Every time there is a change in administration, the mineral industry always anticipate with bated breath the identity of the Department of Environment and Natural Resources (“DENR”) secretary. The presidential appointee is scrutinized whether he or she is either sympathetic to the mining industry or a staunch environmental advocate. This can be attributed to the ambiguous nature and function of the DENR. Under the present setup of the DENR, it is mandated to promote investments in the minerals industry through the Mines and Geosciences Bureau and at the same time, enforce national environmental laws through the Environmental Management Bureau. In many jurisdictions, the environment protection agency is totally independent from the administrative body regulating extractive industries. Perhaps it is now high time for Philippine legislators to remove the mining regulation function from the DENR and attach it to a super regulatory body called the Department of Mines and Energy. Energy, Environment, Geology, Governance, Investments, Law, Mining, Petroleum

1. Philippine Department of Mines and Energy?
Every time there is a change in administration, the mineral industry always anticipate with bated
breath the identity of the Department of Environment and Natural Resources (“DENR”) secretary.
The presidential appointee is scrutinized whether he or she is either sympathetic to the mining
industry or a staunch environmental advocate. This can be attributed to the ambiguous nature and
function of the DENR. Under the present setup of the DENR, it is mandated to promote investments
in the minerals industry through the Mines and Geosciences Bureau and at the same time, enforce
national environmental laws through the Environmental Management Bureau. In many jurisdictions,
the environment protection agency is totally independent from the administrative body regulating
extractive industries. Perhaps it is now high time for Philippine legislators to remove the mining
regulation function from the DENR and attach it to a super regulatory body called the Department of
Mines and Energy.
A reinvigorated Department of Mines and Energy (“Department”) will serve as the foundation for
regulating, promoting, and developing Philippine resource-based industries, which represent one
main prospect for economic growth. However, this new Department will certainly face challenges,
including multiple regulations, inter-institutional conflicts, dearth in the capacity of regulators, and the
threat of political interference.
The Department should be tasked to provide clear policy direction for the extractive sector and
deliver improved industry regulations through a strengthened institutional capacity. It should also
introduce reforms in state-owned petroleum and mining companies. More importantly, the
Department should create a National Geological Survey Agency to collect a comprehensive
geological information system and manage a National Mineral and Energy Database. The
Department must implement a transparent and accountable governance framework, and improve
effective interactions with other regulatory bodies, private companies, development agencies, and
stakeholders.
Strengthening Institutional Capacity
Institutional capacity requires highly skilled specialists to provide effective regulatory functions to
identify, design, implement, and manage a comprehensive regulatory system. Because the mineral
and energy industries are so highly specialized with many technical dimensions, the skills available
to the Department should ideally match with those from the private companies it regulates. In order
to pursue this, the Department must conduct an organizational and capacity needs assessment. It
must craft a plan to deliver the human resources necessary to develop and retain the staff required
and implement organizational reforms so that the Department is properly structured to fully deliver
its mandate in the areas of policy, regulation, and investment promotion.
High standards of transparency and good governance are essential to tackle corruption and ensure
the sector delivers benefits to the stakeholders. These include accountable mechanisms for the
allocation of mineral and petroleum rights through improved processes in licensing and contract
management. It also involves transparent management of non-tax revenue collection like funds for
social development and environment rehabilitation. Complementing contract management is
improved oversight and compliance. Regulations must provide the structure for the enforcement of
laws and the terms and conditions of the contracts and licenses.
Inconsistent regulatory decisions brought about by ‘regulator uncertainty’ that occurs in the aftermath
of political transition create uncertainty for investors. This justifies the creation of an ‘independent’
regulator composed of tenured civil servants based on professional merits and technical expertise
working in an organizational structure shielded from political patronage.
Improving the Role of State-Owned Resource Companies
Organizational reforms also require consolidating and strengthening ownership in resource
companies owned by the state and providing a degree of effective government control and

2. involvement in decision making. Especially for strategic projects, state-owned resource companies
can benefit from preferential financing, low hurdle rate expectations, sovereign guarantees, grants,
direct government subsidies, tax concessions, preferential treatment in public procurement, and
other forms of public support. With this support system, state-owned resource companies should be
encouraged to conduct initial exploration work in frontier areas to mitigate geologic risks.
