs of doing business through increased administrative and regulatory efficiency with the establishment of the Anti-Red Tape Authority, promoting one-stop shops, e-platforms, standardization of licensing procedures, and regulatory transparency. Implementation of the ease-of-doing-business law will complement efforts to cut red tape as well by increasing transparency and accountability of regulatory agencies. Greater competition will help in managing costs and reducing risks of corruption. Although an institutional framework is in place for transparent and competitive public procurement process, reforms are still needed to ensure that the process is made more competitive. Competition is still not sufficiently effective in practice with many tenders resulting in bid rigging. Competition can also be promoted by imposing stricter sanctions on anti-competitive practices, such as larger financial penalties and longer exclusion from future tendering. Making procurement information more easily accessible and ensuring that bidders are technically and financially qualified will increase transparency. Authorities should also be insulated from short-term political pressures so as not to undermine regulatory credibility. Upgrades in public information technology infrastructure, such as e-invoicing and digital national identification cards, will also promote efficiency and transparency. Despite recent progress, high barriers to foreign direct investment remain in the Philippines. Lowering obstacles to foreign investment, currently pegged at 40%, will stimulate private investment, ease domestic capacity constraints, and facilitate absorption of frontier technologies. Finally, tax reform can help sustain the infrastructure push while safeguarding fiscal sustainability. The government’s recent tax reforms have led to a significant increase in revenue collection but it is imperative to pass the remaining packages of reforms for further improvements in the tax system once the country is out of the pandemic crisis. These reforms will support sustainable investment in infrastructure and human capital. Conclusion The infrastructure industry remains an important engine of growth for the Philippine economy but despite recent progress, there still are relatively high barriers and procedural hurdles that hampers the development of its full potential. Strengthening the public procurement process with greater competition and transparency, and allowing greater foreign participation in domestic projects would help in managing costs and reducing risks. Private investment is projected to increase over time with the government’s infrastructure push and ongoing economic policy reform efforts, which will lead to higher economic growth and subsequent investments in education, health care, digital technologies, climate change and natural disasters mitigation. Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and Business Development. He may be contacted at email@example.com for any matters or inquiries in relation to the Philippine resources industry. Atty. Penarroyo’s commentaries are also archived at his professional blogsite at www.penarroyo.com References Hilotin, Jay, Philippines: $85 Billion Infrastructure Spending in 104 Projects, Gulf News, 01 October 2020, https://gulfnews.com/business/philippines-85-billion-infrastructure-spending-in-104-projects-1.1601554247671 Malindog-Uy, Anna, “Build Build Build” Program Amid a Pandemic, The ASEAN, 13 September 2020, https://theaseanpost.com/article/build-build-build-program-amid-pandemic Noble, Luz Wendy T., Infrastructure Push to Aid Recovery, BusinessWorld, 14 September 2020, https://www.bworldonline.com/infrastructure-push-to-aid-recovery/ Philippines IMF Country Report 20/36, 06 February 2020, https://www.imf.org/en/Publications/CR/Issues/2020/02/05/Philippines-2019-Article-IV-Consultation-Press-Release-and-Staff-Report-49021 Philippine Infrastructure To Rely More On Private Capital, Infrastructure & Project Finance / Philippines, Fitch Solutions Country Risk & Industry Research, 12 November 2019, https://www.fitchsolutions.com/infrastructure-project-finance/philippine-infrastructure-rely-more-private-capital-12-11-2019 Takuji, Komatsuzaki, Improving Public Infrastructure in the Philippines, Asian Development Review, vol. 36, no. 2, pp. 159–184, 2019, https://www.imf.org/external/pubs/ft/wp/2016/wp1639.pdf The Philippines: A Good Time to Expand the Infrastructure Push, IMF Country Focus, 06 February 2020, https://www.imf.org/en/News/Articles/2020/02/06/na020620the-philippines-a-good-time-to-expand-the-infrastructure-push
Fernando Penarroyo - September 24, 2020
New World Economy - Tech Giants Go Into Mining
BY: Fernando “Ronnie” S. Penarroyo Late last year, the International Rights Advocates filed a lawsuit in a Washington DC court on behalf of fourteen (14) Congolese families against several companies, alleging that their children were killed or injured while mining for cobalt in the Democratic Republic of the Congo (DRC). The lawsuit further alleges that the young children are being forced to work full-time jobs under extremely dangerous conditions at the expense of their educations and futures with the defendants knowingly benefiting from and providing substantial support to this artisanal mining system. Cobalt extraction is beset with concerns of illegal mining, human rights abuses and corruption and this could be regarded as an ordinary suit lodged by human rights advocates and interests groups against erring mining companies operating in Africa. This is in fact a landmark suit in the annals of the mining industry. More than 60% of the world’s supply of cobalt is mined in the ‘copper belt’ of the south-eastern provinces of DRC. Cobalt is a mineral used to produce lithium-ion batteries for electric cars, laptops and smartphones. What makes this case interesting is that among the defendants in the case are some of the world’s largest tech companies - Apple, Alphabet (which is the parent company of Google), Microsoft, Dell and Tesla. The tech companies are accused of aiding and abetting the deaths and serious injuries of children working in cobalt mines, a vital cog in the corporations’ supply chain in the manufacture of their products. Digital Technology Drives Demand for New Economy Minerals Digital technology is becoming a defining factor in the future of mining operations. Robotics and automation through drones, autonomous vehicles and remote-controlled operational systems will be rolled out more widely to enhance exploration efforts production. Cloud computing, information sharing and big data enable work to be performed remotely and more flexibly taking employees away from hazardous on-site events and improving health and safety conditions. On the demand side, technology is also impacting the market for mining’s outputs. The rise of electric vehicles and the production of an ever-growing variety of high tech and green technologies, have also boosted demand and competition for new economy minerals. ‘New economy minerals’ is an umbrella term for a range of metals and mineral elements used in many emerging technologies including electric vehicles, renewable energy products, low-emission power sources, consumer devices, and products for the medical, defense and scientific research sectors. Technology have also expedited the dramatic rise of the ‘sharing economy’, where consumers use their smartphones to share goods and services such as accommodation, transportation, and finance, as well as streaming of entertainment and data. According to a recent report by McKinsey, some 1.8 billion people are expected to “join the global consuming class by 2025”, a huge 75% increase from 2010. The mining industry will be hugely affected by this growth, with predicted shortages of a range of metals and minerals including copper, nickel, cobalt and lithium. Tech Companies - Emerging Big Miners? Flushed with capital and brand-savvy, technology companies who are major users of mining products, want to take full control of their supply chains and are out-competing incumbent conventional miners, who are struggling for the capital, skills and capacity to innovate. These new players have access to cutting edge technologies and a track record of success in highly regulated environments such as healthcare, finance or defense. They know they can do a better job and are free of legacy issues attached to the mining industry. These new entrants can take advantage of low valuations and asset fire sales from the conventional miners. Technology companies have become direct or indirect investors as a way of shoring up and securing supply and are moving to control whole value chains from raw material sourcing up to product delivery of new economy minerals. Using blockchain technology, new technology entrants can engage in mining without owning any mines or distribution infrastructures in the same way that Uber does with no cars and Airbnb, with no real estate listings. The transformation to digital technology and low-carbon clean energy was further expedited by the onslaught of the Covid-19 pandemic, which disrupted lives and operations but heightened the use of the app economy. Amazon, Apple, Facebook, Google and Microsoft are now aggressively placing new bets as the coronavirus pandemic has made them near-essential services, with people turning to them to shop online, entertain themselves and stay in touch with loved ones and business colleagues. New investments by tech giants are transforming the landscape of the resources industry. Among those leading the charge are tech billionaires Bill Gates, Jeff Bezos and Richard Branson, who have all built their careers on innovation, thinking outside the box and pushing through disruptive change. They are backers of technology fund, Breakthrough Energy Ventures (BEV), which joined forces with hedge fund a16z to invest in mineral exploration company KoBold Metals and its search for ‘ethical’ cobalt. Google, on the other hand also entered into a partnership with a global consulting firm to boost productivity in mining in Kazakhstan. Back in 2015, automotive and energy storage company, Tesla signed early stage agreements with junior mining companies, with no prior existing production, to supply their new ‘gigafactory’ in Nevada with lithium. The deal signaled to the world’s incumbent lithium miners that new customers like Tesla are not frightened to explore high-risk, high return alternatives when they find that current market conditions do not suit their needs. Tesla CEO Elon Musk is reportedly considering taking the company into the mining business to gain more control over its supply chain and the scalability of raw materials for its electric car and battery work. Meanwhile lawmakers and regulators in Washington and Europe are sounding the alarm over the tech giants’ concentration of power and how that may have hurt competitors. Without any pushback from regulators, big tech companies would almost unquestionably come out of the pandemic more powerful. Clean Energy Transition - Goodbye Fossil Fuels? Hello Minerals! The pandemic has caused disruptions to the renewable energy industry in its supply chains, and slowdowns in permitting and construction have delayed projects. Still, analysts agree the renewable energy sector’s fundamentals are strong. Technologies have matured and prices dropped, to the point where renewables in most cases provide cheaper energy than fossil fuels. Policymakers are now starting to shift their focus from pandemic challenges to economic recovery and energy infrastructure plans. The fossil fuel industry is among the hardest hit by the coronavirus crisis, with leading oil, gas and petrochemical companies losing an average of 45% of their total market value. The challenge from the coronavirus for oil & gas companies has been heightened by the oil price collapse and continuing price uncertainty because of weaker demand from the transportation and power industry. With the crisis also hastening a global shift to cleaner energy, fossil fuels will likely be cheaper than expected in the coming decades, while emitting the carbon they contain will get more expensive. These two simple assumptions mean that tapping some petroleum fields no longer makes economic sense. British Petroleum announced that it would no longer do any exploration in new countries. The pandemic will likely discourage exploration and about 10% of the world’s recoverable oil resources—some 125 billion barrels— is expected to become obsolete and stranded assets. Some larger companies would evaluate its portfolio of discoveries and leave some undeveloped. Complicated projects could be shelved in favor of fields that are quicker to develop. Less than a decade ago, Exxon Mobil was the most valuable company in the world. On the last working day of August this year, it was taken out of the Dow Jones industrial average after nearly a century of inclusion in the index. Exxon and other oil giants mostly missed out on the fracking boom, and on the move away from fossil fuels. Apple which became a US Dollar Two Trillion company in market capitalization is now the world’s most valuable company. Today the personal wealth of Jeff Bezos of Amazon is worth more than Exxon. Exxon and the oil industry is giving way to a dominant tech industry with Exxon’s spot in the stock exchange being taken over by a tech company: Salesforce.com. One will ask, what is the role of mining in the clean energy transition. A new World Bank Group report, “Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition”, analyzes how the clean energy transition will impact future mineral demand. The report finds that the production of minerals, such as graphite, lithium and cobalt, can increase by nearly 500% by 2050, to meet the growing demand for clean energy technologies. It estimates that over 3 billion tons of minerals and metals will be needed to deploy wind, solar and geothermal power, as well as energy storage, required for achieving a below 2°C future. The report also finds that even though clean energy technologies will require more minerals, the carbon footprint of their production—from extraction to end use—will account for only 6% of the greenhouse gas emissions generated by fossil fuel technologies. The report underscores the important role that recycling and reuse of minerals will play in meeting increasing mineral demand. It notes that even if the recycling rates for minerals like copper and aluminum is scaled up by 100%, recycling and reuse would still not be enough to meet the demand for renewable energy technologies and energy storage. Amidst the pressure to continue or even increase the use of clean energy and electric cars, a report by the Manhattan Institute entitled “Mines, Minerals, and ‘Green’ Energy: A Reality Check” postulated issues that were left out in the discussions of the environmental and supply-chain implications in renewable energy technology. According to the report, no energy system is actually ‘renewable’, since all machines require the continual mining and processing of millions of tons of primary materials and the disposal of hardware that inevitably wears out. Compared with hydrocarbons, green machines entail, on average, a ten-fold increase in the quantities of materials extracted and processed to produce the same amount of energy. This means that any significant expansion of today’s modest level of green energy will create an unprecedented increase in global mining for needed minerals and radically exacerbate existing environmental and labor challenges in emerging markets. Among the material realities of green energy cited by the report are: Building wind turbines and solar panels to generate electricity, as well as batteries to fuel electric vehicles, requires, on average, more than ten times the quantity of materials, compared with building machines using hydrocarbons to deliver the same amount of energy to society. A single electric car contains more cobalt than a thousand smartphone batteries; the blades on a single wind turbine have more plastic than five million smartphones; and a solar array that can power one data center uses more glass than fifty million phones. Replacing hydrocarbons with green machines under current plans will vastly increase the mining of various critical minerals around the world. For example, a single electric car battery weighing a thousand pounds requires extracting and processing some five hundred thousand pounds of materials. Averaged over a battery’s life, each mile of driving an electric car “consumes” five pounds of earth. Using an internal combustion engine consumes about 0.2 pounds of liquids per mile. Oil, natural gas, and coal are needed to produce the concrete, steel, plastics, and purified minerals used to build green machines. The energy equivalent of a hundred barrels of oil is used in the processes to fabricate a single battery that can store the equivalent of one barrel of oil. By 2050, with current plans, the quantity of worn-out solar panels—much of it non-recyclable—will constitute double the tonnage of all today’s global plastic waste, along with over 3 million tons per year of non-recyclable plastics from worn-out wind turbine blades. By 2030, more than ten million tons per year of batteries will become garbage. Green machines mean mining more materials per unit of energy. Since clean tech is about supplying energy in a more ‘sustainable’ fashion, one needs to consider not just the physical mining realities but also the hidden energy costs of the underlying materials themselves. Finally, in any full accounting of environmental realities, there is the disposal challenge inherent in the very large quantities of batteries, wind turbines, and solar cells after they wear out. Ethical Sourcing of Minerals for Tech Companies - Smarter and Greener? Ethical supply chains and ‘green’ practices will be on the agenda for tech giants with mining ventures, a brand promise that the minerals that go into their products are produced in the most responsible way and meeting the changing expectations of their consumers. A poll completed by Forbes in 2018 showed that 88% of consumers would like brands to be more environmentally friendly and ethical. As such, it is unsurprising that companies are increasingly starting to investigate not only their sustainability but also that of their supply chain. One condition that can slow a company’s growth is poor sustainability performance, as measured in environmental and social impact, as well as permission from consumers, investors, and regulators to do business. While tech companies may declare their deep commitment to the responsible sourcing of ‘ethical’ minerals that go into its products, how can a company ensure the sustainability of its supplier? With supplies of metals like nickel becoming depleted, companies may have to broaden their supplier pools if they wish to expand but doing so will increase the risk of having to rely on suppliers that do not meet sustainability standards. Elon Musk promises a ‘giant contract’ with the miner that can supply nickel for Tesla batteries at low cost with minimal environmental impact. However, the nickel projects expected to supply a large part of the demand being built in Southeast Asia will rely on coal, fuel oil or diesel to run their operations leaving a very large carbon footprint. In Indonesia which holds about a quarter of all nickel reserves, companies operating there are investing in projects that will use acid to process low-grade nickel ore and produce high-quality battery chemicals. The diluted byproducts will be piped out to the sea using a process known as deep-sea tailings disposal. Apple, recently has been accused of abetting child labour and environmental damage. In recent years the company has sought to clean up its act by collaborating with suppliers to increase their usage of renewable energy and altering designs to reduce its usage of key aspects like aluminium. A significant proportion of cobalt and tantalum, both used in handheld gadgets, is produced by artisanal miners in countries where regulations can be lax or non-existent. In addition, data of origin from the mine site passes through seven stages from mine to manufacturer and can be changed along this process, thus data credibility is endangered by unscrupulous traders and middlemen. Monitoring by tech companies of their raw materials suppliers would be increasingly complicated. While companies have no real power to make their suppliers pursue sustainable practices, some tech companies are joining forces with the purpose of helping suppliers guarantee the ethical sourcing of such minerals. These companies share secured information using enterprise-grade blockchain middleware in solving the mineral sourcing problem faced by technology companies. Others are creating platforms that provide technology companies transparency on the origin of the minerals they use to avoid funding conflict or child labour, while also giving them the control to make contracts with the miners directly. From Trade War to Tech War The world’s largest economies obviously the most voracious users of new economy minerals are also involved in securing the commodities owing to its economic and strategic value. Rare earth metals, a suite of 17 elements, are crucial to important technological applications ranging from electric cars and smartphones to satellites, lasers, fighter jet engines and missiles. China owns 36.7 per cent of global reserves and is the world’s largest producer and exporter. Its output last year accounted for 62.8 per cent of the world’s total, according to the US Geological Survey. Because rare-earth elements have essential uses in a range of civil and military technologies such as weapons guidance systems, China’s control of supply is a powerful commercial and diplomatic bargaining chip. China supplies the US about 80 per cent of its rare earths requirements from 2015-2018. However, exports of rare earth elements decreased down to 1,620 tonnes in July 2020, a drop of 69.1 per cent from a year earlier and down 44 per cent from June, according to Chinese customs data. Earlier threats to cut-off supplies of the elements, especially the two most important heavy rare earths, neodymium and praseodymium, have caused short-term disturbances in the market. Part of the decline can be attributed to the risks of relying on China for rare earth supplies and the US restarting operations last year at mines in California. As the US is launching sanctions against Chinese technology companies and threatening to punish Chinese financial institutions, there are voices in China saying the country can take countermeasures by restricting rare earth exports to the US. The rising calls on rare earth trade came as the escalating rivalry between the world’s two largest economies has fueled concerns over a trade war turning into a technology war. Whether China intends to proceed with a trade embargo on rare earths is unclear but the threat itself has sparked a reaction which involves the U.S. government and several allies in pushing ahead with plans to develop non-Chinese supplies of rare earths. The rollout of fifth generation, or 5G, network technology would be a battlefield in the US-China tech war. The upgrade from 4G to 5G is expected to exponentially increase internet-connectivity in industries that require big data, improve off-load computing to the cloud, and enable huge advances in automation and artificial intelligence. The 5G infrastructure will intertwine factories, power plants, airports, hospitals and government agencies. Huawei Technologies, a Chinese company which is the world’s biggest telecommunications company and also the largest manufacturer of smartphones, has all but cornered the market for the roll out of 5G networks. The US has security concerns over the company and has accused it of rampant theft of intellectual property and selling U.S. tech to hostile states like Iran and North Korea. The advent of 5G using Huawei’s technology and network infrastructure brings with it enormous geo-strategic implications to the defense and security of the US and its allies. The US is doing everything it can to slowdown Huawei’s technological advance not only in the US’ domestic market, but also putting intense pressure on allies around the world to ban Huawei from their 5G networks on national-security grounds. So far, the UK government has heeded the call to ban Huawei from participating in its 5G mobile network. Australia, New Zealand, Japan, and India have imposed similar bans while numerous countries alleged that the company’s products may purposely contain security holes and malware that China’s government could use for spying purposes. Huawei also faced numerous supply chain, chip and software partner challenges amid new U.S. regulations against the company. Google, Intel, Qualcomm, Xilinx, and Broadcom are cutting supplies to Huawei, according to multiple reports. However, industry executives and experts warned that U.S. restrictions on Huawei are likely to choke the Chinese company’s access to even off-the-shelf computer microchips ultimately disrupting global tech supply. TikTok, a popular video-streaming app and social media platform developed by China’s ByteDance, is similarly accused of data privacy violation by the Trump administration. Trump issued an executive order forcing ByteDance to sell or spin off its U.S. TikTok business. Under the order, ByteDance is expected to destroy all its copies of TikTok data attached to U.S. users. Conclusion There are two stark realities arising from the digital and clean energy transformations - the mining industry is here to stay and tech money is flowing into the industry. There will also be disruptions in the way that mining is done as the industry migrate to a digital core. Not only will digital technology be an integral part in the mining value chain but companies will also need to address the sustainability and ethical challenges demanded from them not only by direct stakeholders but from consumers as well. The tech sector, bereft of legacy issues, offers to innovate and improve operational efficiency, reduce costs, enhance productivity, and improve safety and environmental performance. Let’s see if they can live up to their promises. As the cliche goes, “Go ahead, put your money where your mouth is”. Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and Business Development. He may be contacted at firstname.lastname@example.org for any matters or inquiries in relation to the Philippine resources industry. Feel free to follow Atty. Penarroyo’s professional blogsite at www.penarroyo.com References: Bridgwater, Holly, Vanadium Industry In The News, Bill Gates and Richard Branson Have Their Sights on the Mining Sector — and Investment Opportunities for Startups Abound, https://www.vanadiumcorp.com/news/industry/bill-gates-and-richard-branson-have-their-sights-on-the-mining-sector-and-investment-opportunities-for-startups-abound/ Casey, JP and Lempriere, Molly, Debate: Can Tech Giants Like Tesla and Apple Change Mining for the Better? Mining Technology, 19 November 2019, https://www.mining-technology.com/features/tesla-apple-mining-technology/ Hund, Kirsten; La Porta, Daniele; Fabregas, Thao P.; Laing, Tim; Drexhage, John, Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition, World Bank Climate-Smart Mining Facility, 2020, http://pubdocs.worldbank.org/en/961711588875536384/Minerals-for-Climate-Action-The-Mineral-Intensity-of-the-Clean-Energy-Transition.pdf Hurst, Laura, Oil Companies Wonder If It’s Worth Looking for Oil Anymore, Bloomberg, August 16, 2020, https://www.bloomberg.com/news/articles/2020-08-16/oil-companies-wonder-if-it-s-worth-looking-for-oil-anymore?campaign_id=7&emc=edit_MBAE_p_20200816&instance_id=21327&nl=morning-briefing®i_id=61527711§ion=whatElse&segment_id=36249&te=1&user_id=9d764125756d748742119e474622a869 Is Mining Really Ready for the Future? https://www.pwc.com/gx/en/energy-utilities-mining/assets/pwc-mining-transformation-final.pdf Mills, Mark P., Mines, Minerals, and "Green" Energy: A Reality Check, Manhattan Institute, July 9, 2020, https://www.manhattan-institute.org/mines-minerals-and-green-energy-reality-check Ochab, Ewelina, Are These Tech Companies Complicit In Human Rights Abuses Of Child Cobalt Miners In Congo? Forbes, Jan 13, 2020, https://www.forbes.com/sites/ewelinaochab/2020/01/13/are-these-tech-companies-complicit-in-human-rights-abuses-of-child-cobalt-miners-in-congo/#6bc8cd483b17 Tang, Frank, China’s Rare Earth Export Plunge Caused by Coronavirus, Not Beijing Agenda, Industry Group Says, South China Morning Post, 18 August 2020, https://www.scmp.com/economy/china-economy/article/3097847/chinas-rare-earth-export-plunge-caused-coronavirus-not Tech Companies Join Forces to Promote Ethical Sourcing of Minerals, MINING.COM, October 11, 2019, https://www.mining.com/tech-companies-join-forces-to-promote-ethical-sourcing-of-minerals/ The Future of Work: The Changing Skills Landscape for Miners, Ernst and Young, Mining Minerals Council of Australia, https://minerals.org.au/sites/default/files/190214%20The%20Future%20of%20Work%20the%20Changing%20Skills%20Landscape%20for%20Miners.pdf
Patricia A. O. Bunye - September 24, 2020
A “modern day gold rush”
BY: Patricia A. O. Bunye: Over the past few months, the price of gold has been going haywire. As the coronavirus pandemic changed the world as we knew it in March, the price of gold crashed alongside stocks then quickly regained. Thereafter, a frenzy of investment drove up the price to an all-time high. On August 4, it shot up to USD2,021/troy ounce for the first time ever before another week of big swings. It has also been reported in the Financial Times that governments globally have announced USD20 trillion worth of stimulus to combat the impact of the coronavirus, equivalent to a little over 20% of global gross domestic product. According to Bank of America, the impact of the coronavirus and US-China tensions could push the gold price towards USD$3,000/ troy ounce in the next 18 months. The volatility of the price of gold has drawn both Wall Street and mainstream investors seeking fast gains, leading some analysts to call it a “modern day gold rush” and call into question gold’s reputation as a safe haven asset. Gold is generally considered a “safe haven” because it has acted as a store of value, maintaining its purchasing power for thousands of years. The reality is that over the long term, the price of gold remains constant while the price of everything else goes up. A safe haven investment typically offers diversification to an investor’s portfolio, helping it withstand volatility, or short-term swings in the prices of assets that are more vulnerable to market whims. They normally perform well during downturns and financial crises when riskier assets underperform. These days, however, prices can move at a moment’s notice without a fundamental reason. Volatility means more risk and that means gold isn’t necessarily the haven people think that it is. To understand why the price of gold is so volatile, it is also necessary to understand how gold trading works. Like other precious metals, the price of gold is tied to other physical assets. The physical gold market involves mining, processing, travel and sales. Mining happens on every continent, except Antartica. The top producing countries are China, Russia and Australia, accounting for 2500-3000 metric tons of gold annually. The gold is smelted and refined into bars, coins, and other products, including jewelry. According to the Wall Street Journal, much of the gold is sent to London where the Bank of England holds roughly 400,000 bars of gold worth USD260 billion. The physical trading of gold takes place with a few banks working with the London Bullion Market Association to set the price of a troy ounce of gold. The gold stash in London is said to be rivaled only by that of the Federal Reserve Bank of New York, which holds the largest hoard of physical gold. In other places in the world, gold is a common investment as well. In many cultures in Asia, gold is seen as having an intrinsic value and prestige that can be passed down from generation to generation, thus generating a large demand for physical gold in the form of bars, jewelry and coins. Those who want physical gold, generally go to sources such as APMEX, the world's largest online retailer of precious metals, with over USD11 billion in transactions since its founding in 1999. It is also possible to buy exchange-traded funds that hold physical metal, the largest of which is SPDR Gold Shares, which is traded on the New York Stock Exchange (NYSE). Aside from gold that is traded on the physical market, gold is also tied to commodity futures. Gold futures are traded on the commodity exchange (comex) of the New York Mercantile Exchange (NYMEX). After the unexpected stellar performance of gold last August, the price has gone down again as of this writing, a reminder that the momentum in the market can change quickly. Still, it hasn’t stopped the gold frenzy. Some analysts say that what’s drawing investors to gold now is not faith in gold itself, but more a lack of faith in other things: central banks, governments and, in particular, a lack of faith in the availability of real returns elsewhere. Patricia A. O. Bunye is a Senior Partner at Cruz Marcelo & Tenefrancia where she heads its Mining & Natural Resources Department and Energy practice group. She is also the Founding President of Diwata-Women in Resource Development, Inc., a non-government organization advocating the responsible development of the Philippines’ wealth in resources, principally, through industries such as mining, oil and gas, quarrying, and other mineral resources from the earth for processing.
