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Commentary

Philippine Resources - May 29, 2019

ECCP Launched the 1st Philippine Natural Resources Development Forum

By Marcelle P. Villegas26 April 2019 - The European Chamber of Commerce of the Philippines (ECCP) organized and launched the 1st Philippine Natural Resources Development Forum at the Marriott Hotel Manila. The forum’s theme was “Harnessing Natural Resources for Inclusiveness and Sustainable Development”.ECCP describes the current status of the Philippine mining industry:“The mining industry in the Philippines is a major economic activity but remains operating below potential. There is a considerable anti-mining sentiment in the country especially at the subnational levels where environmental impact and displacement of indigenous peoples caused by mining operations have been the focus of much debate. Small-scale mining is also contentious, due to poor regulations and overlapping policies between national and local government. The ECCP believes that the contribution to national development can be further enhanced through better regulatory and enabling policies, best practices in value sharing, environment-friendly technologies and socially responsible investments.” [1]According to ECCP, the objective of the 1st Philippine Natural Resources Development Forum intends to convene decision makers and other key stakeholders from the Mining (Metallic and Non-metallic subsectors) as well as Upstream Oil & Gas, Coal subsectors, to discuss challenges, opportunities, policy reforms and best practices in harnessing the country’s natural resources and their contribution to sustainable development. [1]Present during the event were key players in the mineral resources industry from the public and private sectors. There were also participants and attendees from civil society organisations and academic groups. The forum discussed the latest issues and challenges being faced by the mining industry in the Philippines. The forum and its speakers thoroughly enumerated the many ways that the industry has contributed to the Philippine economic and social development. The forum also covered discussions on good governance, environmental management within a mining operation, global standards and sustainable mining practices.The forum had four sessions namely: Contribution to National, Local and Community Development, Global Standards in Enhancing Inclusion along the Value Chain, Good Practices in Responsible Natural Resource Management and Inclusive Value Chain, and Unlocking Future Growth Opportunities.The Welcome Address was given by Mr Nabil Francis, President of ECCP who emphasised the great potential and role of mining as an economic development catalyst in the country, for which proper information sharing, such as this forum, is key in solving the industry’s current problems. “While there is much to do in terms of regulation and improving doing business in this sector, it is very encouraging to see you all here today willing to listen, willing to learn, willing to contribute to this common goal,” he stated.During the first session, Acting Director of the Mines and Geosciences Bureau (MGB), Atty. Wilfredo Moncano, was a speaker and he discussed the current status of the mineral industry in the Philippines, including the approved mining tenements, the sector’s economic contribution, and current and proposed fiscal regime. [2]On his keynote speech, Secretary Roy A. Cimatu of the Department of Environmental and Natural Resources (DENR), mentioned five aspects of proper management of our mineral resources: (a) social; (b) environmental; (c) technological; (d) industrialization; and (e) exploration aspect.The Secretary noted the importance of “social acceptability” in the industry, and treating host communities more than just as a legal or regulatory sense. In the environmental aspect of operations, he emphasised the need to pay more attention to waste production since mineral extraction is the largest global waste producer. The secretary expressed his discontent on the weak enforcement of environmental laws and mitigating measures, and implored the mining sector to cooperate and “strictly comply with environmental laws and standards.”[2]For this, the Secretary recommended the upgrade of monitoring system, standards, and practices in order to have better control on environmental issues. Secretary Cimatu stated that we should ensure availability of mineral resources for the future generation, thus we have to pursue sustainable exploration and extraction methods including but not limited to shifting to renewable energy. Representatives of Quisumbing Torres, Atty. Gaston Perez de Tagle and Atty. Dennis Quintero were the moderators of the Open Forum. In one interaction with speakers from the public sector, one of the delegates was the international award-winning architect and urban planner, Arch. Felino “Jun” A. Palafox, Jr. He pointed out (through his question) that given that the Philippines is very much rich in natural resources, that the taxes generated from the operations is clearly a solution in alleviating poverty in Philippines.During the four sessions of the forum, the other speakers were Usec. Bayani Agabin (Undersecretary for Legal Services, Department of Finance), Mr Jerome G. Cipriano (SGS Phils., Inc.), Mr Isidro C. Alcantara, Jr. (Chairman, Philippine Nickel Industry Association), Mr John Reinier Dizon (VP - Strategy and Business Development, Republic Cement Services, Inc.), Mr. Angelo Kris Marcos (Senior Contracting and Procurement Manager, Shell Philippines Exploration B.V.), Mr Michael Spence (Managing Partner of Southeast Asia Partners in Performance), Usec. Analiza Rebuelta-Teh (DENR), Mr Gerard Brimo (Chairman, Chamber of Mines of the Philippines), Mr Renato C. Sunico (Chair and President, Cement Manufacturers’ Asso. of the Phils.), Engr. Rufino Bomasang (Chairman, Petroleum Asso. of the Phils.), and more. Some facts about the Philippine Mining Industry from ECCP:~ 30 million hectares of land in the Philippines are possible areas for metallic minerals~ 9 million hectares of land are identified as having high mineral potentialThe Philippines is endowed with bountiful metallic and non-metallic mineral resources. It is the 5th most mineral-rich country in the world for gold, nickel, copper and chromite. The Philippines has the world’s largest copper-gold deposit in the world. It also exports some iron ore, chromium, zinc and silver, and produces oil and gas.The Mines and Geosciences Bureau (MGB) estimates that the country has $840 billion worth of untapped mineral wealth.Approximately 30 million hectares of land in the Philippines are possible areas for metallic minerals; nine million hectares of land are identified as having high mineral potential. The Philippines metal deposits is estimated at 21.5 billion metric tons and non-metallic minerals are at 19.3 billion metric tons.- - -Reference:[1] Retrieved from https://www.eccp.com/events/?id=499[2] Retrieved from http://mgb.gov.ph/en/2015-05-13-02-02-11/mgb-news/860-eccp-conducts-the-1st-philippine-natural-resources-development-forum

