Module for Multistakeholder Engagement for Extractive Industry Better Governance

INTRODUCTION

I. BACKGROUND

The decentralization in the past decade has been changing the course of extractive governance. As cer-
tain powers have shifted from the central government to sub-national administration, provinces and
regencies have acquired greater independence to manage their respective economies, natural resources
and political institutions. Unfortunately in many cases, the powers and responsibilities for governing
extractive industries were transferred to the regions without the adequate capacities in place, including
skilled human resources in government positions. In addition, regulations do not adequately provide the
resolution of conflict between citizens, regional governments and the private sector, or among regional
governments themselves, or between the central and regional governments.

However, common problems faced by local governments include limited technical capacity, rent-seek-
ing, large allocations for routine expenditures, poor reflection of policy priorities in the distribution of
oil revenues, and weak legislative oversight. This is compounded by the fact that oil wealth is inherently
challenging for governments even at their best.

II. OBJECTIVES

General Objectives

This modul aim to strengthen the capacity of Provincial Multistakeholder Council in Compostela Valley
to understand the importance of local transparency in extractive industry, and prepare them to be able
to establish transparency mechanism in their region.

At the end of the training, participant will able:
Spesific Objectives

• To understand the business model and value chain of mining in Philippine, including extractian
regulation, licensing, revenue stream and revenue collection.

• To understand the concept of extractive transparency, includign EITI and other country case
such as Indonesia (Blora/Bojonegoro).

• To understand the probems related to mining, as well as the solution needed.

• To understand the multistakeholder engagement process and conflict resolution.

Multi-stakeholder Training Module – Compostela Valley | 3

PART I

EXTRACTIVE GOVERNANCE
Sustainable Development, Good Governance and Value Chain

To maximize the benefit of mining extraction, the whole value chain of
mining process need to be conducted with good governance and guided
by sutainable development vision, principles and framework

The first section contains three topics of discussion as a focus for learning, are: sustainable devel-
opment, good governance and the value chain in the context of extractive industry. Discussion of such
materials will be delivered in one discussion session. This session will include presentation of the basic
definition, principles and frameworks. In addition to exposure, also conducted discussions to raise and
discuss contect or experiences faced by the participants. Discussion of the discussion is done to deepen
participants’ understanding of the concepts that became the topic of discussion at this first session.


Session 1: Value Chain and Sustainable Development

Objectives, Methods and Materials

Objectives : To understand the basic concept, principles and framework of sustainable
development, good governance and value chain in extractive industry con-
text
Methods : • Presentation from resource person

• Q&A session about concept and facts

• Sharing participant experiences

Structuring useful knowledge
Materials : See Annex
•

Facilitation Steps

1. Introduction. The facilitator/moderator introduces discussion objective, flow, and duration. Then,
all participants would be allowed to raise question and/or give advice.

2. The resource person presents the basic concept about sustainable development, good governance
and value chain in extractive industry contect. This step is simultaneous with Q&A in informal flow
of discussion.

3. Sharing participant’s experience and point of view to explore some issues guided by facilitator.

4. Fill knowledge structure form. The facilitator/moderator guides all participants to fill knowledge
structure form. This form would help all participants for structuring knowledge and experience that
could be useful for better policy/mechanism implementation in each own region.

6 | Multi-stakeholder Training Module – Compostela Valley

Session 1: Value Chain and Sustainable Development

Hand Out 1: Value Chain

What is the value chain?

A value chain is a way of describing the stages by which the full value of a product is managed and ulti-
mately realized. When applied to the extractive industries, the framework describes the steps from the
extraction of natural resources, to their processing and sale, all the way through to the ultimate use of
the revenues.

In his book The Bottom Billion, Paul Collier popularized this approach to stress the key steps in ensuring
that natural resource wealth transforms into citizen wellbeing. This framework has since become a ref-
erence for whoever working on natural resource governance, to understand and analyze how extractive
resource being managed, such as: current regulation, loopholes & problems, parties involved, etc.


What are the steps of the extractive industries value chain ?

While different variations and definitions of the extractives value chain exist, some common approached
dividing value chain into the following five steps:

Deciding to Extract: The first decision faced by a government or community is if and when to begin
extracting their natural resources and convert them into monetary or other benefits. During this stage,
governments may take the opportunity to get prior informed consent from the local communities, to
designate environmentally or culturally significant areas as off-limits to exploration and production, or
even to reserve certain areas for particular methods of extraction (e.g., artisanal mining.) The govern-
ment’s chief task at this stage is to undertake a cost-benefit analysis that makes every effort to weigh all
the costs, benefits and risks over the expected timeframe of extraction and beyond.

Getting a Good Deal: After a decision is made to extract, the government must decide on a framework
for awarding rights to explore and extract, and establish the legal and financial terms governing those
rights. Exploration and extraction rights may be awarded in a variety of ways, and the legal and finan-
cial arrangements governing the extraction process may result from licensing rounds (in which specific
terms are left for bidding and the bulk of the arrangement is enshrined in general law) or they may be
negotiated on a more ad-hoc basis. In either case, the end result is typically a written contract of some
form, complemented by a bevy of generally applicable laws and regulations, the goal of which, for the
country, is generally to give it the best deal possible. Poorer countries are often at a disadvantage when
negotiating with multinational oil and mining companies – particularly where terms subject to negotia-
tion are not tightly constrained either by the terms of a licensing round or other rules – and consequent-
ly get less revenue than they should.

Ensuring Revenue Transparency: Once the terms are set, extraction will begin and the companies will
typically pay a variety of financial or in-kind payments to the government. The part of the government
and the manner in which these payments are collected is dictated by the extraction contract and the le-
gal framework, and varies from country to country. This stage of revenue collection has been the focus of
much national and international advocacy through efforts such as the EITI and Dodd-Frank Act (United
States new regulation on listing requirements for extractive companies.