Philippine Resources - June 08, 2020
Responding to COVID-19 in the Mining Industry
By Patricia A. O. BunyeOn 08 March 2020, the Philippine Government declared a State of Public Health Emergency throughout the entire archipelago in light of confirmation of the local transmission of COVID-19. All government agencies and local government units were tasked to assist, cooperate and mobilize resources to undertake critical, urgent and appropriate responses to address the exigencies of the situation. Since then, government agencies have been releasing the appropriate issuances to implement measures to combat the spread of COVID-19 and adapt to the crisis.The Mines and Geosciences Bureau (“MGB”), the government agency responsible for the conservation, management, development and use of the country’s mineral resources, likewise issued several memoranda instituting various measures to respond to the COVID-19 crisis, including realignment of funds, extension of deadlines, adoption of alternative work arrangements and implementation of safety protocols for operations in the mining sector. Realignment of Social Development and Management Program BudgetIn a Memorandum dated 27 March 2020, the MGB authorized mining companies to re-align unutilized funds from their Social Development and Management Program (“SDMP”) to assist host and neighboring communities around mining projects, as well as the non-impact barangays in their respective localities, until the threat of COVID-19 has abated. The principal objective of the re-alignment is to make use of the unutilized SDMP funds for the social amelioration of communities around the mining projects through the provision of health or hygiene kits and food packs in order to efficiently and timely respond to the needs of the communities to combat COVID-19. As of 27 May 2020, approximately Php297 million of the SDMP budget has been utilized to aid the concerned frontliners and households. Extension of DeadlinesAside from food and medical provisions, the MGB also provided legal relief by relaxing the rules on submission of documents and payment of fees, taking into consideration the logistical, social and economic difficulties encountered as a result of quarantine measures. In this regard, the MGB issued a notice allowing the extension of deadlines of the submission of reportorial requirements and proof of payment of occupation and other regulatory fees as prescribed under the Mining Permit/Contract up to 30 June 2020, or up to the immediate submission date when the pertinent quarantine is lifted. Protocols for the Resumption of Mining and Mineral Processing Operations under General Community Quarantine (“GCQ”)Following the recommendation of the Inter-Agency Task Force for the Management of Emerging Infectious Diseases (“IATF-MEID”), the Philippine Government announced on 28 May 2020 that Metro Manila, along with other regions classified as low-risk and high-to-moderate risk areas for coronavirus transmission, would transition from a strict lockdown under the Enhanced Community Quarantine (“ECQ”) to a less stringent GCQ beginning 01 June 2020. While movement and transportation is limited under both quarantine protocols to avoid the further spread of COVID-19, the transition from the stringent measures of ECQ to the relaxed measures of GCQ is expected to benefit the economy and the workforce as it allows for the reopening of several industries previously ordered closed under ECQ for not being essential industries. With the easing of quarantine measures in most parts of the Philippines to support the economy, the mining sector and other select industries are now allowed to operate at limited or full capacity. However, since the threat of COVID-19 transmission is still present as cases continue to rise every day, operations of industries are allowed but remain subject to the condition that they follow strict safety protocols. In line with this, the MGB has released guidelines for the resumption of mining and mineral processing operations under GCQ under Memorandum Order No. 2020-004. Workforce and Working ArrangementsUnder the guidelines, a workforce anywhere between 50% up to full operational capacity at the mine/plant site shall be allowed, without prejudice to work from home and other alternative work arrangements. In order to determine who will be required to report for work, mining contractors or permit holders are mandated to conduct personnel profiling in accordance with the IATF-MEID guidelines. Employees not allowed to report for work or those who are prescribed to be on self-quarantine shall be subject to special work arrangements, such as work from home. Responsibilities of Mining EmployersAside from personnel profiling, mining contractors or permit holders are also required to provide for the necessary medical equipment and supplies, such as thermal scanners, masks, gloves, and hand sanitizers, as well as transportation to and from mine and plant sites and accommodation for employees residing five (5) kilometers away from the mine or plant site in order to reduce exposure to the virus and protect the workers from infection. To further ensure the safety and health of the mining workforce, mining contractors or permit holders are also enjoined to observe strict sanitation and physical distancing measures. Guidelines for shipment of minerals and mineral products In cases of shipment of minerals or mineral products, supplies and materials, the guidelines require that cargo vessels shall undergo a 14-day quarantine beginning from the time of its departure at the last port of call.No vessel crew may be allowed to disembark from the vessel and only personnel authorized by the Philippine Ports Authority and cleared by the Quarantine Medical Officer may board the vessel subject to observation of a “no contact” policy within the vessel. Additionally, miners are enjoined to follow measures to contain the spread of the disease, such as (a) submitting a Shipment Report containing the information on the crew list, the port of origin and the COVID-19 test results of the crew; and (b) passing through holding/disinfection areas for persons who shall board and disembark from the vessel.The guidelines, as well as the other measures implemented by the MGB, address the immediate impacts of COVID 19. In the longer term, mining companies need to consider the opportunities and risks arising from this crisis. While for some commodities, the short-term market demand may be low, other commodities like gold typically benefit in times of high uncertainty. Another so-called silver lining for the industry is the lower cost of energy, which usually constitutes 20-25% of operating costs.During this period, companies are also like to respond by rationalizing or streamlining their operations and their workforces, including automating more functions and processes. They will also be called upon to provide services, particularly in health care, to the host and neighboring communities ‘above and beyond compliance’ as these communities are often already underserved by the government.More than simply adapting to the crisis, mining companies are challenged to respond with resilience, particularly in navigating new or increased legal or financial risks. It is a brave new unprecedented world for us all, where only those who can embrace change will survive.Patricia A. O. Bunye is a Senior Partner at Cruz Marcelo & Tenefrancia where she heads its Mining & Natural Resources Department and Energy practice group. She is also the Founding President of Diwata-Women in Resource Development, Inc., a non-government organization advocating the responsible development of the Philippines’ wealth in resources, principally, through industries such as mining, oil and gas, quarrying, and other mineral resources from the earth for processing.
Philippine Resources - April 27, 2020
Hope Amidst the Challenges in the Time of Corona
The Philippines is currently facing one of the greatest challenges to its economy with the implementation of containment measures brought about by the Covid-19 pandemic. The enhanced community quarantine (ECQ) imposed by President Duterte was extended to May 15 on areas deemed still at high risk that includes the National Capital Region and nearby provinces in central and southern Luzon, considered the major business hubs of the country. There is no definite date in sight yet for the lifting of the lockdown and opening up the economy, as the government focuses on containing the virus and bringing the infection rate to lower levels. Premature lifting of the lockdown may have dire consequences as a second wave of infections could lead to a bigger toll on the economy.THE ASEAN+3 Macroeconomic Research Office slashed its 2020 gross domestic product growth forecast for the Philippines to 0.2%, warning that containing the virus should be the country’s top priority. Meanwhile, the National Economic and Development Agency said they are still “calculating” the economic impact of the 15-day lockdown-extension for high risk areas.Oil Markets in TurmoilThe outbreak also threw the oil market into turmoil and sent the sector into free fall. Wood Mackenzie reported that strategies to contain the spread of Covid-19, such as limiting people's movement, have directly lowered oil demand. Compounding these challenging conditions, the OPEC+ group, made up of OPEC and its leading allies including Russia, failed to agree on a concerted action to cut oil production to stabilize prices. Crude oil's recent collapse into negative prices was a clear indication of the scarcity of storage space for oil and the market's way of warning producers to stop pumping. Meanwhile, oil demand is set to fall even further as additional measures are put in place to limit the spread of Covid-19 putting strong downward pressure on prices. Major consumers like the shipping. aviation, and manufacturing industries are also facing challenges on their own contributing to the dampening demand for oil.Revenues and cash flow will collapse for oil-producing companies and countries including Russia and many Middle East countries,. If low prices are sustained, high-cost producers will exit the market and one of them is the US shale oil industry. Less money will be available for investments and companies will delay new projects and cut expenditures at existing operations. While the Philippines may benefit from low oil prices because it is a major importer, upstream activities will see a downtrend because of high capital cost particularly exploration and development in the West Philippine Sea. Nevertheless, now is the best time to negotiate gas supply agreements for natural gas-fired power plants.Long-term Shifts in Global Supply Chains From national lockdowns to closed airspace and borders, Covid-19 has resulted in unprecedented disruption to the mechanics of most economies. Oxford Business Group said the erection of these barriers has placed a major strain on the world’s supply chains, including essential linkages relating to food and medicines.While shocks may result in short-term changes to supply chains, some evidence points to the likelihood that the current pandemic may lead to more long-lasting structural shifts. China could lose its central position in many global supply networks because of the pandemic shutdown and US-China trade war, to Brazil, Mexico and certain emerging markets in Southeast Asia. Oxford Business reported that Covid-19 has accelerated the trend of US companies looking to realign supply chains closer to home in countries such as Mexico, while also diversifying them to reduce future exposure risk by relocating to ASEAN states like Vietnam, Indonesia, Thailand and Malaysia. Japanese companies are also reported to be relocating their supply chains to southeast Asia. However, the Philippines is way below the list of preference because the of infrastructure issues and the high prices of utilities.Cash Remittances Expected to DeclineCash remittances are expected to decline this year, as Filipinos living and working abroad face massive layoffs due to the global economic slowdown caused by Covid-19. Filipino workers particularly from Europe, USA and the Middle East are expected to remit less if not return home because of the economic downturn in the countries where they are employed. Also Filipino seafarers working in transportation and cruise ships will also have limited employment opportunities because of the downturn in the transshipment of goods and travel. Nomura Global Research said that the Philippines, the world’s fourth largest remittance recipient in 2018 according to World Bank data, is likely to suffer the most among remittance markets. Remittance inflows to the Philippines accounted for 9.9% of GDP in 2019. Historically, remittances had withstood previous economic crises and has continued to record growth despite challenging situations. Analysts have flagged that a drop in remittances could have a spillover effect on consumption, a key segment of the Philippine economy, accounting for 70% of its gross domestic product.Build Build Build to ContinueAs the government imposed a Luzon-wide ECQ, construction activities were also put to a halt. Originally, the government plans to spend over ₱1 trillion this year on various infrastructure construction projects to fill the country's needs for longer and wider roads, convenient train systems, and bigger airports and seaports. That plan may now be needed to be scaled down. President Duterte is open to dropping infrastructure projects scheduled this year to free up funds for Covid-19 response. Duterte is also thinking of selling government assets to generate more cash.However, Finance Secretary Dominguez remarked that the Duterte administration’s “Build, Build, Build” infrastructure program will push through despite the reallocation of around ₱30 billion of its budget towards COVID-19 facilities. He said that the program — which includes 100 big-ticket priority projects — will not be downgraded as it is being counted on as the "fuel" for the local economy to bounce back. On his part, Sec. Mark Villar is confident that the Department of Public Works and Highways will still be able to complete its infrastructure projects despite the lockdown. Meanwhile, Department of Transportation (DOTr) Secretary Arthur Tugade said that construction will resume for the railway projects. Tugade explained that the Inter-Agency Task Force tasked to implement the ECQ has allowed the DOTr to continue work on several railway projects. He acknowledged, however that some airport, seaport, and terminal projects may be postponed or delayed, as the government has diverted funds to fight the Covid-19 threat.The State of Real EstateThe Philippine Amusement and Gaming Corporation has suspended the operations of all Philippine Offshore Gaming Operators (POGOs) due to the ECQ imposed in Luzon. According to Colliers, the suspension of POGO operations and the imposition of travel restrictions on workers to and from China will likely result in delayed expansion among these companies and put a dent in office space take-up. Colliers however believes that the traditional and outsourcing firms could bridge the demand gap left by POGOs once market sentiment improves in the second half of 2020. According to Finance Secretary Carlos Dominguez III, the government is currently evaluating a proposal to allow POGOs to resume operations. However, the expansion of POGOs from 2020 to 2021 hinges also on the lifting of travel restrictions.The Information Technology and Business Process Association of the Philippines has advised outsourcing companies to implement flexible work arrangements to prevent the further spread of Covid-19. Meanwhile, the Philippine Economic Zone Authority (PEZA) has allowed information technology enterprises to adopt work-from-home arrangements without prior approval from PEZA. Alternative work arrangements would embolden traditional and outsourcing companies to accelerate adoption of technology and further explore implementing flex-and-core strategies that comprise a mix of traditional office and flexible workspace. Colliers advised that firms should effectively communicate cloud computing strategies to their employees to minimize disruptions from the abrupt switch to remote working.Colliers also sees residential demand in Metro Manila softening in 2020. If the virus is contained in the first half, we may see market sentiment improving starting the third quarter and a recovery in demand and supply in 2021. Among the major concerns for the residential sector are unemployment, business and consumer confidence, and OFW remittance inflows. On the supply side, the work stoppage due to ECQ will delay project completions.Colliers also believes that social distancing will likely be part of the “new normal”. A significant number of retail shops are still likely to be closed by the time the ECQ is lifted but these brick-and-mortar retailers may tap the demand by expanding their online presence. Retailers may create their own e-commerce sites, utilize existing sites of major mall operators, or use popular social media platforms such as Facebook and Instagram. Consumers may prefer to buy online than go to the mall.Living in the “New Normal”In an online seminar, Ateneo Center for Economic Research and Development Director Alvin P. Ang said that even with the lifting of the ECQ, the following “new normal” will continue to be observed: no gathering of more than 10 people, physical distancing, wearing protective accessories like masks and gloves when going out, waiting time in public places, and working from home. Financial, power, water, and Internet services will be in high demand. Basic mobility and online delivery services will also be needed to ensure that Filipinos will be able to get their basic food and non-food needs. Businesses that will boom post Covid-19 include digital marketing services such as website development and social-media presence, apps development, business-process outsourcing, video conferencing, digital consultation platforms, and basic skills and do-it-yourself learning services and webinars offered online. Online platforms for gaming and entertainment will also thrive. The pandemic has expedited the arrival of the app economy especially for online banking and money transfers. The World Health Organization, however, warned that hackers and cyber scammers are taking advantage of the Covid-19 pandemic by sending fraudulent emails and WhatsApp messages that attempt to trick people into clicking on malicious links or opening attachments.ConclusionThe moment we realized the full catastrophic implications of the Covid-19 pandemic was the time our individual world stopped. We will not see the light at the end of the tunnel unless a vaccine is formulated. But even then, we may have to brace ourselves for another lethal viral outbreak. The good news is that while we are in the midst of our quarantine, there are dramatic changes in online technology developing at breakneck speed. We can adapt to and even flourish under the new normal if we can work out the right experience and business model. There is no turning back now.Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and Business Development. He may be contacted at email@example.com for any matters or inquiries in relation to the Philippine resources industry. Feel free to follow Atty. Penarroyo on LinkedIn (https://www.linkedin.com/in/fernando-s-penarroyo-2b8a7312/)
