The Environmental Impact of Macroeconomic Policies On Mining and Quarrying Sector In Palawan Province
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The Environmental Impact of Macroeconomic Policies On Mining and Quarrying Sector In Palawan Province

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“The Environmental Impact of Macroeconomic Policies on the Mining and Quarrying Sector in Palawan Province”, ...

“The Environmental Impact of Macroeconomic Policies on the Mining and Quarrying Sector in Palawan Province”,

Impact of Macroeconomic Adjustment Policies on the Environment (IMAPE)

Project funded by the International Development Research Center (IDRC) of Canada pp.1-35,

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The Environmental Impact of Macroeconomic Policies On Mining and Quarrying Sector In Palawan Province The Environmental Impact of Macroeconomic Policies On Mining and Quarrying Sector In Palawan Province Document Transcript

  • Danilo C. Israel Adelwisa Sandalo and Aida Torres, “The Environmental Impact of MacroeconomicPolicies on the Mining and Quarrying Sector in Palawan Province”, Impact of Macroeconomic Ad-justment Policies on the Environment (IMAPE) Project funded by the International Development Re-search Center (IDRC) of Canada, pp.1-34
  • The Environmental Impact of Macroeconomic Policies on the Mining and Quarrying Sector in Palawan Province* by Danilo C. Israel Adelwisa Sandalo and Aida Torres**I. Introduction The Impact of Macroeconomic Adjustment Policies on the Environment (IMAPE)Project has been conducted in the Philippines in light of the recognition that policiesintended to attain economy-wide objectives could have significant effects on the naturalenvironment. Among the major undertakings of the project is the evaluation of theinteractions between policies, firms and households, and the environment in a selectedcase study area. One of the earlier efforts of the IMAPE was the conduct of an analysis of theenvironmental impact of macroeconomic policies in Palawan (Israel et al. 1999). Theprovince was specifically looked into because it is a special zone for environmentalprotection in the country. In addition, national and local government units in Palawan ingeneral are relatively well advanced in the application of the Geographic InformationSystems (GIS), a modern technology that is potentially useful for the purposes of theIMAPE. As a continuation of the abovementioned study, the IMAPE is currentlyundertaking efforts to further investigate the impact of macroeconomic policies on theenvironment in Palawan. This time, the analysis is concentrated on mining andquarrying. This sector is highlighted because of its great potential both as a sourceeconomic growth and environmental degradation in the province. Furthermore, theintense debate on whether or not mining and quarrying should be encouraged nationallyis an ongoing political issue that cannot be overemphasized.* This research is part of the Impact of Macroeconomic Adjustment Policies on the Environment(IMAPE) Project funded by the International Development Research Center (IDRC) of Canada.** Ph.D. in Resource Economics and consultant of the Policy and Development Foundation, Incorporated(PDFI); Head, Policy Research Division, Palawan Council for Sustainable Development (PCSD); andHead, Technical Services Division, PCSD, respectively. Research assistance was provided by Ms.Merlinda Hilario and Ms. Concepcion Gilongos of the PCSD and Mr. Edralin Bayona of the PDFI.
  • This paper is a draft report of the IMAPE study on the mining and quarryingsector in Palawan. It is jointly prepared by some members of the staff of the Policy andDevelopment Foundation, Incorporated (PDFI) and the Palawan Council for SustainableDevelopment (PCSD). It also benefited from the indispensable assistance provided byvarious private and public sector individuals and institutions at the local, provincial andnational levels.II. Objectives and Activities The main objective of this study is to investigate the environmental impact ofvarious macroeconomic policies implemented by the national government over the yearson the mining and quarrying sector of Palawan. Specifically, it looks into the interactionsbetween policies, firms and households in the mining and quarrying sector, and thenatural environment. A corollary objective of the study is to provide a general overviewof mining and quarrying in the Philippines and Palawan that may prove useful for futureundertakings of the IMAPE as well as for other research activities dealing on the sector. To attain the abovementioned objectives, the study conducted the followingactivities:a) review of the laws covering the mining and quarrying sector at the national and local levels;b) review of the management aspects of the mining and quarrying sector at the national and local levels;c) review of the available literature on mining and quarrying development in the Philippines;d) discussion of the theoretical framework for evaluating the environmental impact of macroeconomic policies on the mining and quarrying sector in Palawan;e) profiling of the mining and quarrying sector of the Philippines;f) profiling of Palawan, its economy and its mining and quarrying sector;g) conduct of the case study of mining and quarrying firms and households in Palawan; andh) generation of conclusions and recommendations from the study. 2
  • III. Review of the Laws Covering the Mining and Quarrying Sector There were various laws passed concerning the mining and quarrying sector in thePhilippines. Commonwealth Act (CA) 137, otherwise known as the Mining Act of 1936,was the earliest of these. Among others, it gave priority to Filipinos to explore and utilizemineral lands and resources. Later on, Presidential Decree (PD) 463, or the MineralResources Development Decree of 1974, revised CA 137. The overall aim of thislegislation was to provide for a modernized administration, exploitation and developmentof all mineral lands in the country. In 1984, PD 1899 was passed which established small-scale mining as a newdimension in mineral development. Then, in 1991, Republic Act (RA) 7076, or thePeople’s Small-Scale Mining Act, was promulgated. This law aimed to further promote,develop and protect small-scale mining operations so that more employmentopportunities can be created and an equitable sharing among the people of the wealth andnatural resources can be effected. In 1995, the most recent mining law, RA 7942 or the Philippine Mining Act, waspassed. It aimed to promote the rational exploration, development, utilization andconservation of mineral resources through the active partnership of the government andthe private sector. Among its important features was the provision of support to anyqualified person or entity, which has the financial and technical capability to undertakelarge-scale mineral exploration in the country by giving financial or technical assistance.For quarrying, RA 7942 specified that any qualified person may apply for a quarry permiton privately or publicly owned lands for a maximum area of five hectares at any onetime. In terms of the environment, there are national laws that govern the mining andquarrying sector and other industrial activities. PD 1151, or the PhilippineEnvironmental Policy Law, mandated that national agencies and instrumentalities of thegovernment as well as private individuals, corporations and entities to implement andadopt the Environmental Impact Statement (EIS) System. PD 1152, or the PhilippineEnvironment Code, established the environmental management policies and prescribedenvironment quality standards to be followed nationally. PD 1586 mandated that noperson or entity shall operate in an environmentally critical area without first securing anEnvironmental Compliance Certificate (ECC) to be issued by the President of theRepublic or his duly assigned representatives. In Palawan, the most important law that relates to its natural environment is RA7611, or the Strategic Environmental Plan for Palawan, which was enacted in 1992.Among others, this legislation ordered the creation of the PCSD and stipulated theformulation and implementation of the Strategic Environmental Plan (SEP) for the entireprovince. The SEP was intended to serve as basis for the long-term development of thearea in an environmentally sustainable, socially equitable and economically practicableway (PIADPO n.d.). Among its significant features is the Environmentally Critical AreasNetwork (ECAN) that establishes a graded system of protective management from strict 3
  • control to very light control over the various ecosystems and environments in theprovince.IV. Review of the Management Aspect of the Mining and Quarrying Sector 4.1 Mining Sub-Sector Nationally, the Department of Environment and Natural Resources (DENR)manages the mining sub-sector of the country. This is the department mandated by lawto manage, conserve, protect and develop the natural resources of the country in thepursuit of sustainable development. The DENR carries out its mining-related functionsthrough its Mines and Geosciences Bureau (MGB) and Environmental ManagementBureau (EMB). The DENR secretary is the entity authorized to grant exploration permits andenter into mineral agreements with mining extraction applicants in behalf of thegovernment. He supervises the Regional Directors of his department who are responsiblefor the coordination and implementation of the programs and activities in the differentregions, including the administration of all mineral lands and related resources withintheir regional jurisdiction. The Regional Directors are also the ones responsible forcoordinating with the Local Government Units (LGUs), Non-government Organizations(NGOs) and other stakeholders in matters relating to mining management. In addition,they are tasked to assist the MGB and EMB in carrying out their mining managementfunctions. The Director of the MGB is the one directly in charge of managing all minerallands resources of the country. He has various powers, including the authority to enforceguidelines and policies concerning the safe and sanitary operations of all miningoperations. In this regard, he may stop mining operations that directly harm andendanger people, property, and the environment because of violation of any of theprovisions in the mining laws. He also recommends to the Secretary the granting ofpermits and mineral agreements to qualified applicants and can cancel mining rightsbecause of noncompliance to the important mining and environment-related rules andregulations. The primary responsibility of the MGB Regional Director is to implement themining laws, rules and regulations, and the programs of his Bureau in his assignedregion. Monitoring and enforcement of mining-related rules and regulations in theregions is also an important task of the Regional Directors. Part of these importantactivities is the conduct of safety inspection of storage facilities and installations and theconduct of on-site validation of the reports submitted by the mining operations to hisoffice and similar activities. 4