Managing Volatile Resources: As the revenues begin to arrive, the government and communities must
decide how to make effective use of the revenues in light of their finite nature and the challenges of commod-
ity price swings. This stage requires deciding how much to save and how much to spend to mitigate against
the adverse effects of dependency on natural resource revenues and encompasses long and medium-term
planning, as well as annual budgets. Some countries use special instruments to deal with the special chal-
lenges of managing natural resource wealth, such as natural resource funds and direct distribution schemes.


Investing for Sustainable Development: Extractive resource are non-renewable assets that must be
replaced with other assets-physical, human and financial – which can support a country’s economic
growth and development when the resources are depleted or prices decline. Resource-rich government
need to spend money well, which implies spending efficiently and practicing integrity in investment
execution, and requiring systematic and rigorous monitoring and audits of public investment programs
by independent organizations (including civil society groups.)

Doesn’t the industry use a different value-chain ?

Yes, another extractive industries value chain can be described from the industry perspective. This often
includes the steps of exploration, extraction, refinement, sales, and distribution. The major difference
is that looking at the value chain from this perspective follows the commodity instead of the assets of
the government. This approach follows a private sector point of view to understand how to maximize
companies profit and investors’ return while the framework presented in this note takes a government
perspective to optimize value for a country and its citizens.

Why is the value-chain useful ?

Governments and civil society often use the value chain as a diagnostic tool to assess policy options and
trade-offs for managing their natural resources. It can help advocacy groups pin-point the challenges
and prioritize places for engagement. Revenue Watch also uses the value chain to help organize relevant
information on the Resource Center.

Hand Out 2: Sustainable Development

What is the Sustainable Development concept?

“Sustainable development is development that meets the needs of the present, without compro-
mising the ability of future generations to meet their own needs.” (Bruntland, 1992 Rio Summit).

It contains within it two key concepts:

the concept of needs, in particular the essential needs of the world’s poor, to which overriding
priority should be given; and
•

the idea of limitations imposed by the state of technology and social organization on the envi-
ronment’s ability to meet present and future needs.”
•

Why Sustainable Development matters?

This approach looks to development that balance different, and often competing, needs against an
awareness of the environmental, social and economic limitations we face as a society. All too often,
development is driven by one particular need, without fully considering the wider or future impacts.
We are already seeing the damage this kind of approach can cause, from large-scale financial crises
caused by irresponsible banking, to changes in global climate resulting from our dependence on fossil
fuel-based energy sources. The longer we pursue unsustainable development, the more frequent and
severe its consequences are likely to become, which is why we need to take action now.


Why sustainable development matters especially for subnational resource-rich region?
Resource-rich country or region is prone to a phenomenon called resource curse. The resource
curse (Paradox of Plenty) refers to the paradox that countries and regions with an abundance of nat-
ural resources, specifically point-source non-renewable resources like mineralsand fuels, tend to have
less economic growth and worse development outcomes than countries with fewer natural resources.
This is hypothesized to happen for many different reasons, including a decline in the competitiveness
of other economic sectors (caused by appreciation of the real exchange rate as resource revenues enter
an economy), volatility of revenues from the natural resource sector due to exposure to global commod-
ity market swings, government mismanagement of resources, or weak, ineffectual, unstable or corrupt
institutions (possibly due to the easily diverted actual or anticipated revenue stream from extractive
activities).

Following decentralization, the so called resource curse tends to be experienced also by subnational
level. As certain powers have shifted from the central government to sub-national administration, prov-
inces and regencies have acquired greater independence to manage their respective economies, natural
resources and political institutions. Unfortunately in many cases, the powers and responsibilities for
governing extractive industries were transferred to the regions without the adequate capacities in place,
including skilled human resources in government positions. Therefore there is an urgent need to drive
development in resource-rich subnational level, to avoid the resource curse.

10 Principles based on ICMM (International Council on Mining and Metal):
What are the principles of Sustainable Development approaches?

1. Implement and maintain ethical business practices and sound systems of corporate govern-
ance.
2. Integrate sustainable development considerations within the corporate decision-making pro-
cess.
3. Uphold fundamental human rights and respect cultures, customs and values in dealings with
employees and others who are affected by our activities.
4. Implement risk management strategies based on valid data and sound science.
5. Seek continual improvement of our health and safety performance.
6. Seek continual improvement of our environmental performance.
7. Contribute to conservation of biodiversity and integrated approaches to land use planning.
8. Facilitate and encourage responsible product design, use, re-use, recycling and disposal of our
products.
9. Contribute to the social, economic and institutional development of the communities in which
we operate.
10. Implement effective and transparent engagement, communication and independently verified
reporting arrangements with our stakeholders


Hand Out 3: Good governance in the value chain

The term “Governance” is thus a qualitative expression, a normative concept and is different from “gov-
ernment”. Governance is “the manner in which power is exercised in the management of a country’s
economic and social resources for development.

(1) On this meaning, the concept of governance is concerned directly with the management of the de-
velopment process, involving both the public and the private sectors. It encompasses the functioning
and capability of the public sector, as well as the rules and institutions that create the framework for the
conduct of both public and private business, including accountability for economic and financial perfor-
mance, and regulatory frameworks relating to companies, corporations, and partnerships.

(2) In broad terms, then, governance is about the institutional environment in which citizens interact
among themselves and with government agencies/officials.

Good governance has 8 major characteristics. It is participatory, consensus oriented, accountable, trans-
parent, responsive, effective and efficient, equitable and inclusive and follows the rule of law. It assures
that corruption is minimized, the views of minorities are taken into account and that the voices of the
most vulnerable in society are heard in decision-making. It is also responsive to the present and future
needs of society.