Philippine Resources - April 13, 2020
I Remember Senior Brod Jun Factoran
By: Fernando “Ronnie” S. PenarroyoLast 05 April 2020, former Secretary of the Department of Environment and Natural Resources (DENR) Fulgencio “Jun” Factoran, Jr. died from a lingering illness at the age of 76. He earned his Bachelor of Arts in Humanities (cum laude) and Bachelor of Laws from the University of the Philippines (valedictorian, 1967), and his Master of Laws degree from the Harvard Law School. He was a bar topnotcher and a member of the Sigma Rho fraternity, the same UP Law-based fraternity I belong to.Because of his impeccable academic credentials, Senior Brod Jun was recruited for membership in what was then known as the "Salas Boys” - bright, idealistic young men who worked for the government under the tutelage of Rafael Montinola Salas. Salas served as executive secretary to President Ferdinand Marcos prior to Martial Law until a falling-out on policy differences prompted Salas’ resignation from the Marcos government. Salas then became the first head of the United Nations Population Fund when the agency was created in 1969. The “Salas Boys” imbibed the idealism, honesty, integrity, and spirit of public service that Salas was known for.Senior Brod Jun was active during the Martial Law years as a human rights lawyer and co-founder of Mabini, or the Movement of Attorneys for Brotherhood, Integrity, and Nationalism Inc. With the fall of the Marcos government, Factoran served as deputy executive secretary under President Corazon Aquino from 1986 to 1987. He subsequently became DENR Secretary from 1987 to 1992.I first met Senior Brod Jun Factoran when I started in the mining industry as a young lawyer working for an Australian company. At that time he already left government service and set up his law firm, Factoran and Associates, and environmental consultancy firm, Gaia South, which our company retained. We connected immediately as we were fraternity brothers.I always look forward going to his office to have our regular meetings. My Australian colleagues have had high regards for Senior Brod Jun as he was well-versed not only in mining and environmental law but in other branches of resources law as well. He patiently mentored me in Philippine resources law explaining to me in great detail the nooks and crannies of various DENR administrative orders and issuances on mining, environment, forestry and protected areas. I will fondly remember on the day before I was to leave for secondment to our head office in Melbourne, he sent one big bilao of pancit (fried rice noodles) to the office as a sort of despedida, which was happily shared by all the office staff. It was a simple gesture but you know that he did it with all sincerity.After my one year secondment in Australia, I returned to the Philippines and my first order of battle was the constitutional challenge filed by Marvic Leonen against the 100% foreign-owned Financial and Technical Assistance Agreement of my company (La Bugal-B’laan Tribal Assn. vs. Ramos). Senior Brod Jun was engaged to spearhead the defense. He assembled a battery of some of the best constitutional law experts of the country. He called on former 1986 Constitutional Commission member Fely Arroyo and former Acting Executive Secretary and Court of Appeals Justice Magdangal Elma. The litigation teams of Sycip Salazar and Quisumbing Torres were also on board the defense team. I saw firsthand how Senior Brod Jun managed to coordinate and handle the high-profile lawyers and prepare the defense like a maestro adeptly conducting an orchestra.Much has been said about Senior Brod Jun’s human rights advocacy. But to my mind, his greatest contribution is in the field of indigenous peoples’ rights. During his stint as DENR Secretary, he worked for its recognition which culminated in IP rights to be more explicitly acknowledged in 1993, with the issuance of the (DENR) Administrative Order No. 2 (DAO 2). DAO 2 allowed for the delineation of ancestral domains and the issuance to indigenous communities of Certificates of Ancestral Domain Claims and Certificates of Ancestral Land Claims. DAO 2 ultimately paved the way for the eventual passage of the Indigenous Peoples Rights of 1997. Now IPs must give their free and prior informed consent on any projects in their ancestral domain and are entitled to royalties from the revenue of resources companies.Forestry was another of Senior Brod Jun’s advocacy. He contributed to the promotion of the ideals of community-based resource management through the rules and regulations pertinent to Community-Based Forest Management (CBFM) issued under his authority. CBFM is a program of the government to encourage reforestation and sustainable management of forests. Under a CBFM agreement, a community is entitled to develop and use a forest area and its resources for twenty (25) years. Senior Brod Jun, in his capacity as DENR Secretary was named as respondent in the case of Oposa vs. Factoran (1993), a landmark decision of the Philippine Supreme Court, which recognizes the doctrine of intergenerational responsibility and a contributor to the development of international environmental law. He encouraged the petitioners, through their parents, to enjoin the DENR Secretary from issuing timber licenses, invoking their right to a healthy environment pursuant to Sections 15 and 16 of Article II of the 1987 Constitution. Intergenerational equity in economic, psychological, and sociological contexts, is the concept or idea of fairness or justice between generations currently living and generations yet to be born. After the case was decided, it paved the way for the Philippine government to create an inventory of the remnant old growth forests and restricted logging in those areas. Because of his standing in the civil society movement and his experience as environment secretary, Senior Brod Jun was appointed as an independent director in mining firms such as Atlas Consolidated Mining and Nickel Asia. He also brought his management skills and legal experience to government corporations and entities like the National Electrification Administration, Philippine National Oil Company, Philippine Charity Sweepstakes Office, Development Academy of the Philippines, and Government Service Insurance System.The last time I saw Senior Brod Jun was during the launching of Senior Brod Rick Ricamora’s (2016) documentary portfolio Blood, Sweat, Hope and Quiapo at the Ayala Museum. He personally introduced me to another senior brod in attendance, the distinguished mining tycoon, Manny Zamora, Chairman of Nickel Asia Corporation. We talked mostly about the mining and energy industry. Unfortunately, I forgot to take a souvenir photo for posterity with two captains of industry.I will surely miss Senior Brod Jun. It’s rather unfortunate that he passed away at this time of Covid-19 pandemic, we could have given the man the accolades due him. Whatever his political inclination was, I hope that this humble tribute will enshrine his memory in the halls of national statesmen. He was certainly one of Sigma Rho’s greatest gifts to the country.Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and Business Development. He may be contacted at firstname.lastname@example.org for any matters or inquiries in relation to the Philippine resources industry. Feel free to follow Atty. Penarroyo on LinkedIn (https://www.linkedin.com/in/fernando-s-penarroyo-2b8a7312/)
Philippine Resources - February 20, 2020
Rolly Peña: The Revolutionary as a Geologist
In the morning of 04 December 2018, I received numerous text and viber messages from friends and colleagues from the tight-knit geoscience community informing me that Edwin Domingo, former Department of Environment and Natural Resources (“DENR”) Asst. Secretary, urgently wanted to get in touch with me. I thought that it might be a client referral. I was able to call Edwin and indeed he has a case for me. To my surprise, it was about Rolly Peña. A few days before, the community was abuzz with the news of Rolly’s tragic death from an accident involving a passing Grab motorcycle along a dark spot in Quezon Avenue. Edwin asked if I could volunteer to serve as legal counsel for Rolly’s daughter, Sybil Jade, in her forthcoming meeting with Grab. Edwin said that Dr. Manoling Ramos, a close friend and fraternity brother of Rolly, would be coordinating with me as Sybil, who was based in Germany as a doctor working for Médecins Sans Frontières(Doctors Without Borders), has yet to arrived in Manila for her father’s funeral services.I whole-heartedly took on the opportunity to assist pro bono as my humble contribution to Rolly’s enduring legacy to the geoscience community. I have worked with him professionally on several occasions and considered him a stalwart in the resources industry. As fate would have it, I personally knew a high ranking executive in Grab and called him immediately. My friend in Grab was fully aware of the accident and he mentioned that his company was at that time trying to reach out to the nearest family member of Rolly. I disclosed that I was legally representing Rolly’s daughter and we discussed Grab’s offer of financial assistance.I made arrangements for Sybil and I to meet with the Grab representative during the necrological service for Rolly at the National Institute of Geological Sciences (“NIGS”) in the afternoon of 06 December 2018. The meeting between Sybil and the Grab representative was initially frosty because while Sybil was obviously mourning the lost of her father, the Grab representative appeared to her as perfunctory in the discussions. To ease the tension, everybody decided to continue with the discourse after the memorial services.When we continued our meeting, the Grab representative upon witnessing and hearing the eulogies given by Rolly’s friends, comrades, and colleagues, broke down into inconsolable tears. She was given a perspective on who Rolly was from the testimonials, his contribution to science and heroic struggle to fight for the oppressed. The parties finally came to an agreement and Sybil decided that she would use the assistance as seed money to preserve her father’s legacy.Fast forward a year after, I attended the Christmas party of the University of the Philippines Geology Alumni Association held at the NIGS. I again saw Sybil and this time she was signing dedications on books. The book was a memoir of her father detailing his experiences in the Philippine communist revolutionary movement as an activist, guerrilla and political exile in China during the Martial Law years. It also contained poignant letters that Rolly wrote to Sybil when he resurfaced to the mainstream after leaving the underground movement. The last part includes a compilation of eulogies given during the necrological rites, newspaper editorials by colleagues, and articles written by people whose lives were touched by Rolly.“Crossings - Portrait of a Revolutionary”In the book, Rolando (“Rolly” or “Rol" to his close friends) Peña was variously described as a friend, mentor, comrade, linguist fluent in French and Mandarin, leftist propagandist, art and film lover, walking dictionary and encyclopedia, audiophile, bibliophile, poetry aficionado, rare book collector, lover of women, and supporter of women’s rights. Most of all, he was an affectionate father to Sybil despite growing up in Rolly’s absence.After graduating with a geology degree from the UP College of Arts and Science in 1962 and placing third in the board exams, he worked as a geologist at the then Bureau of Mines. He juggled work and political activism, and put up newsletters for the underground left as an alternative to government-sanctioned newspapers. He was instrumental in setting up the “Liberation”, the propaganda mouthpiece of the communist movement.Rolly finally joined the armed struggle and was tasked by Jose Maria Sison, founder of the Communist Party of the Philippines (“CPP”) and its armed wing, the New People’s Army (“NPA”), to do an important mission. At that time, China was exporting its proletarian revolution and sending arms to Third World countries that embraced the leftist ideology. Rolly, who was presumed to know navigation as he was a geologist, was entrusted to lay the course for the MV Karagatan, a wooden hulled boat consigned to smuggle arms from Fukien, China to the Philippines in 1972. However, the arms landing was intercepted by the Philippine military in Palanan, Isabela and Rolly became a fugitive.Despite the refusal of Deng Xiao Ping to fund further arms shipment to the Philippines, Chinese leader Mao Zedong approved a second arms landing in 1974, this time aboard the ship MV Andrea. The ship, again helmed by Rolly, hit the Pratas reef somewhere between Hong Kong and Taiwan. After the beleaguered crew was rescued, the Filipinos including Rolly, were brought to Hong Kong, spent some time in jail, and ultimately sought political asylum in China.Rolly called his group of asylum seekers as the “Dirty Dozen.” During their sojourn in China, the group engaged in a wide array of military training and political indoctrination laid out by the Chinese communist party leaders. Their activities included naval warfare, revolutionary historical site visits, political studies in the Marx-Lenin-Mao thought, medicine involving surgery and acupuncture, Chinese language studies, fishing, integration with the peasants in state farms and communes, infrastructure, and factory work. Rolly was also able to get the approval of the Chinese government to work as a geologist in the Shinjiang oilfields to hone his scientific knowledge while in exile. Interestingly, Rolly already wrote about the brewing rift among the political exiles because of their disparate opinions on the leadership of the revolutionary movement they left behind. Amidst this internal strife, Rolly did his best to remain neutral. He was sent back to the Philippines in 1981 to continue his work in the armed struggle.Back to the MainstreamRolly left the underground revolutionary movement in 1992. On his decision to leave the armed struggle, he wrote:“Anyway, by 1992, I was feeling that I had no sense of achievement, and I decided to come out and get into something that was intellectually stimulating, where I could still learn something and apply a little learning to some ‘earthly’ problems.”It was the late Dr. Raymundo Punongbayan, former director of the Philippine Institute of Volcanology and Seismology who was responsible for his return to the Mines and Geosciences Bureau (“MGB”). He went back to the same job and position that he left when he joined the NPA, and wrote that he “still go to the mountains but to do fieldwork and research”.He was seconded by the MGB in 1995 to work as a Technical Assistant on Mining Matters to DENR Secretary Victor O. Ramos. It was during this time that I met Rolly when I was working then as a newbie lawyer for Western Mining Corporation’s Tampakan Copper Project (“WMC”). WMC was a Melbourne-based Australian major mining house, which held a Financial and Technical Assistance Agreement granted by the Philippine government. Rolly was our go-to guy and liaison at the DENR when we wanted to set an important meeting with either the DENR Secretary or the MGB Director. In fact my former boss at WMC, Project President Terence Gardner, fondly referred to Rolly as “the ghost who walks” because he was like a specter lurking in the shadows in our dealings with the DENR/MGB. He was a quiet presence but surely a strong influence in the mining bureaucracy.Following the Marcopper mine accident in 1995, the DENR to address the growing public opposition to mining, decided to review and revised the implementing rules of the Mining Act of 1995. Representing WMC’s interests, I got involved in the process and attended the country-wide public consultations on the proposed Revised Implementing Rules and Regulations of the Mining Act. In August and September of 1996, I joined Rolly and other DENR/MGB officials in stakeholder meetings in Baguio City, Cebu City, Davao City, and Manila.Despite Rolly’s background, he was a staunch advocate of the Mining Act. However he wrote in his book that he was torn between his advocacy for responsible mining as a bureaucrat and the leftist ideology that was against the so called “development aggression” and exploitation of resource companies particularly the foreign mining firms. He narrated an event that I myself witnessed during a public consultation held at the UP College of Law:“The leftist groups (Bayan and affiliates) were there but did not stay. They had placards, streamers and blistering statements for the repeal of the Mining Act. What we set out to do was to make it more responsive to the community and the environment. They don’t realize that if the Mining Act is repealed, we will go back to the old laws which are so worse.”