Take the case of the Philippine National Oil Company-Exploration Corporation (“PNOC-EC”). The
low capacity of technical personnel and lack of modern equipment are among some of the issues
identified with the company. PNOC-EC could have acquired the interests of the divesting companies
in the Malampaya natural gas project if it utilized its ability as a national oil company to access capital,
human resources and technical services directly from oil field service companies (“OFSC”). OFSCs
have been offering national oil companies services, specialized operations, and outsourcing needs
with their high technical experience. Their services cover virtually all areas of exploration and
production including facilities and reservoir-related services.
With the Malampaya acquisition, PNOC-EC can aggressively track new opportunities for growth
through access to capital markets, increased profits, and greater participation in technology
advancements. Further, it is better able to mitigate political risks through government-to-government
relationships and negotiation strategies using the political muscle of the Philippine government.
PNOC-EC has the ability to take greater risks, with strategic and geopolitical goals factored into
investment decisions rather than being purely based on commercial considerations. A strong PNOC-
EC could also have better leveraged in explorating in the disputed West Philippine Sea.
In the case of the Philippine Mining and Development Corporation (“PMDC”), direct mining
operations may be out of reach for the company at present. PMDC was designated as the
implementing arm of the DENR in undertaking the mining and mineral processing operations in the
8,100 hectare Diwalwal Mineral Reservation. However, PMDC can gradually develop capability
through knowledge transfer by working in partnership with private companies thereby increasing in-
house technical capability.
Managing the state’s equity in mineral projects is technically easier than operating mines, but it also
requires dedicated professional skills to ensure that the state’s shares yield an appropriate return.
In particular, board membership should be filled by skilled professionals who can dedicate
substantial time to these tasks. Commercial efficiency is the best way of achieving PMDC’s goals
over the long term. Detailed laws and rules on how PMDC is structured and how it interacts with
state institutions and private investments, are necessary. The PMDC should also be able to manage
itself with sufficient autonomy to make relevant and timely decisions. However, public accounts
should be maintained in accordance with international standards and subject to independent audits.
Establishing a National Geological Survey Agency
Too often, regulators are bogged down by the sheer volume of monitoring, inspections, and
extension work required. Also, the workload spent by technical personnel in contract monitoring
results in insufficient time to assess the resource potential of the country, which is primarily the
mandate of a Department handling the mineral and energy industries. Under the present set-up,
technical personnel must also engage in the inspection of small-scale operations and geo-hazards
aside from contract compliance duties.
The mineral and energy industries are capital and technology-intensive, which means that the
country will need to attract significant private sector investment. One method to attract investment is
by providing modern geological information to investors and this can be adequately fulfilled by a
National Geological Survey Agency (“NGSA’). The Department shall be solely responsible for the
establishment and control of an NGSA whose task is to conduct a comprehensive geologic survey
and provide reliable scientific information on how to manage energy and mineral resources.
The survey will contribute important data to the Department and other agencies and compile
assessments of minerals, energy, and other resource potential. The NGSA shall also provide

3. services on geological mapping, geotechnical investigation, hydrogeological mapping, geophysical
and geochemical mapping as well as basin analysis. It shall also engage in mineral and petroleum
resources exploration and evaluation. By building technical capacity in the NGSA, the Department
will improve the understanding of the country’s resource endowment and provide geoscientific
information to investors.
National Mineral and Energy Database
Ease of access to a mineral and energy database facilitates investment into the extractive industries
of a country. As such, having the digital infrastructure to host this data administered by the NGSA,
is important for attracting new investments. The database will serve as a central depository for
resource data and will be made available to the public on a centralized web and cloud platform for
easy information access. The availability of additional information reduces uncertainty and increases
investor confidence. Information and knowledge increase resource certainty and reduce risk, which
allows better access to risk capital for further exploration as well as a more accessible and
manageable base from which to develop a portfolio of resource projects. The digital platform to be
used for access to the data bank can also be utilized in the submission of information to regulators
for monitoring and compliance purposes.
The Department should also continue to adapt to a standard global classification system that
addresses the probability of risk based on a set of resource criteria and attributes. This classification
system would provide developers and potential investors with more information, and as a tool for
resource valuation, allowing for the development of risk-balanced portfolios. Such standardization is
critical to make informed decisions on development opportunities. The implementation of the
resource classification system would provide the industry a clearly defined framework to evaluate
prospects and establish a common industry language for resource and risks assessments. The
Department and private industry should aim for the recognition by financial institutions and stock
exchanges of the resource classification system to facilitate access to capital.