  • The EMB is involved in mining since by law, it has the primary responsibility toaccept, process, monitor and evaluate EIS and recommend the rules and regulations forthe Environmental Impact Assessments (EIAs) of all industrial activities, includingmining operations. Furthermore, the agency is required to provide critical technicalassistance for the implementation and monitoring of the EIAs and makerecommendations to the DENR Secretary regarding the issuance of ECCs to miningapplications. At the provincial level, the Provincial Environment and Natural Resources Office(PENRO) and the Community Environment and Natural Resources Office (CENRO) areDENR offices that implement the policies, programs and projects of the department in theprovince and at the community level. Working with the Regional Offices of the nationalgovernment and the environmental offices of the LGUs, these agencies assist in theconduct of on-site inspections and monitoring of all mining operations within their areaof jurisdiction. To go into mining, specific permits are required. The Exploration Permit (EP) isneeded for exploration activities. The Mineral Agreement (MP) that is a MineralProduction Sharing Agreement (MPSA), Co-Production Agreement, or a Joint-VentureAgreement is required for extraction activities by local firms. The Financial or TechnicalAssistance Agreement (FTAA) is needed for large-scale exploration, development andutilization of mineral resources by foreign entities. The application for each of thesedifferent mining permits undergoes a long bureaucratic process administered mainly bythe MGB and the DENR. The final granting of the permits is done either by theDepartment Secretary or his designated representatives. 4.2 Quarrying Sub-Sector The LGUs are mainly in charge of the management of quarrying activities in theirprovinces and localities. The Provincial Governor or City Mayor issues the permits forquarrying operations, subject to the recommendation of the Provincial or City MiningRegulatory Board (PMRB/CMRB). In the case of quarrying operations in Palawan, onlythe Provincial Governor can issue the permits since Puerto Princesa is still a component,not a chartered, city. In general, quarrying applicants have to get an ECC from the regional DENRoffice before they can start operations. In this particular aspect the role of PCSD inPalawan is crucial since quarrying applicants have to get its endorsement before theregional DENR office issues the ECC. By virtue of the Local Government Code (LGC),the provincial government of Palawan, the city government of Puerto Princesa and someof the municipalities now have Environment and Natural Resources Offices (ENRO)under their administrative set-up and control. These local agencies also assist in miningand quarrying management in the province, particularly in the review of permitapplications and the monitoring and enforcement of rules and regulations within theirjurisdictions. 5
  • V. Review of the Literature on Mining and Quarrying in the Philippines Studies on mining in the Philippines were few and, so far, no work looked into thequarrying sub-sector. Some of the studies on mining were mainly descriptive andprovided only a general overview of the industry. Other studies touched on the negativeenvironmental impacts of the sector. De Vera (1996) explained the importance of the mining industry and its crucialrole in economic development. He stated that its contributions were significant in termsof production, employment and foreign exchange generation. He also argued that miningsupports the program of countryside development that aims to draw the population awayfrom the already congested areas. De Vera, however, also stated that due to severaltechnical, economic, social and environmental factors, some of the biggest mining firmshave closed down in recent years resulting to the significant drop in the production ofsome important minerals. Tujan and Guzman (1998) also reviewed the mining sector but, in contrast to DeVera, made a strong critique. They stated that like many of the other sectors of theeconomy, mining is either small-scale and isolated or large-scale but concentrated in thehands of the local rich and their foreign cohorts. They asserted further that it is export-oriented yet import dependent, thus, condemning the country to backwardness andplunder by foreign corporations and comprador-landlords. A few works highlighted the environmental effects of mining in specific areas(Bennagen 1998, UBC and UP 1996, Briones 1987; Briones n.d). These studiesemphasized that mining is an environmentally destructive and accident-prone economicactivity that needs strict and proper management if it is to appropriately contribute tonational development. A couple of other studies defended mining in relation to theenvironment. Angeles (1995) asserted that the criticisms that mining received were theresults of misinformation and the lack of knowledge on the environmental aspects ofmining. MGB (1998) further argued that if mining is done in a sustainable andenvironment friendly manner, it can actually enhance instead of degrade theenvironment.VI. Theoretical Framework for Evaluating Their Environmental Impacts The framework for evaluating the environmental impact of macroeconomicpolicies in Palawan is presented in Israel et al. (1999), based on earlier framework-building works of the IMAPE (Intal 2000, Francisco and Sajise 1992, Quesada 1992,Lamberte et. al. 1991). This theoretical framework is reworked to fit the current analysisof the mining and quarrying sector. 6
  • In theory, the relationships between macroeconomic policies, mining andquarrying firms and households, and the natural environment can be viewed as follows(Figure 1). Macroeconomic policies affected the environment through differenttransmission channels and mechanisms that exist from the national level down to themicroeconomic level. In return, the state of the environment influences macroeconomicpolicy-making because of the growing acceptance among countries that sustainabledevelopment is the appropriate path to follow. It also affects the world environmentmainly due the trans-border implications of the environment and the national economywhere the environment plays a great role in the production of goods and services. In the forward flow of relationships, the implemented macroeconomic policiesaffect the national economy through the national output, employment inflation, balanceof payments and other macroeconomic aggregates. A tier below, the policy-inducedchanges in the national economy will influence specific sectors in the economy throughthree transmission channels: the labor and capital market, goods and services market andthe provision of public goods. Policies influence through these channels by inducingchanges in the prices of capital and labor, prices of product and services and the amountof available public goods. Since the microeconomic units of the sectors, specifically thefirms and the households, participate in the three transmission channels, the changes thereeventually affect them by way of three transmission mechanisms: changes in the relativeprices, changes in the incomes and the changes in their purchasing power. In the case of mining and quarrying, in particular, the behaviors and decision-making of the firms, including those relating to the environment will certainly be affectedby changes in the relative prices they face, the incomes they generate and in theirpurchasing power. For instance, on one hand, an increase in the incomes and purchasingpower of the firms as a result of macroeconomic policy could increase their willingnessto pay for activities for environmental improvement in their mining sites. On the otherhand, it could encourage the same firms to significantly increase their mining activitiesand raise the level of mineral depletion and environmental degradation. Like the firms,the activities of households relating to the environment are affected as well by changes inthe relative prices, incomes and purchasing power. An increase in the incomes andpurchasing power of the households, for instance, could raise their willingness to pay foractivities for environmental improvement. It could also increase their rates ofconsumption, and, thus, their capacity to potentially contribute to overall environmentaldegradation. While the interactions between macroeconomic policies, mining and quarryingfirms and households and the environment appear handy to theoretically analyze, they aredifficult to empirically estimate. There are important reasons for this. First, secondarydata on the different economic and environmental variables to be considered for such ananalysis are generally sketchy or downright non-existent. Second, primary datagathering, through a survey for instance, is very costly and time-consuming to conductwhere respondents representing firms and households, such as those in the mining andquarrying sector, have very limited knowledge and understanding of macroeconomicpolicies and their impacts. A third reason is that even if data and information can 7
  • actually be had, a quantitative model that can accurately measure all the differentrelationships that need to be looked into has yet to be developed. A more practical way of empirically studying the interactions between policies,mining and quarrying firms and households and the natural environment, therefore, isneeded for this study. A method that will be tried to simply use Rapid Rural Appraisal(RRA) techniques and case studies to evaluate the direct and easily observable effects ofmacroeconomic policies on the decision-making of mining and quarrying firms andhouseholds and then ascertain the impacts of these on the environment. To conduct thiskind of analysis, tracing the potential interactions between particular macroeconomicpolicies, the firms and households, and the natural environment will first be done. Again,only the direct relationships are considered because they can easily be ascertained andvalidated with the mining and quarrying firms and households in the field. There are fivemacroeconomic policies that can have important bearings on the environment and Intal(2000) made a thorough discussion of the direct and indirect impacts of a few of these onthe entire economy and the environment. Below, the direct interactions between themacroeconomic policies, the mining firms and households and the natural environmentare summarized (Figure 2). The first macroeconomic policy is financial liberalization, which was initiated bythe national government through a series of financial reforms (Reyes and Cororaton1996). In brief, the intents of this policy are to reduce interest rates and increase theavailability of credit in the economy. Other things the same, easier credit and lowerinterest rates should encourage the firms in the mining and quarrying sector to investmore, resulting to the expansion of the sector. Environmentally, more production per sein the sector will lead to more intense mineral extraction and environmental degradation. The second policy is foreign exchange liberalization, which was alsoimplemented by the government through a series of reforms. The policy aimed to correctan overvalued currency and abolish various controls related to foreign exchangetransactions. For the mining and quarrying sector, the potential positive and direct effectsof these are the inflow of foreign capital and increased participation of firms in the exportmarket that promote growth. A potential negative effect is that the devaluation couldraise the level of prices and dampen growth in the economy. If mining and quarrying aremostly non-tradable, then further contraction results as costs of production go up whiledemand goes down. Environmentally, the growth that the inflow of capital and increased exportationbrings will expand mineral extraction and promote degradation. Also, made poorer bydevaluation will be less willing to pay for environmental improvement and this increasesenvironmental degradation and dependence on natural resources. A positive effect is thatif a non-tradable mining and quarrying sector contracts, mineral extraction andenvironmental degradation slow down. 8