“But then I realized that they just have to take a hard stance, make denunciations, without really thinking of the consequences. But the NGOs which want a better deal for the community, for the indigenous peoples, the environment, did make proposals, many of which we have adopted. For some proposals, we just had to arrive at a middle ground since the mining industry would balk at them. Being in the government agency concerned with this matter, I find myself caught between the industry and NGOs. Still the demands of NGOs (except the extremists”) are easier to address than industry, especially foreign companies who count their dollars and want everything opened to them. This time, we are asking the industry to get the informed consent of the concerned indigenous people and communities before a permit is granted.”It must have been extremely difficult for Rolly to transition from an anti-imperialist and anti-capitalist ideologue to a government bureaucrat promoting investments in natural resources extraction to both local and foreign companies. Rolly did perform well in the bureaucracy and was eventually promoted to MGB Regional Director in 1999, a position he held till his retirement in 2006. In the meantime, Rolly finished his Master of Science in Geology degree from UP NIGS in 1998, a course he started way back in 1966 that was abruptly discontinued when he went underground.Despite his prominent and active role in the mining industry, Rolly maintained friendly ties with his former comrades who were deeply divided into two hostile factions - the “Rejectionists” and the “Reaffirmists.” The division among the leftists groups happened in 1993 when Armando Liwanag — believed to be the nom de guerre of CPP founder Jose Maria Sison — issued a document in 1991 called “Reaffirm Our Basic Principles and Carry the Revolution Forward!”. The document sought to return the CPP to its founding principles of characterizing Philippine society as “semi-colonial and semi-feudal” and the waging of a protracted people’s war in the countryside to topple the government in accordance with the Marxist-Leninist-Mao Zedong thought.Those who supported the document were called “Reaffirmists” while those who refused to accept it were called the “Rejectionists”, who advocated for less ideological rigidity and more openness towards other forms of political struggle, such as legal and parliamentary participation thus relegating the armed struggle to the backdrop. Many “Rejectionists” civil society activists joined the non governmental organization (“NGO”) sector, which expanded in the early 1990s due to both the massive influx of foreign funding and the readiness of successive post-Marcos governments to accommodate more moderate and reformist civil society groups.The NGO sector was prominent in its opposition to the promotion of the mining industry as a development strategy by the Philippine government. They either actively opposed the Mining Act of 1995, clamored for strict provisions in the implementing rules and regulations making it difficult for companies to work under the present legal and administrative framework, or lobbied for a more “nationalistic” mining legislation devoid of large-scale mining and foreign capital. They also actively pushed for the implementation of the Indigenous Peoples Rights Act of 1997 and encouraged local government units to veto mining and energy projects within their jurisdictions.Contribution to GeoscienceAfter serving as regional director, Rolly returned to UP, which provided him a laboratory at NIGS where he resumed research work and generously made himself available for consultation to the private industry and students of geology. It was at this stage in his life that he made an enormous contribution to geoscience.During his stint in the private sector, Rolly made two great contributions to the study of geology. He wrote the Lexicon of Philippine Stratigraphy (2008) and edited “The Geology and Mineral Resources of the Philippines” Volumes 1 & 2, Second Edition (2004). The Committee on Stratigraphic Nomenclature of which Rolly was Chairman, formed under the auspices of the Geological Society of the Philippines (“GSP”) helped Rolly finalize the Philippine Stratigraphic Guide while a committee of MGB geologists helped Rolly complete the Geology of the Philippines Volumes 1 & 2, Second Edition. The literatures became a bible of sorts for professionals and students of geology.Noe Caagusan, a good friend of Rolly since their UP days, fraternity brother, and fellow geologist, in a fitting tribute wrote a scholastic review:“While the compilers of the Geology of the Philippines (1981) succeeded in accounting for every bibliographer report, they also have unleashed a self-generative device that liberally established variant names of rock units, or even invalid nomenclatures that cluttered the stratigraphic column.”“Rolly sensed these superfluities, as he knew personally many of those who had written the geological reports where the Geology of the Philippines were culled. He was familiar with the parochial bias of many writers and their penchant for “updating’ formational definitions and appending a new name as well.”“Peña’s Lexicon identifies the geologic formations of various places in the Philippines based on layers (stratification) of rocks, their ages, evolution, and geologic events in hundreds of millions of years. Its deep data, both ancient and new, give historic numbers to corals, mountains, rock formations, seas, and volcanoes that tourists often describe as awesome, beautiful and unusual. It seeks to end the rampant and erroneous updating and renaming of Philippine rocks.”“The GOP Second Edition Peña edited is about rocks in the Philippines, their names, classification, genesis, histories and geochemistry or mineral contents. The first edition of the GOP Volumes 1 and 2 was based on work done by earlier generations of foreign and local geologists which Peña read when he worked as a petrologist in fieldworks that lasted six to eleven months a year, from the ‘60s to the ‘70s.”Benham RiseRolly worked and collaborated with a team of scientists from UP NIGS when the Republic of the Philippines filed its claim for Benham Rise in 2008 in compliance with the requirements of the United Nations Convention on the Law of the Sea. Rolly was with a team that gathered hydrographic, geological, and geophysical data that showed that Benham Rise was part of the 350 mile-continental shelf that extended from the baseline of northeastern Philippines.The Philippine Government based its claim on Republic Act No. 9522, also known as the Archipelagic Baselines Law (2009), and asserted that on the basis of seismic and magnetic data and other geological features, the region is an extension of the Philippines’ continental shelf. This culminated in the full adoption of the Philippines’ submission for an extended continental shelf in the Benham Rise Region by the Commission on the Limits of the Continental Shelf of the United Nations on 12 April 2012.Masungi GeoreserveRolly also conducted the study and research needed to jump start the heritage interest in the Masungi geological formation resulting in the establishment of the Masungi Georeserve, a conservation area situated in the Southern Sierra Madre range, in Baras, Rizal. The Masungi Georeserve is a nature reserve characterized by rugged limestone karst peaks, steep slopes, and surrounding lush montane rainforests. The georeserve received multiple international awards from the United Nations Biodiversity Program, the International Union for the Conservation of Nature and the United Nations World Tourism Organization. Rolly’s contribution not only involved lending his geologic expertise but also engaging with park rangers, the local community, schools, landscape architects, biologists, government representatives, and other stakeholders, which elevated Masungi as a global best case practice.Professional Interaction with RollyIt was during my presidency of the Geological Society of the Philippines (“GSP”) in 2017 when I had the chance to work closely with Rolly. At that time, Rolly was the Chair of the Board of Geology of the Professional Regulatory Commission, a positioned he assumed in 2015. During my term as GSP President, we were able to obtain the registration of GSP as the accredited integrated professional organization for geologists through the able assistance and endorsement of Rolly and the other members of the Board of Geology.I and my fellow officers and board members at GSP were amazed at the energy exhibited by Rolly in his many roles in GSP. Rolly was the editor of the scientific Journal of the GSP. In addition to being JGSP editor, Rolly also held several key positions such as Chair of the Geo-Heritage Committee and member of the Continuing Professional Development Council of the Board of Geology. He was also a qualified “competent person” for mineral exploration under the Philippine Mineral Reporting Code. We can always count on him in attending all the regular and special board meetings of GSP and consult with him on policy matters affecting the geology profession.Rolly was also the GSP’s permanent representative to the Regional Congress on Geology, Minerals, and Energy Resources of Southeast Asia (“GEOSEA”). GEOSEA aims to foster an exchange of ideas, experiences, results, information and cooperation in geology, minerals and energy resources in Southeast Asia, bringing together the experts from academia and industry all over the world.During my stint as GSP President, the Philippines applied and was chosen to host and organize the 2020 GEOSEA Congress in Manila. Rolly, who diligently attended the secretariat meetings, was instrumental in getting the nod of the geology associations from the other ASEAN member countries. The GEOSEA Congress, conducted every two years, is the “SEA games” of the ASEAN geoscientific community. The Philippines last hosted the GEOSEA Congress way back in 1995.The official Philippine delegation attended in full force the GEOSEA Congress in Hanoi, Vietnam in 2018 for the turn-over ceremonies. Representing the Philippines were our chief of delegation, Department of Science and Technology Undersecretary and Phivolcs Officer-in-charge, Renato Solidum with selected officers of GSP including myself and Rolly. During that congress, I was a witness on how Rolly was treated with respect and high esteem by our counterpart foreign experts.My Impression of RollyRolly shared some unmistaken similarities with a quirky law school professor. Behind the unassuming facade and quiet demeanor, he held a treasure trove of accumulated knowledge and street-smart experience, you could only unravel if you dared to ask the right questions and gained his familiarity through personal interaction. I’ve heard about his radical past but I only got to know his fascinating life story after I have read his book.From a generation not born of entitlement, Rolly possessed a patriotism that directed him to the only viable option for him to attain his ideals, the path of armed struggle. His road to revolution was the culmination of social unrests prevalent at that time, a fulmination of protests and mass actions whose catalyst was youth movements heightened by political consciousness in the early ‘60s. He took a storied route, initially joining underground cells while staying put in government service as part of the resistance, and ultimately embarking on the crucial decision of participating in the armed struggle.Perhaps the same innate courage and patriotism that brought him to the movement made him return to the mainstream. His idealism and aspiration to gratify his need for more scientific knowledge not for personal aggrandizement but for the common good, which for obvious reasons he was unable to pursue underground, finally made him resurface and join the government he sought to overthrow.Rolly was first and foremost, a geologist and a scientist, trained in critical inquiry in the rich tradition of creative, open-minded, empirical inquiry and evidence-based probing of nature’s secrets. Unfortunately in today’s settings, findings of science are now under siege from a variety of economic and political forces. These forces selectively dismiss, deny, and distort legitimate results of scientific research when such run counter to their vested interests. Political expediency has even denigrated the scientific process as mere “opinions” of scientists who are not “gods”.I think more than anything else, the lesson we must take to heart in Rolly’s life is that science must be devoid of any political and ideological agenda. Rolly’s higher calling was to bring to the public the best available scientific knowledge in the hope that it nurtures and inspires the future generation of scientists.Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and Business Development. He may be contacted at email@example.com for any matters or inquiries in relation to the Philippine resources industry. Feel free to follow Atty. Penarroyo on LinkedIn (https://www.linkedin.com/in/fernando-s-penarroyo-2b8a7312/)
Philippine Resources - February 20, 2020
Diversity & Inclusion in the Workplace
By: Patricia A. O. Bunye“Diversity & Inclusion” are two buzzwords that I have taken for granted, but have been forced to think about, in the last few weeks. An international legal publication contacted me to ask whether our firm had a “Diversity Statement”, and of course I replied that we did, as most major law firms now do. I was also invited to attend a forum on the same topic, where I realized just how much I didn’t know and still had to learn about it.At least once a year, the members of Diwata-Women in Resource Development, Inc (“Diwata”) and I devote time to planning activities for International Women’s Month which is celebrated globally in March. This year, on March 31, Diwata is presenting a talk on women’s leadership in resources development headlined by Gloria Tan Climaco. Recognizing that, in the Philippines, although women are very well represented in various fields in the mining industry – including law, finance, geology, mining engineering, community relations, communications, among many others – there is still a very long way to go for many women before they reach the top of their respective fields. Based on data from Bloomberg, only one in 20 global mining firms headed by a woman. Hence, the need to present strong women role models who can share their stories.These days, however, “diversity” no longer just means giving equal access to men and women in the workplace, but to accommodating or accounting for the “collective mix of all human characteristics”, whether visible (such as race, gender and disability) or invisible (such as socio-economic status and SOGIE (Sexual Orientation and Gender Identity Expression).On the topic of SOGIE alone, I confess that I need to be educated on the ever-expanding spectrum of orientations and identities.Diversity must also be distinguished from “inclusion” which refers to getting the mix to work well together, particularly in the work environment, where all individuals are treated fairly and respectfully, have equal access to opportunities and resources, and can contribute fully to the organization’s success.As pointed out by one of the speakers, diversity is akin to inviting someone to a party and inclusion is asking that invited guest to dance.I am reminded of the story when Harvard Law School (HLS) first admitted women in 1953. While women were finally allowed to attend HLS, it appeared that they did not have restrooms for women and the female students had to walk a fair bit to reach the restrooms that were specially constructed for them. Similarly, in the 1960s, Katherine Coleman Goble Johnson, one of the first African American NASA scientists whose work was critical to the success of the first and subsequent U.S. crewed spaceflights, had to use restrooms that were separate from her white peers.These days, restrooms still exemplify these diversity and inclusion issues, though the circumstances may have changed. According to one diversity and inclusion advocate, there are three main diversity and inclusion issues in the workplace: “the right to pee, the right to dress and the right to a name”.Under the first, we must consider whether there are gender-neutral restrooms where a person of any sexual orientation or gender identification would feel safe using, without harassment by others (i.e., restrooms are available for gender non-conforming people). Related issues are: Are restrooms designated as lactation rooms? Are there diaper changing tables in the men's restrooms? Are the directional signs to the restrooms in Braille and other spoken languages of the community or only in English? Are there handicapped restrooms located in your building? How many restrooms have sufficient space for a person (adult or child) and a caregiver?The second right (the right to dress) is a little trickier in professions that are conservative like law or banking, or industries which may require certain safety gear, like mining, but certainly, gone are the days when a ‘one size fits all’ dress code may be applied.The third right, the right to a name, is also tricky, as it refers not only to the proper name a person wants to be identified by (which may be limited by the person’s legal name on official or government documents, but also the pronoun (“he” or “she” or the neutral “they”) that person prefers.For many years, I have tended to consider the issues of diversity and inclusion purely in terms of gender, race and perhaps socio-economic background. Until very recently, I did not consider what resource persons have pointed out: that there are many other differences in the workplace that we must be sensitive to. For example, the differences across generations (i.e. Baby Boomers vs. Gen X vs. Millennials vs. Gen Z) or the pace at which a person wants to grow in an organization (i.e., there may be individuals perfectly willing to take the “slow track” in order to have more time with the family) are other factors that must be considered when making decisions in a business.All these are quite overwhelming and it is a great comfort that an inclusion advocate told me that what matters most is not being afraid to ask questions and the willingness keep the conversation on these issues open.Patricia A. O. Bunye is a Senior Partner of Cruz Marcelo & Tenefrancia and heads its Mining and Natural Resources Department and the Energy practice group. She is the Founding President of Diwata-Women in Resource Development, Inc., a non-government organization that advocates responsible development of the Philippines’ wealth in resources.