The agenda items of good gov-
ernance as follows:

To ensure the sustainable development and maximize the benefit of oil/gas/mining extraction, the
whole value chain of mining process need to be conducted with good governance.

A List of basic issues along value chain, and some main question to be analyzed are:

• Is there a clear and appropriate legal, fiscal, contractual, and institutionalframework in place?
1. Award of contracts and licenses

• Are bidding procedures for awarding licensing rights and contractstransparent and competitive?


• How are public and/or private companies qualified?

• What are the fiscal terms of the contracts?

• Are community interests taken into account and has there been informe consultation with the
most vulnerable groups including women and youthrepresentatives?

• Do technical, accounting, and environmental regulations meetinternational standards?
2. Regulation and monitoring of operations

• Do the government agencies have sufficient capacity to enforce theseregulations?

• Are audit procedures in line with international standards?

• Do the relevant institutions have adequate administrative and auditcapacity?
3. Collection of taxes and royalties

• Are all government revenues from the EI sector deposited into a treasury account?

• Are accounting rules and reporting standards and procedures clear?

• Is government EI revenue published?

• Are the decisions on revenue allocation transparent?
4. Revenue Management and Allocation

• Are expenditure decisions nested within a sound macro-fiscal frameworkand in line with a coun-
try’s development strategy?

• Are there policy measures to address the Dutch disease?

• Is there a credible mechanism to deal with excess revenue in a sustainablemanner, such as that
for setting it aside in a transparent savings andstabilization fund?

• Is the allocation of EI revenue to sub-national governments consistent withfiscal decentraliza-
tion principles outlined in the legal framework andtransparent, simple, rule-based, and equita-
ble?

• Do public investment decisions adequately capture the potential benefits ofEI projects?
5. Implementation of sustainable development policies and projects

• Is there a competitive-based procurement system?

• Is special attention paid to the sustainable development and theenvironmental protection of
producing regions?

• Is an effective monitoring system in place to provide feedback on projectdesign and investment
policies?


PART II

BUSINESS MODEL
IN MINING INDUSTRY

“In terms of reserves, the country is third in the world in gold and fourth in
copper, and fifth in nickel. So why has the great potential of the Philippine
mining industry remained unrealized?” Belmonte asked. He said that based
on a Mines and Geosciences Bureau report, the country has an estimated 14
billion tons of metallic ore deposits and over 69 billion tons of non-metallic
ore deposits

Part two consist of three sesions, are: (i) Decision to extract, regulation, practice and problems related
with decision process to extract in Philippines’ mining industry, also about role of civil society in thats
process; (ii) Licensing/contract, regulation, practice and problems related with licensing/contract in
Philippines’ mining industry; (iii) Revenue collection, regulation, practice and problems related with
revenue collection in Philippines’ mining industry.


Session 2: Decision to Extract


Objectives : To understand regulatioan framework and decision process to extract
in Philippine extractive industry context
•

To understand postion and role of civil society and IP in decision pro-
cess to extract in mining industry
•

To understand some problems in implementations
Methods : Presentation from resource person
•
•



Materials : Slides about general picture of extratiive industry in Philippine; handout
•

about related legal framework

Facilitation Steps

1. Introduction. The facilitator/moderator introduces discussion objective, flow, and duration. Then,
all participants would be allowed to raise question and/or give advice.

2. The facilitators guides all participant to rapid reading handout 4 and 5.

3. The facilitators guides all participant to write some point/issues based on their point of
view or experiences in relation with legal aspect and desision proces to extract.

4. The resource person presents legal framework about decision process to extract. This step is simul-
taneous with Q&A in informal flow of discussion.


6. Fill knowledge structure form. The facilitator/moderator guides all participants to fill knowledge
structure form.


Hand out 4: Extractive Industry in Philippine

Contribution of mining sector to employment generation – According to the Mines and Geoscienc-
esvBureau (MGB), the mining (and quarrying) sector’s contribution to national total employmentvhas
always been below 1 percent (1%). Recent data has shown that it has been 0.5% since 2008vuntil 2010.
So far, for the first half of 2011, contribution has been reported as 0.6% (in contrastvto agriculture at
33% in 2011). All over the world, extractive mining is known as a low-employment generating activity.
The Tampakan project, with expected investments of $5.9 billion, will provide only 2,000 permanent
jobs.

Contribution of mining industry to growth in other sectors – Habito (2010) observed that the mining
sector has relatively low labor-output ratios in terms of employment generation. Labor compensation
accounts for only 13.3% against an average of 20.7% in all sectors. The sector has a backward linkage in-
dex of only 0.46, meaning there is relatively little input from other domestic industries; even the forward
linkage of 0.82 indicates that the sector is below average compared to all other sectors in generating fur-
ther domestic economic activities. Minerals are being exported with little value-adding that could have
generated further employment and industry linkage.

Contribution of mining to economic growth – At the macro level, the contribution of mining to GDP has
remained in the single digits. As of 2010, it only contributed 1.0%, with a Gross Value Added in Mining
of PhP88.2 billion (MGB, 2011), compared to the agricultural sector’s contribution of 12% in 2010 (BAS,
2011). As for its contribution to total exports, export of minerals and mineral products has averaged
4.5% in the last four years and reporting 4.3% for the first half of 2011 (MGB, 2011). Total exports of
non-metallic minerals’ share are even lower, hovering around 0.4% for the past 4 years (MGB, 2011)
compared to agriculture at 8% for 2011. The manufacturing and service sector has always been the main
driver of economic growth for the country comprising of over 50% of GDP (ADB, 2011).

