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Local Autonomy and Resource Development: Issues and Uncertainties


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Local government units (“LGUs”) outright refusal of consents to resource development within their territorial jurisdiction ranging from declaration of mining moratoriums, ban of particular technologies like open pit mining and submarine tailings disposal, and opposition to energy projects like coal-fired and hydro power plants, wind farms and geothermal exploration have often created controversies with the national government and the resources industry.

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Local Autonomy and Resource Development: Issues and Uncertainties

  1. 1.   1   Local  Autonomy  and  Resource  Development:  Issues  and  Uncertainties     The  Book  of  Genesis  narrates  the  first  recorded  acquisition  of  land  by  Abraham   who  wanted  to  own  freehold  land  in  Hebron.  Abraham  was  required  not  only  to   have  the  power  of  purchase  but  was  also  tasked  to  secure  the  public  and  formal   consent   of   the   community.     He   was   in   the   same   predicament   as   present   day   resource  developers.     Local   government   units   (“LGUs”)   outright   refusal   of   consents   to   resource   development   within   their   territorial   jurisdiction   ranging   from   declaration   of   mining   moratoriums,   ban   of   particular   technologies   like   open   pit   mining   and   submarine  tailings  disposal,  and  opposition  to  energy  projects  like  coal-­‐fired  and   hydro  power  plants,  wind  farms  and  geothermal  exploration  have  often  created   controversies  with  the  national  government  and  the  resources  industry.  Perhaps   the   opposition   to   resource   development   projects   particularly   mining   is   the widespread concern that  the  sector  is  not  paying  its  fair  share  and  that  mineral   wealth  has  rarely  translated  into  the  alleviation  of  poverty.       For   LGUs   where   resource   development   have   been   part   of   their   revenue   generation,   they   are   more   concerned   with   the   assurance   that   communities   hosting   resources   development   would   get   their   timely   share   of   the   proceeds.     However,  more  than  fair  and  prompt  revenue  sharing,  public  advocacy  groups   believe  that  the  main  issue  is  the  autonomy  of  local  communities  to  accept  or   veto  development  projects  normally  approved  at  the  national  government  level.     Other   issues   raised   by   local   governments   include:   wastes,   emissions   and   pollution;   loss   of   agricultural   land   and   subsequent   livelihood;   threat   to   water   resources;   relocation   and   right   of   way;   and   health   and   safety   of   workers   and   communities.     Local  Government  Share  in  National  Wealth     Section  7,  Article  X  of  the  1987  Constitution  provides  that  LGUs  shall  be  entitled  to   an   equitable   share   in   the   proceeds   of   the   utilization   and   development   of   the   national   wealth   within   their   respective   areas,   in   the   manner   provided   by   law,   including   sharing   the   same   with   the   inhabitants   by   way   of   direct   benefits.     Section  289  of  Republic  Act  No.  7160  or  the  Local  Government  Code  of  1991  states   that   LGUs   shall   have   an   equitable   share   in   the   proceeds   derived   from   the   utilization  and  development  of  national  wealth  within  their  respective  areas.       Under  RA  7942  or  the  Philippine  Mining  Act  of  1995,  LGUs  would  receive  their   share   from   the   two   percent   excise   tax   from   the   gross   revenue   of   a   mining   company  operating  in  their  locality.    According  to  the  IMF  Report  “Philippines:   Reform  of  the  Fiscal  Regimes  for  Mining  and  Petroleum”  (IMF  Country  Report  No.   12/219,   2012), one   indication   of   the   low   contribution   of   the   mining   sector   to   government  revenue  is  that  payments  to  government  as  a  share  of  total  taxes  is   less  than  the  sector’s  share  of  GDP.  Its  low  contribution  to  government  revenue   is,  in  part,  due  to:  the  mining  sector  comprising  mostly  small-­‐scale  mines  (with   about  34  percent  of  total  value  mining  production),  which  do  not  pay  a  lot  of  tax;   older   mines   that   are   in   their   twilight   years;   and   a   few   new   mines   that   are  