Philippine Resources - November 06, 2019
The New Face of Mining
By Fernando PenarroyoGlobal mineral exploration budget saw two consecutive years of growth in 2017 and 2018 despite the uncertainty of economic growth in mature economies and volatility of emerging markets, brought about by the US-China trade dispute. Junior mining companies who survived the previous years’ downtrend increased their exploration budget by thirty-five percent year over year but the majors continue to account for the majority of planned exploration spending. Metals prices were also trending upward and company market capitalization recovered from lows in 2015, resulting in many investors to include the mining sector in their investment portfolio. However, the industry continues to be risk averse though global exploration budget is expected to increase in 2019 particularly for late-stage exploration. Capital market support also financed renewed drilling of promising prospects in areas with stable political and regulatory systems. Drilling programs focused mainly on gold but exploration targeting base metal assets also rebounded in the second half of 2018, indicating a vibrant exploration sector activity not seen since early 2013. The bulk of exploration spending in 2018 went to Latin America which have a high geological prospectivity and relative political stability. Latin American countries accounted for 4 of the top 10 most popular destinations led by Peru, Mexico, and Chile. Meanwhile the Philippines is at number eight of the ten least attractive jurisdictions for mining investment according to the Fraser Institute’s 2017 survey of mining and exploration companies. The survey assessed how mineral endowments and public policy factors such as taxation and regulatory uncertainty affect exploration investment.By virtue of the initial tax reform package implemented by the Duterte administration, mining excise tax has been raised from 2% to 4%. Under the proposed second round of reforms, the Department of Finance wants a “comprehensive mining tax that will give the government a bigger share from miners’ revenues.” There are pending bills filed in both the Senate and House of Representatives that plan to impose 5% mineral royalties on all mining operations on top of the excise tax on minerals and other taxes. President Duterte continues to look at the possibility of imposing a ban on open-pit mining through an executive order (“EO”).The Mining Investment Coordinating Council is reportedly ready to propose the lifting of the open pit mining ban for as long as mining laws are strictly enforced. The Department of Environment and Natural Resources (“DENR”) will recommend the removal of the moratorium on new mining projects imposed under EO 79 and DENR Memorandum Order 2016-01, premised on the passage of a “legislation rationalizing existing revenue sharing schemes and mechanisms.” The DENR is also set to declare high mineral potential areas including all existing operating mines as mineral reservations. Further, the DENR seeks to promote the establishment of mineral processing plants and mandatory mineral processing of all nickel ore. It will finalize the national program and road map for the development of value-adding activities and downstream industries for strategic metallic ores while requiring all operating mines to have ISO certifications. In both houses of Congress there are pending mining bills requiring that mineral ores should be processed within the country and disallowing mining operations from exporting unprocessed mineral ores without a certification of compliance showing presence or lack of rare earth elements.It appears that the Philippine government is now looking at different strategies to extract a greater share of the value from mining operations, employing strategies to include increasing taxes and royalties, and requiring in-country processing or beneficiation prior to export. These are clear manifestations of resource nationalism that makes countries like the Philippines less attractive for mining investment.License to Operate Remains the Top RiskAccording to a 2019 Ernst and Young Report outlining the top ten business risks facing the mining and metals industry based on a survey of over 250 global mining sector participants, “license to operate” topped the list. This has been attributed to the rise of resource nationalism and digital transformation. License to operate has evolved beyond the narrow focus on social and environmental issues. The expectations of society have increased and stakeholder participation has moved beyond the confines of the local host communities. Social media and the internet brought about by the fast pace of progress in technology and digital capabilities, are now able to move information quickly. Resource nationalism has enabled society to examined its role as resources licensor. Society now expects more than just tax and employment opportunities from resource developers. New and strict disclosure laws have caused companies to rethink how value is being created for stakeholder communities including tax contributions, as investors now rely heavily on such disclosures. At the same time legal processes have enabled host communities and civil societies to resort to litigation to enforce environmental laws, enjoined potentially destructive operations, and seek damages for past violations and legacy mines. Any misstep on the part of resource developers can impact their ability to access capital or may even result in a total loss of their license to operate.Under the Mining Act of 1995 and its implementing rules and regulations, the following are the legal requirements for a company to have a license to operate:Technical and financial qualifications to engage in large-scale mining;The area being applied for is open and available for mining activities and is not located within any of the areas where mining is prohibited;An approved environmental compliance certificate, showing that the impacts of mining in the area can be mitigated and/or remediated through proper environmental protection measures;An approved Project Feasibility Study, showing that the mine has enough ore reserves to operate profitability, and can give government a fair share in revenues.The endorsement/approval of the local government units (province, municipality/city, and barangay) that will be impacted by the proposed mining activity; andFree and prior informed consent of the indigenous peoples, if the area being applied for is within their ancestral domains.New Digital TechnologyMiners are now recognizing the use of emerging digital technology to improve productivity. Mobile technology connectivity between workers and management facilitates communication in the mines, ensuring a safe and productive working environment. Mining companies are also revolutionizing data collection in the field with the help of the Internet of Things, which are smart data solutions that help management to relay important data such as water pressure, temperature, concentration of gases and other information. Cloud technology allows management and employees to quickly access and alter essential information, wherever and whenever needed.Robotics allow more autonomous vehicles and machinery to make operations smoother resulting in better safety, greater efficiency and cheaper running costs. In engineering industries which require hard labour intensive tasks, robots will be able to take over and do things faster and more efficiently than humans ever could. Predictive analytics is used currently to reduce maintenance costs and improve equipment availability.New WorkersWhile automation and data analytics technologies may increase efficiency, these will require a workforce that is skilled in data science, analytics, predictive modeling and mechatronics. However, recruiting and retaining this workforce will increase expenses as there is a limited pool of people with these skill sets. Current workforce will also need retraining as knowledge resources and will be required to possess a new set of skills needed to operate new machinery and technology, or work along-side and support automated systems.Universities and data science companies that develop innovations could gain an edge in exploration. Further, exploration innovation will not come only from engineering or geology; it will also emerge from biochemistry, bioengineering, and computer science—disciplines too complex for resources companies to manage in-house. Demand for new jobs such as data scientists, statisticians, and machine-learning specialists is already on the rise among resource developers. Within ten years, mining companies could employ more PhD-level data scientists than geologists. Mining organizations are also employing new tools including cloud-based human resources systems, data analysis of employee performance and real-time digital learning to manage and develop talent.New Energy SourcesFossil fuels are the conventional sources of energy to run mine equipment and electricity for processing, representing a significant part of mine operating costs. Companies are now opting for a mix of energy sources — fossil fuels, hydroelectricity and renewable energy. Mines, seeking to reduce costs and greenhouse gases, will be investigating ways to replace diesel-powered equipment with electric ones, as battery storage technology becomes more reliable and affordable. This will bring a number of benefits including the reduction of underground diesel emissions and ventilation costs.The integration of conventional and renewable sources is critical to ensure reliable and safe power for the mine. Such solutions will enable the mining industry to diversify its energy sources, reduce consumption of fossil fuels and carbon emissions, and cut operating costs.This will ultimately create a new generation of mines that will enhance the industry’s global competitiveness, long-term sustainability, and more importantly, public acceptance.New ThreatsWhile digital technologies will make mines more efficient, mining companies will have to allocate budgets for cybersecurity and devote additional resources to improve their defenses and work harder in embedding security-by-design due to the increasing potential of cyberthreat. As the digital transformation agenda forces organizations to embrace emerging technologies and new business models, cybersecurity is important because there is a heightened exposure to fraud, corruption and other related risks. Increased global connectivity means that anyone with access to company data especially those uploaded to cloud applications, can exploit weaknesses in data security. Companies’ critical digital and physical assets are therefore at a greater risk of theft, damage and manipulation than ever before.New World CommoditiesAt the same time, digital technologies have resulted in a change in commodity demand for critical minerals such as cobalt, lithium and copper. These minerals are required to manufacture energy conversion and storage equipment needed to supply the renewable energy industry which already is beginning to transform and disrupt global demand. The rise of electric vehicles and the production of an ever-growing variety of high tech and green technologies, from batteries, smart phones and laptops to advanced defense systems have also boosted demand and competition for new world commodities. The European Union, South Korea, Japan and US, are defining some minerals as ”critical” to ensure they are available for their supply security and future prosperity. Chinese state-owned enterprises are also already taking a significant proportion of the lithium-ion battery supply chain by purchasing and funding lithium and cobalt mines as well as downstream processing.New MinersWith the advent of digital technology and rising demand for new world commodities, the business of mineral exploration, development and production will not be conducted solely by traditional mining houses and junior companies. The mining and metals companies that will be the winners in the future will ultimately be those who have learned to adjust their business models and collaborate with other industries. Within their organizations, some miners are either using venture capital firms or setting up specialist internal teams to identify more specialized mining prospects as they seek to capture value beyond their core portfolios.The typical profile of a miner will also change. Technology companies may become direct or indirect investors as a way of shoring up and securing supply. With scarce new world commodities supply like cobalt and lithium and other rare earth minerals, cash-rich technology companies will venture into mining to ensure that they can continue to produce their products. Major metal consumers, such as tech giants, are moving to control whole value chains from raw material sourcing up to product delivery. Sovereign funds of rich economies, like Saudi Arabia and Norway will become major stakeholders in the sector as they look for investment opportunities for their petroleum revenue windfalls. On the other hand, state enterprises will wish to secure supply for national industries and protect jobs. Metal traders once again awash with cash because of recent strong commodity prices, are looking for opportunities and will reemerge as prominent players in the sector. Using blockchain technology, new technology entrants can engage in mining without owning any mines or distribution infrastructures in the same way that Uber does with no cars and Airbnb, with no real estate listings.ConclusionChange is the only certainty for today’s global mining industry. While the mining industry is currently benefitting from a positive outlook despite the ongoing trade war, the local industry is still facing a lot of uncertainty because of resource nationalism, regulatory issues, political risk, community relations and social license to operate. Mining companies will increasingly adopt emerging digital technologies to transform their operations in order to gain benefits such as reduced costs, improved health and safety of workers, minimized environmental impacts and a better understanding of the ore body. Innovative technologies will also facilitate the better management of operational costs, improve extraction methods, streamline distribution, and increase worker productivity. Companies will need to attract talents adept at emerging technology and adopt a level of flexibility in their business models by building partnerships with non-traditional, new technology “miners” for future growth.Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and Business Development. He may be contacted at firstname.lastname@example.org for any matters or inquiries in relation to the Philippine resources industry. Feel free to follow Atty. Penarroyo on LinkedIn (https://www.linkedin.com/in/fernando-s-penarroyo-2b8a7312/) ReferencesBeroe, Iniyakumar, Global Mining and Exploration Trends, 21 August 2019 https://www.beroeinc.com/article/global-mining-and-exploration-trends/Law, Jonathan, Changing the Face of Mining, Jonathan Law, CSIRO, 23 September 2019 https://www.csiro.au/en/Research/MRF/Areas/Resourceful-magazine/Issue-18/Changing-the-face-of-mining Risks and Opportunities for Mining: Outlook 2019, KPMG International, https://assets.kpmg/content/dam/kpmg/xx/pdf/2019/02/global-mining-risk-survey-2019.pdfTop Ten Business Mining Risks Facing Mining and Metals in 2019-20, Ernst and Young, 2018, https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/mining-metals/mining-metals-pdfs/ey-top-10-business-risks-facing-mining-and-metals-in-2019-20_v2.pdfWorld Exploration Trends 2018, S&P Global Market Intelligence, March 2019, https://www.spglobal.com/marketintelligence/en/documents/world-exploration-trends-march-2019.pdf
Philippine Resources - November 06, 2019
Amb. Delia Domingo Albert named to Order of Rising Sun
By Patricia A. O. BunyeYet another distinction was bestowed upon Diwata’s Chairman, career diplomat and our country’s first woman Foreign Affairs Secretary, Ambassador Delia Domingo Albert, when the Government of Japan conferred on her The Order of the Rising Sun, Gold and Silver Star, in recognition of her contribution to strengthening the economic relations between Japan and the Philippines. It is one of the highest honors conferred by the Japanese Government, following only those given to heads of state and royalty. The actual conferment took place in Tokyo on 23 May 2013, with Ambassador Albert (or “DDA” as she also known) receiving the award from Prime Minister Shinzo Abe, followed by an audience with his Majesty Emperor Naruhito. On 25 September 2019, the Ambassador of Japan to the Philippines, Koji Haneda, hosted a celebration of the conferment at his residence which was attended by DDA’s many friends and admirers, including this writer.In her own remarks at the conferment celebration, DDA recounted her “Japan Story”, which began at the University of the Philippines where a Japan specialist professor inspired her to learn more about that country. Later, still as a student, she had the opportunity to participate in an international students seminar at Tsuda College in Tokyo, followed by a workcamp in Awajishima, where she and other students built a road to link a small fishing village to other places in the island. This experience became the subject of a speech in a competition that she won, leading to tv appearances and magazine covers that allowed her to promote the Philippines in Japan. Even before becoming a diplomat, she was already an ambassador for the Philippines.How she entered the world of diplomacy, she says, was a case of being in the right place, at the right time, with the right people and certainly with the right credentials.” Upon returning to the Philippines from Japan, she was invited to introduce then Secretary of Foreign Affairs Narciso Ramos (the father of President Fidel V. Ramos) at the annual "Soiree Diplomatique" of the University of the Philippines Foreign Service Corps. Because Secretary Ramos’ CV was too short, DDA introduced him in 3 languages: English, French and Japanese, prompting the Secretary to hire her on the spot as his Social and Appointments Secretary because, as he said, she could say "no" in different languages and qualify as his "cordon sanitaire".In my years of working closely with DDA on Diwata and mining industry matters, it is her ability to seize the opportunity to make the most of the “right place, right time, right people” to advance the advocacies that are closest to her heart that has struck me. Because she is single-minded about her objectives and what she would like to achieve for the country, for the mining industry and for women, every encounter is an opportunity to bring people and resources together towards the attainment of the larger goals. Truly, working with her is a master class in diligence, doing your homework, consistency in messaging and so much more.Not only is she passionate about serving the country, her energy for it is inexhaustible. Upon her retirement from the government, she could have opted for a leisurely life, but she continues to be in perpetual motion: speaking, writing, organizing people, creating jobs and businesses, and most of all inspiring others by her example. Diwata, which she founded seven years ago to be, among others, a platform for discussion of the many issues on the mining industry, is just one of the many organizations that look to her for guidance and mentorship. What all these organizations and its members agree on is that we all can’t say no to DDA who never runs out of ideas and constantly challenges us to do better and do more.