Commentary

Philippine Resources - May 29, 2019

Economist Dr Bernardo M. Villegas on Nickel Mining Sustainability

Last 19th of March 2019, Dr. Bernardo Malvar Villegas was one of the special guest speakers during the Nickel Initiative 2019 Conference which was held at Shangri-La at the Fort in Taguig City. He delivered the Closing Keynote Presentation with the title “Nickel Mining Can Be Sustainable”. His speech mentioned the vital role of the Philippine government and its agencies in helping the local mining industry become successful and sustainable. Additionally, he offered proactive solutions on how University of Asia and the Pacific (UA&P), through its Centre for Corporate Responsibility, can help the government and the nickel industry in establishing sustainability, policy and structure, training and communication, stakeholder dialogue and measurement and verification systems. Dr. Bernardo M. Villegas is a well-known Filipino writer, professor and economist. During the time of President Corazon Aquino, he was a member of the Constitutional Commission that drafted the Philippine Constitution. Through the years, he has always been an advisor to recent Philippine Presidents.As of 2013, he is the Senior Vice-President at the University of Asia and the Pacific. Dr. Villegas is also the Chairman and Research Director of the Center for Research and Communication, and a member of the Board of Trustees of the Makati Business Club (MBC). The MBC is a forum that addresses economic and social policy issues that affect the country’s development. Aside from being a professor at UA&P, Dr. Villegas is also a visiting professor of IESE Business School, a graduate business school of the University of Navarra. IESE is one of the world’s leading business schools with campuses in Barcelona, Madrid, Munich, New York and São Paulo. Dr. Villegas is a Certified Public Accountant in the Philippines. He has a degree in Commerce and the Humanities from De La Salle University, both with Summa Cum Laude honours. Dr. Villegas earned his doctorate degree in Economics at the Harvard University. At age 21, he became a teaching fellow at the College of Arts and Sciences in Harvard University. In 1972, he received the TOYM award (Ten Outstanding Young Men). His other awards include those from Fulbright, Johnson Foundation, Asia Foundation and the Instituto de Cultura Hispanica.With all his awards and achievements here and abroad, the 80-year-old professor is considered one of the best economists in the country with his excellence and wisdom in his field and in addressing issues concerning national development.- - -SPEECH OF DR. BERNARDO M. VILLEGASAT THE NICKEL INITIATIVE 2019(19 March 2019, Shangri-la at the Fort, BGC, Taguig City, Philippines)“Nickel Mining Can Be Sustainable”by Dr. Bernardo M. VillegasIt would not be an overstatement to say that the Philippine mining industry has gone through a self-inflicted environmental and political crisis over the last two or three years. The environmental crisis can be attributed to real damage caused to the Philippine environment by some mining firms that resulted in either suspension or closure of mining operations. The political crisis resulted from decisions made during the early years of the Duterte Administration that exaggerated these violations of rules of sustainable development to the complete disregard of the many positive contributions of the mining industry to income growth, poverty eradication and employment generation. Politics is the art of the possible. It always involves balancing different societal objectives. Some of those who formulated mining policies at the beginning of the present Administration were not able to do the necessary balancing act among conflicting objectives. They gave short shrift to the economic benefits of the mining industry.The Centre for Social Responsibility of the University of Asia and the Pacific (UA&P), led by Dr.Colin Hubo, is doing its best to help both public officials and private investors attain the appropriate balance among the objectives of income growth, foreign exchange earnings, employment generation, poverty alleviation and environmental protection. This is especially important in the nickel industry because the Philippines has become the world’s second largest supplier of nickel ore which has surpassed the production of the former top contributors such as gold, silver and copper. In 2016 and 2017, the country exported 577,000 metric tons of nickel. In 2017, nickel ore exports totalled 230,000 metric tons—a third less than the 2016 figure—but still raked in $455.21 million (P224.533 billion) for the country. In fact, the Philippines has been the world’s top nickel producer in decades past, but the shifting local political landscape combined with real environmental concerns forced it to lose ground to Indonesia.Indonesia has capitalised on our country’s uncertain situation as regards mining policies and kicked its production into high gear to feed the mineral-hungry economy of China. It has to be pointed out that as emerging markets like China, India, the Philippines, Indonesia, Vietnam and other countries in the ASEAN grow at an average of 6 or more percent in GDP in the next decades or so, there will be an explosion in demand for the first applications of nickel, such as stainless steel, nonferrous alloys, alloy steels and castings, plating, and batteries. Rapid industrialization and urbanisation in the Asia Pacific region will see an increasing use of nickel-based products in Architecture, building and construction; process engineering, oil, gas, and power; food contact materials; pulp and paper; transport; healthcare; consumer products and water.Nickel is used in myriad products, especially in the ongoing fourth industrial revolution, because of the following qualities: high-melting point; resistance to corrosion and oxidation; highly ductile; alloys readily and can be fully recycled. The last quality gives nickel very high points in sustainability.Researchers at the Centre for Social Responsibility of UA&P has identified the following multiple challenges facing Philippine nickel miners in the coming years:a) First, what was once one of the most liberal mining regimes in Southeast Asia is now subject to a government crackdown that shows no sign of relenting, even with significant changes in leadership. As noted by Amanda Key in an article for Investingnews.com, “For now, one thing is certain: the direction the Philippines goes with its mining policy moving forward will impact the global nickel market.”b) The second challenge is to produce the right type of nickel ore that end-users, such as Chinese companies, will use to produce anything from stainless steel to batteries to electric vehicles. A recent Standard and Poor’s analysis of the global nickel market indicates that most nickel producers started their operations geared toward producing nickel sulphide ores. When these ores became scarce, the market gravitated toward laterite ores that are costlier to extract.c) Finally, local nickel miners have to decide what grade of ore to produce that would make the most profit, given the generally falling prices for the metal in the world market. Mining firms are slowly shifting to shipping medium-grade ores amid declining prices of the usual low-grade nickel ores—ninety percent of which goes to China from the Philippines.Dante Bravo, President of the Philippine Nickel Industry Association (PNIA), remarked in a recent forum: “For the long term, this would mean that some mines might slow down in their production in the coming years depending on the area being mined. The shift would have to make adjustments depending on mineralization.” Despite some of these uncertainties, there is still a mood of optimism among the nickel miners because of the many uses of nickel in such sunrise industries as electronic vehicles, construction, consumer goods, health care and housing.The more enlightened members of the nickel industry, most of them active in the Philippine Nickel Industry Association, have provided a group of researchers in the Centre for Corporate Responsibility of UA&P concrete evidence that sustainability is very high in their priorities as they truly espouse the triple Ps: People, Planet and Profit. As a group, PNIA members have planted over 4.2 million trees in Caraga and Palawan as part of ongoing progressive rehabilitation and reforestation in several mining sites.This initiative is part of the efforts of the nickel miners to offset its mining footprint with a green footprint. The reforestation effort includes planting endemic trees and grass species such as agoho, mahogany, giant bamboo, and narra, as well as fruit-bearing trees like calamansi, cashew, jackfruit, and cacao, among others. Tree planting in vast forest areas can employ numerous rural dwellers who are among the poorest of the poor in the country, including members of indigenous tribes. The increased supply of these fruit products can also help in slowing down inflation as middle-income households increasingly turn to fruits and vegetables for healthier diets. Cash crops such as rubber, coffee, vegetables and herbal plants have also been planted in the mine sites’ respective nurseries. Apart from providing employment to the residents, the program also allows the companies to help their respective host communities by donating seedlings in support of various greening initiatives. This has given birth to an emerging downstream industry, agro-forestry which also focuses on the community’s livelihood beyond mining. The reforestation program is part of the nickel industry’s commitment and contribution to the government’s National Greening Program which aims to revegetate some 1.2 million hectares of “unproductive, denuded, and degraded” forest land nationwide from 2017 to 2022.Thanks to the responsible nickel mining firms who are actively engaging their respective local government units in their operations, there is an ongoing dramatic shift of local government authorities in their attitudes toward mining activities. LGU heads realize that their active participation in the development of the mining industry is essential to sustained mining development. This new position has been reinforced by the fact that there are initiatives to require mining companies to pay directly to local government units (LGUs) in mining areas their 2 percent share of the firms’ gross sales as local business tax. The past practice was for the national government to collect the levy and then distribute this to the LGUs. There is also an increasing participation of local government authorities in getting informed consent of communities prior to the exploration or site investigation and prior to reaching decision on a development, management or concession agreement.There is also a very healthy trend in which nickel mining companies are participating actively in regional economic development. Whereas in the past, the benefits of mining had been very limited to a relatively few areas, leading nickel mining firms are making significant contributions to building strong local economies which are more balanced and dispersed, with greater social equity. Some of them are experimenting with innovative partnership with LGUs and are pursuing different development models. To expand their multiplier effects on a broader regional level, some of the leading mining companies are collaborating with Regional Development Councils to increase the participation of stakeholders in planning and administration and improving the access of marginal groups in mining-impacted communities to resources and opportunities. It must be pointed out again and again that most mineral ores are found in remote and mountainous areas where there are very few sources of livelihood. The legitimate concern for sustainability of the environment must be tempered with the need to address the serious extreme poverty situation in mineral-rich territories.There is no substitute to a tripartite cooperation among the Government, the mining companies and civil society. There is increased evidence that nickel mining companies are investing in the upscaling and empowerment of host communities in partnership with various groups in order to pool resources and capabilities. The LGU is expected to give approval to the operations, help in getting access to ODA funding, strategic co-ordination through the Regional Development Plans, exercise its new decentralised powers and allot budgets for long-term provision of public services. In its turn, the mining enterprises are expected to source some of its raw materials from the localities, invest in human resource development, make available supply chain facilities, provide project management, construct operational infrastructure, establish certain ethical standards and provide operating funds. Civil society organisations have the advantage of local knowledge, longevity of local presence, independence of views, relevance to household livelihoods and greater capacity to mobilise communities. Civil society is also in a better position to champion environmental sustainability.The way forward for the Philippine nickel mining industry is to integrate sustainable and responsible policies and practices in its core business. The current push for voluntary sustainable mechanisms (codes, policies, guidelines), for example, is a positive step towards integrating social responsibility as part of the mining agenda. At present, there are several methods used to incorporate sustainability into the core business of mining enterprises. Among these are:-Industry-specific codes of conduct such as the Chamber of Mines Code of Corporate Social Responsibility.-Company-specific (internal) codes of conduct and policies.-Sustainability guidelines from international institutions such as World Bank disclosure policy, Global Reporting Initiative (GRI), Extractive Industry Transparency Initiative (EITI)-Pressure from civil society.The application of these methods will surely have long-term positive benefits as can be gleaned from the experiences of other mineral-rich countries. These include:-Raising the acceptable threshold for mining industry sustainability performance and standards;-Providing some leverage upon which mining stakeholders can hold companies accountable if a company fails to implement its own code or policy;-Raising awareness of external factors affecting the core business activity and financial viability of mining firms. It is even more important than ever to demonstrate that industry support for sustainability goes beyond mere rhetoric and is translated into concrete action on the ground. The Philippine nickel industry has to counter prevailing perception that supporting sustainability is only a public relations gimmick but really involves a change of priorities. To accomplish this, the industry can come up with an industry sustainability code which is not only transparent but open to independent monitoring and verification by third party experts and the academe.Some degree of third-party involvement must be in place to ensure transparency and accountability. Furthermore, for sustainability codes to raise the bar of industry performance, it must be based on minimum internationally agreed standards such as the ILO code of human rights among others. The industry needs to put in place “Disciplinary” measures for members who refuse to sign or adhere to the industry code, policies and guidelines.More than other economic sectors, the mining industry cannot be left to free market forces alone. The role of the government is indispensable. Experience in other countries has shown that it is vital that governments themselves are genuinely committed to needed mining reforms and these reforms command a strong degree of government support and regulation. In the case of sustainability, the government, or more specifically the Mines and Geosciences Bureau (MGB) itself must be strongly committed to the “government case” for pursuing the sustainability agenda. It cannot be achieved by prescription from external agencies. The “government case” has to be built up by a process of dialogue, which in turn means creating or adapting institutional frameworks for discussion, consolation and negotiation. The process by means of which the MGB eventually builds sustainability policies is as important as the policies themselves. Dialogues must be the core in the development of sustainability policy for the nickel mining industry.It must also be kept in mind that “voluntary” sustainability mechanisms are not easy solutions to all mining dilemmas. It is imperative that partnership with non-corporate stakeholders is established to achieve the necessary improvements. These partnerships can yield the following advantages: they can confer greater legitimacy to mining activities because of multi-stakeholder involvement; they can encourage companies to work together to raise the bar of performance; they can allow mining firms to share capacity building costs; and they can allow corporations to address external factors beyond their core business activity. In this regard, a strong link between academe, industry and government can help the “business case” for sustainability. As an example, the University of Asia and the Pacific, through its Centre for Corporate Responsibility, can assist the government and the nickel industry to establish sustainability, policy and structure, training and communication, stakeholder dialogue and measurement and verification systems. The products of such partnership among academe, government and business can come out with the following:-Nickel Industry Sustainability policy and structure. Clear standards and detailed guidelines are needed to ensure that the industry has a “road map” for incorporating sustainability agenda into its operations. With such details, the industry would be able to measure performance consistently and completely to help meet the stakeholders’ expectations.-Training and communication. Training internal staff is needed because of the recognition that sustainability-type programs require a unique set of skills and competencies. On the other hand, because leadership starts at the top, it is essential for top management to consistently communicate sustainability guidelines internally in order to generate awareness and on convey management support for the program.-Stakeholder dialogue. Dialogue and sharing of information with external parties (companies, civil society) is one of the fundamental shifts in recent years in policy making. NGOs, other civil society organisations, and companies often have information otherwise unavailable to companies or governments.In the case of the nickel mining industry, an academic institution like UA&P with strong links to business may be able to help the industry develop guidelines and policies that are not only effective, but also acceptable and credible to all the stakeholders.Monitoring and verification. A research wing or think tank of an academic institution like UA&P may be a more credible institution to effectively assess compliance of nickel mining firms to various voluntary sustainability mechanisms. Because of serious violations of environmental regulations in the past, the mining industry in general continues to face a public that is skeptical of its efforts to respect and protect the environment. The industry may choose to scrutinise sustainability practices of nickel firms in a more transparent manner by inviting external parties, and by issuing public reports on the findings of independent academic or research institutions.There is no question that the Philippine nickel industry is capable of practising responsible and sustainable mining. As discussed above, what is needed is the political will of all the stakeholders concerned to commit themselves to a continuing dialogue on sustainability practices. For comments, my email address is bernardo.villegas@uap.asia.- - -Acknowledgement:Dr. Bernardo VillegasMs Cleah Nava, Legislative Officer, Senate of the Philippines

Commentary

Philippine Resources - April 24, 2019

A formula for the Philippines, China, and Vietnam in the West Philippine Sea-South China Sea

By Jose De Vencia Jr.At some point now or sooner than later, the claimants in the South China Sea/West Philippine Sea will have to sit down and agree on a seismic and oil exploration program to be fol­lowed by a definitive oil drilling and development schedule for a satisfac­tory commercial petroleum discovery which is anticipated.This should include a detailed and definitive agreement in the event of marginal hydrocarbon discoveries, non-commercial in volume, and must be followed through by a series of exploration activities in the areas with reasonable looking anticlines or likely oil-bearing structures before the areas are given up, or abandoned, or preserved for other uses by suc­ceeding generations.The anticipated agreement should include sharing of explora­tion expense, the more expensive development costs in the event of commercial discovery, distribution of export petroleum to refineries in the Philippines, China, and Vietnam, and/or third-party international buy­ers, and an agreement on a second-round or third-round of exploration areas nearby or in much farther locations.There is a need for a focussed Petroleum Academy or a unit in the Philippines to train future Filipino geologists, drilling technicians in hydro-carbons-related work who can be assigned at home or abroad for hydrocarbons employment.The petroleum division can be an initial extension or component of an expanded Base Metals Mining Division in our Department of Environment and Natural Resources (DENR).It will be the workplace for Filipino students eyeing positions in petroleum or min­ing industries after graduation.The Philippine government must now consider training an initial 100 scholars in petroleum and mining industries for future assignment af­ter graduation at home or overseas under veteran executives and who will mobilize successive waves of like-minded students.This early, we should have ex­changes with Australian, US, Chi­nese, Japanese, Canadian, South Ko­rean, Malaysian, and Indonesian oil exploration and base metals mining organizations to help develop Philip­pine capabilities in these fields if we have not yet done so, or for perhaps only an inadequate few until now.The government and existing capable Philippine companies must assist our eager students in these fields.For all these expectations to come to pass, the Philippines or ASEAN, or just the concerned ASEAN countries, must now initiate work and call first for an initial meeting and get to work soon on valid proposals.The first task is to undertake detailed extensive seismic surveys in the target offshore areas, to iden­tify the first exploratory drillable structures in the South China Sea (West Philippine Sea), approximate the costs of exploration for, say, an initial program of five wells (shallow or deep wells as needed), preferably using Chinese or US drillships, with common Filipino, Chinese, Viet­namese drilling representatives and crews onsite.I must say that in the event of commercial oil discovery, the refin­ing will be done in Philippine or Chinese or Vietnamese refineries located relatively nearby through eventual interconnecting pipelines or immediate oil tankers parked in the vicinity.Engaging American drillships from the Gulf of Mexico will be too expensive to hire or engage and bring them all the way to the South China Sea for drilling in the offshore areas near Palawan and further in Fujian or on to the Tonkin Gulf area of Vietnam.I believe if we start talking quietly and professionally instead of shout­ing at each other in the wire news services, television, or radio, our ne­gotiations, aided by our professional petroleum executives and geologists, could agree on a Philippine-Chinese-Vietnamese initial five-wells explora­tion program with reasonable budget costs for an 18-month or two-year period, including adequate time for data analysis.This will immediately mean two years of uninterrupted peace in the South China Sea.So that nobody will be more equal than others irrespective of size, might, and contribution, the cost of exploration and development must be shared and divided equally among the three-nation partners.And the three countries must agree among them­selves who will be the designated “op­erator” who will assume leadership and management responsibility for the drilling program under a Drilling Committee composed of the three na­tion partners who might engage other offshore international technicians for independent consultations.The sharing system, unless one partner abdicates for any valid rea­son whatsoever, must continue to preserve the continuing efficacy of the partnership and of the system itself which could run for as long as a hundred years or more.Sooner than later, Malaysia and Brunei should be invited to join the Philippines, China, and Vietnam strat­egraphic oil/gas drilling in other areas of the South China Sea.An under­standing with China must be reached to deal with Taiwan’s role in the explo­ration/development program.If this South China Sea oil explo­ration and, hopefully, oil development project can run for a long period, it is hoped that it will extend toChina and Japan in the disputed areas in the Senkaku or Diayou Straits in the East China Sea.It can also be a formula for last­ing peace between China and India in their vast conflict areas in the high Himalayas, between India and Pakistan over Kashmir, and between Azerbaijan and Armenia over Na­gorno Karabakh, which will put Israel and Palestine to shame if they do not finally agree on their already much-delayed land-sharing agreement.There are also other Philippine areas for possible oil discovery in the Sulu Sea below the Treaty Line across Sabah which has not yet been explored geologically until now.The Muslim areas in Central Mindanao have also not yet been explored for petroleum resources, which are Filipino Muslim and Christian brothers need badly for development.Right now, almost all of Northeast Asia, China, Japan, and South Korea, and in Southeast Asia, the Philip­pines, Cambodia, Thailand, Laos, and Singapore, must send their oil tankers across the South China Sea and into the Indian Ocean and the Arabian Sea and into the Straits of Hormuz to lift crude from the rich oilfields of Saudi Arabia, Kuwait, and the United Arab Emirates.In our earlier humble capacity as president of the Petroleum As­sociation of the Philippines and later as speaker of the House, I had made similar earlier proposals in 1970 and 1987 to the same countries and I believe now is the most auspicious time for undertaking opportunities for exploration and development in the sea.The alternatives for all of us are endless tension, conflict, and, God forbid, even war.Source: https://news.mb.com.ph/2019/04/20/a-formula-for-the-philippines-china-and-vietnam-in-the-west-philippine-sea-south-china-sea-and-other-participants/