However, the picture can be very different from the perspective of a project proponent. In the Tampakan
Copper-Gold Project, Sagittarius Mines, Inc. (SMI) estimates that the project alone will contribute an ad-
ditional 1% of national GDP, or an additional 10.4% of regional GDP for Regions XI and XII. It is difficult
to access data for relative contribution of existing projects to local economic growth (at provincial and
municipal levels), if data exists at all.

Revenues/taxes received by the government – The amounts of taxes, fees and royalties from miningchange
from year to year and do not appear to show a trend. Total revenue from Taxes, Fees and Royalties from
Mining are: 10,447.6 miilion pesos in 2007, 7,689.4 (2008), 12,380.3(2009), 13,702.4 (2010), 393.9 (IH
2011). There are other factors to consider in how much the government actually gets. It would seem that
a tax holiday for Financial and Technical Assistance Agreements (FTAAs) and the 2% limit of govern-


ment (excise) tax on Mineral Production and Sharing Agreements (MPSAs) translate to almost zero rev-
enue for government. Bautista (2009) estimated that 19.60% to 29.74% of mining revenue accrues to
government tax collection. Action for Economic Reforms (2009) calculated only a 7.5% effective tax rate
in the industry (1997-2000). AER also cited that the government loses an average of 32% of revenues
annually (1999-2004) because of incentive laws. Compared to other countries, the Philippines’ effective
tax rate is low. Deutsche Bank (2010) reported that effective tax rate for minerals in other countries are
as follows: US (40%), Australia (38%), Brazil (38%), and Canada (23%).

Source: Ateneo Mining Policy Brief, Nopember 2011


Hand out 5: Decision to Extract

Legal framework of Decision to Extract: According to Philippine Mining Act 1995 (Republic
Act No. 7942 An Act Instituting A New System Of Mineral Resources Exploration, Development,
Utilization And Conservation)

• Section 4. Ownership of Mineral Resources. - Mineral resources are owned by the State and
the exploration, development, utilization, and processing thereof shall be under its full control
and supervision. The State may directly undertake such activities or it may enter into mineral
agreements with contractors. The State shall recognize and protect the rights of the indigenous
cultural communities to their ancestral lands as provided for by the Constitution.

• Section 9. Authority of the Bureau. - The Bureau shall have direct charge in the administration
and disposition of mineral lands and mineral resources and shall undertake geological, mining,
metallurgical, chemical, and other researches as well as geological and mineral exploration sur-
veys. The Director shall recommend to the Secretary the granting of mineral agreements to duly
qualified persons and shall monitor the compliance by the contractor of the terms and condi-
tions of the mineral agreements. The Bureau may confiscate surety, performance and guaranty
bonds posted through an order to be promulgated by the Director. The Director may deputize,
when necessary, any member or unit of the Philippine National Police, barangay, duly registered
nongovernmental organization (NGO) or any qualified person to police all mining activities.

• Section 12. Survey, Charting and Delineation of Mining Areas. -A sketch plan or map of the con-
tract or mining area prepared by a deputized geodetic engineer suitable for publication purpos-
es shall be required during the filing of a mineral agreement or financial or technical assistance
agreement application. Thereafter, the contract or mining area shall be surveyed and monu-
mented by a deputized geodetic engineer and the survey plan shall be approved by the Director
before the approval of the mining feasibility.

• Section 16. Opening of Ancestral Lands for Mining Operations. - No ancestral land shall be
opened for mining operations without the prior consent of the indigenous cultural community
concerned

• Section 17. Royalty Payments for Indigenous Cultural Communities. - In the event of an agree-
ment with an indigenous cultural community pursuant to the preceding section, the royalty pay-
ment, upon utilization of the minerals shall be agreed upon by the parties. The said royalty shall
form part of a trust fund for the socioeconomic well-being of the indigenous cultural community

• Section 20. Exploration Permit. - An exploration permit grants the right to conduct exploration
for all minerals in specified areas. The Bureau shall have the authority to grant an exploration
permit to a qualified person.


• Section 21. Terms and Conditions of the Exploration Permit. - An exploration permit shall be
for a period of two (2) years, subject to annual review and relinquishment or renewal upon the
recommendation of the Director.

• Section 23. Rights and Obligations of the Permittee. - An exploration permit shall grant to the
permittee, his heirs or successors-in-interest, the right to enter, occupy and explore the area:
Provided, That if private or other parties are affected, the permittee shall first discuss with the
said parties the extent, necessity, and manner of his entry, occupation and exploration and in
case of disagreement, a panel of arbitrators shall resolve the conflict or disagreement.

• The permittee shall undertake an exploration work on the area as specified by its permit based
on an approved work program. Any expenditure in excess of the yearly budget of the approved
work program may be carried forward and credited to the succeeding years covering the dura-
tion of the permit. The Secretary, through the Director, shall promulgate rules and regulations
governing the terms and conditions of the permit. The permittee may apply for a mineral pro-
duction sharing agreement, joint venture agreement, co-production agreement or financial or
technical assistance agreement over the permit area, which application shall be granted if the
permittee meets the necessary qualifications and the terms and conditions of any such agree-
ment: Provided, That the exploration period covered by the exploration permit shall be included
as part of the exploration period of the mineral agreement or financial or technical assistance
agreement.

• Section 24. Declaration of Mining Project Feasibility. - A holder of an exploration permit who
determines the commercial viability of a project covering a mining area may, within the term
of the permit, file with the Bureau a declaration of mining project feasibility accompanied by a
work program for development. The approval of the mining project feasibility and compliance
with other requirements provided in this Act shall entitle the holder to an exclusive right to a
mineral production sharing agreement or other mineral agreements or financial or technical
assistance agreement.