Philippine Resources - August 20, 2019
Chinese Investments - Quid Pro Quo and Debt Traps
When President Rodrigo Duterte was elected in 2016, he made a complete turn-around in the Philippines’ relation with China. He cultivated friendship with Beijing in contrast to former President Benigno Aquino's hard-line approach particularly on the South China Sea maritime dispute. In exchange for Duterte’s offer of the olive branch, he was able to secure China’s commitments in the form of official development assistance (“ODA”) and private investments to his infrastructure projects under his Build Build Build (“BBB”) initiative. Duterte was also able to create a Chinese market for the country’s fruit exports and lift China’s travel ban paving the way for the influx of Chinese tourists. Chinese foreign direct investments (“FDI”) were also sought for real estate projects and Philippine offshore gaming operations (“POGO”). Developments in the Philippines bode well for China’s belt and road initiative (“BRI”), an ambitious global development strategy involving infrastructure development and investments spanning 152 countries to improve connectivity and cooperation on a transcontinental scale.The rosy relations with China did not sit well with some sectors however. Manila's arbitration victory against China over the maritime dispute was set aside. Critics lambast Chinese development assistance as nothing more than massive foreign borrowings, which the country pays back at usurious contract rates at the expense of giving away sovereignty but creating jobs for Chinese workers. At the same time, China’s aggressive stance in the South China Sea, now considered as Asia’s most complex territorial dispute involving land reclamation and militarization, have increased tensions and undermined peace, security and stability in the region.InvestmentsDuterte's BBB initiative plans to inject USD160 billion to USD180 billion in new infrastructure improvements during his administration, which saw an infrastructure spending increase from 2.7 percent of gross domestic product (“GDP”) between 2011 and 2015 to 6.3 percent of GDP at the start of 2018. Duterte’s BBB program has a combined price tag of USD171 billion required to complete the 75 projects, half of which is expected to be funded by money from China. Data from the Bangko Sentral ng Pilipinas reveal that FDIs from China more than doubled to USD28.79 million in 2017 from USD10.77 million in 2016. In 2018, Chinese investments have ballooned to USD198.68 million, a whopping 590% increase from 2017.This means that in under three years, Chinese FDIs already amounted to USD232.24 million, greatly exceeding the inflows in the Arroyo and Aquino administrations combined.Five Key Areas of Cooperation1) Policy Coordination:Beijing and Manila signed a Six-Year Development Program for Trade and Economic Cooperation in March 2017, which aims to gradually harmonize mutual development goals and interests within the BRI framework. Complementing the program is the agreement of the Board of Investments and the Bank of China on the 2017-2019 Investment Priorities Plan for Chinese Companies, which is meant to facilitate business-matching activities and industrial linkages.2) Infrastructure development and connectivity:China has pledged $7.34 billion in soft loans or official development assistance and grants for large-scale Philippine infrastructure projects and flagship programs. This amount forms part of $24 billion worth of agreements Beijing committed to President Rodrigo Duterte on his first visit to China in 2016. The basket of loans through official development assistance programs in two tranches ($7.19 billion) includes dam and irrigation, railways, expressways and bridge projects, among others.3) Trade and investment:China became the Philippines’ largest trading partner in early 2017, marking an increase of $15.04 billion (16 percent) from 2016. Furthermore, investments approved by the Philippine Economic Zone Authority and the Board of Investments more than tripled for the first three quarters of 2017 to around $40 million (from $10.9 million in 2016). Private Chinese firms are also making headways in penetrating the Philippine consumer market through mobile firms such as Huawei, Xiaomi, Oppo, and Vivo. Even Alibaba Group is making its presence felt in promoting financial inclusion and digital payment services through strategic partnerships with local firms, such as Globe Fintech Innovations Inc. or Mint. Moreover, Alibaba’s Alipay and Tencent’s WeChat Pay have also signed licensing agreements with Asia United Bank, which favorably enables Chinese tourists to drive the growth of cashless payment systems in the Philippines.4) Financial integration and connectivity: The Bangko Central ng Pilipinas officially added the renminbi as part of its international reserves. It also approved the Peso-Yuan spot market, which will lower the transaction costs for Philippine and Chinese banks and businesses by reducing reliance on the dollar as the intermediate peg. The issuance of “panda bonds” or renminbi-denominated bonds worth $200 million began, which could pave the way for more access to Chinese assistance in Philippine financial requirements.5) People–to–people exchanges and connectivity: China has become the Philippines’ second-largest tourism market. As of November 2017, 14 new flights connect China and the Philippines, and the Philippine Bureau of Immigration initiated a Visa Upon Arrival scheme for Chinese tourists. In the area of media and communications, China Central Television and the Presidential Communications Operations Office have signed an MOU for the rebroadcasting of China Global Television Network programs.Source: Aaron Rabena, The Complex Interdependence of China’s BRI in the PhilippinesAccording to Trade Secretary Ramon Lopez, of the $24-billion investment and credit line pledges that the Philippine government secured from China, $15 billion worth of investment projects were signed and allocated as follows:Itemized list of PH projects covered by China’s $15-B investment pledges to DuterteSource: Amy R. Remo, Philippine Daily InquirerTourismWith the lifting of the travel ban to the Philippines by the Chinese government, 1.26 million Chinese visitors were recorded last year, nearly triple the number in 2015. There is aggressive development of two and three-star hotels in the Manila Bay area and the fringes of the Makati central business district mostly catering to Chinese tourists. Property developer Double Dragon is planning to build more Jinjiang hotels, a chain popular among Chinese tourists and business executives given its brand recall and convenient booking platform. Double Dragon intends to more than double its room count to about 2,000 by 2020 in the country’s capital and other urban areas. It also helped that the Philippine government implemented the visa-upon-arrival scheme for Chinese nationals. Justice Secretary Menardo I. Guevarra however said that his department and the Bureau of Immigration will tighten up the rules since the scheme was reportedly being abused by overstaying Chinese who ended up working in the Philippines. Development of Industrial ParksMemoranda of Understanding between the Philippine and Chinese governments on industrial park development were also signed as Chinese industrial park developers are aware of the rising demand for industrial space in the Philippines given the country’s expanding manufacturing and export base. Among the investment pledges signed worth USD9.5 billion that is seen benefitting the property sector are the following:USD3.46 billion project with Shanghai GeoHarbour Group that involves land reclamation and development projects;Development of large tourism projects and electronic industry parks with Zhongfa Group;Construction of China-Philippines International Techno-Industrial Zone with China National Heavy Machinery Corp; andDevelopment of infrastructure and construction projects with Haocheng Group.Philippine Offshore Gaming OperationsFifty-four (54) POGO licenses offered by the Philippine government that allow companies to set up internet-based casinos for overseas gamblers were bagged by China-linked companies, bringing with them dozens of companies providing information technology support and call center services manned by Mandarin-speaking mainlanders. POGOs have overtaken the Information Technology and Business Process Management (“IT-BPM”) industry in terms of office demand. Demand from Chinese-run firms in the first half of the year already exceeded 2018’s full-year take-up by 37%. In 2018, POGOs took up 229,000 square meters (sq. m.) of office space, while take-up as at June 30 this year was at 315,000 sq. m.Much of the growth in demand could be attributed to the growing acceptance of POGOs among Philippine landlords. From only three (3) local government units giving Letters of No Objection (“LONO”) to POGOs in 2016, there are now seven (7) cities in Metro Manila issuing this document required by the Philippine Amusement and Gaming Corporation for POGOs to operate in their areas. These cities include Makati, Pasay, Parañaque, Mandaluyong, Las Piñas, Muntinlupa, and recently Quezon City by way of Special Use Permits. To date, Taguig City has yet to issue LONOs to POGOs, but hosts the largest IT-BPM locators in the country and remains to be the preferred district.Higher demand from offshore gambling firms filled up the slack brought about by the decline in the IT-BPM sector, whose continued development are further dampened with the government-issued moratorium on economic zone proclamations in Metro Manila, as well as looming fears regarding the second package of the Duterte administration’s Comprehensive Tax Reform Program.POGOs are also driving residential condominium sales especially in the Manila Bay area where office buildings are developed alongside residential towers. The online gaming industry's revenue ballooned to PHP7.35 billion in 2018 from PHP657 million in 2016.Will the Philippines Fall into a Debt Trap?Chinese-funded infrastructure development associated with BRI in developing countries particularly in Asia and Africa has been hounded by fears of “debt traps”. Reports have highlighted that these Chinese investment and financing deals have in some cases involved predatory policies of high interest rates and unsustainable payment schemes for projects mostly identified as white elephants. These resulted in the debtor government unable to pay the loan and the project being acquired by the Chinese funder by virtue of debt-for-equity swaps. The same debt trap scenario has been hounding Chinese ODA in the Philippines with critics comparing China’s interest rates to that of Japan, which supplies a majority of the country’s overseas development aid. Even some officials in government are alarmed at Chinese investments considering their security implications that threatens our sovereignty not only because future debt burdens will result in an “economic invasion” but also at the proliferation of Chinese workers and their access to sensitive strategic geographic areas in our territory.There has been counter arguments that the Philippines will not fall into a Chinese debt trap. A debt trap usually occurs when debt obligations reach an unsustainable threshold of a country’s GDP creating a high debt-to-GDP ratio. Debt service will eventually lead to low growth because most economic output will be used to cover debt payments. However, the country’s economic managers maintain that the country possesses economic fundamentals that mitigate against the danger of excessive indebtedness. They noted that while Philippine debt increased, external debt-to-GDP ratio (in percentage) has actually decreased, indicating that less of the country’s GDP has been used for servicing debt. To avoid being debt trapped, Budget Secretary Benjamin Diokno highlighted that the current administration has pushed for a 75:25 debt mix, with the larger bulk falling on local financing.The government also banks on the successful implementation of the Tax Reform for Acceleration and Inclusion Act to pay off necessary finances related to the BBB plan.Critics warned that Chinese-funded infrastructure projects might end up like the Hambantota International Port in Sri Lanka that was doomed to fail because the port has seen very low levels of shipping traffic but at a high financing cost. The project was referred to by the New York Times as “one of the most vivid examples of China’s ambitious use of loans and aid to gain influence around the world — and of its willingness to play hardball to collect.”The government however believes that unlike the Sri Lankan port project, the local transportation projects lined up for Chinese financing generate internal demand and can successfully contribute to economic growth. The Philippine economy relies on domestic consumption, and there is a huge internal demand for transportation services. In addition, government economic managers argue that the BBB initiative taps a diverse range of development lenders making a debt trap and domination by a single lender highly unlikely, citing that more than half of developmental infrastructure projects in the country are funded by the Japanese International Corporation Agency and the Asian Development Bank. The National Economic Development Authority further clarified that the government will make use of an optimal mix of government domestic financing, aid, and private capital in funding infrastructure projects. Fear of Chinese WorkersAnother major cause of concern is the influx of Chinese workers brought about by offshore gaming operations and infrastructure construction activities. The number of Chinese nationals arriving in the country has nearly tripled since 2016. POGO workers filled hotel rooms and office towers previously intended for IT-BPM operations, snapped up residential condominiums and boosted retail sales. Despite the economic benefits, there has been a mounting opposition from locals who fear Chinese workers are taking away jobs from Filipinos and evading taxes aside from their unruly behavior.From 2016 to 2018, around 335,800 working visas and special work permits were issued to Chinese, representing over half the total number of permits issued to foreigners. More than half of them were for online gaming-related jobs, and the rest for sectors including construction, information, and communications. However many Chinese tourists who entered the Philippines reportedly ended up overstaying to find jobs while others bribed immigration officials to get working visas.To address the situation, the labor, finance and trade secretaries have joined the heads of the tax, immigration and gaming bureaus to form an "interagency committee on the influx of foreign nationals.” The committee seeks to stop tax avoidance by Chinese workers. Finance Secretary Carlos Dominguez estimated that the Bureau of Internal