Commentary

Philippine Resources - March 19, 2019

DOST Undersec Dr. Solidum on Boracay's Environmental Issue

By Marcelle P. VillegasMANILA HOTEL, 11 December 2018 -- It was the first day of GEOCON 2018 by the Geological Society of the Philippines. During the event, Philippine Resource Journal has this exclusive interview of Dr. Renato U. Solidum, Jr. regarding his scientific views regarding Boracay’s water and beach pollution. This is one of the most conspicuous environmental issues of this famous beach.Dr. Solidum is the Undersecretary for Disaster Risk Reduction and Climate Change of the Philippines, Department of Science and Technology (DOST). He is also the Officer-In-Charge of the Philippine Institute of Volcanology and Seismology (PHIVOLCS) where has worked since 1984 and became its Director in 2003 up to February 2017. During the interview, he mentioned an important aspect of marine biology and ecology that most people are unaware of. He explained how the chemicals from shampoos and soaps are not merely chemical pollutants but as well as substances that cause disorder in the equilibrium of the marine ecosystem. This imbalance eventually triggers more pollution in the sea and coastline. “Well, essentially the problem in Boracay and many other beaches is that people are not aware that the normal things that they do might actually harm the environment. They need to be educated on why this is so.”“For example, let me just say going back to Boracay, that the prime resource of Boracay is the white beach sand. However, people do not know, especially the tourists or even the locals, that the beach sand is not provided by the erosion of the limestone of Boracay. It is actually provided by the corals growing on the water, and so the breaking up of the corals provide the beach sand. Also, the corals actually serve as barrier in the shoreline from strong waves that can cause erosion.”Regarding the types of wastes found in the water and beach, he adds, “The problem is, due to the rapid utilization of Boracay and the untreated waste, the waste can be of several forms. One is the actual waste that would go down on the septic tanks or not at all. Another is simply the washing of our own bodies and clothes using shampoo and soap. Shampoo and soap for example have phosphorus. Phosphorus is part of the fertilizer. So if it reaches the water, that would cause the proliferation of the algal growth of the blue-green algae.”In Biology, blue-green algae are also knowns as Cyanobacteria or Cyanophyta. These are a group of plant-like bacteria capable of photosynthesis. Blue-green algae have a symbiotic relationship with other organisms in the aquatic environment and have many important functions in the environment. One of them is nitrogen fixation in the atmosphere which assists plants in creating proteins and nucleic acids which are essential for a plant’s survival. However, moderation is vital to maintain balance in nature. Therefore, a rapid, abnormal growth of the blue-green algae causes pollution. This is called “algal bloom” where the sea water is dominated by blue-green algae. These blooms can be toxic and can lead to closure of beaches.Moreover, Dr. Solidum explains how algal bloom can be destructive, “The sign of pollution is not only the fecal coliform which you don't see, but if you see that there is blue-green algae [in the water], then that's polluted.” In this statement, he is referring to an algal bloom which is manifested by greenish scum visible in the water. Fecal coliform on the other hand are microscopic organisms which are not visible to the naked eye. Both algal bloom and fecal coliform presence in the water are toxic and unsafe for drinking or swimming.How does an algal bloom affect the coral reefs? “When the blue-green algae grow, they would suffocate the corals or will cause the corals to die. And so, if corals die, they won’t be able to produce the sand grain to preserve the beach. Then the stronger waves shall now reach the beach and can cause further erosion. So in the past two decades, Boracay has been eroded by 40 meters,” said Dr. Solidum.“Actually the move of the President and the Government and supported by everyone to close Boracay and treat the water are very good but that has to be maintained. People have to play their part. From the presentation [in GeoCon 2018 about sand and water pollution in Boracay], there are three E's in this kind of job. One is Engineering Solution -- you have to treat the water… or somewhat related, Bioengineering. It is not simply the septic tank hard core but there can be bioengineering.”“Second is the Education -- how people should contribute so that pollutants will not reach the ground or the water, and three is the Enforcement. This refers to the regulatory actions.”“Therefore, education is key because everyone has to play a role. If people are not educated as to the cause of the pollution and to the effect of the pollution, people will take things for granted. So it starts from education. Sometimes people will take shower around the beach and wash their clothes with soap or use shampoo and that's dangerous. And people do not know. I was actually the one who briefed the National Disaster Risk Reduction Management on the reason why shampoos and soaps should not be used while in the beach or water. These findings are done by the specialists and not by me. I learned it (algal bloom effect) from them.”Dr. Solidum is the Chairperson of GeoCon 2018 from which he his message, “There are many differences in our focus of work or interest but when GEOCON comes, this event allows us to share what we have learned from our studies or gain new knowledge from others. It brings to light what we think will be relevant to us and our fellow geologists. It is a venue for highlighting opportunities and bridging gaps and interests for the benefit of our profession and society.”Dr. Solidum has a degree in BS Geology from University of the Philippines, finished his M.Sc. in Geological Sciences from the University of Illinois, Chicago, plus his Ph.D. in Earth Sciences from the Scripps Institution of Oceanography, University of California, San Diego, CA.In recognition of his contribution to disaster risk reduction in the Philippines, Dr. Solidum has several notable awards such as the Presidential Citation for Public Service, the Presidential Lingkod Bayan Award (Civil Servant) by the Civil Service Commission, the Professional of the Year in the Field of Geology by the Professional Regulation Commission (PRC), the Excellence Award for Government Service by the Philippine Federation of Professional Associations and the Presidential Career Executive Service Award by the Career Executive Service Board.

Commentary

Philippine Resources - March 18, 2019

GEOCON highlights the role of Filipino Geologists

By Marcelle P. Villegas Highlighting the achievements and challenges in the field of geology, The Geological Society of the Philippines (GSP) presented the 2018 Annual Geological Convention (GeoCon) last December 11-12, 2018 at The Manila Hotel. GSP is a duly accredited integrated professional organization for geologists. The theme for this event is “Building the Country, Securing the Future, The Role of Filipino Geologists”. The exhibit and convention was held at the hotel’s Fiesta Pavilion which had over 900 attendees from different parts of the country.The Welcome Remarks was given by Dr. Renato U. Solidum, Jr. who is the Undersecretary for Disaster Risk Reduction and Climate Change of the Philippines, Department of Science and Technology (DOST). Mr Alberto P. Morillo, 2018 President of the Geological Society of the Philippines, introduced the keynote speaker, Honorable Juan Edgardo “Sonny” M. Angara, Senator and Chairman of the Senate Committee on Local Government/ Ways and Means.Senator Angara’s speech highlighted many important and critical topics surrounding the mining industry and the country’s Science and Technology (S&T) status in general. He started by thanking the Filipino scientists and S&T professionals for the important role they play in powering our economy forward. Then he wished them to have a long life and an appeal for them to stay in the country. "Sadly, people like them are fast becoming a rare breed here in the Philippines," he states."We continue to lose our best and brightest… We may be exhibiting among the world's fastest economic growth rates but we remain among the world's top labor-exporters, with close to 10 million of our people working in greener pastures abroad."He said that these migrant workers may bring important dollar remittance to the Philippines which keeps our macroeconomic position stable, but their talents and skills are utilized by another country rather than here where they are much needed."A 2017 ADB report found that of all the 2.79 million tertiary-educated ASEAN nationals who migrated to OECD countries between 2010 and 2011, around 1.55 million or 55.3% were Filipinos. Among ASEAN countries, we sent abroad the biggest number of educated professionals comprising a significant brain drain. In fact, we sent to OECD (Organisation for Economic Cooperation and Development) countries a little more than three times as many as the second largest labor-exporting ASEAN country--Vietnam with 539,000."Additionally, he noted, "By some measure, I am sure that such brain drain is also felt in the industries and research areas where the members of the Geological Society of the Philippines are involved."Sen. Angara discussed the following topics:1) Failure to create high-paying, S&T-driven jobs - He stressed the general inability of our economy to create high-paying jobs in the field of science and technology. For this reason, most professionals in the scientific field (like geologists, engineers, etc.) end up working in New Zealand, Australia, Canada or UK for more lucrative jobs.2) "But even government-research positions are unattractive." - The Senator stated that, "Our top scientists, engineers and researchers are forced to find opportunities abroad where their talents are well-compensated. A National Academy of Science and Technology (NAST) July 2014 press release said that since the Scientific Career System was institutionalized in 1983, only 147 career scientists have entered the system -- or little less than 5 new scientists each year for 31 years. Worse, out of the 147, only 47 were actually active in government."Sen. Angara mentioned that they worked to respond to the issue by co-authoring amendments to the Magna Carta for Scientists, Engineers and Researchers (still pending in the House of Representatives) to counter this. He says that this entails removal of limits on honoraria or additional salary that scientists can receive from grants-in-aid projects, expanding the coverage to include non-DOST S&T personnel (such as the R&D employees of the DA), and granting five-year extensions to those up for mandatory retirement. 3) “This needs to be rectified soon because the lack of attractive S&T jobs in the country dissuades many of our youth from pursuing S&T courses.”4) “Such situation is unfortunate especially when S&T can play such a big role in solving many of the challenges we face today. Geologists and Geoscientists in particular could help the nation in any number of ways.”Additionally, he emphasised the significant roles of geologists in addressing more issues in the country such as, disaster risk reduction (in preparation for “The Big One” earthquake), infrastructure build-up, responsible mining, and energy security. Sen. Angara also emphasised the importance of making education available to all to provide opportunities to more children so they will be encouraged to pursue a career in Science and Technology. Several technical papers and studies were presented for the two-day convention. “Landslides in Itogon, Benguet: The Triggers and Causes” was discussed by M. Madrigal et al. Another interesting topic presented was the “Typhoon Ompong-Induced Landslides and Debris Flows in the Mine Claims and Host Barangays of Itogon-Suyoc Resources Inc. in Itogon and Mankayan, Benguet Province: Emergency Preparedness Initiatives” by G. Rostata et al.The environmental issue in Boracay was discussed by R. Agot et al with their study titled “Ground Penetrating Radar (GPR) Investigation of Buried Pipes along White Beach and Bulabog Beach, Boracay Island, Municipality of Malay, Aklan Province.” Their presentation revealed photos which are striking evidence on how certain restaurants and resorts in Boracay have violated environmental rules and guidelines in managing their wastewater. For Session 5 of day 1 of GeoCon 2018, the special guest speaker was Ms Marites Danguilan Vitug, RAPPLER’s Editor-at-Large and author of the book “Rock Solid: How the Philippines won Its Maritime Case against China”. Atty. Fernando Penarroyo, moderator of Session 5 described the book, “‘Rock Solid’ narrates the complicated maritime dispute by providing previously unreported details on the developments before and after the July 2016 arbitral decision.” The author discussed her book during the event. Ms Vitug is a former editor of Newsbreak magazine. She won numerous awards such as the Philippine National Book Award in Journalism for her books “Power from the Forest: the Politics of Logging” and “Under the Crescent Moon: Rebellion in Mindanao” with Glenda M. Gloria. She also received the Courage in Journalism Award by the International Women’s Media Foundation (U.S.A.) for her work that exposes plunder of Palawan forests. Her book with Criselda Yabes titled “Jalan Jalan:A Journey through EAGA” was chosen by Asiaweek as one of the best books on Asia in 1999. Election for the 2019 GSP Officers and Trustees also took place during the GeoCon 2018. The induction of newly elected officers, trustees and committed chairs was held later in January 31, 2019 at PHIVOLCS Auditorium. This year’s GSP Officers and Trustees are the following: President: Dr. Carla B. Dimalanta (President), Dr. Teresito C. Bacolcol (Vice-President), Dr. Jillian Aira S. Gabo-Ratio (Secretary), Dr. Victor B. Maglambayan (Treasurer), Dr. Karlo L. Queaño (Assistant Secretary), and Trustees Mr. Ciceron C. Angeles, Jr., Dr. Rene Juna R. Claveria, Dr. Betchaida D. Payot and Atty. Marissa P. Cerezo.This year will be an exciting time for GSP as they prepare for the 75th year anniversary in 2020. GSP will also be hosting the GEOSEA conference on the same year. Acknowledgement:Thank you to Atty. Ronnie Penarroyo, Ms Marites Danguilan Vitug, Dr. Renato U. Solidum, Jr., and Ms Dianne Kay Orquina Namit.