  • The third policy is trade liberalization, which was pursued mainly through theTariff Reform Program (TRP). As a result of this policy, the tariff range for variousimported production inputs was reduced and various import restrictions were reduced oreliminated (Austria and Medalla 1996). The potential negative impact of these reformson the mining and quarrying sector is the reduced production by firms if relativelycheaper imported substitutes for its products are available in the market. The potentialpositive impact is increased production due to higher investment by firms in cheaperimported and more efficient equipment. If most of the products are tradable and tradingpartners also practice trade liberalization, firms may increase exportation resulting to theexpansion of the sector. The decreased production of firms due to intense competition from importsubstitutes should also help reduce mineral extraction and environmental degradation.Furthermore, if higher investment in imported equipment includes those forenvironmental protection and management, the level of environmental degradation islowered. However, if increased exportation results from trade liberalization, thenworsening extraction and degradation occurs. The fourth policy is investment promotion, which was initiated again through aseries of reforms (Reyes and Cororaton 1996, Austria and Medalla 1996). This policywas intended to increase the flow of invested foreign and domestic funds into theeconomy. Like some of the other policies, the potential positive impacts of investmentpromotion are the increased investment and growth in the mining and quarrying sector.These should then promote further resource extraction and environmental degradation inthe sector. However, if investment into environmental protection and managementaccompanies overall investment, then some mitigation of the environmental problemshappen. The fifth policy is tight fiscal policy, which was intended to improve thedeteriorating fiscal position of the country (Manasan 1998). This policy was pursuedthrough improved tax generation and reduced government expenditures. Reducedexpenditures per se will make government less effective in the discharge of its functions.If increased taxation is imposed on mining and quarrying firms, this will raise their costof operations and dampen growth. Reduced government expenditures for environmental protection and management,particularly on monitoring and enforcement, will allow firms and households tocircumvent the rules and regulations and these worsens mineral extraction andenvironmental degradation. Higher taxation can also significantly reduce the willingnessand ability of the firms and households to spend on environmental protection andmanagement. From the above, it can be seen that the environmental impact of specificmacroeconomic policies in the mining and quarrying sector can be mixed and these aloneare already difficult to estimate. Studying the net effects of the individual 9
  • macroeconomic policies and their combined effects are beyond the intentions of thestudy.VII. Profile of the Mining and Quarrying Sector of the Philippines The Gross Value Added (GVA) of the mining and quarrying sector contributedabout 1.56 percent to both the Gross National Product (GNP) and the Gross DomesticProduct (GDP) annually, on average, from 1985 to 1998 (Table 1). In money terms,national mineral production amounted to about P24.9 billion, on average, annually overthe same period (Table 2). Of this, approximately 65 percent was metallic productionwhile 35 percent was non-metallic production. In recent years, nickel is the only metallic mineral significantly mined in Palawanwhile sand and gravel were the most important quarrying products. Thus, it is instructiveto look into the production performance on these minerals nationally. In money terms,national nickel production was about P484 million, on average, annually from 1985 to1998 and comprised 3.1 percent of the total metallic mineral production (Table 3).National sand and gravel production was approximately P4 billion and formed 39.33percent of the total non-metallic mineral production, on average yearly, over the sameperiod (Table 4). In terms of volume, the average national production annually of nickel from 1985to 1999 was 580.25 thousand dry metric tons of beneficiated ore. From 1985 to 1997,14.21 thousand metric tons of metal were produced (Table 5). The estimated nationalreserves of nickel, on average, annually were 1,307 billion metric tons for the 1985 to1996 period. The average annual ratio of the production of beneficiated nickel ore to theestimated nickel reserves was approximately only .09 percent for the 1985 to 1996period. The average annual volume of sand and gravel production was 29.55 millioncubic meters for the 1985 to 1999 period while the estimated annual reserves of sand andgravel was 70.04 million cubic meters from 1993 to 1996 (Table 6). The average annualratio of the production of sand and gravel to total reserves of sand and gravel was 38.92percent for the 1993 to 1996 period. In summary the annual contribution of the mining and quarrying sector to theoverall economy has been relatively small over the years, compared to the other sectors.The contribution of nickel to total metallic mining production has been modest also whilethat of sand and gravel to total non-metallic mining output has been much moresignificant. The potentials for the expansion of both nickel mining and sand and gravelquarrying, however, appear great given that only a tiny portion of the estimated nickelreserves and less than half of the sand and gravel reserves have been exploited by thesector on an annual basis. 10
  • VIII. Profile of Palawan, Its Economy and Its Mining and Quarrying Sector 8.1 Profile of the Province of Palawan and Its Economy Palawan is the largest province of the Philippines and among the richest innatural resources. Owing to its relatively preserved environment, it is dubbed as the “lastecological frontier” of the country. For a long time, the development of the province hasbeen slow because of its far distance from the national capital region and other populationcenters. In recent years, however, its economic prospects have improved as its richnatural resources got advertised and both local and foreign entrepreneurs started to comein. Palawan belongs Region IV or the Southern Tagalog region of thePhilippines (Figure 3). It is located in the western part of the archipelago bounded in theeast by the Sulu Sea, in the west by the South China Sea, in the north by the MindoroStrait and in the South by the Balabac Strait. Its southernmost tip is only about 97kilometers from Sabah, Malaysia. Palawan is composed of one main island and several surrounding islands(Figure 4). It has a total land area of 14,896 square kilometers and is the largest provincein the country (Table 7). Palawan is a second-class province with one first classmunicipality, the capital City of Puerto Princesa, and 24 other municipalities that areeither third, fourth, fifth or sixth-class. Puerto Princesa is the largest municipality whilethe smallest is Kalayaan Island. The province has a total of 431 barangays. PuertoPrincesa has the most number of barangays while Kalayaan Island only has one barangay. In 1995, Palawan had a total population of 640,486 people (Table 8). It isexpected to grow to 789,417 individuals in 2000. The estimated annual growth rate was3.56 percent from 1903 to 2000. The population density increased from 2.4 persons persquare kilometer in 1903 to 43 persons per square kilometer in 1995. It is expected to beat 52.99 individuals per square kilometer in 2000. A great majority of the population of Palawan lived in the rural areasalthough more and more people, in absolute and percentage terms, resided in the urbanareas in recent (Table 9). Given that mining and quarrying activities in general werelocated in the rural areas, the sector therefore has a great potential to affect the lives of agreat number of people in the province. The biggest contributor to the GDP of Palawan for the 1994 to 1998 period,in current prices an on average annually, was the agriculture, fishery and forestry sector(Tables 10, 11 and 12). Of the agriculture, fishery and forestry sector, fishery andagricultural crops were the major contributors; fishery and poultry were the fastestgrowing; while agricultural crops were declining on average annually. Of the services 11
  • sector, wholesale and retail trade was the most important while finance was the fastestgrowing on average yearly. The most significant industrial activities in the province weremanufacturing and mining while construction and manufacturing were the fastestgrowing on average annually. It should be noted that the percentage share of the miningand quarrying sector to the GDP was much larger in Palawan than at the national level(Tables 1 and 11). This is an indication that mining and quarrying was a relatively moresignificant sector in the province than in the entire country. 8.2 Profile of the Mining and Quarrying Sector of Palawan Based on PCSD computations, of the total output of the mining andquarrying sector in Palawan in current prices, about 26 percent came from nickel mining,5 percent was generated from quarrying, and 69 percent came from oil in 1988 (Table13). By 1994, the output of the sector was comprised of 46 percent nickel mining, 3percent quarrying and 51 percent oil. No computations were available from the agencyfor later years. In percentage terms, then, the share of nickel mining has increased whilethose of quarrying and oil have fallen. While currently nickel is the only metallic mineral output of Palawan, theprovince has deposits of several other mineral resources, including copper, mercury, iron,manganese and chromite (PIADPO 1999). Chromite and mercury were mined in the pastbut due to decreasing world prices, the activities stopped. Palawan also has various non-metallic resources other than sand and gravel, such as silica sand, limestone, coal and oil.Silica sand is presently exploited while limestone and coal have not encountered majorquarrying yet. A significant amount of oil and natural gas have been found in the westcoast of Palawan and is in the process of exploitation. For this purpose, the U.S. $4.5billion Malampaya Deep Water Gas-to-Power project was established. This project isplanned to generate natural gas that will provide 2,700 megawatts of power for a periodof 20 years starting January 2002 and reduce foreign fuel dependence by 30 percent. Inaddition, it is expected to substantial long-term revenue of U.S.$10 billion to thePhilippine Government over its lifetime. The development of the project started in 1998and is continuing. In terms of the environment, a controversial issue related to mining inPalawan is the case of the Palawan Quicksilver Mining Inc. (PQMI) that operated from1953 to 1976 in the province. This firm deposited mercury laden mining wastes intoHonda Bay which is located close to Puerto Princesa. Benoit et al. (1994) cited the highconcentrations of mercury were found in wastes and sediments originally coming fromthe mine. Later, Williams et al. (1996) contradicted the earlier finding and argued thatthe concentrations were not as high and dangerous as reported. Whichever it is, theincident shows that mining has potentially significant impacts on the environment in theprovince. 12