Enhancing Government Collaboration and Economic Linkages
While the Department shall have the primary responsibility for developing extractive industries, it
also recognizes that many of its activities will require collaboration and linkages with other
institutions. Inter-institution coordination among other resource-regulating agencies not directly
under the supervision of the Department like local government units, the National Commission on
Indigenous Peoples, Energy Regulation Commission and other agencies will lower the transaction
costs of developers.
Regulation of the extractive industries requires all responsible government agencies to work together
and collaborate to strengthen regulation. As the main government agency for the extractive
industries, the Department will take a leadership role in institutional collaboration to improve
information flow and regulation, and streamline economic development. The Department should
manage the effective coordination and collaboration of regulatory activities across the wide range of
agencies that ideally should be involved in different aspects of extractives regulations.
Many downstream activities like the processing of minerals require access to low-cost power in order
to be competitive. This is where coordination within the Department of Mines and Energy can easily
facilitate this major hurdle in developing a viable mineral processing industry. International markets
for processed mineral are highly-competitive and it is difficult to compete without relying on a facility
where a major cost of production is electricity.
Another instance where the mining and energy function can be coordinated by the Department is
the setting up of the regulatory frameworks for hybrid micro-grids. A key advantage of off-grid power
plants is that it can power the energy needs of mining operations in remote areas, where the cost of
building the infrastructure required to hook the mine up to the grid network or building a conventional
power station will be significant. By having a dedicated off-grid power source, a mining operation
can meet all its energy requirements and make significant cost savings in the price it pays for

4. electricity. Micro-grids involve a combination of power sources, usually diesel or natural gas
generators combined with some renewable energy resources.
In addition, given the significant involvement of the donor community in the extractive sector, the
Department shall also establish a donor coordination forum for extractive sector activities. The
economic linkages spearheaded by the Department will maximize the economic impact of extractive
industries. Such linkages will also improve the efficiency and effectiveness of donor funding.
Inclusion in Conflict Resolution
Petroleum and minerals development has often been cited as a key factor in triggering and
escalating violent civil conflicts. It is most likely to occur where local communities have been
systematically excluded from decision-making processes, when the economic benefits are
concentrated in the hands of a few, and when extractive industries clash with social and
environmental concerns of local communities. Unwillingness to address these issues in peace
agreements becomes a potential source of conflict in the future. The Department through an active
involvement in the peace negotiations can articulate the natural resource issue into the process.
Another instance where the involvement of the Department and the national oil company can be put
into good use is in the assertion of the country’s sovereignty over petroleum resources in the West
Philippine Sea.
Conclusion
Combining the Mines and Geosciences Bureau with the Department of Energy to form a
strengthened Department of Mines and Energy will ensure economic growth and sustainable
development in the mining and energy sectors. The strengthened Department will provide a stable
regulatory framework able to manage the country’s resources and better respond to the strategic
objectives espoused in the country’s development objective.
Fernando “Ronnie” S. Penarroyo specializes in Energy and Resources Law, Project Finance and
Business Development. He is also currently the Chair of the Professional Regulatory Board of
Geology. He may be contacted at fspenarroyo@penpalaw.com for any matters or inquiries in relation
to the Philippine resources industry and suggested topics for commentaries. Atty. Penarroyo’s
commentaries are also archived at his professional blogsite at www.penarroyo.com
Additional Readings
Addison, Tony and Roe, Alan, Extractive Industries - the Management of Resources as a Driver of
Sustainable Development, UNU-Wider Studies in Development Economics, 2018,
https://www.wider.unu.edu/publication/extractive-industries
Al-Fattah, Saud L., National Oil Companies: Business Models, Challenges, and Emerging Trends,
March 2014,
https://www.researchgate.net/publication/261696989_National_Oil_Companies_Business_Models
_Challenges_and_Emerging_Trends
Copper Giants: Lessons from State-Owned Mining Companies in the DRC and Zambia, Natural
Resource Governance Institute, 2014, https://www.resourcedata.org/dataset/rgi-copper-giants-
lessons-from-state-owned-mining-companies-in-the-drc-and-zambia