Commentary

Progress in national mining policy?

There is much happening in the Philippines mining industry and yet investors remain concerned that national mining policy could yet unravel. As we reported last week in this column, the prestigious Fraser Institute of Canada has again rated the Philippines high in potential but low in terms of investment desirability.

Nothing happens fast in this country. It is in the nature of the people to make changes slowly and with due consideration. This can be frustrating to Western companies used to quick reaction times or who seek to apply their experience in Africa to their mining activities in the Philippines and who are then surprised that it doesn't work. Progress has been slow, but there has been progress.

Just looking at the stories reported this week shows some of the activity underway to strengthen the underpinning of the minerals sector. For one, the listing and compliance rules of the Philippines Stock Exchange have been strengthened using the Australian model as the basis of drafting the local rules and regulations. DENR Secretary Atienza is seeking to enforce the small-scale mining regulations by restricting such activity to hand-tool operations as the law intended but which for years has been flaunted by local officials.

In many areas small-scale mining is anything but small-scale. Well funded but rarely operating to standards of international best-practice it is the owners of the small-scale mines that often have been seeking to stir up problems for international companies seeking access to their areas. As a result of their own activity environmental degradation has become rampant and has cast a pall over the entire sector but such activities rarely attract the ire of either the Church or the NGO anti-mining lobbyists for the simple reason that they are perceived of as being "local" and engaging in traditional activities. Poisoning of watersheds and rivers with mercury and other toxins is hardly a "traditional" activity but it is surprising how many people—including well-known international NGOs—are prepared to look the other way.

Of course it is all about money. Local governments control the permit system of small-scale miners and enjoy the revenue from it. Falsification of records and permits is rampant in many areas and is a major reason why the Mines and Geosciences Bureau, the national government agency with the mandate to implement and regulate the Mining Act, is unwilling to devolve too much responsibility to the local level despite calls of local officials to do so.

Small-scale mining activity is also believed to be a major factor in evasion of export taxes since export permits for ore from small-scale mines are also handled at the local level. As a result, many such shipments are undervalued and taxes evaded. China has reported that its two-way trade with the Philippines in 2007 amounted to US$30.6 billion. Yet the Philippines reports the figure at only $9.76 billion. According to the Chinese customs data, China imported US$23.1 billion of goods from the Philippines in 2007 while the Philippines recorded only $5.7 billion in exports to the PRC. Since Taiwan and Hong Kong are both separate customs territories their figures are not included. So why such a huge discrepancy?

There are many who believe that the explanation lies in the undervaluing of shipments from the Philippines to avoid export taxes and that this includes the products from mining. With China seeking to gain a major strategic foothold in the Philippines minerals industry could Chinese companies be colluding with small-scale mining interests to circumvent the Mining Act and gain access to minerals shipments at knock-down prices? The answer is that we don't know; we merely report that many people are starting to fear this may be happening. If so, then Secretary Atienza and his team may have an uphill battle on their hands.

It all comes down to money and with the failure of local governments and many communities to see much material benefit from international mining activity it is no wonder there are so many problems remaining. But these problems are starting to be addressed.

At a recent industry meeting arranged last week by PBLF (copies of the record are available to members upon request), participants were told that the MGB was working with the Bureau of Internal Revenue (BIR) on the collection side to ensure proper revenues were collected from industry and with the Department of Budget and Management (DBM) on the expenditure side to ensure the timely release of funds appropriated both in support of the industry and in terms of allocations due to local government units. Indeed, the President had ordered the early release of 2007 allocations to LGUs before the end of the first quarter of 2008 and any entitlements from earlier years would be released progressively after that. If this happens, and money starts to flow, there may be a sea-change in attitudes from many quarters since it will strengthen the resolve of the provincial leagues (League of Mayors, League of Governors, League of Municipalities and the League of Provincial Board Members) to support mining that adheres to best practice. The leagues have already given their endorsement of support for the implementation of the 1995 Mining Act but each of them still have their waverers and discontents to deal with.

The Philippines is at the very top in prospectivity with an estimated $1 trillion in reserves. As we report below, the government is looking at Php26.8 billion in revenue from mining in 2009 alone. By 2011, total investments are expected to amount to $10.47 billion.

These are impressive numbers which we duly report but there is always the caveat that so far, investments pledged are always much higher than investments actualised. This is true not just of mining but across the entire economic spectrum. The investment climate in this country leaves much to be desired.

While many within the mining and investment community are hoping for the best; they are well aware that the industry could yet unravel. In particular there is concern that the depletion of resources at the MGB will aggravate future problems and delays in the processing of licensing and permit applications as well as in compliance monitoring.

With the increased activity within the mining sector since the Supreme Court ruled in 1995 with finality on the validity of the 1995 Mining Act, the Bureau has lost 60 percent of its personnel. If not addressed, this problem could have a domino effect on the industry as already it was finding difficulty in properly fulfilling its mandate. It is literally "running on fumes" and its operations need to be put onto a much firmer footing if it is to play its part in servicing and in regulating the needs of the mining sector.

For its part, the MGB had used recent budgetary support from the World Bank to progress three key projects: geohazard mapping, the rehabilitation of abandoned mines and in a study of groundwater resources but it appears that little has been set aside for a performance audit of its key functions. How will it cope as industry expands? Not only that, but the renewed interest in mining is drawing out other stakeholders who demand—and who are entitled to—a voice in the consultative process. Failure of government to address this resource constraint will likely reduce the strong commitment given to the international mining community to mere lip service. Failure to strengthen the MGB will play directly into the hands of the small-scale mining interests and will leave investors wondering whether this has not been the intention all along?