Commentary

Philippine Resources - March 18, 2019

Super Grass Bamboo presents promising future

By Marcelle P. VillegasMost of us have the impression that bamboo is only useful in building nipa huts or creating furniture. There is actually far more about this plant than most of us are aware of. Let’s begin as far back as the 1950s when bamboo technology was used in aviation. Do you know that a Filipino named Antonio De Leon designed two airplanes in 1950s using WOBEX (Woven Bamboo Experimental), a resin reinforced woven bamboo composite? He was from the Institute of Science and Technology (IST), a national science board previously known as Bureau of Science (1905, from the American era), the predecessor of our present-day Department of Science and Technology (DOST).[1]Mr. De Leon’s first experimental aircraft was the I.S.T. XL-14 Maya, a single-engine, light aircraft designed to investigate the use of indigenous materials in aircraft construction. [2] He later designed the I.S.T. XL-15 Tagak (swan) using the same WOBEX technology. This is a single-engine, twin-boom, high-wing monoplane. It made its first flight in October 1954. This project was a collaboration with the Philippine Air Force with a goal to design an aircraft for utility, liaison, medical emergency, and a test bed for the use of local materials in aviation. [3]Tagak (1954). Institute of Science and Technology’s [IST] Antonio De Leon designed these two experimental airplanes using WOBEX (Woven Bamboo Experimental), a technology that uses reinforced bamboo as materials in aviation. IST was founded in 1946 which aims to develop science and technology in the country. It was later named National Science Development Board in 1958. Eventually in 1981, President Marcos reorganised its agencies with a new name, National Science and Technology Authority. Then, it was later renamed as Department of science and Technology (DOST) by President Corazon Aquino in 1987.Bamboo is also called a “Super Grass”. Yes, a super grass that presents sustainable solutions from rehabilitation of mined-out land. It also offers proven ecological solutions to climate change and social economic problems. No other plant offers the same package in such a short period of time.Ahead of its time, nearly 70 years ago, bamboo-technology was already used for aviation. Today, there are many fascinating stories on how bamboo can impact our country’s advancement, not only with bamboo technology, but manifold social enterprises and agro-industries that grow from planting bamboo with the end in mind.These powerful topics were discussed by Atty. Leo G. Dominguez during the Mining Philippines Conference in September 2018. Atty. Dominguez connected the dots for many people in several sectors of society (such as the mining industry) with the introduction of high value product design, planting programs, social enterprise manufacturing, and how holistic agriculture can greatly benefit from the super grass.Atty. Dominguez presented a report entitled “Bamboo: From Advocacy to Changing the Conversation about Mining in the Philippines”. He is the President of OLLI Consulting Group, Inc. and an advocate in promoting the bamboo’s socio-economic importance and its role in the mining industry.He began his report by comparing the super grass with trees. Trees are only useful if they are fruit-bearing and can offer economic value to a community. “If trees are planted within Mining Communities but if they are not fruit bearing, they will eventually be cut down in the name of poverty, mainly for firewood, or the freshly-planted forest could mysteriously burn down, so that the community that planted the initial trees would be paid again to replant them. Since the bamboo is not a tree (but is actually classified as a grass in Botany), it has qualities that make it a compelling, lucrative and sustainable alternative,” he stated.Bamboo is coined as a “Super Grass” because it is the fastest-growing plant in the world. It can grow up to 35 inches a day in ideal conditions. Bamboo addresses climate change by sequestering carbon 400 times more than trees, and reducing carbon release. In general, bamboo is flexible and adaptive. If offers restoration to mined out areas and provides numerous possibilities for livelihood enterprises.Moreover, Atty. Dominguez stated that, “Because bamboo is a grass, it is not subject to the heavy government regulations affecting the cutting of trees. Depending on species, soil and climate conditions, bamboo can live about 60-100 years. Bamboo can be harvested continuously during its lifetime.”He then asked the audience, “Now, what does bamboo have to do with mining?”Atty. Dominguez continued by saying, “In his talk before the Philippine Mining Luncheon on 8 June 2018, Department of Environment and Natural Resources (“DENR”) Secretary Cimatu emphasized that mining companies must use their Social Development Management Program (“SDMP”) funds to create truly sustainable economic activities for their mining communities. In his State of the Nation (“SONA”) Address in 2018, President Duterte said to the mining industry, ‘Do not just give me taxes. I can get it from other sources. Give me what needs to be given to my countrymen.’”In relation to this, we the following questions:1. How will the DENR achieve its commitment under the National Greening Program to plant 1 million hectares of bamboo to help address climate change?2. How will Department of Trade and Industry (DTI) implement its 3 years-in-the-making Bamboo Industry Development Roadmap without the land to do it on and the people/communities to do it with?3. How would the people in the mining communities achieve sustainable livelihoods even beyond the life of the mines?4. More importantly, how will the mined-out areas be greened to the satisfaction of the President?His answer to all of these? Bamboo - The Super Grass.Atty. Dominguez points out, “Now, how do we make bamboo the tool to reinvent mining? Bring together DENR, DTI, Design Center Philippines, DOST, Department of Agriculture, the mining industry -- a unifying target, a win-win for all.”Secretary Ramon Lopez of DTI and Chair of the Philippine Bamboo Industry Development Council pointed out that if the mining industry would contribute mined out and other available areas for planting bamboo, and then work with DENR, all can work together under the DTI Bamboo Roadmap and their applications. The DTI Bamboo Roadmap covers the following:1. planting technology2. identifying low to high value bamboo products3. training the community to design and manufacture these products4. assisting in the marketing of bamboo products to pre-targeted buyers and consumersThe next big question: “Who will fund the planting of bamboo and the training of the mining communities to work with bamboo?”The funds will come from the mining companies who are required by law to spend specified amounts on their respective Environment Protection and Enhancement Programs (“EPEP”) and SDMP’s.There are many misinformed people who seriously believe that mining is bad for the country. How can the bamboo industry change this negative conversation about mining? From his report, Atty. Dominguez states, “Bamboo will not only be a source of sustainable livelihood. With inputs from all the partners involved in the Bamboo Roadmap, bamboo has the potential to launch the mining communities into agro-industrial enterprises of the future. This bamboo rocket ship would not be possible without the mining industry as the launch pad for all these endeavors.”What about the money? How profitable is a bamboo plantation?Based on his study and report, a family that farms 10 hectares of bamboo plantation has potential income, as follows:~ Cost/10 hectares = Php960,000~ Revenue/10 hectares = Php6.3 million~ 1 hectare contains 210 bamboo clumps~ price/bamboo = Php100~ 210 x 30 x Php6.3 million gross value of poles/10 hectaresTherefore, projected net family income/year/10-hectare bamboo plantation = Php1.4 millionHow does this “super grass” connect Mines and Agriculture?Historically, mining companies first remove minerals that normally make mineralized lands inhospitable to agriculture. “These minerals eventually make their way into things that we use like our cars, jewelry, cellphones and devices, refrigerators, watches, houses, and so on. After this, mining companies are required to rehabilitate and transform the mined-out land into agricultural land. Then, mining companies plant trees to fulfill their obligation to re-vegetate the mined-out area.”Land rehabilitation has always been a part of mining operations of responsible mining companies, and yet many misinformed people blame mining for the loss of agriculture land.Atty. Dominguez clarifies that, “One of the major problems of our country is that it is rapidly losing food-producing agricultural land to real estate development. The mines actually generate agricultural land. The mining industry has in fact, all along, been addressing the loss of agricultural land to real estate by transforming mineral lands (which by their nature are not good for agriculture in the first place) into agricultural lands.”He suggests that mining companies can take this further if they accomplish the following:~ Help the country comply with its commitment to plant bamboo to address climate change;~ For the first time, plant something that can be harvested and used by their mining communities in many ways to generate sustainable livelihoods for their communities;~ Provide the mining communities with long-term sustainable enterprises that can go on beyond the life of the mine.With regard to the overall reputation of the mining industry, bamboo could be a crucial catalyst that can change the way people see the industry. “The success of mining companies could also be evaluated by how successful mining communities, [who are] working with bamboo, have become.”In summary, in his presentation, Atty. Dominguez, emphasized the following:~ The mining industry is an unsung hero. It actually transforms non-agricultural to agricultural land.~ When you plant bamboo on this newly-created agricultural land, you actually launch sustainable social enterprises and economic empowerment for the mining communities.~ Over time, even beyond the life of the mine, these communities could become agro- industrial port cities of the Filipino future.He concludes, “All of this would not be possible without the mining industry as the launch pad, working in collaboration with the DENR, DTI, and hopefully the DOST and the DA as well.”References:[1] https://en.wikipedia.org/wiki/Science_and_technology_in_the_Philippines and https://en.wikipedia.org/wiki/Department_of_Science_and_Technology_(Philippines)[2] https://en.wikipedia.org/wiki/I.S.T._XL-14_Maya[3] https://en.wikipedia.org/wiki/I.S.T._XL-15_TagakAcknowledgment:Mr Leo G. Dominguez and Mr Christopher Lacson