Session 3: Licensing/Contract


Objectives : To understand regulatioan framework, practice and problem of licens-
ing/contarct in Philippines’ minning industry context
•




Materials : Slides about licensing/contract aspect in minning industry; handout about
•

related legal framework

Facilitation Steps

1. Introduction. The facilitator/moderator introduces discussion objective, flow, and duration.
Then, all participants would be allowed to raise question and/or give advice.

2. The resource person presents legal framework of licensing/contract in minning industry. This
step is simultaneous with Q&A in informal flow of discussion.


4. Fill knowledge structure form. The facilitator/moderator guides all participants to fill knowl-
edge structure form.


Hand out 5: Licensing/Contract

Legal framework of Decision to Extract: According to Philippine Mining Act 1995 (Republic Act No.
7942 An Act Instituting A New System Of Mineral Resources Exploration, Development, Utilization And
Conservation)

Section 26. Modes of Mineral Agreement. - For purposes of mining operations, a mineral agreement
may take the following forms as herein defined:

(a) Mineral production sharing agreement - is an agreement where the Government grants to the con-
tractor the exclusive right to conduct mining operations within a contract area and shares in the gross
output. The contractor shall provide the financing, technology, management and personnel necessary
for the implementation of this agreement.

(b) Co-production agreement - is an agreement between the Government and the contractor wherein
the Government shall provide inputs to the mining operations other than the mineral resource.

(c) Joint-venture agreement - is an agreement where a joint-venture company is organized by the Gov-
ernment and the contractor with both parties having equity shares. Aside from earnings in equity, the
Government shall be entitled to a share in the gross output.

A mineral agreement shall grant to the contractor the exclusive right to conduct mining operations and
to extract all mineral resources found in the contract area. In addition, the contractor may be allowed to
convert his agreement into any of the modes of mineral agreements or financial or technical assistance
agreement covering the remaining period of the original agreement subject to the approval of the Sec-
retary.

Section 27. Eligibility. - A qualified person may enter into any of the three (3) modes of mineral agree-
ment with the government for the exploration, development and utilization of mineral resources: Pro-
vided, That in case the applicant has been in the mining industry for any length of time, he should pos-
sess a satisfactory environmental track record as determined by the Mines and Geosciences Bureau and
in consultation with the Environmental Management Bureau of the Department.

The maximum areas mentioned above that a contractor may hold under a mineral agreement shall not
include mining/quarry areas under operating agreements between the contractor and a claimowner/
lessee/permittee/licensee entered into under Presidential Decree No. 463.

Section 29. Filing and Approval of Mineral Agreements. - All proposed mineral agreements shall be filed
in the region here the areas of interest are located, except in mineral eservations which shall be filed
with the Bureau.

The filing of a proposal for a mineral agreement shall give the proponent the prior right to areas covered
by the same. The proposed mineral agreement will be approved by the Secretary and copies thereof
shall be submitted to the President. Thereafter, the President shall provide a list to Congress of every


approved mineral agreement within thirty (30) days from its approval by the Secretary.

Section 30. Assignment/Transfer. - Any assignment or transfer of rights and obligations under any
mineral agreement except a financial or technical assistance agreement shall be subject to the prior
approval of the Secretary. Such assignment or transfer shall be deemed automatically approved if not
acted upon by the Secretary within thirty (30) working days from official receipt thereof, unless patently
unconstitutional or illegal.

Section 31. Withdrawal from Mineral Agreements. - The contractor may, by giving due notice at any
time during the term of the agreement, apply for the cancellation of the mineral agreement due to causes
which, in the opinion of the contractor, make continued mining operations no longer feasible or viable.
The Secretary shall consider the notice and issue its decision within a period of thirty (30) days: Provid-
ed, That the contractor has met all its financial, fiscal and legal obligations.

Section 32. Terms. - Mineral agreements shall have a term not exceeding twenty-five (25) years to start
from the date of execution thereof, and renewable for another term not exceeding twenty-five (25) years
under the same terms and conditions thereof, without prejudice to changes mutually agreed upon by
the parties. After the renewal period, the operation of the mine may be undertaken by the Government
or through a contractor. The contract for the operation of a mine shall be awarded to the highest bidder
in a public bidding after due publication of the notice thereof: Provided, That the contractor shall have
the right to equal the highest bid upon reimbursement of all reasonable expenses of the highest bidder.


Session 4: Revenue Collection


Objectives : To understand regulatioan framework, practice and problem of revenue
collection in Philippines’ minning industry context
•




Materials : Slides about licensing/contract aspect in minning industry; handout about
•

related legal framework

Facilitation Steps


2. The resource person presents legal framework of revenue collection in minning industry. This
step is simultaneous with Q&A in informal flow of discussion.




Hand out 5: Revenue Collection

Section 83. Income Taxes. - After the lapse of the income tax holiday as provided for in the Omnibus
Investments Code, the contractor shall be liable to pay income tax as provided in the National Internal
Revenue Code, as amended.

Section 84. Excise Tax on Mineral Products. - The contractor shall be liable to pay the excise tax on
mineral products as provided for under Section 151 of the National Internal Revenue Code: Provided,
however, That with respect to a mineral production sharing agreement, the excise tax on mineral prod-
ucts shall be the government share under said agreement.

Section 85. Mine Wastes and Tailings Fees. - A semiannual fee to be known as mine wastes and tailings
fee is hereby imposed on all operating mining companies in accordance with the implementing rules
and regulations. The mine wastes and tailings fee shall accrue to a reserve fund to be used exclusively
for payment for damages to:

a) Lives and personal safety;

b) Lands, agricultural crops and forest products, marine life and aquatic resources, cultural re-
sources; and

c) Infrastructure and the revegetation and rehabilitation of silted farm lands and other areas devot-
ed to agriculture and fishing caused by mining pollution.

This is in addition to the suspension or closure of the activities of the contractor at any time and the pe-
nal sanctions imposed upon the same. The Secretary is authorized to increase mine wastes and tailings
fees, when public interest so requires, upon the recommendation of the Director.

