Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPhilippine Mineral, Oil and Gas, andCoal Tenure SystemsResources L...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsI.        Introduction• Minerals, petroleum, and coal are  owned b...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsI.         Introduction• Open to 100% foreign ownership:     (1) L...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsI.         Introduction• Limited to Filipino citizens or corporati...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsMost Recent Developments• Minerals Sector:    (1) Third Generation...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsII. Mineral Tenure Systems                                        ...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsA. Exploration Permit• Exploration includes prospecting,  trenchin...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsA. Exploration Permit• Hectarage (per company):    -      onshore,...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsA. Exploration Permit• Relinquishment:  - first 2 years of EP term...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsA. Exploration Permit• Accounting Treatment of Exploration Costs: ...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• MPSA is one of three types of “Mineral  Agreements” betwe...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• MPSA    -      gives exclusive right to conduct mining wi...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• Term:(1) Integrated MPSA    - Entered into prior to effec...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• Term:     (2) MPSA Entered into Upon DAO 2005-15 Effectiv...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• Term Renewal:    -      after expiration of initial 25 ye...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• Hectarage (for corporations):    -      onshore, per prov...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• Relinquishment:    -      area after final relinquishment...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• Fiscal Regime and Obligations to Local  Community/Indigen...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• MPSA obligations suspended on account of  Force Majeure  ...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• MPSA will terminate or be terminated if:    -      term e...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• MPSA will terminate or be terminated if:    -      contra...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• Arbitration   Tribunal of three arbitrators   - subject t...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC.         FTAA• Large-scale exploration, development, and  commer...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC.         FTAA• Supreme Court upheld Constitutionality of  Mining...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC.         FTAA• