Legislative initiatives poised to make life more difficult for mineral explorationists
Legislative Initiatives Poised to Make Life More Difficult for MineralExplorationistsFor the past few weeks, the mining industry was again in the limelight asthe much eagerly anticipated Executive Order (EO) No. 79 was released andthe International Monetary Fund (IMF) study on Philippine mining fiscalregime was published. Little did we know that various measures affectingthe industry were silently being deliberated and passed by the 15thCongress.There were numerous moves in both chambers to repeal the PhilippineMining Act of 1995. In the House of Representatives, Congressmen LorenzoTañada III and Kaka Bag-ao, both from the progressive bloc, filed two bills,House Bill (HB) Nos. 206 and 3763 respectively, entitled “An Act to Regulatethe Rational Exploration, Development and Utilization of Mineral Resources,and to ensure the Equitable Sharing of Benefits for the State, IndigenousPeoples and Local Communities, and for other Purposes”. Both bills are stillpending with the Committee on Natural Resources since 2010.On the other hand, Senator Sergio Osmeña III filed a similar bill in theSenate. Under Senate Bill (SB) No. 3126, mineral resources development,utilization and processing shall be reserved for Filipino citizens and Filipinocorporations. On the other hand, exploration shall be exclusively anddirectly undertaken by the State through the Mines and Geosciences Bureauand cannot be delegated or contracted out to private corporations orpersons. Also, Financial or Technical Assistance Agreements, or any othersimilar agreements, contracts, and/or executive issuances granting licenseor permission to explore, develop and/or utilize mineral resources shall notbe awarded to foreign entities or persons. Exploration activities shall benon-invasive such as seismic, gravity, magnetic, electromagnetic, radar,induced polarization, radio wave and electro-geochemical. Open-pit miningmethod for the extraction of mineral ores and the submarine tailingsdisposal method are likewise prohibited. Under Osmeña’s bill, thecontractor shall pay at least ten per cent (10%) of the gross revenues asroyalty to indigenous cultural communities (ICCs) in case of mineraloperations within ancestral domains, the payment of which shall directly begiven to the ICCs in a process that build on their traditional and customarylaws. Community development programs shall not be considered as royaltypayment. In no case shall mining rights under the proposed bill betransferrable and violation of this provision shall cause the cancellation ofthe agreement and forfeiture of assets and equipment of the contractor infavor of the State.Similarly HB No. 1635 authored by Rep. Maximo Rodriguez, Jr. entitled “AnAct Protecting the Rights of Indigenous Peoples Affected by MiningOperations in Ancestral Domains proposes a five percent (5%) royalty basedon gross output. The bill is currently pending with the House Committee onNational Cultural Communities since 2 August 2010.The House of Representatives passed HB No. 5485 sponsored by Rep. RufusRodriguez, which disallows all extractive activities such as, but not limitedto, logging and mining in protection forestlands. Under the bill, protectionforestlands consist of all mossy and old-growth forests; freshwater, swampsand marshes; all areas along the bank of rivers and streams, and the shores
of the seas and lakes throughout their entire length and within a zone ofthree (3) meters in urban areas, twenty (20) meters in agricultural areas,and forty (40) meters in forest areas. The bill was approved by the House on13 December 2011 and transmitted to and received by the Senate on 15December 2011. Concurrent with this bill is HB 5860 also authored by RepRufus Rodriguez entitled “An Act Providing for the Delineation of the SpecificForest Limits of the Public Domain and for Other Purposes” which wasapproved by the House on 21 March 2012 and transmitted to and receivedby the Senate on 26 March 2012.In the Senate, Senator Loren Legarda introduced SB No. 1365 calling for anamendment of the Philippine Mining Act of 1995 by giving local governmentunits the right to declare areas in their jurisdiction as no-mining zones.Senator Legarda also introduced SB No. 1359 proposing for theinstitutionalization of a Philippine Economic Environmental and NaturalResources Accounting (PEENRA) System. The PEENRA framework includesaccounting for environmental quality and waste disposal services,depreciation of natural capital, and environmental damages. PEENRA aimsto generate physical and monetary estimates of the depletion of selectednatural resources and the