  2. 2.   2   enjoying  tax  holidays.    The  IMF  suggested  reforms  of  the  fiscal  regime  for  mining   by   proposing   measures   that   would   increase   government   revenue   through   an   increase   in   excise   taxes,   repeal   of   the   BOI   and   Mining   Act   tax   incentives,   and   provide  continuous  appropriation  for  the  distribution  of  the  LGUs  share.     In  the  energy  sector,  Section  5(i)  of  RA  7638  or  the  Department  of  Energy  Act  of   1992  mandates  the  Department  of  Energy  (“DOE”)  to  “devise  ways  and  means  of   giving  direct  benefits…and  equitable  and  preferential  benefit  to  the  region  that   hosts  the  energy  resource  and/or  the  energy-­‐generating  facility.”  RA  9136  or  the   Electric  Power  Industry  Reform  Act  (“EPIRA”)  further  affirms  “the  obligations  of   generation  companies  and  energy  resource  developers  to  communities  hosting   energy  generating  facilities  and/or  energy  resource  developers…shall  continue.”     Energy  Regulations  No.  1-­‐94  or  the  Rules  and  regulations  Implementing  Section  5   (i)  of  Department  of  Energy  Act  of  1992  (“ER  1-­‐94”)  prescribed  the  provisions  of   direct   benefits   to   LGUs   hosting   energy   resource   development   projects   and/or   energy  generating  facilities  within  their  territorial  jurisdiction.  With  respect  to   LGUs’  share  in  renewable  energy  projects,  RA  9513  or  the  Renewable  Energy  Act   of   2008   has   basically   amended   EPIRA   and   the   provisions   of   ER   1-­‐94,   and   its   Attendant  Rules  and  Procedures.       Comparison  of  Benefits  for  Energy  Projects       ER  1-­‐94   Royalty  Tax     (or  National  Wealth   Tax)   Government   Share   Legal  Basis   Sec.  5(i)  of  DOE  Act;   Rule   29   (a)   EPIRA   IRR,   Sec.   66   EPIRA   Law   Sec.   289-­‐294   of   the   Local   Government   Code;   Rule   29   (b)   EPIRA   IRR,   Section   66   EPIRA     Sec.   20   Rule   7   RE   Law   IRR;   Rule   29   (b)  EPIRA  IRR,  Sec.   13   Chapter   V   RE   Law   Nature  of   Benefits   P0.01/kWh   of   the   total   electricity   sales   1%   of   Gross   Receipts   or   40%   of   the   NWT,   royalty  fees  or  charges   derived   by   the   government   agency   of   the  preceding  calendar   year   whichever   is   beneficial  to  the  LGUs   1%   of   Gross   Income   of   RE   developers   except   for   geothermal   energy  developers   which   is   1.5%   of   Gross  Income     Except  for  hosting   GOCC   projects:   Nat.   Gov’t:   60%   LGUs:  40%.     Beneficiaries   Resettlement   area,   barangay,   municipality/city,   province   and   region   Barangay,   municipality/city   and   province   Barangay,   component   city/municipality   and  province  
  3. 3.   3     Nature  of   Fund   Utilization     Electrification,   development   &   livelihood,  and     reforestation,     watershed   management,   health,   and/or   environment   enhancement   projects     80%   be   applied   to   lower   the   cost   of   electricity;     20%   for   dev’t   and   livelihood  projects   80%  be  applied  to   RE   projects   and   activities   to   subsidize   end   users  of  RE  whose   consumption  does   not   exceed   100kWh;     20%  for  dev’t  and   livelihood  projects   Fund   Availment   Directly  remitted  to   LGU/RDC/DU/EC   based   on   approved   projects   Directly   remitted   to   the  host  LGU  for  GOCC;   Remitted   to   DOE   thru   DBM   for   LGUs   hosting   IPP   with   Service   Contract       Remitted   to   DOE   thru   DBM   for   IPP   with   Service   Contract   Electric  Power  Industry  Management  Bureau,  Department  of  Energy       EO  79  -­‐  Source  of  Friction  Between  the  National  Government  and  LGUs     Executive  Order  No.  79   (“EO   79”)   issued   by   President   Aquino   on   06   July   2012   directed   LGUs   that   host   mining   operations   to   “conform   to   the   regulations,   decisions  and  policies…promulgated  and  taken  by  the  National  Government."  It   basically  reminded  LGUs  that  they  are  inferior  to  the  national  government  and   ordinances  passed  by  local  government  officials  believed  to  conflict  with  national   law  or  policy  may  be  “corrected”  by  the  President.  EO  79  purports  to  address  the   industry  concern  on  LGUs  passing  ordinances  banning  open-­‐pit  mining  as  in  the   case   of   South   Cotabato.   The   Catholic   bishops,   in   a   national   forum   on   mining   organized   by   the   Social   Action   –   Justice   and   Peace   of   the   Catholic   Bishops’   Conference   of   the   Philippines,   rejected   EO   79   warning   that   it   threatens   local   autonomy  and  may  give  rise  to  violence  in  mining  areas.       Atty.   Dante   Gatmaytan   (Bantay   Kita   Policy   Paper   No.   2012-­‐3)   argues   that   the   President   does   not   have   the   power   of   control   over   local   government   officials,   only   the   power   of   supervision   as   the   President’s   authority   is   only   limited   to   seeing   to   it   that   rules   are   followed   and   laws   are   faithfully   executed.     He   cited   Province  of  Negros  Occidental  v.  Commissioners  (G.R.  No.  182574,  28  September   2010)  where  the  Supreme  Court  held  that  “the  President  may  only  point  out  that   rules   have   not   been   followed   but   the   President   cannot   lay   down   the   rules,   neither  does  he  have  the  discretion  to  modify  or  replace  the  rules.”    On  the  other   hand  Dean  Antonio  La  Viña  of  the  Ateneo  School  of  Government  believes  that  the   1987  Constitution  and  Philippine  Mining  Act,  which  under  our  hierarchy  of  laws   are  generally  supreme  to  local  ordinances,  do  not  mention  any  prohibition  on   open-­‐pit  mining,  which  belief  is  also  shared  by  Atty.  Gatmaytan.    