  • It is largely due to the great concern for preserving the natural resourcesand environment of Palawan that the SEP was enacted. Among the measures of this planwas the subdivision of the area into various zones of development and environmentalprotection. The ECAN map of Palawan (Figure 5, List 1) shows that that while theprovince and various municipalities have substantial areas open for economicdevelopment activities, including mining and quarrying, it also has significant hectaragewhere these are either strictly disallowed or highly restricted and where properenvironmental management is a must. The main intend of this zoning is to attain a moresustainable form of development where economic progress is made more compatible withenvironmental protection and management in the province.IX. Case Studies of the Mining and Quarrying Sector Case studies were undertaken to assess the environmental impact ofmacroeconomic policies on the mining and quarrying sector in Palawan. For mining,nickel mining was obviously chosen since it was the only major mining activity in theprovince. For quarrying, sand and gravel quarrying was selected since they were themost important quarrying product products. There is only one firm into nickel mining in Palawan, the Rio Tuba NickelMining Corporation (RTNMC) located in Barangay Rio Tuba in the town of Bataraza.This firm and the households it affected are covered in the mining case study. Thequarrying firms and their affected households in Puerto Princesa and Aborlan werecovered in the quarrying case study since quarrying activities in said municipalities arethe most intense in the entire province. 9.1 Methods RRA techniques were used because they were generally suited to gatherdata and information about rural life in a short span of time. The techniques were alsoapplicable in a multidisciplinary fashion that fits the nature of the study team and thestudy at hand. In particular, the techniques applied were secondary data analysis, directobservation and semi-structured interviews. For the mining case study, senior officers of the RTNMC at the site and atthe head office in Makati City were interviewed to generate various primary data andinformation. These were enhanced by secondary data taken from the firm and theinstitutional sources. Then, the mining households were interviewed to generate variousdata and information. The households were selected at random and the number coveredwas limited to the available time and resources at hand. Effort was made to make sureonly households affected by mining were covered. There were 33 households all in all,of which 21 were located close to the rivers affected by mining, 5 resided beside the mainroad used by the firm for transport and 2 lived in the coastal area where the mouth of theaffected rivers are located. . 13
  • For the quarrying case study, firms and households living close toquarrying sites in Puerto Princesa and Aborlan were interviewed to get primary data andinformation. These data were enhanced by information from the institutional sources.As in the mining case study, the quarrying firms and households covered were selected atrandom and the numbers covered were limited to the available time and resources athand. There were 19 quarrying firms interviewed, 9 from Puerto Princesa and 10 fromAborlan. There were 74 households covered, 48 from Puerto Princesa and 26 fromAborlan. Of the households interviewed, 60 lived downstream of the rivers affected byquarrying, 7 resided upstream and 7 lived in the coastal areas close to the mouth of theaffected rivers. The quarried rivers where the households are located were the Bacunganriver, Tanabag river, Maoyon river and Iratag river in Puerto Princesa and the Iraan riverand Aborlan river in Aborlan. To augment primary from the mining and quarrying firms and households,interviews with key government and private sector informants were also conducted. Thespecific data and information collected were the socio-economic and demographic datafor profiling, environmentally-related data for the assessment of the environmentalimpact of mining and quarrying, and the macroeconomic policy-related data to evaluatethe environmental impact of macroeconomic policies on the mining and quarrying sector. As expected, the mining and quarrying firm and household respondentswere not widely knowledgeable and conversant about the various macroeconomicpolicies and their potential impacts on their activities and the environment. Thus, manyof the interview questions were open-ended to generate as much data and information aspossible in an indirect manner. Some of the questions raised were not answered eitherbecause individual respondents had no answers for them or were hesitant to provideanswers. The actual interviews were conducted by the PDFI and PCSD during the periodOctober-November 2000. 9.2 Case Study on Mining Profile of The Rio Tuba Nickel Mining Corporation The RTNMC has a total land area of mining claim of 5,265 hectares ofwhich 353 hectares are currently operated (RTNMC 2000). Bataraza has 23 barangaysand Rio Tuba is located in its middle portion (Figure 6). Rio Tuba is one of the mostdensely populated barangays of the municipality (Figure 7). It has an estimatedpopulation of 6,000 individuals, of which more than 700 are employees of the miningfirm. The nickel deposit in Rio Tuba was discovered in 1969. Mineconstruction and development of the RTNMC commenced in 1975 and two years later,the first shipment was made to Japan. The operation does not process its ore but sends itdirectly to its foreign buyers. Since the start up to the present, an estimated total of 11million wet metric tons (WMT) of beneficiated nickel silicate ore has already beenproduced and shipped out of the country by the company. 14
  • From 1977 to the third quarter of 2000, the average annual shipment ofRTNMC was at 491,585 WMT and growing at an annual rate of 1.85 percent (Table 14).The noticeably lower shipments in 1998 and 1999 have been attributed to the La Ninathat brought in a higher than average rainfall in the area. The weather phenomenon madeit more difficult for the company to meet the moisture content of the ore required. Dataon nickel production, in value terms, indicates that on average annually, from 1985 to1997, the nickel production of Palawan comprised approximately 73 percent of theannual national production (Table 15). This made the province and the RTNMC themost important nickel producer of the entire country. Profile of Households Affected by Mining Of the household respondents, most were fathers but a good number weremothers (Table 16). Some were community officials but most were ordinary citizens. Afew of the respondents work in the mining company but most did not. Most of therespondents were educated below the high school and college levels but all had at least anelementary education. Most of the households originated from outside Palawan. The averageannual household income level among the households was lower than the averagehousehold income in Palawan, Southern Tagalog and the Philippines even for 1994 (seeIsrael et al. 1999). Furthermore, more of the households belonged to the lower incomebrackets than the higher income brackets. Since mining households heads in general had at least some level ofeducation, albeit low, it was expected that they have at least some knowledge andawareness of the environmental and other problems created by the mining firm in theirarea. The low level of the incomes of households may have a bearing on theirwillingness to pay for environmental improvement and their dependence on naturalresources for survival. RTNMC and the Environment The ECAN map of Bataraza showing the barangay subdivisions ispresented in Figure 8. As is the case of Palawan as a whole, Bataraza and Rio Tuba havesubstantial areas where environmentally critical economic activities were either strictlydisallowed or highly controlled. The ECAN map of the municipality of Batarazashowing the mine claim and currently operated mine area of the RTNMC is presented inFigure 9 while a blown-up ECAN map of the mine area is presented in Figure 10. Asshown, the mine claim covered mainly controlled use zones and restricted use zoneswhile the current operated area included primarily controlled use zones. Thus, part of themining operation was located in a highly environmentally fragile location where eitheronly non-consumptive activities or controlled forest extraction, not necessarily mining,are allowed by the SEP. 15
  • Aside from the above, there were other environmentally important issuesrelating to the operation of the RTNMC. One is air pollution. As in other mining areas,the main road used by the firm for ore transport was unpaved. Because of this, passingvehicles produced significant dust, particularly during the summer months. Inside themine site, substantial dust and air pollution were produced as well when the ore dug fromthe ground is crushed to smaller sizes. Health-wise, the inhabitants of Rio Tuba could beat some form of risk, including those people who were working inside the mining area. As in the case of other mining areas also, the pollution, siltation andsedimentation of downstream water bodies and areas were a natural consequence of theRTNMC operations. The mine site was located close to two rivers, The Ocayan Riverand the Rio Tuba River, and the coast. Although the mine established 5 siltation ponds todivert, store and treat effluents, the danger of polluted runoffs flowing into the riversparticularly, during the rainy season, remains. These runoffs add to the natural silt andsediments carried down from upstream area. The net effect is the reduced viability of thenearby rivers and the coast for fisheries as well as for other activities economically andrecreationally important to the inhabitants living in the downstream areas and the coast. Soil erosion and deforestation were other environmental problems alsocommon in mine sites like the RTNMC. The mine was an open-pit operation andsubstantial scraping of the land cover already occurred. Over time, this may have led tothe mentioned problems and the destruction of the topography and aesthetic value of themining area. The scope of these problems could be significant enough to cause problemsto inhabitants. In order to validate the extent of the environmental problems caused bythe RTNMC, the study team visited the mining site and key firm personnel wereinterviewed. They accepted that dust have been significant in the main road used by themine. This was also validated by personal observation of the study team. Theinterviewed personnel mentioned that the problem has been alleviated by the constantspraying of water and the installation of humps to control vehicle speed. Inside the plant,chutes and dust collector boxes in the screening and crushing plant area were alsoinstalled, as well as windbreaker. A tour around the mining area showed that theequipment were in place. To control the other problems like pollution, siltation, sedimentation andsoil erosion, the interviewed firm personnel mentioned that various activities wereconducted. These included slope stabilization, slope engineering, boulder toe dressing,and the construction of silt collector sump, proper drainage, dikes and siltation ponds.The interviewed personnel also asserted that the firm was aggressively addressing theproblem of deforestation through reforestation. In particular, of the total current miningarea of 353 hectares, 114 hectares were rehabilitated and extensively planted with varioustypes of trees. The tour showed that extensive reforestation was indeed done by theRTNMC in the mining area and the other activities and equipment mentioned for thecontrol of siltation, sedimentation, soil erosion and related problems were in place. 16
  • There are no technical records shown by the interviewed firm personnelthat can ascertain the extent of air pollution caused by the RTNMC although their testsshowed that the pollution levels meet the standards. For water pollution, the firmsubmitted a monthly report on the water quality analysis of collected samples, incompliance to the requirements of the DENR and as embodied in the ECC. Effluent wasbeing tested to determine how the concentration levels of chromium, lead, nickel, cobaltand iron from the siltation ponds, rivers, coastal area and other selected sampling sites.The resulted were then compared with the standard set by the DENR. A summary of these reports for a 15-month period between April 998 toSeptember 2000 was available. For chromium, the maximum allowable concentrationwas 0.2 milligrams per liter set by the DENR. Based on the available reports for 15months, the concentration levels exceeded the standard at certain periods for only two ofthe sampling points (Table 17). The study team was informed that in the two samplingpoints, the heavy rains lasted for several days during the sampling and this agitated thesiltation ponds resulting to the detection of more traces of chromium in the water. Toaddress the problem, the firm diluted the effluent to the allowable level as it flowed alongthe spillway before discharging to the Rio Tuba River. Overall, the concentration ofchromium due to the RTNMC operations met the allowable limit in most samplingpoints. For lead, the maximum allowable concentration set by the DENR was 0.3milligrams per liter. Except for tests done in August 1998 in two sampling points, thelead levels in the water samples due to the RTNMC were all below the standard (Table18). For nickel, cobalt and iron, the department, set the maximum allowableconcentration at 1.0 milligram per liter. Results for these metals showed thatconcentration levels were generally below the limit (Tables 19, 20 and 21). However,traces of iron beyond the allowable limit however, were observed during the October andDecember 1998 monitoring period for two sampling points. Overall then, the operationof the RTNMC met the standard for the concentration levels for various pollutants set bythe government. The interviewed firm personnel and other informants explained that theRTNMC has been setting up funds (Table 22) for its Environmental Protection andEnhancement Program (EPEP). Specifically, it pays for a Contingent Liability andRehabilitation Fund (CLRF) that includes a Mine Waste and Tailings Fee (MWTF) andMine Rehabilitation Fund (MRF). These monies were intended for environmentalmonitoring, rehabilitation and similar purposes. In addition, the firm was recentlymandated to set up the Environmental Trust Fund (ETF) that serves as guarantee for usein case of a mine accident. To further validate the environmental issues at hand, the affectedhouseholds were asked questions about the problems caused by the RTNMC (Table 23).It was found that the average distance of the household residence from the mining site is5 kilometers which is considered close by rural standards. Furthermore, although only aminority of the households lived close to the main road used for mining activities, many 17
  • indicated that they were affected by the air pollution caused by mining vehicles passingthrough the road. Of those affected, all asserted that they experienced sickness in theform of respiratory and skin problems. Some households mentioned that the miningcompany addressed the problem of air pollution by sprinkling water but only on anirregular basis. Most of the households reported that mining operations caused pollution,siltation and sedimentation in the water bodies. However, a much fewer number citedthat they were directly affected by the problem. Of these, a few mentioned that it causedsickness among humans and death among fish among fish and animals. Many householdsreported that the water affected by mining was used for irrigation and that this has causedthe siltation of ricelands. Some households also cited that because of mining, coastalwaters are polluted and this resulted to low fish catch and a silted coast. Severalmentioned that RTNMC constructed dikes and diversion canals to address the pollutionof water bodies. A few cited that mining also caused the soil erosion in riverbanks andthat this was mitigated by the construction of diversion canals. Some mentioned thatdeforestation was a problem in their area and that the mining company addressed thisproblem through reforestation. In summary, it was apparent that although the RTNMC has beenconducting various activities for environmental improvement in the vicinity of the mine,the households affected perceived that the problems continued to exist and that in someinstances, these caused health and economic problems on their part. There was animplied suggestion that the firm should do more, particularly on the air pollution in themain road used by the firm and the pollution, siltation and sedimentation in the waterbodies downstream of the mine. Macroeconomic Policies, Mining Firm and Households and the Environment A key firm official in Makati City was interviewed related to the potentialimpact of various macroeconomic policies on the operation of the RTNMC, includingthose that have environmental implications. The key official mentioned that, in general, the RTNMC does not borrowmoney from banks and other institutional sources to invest into its mining operations.Therefore, the increased availability of credit and the lower borrowing interest resultingfrom the policy of financial liberalization may have an insignificant effect on theiroperations. He also believed that the prevailing interest rates have been stable in recentyears, except during the economic crisis. But then again, he said that this was not a factorin the decision of the firm to invest more, including in areas related to environmentalprotection and improvement. The key official cited that RTNMC exports all of its beneficiated ore outputto Japan. Therefore, on the one hand, the firm benefited from the devaluation resultingfrom foreign exchange liberalization as its proceeds increased in peso terms. On the 18
  • other hand, the same devaluation raised their expenses on oil, spare parts and otherimported inputs and this had a dampening impact on earnings. Overall, since most of theproduction inputs of the firm were locally sourced and only about 20 percent at most wasimported, then the devaluation on the net benefited the firm by raising its earnings. Thekey official mentioned that like other firms involved in exportation, the abolition ofcontrols benefited the firm since it decreased government control over the handling ofdollar proceeds of exporters. The key official said that in recent years, RTNMC has been selling its oreto only one buyer and because of this production is contracted based on the demandspecification of this buyer. This means that the level of production and exportation bythe firm is not affected by the devaluation and the elimination of controls on foreignexchange transactions that the policy of foreign exchange liberalization has effected.Moreover, the firm made its investment in machinery and equipment, including those thatare environment-related, based on requirement and not on market price. Therefore, evenwhen they are imported, such as the laboratory equipment for environmental monitoring,the devaluation and the elimination of controls did not affect the decision of the firm tobuy the equipment. For the same reasons, the key official mentioned that the reductionin tariffs and import restrictions that resulted from the macroeconomic policy of tradeliberalization has not affected the RTNMC in its decisions related to levels of productionand export. It also has not affected the decision to purchase imported equipment,including those intended for environmental protection and management. The key official explained that the RTNMC is now proposing to thegovernment the establishment within its area of a processing facility for low-grade nickelore. This facility will be about 80 percent owned by Japanese investors and the other 20percent by the local investors. He opined that the policy of investment promotion by thegovernment could have a positive impact on the decision of both the foreign and localinvestors involved of investing in the processing facility. He also mentioned that underthe Mining Act of 1995, their company has benefited from certain incentives offered bythe government, including the reduction of excise taxes from 5 percent to about 2 percentand income tax holidays. The incentives, however, have been balanced by the stricterrequirements set by the government for environmental protection and management, suchas the setting up by the firm of specific funds for the purpose like the ETF. The key official mentioned that the RTNMC realized that because oftightening resources partly due to tight fiscal policy, the national and local governmentswere not in the position to meet the basic social services in their area. To assist thegovernment, the firm established various infrastructure and facilities that were open foruse by mining employees and the general public. These included a 20-bed hospital,school for kindergarten, elementary and high school, farm to market roads, dry and wetmarket, church and mosque and many other facilities (RTNMC 2000). He added,however, that their investment in facilities related to environmental improvement isprogrammed based on needs and requirements and not on the inability of the governmentto provide for said facilities. 19