Section 86. Occupation Fees. - There shall be collected from any holder of a mineral agreement, fi-
nancial or technical assistance agreement or exploration permit on public or private lands, an annual
occupation fee in accordance with the following schedule:

a) For exploration permit - Five pesos (P5.00) per hectare or fraction thereof per annum.

b) For mineral agreements and financial or technical assistance agreements - Fifty pesos (P50.00)
per hectare or fraction thereof per annum; and

c) For mineral reservation - One hundred pesos (P100.00) per hectare or fraction thereof per an-
num.

d) The Secretary is authorized to increase the occupation fees provided herein when the public
interest so requires, upon recommendation of the Bureau Director.

Section 87. Manner of Payment of Fees. - The fees shall be paid on the date the mining agree-
ment is registered with the appropriate office and on the same date every year thereafter. It shall


be paid to the treasurer of the municipality or city where the onshore mining areas are located,
or to the Director in case of offshore mining areas. For this purpose, the appropriate officer shall
submit to the treasurer of the municipality or city where the onshore mining area is located, a
complete list of all onshore mining rights registered with his office, indicating therein the names
of the holders, area in hectares, location, and date registered. If the fee is not paid on the date
specified, it shall be increased by twenty-five per centum (25%).

Section 88. Allocation of Occupation Fees. - Thirty per centum (30%) of all occupational fees collected
from the holders of mining rights in onshore mining areas shall accrue to the province and seventy per
centum (70%) to the municipality in which the onshore mining areas are located. In a chartered city, the
full amount shall accrue to the city concerned.

Section 89. Filing Fees and Other Charges. - The Secretary is authorized to charge reasonable filing
fees and other charges as he may prescribe in accordance with the implementing rules and regulations.


PART III

TRANSPARENCY
IN EXTRACTIVE INDUSTRY
EITI, Indonesia Case&ohter countries, Transparency model for Compostella Valle

Session 5: EITI


Objectives : • To understand EITI framework, principle and pracatice




Materials : Slides about EITI
•

Facilitation Steps


2. The resource person presents about EITI. This step is simultaneous with Q&A in informal flow
of discussion.




3.5 billion people live in resource-rich countries. Still, many are not seeing results from extraction of
Why EITI?

their natural resources. And too often poor governance leaves citizens suffering from conflict and cor-
ruption. The EITI was formed to change this.

EITI - Extractive Industry Transparency Initiative is a globally developed standard that promotes trans-
parency of payments from natural resources.

The EITI sets a global standard for revenue transparency in the oil, gas and mining sectors. The EITI
How EITI works?

requires that in member countries:

Companies publish what they pay to governments.

Government publishes what it receives from companies.
•

An independent administrator compares this information.
•

Data on revenues and discrepancies must be published in ‘EITI reports’
•

The process is managed by a multi-stakeholder committee that must include members from govern-
•

ment, companies and civil society. The basic or minimum EITI focuses only on one aspect of ex-
tractive industries governance: revenue transparency. Some countries have chosen to include other
stages in their EITI but this is not a minimum requirement.

EITI has minimum standards, listed in the Book of EITI Rules (20 steps/indicators).
Implementation of EITI must be consistent with the criteria below:
1. Regular publication of all material oil, gas and mining payments by companies to governments
(“payments”) and all material revenues received by governments from oil, gas and mining com-
panies (“revenues”) to a wide audience in a publicly accessible, comprehensive and comprehen-
sible manner.

2. Where such audits do not already exist, payments and revenues are the subject of a credible,
independent audit, applying international auditing standards.

3. Payments and revenues are reconciled by a credible, independent administrator, applying inter-
national auditing standards and with publication of the administrator’s opinion regarding that
reconciliation including discrepancies, should any be identified.

4. This approach is extended to all companies including state-owned enterprises.

5. Civil society is actively engaged as a participant in the design, monitoring and evaluation of this
process and contributes towards public debate.

6. A public, financially sustainable work plan for all the above is developed by the host government,
with assistance from the international financial institutions where required, including measura-
ble targets, a timetable for implementation, and an assessment of potential capacity constraints.

7. The multi-stakeholder group, in consultation with key EITI stakeholders, should agree and pub-
lish a fully costed work plan, containing measurable targets, and a timetable for implementa-
tion and incorporating an assessment of capacity constraints.


Implementation requirements

Preparation requirements

1. The government is required to ensure that civil society is fully, independently, actively and effec-
tively engaged in the process.

2. The government is required to engage companies in the implementation of the EITI.

3. The government is required to remove any obstacles to the implementation of the EITI.

4. The multi-stakeholder group is required to agree a definition of materiality and the reporting
templates.

5. The organisation appointed to produce the EITI reconciliation report must be perceived by the
multi-stakeholder group as credible, trustworthy and technically competent.

6. The government is required to ensure that all relevant companies and government entities re-
port.

7. The government is required to ensure that company reports are based on accounts audited to
international standards.

8. The government is required to ensure that government reports are based on accounts audited
to international standards.

Disclosure requirements

9. Companies comprehensively disclose all material payments in accordance with the agreed re-
porting templates.

10. Government agencies comprehensively disclose all material revenues in accordance with the
agreed reporting templates.

11. The multi-stakeholder group must be content that the organisation contracted to reconcile the
company and government figures did so satisfactorily.

12. The reconciler must ensure that that the EITI Report is comprehensive, identifies all discrepan-
cies, where possible explains those discrepancies, and where necessary makes recommenda-
tions for remedial actions to be taken.

Dissemination requirements

13. The government and multi-stakeholder group must ensure that the EITI Report is comprehen-
sible and publicly accessible in such a way as to encourage that its findings contribute to public
debate.