  4. 4.   4   On  18  September  2012,  the  Department  of  Justice  (“DOJ”)  came  out  with  Opinion   No.  87,  series  of  2012  in  response  to  the  questions  of  the  Department  of  Interior   and   Local   Government   (“DILG”)   about   local   government   ordinances   that   ban   open-­‐pit  mining  activities.  The  DILG  also  sought  from  the  DOJ  the  legalities  of  the   following:  judicial  remedies  through  declaratory  relief  or  through  the  declaration   of  nullity  of  the  ordinances;  administrative  remedies  through  a  Memorandum  of   Agreement   between   the   DILG   and   the   Office   of   the   Ombudsman   to   address   abuses   of   power   of   local   officials   invoking   local   autonomy;   and   the   filing   of   administrative   cases   on   grounds   of   grave   abuse   of   authority   or   grave   misconduct.     In  the  seven-­‐page  legal  opinion  the  DOJ  raised  the  general  rule  that  ordinances   are  valid  only  if  they  are  consistent  with  the  Constitution  and  existing  laws  and   that   the   national   legislature   is   still   the   principal   of   the   LGUs.   The   DOJ   also   affirmed   that   administrative   charges   proposed   by   the   DILG   against   the   local   officials   and   found   no   constitutional,   statutory   or   legal   infirmities   in   the   proposals.   Aside   from   imposing   administrative   sanctions,   the   DOJ   agreed   with   the  DILG  that  a  filing  of  a  petition  before  the  court  to  seek  nullification  of  the  said   ordinances   is   also   an   option.     While   the   DOJ   agreed   with   the   administrative   remedies   proposed   by   the   DILG,   it   added   that   an   action   for   declaratory   relief   would  be  proper  only  if  adequate  relief  was  not  available  through  other  existing   forms  of  actions  or  proceedings.       On   08   November   2012,   the   DILG   issued   Memorandum   Circular   No.   2012-­‐181,   which   directed   provincial,   city,   and   municipal   elective   officials   to   confine   themselves  only  to  the  imposition  of  reasonable  limitations  on  mining  activities   conducted   within   their   respective   territorial   jurisdictions   that   are   consistent   with  national  laws  and  regulations  in  accordance  with  Section  12  of  EO  79.  The   DILG  Memorandum  Circular  explained  that  local  governments  are  inferior  to  the   national  government  and  the  power  of  legislation  of  LGUs  is  merely  a  delegated   power   coming   from   Congress.   Municipal   governments   are   only   agents   of   the   national   government   and   cannot   act   as   superior   to   the   principal   or   exercise   powers  higher  than  those  of  the  national  government.  The  DILG,  citing  Lina  v.   Paño   (G.R.   No.   129093,   30   August   2001),   stressed   that   the   principle   of   local   autonomy  under  the  1987  Constitution  simply  means  “decentralization”;  it  does   not  make  local  governments  sovereign  within  the  state.”  Governors  and  mayors   were   then   directed   to   “take   appropriate   measures   for   the   amendment   of   the   provisions  of  existing  relevant  ordinances  and  guidelines…”     Atty.  Gatmaytan  (Bantay  Kita  Policy  Note  2012-­‐004)  argued  that  the  DOJ  Opinion   in  question  failed  to  examine  the  legal  issues  involved  and  determine  whether   the  ordinance  in  question  contradicted  the  Constitution  or  the  Mining  Act  of  1995   citing  Social  Justice  Society  v.  Atienza  (G.R.  No.  156052,  13  February  2008),  which   held   that   when   national   laws   are   ambiguous   and   are   pitted   against   “the   unequivocal  power  of  the  LGU  to  enact  police  power  and  zoning  ordinances  for   the   general   welfare   of   its   constituents,”   the   Court   will   tend   to   favor   the   LGU.     Atty.  Gatmaytan  justified  the  LGUs’  ordinance  banning  certain  forms  of  mining  as   not   inconsistent   with   law   and   an   exercise   of   police-­‐power   measures   that   promote   the   constitutional   right  of   a   balanced   and   healthful   ecology   and   such  