  • The key official mentioned that the level of monitoring and enforcementby the government did not appear to have waned due to the tight fiscal policy. Heasserted that there has been good synergy between the government and the RTNMC inactivities related to environmental management. This encouraged the firm not to violateenvironmental rules and regulations and instead follow them as much as possible. Thisalso motivated the firm to agree to put up the specific funds for aggressively addressingthe environmental problems in the mine site. The data and information generated from the households affected by themining operations of the RTNMC provided interesting insights about the interactionsbetween macroeconomic policies, the households and the environment. All householdsdid not save in banks while a few borrowed from them (Table 24). Those who borrowedmentioned that the interest rate either increased or remained the same in recent years.The study team learned that there was no bank in Rio Tuba and Bataraza although therewere a few in Brookes Point, a municipality located kilometers away. Based on thesedata and information, it can be argued that the policy of financial liberalization may havea minimal direct impact on households as they have a low level of use of the formalfinancial system. Practically all of the households did not earn dollar currency.Furthermore, most of the household respondents mentioned that the peso devaluationmade their lives worse by raising the prices of commodities and transport. The increasein the price of energy, however, did not force households to use wood as substitute forfuel oil. Thus, the policy of financial liberalization impacted households by making theirlives worse although this did not lead to their increased use of natural resources forsurvival. According to key households informants, if there was an environmentaleffect of the devaluation among households, it was negative. They mentioned that thehigher cost of living made the households even poorer and less willing to spend anythingfor environmental protection and management. The households simply hoped that theRTNMC, which caused the environmental problems, will be responsible enough and dosomething positive about them. Some households cited that the inflow of imported consumers goods intheir localities benefited them in the form of increased availability and lower prices ofthese commodities. This may be taken a positive economic impact of the policy of tradeliberalization on the households. Key household informants, however, mentioned thatthis has no impact on their willingness to pay for environmental protection and control asthe households were already very poor in the first place. All households had no investment made as result of financial incentives bythe government implying that the policy of investment promotion expectedly did notwork with the households, many of which cannot afford to make any form of investment.It was difficult to get information from the households on their violation ofenvironmental rules and regulations. Some said that the government was not 20
  • significantly involved in the environmental management in their areas but this did notencourage them to violate rules and regulations. Key informants mentioned that thehouseholds in general paid little taxes and were not were affected by increased taxationby the government. Their willingness to spend for environmental protection andmanagement was not influenced by taxation as well. Overall, the households mentioned that they were economically worse offnow than five to 10 years ago. All also said that they have not spend on environmentalimprovement in their areas. In general, then, the macroeconomic policies of thegovernment did not result to the improvement of the lives of households. This increasingpoverty over the years may have made households less and less willing and able toparticipate in environmental protection and management. 9.3 Case Study on Quarrying Profile of Quarrying in Palawan The rivers in the mainland of Palawan have estimated reserves of sand andgravel materials of about 5.36 million cubic meters. The exploitation of these reserveswas granted to various construction firms, business enterprises and private individuals.The available data indicated that from 1990 to 1999, the average annual production ofsand and gravel in the province was 35,902 cubic meters while the average annualreserves was about 5.6 million cubic meters (Table 25). This means that only a minimalportion of the sand and gravel reserves in the province was actually exploited. Theprovincial production of sand and gravel also comprises only a very insignificant .13percent of the average annual national production (Table 26). The production data,however, reflects an increasing production over the years. Key informants said that animportant reason for this was that sand and gravel and concrete materials becamesubstitutes to lumber when the log ban was implemented. Another is that theconstruction of roads, bridges, buildings and other structures intensified in the province inrecent years. Quarrying operators in Palawan can be classified into three types: (a)operating permittees; (b) non-permittee operators who paid the royalty fee to exploitquarry sites of non-operating permittees; and (c) buyers who collected aggregates fromdifferent quarry areas and pay for the value of said materials. There were two types ofpermits, the commercial permit and industrial permit. The usual volume applied andapproved for extraction under a commercial permit, was 500 cubic meters annually. Anindustrial permit allowed a volume that ranged from the 2,500 cubic meters to as much as10,000 cubic meters. The number of sand and gravel permittees increased in recent yearsand Puerto Princesa had the most number (Table 27). This rising number was consistentwith the increasing production in recent years. There were various fees and expenses paid by the quarrying operatorsduring the application of the permit (Table 28). Key informants mentioned that some ofthese fees and the length of time to process the applications discouraged applicants to file 21
  • and application and instead just operate without a permit. When one was operating,various have to paid as well. These included road right of way of about P80.00 toP100.00 per 6 cubic meter load truck, road maintenance of about P200.00 to P100.00 percubic meter of aggregates, barangay fee of about P20.00 per truck. If one operated bypaying a royalty fee, this ranged from P300.00 to P1000.00 per truck or was based on a50:50 sharing arrangement between the permittee holder and the actual non-permitteeoperator. The maps of the city showing the barangays and their populations arepresented in Figures 11 and 12. The ECAN map that also shows the location of thequarrying applications with commercial and industrial permits is presented in Figure 13.Aborlan was another municipality in Palawan that had a large number of quarryingactivities. The maps of this town showing the barangays and their populations arepresented in Figures 14 and 15. The ECAN map that also shows the location of theactual quarrying operations with commercial and industrial permits is presented Figure16. The ECAN maps indicate that the endorsed sand and gravel quarrying operationswere located in multiple use zones and other areas where they are generally allowedunder the SEP. Also, actual quarrying operations with permits numbered less than thosegranted permits (see Table 27) as some permittees may have opted not to actually exploittheir quarries. While in theory the quarrying operations in Palawan were conducted inallowed areas, in reality this was not strictly the case. According to key informants,quarrying operations in the province were actually infested with illegal operators thateither have no permits at all or do not renew expired permits. These illegal operatorswere estimated to comprise one-third of the sub-sector in terms of number and two-thirdsin terms of production volume. They violate by quarrying not just in riverbeds but also inriverbanks, hauling more volume than what was allowed in a given site, and extendingtheir quarrying into sites not allowed by the SEP. Key informants mentioned that fromtime to time, illegal operators were caught and their equipment impounded. However,the penalty for their transgression was low. Illegal operators who were caught were ingeneral allowed to retrieve their equipment for a measly fee and not anymore brought tocourt and prosecuted. Of the rivers quarried in Puerto Princesa and Aborlan, most werequarried intensively and a majority had a high concentration of illegal mining operations(Table 29). Briefly, a quarrying operation is operated as follows. First a loaderextracts the sand and gravel and other filling materials from the riverbed. The materialsare then stockpiled by the loader in the riverbank or loaded into a dump truck andtransported to the stockyard or construction site. As in other areas, in Palawan, the sandand gravel were either sold by the operator through its own outlets, used in its ownedconstruction activities such as the building of structures and roads, or used in theconstruction activities of other companies. If the sand and gravel were not directly usedin construction, they were utilized in the production of building materials such as hollowblocks and concrete electrical posts. Currently, a large amount of sand and gravel has 22
  • been used in the construction and concreting of the national highway going to thenorthern portion of Palawan from Puerto Princesa. Profile of Quarrying Firms and Households Of the 19 quarrying firms, 4 were owned by operating permittees, 11 bynon-permittee operators and 4 by buyers (Table 30). All of the quarrying operations wereFilipino-owned and all except one were sole-proprietorships. The average number ofyears of operations was from 2 to 4 years. Most of quarries covered a hectare and sowere below the allowed five hectares. The average number of employees was 3 to 4individuals that included the operator of the loader, driver of the truck and helper(s).Specific data on the compensation of workers in the quarrying were difficult to generatefrom the respondents but many of them mentioned that they are paid better than theaverage worker in their fields. This is because quarrying operators paid incentives andother bonuses to their workers. Many of the operations were fully mechanized but a fewwere both mechanized and manually operated. Key informants said that approximately40 percent of the quarrying operations were vertically integrated where the quarryingoperator also owned retail outlets for the quarrying products and/or a constructioncompany that utilizes the productions. Most of the operations had a permit to operate but one in Aborlan had nopermit. All had commercial permits and none had an industrial permit. Several of thequarrying operations were intermittent but some continuously operated the whole yearround. The average annual income of the operations was lower in Aborlan than in PuertoPrincesa. The generated levels of income generated in the interviews were probablyundervalued because of the fear of the firm respondents that their answers will be utilizedfor tax purposes. Key informants mentioned that the average net income of quarryingoperations actually was around P200,000.00 a year. In general, the operations weresmall-scale given the average area of the quarry, the number of years of operation, lengthof years of operations, and average income of operators. For the households affected by quarrying, the interview respondents wereeither husbands or wives (Table 31). A few respondents in Puerto Princesa werecommunity officials but most in both areas were ordinary citizens. Practically allrespondents were not involved in quarrying operations and it was hoped that this willmake talk more openly about the quarrying operations. Most of the respondents wereeducated below the college level. The households came from different ethnicbackgrounds indicating more diversity compared to mining affected households. Theaverage annual household income was even lower than those for mining households andmost of the quarrying households belonged to the lower income brackets than higherincome brackets. 23