14. The government and multi-stakeholder group must take steps to act on lessons learnt,


Session 6: Indonesia Case & others countries


Objectives : To understand the concept of extractive transparency based on case
such as Indonesia (Blora/Bojonegoro) and other country. Coverage of
•

transparency mechanism, Institution, Regulation, Mechanism




Materials : Modul and handout of Blora/Bojonegoro experience
•

Facilitation Steps


2. The resource person presents about Indonesia experices. This step is simultaneous with Q&A in
informal flow of discussion.




Hand out 7: Transparency Process (Learning for Blora/Bojonegoro)

Blora and Bojonegoro establish transparency mechanism through some steps:

1. Research for transparency mechanism that could be implemented.

This step had been completely done by LPAW Blora as local NGO who pay more attention to transparen-
cy. The research were on:

a) Local problem regarding revenue, CSR, and environment

b) All related policies/regulations

c) Oil and gas revenue flow and transparency model

2. Building transparency model by LPAW Blora. There were three activities in this step:

a. Learning from other regencies and countries experiences on oil and gas sector especially on
revenue transparency mechanism

b. Multi-stakeholders discussion for building model. In this activity, resource person from other
countries were involved. Local actors participated in this activity were:

• Local parliament (DPRD Blora)

• Related local government agencies (local office of: Natural Resources and Energy/ESDM,
Development Planning/BAPPEDA, Environment/LH, Revenue and Finance/DPPKAD)

• Journalist association

• NGOs (LPAW, BCC, Yayasan Perak, Mahameru, Pasang Surut)

• Community around oil and gas area

c. Expert meeting for sharpening the model

d. Building consensus about the model

e. Local regulation formulation on the model


3. Advocacy and Campaign had been done by LPAW Blora with key ,stakeholder participation. Coop-
erative approach had been the way ensure that local government intend to accept and will imple-
ment the transparency. Sharpening knowledge and understanding had also been done by expert
meeting and workshop. After that, campaign using local mass media had been being done to spread
the transparency to public. This campaign also aimed to reach public awareness for supporting the
transparency implementation.

4. Implementation and institutionalization , The activities were:

a. Forming Transparency Team (legalized by regent decree)

b. Budget advocacy for the team

c. Team’s meeting on working agenda

d. Socialization and publication

e. Facilitation problem in the regency (PPHJ, Old Well, CSR)

f. Advocacy to national government

5. Stakeholder Capacity Building on oil and gas sector

This activity aimed to upgrade stakeholder capacity and also increase their confidence for publishing
and sharing about oil and gas sector which has complexity to company and national government.

Current Achievement

1. Regent Regulation 65/2010 on Transparency Team and Mechanism

2. Working agenda completed are:

a. Publication on: Revenue Sharing Fund (DBH) data, old well, team’s working result, budget. Pub-
lications are in leaflet and mass media;

b. Mediation between community and company, discussing community’s complain about PERTAM-
INA PPGJ Project in Sumber, Kradenan

c. Consensus on problem solving as mentioned in Activity Acknowledgement (Berita Acara as the
guideline for problem solving)


d. Revenue Sharing Fund (DBH) advocacy to National Government. The result is Joint Decree of 3
Ministers (SKB 3 Menteri) on Revenue Sharing Fund for Blora. The ministers are Minister of En-
ergy and Natural Resources, Minister of Finance, and Minister of Domestic Affairs).

e. Involve as an expert witness in Judicial Review on Law 33/2004 on Financial Balance between
National and Local Government.

Lesson Learned from Blora Experiences

1. Revenue transparency mechanism has to be forced to both company and local government.

2. Trust between stakeholders is the key for encouraging local innovations. This is a way to make com-
munity, local government, and company have willingness to discuss together;

3. Transparency can make company work better because there is an intervention from local govern-
ment and community with organized team and agenda.


Session 7: Transparency model for Compostella Valley


Objectives : To formulate transparency model for Compostella Valley. Coverage of
transparency mechanism, Institution, Regulation, Mechanism
•

Methods : • Q&A session about concept and facts


• Group discusion and work

Materials :
•

Facilitation Steps


2. Divide the participants into groups of five or six, evenly distributing (if possible) participants
from LGU, IPs, and NCIP amongst the groups.

3. Introduce this group-work exercise with Slide or a flip chart prepared with instructions.

4. Slide: Task instructions


PART IV

MULTI-STAKEHOLDER GOVERNANCE

Session 8: Multi-stakeholder Governance


Objectives : To understand Concept of MSG, Actor Mapping, Process and Problems,
Solution
•

Methods : • Q&A session about concept and facts

• Group discussion and work


• Group discusion and work

Materials : Handout of MSD concept
•

Facilitation Steps

1. Introduction (5 minutes)

2. Divide the participants into groups of five or six, evenly distributing (if possible) participants
from LGU, IPs, and NCIP amongst the groups.

3. Introduce this group-work exercise with Slide or a flip chart prepared with instructions.

Slide: Task instructions

• Try to put yourselves in the position of multistaekolder in this context;

• Make a list of all the actors that play a role, positive or negative, in promoting transparency
implementation (one actor on each post-it note);

• Arrange the actors on a flip chart to make an actor map that shows the respective roles of ac-
tors and links between them. Use markers to add text and connecting lines if necessary;


• How would you like the map to look? Use a different colour to indicate those potential protec-
tion providers that are not currently activated.

4. Group work (30 minutes)

• Allow the group 25 minutes to complete their maps.

• Encourage groups, where necessary, to expand their NGO category, identify and map the range of
NGO actors with different role and functions (e.g., assistance, advocacy, training, etc.).

• Prompt them to consider the role of non-agency actors, for example local communities, etc.