  5. 5.   5   measures   can   be   enacted   by   LGUs   to   protect   the   health   and   welfare   of   their   constituents.   He   further   stated   that   under   the   Local   Government   Code,   LGU   approval  is  required  for  national  government  projects  and  it  is  the  courts  that   should  declare  the  invalidity  of  these  ordinances.     Clipping  LGU  Powers  over  Small-­‐scale  Mining       LGUs  regulate  the  small-­‐scale  mining  industry  and  quarrying  by  issuing  permits   and  ordinances.  However,  EO  79  imposed  limitations  on  the  powers  of  LGUs  over   small-­‐scale  mining  by  requiring  strict  compliance  with  RA  7076  or  the  People’s   Small   Scale   Mining   Act   and   its   Implementing   Rules   and   Regulations,   (DENR   Administrative   Order   34   Series   of   1992)   and   Presidential   Decree   No.   1586   (Environmental  Impact  Statement  System).  Small-­‐scale  mining  can  now  only  be   allowed  in  areas  identified  by  the  national  government  called  “Minahang  Bayan”   and  upon  procuring  an  Environmental  Compliance  Certificate  from  the  DENR.     Another  issue  is  the  proliferation  of  black  sand  mining  purportedly  covered  by   “dredging  permits”  issued  by  LGUs,  which  the  national  government  claims  do  not   fall   under   the   ambit   of   EO  79   on   small-­‐scale   mining.     Some   LGUs   have   issued   “local  mining  permits”  for  black  sand  mining  even  if  EO  79  and  RA  7076  prohibit   them  from  doing  so.  Dredging  permits  were  also  issued  by  LGUs  as  a  disguise  for   a  “mining  permit,”  so  that  the  extraction  of  black  sand  from  the  seashore  will  not   fall   under   the   ambit   of   EO   79   or   RA   7076   and   at   the   same   time   dodging   the   payment  of  taxes.     According  to  the  MGB,  the  Mining  Industry  Coordinating  Council,  created  under   EO   79,   has   submitted   a   proposal   to   President   Aquino   to   stop   all   black   sand   mining  in  the  country  pending  the  establishment  of  a  regulatory  mechanism.  All   applications   for   black   sand   mining   permits   have   been   denied   until   the   implementing  rules  and  regulations  of  RA  7076  have  been  revised  to  allow  black   sand  mining  beyond  a  200-­‐meter  limit  zone  from  the  shoreline.       Local  Government  Taxation     In   addition   to   shared   revenues   from   the   national   wealth,   LGUs   levy   local   business  taxes,  real  estate  taxes,  and  various  fees  and  charges,  which  to  some   resource   developers   have   become   prone   to   the   abusive   exercise   of   regulatory   authority  by  some  LGU  officials.  Under  the  Local  Government  Code,  LGUs  have  the   power  to  enact  ordinances  that  will  regulate  the  operation  of  businesses  within   their   territorial   jurisdictions   by   imposing   fees   and   charges   for   revenue   and   regulatory   purposes.   Some   LGUs   imposed   excessively   large   amount   of   “regulatory   fees”   on   resource   companies   under   revenue   ordinances,   which   exceeds   the   cost   of   the   inspections   and   other   government   services   being   rendered   as   a   result   of   the   companies’   operations.   In   essence,   LGUs   has   “mislabelled”   the   exaction   as   mayor’s   permit,   when   by   its   very   character   it   is   undeniably   a   tax.     LGUs   must   perform   acts   of   regulation,   inspection,   and   surveillance  in  connection  with  the  business  in  order  to  justify  the  imposition  of   regulatory  fees  or  charges  but  the  regulatory  fees  must  be  based  on  flat  rates  and   not  on  the  type  of  products  or  goods.  