  • Quarrying and the Environment Most of the quarrying operations acquired an ECC but one in Aborlan didnot comply with this requirement (Table 32). Only a few of the operations had a staffassigned to attend to environmental concerns. All of the firm respondents mentioned thattheir quarrying vehicles did not cause any significant air and noise pollution in the roadsused for transport. A few mentioned that they did something to minimize the airpollution caused, through the calibration and maintenance of vehicle engines and watersprinkling. Only a few accepted that their operations resulted to pollution, siltation andsedimentation downstream in the river where their quarries were operated. A significantnumber of respondents mentioned that they mitigated any environmental problem theycaused in the river by quarrying at the riverbed only or by re-routing and re-channelingthe water flow. Only a few of the firm respondents mentioned that they caused soilerosion and asserted that any erosion caused was mitigated through the re-routing and re-channeling of the water flow in the river. Most operations did not construct the roadsleading to the quarry sites since these were already existent. The few who constructedroads did these on open and agricultural areas and therefore did not cause any additionaldeforestation in said areas. To validate the information coming from the quarrying firms,environment-related data and information were gathered from the household. All of thehouseholds lived less than a kilometer from the quarrying site (Table 33). Most of thehouseholds in Puerto Princesa and many in Aborlan also lived close to the road leading tothe quarry site. A significant number of the household respondents indicated that the dustcaused by quarrying vehicles passing through the roads affected them. Some alsoreported that the quarrying firms did nothing to address the problem although others saidotherwise. Of those who said that firms did something, the reported action taken waswater sprinkling but only irregularly. Some household respondents reported that due todust, they experienced sickness that was mainly in the form of respiratory problems innature. Most of the household respondents reported that the quarrying operationscaused pollution, siltation and sedimentation while a few cited that they also causedchemical spills in the rivers. They said that because of these, the water in the river couldnot be used for everyday activities and sometimes even flooding occurs. A fewrespondents said that the pollution of the rivers caused sickness to humans and mortalityto fish and animals. Some mentioned that the river water affected by quarrying was usedfor irrigation and this has caused the siltation of ricelands. Some also reported thatbecause of quarrying, coastal waters are polluted and silted. Most respondents reportedthat the quarrying firms did nothing to alleviate the pollution, siltation and sedimentationof the rivers their operations have affected. Some cited that quarrying also caused thesoil erosion in riverbanks. A few mentioned that some operations did something byconstructing siltation ponds and diversion canals. 24
  • Hence, as in the case of mining, there is again disagreement between thefirms and households on the extent of the environmental problems caused by quarryingand the degree of the activities done by the firms to abate them. The households suggestthat firms should do more to address the environmental hazards which have been themsignificant health and economic problems. The ocular inspection reveals that indeed, theextent of the problems caused by quarrying, particularly pollution, siltation andsedimentation, in some quarrying areas was great. At present, there has been no water quality monitoring done by anynational or provincial agency in the rivers affected by quarrying in Palawan that couldhave supported the observation of the study team and the contention of either the firms orhouseholds. Data generated by this activity could have helped confirm the extent of thewater pollution caused by quarrying activities. The PCSD has promised to initiate thisyear a monitoring effort in at least two rivers in Puerto Princesa and results will be madeavailable to the IMAPE as soon as they are ready. Macroeconomic Policies, Quarrying Firms and Households and the Environment Secondary data were collected and quarrying firms were asked questionsrelated to the potential impact of various macroeconomic policies on their operations,including those that have environmental implications. The number of banks in PuertoPrincesa and Aborlan increased in recent years (Table 34). However, only a minority ofthe quarrying firms borrowed money from banks to invest or finance its operations (Table35). Those who borrowed said that the interest increased or stayed the same in the lastthree years. Some mentioned that the interest rate level discouraged them fromexpanding operations and/or spending on environment-related activities. Therefore, formost firms, the increased availability of credit due to the policy of financial liberalizationdid not necessarily lead to increased overall investment as well as spending particularlyon environment-related activities. On the contrary, the perceived high interest rate mayhave prevented them from doing these. Many of the quarrying firm respondents mentioned that they were affectedby the devaluation in the form of reduced demand and increased operating costs. Severalsaid that the effects of devaluation discouraged them from expanding operations andspending on environment-related activities. All of the firms also did not have dollaraccounts for their operations. These imply that that the devaluation caused by the policyof foreign exchange liberalization may have a dampening effect on quarrying.Environmentally, this may have helped control the depletion of mineral resources butalso increased the rate of environmental degradation by reducing the willingness to payfor environmental improvement among firms. Because they have no dollar accounts, thefirms also may not have benefited directly from the abolition of controls related toforeign exchange transactions. 25
  • All the firm respondents mentioned that they did not export any of theirproducts and did not import its equipment. Therefore, trade liberalization had no directeffect in their decision to produce or spend on environment-related activities. Keyinformants said that there were no imported substitutes to the quarrying products and so,this aspect of trade liberalization could not have directly affected the operations ofquarrying firms as well. All of the firm respondents mentioned that they did not receive anyfinancial incentive from the government. Thus, the investment promotion thrust had noeffect on their decisions on investment and production in general and on their activitiesrelated to the environment in particular. All the firm respondents suggested that both thelocal and national governments were actively involvement in the environmentalmanagement in their areas. All also mentioned that the tight fiscal policy did notinfluence their decisions related to production and spending on environment relatedactivities. Key informants, however, mentioned that in terms of monitoring andenforcement, the LGUs were weak and this led to the growth of illegal quarryingactivities and the further exploitation of mineral resources and environmental degradationin quarrying areas. They mentioned that the weak presence of government in thequarrying sub-sector also encouraged firms to violate environmental rules and regulationsand spend less on environmental protection and management than what they ought tohave. Overall, only one of the firm respondents said that his operationsexpanded in the last three years. The various reasons forward include high interest rates,too many requirements and low demand. Key informants also mentioned that corruptionin government also played a major role in the decision of quarrying firms, particularly inthe processing of permit renewals and payment of fees, not to expand operations. Thus,the sector may have stagnated in recent years, which is both bad and good for theenvironment. It is interesting to note that while the individual firms professed that theiroperations did not expand, the overall production of sand and gravel operations in theprovince significantly increased in recent years (Table 26). Key informants opined thatthe increased production could have come from the illegal operations or due to theincreasing number of both legal and illegal operators. Furthermore, some of therespondents may not want to admit that they expanded operations for their fear that theinformation provided may be utilized for tax purposes. For the households affected by quarrying, practically all did not save inbanks while only a few borrowed from banks (Table 36). Those who borrowedmentioned that the interest rate either increased or remained the same. Thus, as in thecase of mining households, the quarrying households may not have been directly affectedby financial liberalization because they were not involved in the formal financial market. 26
  • All of the quarrying households did not earn dollar currency. Most saidthat the peso devaluation made them worse off by raising the price of commodities andtransport. More importantly, most of the households said they used wood as fuelsubstitute. Hence, the devaluation caused by foreign exchange liberalization madequarrying households poorer, increased their dependence of natural resources andexacerbated environmental degradation. Also, it may have made them much less willingand able to spend for environmental protection and management. A few of the households mentioned that the inflow of importedconsumers goods in their areas benefited them in the form of increased availability andlower prices of these commodities. This is a positive effect of trade liberalization. Keyinformants opined that this has no discernible impact on the willingness of households topay for environmental protection and management since they are still poor even withthese changes. All households said that they made no investments due to any incentivesoffered by the government indicating that the policy of investment promotion did notaffect them. A majority mentioned that the government was actively involved in theenvironmental management in their areas but as in the case of mining. However, Keyinformants argued that monitoring and enforcement by the government was actuallyweak and this encouraged households to violate rules and regulations, such as in the caseof illegal cutting of trees for firewood. Key informants also mentioned that thehouseholds in general paid no or little taxes and were not affected by increased taxationby the government. Overall, as in the case of mining, only a minority of the households saidthat they were better off now than five to 10 years ago and none mentioned that they havespend on activities related to environmental management. The increasing poverty amongquarrying households could have significantly contributed to their low willingness to payfor environmental improvement.X. Conclusions In retrospect, the following conclusions were generated by the study about theenvironmental impact of macroeconomic policies in the mining and quarrying sector ofPalawan. First, there was a divergence of opinion between mining and quarrying firmson one side and the households on the other side on the environmental effects of miningand quarrying activities. The firms argued that the problems were less serious thanthought to be and that they have been doing significant efforts to address them. Incontrast, the households asserted that the problems were daunting and that more have tobe done by the firms to address them. The ocular inspection done by the study team showed that the environmentalproblems caused by mining and quarrying remain significant. In mining, there was sometechnical evidence that shows that the pollution levels caused by the firm involved met 27