Revenue could collect at least PHP2 billion per month from an estimated 100,000 offshore gaming workers. The government is also planning to transfer Chinese POGO workers to “self-contained” communities or hubs that will limit their interaction with Filipinos. While clamping down on Chinese workers could appease local critics, the government was cautioned that the move would mar relations with China as harsh treatment of foreign workers could backfire on the roughly 30,000 Filipinos working in China excluding the more than 200,000 workers in Macao and Hong Kong.As the Philippine government embarks to tighten the regulation on POGOs, the Chinese embassy in Manila is asking the Philippines to stop hiring Chinese citizens in casinos and other gaming facilities in its efforts to stop the proliferation of cross-border gambling. China will also crack down on “underground banks” and online payment platforms that provide financial settlements for cross-border gambling, and wipe out domestic network operators and companies that provide technical support for such operations. China blames offshore gaming operations for increased crimes and other social problems in China.The Controversy Behind the Kaliwa River Dam ProjectThe Philippine government is seeking funding for a dam project which seeks to address the water crisis brought about by the unexpected demand from the construction industry, shortages in the primary water source, and delays to infrastructure projects designed to bring additional supply onstream. The New Centennial Water Source-Kaliwa Dam Project (“Kaliwa Dam”) comprises a series of three (3) dams in the nearby Sierra Madre mountains, which have been originally planned as a solution to Metro Manila’s water requirements since the Marcos administration.The Kaliwa Dam will add 2,400 million liters per day (“MLD”) to the existing 4,000 MLD supply that serves the 20 million people in Metro Manila and its surrounding regions. According to the Metropolitan Waterwork and Sewerage System (“MWSS”), the initial phase is slated to begin with a 60-meter concrete dam at Kaliwa, which straddles the boundary of Rizal and Quezon provinces, a 25-kilometer conveyance tunnel, and two water treatment plants. If built, the Kaliwa Dam will secure Manila’s water supply for the next 10 to 15 years. The conveyance tunnel, meant to serve the Kaliwa and Laiban dams will have a capacity of 2,400 MLD. The third dam in the series, at Kanan, will dwarf the first two with a potential capacity on its own of 3,720 MLD.Government officials have come out in support of the Kaliwa project, as the MWSS is working on the Environmental Impact Assessment. The road right of way has been secured while the Department of Public Works and Highways is reviewing the design of the dam. The target date for completion of the project is 2023. China Energy Engineering Corp, the company responsible for building the Three Gorges dam in China, has been contracted for construction utilizing Chinese workers. The Kaliwa Dam will be funded through a loan finance agreement signed on 20 November 2018 by the Export-Import Bank of China and the MWSS. The bank will make available a loan facility of up to USD 211.2 million, equivalent to 85 percent of the contracted cost of the dams, at an interest rate of 2 percent.Kaliwa Dam has been opposed on grounds it will lead to environmental destruction and the displacement of indigenous peoples in Sierra Madre. Previously, a Japanese contractor, Global Utility Development Corp. (“GUDC”) made an unsolicited bid to finance and build a far less environmentally impactful seven-meter dam at Kaliwa, only to have their proposal rejected by the Philippine government. The project was also criticized for the use of highly concessional ODA financing instead of the Public-Private Partnership (“PPP”) unsolicited proposal of GUDC.To answer the criticisms, the Department of Finance (“DOF”) explained that the use of ODA financing will benefit Filipino consumers more with cheaper project and financing costs rather than if the project were to go through the PPP route, which would entail additional charges to be passed on to water users by the private proponent to recoup its investments. The project cost went down from PHP 18.7 billion under a PPP scheme to PHP 12.2 billion under ODA. The DOF further explained that even if fees and interest payments were taken into account in completing the project through ODA, the cost would still be significantly lower at PHP 14.5 billion compared to the estimated price tag of PHP 18.7 billion under a PPP scheme.The DOF also clarified that the unsolicited proposal of GUDC only involved the construction of the 7-meter high weir, which is just a portion of the whole project. GUDC has been pushing its unsolicited proposal for a mere intake weir as early as 2008, but the government has, since 2013, opted for the construction of a complete dam. Unlike dams, weirs are dependent on the water flowing from the river source, and susceptible to the effects of both droughts and flooding. In contrast, the 60 meter-high Kaliwa Dam can provide adequate water even during low-flow seasons because it can store water. Unlike a weir where water has the possibility to overflow, a dam’s overflow is channeled into a spillway to prevent flooding.Moreover, the proposed Kaliwa Dam conforms to international safety standards, with its design able to withstand an earthquake of “probable maximum magnitude.”The loan finance agreement for the Kaliwa Dam, among other loan agreements with China, has also been heavily criticized for containing certain contractual provisions onerous to the Philippine government. The DOF addressed the issues as follows:There are no collaterals in any of the loan agreements signed by the Philippine governmentA waiver of immunity is standard across loan agreements the Philippines has signed, whether explicitly stated or implied via an agreement to arbitral proceedings. A waiver of immunity only allows the Philippines' counterparty in an agreement to take the country to arbitration, in the unlikely event that the Philippines defaults on its loans;Arbitral rulings are still subject to the Philippine Constitution, court system and public policy; andThe Philippine government is managing its debt responsibly.US-China Trade War and Geopolitical Risks in the South China SeaDiplomatic relations between the United States and China are on pins and needles as both countries are currently engaged in a trade war, which may lead to an economic slowdown in China and tilt the world towards a global recession. At the same time, the United States is concerned by reports of China's actions in the disputed waters of the South China Sea involving its interference with Vietnamese oil and gas drilling activities and a reported Chinese vessel colliding with a Philippine fishing trawler in the Reed Bank area. US State Department spokesperson Morgan Ortagus said in a statement that China's "repeated provocative actions aimed at the offshore oil and gas development of other claimant states threaten regional energy security and undermine the free and open Indo-Pacific energy market.” Chinese territorial claims over the South China Sea based on its nine-dash line boundary is its justification for its large-scale land reclamation activities on seven reefs (Fiery Cross Reef, Johnson South Reef, Cuarteron Reef, Gaven Reef, Hughes Reef, Mischief Reef and Subi Reef) in the disputed waters that are fully-equipped with military runways and outposts.In June, the People’s Liberation Army (“PLA”) Rocket Force conducted anti-ship ballistic missile tests in a disputed part of the South China Sea. Chinese state media also reported that pilots of the PLA Air Force tested the sea warfare capabilities of their advanced fighter jets over the South China Sea. Tensions in the area further increased as the US Navy carried out what Washington calls “freedom of navigation exercises” close to islands and reefs Beijing claims as its own.While analysts believe that President Donald Trump appeared uninterested in Southeast Asia compared with his predecessor Barack Obama whose “pivot to Asia”, meant to be a centerpiece of his foreign-policy legacy, was nonetheless never fully realized. The Trump administration however has increased the number of military operations in the South China Sea in its efforts to push back on China’s combativeness in the contested waters.The weapon of choice for the US is trade. The Trump administration criticizing the World Trade Organization regime and China’s trade practices, vowed to take action to ensure fair and equal market access for US products. Trump then investigated and issued tariffs targeting China’s industrial policies as a response to the alleged unfair trade practices of China over the years including theft of U.S. intellectual property. China responded by imposing tariffs on certain products it imports from America. Following China’s devaluation of the yuan after the Trump administration threatened to impose additional tariffs on just about every Chinese export, the US labeled China a "currency manipulator.” China has also stopped buying American crops and was reportedly considering more aggressive retaliatory options, including cutting off key parts of the global supply chain in rare earth minerals and flooding the financial system with US Treasury Bills.At home, while some of Philippine business group’s members are feeling pain from the prolonged trade battle, their greater worry is that the conflict will spill over into the volatile South China Sea where tensions are already high because of the maritime dispute between China and the Philippines. Existing companies are more concerned about keeping the sea lanes open and how it plays out in the context of Philippine politics. Though the Philippine government filed and won a case against China’s “nine-dash line” claims in an international tribunal in 2016, it still is reluctant to invoke the arbitral ruling as Duterte temporarily set it aside in pursuit of warmer economic relations with China. Nevertheless, he is expected to make the Hague ruling a central component of his administration’s foreign policy. Duterte said that he would not accept China’s claim on the whole of the South China Sea and would push for the completion of a Code of Conduct in the area. How this will fan out with existing Philippine-China trade relations remains to be seen.Joint development of the petroleum resources within the disputed of the West Philippine Sea is also on top of President Duterte’s agenda as he reportedly amenable to the 60-40 joint exploration deal with China in the West Philippine Sea. The ongoing dispute has certainly dampen the interest in petroleum exploration even as the Department of Energy is embarking on another contracting round for petroleum service contracts. In the meantime, in the absence of exploration activities in offshore Northwest Palawan and Reed Bank, there seems to be no viable upstream petroleum resource alternative to replace the near depleting Malampaya Gas field, a vital energy supply for the highly-industrialized Luzon island power grid.Meanwhile, Philippine military officials and the political opposition expressed grave concerns on the possible strategic maritime and security implications over reported plans of Chinese investors to develop three strategic islands into economic hubs. The islands — Fuga in Cagayan Province and adjacent Grande and Chiquita Islands in Subic Bay, Gambles province — play strategic roles in the country’s national security. Fuga Island is near where the country’s telecommunications cables pass, making it theoretically possible for someone based on this island to tap into these cables. Grande and Chiquita Islands, on the other hand, provide a strategic location to monitor activities in Subic, which is being eyed as a base for the Philippine Navy. There were also reports of Chinese warships passing through Philippine waters and oceanographic survey ships conducting research within the Philippine EEZ without permission from the government.Clearly, the Duterte administration is balancing the country’s economic interest by de-securitizing its approach to the South China Sea conflict in its cordial relations with China but at the same time recognizing the US as the only superpower in the world and sole defense treaty ally of the Philippines, as manifested in the Philippine National Security Policy 2017-2022. The Philippines will maintain the Visiting Forces Agreement and the Enhanced Defense Cooperation Agreement with the US. At the same time, Defense Secretary Delfin Lorenzana calls for the need to review the reassurance of mutual defense under the 1951 Mutual Defense Treaty with the US. ConclusionThe BRI has stoked fears that participating countries engaging China in large infrastructure projects and investments exposes these countries to debt risks giving China the legal cover to gain access to resources, forfeit assets, and impinge on sovereignty in pursuit of its geopolitical interests and world dominance. Chinese investments offer much potential to Philippine infrastructure projects ,which is playing catch up to our Asian peers, and failure to tap these would again cause the Philippines to miss the boat. The main concerns are both political and financial. By opening up to Chinese investments, is the Philippines opening itself not only to risks on commercial and operational viability, but most importantly to geopolitical risks and sovereignty issues? To address financial issues for Chinese-funded projects, government regulators must conduct thorough risk planning and feasibility studies, and for greater transparency involve the private sector, local government units, and other stakeholders. On the side of China, it must ensure that proposed projects are transparent, commercially viable, and participating Chinese contractors are of good standing and Chinese workers follow Philippine labor and immigration laws. So much is at stake because should these Chinese-funded projects fail, there are risks of legal action and nationalist backlash against the Duterte administration. These will damage China’s BRI program and standing in the international community. It will also not help in mending the reputation of Chinese firms operating abroad which are perceived as exploiters of natural resources and destroyers of the environment particularly in developing countries. More importantly, China must assure that its infrastructure loans will not violate the sovereignty of debtor countries lest it will only give credence to the “Yellow Peril” conspiracy theory that China intends to take over the world.Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and Business Development. He may be contacted at email@example.com for any matters or inquiries in relation to the Philippine resources industry. Feel free to follow Atty. 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