• Gallery walk (10 minutes)

5. Ask participants to stick up their actor maps and then go and view the other groups’ maps. They
should note similarities and differences.

6. Feedback and discussion (20 minutes)

7. Take feedback in plenary when groups have finished looking at each other’s maps.

Ask participants to sit down and ask for initial reactions from them. If possible, elicit adjustments
to actor maps from participants themselves, and introduce or reinforce the key messages and any
other salient points that come out of the discussion.

Draw some conclusions, as follows:

• Each actor on the map can be subdivided further, and it is important to remember when deal-
ing with them that they are not monoliths and can have internal contradictions. Also, the
same actor will behave differently in different contexts – there are no guarantees.

• Scope: do actor maps stay within the context, or do they acknowledge the international sphere
in which the national and sub-national context is embedded?

• Detail: to what degree do actor maps acknowledge the complexities of different actors or
groups of actors? For example, have they broken down categories such as local authorities,
national and international institution, etc., into sub-groups? Equally, has anyone identified the
vulnerable sub-groups within categories

• Who do the maps show to have a leading role in transparency promotion? Are different play-
ers, such as the government, NGOs, and the IPs given different levels of importance by each
map?

8. Wrap-up (5 minutes)

Use the slide to show the full range of actors.


Note to trainer/facilitator

 Be prepared for any tensions between participants representing various actors at the workshop
that might arise because of institutional beliefs about other actors’ roles, competency, failures,
successes, and relevancy.
 Try to keep this session running collegially and be prepared to remind the group that part of learn-
ing is working out differences of views. This session is an opportunity to overcome any negative
institutional beliefs.
 Do not assume that your group will know what an actor-mapping exercise is. Be sure to make the
following two points:
 Actor maps are dynamic, as relationships between actors change all the time; and
 Actor maps can be used as a planning tool to position oneself in relation to other actors, e.g.,
showing areas of overlap where alliances can be made, or gaps in provision.
 You may find it useful to refer to “Hand-out 1: Actor-Mapping”, which details an alternative way of
doing an actor map.


Hand out 8: Multi-stakeholder Governance

As multistakeholder governance has emerged as an important feature in development, new gov-
ernance structures that foster the participation of multiple stakeholders from the public sector, civil
society, and the private sector have emerged in various fields, ranging from the management of natural
resources to the provision of public services. To make such governance structures work, it is essential to
understand how different stakeholders influence decisionmaking and what determines their influence.

It is based on pluralistic principles such as good governance, democracy, participation, equity and jus-
tice,unity in diversity, transparency, inclusiveness, legitimacy, and accountability. Arguments that make
thease for multistakeholder processes include the following:

• multistakeholder governance promotes better decisions by means of a wider input from differ-
entsides and the integration of various viewpoints,

• multistakeholder governance builds trust through honoring each participant’s contribution,

• multistakeholder governance generates mutual benefits through the use of complementary re-
sources and the generation of synergies in their joint use, and

• multistakeholder governance creates commitment through participants’ identifying with the
outcome and thus increasing the likelihood of successful implementation.

A problem in multistakeholder governance is that people often do not take ownership of and respon-
sibility for the decisionmaking process. This can lead to pseudo representation and to decisions made by
only a few dominant actors. The challenge is to get a fair andunbiased understanding of who the relevant
stakeholders are and get all stakeholders involved without jeopardizing the interests of any or overbur-
dening stakeholders with time and other commitments.

There are many ways to design multistakeholder involvement, ranging from governments’ consult-
ing stakeholders to their creating multistakeholder platforms, formal partnerships, and joint ventures.
One particular way of organizing multiple-stakeholder processes is setting up decisionmaking boards in
which the various stakeholders have voting and decisionmaking rights.

Multi-stakeholder organizations may be legally entitled to make binding decisions. In many cases, how-
ever, they play a mainly coordinating and advisory role. The underlying assumption is that coordination
will improve the decision-making of individual agencies involved. Increased collaboration might inspire
synergy effects and help to mitigate conflicts of interest.


However, coordinating multistakeholder collaboration is not always straightforward. Multistakeholder
organizations consist of a combination of government and civil society organizations, different organi-
zational cultures may have to be reconciled. Also, the participatory character of multistakeholder organ-
izations might clash with the more hierarchical organizational structure of some ofthe organizations in-
volved. Within the multistakeholder organization, different forms of interaction arerequired that follow
consensus building rather than rules of authority.


Hand out 9: Actor Mapping

Actor maps are a good tool for creating a picture of how different organisations (actors) relate to one
another in a refugee situation. Assessing the roles and responsibilities of the various actors in a refugee
situation will lead to a better understanding of how and when to coordinate. It is best used to assess a
particular context where the problem to be solved relates to who should do what and how they should
work together.

Actor maps are best done in small groups, but, with a high degree of facilitation, a larger group can create
an actor map. You may decide that it is best to divide participants into groups on the basis that they have
been working together, or you may decide to create groups on a random basis. The trainer will need to
make this choice depending on the range of participants in the training session and the outcome desired.

To get the actor-mapping exercise started, it may prove useful to pose the following questions:

• What are the roles of the various actors in promoting transparency implementation in ex-
tractive industries?

• What do the other actors expect from us?

• What do we expect from the other actors?
You may also want the groups to colour-code the actors according to their type, for example, a interna-
tional agency or a government agency or a non-governmental agency. They could also be divided on the
basis of their function or the particular group that they work with (children, women, the elderly, etc.).

At the end of this exercise, ask groups to share their actor maps with the workshop to compare results.
They should identify points of coordination, gaps, and any areas of duplication.


Jl. Tebet Timur Dalam I M No. 10
Jakarta Selatan 12820
Indonesia

Module for Multistakeholder Engagement for Extractive Industry Better Governance

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