  6. 6.   6     Also,   LGUs   have   no   authority   to   impose   taxes   on   the   business   of   mining especially  if  the  company  is  registered  with  the  Board  of  Investments  under  the   Omnibus  Code  of  1987   through   Executive  Order  No.  226.   The   Local  Government   Code  has  enumerated  with  crystal  clear  precision  the  limitations  on  the  taxing   power   of   the   local   government   units.   Under   Section   133   (g),   “business   enterprises  certified  to  by  the  Board  of  Investments  as  pioneer  or  non-­‐pioneer   for  a  period  of  six  (6)  and  four  (4)  years”  may  not  be  taxed  by  LGUs.       What   was   originally   conceived   as   a   means   by   which   LGUs   can   independently   raise  funds  to  sustain  their  activities  has  become  an  opportunity  to  exact  more   money   from   resource   developers.   In   the   name   of   local   autonomy,   local   government   officials   impose   additional   conditions   on   contracts   issued   by   the   national  government.  This  is  in  addition  to  the  use  of  political  patronage  where   favored   contractors   and   workers   are   imposed   on   companies   to   guarantee   harmonious  relationship  with  local  leaders.       Local  Economic  Development  and  Poverty       According  to  the  Mining  and  Local  Economic  Development  Report  prepared  by  the   Oil,   Gas   and   Mining   Unit   of   the   World   Bank,   appropriate   local   economic   development   (“LED”)   instruments   will   help   address   the   perceived   lack   of   automatic   spillover   effects   of   resources   projects   on   host   communities.   LED   program   involves   voluntary   participation   of   resources   companies   and   local   government  among  others  to  work  together  to  ensure  that  the  local  population,   including   the   poorest   segments,   can   benefit   from   investments   in   resource   development.       The   persistence   of   poverty   in   communities   highly   dependent   on   resource   extraction   for   local   economic   wellbeing   has   made   poverty   reduction   an   increasingly   important   driver   of   LED   not   only   as   an   objective   but   also   as   a   strategy   in   itself.     An   important   component   of   an   LED   program   is   the   development  of  micro,  small  and  medium  sized  enterprises  as  suppliers  to,  or   downstream   producers   or   as   entrepreneurs/businesses   independent   from   the   resource   project   that   strengthen   the   overall   competitiveness   and   economic   development  of  the  host  community.     In   the   National   Government-­‐Local   Government   Joint   Energy   Forum   held   on   September  2013,  the  DILG  reported  that  it  has  embarked  on  an  initiative  called   the  Philippines  Poverty  Environment  Initiative  (“PPEI”)  to  promote  the  poverty-­‐ environment   linkage   in   national   and   local   governance   through   rational   utilization   of   natural   resources,   environmental   protection,   social   equity   measures,  and  poverty  alleviation  actions  towards  an  inclusive  green  growth.     PPEI’s   Development   Agenda   aims   to   improve   the   benefits   of   the   extractive   industries   and   limiting   its   environmental   impacts   thru   the   timely   release   of   LGU’s   share   from   revenues   in   the   utilization   of   the   national   wealth   and   the   utilization  of  these  revenues  for  sustainable  development  programs  and  projects   that  address  the  environmental  degradation.    
  7. 7.   7     Conclusion     The  government  must  embark  on  a  realistic  assessment  to  achieve  inclusive  and   sustained  economic  growth  in  the  resources  industry.    The  legal  issue  of  local   autonomy  in  relation  to  the  exploration,  development  and  utilization  of  natural   resources  vis  a  vis  the  power  of  control  by  the  executive  over  LGUs  will  only  be   settled   by   judicial   interpretation   and   until   then   lingering   uncertainties   will   prevent  developers  to  put  more  money  into  the  ground.    In  the  meantime,  the   Philippine  government  is  using  the  “carrot  and  stick”  approach  in  order  for  LGUs   to   toe   the   line.   By   increasing   the   revenue   from   mining   and   fast   tracking   the   distribution  of  LGU  shares,  the  national  government  hopes  to  make  mining  an   acceptable   development   option   for   LGUs.     At   the   same   time,   the   national   government  hopes  to  crack  the  whip  against  recalcitrant  LGU  officials  through   the  enforcement  of  available  administrative  remedies  and  sanctions.    LGUs  must   be  encourage  to  integrate  natural  resources  planning  in  their  local  development   plans,  programs,  budget  systems  and  governance  regimen.    It  is  important  that   there   is   transparency   and   accountability   in   the   collection,   distribution   and   utilization  of  revenues  from  the  resources  industry.  Unless  these  are  addressed,   revenues   from   resource   projects   will   be   perceived   as   lining   the   pockets   of   corrupt  politicians  rather  than  benefiting  the  host  community.       Fernando  “Ronnie”  Penarroyo  is  the  Managing  Partner  of  Puno  and  Penarroyo  Law   (fspenarroyo@punopenalaw.com).   He   specializes   in   Energy,   Resources   and   Environmental  Law,  Business  Development  and  Project  Finance.