Commentary

Philippine Resources - March 12, 2019

Defending our territorial rights through historical facts

By Marcelle P. VillegasOn 7 May 2009, China submitted the Nine-dashed Lines Map to the United Nations. Their map gobbles up large areas of the Exclusive Economic Zone (EEZ) and Extended Continental Shelf (ECS) of the Philippines, Vietnam, Malaysia, Brunei and Indonesia. China’s Nine-Dashed Lines Map shows that China is claiming 85.7% of the entire South China Sea. Their claim covers 3 million square kilometers out of the 3.5 million square kilometers surface area of the South China Sea. [1] This is the root cause of the South China Sea dispute, because China did not provide a legal basis for the dashes. The dashes also had no fixed coordinates. With that, the Philippines, Malaysia, Vietnam and Indonesia protested against China’s claim. This story is more than about defending our territorial or maritime rights. It is also of geological significance and fighting for our own natural resources. In January 2013, the Philippines formally initiated arbitration proceedings against the PRC’s claim on the territories within the “nine-dash line” that include the Scarborough Shoal. [2]Justice Antonio T. Carpio, Senior Associate Justice of Republic of the Philippines Supreme Court, defended the Philippines’ right of ownership of the little islands within our territory to the international Arbitral Tribunal. His strategy in explaining our claim was simple – pointing out our legal rights through legitimate historical records. In his presentation “The South China Sea West Philippine Sea Dispute”, he enumerates several important facts about our territory.To begin with, what is the significance of the South China Sea to the world? There are US$5.3 trillion of ship-borne goods that travel through the South China Sea annually. This is almost one-half of the world’s shipborne trade in tonnage. A great percentage of the petroleum imports of South Korea, Japan, Taiwan, and China pass through the South China Sea. The annual global fish catch from South China Sea is worth US$21.8 billion. Additionally, 2 billion people live in the 10 countries bordering the South China Sea where hundreds of millions of people depend on fish there for their protein. More importantly, maritime area that are close to the coast of the countries bordering the South China Sea are rich in oil and gas resources. South China Sea is also rich in methane hydrate which is a potential source of energy. [3] Over 250 small islands, atolls, shoals, reefs, cays and sandbars are located at the South China Sea. These small land area have no inhabitants. The features are grouped into three archipelagos namely, Macclesfield Bank, Scarborough Shoal, Pratas Islands, Paracel Islands and Spratly Island. [2]How does the Nine-dashed Line Map affect the Philippines? The Philippines loses about 80% of its EEZ facing the West Philippine Sea. This includes the entire Reed Bank and part of the Malampaya gas field. This loss covers 381,000 square kilometers of maritime space and 100% of the Philippines’ ECS which covers an estimate of over 150,000 square kilometers of maritime space. In 2012, China seized Scarborough Shoal (Panatag) from the Philippines. It is a small ring of reefs that is located about 230 km from the Philippines, but 650 km from the nearest major Chinese land mass (southern island of Hainan province). Scarborough Shoal is rich in marine life where fishermen from the Philippines, China and Vietnam have been fishing for several years. It is in the Philippines EEZ. [4]Martin Luther King, Jr. once said, “Learn a little about your past, and you may end up with a pretty nice future”. Looking back in our history was indeed the winning strategy on how the west was won in this dispute. Here are some of the historical proofs and legal basis presented by Justice Antonio T. Caprio before the Tribunal.1. Official and unofficial maps of China from 1136 during the Song Dynasty until the end of the Qing Dynasty in 1912 show that the southernmost territory of China has always been Hainan Island, and not the areas of the Nine-Dashed Lines. On the other hand, there are various official and unofficial maps of the Philippines from 1636 until 1933 that consistently illustrate that Scarborough Shoal has always been part of the Philippines. Centuries ago, the name of Scarborough Shoal was “Panacot” according to the Murillo Velarde Map in 1734. This was published in Manila while the Philippines was still a colony of Spain. [5]2. The Franciscans arrived in the Philippines in 1578. In 1695, the Coronelli Map of Southeast Asia (entitled Isloe dell’ Indie) shows the Spratlys as part of the Philippines. The map was illustrated by the Franciscan monk, Venetian Vincenzo Coronelli. The map was published in Venice in 1695. Coronellie is well-known for his accurate atlases and globes, and as the Father General of the Franciscan Order.3. In 1899, the map “Islas Filipinas, Mapa General Observatorio de Manila” was published in Washington, D.C. by the U.S. Coast of Geodetic Survey. This old map resembles the modern Philippine map that we use today.4. In 1898, when the Philippine Revolution was about to end in victory to end 300 years of Spanish rule, Spain secretly sold the Philippines to the United State of America under what is known as the 1898 Treaty of Paris between Spain and the United States. This agreement did not include the little islands surrounding the main islands of the country, thus another treaty was made called the 1900 Treaty of Washington. 5. The Treaty of Washington entails that Spain had given to the United States “all title and claim of title, which (Spain) may have had at the time of the conclusion of the Treaty of Peace of Paris, to any and all islands belonging to the Philippine Archipelago, lying outside the lines” of the Treaty of Paris. Therefore this agreement clarifies that Spain ceded Scarborough Shoal to the United States under the 1900 Treaty of Washington (or the Treaty between Spain and the United States for Cession of Outlying Islands of the Philippines, signed November 7, 1900).6. Additionally, Secretary Cordell Hull of the U.S. State Department mentioned in his Memorandum of July 27, 1938 to Harry Woodring, Secretary of War: “In the absence of evidence of a superior claim to Scarborough Shoal by any other government, the Department of State would interpose no objection to the proposal of the Commonwealth Government to study the possibilities of the shoal as an aid to air and ocean navigation.”Finally, on 4 July 1946, the Treaty of Manila has been signed granting the Philippines full independence from the United States of America.7. Scarborough Shoal was also used by the United States and the Philippine military as an impact range for their warships and warplanes from 1960s – 1980s. The International Maritime Organization of the United Nations was notified of such activities. During those years, there were no protests from any country about these activities.In conclusion, “The Philippines today is engaged in a historic battle to defend over 531,000 square kilometers of its maritime space (EEZ and ECS) in the West Philippine Sea, an area larger than the total land area of the Philippines of 300,000 square kilometers. This huge maritime space is part of Philippine national territory since the Constitution defines the ‘national territory’ to include ’the seabed, the subsoil, and other submarine areas’ over which the Philippines has ‘sovereignty or jurisdiction’. Under UNCLOS, the Philippines has ‘jurisdiction’ over this huge maritime space. Can the Philippines prevent China from gobbling up this huge maritime space? All citizens of the Philippines - both government personnel and private individuals – have a solemn duty to prevent the loss of this huge maritime space. It is a duty we owe to ourselves, and to future generations of Filipinos. The Historic Battle for the West Philippine Sea.” [5] (From the presentation of Justice Antonio T. Carpio)On 12 July 2016, the Permanent Court of Arbitration (PCA) tribunal in Netherlands agreed unanimously with the Philippines. They concluded that there is no evidence and "no legal basis for China to claim historic rights" over the area within the nine-dash line. The tribunal also judged that the PRC had caused "severe harm to the coral reef environment" [6] and had violated the Philippines’ sovereign rights in its EEZ by interfering with Philippine fishing and petroleum exploration (such as restricting the Filipino fishermen at Scarborough Shoal). PRC rejected this ruling. Their president Xi Jinping said that, "China's territorial sovereignty and marine rights in the South China Sea will not be affected by the so-called Philippines South China Sea ruling in any way", nevertheless the PRC would still be "committed to resolving disputes" with its neighbours. China afterwards sent more warships in the Scarborough Shoal. [7][8]Disclaimer: Regarding “The South China Sea West Philippine Sea Dispute” by Justice Antonio T. Caprio – The views expressed in the presentation are the personal opinion of the author and do not necessarily represent the position of the Philippine Government.References:[1] “South China Sea Arbitral Award” - https://www.slideshare.net/SamGalope/south-china-sea-arbitral-award[2] South China Sea - https://en.wikipedia.org/wiki/South_China_SeaScarborough Shoal - https://en.wikipedia.org/wiki/Scarborough_Shoal[3] Justice Antonio T. Carpio. “The South China Sea West Philippine Sea Dispute” - https://www.slideshare.net/SamGalope/lecture-the-south-china-sea-west-philippine-dispute-justice-antonio-t-carpio-philippine-social-science-center[4] “5 facts on Scarborough Shoal” (8 Feb. 2017) by Agence France-Presse and ABS-CBN News - https://news.abs-cbn.com/news/02/07/17/5-facts-on-scarborough-shoal[5] https://www.slideshare.net/7philippines/the-south-china-sea-west-philippine-sea-dispute[6] Perez, Jane (12 July 2016). "Beijing's South China Sea Claims Rejected by Hague Tribunal". The New York Times.[7] Tom Phillips, Oliver Holmes, Owen Bowcott (12 July 2016). "Beijing rejects tribunal's ruling in South China Sea case". The Guardian.[8] "South China Sea: Tribunal backs case against China brought by Philippines". BBC. 12 July 2016.