degradation of environmental media arising fromselected economic activities. As the economy continues to capitalize on itswater, forest, mineral and other natural resources in its quest for highergrowth, Sen. Legarda believes that the framework will address concerns asto the physical and monetary impact of this economic growth onthe environment.Representative Neptali Gonzales II sponsored HB No. 4410 “An Act Providingfor the Direct Remittance to the Host Local Government of its Forty PercentShare (40%) of the Proceeds Derived from the Utilization and Development ofNational Wealth, amending for the Purpose Section 293 of Republic Act No.7160 as Amended Otherwise Known as the Local Government Code of 1991”.The bill was approved by the House on 16 May 2011 and transmitted to andreceived by the Senate on 24 May 2011.Relatedly, in the International Monetary Fund (IMF) Report “Philippines:Reform of the Fiscal Regimes for Mining and Petroleum” published on June12, the IMF recommended that Congress enact a continuous appropriationfor the distribution of the share of local government units (LGU), andpayments should be made based on estimated amounts with adjustmentswhen final amounts are known to improve the procedures for transferringfunds and to foster local support for large-scale mining. The IMF alsorecommended that a joint monitoring commission, with national and localrepresentation be introduced to oversee the distribution of revenues toLGUs.The IMF mission was requested by the Philippine government to identify andprovide advice on measures that would increase government revenue fromthe mining sector, but which would not require legislative action. Initially,the proposed measure was to extend the 5 percent mineral royalty, whichcurrently applies only to mines located in mineral reservations, to all minesby way of an administrative order. But the IMF realized that this could beproblematic as the precedent used to justify the imposition of royaltiesexplicitly provided only for royalties on minerals produced in mineralreservations.
Sen. Ralph G. Recto introduced SB No. 2754 proposing to increase the taxon minerals and quarry resources from two percent (2%) to seven percent(7%). Under the bill the potential revenue from the proposed increased excisetax on mineral products shall be equally divided between the nationalgovernment and the LGUs where the mineral and quarry resources areextracted. In particular, revenues from the three and a half percent (3.5%)tax on minerals shall accrue to the National Treasury, while revenues fromthe other three and a half percent (3.5%) tax on minerals shall be remitteddirectly to the LGUs as support for their Special Education Fund.Nevertheless, the IMF admitted that simply extending the royalty to minesoutside a mineral reservation or increasing the rate of the mineral excisewould increase production-based levies and would make the fiscal regimeunattractive for mining projects of low profitability.It has been reported that for the Mining Industry Coordinating Council,(MICC), created and deputized under EO 79 to prepare its implementingrules and regulations, the question of whether or not mining would continueto enjoy incentives depends on the proposed legislation being crafted by theDepartment of Finance (DOF) to rationalize the revenue and benefit sharing-schemes and incentives given to mining companies. The DOF is alsoconsidering inputs from the IMF Report, which recommended among others,the repeal of the Board of Investments and Mining Act tax incentives. Asreported, the MICC is inclined to strip prospective mining projects ofincentives, a move that has to go through legislation, which the Aquinoadministration is expected to prioritize the passage of. However until theissue on government share is resolved by the MICC, the question onincentives cannot be tackled. The government cannot take away existing taxincentives given to mining projects but there will be no new incentives formines opened in the future if Congress strips existing incentives.It appears that the confluence of these legislative and policy measurescurrently being undertaken by the Philippine government will causeinvestors in the industry to reevaluate their business strategies and cashflow analyses. As it is, mineral explorationists will face the inevitable task oftelling their shareholders if it is worth spending further risk capital on thePhilippines or it is time to pack their bags and leave for safer and stablehavens.Fernando “Ronnie” Penarroyo is the Managing Partner of Puno and PenarroyoLaw Offices (www.punopenalaw.com). He specializes in Energy and ResourcesLaw, Project Finance and Business Development.