  • government standards. For quarrying, no technical studies on the environmentalproblems were conducted and evidence was therefore wanting. The direct impact of specific macroeconomic policies on the mining andquarrying sector were mixed. Financial liberalization may have a minimal directeconomic impact as most of the firms and households did not use the banking system tosource their investment and operational financial needs. Foreign exchange liberalizationhad a positive economic impact on the mining firm as devaluation improved its foreignexchange earnings. However, it also negatively affected mining and quarrying firms byraising their cost of production and the households by increasing their cost of living. Onone hand, the trade impact of foreign exchange liberalization on quarrying wasinsignificant since all the firms cater only to the domestic market. On the other hand,trade liberalization positively impacted the mining firm by lowering the cost of some ofits production inputs. Investment promotion benefited the mining firm through theavailed tax-based incentives and could have helped motivate the firm investors to think ofgetting into nickel processing. However, it may have no significant impact on quarryingfirms and households, in general, as they did not receive any form of financial investmentfrom the government. The tight fiscal policy may have a negative direct impact inquarrying as illegal firms proliferated in the face of weak monitoring and enforcement.Overall, the macroeconomic policies may have brought little respite to the mining andquarrying firms as most reported declining or stagnant operations and to the householdswhose economic plight has worsened much in recent years. The environmental impacts of macroeconomic policies on the mining andquarrying sector in Palawan also appear mixed. Since liberalization did not influence theinvestment and production of firms, it also did not influence the rate of mineral extractionand investment into environment related activities. Foreign exchange liberalization mayhave a direct positive effect on the environment by causing some contraction in theactivities of quarrying firms and a negative effect by forcing quarrying households todepend more on wood for their fuel needs. It may also have made both quarrying firmsand households less willing to spend more for environmental protection and management.Trade liberalization may have little significant impact on the environment since thewillingness to spend for environmental improvement among the firms and households areunaffected by it. For their part, investment promotion may have an importantenvironmental role to play if it helps lead to an environmentally safe nickel processingfacility in the future. Because of poor monitoring and enforcement, tight fiscal policymay have negatively affected the environment by promoting the proliferation of illegalquarrying activities and violation of environmental rules and regulations by quarryinghouseholds. It is pointed out that the abovementioned conclusions should not be taken asevidence of the ineffectiveness of macroeconomic policies in promoting economicgrowth in the mining and quarrying sector. The mining and quarrying sector inPalawan may not be representative of other areas where firms and households are moreaffected by the economic changes that policies bring about. The country has alsoexperienced various economic and political crises in recent years and these caused 28
  • economic downtown in general and among the mining and quarrying firms andhouseholds, regardless of the soundness of its macroeconomic policies. Thirdly, becauseof time and resource limitation, this study only attempts to look into the individual directeffects of policies and disregard the other various indirect effects and overall effects. Amore detailed and comprehensive study could have led to conclusions different fromwhat is herein generated.X. Recommendations Based on the above conclusions and interviews with key informants, severalrecommendations are put forward for the more environmental friendly development ofthe mining and quarrying industry in Palawan. For the mining and quarrying sector ingeneral, much remains to be done to improve the environmental conditions in the miningand quarrying sites. On the part of the national and local governments, improved effortson monitoring and enforcement are necessary to make the firms and households do theirobligatory part for environmental protection and management. In recent years, thebudgets of national agencies doing the work on monitoring and enforcement havedecreased. The annual budget of the DENR has been falling since 1997, particularly thatfor operations (Table 37). Except for 1998, the budget of the MGB Region IV overalland for operations has likewise decreased (Table 38). At the local level, the budgets ofenvironmental agencies in the province have been fluctuating (Table 39). In contrast, asevident in this study, the environmental challenges are mounting and need urgentattention. The increased provision of government funds and their judicious use forenvironmental monitoring and enforcement is much welcome to attain better protectionand management in the mining and quarrying sector of Palawan. In order to effectively monitor the environmental conditions in the mining andquarry sites, pertinent government agencies have to do the following: a) establish a database of the reserves in all river beds and mining claims including the condition of theadjacent forest area and watershed; b) produce a control map of concession areas usingGIS; and c) periodically update the data on each concession area, e.g., volume allowedand actual extraction, period of operation, water quality of the river, condition of the riverbank and watershed, activities in the surrounding area that may affect the river and otherparameters. The mining and quarrying firms may do part of these activities incollaboration with the agencies. At present, these activities are hardly being doneparticularly in the quarrying sub-sector so at the least, the PCSD should start very soon itsplanned efforts for water quality monitoring in a few o the intensely quarried rivers. The negative effects of devaluation and economic crisis on the plight ofhouseholds in the mining and quarrying sector should be given particular attention by thegovernment. Rural upland households are among the poorest of the poor and theunwelcome impacts of policies bear on them much more than in other sectors. Theintensifying resource extraction that poverty forces on households reinforces thisargument. The national government should plan and implement some effectively safetynets and poverty alleviating projects to mitigate the negative impact of macroeconomic 29
  • policies on mining and quarrying households and in so doing reduce the pressure on theenvironment. The government should also ensure that the environmental problems created bymining and quarrying in Palawan be fully addressed to the satisfaction of the residents inthe area. Part of the profits of mining and quarrying firms comes from theinstitutionalized gross under-payment of the mineral resources they exploit and the healthand property damages they impose on the population. The government should find a wayto raise the extraction fees in mining and quarrying and ensure that any damages theycause to people and property be paid to the fullest extent. The lack of this type ofcompensatory mechanism is especially lacking in quarrying. To improve on the mining situation in particular, the local and nationalgovernments should strictly screen mining applicants in Palawan, including the nickelprocessing project proposed by RTNMC. The screening, however, should be in a fairand judicious manner so that worthwhile mining projects that fit into the SEP can beaccommodated. It is to the best interest of the country that the natural environment ofPalawan is well protected but not too zealously so that viable economic developmentprojects and activities that can provide employment and incomes to the populationwithout significantly harming the natural environment are not unnecessarily sacrificed. In quarrying, the environmental problems can be minimized if monitoring andenforcement is made more efficient through the involvement of local communities. Atpresent, some residents adjacent to the quarry areas have been vigilant in monitoring theactivities of the operators. For instance, they check the volume of aggregates taken out toensure that it does not exceed the allowable limit. They also ensure that the extractionmethods employed do not cause undue harm to the environment, particularly the riverbedand the surrounding area. This type of participation of local communities in monitoringand enforcement should be promoted institutionalised by the LGUs for effectivemonitoring and enforcement at the ground level. Illegal quarrying operations are a major source of environmental problems inPalawan. The problem is difficult to address because it is multi-faceted with differentactors on both sides of the fence who can be significant gainers or losers in the event of achange. One thing is certain and that is that illegal quarrying has to be contained if theenvironment is to be protected. An obvious approach to curtail the practice is to imposehigher fines and penalties to violators. Key informants mentioned that currently, thosewho are caught violating the terms and conditions of their permits are rarely brought tocourt. Another reason for the proliferation of illegal operations is the difficulty insecuring a permit, particularly related to the length of time one has to get it. Keyinformants mentioned that there is a lot of duplication in the processes used by local andnational agencies for processing applications. A thorough study should be done to reducethis duplication. For instance, key informants mentioned that a way of shortening theprocessing of permit applications is to streamline the requirements of the LGUs, DENRand PCSD. Still another reason for the existence of illegal operations is the highinvestment needed in securing the permit, both in terms of the legitimate and illegitimate 30
  • costs involved. The so-called “grease money” in particular has become an integral partof the whole application process that discourages permit applicants. If this cost isreduced, then quarrying proponents may be encouraged to apply for a permit. Reducingthe incidence of corruption, which is endemic in society in general, is clearly better saidthan done. For a start, key informants proposed that the government, together with thebusiness sector and civil society, institute a values formation program not just for themining and quarrying sector but the entire population. This program should fit well withthe moral recovery pronouncements of the newly installed national administration 31
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