Commentary

Philippine Resources - March 12, 2019

How wars and historical events affected the mining industry

By Marcelle P. VillegasFor the past centuries, the mining industry in the Philippines was greatly affected by the changes of government or colonisers, events around the world and more. It seems that whenever there is war, there is also a rise in the demand in certain mineral resources or a fall in the production rate of some minerals.August is History Month in the Philippines as promoted by Government and Education sectors. The Philippines is rich in natural resources, cultural heritage and more noticeably, we are rich in history which brought progress or hindrance in economic growth through the years. Last August, during the Philippine Mining and Exploration Association (PMEA) Monthly Membership Meeting, one of the keynote speakers is Mr Hernulfo “Nonoy” Ruelo, Geologist Consultant. The title of his presentation is “Copper-Gold Discoveries and Mine in the Philippines - Understanding the Past, in order to make sense of the Current, and the Future”. It was a well-researched report and analysis on how historical events, like wars or change in leaders, affected the mining sector and the socio-economic status of the country. The presentation takes us back in time with some rare vintage photos from the past.During the pre-Spanish Period, the earliest use of metal in the Philippines by our Filipino ancestors was the use of copper for ornamentation, not for tools or currency. Other metals used were gold and tumbaga (copper alloyed with gold). “Gold was the major form of ‘currency’ among the early Filipinos and one of the first things they [ancestors] taught their children was the knowledge of gold and the weights with which they measured.” (From the book by Evelyn J. Caballero, 1996. “Gold from the Gods: Traditional small-scale miners in the Philippines”. Giraffe Books, Quezon City.( p 196 and 263) On note, the pre-colonial mining methods had no environmental impact on land, water, air and people.Pre-Spanish Period Mining in the Philippines started in the 3rd century when gold was traded with China and the Javanese empire where the height of this trade was during 12th to 14th century. The Chinese were the first foreign miners. Gold is both a commodity and a medium of exchange. When the Spaniards arrived in the 1521, gold was already being mined, traded and used as jewelry or ornamentation by the native Filipinos. In fact, 16th century Filipino noblemen were decked in gold.Colonial Period Under Spain 1500s - 1898: Paracale and Cordillera were the oldest goldfields. From 1500s - 1700s, gold was one of the tributes collected by the Spanish government and given to the King of Spain. In 1583 and 1595, an expedition was sent to mine in Cordillera but was a failure due to the resistance of the Igorots.“Gold mining before the coming of the Americans was primarily in the hands of enterprises organized in the Philippines by Spaniards and Chinese mestizos and Filipinos, with a few other companies trying, without success, to produce commercially.” (Ref. - Wirkus 1974)In 1600 to 1700, about 10,000 ounces of gold per annum were shipped to Spain, and the gold shipments to Spain increased from 1800 to 1895. For copper, the Spaniards opened the first copper mine in the country in 1842, called the Carawisan copper mine in Antique province. From 1864 to 1874, the Contrabro-Filipino Company operated Mankayan Copper Mine. Gold mining made its comeback in commerce in 1892 where concessions to foreigners were first granted. The British explorer, Frank Karuth of Philippine Mineral Syndicate, led the commercial-scale hard-rock and alluvial gold operations in Paracale District until 1895. (Ref. - Chaput 1987) Philippine Revolution 1896 – 1902: With the rise of the Philippine revolt against Spain, in 1896, mining operations at Paracale dwindled until 1902 when the Filipino-American War ended. The Organic Act of 1902 was created which organized companies, issued patents, and established the Geological & Mining Science Department. By 1927, gold was the third best export commodity and initiated by the Philippine (Manila) Stock Exchange.In the following years, the Mining Act of 1935 was released (Commonwealth Act 137) which introduced the Regalian Doctrine, the concept of Mining Lease, and the establishment of Bureau of Mines. The Americans invested US$ 34.2M in gold production. Mining for copper was reopened in 1936, the same time when the Japanese savvy for copper was high and led to the ‘discovery’ of the first large porphyry copper deposit in the country.Commonwealth Period 1937 - 1941: This period in Philippine history was considered a golden era when Manila was highly modernised and was one of the most beautiful cities in Southeast Asia. In fact, in 1937, we had the best and well-equipped airport in the Southeast Asia, the Nielson Airport. (This is now Ayala Triangle Park in Makati City, and the original Nielson Tower is now “Blackbird” Restaurant.) Although this elegant airport was primary used as an aviation school, it also paved the way for trade and commerce for foreign investors. Philippine Airline made its first commercial flight in 1941, from Nielson Airport to Baguio. The Philippines was the largest gold producer in Asia and second only to California in world production. During the American period, 9 million oz of gold was produced from 1906 – 1941.Japanese Occupation 1942 – 1945: Being a colony of United States of America, the Philippines got itself involved in war against the Japanese who invaded Manila in 1942. The Japanese took over Lepanto and the Hixbar mines (Rapu-rapu) and was able to mine and extract 11,000 tonnes of copper. No gold production was recorded. With the aggressive strategies of conquering their neighboring countries, Japan was unstoppable that time in their collection of natural resources that were needed to fuel their warships and planes and the production of weapons. Battleships Musashi and Yamato where the two giants in naval power that made Japan feared by other nations. The two battleships were defeated though in the Philippines during the Battle in Leyte Gulf in October 1945 which paved the way to the Liberation of Manila and eventually the whole country.Post-war Reconstruction 1946 – 1954: Those post-war years were hard times for all war-torn countries. However, with the need for repairs infrastructure after WWII, there was an increase in the global demand for copper. Some gold mines in the Philippines were rehabilitated but the problems were lack of capital and low market demand. Copper production re-started in 1947. Since Manila was the ground zero and battlefield of the war that ended WWII in the Pacific (Battle of Manila in 1945), there were serious damages in the country’s economy and on the mining industry.Korean War 1954 – 1960: For the Filipino soldiers who fought the Japanese during WWII, the Korean War was the first time for them to fight a battle in a foreign land. Although this war affected Southeast Asia directly, the gold prices maintained. However, in mid 1950s, the gold mines collapsed due to a recession period. The copper price rose slight due to high world demand. More Philippine copper mines opened. Vietnam War 1960-1975: In 1972, U.S. President Nixon took dollar off the gold standard. It was fixed at $35 since 1934, but gold prices are allowed to float free which devalued dollar to $38. In 1973, world gold price jumped from $38 to $120. World copper rate hit high at $0.90 in 1974. World copper mine production was at its peak.Martial Law 1972 - 1986: During Martial Law in the Philippines, copper price trended upward where the country’s copper production continued and boomed in 1980 where it reached its peak. It was in 1980 when Philippine copper production was recorded the highest at 306 Kt. However, the World Oil Crisis in 1973 - 1980 brought about a decline in copper demand. World Recession in 1982 – 1984 pulled down the copper prices. Philippine inflation devalued the Philippine peso and there was an increase in production costs, materials and equipment. The Global recession resulted in a decline in copper demand. The Philippine gold production was sustained and gold prices surged from 1978 to 1980. The modern Gold Bloom in 1980s brought about the rise of unregulated Small Scale Mining. In summary, the explanatory variables of growth and decline in PH copper industry in the 1950s-1980s are: - For Copper resources: risk capital or investments, development in the world’s copper market, technology, human capital in mining, domestic social, legal, and political environment .- For the gold industry: gold resources, competition, commodity price, production costs, technology (bulk mining, milling, treatment), damages – natural & man-made disasters(Reference). T.M. Santos 2001 . Growth of Copper Production: Determinants and Empirical Evidence. Social Science Diliman, July-December 2001. 2:2, 1-49.)There were other historical events in the Philippines that followed like:EDSA Revolution: 1986-1992 - gold averaged $381, copper $1.02 – There was investment uncertainty and several mines closed. New mining laws were crafted like the 1991 RA 7076 (Small Scale Mining Act). The 1987 Constitution replaced Leasehold into Agreements system.From 1990s – 2004, there was collapse of the local mining industry. However from 2004 – 2009, there was a revitalization of the mining industry with EO 270 National Policy Agenda – Mineral Action Plan. Gold price surged from $410 to $873. Copper production hit lowest in 2004 at 16 Kt since 1957. The year 2005 brought global gold boom where Philippine gold-copper mines had expansion and reopening.The Aquino Administration from 2010-2016 was within the Global Mining Boom period (2010 - 2013). It was a successful period for Philippine mine exploration, prospect drill-testing, and resource evaluation drilling. In conclusion, Mr Ruelo presented a list of challenges that miners will need to face at the present time, namely:- Fewer outcropping “easy-to-find” deposits are now left except in high-risk and “inaccessible” areas.- Current mining operations will encounter increasing real costs (labor, materials, energy, environmental, community impact) that will affect production.- The next generation of lower-grade copper/gold projects require significantly higher metal prices to justify development.- We need to discover high-quality or better gold/copper resources, even deeper ones that can be economically mined – e.g. in greenfields and brownfields.

Commentary

Philippine Resources - March 07, 2019

Solar Lolas on the way to financial literacy

By Patricia A. O. BunyeI have written frequently about the journey of our “Solar Lolas”, seven Aeta women who trained at the Barefoot College in Tilonia, India under the “Tanging Tanglaw: Turning IP Grandmothers into Solar Engineers” project of Diwata-Women in Resource Development, Inc. and its project partners, the Land Rover Club of the Philippines and the Philippine Mine Safety and Environment Association. Five years after we first launched this project in 2014, we remain as excited and committed as we see the Solar Lolas making great strides.At the Barefoot College, where rheir training was made possible by the support of the Government of India through its Indian Technical and Economic Program, they learned how to assemble, repair and maintain solar panels for installation in their respective communities in Bamban, Tarlac and Gala, Zambales. The first batch trained from September 2014 to March 2015, while the second batch trained from April to September 2018. The first installation of solar panels in Bamban took place in 2016, with the installation in Gala following soon after. Rural Electrification Workshops (REW) where the Solar Lolas do their work, and which serve as community activity centers, have also been constructed. During typhoons, these REW have served as emergency shelters as well.In each community, “Lupong Solar”, or committees composed of 7 members (3 IP chieftains, 2 Solar Lolas, a lupon secretary and a collector) have been organized. The Lupong Solar is tasked with managing the funds collected from the users of the solar panels for future use when the panels would need to be repaired or replaced. The Solar Lolas who undertake the installation, maintenance and repair of these panels are also paid a modest stipend from these funds.One major milestone is that the Lupong Solar of Bamban has opened, with the assistance of Diwata, its own bank account with Chinabank’s Bamban Branch, in which they are now depositing their monthly collections. The whole process of opening their accounts took more than half a day, but it was an accomplishment that the Solar Lolas can be proud of.The Tanging Tanglaw Project also receives tremendous support from FWD Insurance which has designed a Financial Sustainability Training Program for Solar Lolas. The first formal training session, which was facilitated by trainors from Bayan Academy, was held on 04 December 2018 at Diwata’s training room at the Clark Skills and Training Center (formerly known as the “Clark Polytechnic College”). [Pursuant to a Memorandum of Agreement with the Bases Conversion Development Authority and the Clark Development Corporation, the Tanging Tanglaw Project is allowed the use of a training room formally known as the “BCDA Group Women’s Center” and a storage facility for its solar equipment.One activity during the training session was to construct a model community by using pictures, drawings and cut outs. Although the participants were divided into different groups, their envisioned model communities contained the same features: water, schools and concrete homes. In this regard, Diwata has been looking into how it may assist the Bamban community in improving its water supply. Volunteers from the UP National Institute of Geological Sciences have conducted the necessary studies, but the actual funding and implementation of the water project will have to be deferred.Although the training session was conducted informally, a number of more sensitive or serious concerns were elicited from the discussions, including the participants’ thoughts on family, government and even discrimination. They also expressed the desire to implement culturally appropriate conservation and development programs. The discussions were a good starting point for further engagement with them, particularly on short, medium and long term developmental interventions. To make the program more meaningful and impactful, there is a need to calibrate their expectations versus the actual programs that can be delivered. Moving forward, we will have to focus on the need for livelihood projects for the communities. Currently, majority of the community members are farmers. They produce root crops, vegetables and raise poultry. Other sources of income come from charcoal production and wild animal hunting. Other tribe members also work in the lowlands as construction workers.While Diwata has been engaged with these communities for five years now, there is still so much to learn about them, particularly their dynamics and cultural norms. It is a continuing lesson in being open and patient, and most importantly, not imposing our ways on them. It never ceases to amaze me how far our Solar Lolas have come and how they have been transformed by the Tanging Tanglaw Project. It will certainly be exciting to accompany them further on this journey to financial self sufficiency. Patricia A. O. Bunye is a senior partner at Cruz Marcelo & Tenefrancia and head of its mining and energy practice. She is also President of Diwata-Women in Resource Development, Inc. Questions and comments are welcome at po.bunye@cruzmarcelo.com.

Commentary

Philippine Resources - February 28, 2019

How Do You Solve a Problem Like Malampaya?

The Malampaya Deepwater Gas-to-Power project (“Malampaya”) located in Northwest Palawan, employs deepwater technology to draw natural gas that fuels three gas-fired power plants and provides 30% of Luzon's power generation requirements. Operating under Service Contract (“SC”) No. 39, the project is a joint undertaking by the Department of Energy (“DOE”) and Shell Philippines Exploration B.V. on behalf of joint venture partners Chevron Malampaya LLC and the Philippine National Oil Corporation Exploration Corporation. Malampaya delivers through six (6) Gas Sales and Purchase Agreements and fuels 2,700 MW of power stations as baseload plants and an additional 500+ MW operating as mid-merit and peaking plants. It produces an average of 380 million standard cubic feet per day. Data from the DOE indicated that given the present production level and continuous decrease in reservoir pressure, drop in supply is expected by 2022. Recoverable reserves at the end of field life is 3.08 to 3.29 trillion cubic feet. SC 39 will expire in 2024 with no certainty in an extension and while it may have enough gas, this may not be sufficient to last beyond five years. This comes as domestic electricity consumption is likely to reach 50 million kilowatts in 2040. The Philippines in 2017 produced half its power from coal, a quarter from renewable energy and 22% from natural gas. It is imperative then that the country urgently finds a replacement through new petroleum discoveries once the Malampaya gas field is depleted.Liquified Natural GasThere are currently no sufficient remaining resources from the Malampaya field or other potential upstream developments to justify new natural gas infrastructure development. The only reliable source of new gas would be imported liquefied natural gas (“LNG”) ensuring supply security and sustainability. As there are no existing infrastructure for importing LNG, the Philippines cannot access the gas market for industrial, commercial, and transportation. In anticipation of the Malampaya field depletion, the government is pursuing LNG projects and several foreign companies in partnership with domestic entities have committed investments in LNG importation facilities. Leading the pack is Energy World Corporation (“EWC”), which reported that the DOE has issued to affiliate, Energy World Gas Operations Philippines, Inc. a permit to construct, own and operate an LNG import terminal and re-gasification facility in Pagbilao Grande island in Quezon province. EWC said the permit would enable the completion date for the first tank of the LNG hub to be aligned to the commercial operation date of the associated 650 MW power plant and the National Grid Corporation of the Philippines switchyard expansion, and the construction of the second tank. The 650 MW plant has been recognized as the anchor off-taker of the LNG project which consists of two 130,000 bcm LNG tanks, a dedicated jetty and marine infrastructure as well as re-gasification and other ancillary facilities. Fitch Solutions earlier reported that the start up of LNG import terminal has been delayed due to difficulty in obtaining access to existing local transmission infrastructure, most of which is dominated by coal-fired power generators.The state-owned Philippine National Oil Company (“PNOC”) is developing a USD 600 million facility to be used to receive, store, re-gasify and distribute LNG. PNOC announced that it will start its tendering process for its LNG import facility. PNOC will be assuming minority stake in the project – as referenced on the joint venture rules set forth by the National Economic and Development Authority, in which the company can assume equity of not more than 50-percent. The technology preference will be a floating storage re-gasification unit and its capacity will be initially at 3.0 million tons per annum. PNOC has requested the DOE to declare the project as an Energy Project of National Significance under Executive Order (“EO”) No. 30.Meanwhile, the Philippines has become a new front in China and Japan's infrastructure rivalry as companies from both countries bid to build the country's first LNG terminal. Both Tokyo Gas and the state-owned China National Offshore Oil Corp. (“CNOOC”) have partnered with domestic companies.FGEN LNG Corp, a wholly-owned unit of First Gen Corp. of the Lopez conglomerate, signed a Joint Development Agreement with Tokyo Gas to build LNG terminals. The project will be located in Batangas Province, where First Gen operates four (4) gas-fired power plants that have a total capacity of 2,000 megawatts. The plan calls for building a terminal that will re-gasify and supply 3 to 5 million tons of LNG imports annually to the power facilities. The project is expected to cost more than $700 million, with First Gen taking an 80% stake in the operating company. FGEN recently filed with the DOE a notice to proceed with the construction of its proposed Batangas LNG terminal project in the First Gen Clean Energy Complex in Batangas City. The Japan Bank for International Cooperation is likely to fund the Tokyo Gas project if it is approved. It would be the first Japanese-built LNG terminal overseas, a core part of Japan's effort to boost infrastructure exports.On the other hand, CNOOC, a pioneer of China's LNG industry having built its country's first terminal in 2006, formed a consortium with Phoenix Petroleum Philippines and submitted a proposal for an LNG facility on November 2018. Phoenix Petroleum recently announced that the DOE granted Tanglawan Philippines LNG Inc. the notice to proceed to build the facility. Tanglawan plans to break ground by 2019 and aims to start commercial operations by 2023. The CNOOC consortium is thought to have the political edge since Phoenix Petroleum is owned by Dennis Uy who is perceived to be close to President Rodrigo Duterte. Petroleum Geopolitics in the South China SeaDue to the geologic fact that most of the Philippines’ most prospective petroleum acreage lie in Northwest Palawan and the disputed waters in the South China Sea, improving bilateral relations with China remains key for the Philippines to improve its hydrocarbon reserves and production growth outlook.According to The Diplomat, China’s assertion of sovereignty over the disputed areas and entering into joint oil and gas exploration with other claimant states in the latter’s exclusive economic zones somewhat legitimizes China’s nine-dash line claim. China is adopting a carrot and stick approach in addressing this diplomatic issue. On one hand, Vietnam was threatened with force over its unilateral exploration activities in waters claimed by China. Conversely, offers of joint exploration with Brunei and the Philippines, which opted for pragmatism and seem willing to skirt contentious sovereignty issues, are framed as partnership with promises of technical support, capital, and wider investment. Prof. Jay Batongbacal, a maritime law expert postulates that to make any joint exploration deal work, the Philippines must overcome two major legal problems: 1) internationally, how to justify its acceptance that China contingently shares the petroleum resources within its continental shelf after an international arbitration award clearly declared that no plausible claim exists; and (2) domestically, how to accommodate any petroleum development not under its sole jurisdiction, control, and supervision but rather on a shared, co-equal basis with another state.MOU Between the Philippines and ChinaIn pursuit of an acceptable legal framework, the Philippines signed a Memorandum of Understanding (“MOU”) with China against the backdrop of brewing energy security concerns, years of negligible offshore exploration, declining upstream investment, and depleting resources in the Malampaya gas field.The MOU on oil and gas development in the West Philippine Sea signed during President Xi Jinping’s visit to Manila, creates a body that will study how the two countries can pursue joint exploration and development. The MOU does not mean the immediate conduct of joint exploration or joint development of marine resources. However, it paves the way for the crafting of a program on how such joint ventures can happen in the future. Department of Foreign Affairs (“DFA”) Secretary Teodoro Locsin, Jr. described the MOU as a "non-legally binding framework.” As to the geographic coverage of the framework, Locsin states that the agreement is designed to "govern an area once that area has been agreed upon according to the framework.” Supreme Court Senior Associate Justice Antonio Carpio, the leading advocate of Philippine rights in the West Philippine Sea, believes that the MOU allows only “cooperation in oil and gas activities” and is not violative of the Constitution. Carpio also assumed that the service contracts to be entered by CNOOC will exactly follow the model service contract of the DOE where the natural resources covered by the contract belong to the Philippines and the contractor must comply with Philippine laws, rules, and regulations. If such regulations are followed, CNOOC would be merely a subcontractor of the Philippine service contractor or an equity holder of the Philippine service contractor. “Clearly, under the signed MOU, there is compliance with the Philippine Constitution and there is no waiver of Philippine sovereign rights under the arbitral ruling,” said Carpio. The real test according to Carpio will be if the “cooperation agreements” to be finalized in twelve months, will involve service contracts in which Philippine law will govern the oil and gas activities with China. The answer lies with the working group and intergovernmental committee formed by the MOU composed of officials from the DFA, Chinese Foreign Ministry, DOE, and Chinese Energy Ministry, which will work out a program of cooperation that could lead to joint exploration.Unlocking the Petroleum Potential of the Disputed Areas Following these developments, the DOE has indicated that it is recommending to the DFA the lifting of the force majeure imposed in 2014 on Service Contract 72 in Recto Bank (Reed Bank) in response to the request of PXP Energy Corp./Forum Energy.SC 72’s Sampaguita Gas Field holds substantial volume of potential gas reserves, according to PXP, citing verified data from seismic surveys originally conducted in 2011. “The interpretation of these surveys was carried out by Weatherford Petroleum Consultants in 2012. The report indicated the Sampaguita Gas Field to contain contingent resources of 2.6 trillion cubic feet (TCF) of gas in place,” the company said. “The 2D seismic data were reprocessed in 2013 and were subsequently interpreted, aided by gravity-magnetics data by Fugro (2012) and Cosine Ltd. (2015). In 2015, Arex Energy produced a report on the north bank area and estimated prospective resources to be 3.1 trillion cubic feet.” PXP cautioned however, that the development of SC 72 must commence not later than 2027 as it would take at least six years from start to first gas. The contractor is committed to spend at least $80 to $100 million to fully appraise the Sampaguita gas field and other identified prospects within its contract area. The Philippines began exploring the area in 1970 and discovered natural gas in 1976. U.K.-based Forum Energy acquired the concession in 2005 and became its operator. PXP holds a 78.98 percent interest in Forum Energy, which in turn has a 70 percent stake in SC 72. In October 2018, PXP announced that Dennison Holdings, another company owned by Dennis Uy, would subscribe to 340,000,000 PXP shares bringing its stake to 14.78% of PXP after the transaction. PXP, which is also negotiating with CNOOC for another potential joint exploration in the South China Sea, will use the proceeds from the share sale to fund its exploration activities and other oil assets within the Philippines. Manuel V. Pangilinan, Chair of PXP remarked that the company is "interested to participate" in Dennis Uy's Tanglawan LNG project with CNOOC.The US Energy Information Administration (2013) estimates the region around the Spratly Islands to have virtually no proved or probable oil reserves. Industry sources suggest less than 100 billion cubic feet in currently economically-viable natural gas reserves exist in surrounding fields. However, the Spratly Island territory may contain significant deposits of undiscovered hydrocarbons. US Geological Survey assessments estimate anywhere between 0.8 and 5.4 (mean 2.5) billion barrels of oil and between 7.6 and 55.1 (mean 25.5) trillion cubic feet of natural gas in undiscovered resources. Expiring Coal Operating ContractsCompounding the Malampaya depletion are expiring coal operating contracts (“COC“) under Presidential Decree No. 972 known as “Promulgating an Act to Promote an Accelerated Exploration, Development, Exploitation, Production of Coal” (1976), that currently are producing and with existing proven reserves lasting beyond expiration. The fifty-year term limit for contracts involving coal exploration and production is enshrined in the Constitution. The Philippine Conventional Energy Contracting Program (“PCECP”) for coal established under DOE Department Circular (“DC”) No. 2017-09-0010 mandates the issuance of new COCs over these “open” areas upon expiration of the 50-year term. Under the current guidelines, the COC contractors will be required to prematurely cease production operations, relinquish the COC area to be qualified for re-application and/or nomination, and hope that they will be awarded with new COCs over their previously-held contract area. However, the COC contractors if they have to undergo the present PCECP process, do not have the certainty of getting the COC awarded to them. This will result in the premature cessation of continued profitable production operations.Some COC contractors have existing proven reserves lasting beyond the expiration of their COCs, and from a technical and economic perspective, they recognize the feasibility and the potential need to continue and extend operations of their COCs beyond the 50-year term limit. The extended period of operation on these COCs will allow continued coal production and maximum utilization of existing production assets and facilities giving rise to uninterrupted revenue to both COC contractors and government. Further, since the present COC contractors have a good understanding of the geological conditions and mining processes involved in their operations, these proprietary information will generate additional reserves and potential resources as determined from advance exploration, a clear advantage over a new COC contractor.The cessation in production operations will certainly result in premature mine abandonment and rehabilitation as there will be no subsisting contract with the government that will allow COC contractors to continue its operations. While the COC contractors are undergoing the process set by present guidelines, they will be hesitant in allocating funds and resources for the care and maintenance of idle facilities without commercial confidence that there will be an award of a new contract over the same COC area. Consequently, for areas with plan of developments that will exceed the 50-year term limit, aggressive production strategies within the remaining term of the COC will need to be adopted to ensure the recoupment of investment costs, as opposed to a deliberate and well-planned production operations strategy to better manage coal reserves that would ultimately yield a fully optimized coal production.More importantly, coal mines are major suppliers of downstream power facilities. Off-taking power plants need stability of supply from coal mines. Off-takers will not enter into long-term fuel supply agreements from COC contractors whose COCs are expiring. Also, in the absence of stable coal supply agreements, project and loan financing of new power plants are difficult to obtain. Coal mines are potential energy projects of national significance under EO 30 in light of the expected depletion of the Malampaya natural gas field.Nuclear Energy OptionNuclear energy can also be a viable alternative power source as a substitute for Malampaya with the proper legal and regulatory framework in place. In January of this year, the House of Representatives has approved on third and final reading a bill that provides for a comprehensive regulatory framework in harnessing the peaceful uses of nuclear energy. Consolidating eight related administrative proposals, House Bill No. 8733 provides for the creation of the Philippine Nuclear Regulatory Commission (“PNRC”) as an independent central nuclear regulatory body. The measure aims among others to harness the peaceful and beneficial uses of nuclear energy in power generation establishing a legal and regulatory framework for the regulation and control of the peaceful uses of nuclear resources; manage radioactive waste; and establish a legal and regulatory framework to prevent, detect, and respond to unauthorized activities involving nuclear materials. PNRC will ensure consistency with the nation’s obligations under relevant international instruments and modernize the nuclear civil liability and compensation regime in line with internationally-accepted standards.Among PNRC’s other functions are to: (a) issue regulations on financial capability of operators to cover liability for nuclear damage; (b) inspect, assess, and monitor activities to ensure compliance; (c) coordinate with other agencies on health and safety, environmental protection, security, and transportation of nuclear and related dangerous goods; and (d) act as the national authority on nuclear safety, security, and regulatory matters relative to the International Atomic Energy Agency. PNRC will also establish a Nuclear Waste Management Fund and set aside a portion of the payment for the electricity generated from the nuclear energy use which shall only be utilized for the safe disposal of nuclear waste, to include site research, transport, and final geological disposal. PNRC shall be headed by a Commissioner, appointed by the President and shall be assisted by four Deputy Commissioners and an Executive Director who will assist them in the discharge of executive, administrative and planning functions of the body. PNRC shall likewise have an Advisory Board chaired by the Department of Science and Technology Secretary, with the Secretary of the Department of Health as vice chair, and the Secretaries of the Departments of Energy, of Environment and Natural Resources, of National Defense, of Trade and Industry, and of Agriculture as members, as well as some five members from the academe or non-government organizations. All powers, duties, records, files, and assets pertaining to nuclear and radioactive materials and facilities of the Philippine Nuclear Research Institute shall be transferred to PNRC.Geothermal EnergyAnother viable alternative is putting on stream the untapped geothermal fields in the country. Recently the Philippines has dropped down to number three in the global ranking of geothermal energy producers. Based on the report of Climate Policy Initiative (2015), 45% of all renewable energy projects in Asia are either marginally bankable or not bankable at all due in part, to the lengthy process of securing required permits, licences and land access agreements. Another issue is grid connectivity. The amount of effort required for all the different aspects of the process means it can take years to achieve a bankable solution. Geothermal development’s high costs of field development, coupled with the high risks associated with resource exploration and drilling, pose a significant barrier to private sector financing.Despite the ambitious deployment targets set by the DOE that recognize the potential of geothermal to contribute to the energy mix, there is a need to balance the need to reduce private sector risks and incentivize investment while minimizing costs to the public sector. Needless to say, streamlining the permit process by government regulators will have an impact on geothermal development, as shorter project periods would reduce uncertainty for policy and market dynamics when modeling economic returns. Geothermal projects are characterized by significant upfront capital investment for exploration, well drilling, and the installation of plant and equipment. But once the geothermal projects are placed in commercial operation the fuel source is secure for the tens of years of expected lifetime with a steady revenue stream.Investment Opportunities and ChallengesInvestment opportunities abound in the power sector as there is a need to supply the natural gas requirement of the existing gas-fired plants when the Malampaya field shuts down. According to the Philippine Energy Plan prepared by the DOE, the country will need 43,765 MW by 2040; 14,500 MW will be for mid-merit and 4,000 MW for peaking. Renewable energy capacity is poised to increase from its 2010 level of 5,000 MW to 2030 level of 15,000 MW and due to its intermittent nature, natural gas-fired power plants can complement when these plants will not be running. Additional potential demand for LNG will come from off-grid or missionary islands in replacement of existing diesel-fired power plants. LNG will primarily be consumed in the power sector, but will soon cover non-power applications such as in the industrial processes, transportation, commercial and residential sectors.More incentives should be given to upstream natural gas exploration so as to have a viable and stable replacement to the Malampaya gas field and enhance the economic feasibility of marginal deposits. While the backbone of the upstream natural gas industry is now in place, it was brought about by a lack of a comprehensive regulatory framework to guide natural gas industry operations in the Philippines. This gap was addressed through contractual agreements in service contracts and ad hoc arrangements between the regulators and service contractors. The Philippines does not have a separate Natural Gas Act that establishes administrative authority and accountability for the gas sector in a single agency. Although the DOE has legislative authority to promulgate regulations, broader issues regarding access and pricing have not gone beyond expressions of policy intent. The DOE has addressed issues affecting Malampaya through amendments or interpretation of service contracts. As a result, gas sector policy is largely driven by upstream considerations according to issues on which the service contractors have sought clarification as amendments to the original contract. In reality, the present regulatory regime for gas exploration and development is seen to limit the competitiveness of gas to replace oil products except for high cost products such as liquefied petroleum gas and diesel in industry and even residential electricity. This may not necessarily apply to other lower cost gas field developments than Malampaya, which has a deepwater occurrence. Royalty and taxes account for about half of the gas price. Reducing these components will transfer the benefits of developing natural gas directly from the government to the consumers through lower electricity prices. Increased use of natural gas will, in turn, provide economic benefits through foreign exchange savings from foregone oil importation and reduced environmental impact of the country’s overall energy balance.ConclusionThere is an urgent need for more energy sources with the depletion of the Malampaya field. Unless the government acts with dispatch, the power situation does not look good as the import facilities for LNG to replace the indigenous gas must be operational by 2024. Fortunately, Philippine energy regulators have taken a technology-neutral stand on possible solutions to the country’s growing demand for energy by looking at all available options. Investments in energy infrastructure will always be driven by the combination of a strong energy supply imperative, increasingly liberalized energy sector, ambitious capacity targets and a relatively stable off-take mechanism. Petroleum exploration and development resources particularly in the Northwest Palawan basin and disputed areas of the West Philippine Sea are fraught with technical operational complexities, cost enormous sums of money, and certainly dictated by externalities arising from the country’s relation with China. The two countries’ cooperation has taken a broader energy partnership narrative in light of the present administration’s more conciliatory stance toward China.Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and Business Development. He may be contacted at fspenarroyo@gmail.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/)References:Batongbacal, Jay, Philippine-ChinaJoint Development Talks Still at an Impasse, Despite Green Light, 13 April 2018, https://amti.csis.org/philippine-china-joint-development-impasse/DOE Now Amenable to Lifting Reed Bank Oil Exploration Ban, 04 December 2018, https://www.doe.gov.ph/energist/doe-now-amenable-lifting-reed-bank-oil-exploration-banEndo, Jun; Tabeta, Shunsuke; Sugiura, Yuta, Philippines’ First LNG terminal Sought by China and Japan, Nikkei Asian Review, 18 December 2018, https://asia.nikkei.com/Business/Business-Trends/Philippines-first-LNG-terminal-sought-by-China-and-JapanJacob, Don Honor, Development Plans in the Emerging Downstream Natural Gas Industry, Department of Energy, Prepared for the E-POWER MO! Communicating Efficiency Across Energy Sector, 24 April 2018, https://www.doe.gov.ph/e-power-mo-communicating-efficiency-across-energy-sector-baguio-cityKuo, Mercy A., The Geopolitics of Oil and Gas in the South China Sea, Insights from Eufracia Taylor and Hugo Brennan of Risk Consultancy Verisk Maplecroft, The Diplomat, 12 December 2018, https://thediplomat.com/2018/12/the-geopolitics-of-oil-and-gas-in-the-south-china-sea/Philippines Oil and Gas Report, Fitch Solutions, 01 January 2018Ranada, Pia, Oil Deal with China May Be Solution to Sea Dispute – Carpio, Rappler, 07 December 2018, https://www.rappler.com/nation/218431-carpio-says-oil-deal-with-china-may-be-solution-west-philippine-sea-disputeRanada, Pia, PH-China Deal on Oil, Gas Dev't Creates Body to Study Joint Exploration, 21 November 2018, https://www.rappler.com/nation/217185-philippines-china-deal-oil-gas-development-creates-body-study-joint-explorationRosario, Ben, House OKs on Third and Final Reading Bill on Use and Regulation of Nuclear Energy, Manila Bulletin, 18 January 2019, https://news.mb.com.ph/2019/01/18/house-oks-on-third-and-final-reading-bill-on-use-and-regulation-of-nuclear-energy/South China Sea - International - Analysis; U.S. Energy Information Administration, 07 February 2013, https://www.eia.gov/beta/international/regions-topics.php?RegionTopicID=SCSValerio Micale; Padraig Oliver, Lessons on the Role of Public Finance in Deploying Geothermal Energy in Developing Countries, Climate Policy Initiatives, August 2015, https://climatepolicyinitiative.org/publication/lessons-role-public-finance-deploying-geothermal-energy-developing-countries/Velasco, M. M., PNOC Kicks Off Tender Process for $600-M LNG Terminal, Manila Bulletin, 10 September 2018, https://business.mb.com.ph/2018/09/10/pnoc-kicks-off-tender-process-for-600-m-lng-terminal/

Commentary

Philippine Resources - February 22, 2019

Continuing the dialogue on gender diversity in mining

By Patricia A. O. Bunye For the second year in a row, I had the privilege of participating in the Women in Mining Day at Mining Investment Asia, which was held on 26- 28 March 2018 in Singapore.This year, I moderated the panel which focused on what should be done to attract more women to mining as a genderless industry.The members of my panel were: (1) Tim Duffy, the President Director and Managing Director of PT Agincourt Resources; (2) Dr Gaomai Trench, Acting Assistant Director and Senior Manager for Mineral Promotion of the Department of Mines, Government of Western Australia; (3) Jade Devenish, Director and Managing Director of Geomysore Services India; and (4) Kash Sirinanda, a mining futurist, mathematician, engineer and a “serial entrepreneur”.Gender parity is a goal for the mining industry considering that several studies have shown that, by improving women’s participation in the labor force, the world economy could add US$12 trillion in growth over the next 10 years.Corollary to this, companies with more female directors tend to outperform those with less.Fortune 500 companies with three or more women as directors had an average return on equity of 15.3% for the five years ended 2008 as compared to 10.5% for companies with no female board members.Gender diversity is also 5th among the 17 Sustainable Development Goals (“SDG”) adopted by the United Nations in 2015.Since gender diversity underpins the other 16 SDGs, it is by achieving gender equality and women’s empowerment that we, in turn, hope to achieve justice and inclusion, economies that work for all, and sustaining our shared environment now and for future generations.Notwithstanding this, based on the World Economic Forum’s 10th Global Gender Gap Report in 2016, at the current rate of change, it will still take 170 years to achieve gender parity.The panel identified several ways to address the current gap, including, but not limited to: (1) helping women acquire the education and develop the skills to encourage them to go into science and technology jobs; (2) mentoring/providing good role models; and (3) “blind” recruitment and hiring the person with the right skills for the job.Jade Devenish opined that, even having a proper dialogue about the subject of gender parity is difficult since many people remain uncomfortable talking about it.According to her, we must realize that, although men and women are both equally capable, they are also very different in terms of their skills and attributes, and necessarily have different roles.One obvious difference is that women bear children and, in many societies, are still expected to be primarily responsible for child-rearing.In this regard, the panel acknowledged that mining companies must institute policies, particularly for women who work onsite and who need to be away from their families, which recognize and respect the role of women in the home, while ensuring that the same policies do not discriminate against men.Among these policies, according to Kash Sirinanda, would be allowing flexible shift hours for women to allow them to come to work and still do other things.Among the objectives for improving gender diversity in the industry is to have a bigger pool of talent to draw upon and benefit from the unique qualities and attributes that women bring to the table.The panel agreed that women are typically a lot more empathetic, which gives women in leadership roles the ability, from a strategic point of view, to see many sides of the same situation.According to Jade Devenish, because women have a natural ability to put themselves in other people’s shoes, this helps with better decision making in terms of understanding a collective solution.Tim Duffy shared that, based on his own experience, in more senior roles where supervision and management are involved, women are more participatory and more collaborative, whereas men by nature tend to be “more directive and a bit more controlling.”He has also observed that women pay greater attention to detail.He also gave the example of women truck drivers, who unlike their male counterparts who would “have the macho-testosterone cowboy attitude and treat the gear disrespectfully,” would be more concerned about conserving company resources and maintaining the trucks properly.Gaomai Trench expressed that the very fact that women and men are different by nature, even in terms of teamwork and group decision, dictates that a healthy organization should have room for different points of view.The panel likewise agreed that gender diversity does not only entail increasing the number of women in mining, but also enabling them to advance through the ranks.Tim Duffy explained that it is critical that anyone promoted to leadership positions, whether men or women, should be followed up, mentored, and encouraged so that management would know how they’re progressing and provide the required support.Nevertheless, while there are many studies about how the general performance of a company increases with the number of women on their boards, the panel was not keen on the idea of setting minimum percentages of women on boards.Since the companies themselves are different, i.e.large, small, publicly-listed non-profit, Tim Duffy says that minimum percentages would be aspirational, but would be difficult to implement.Jade Devenish concurs that the focus should not be on numbers, but always making informed decisions about filling positions, whether or the board or operations, with the people who have the right skills set.Gaomai Trench seconded this and warned about the possibility of discriminating against men as the goal would always be the select the best people for the job.The problem, says Tim Duffy, is who determines the criteria for “the best.”In his experience, if the person recruiting for the job is male, the “best person for the job” would be a male, owing to the recruiter’s reference point.He says the challenge is to keep challenging people to constantly ask “why,” and it is in this constant challenging and questioning that old opinions or biases would fall away.It has been most interesting keeping this conversation on gender diversity running for two years in a row, and I look forward to seeing how the discussion evolves in the years to come.Patricia A. O. Bunye is a senior partner at Cruz Marcelo & Tenefrancia and head of its mining and energy practice. She is also President of Diwata-Women in Resource Development, Inc. Questions and comments are welcome at po.bunye@cruzmarcelo.com.

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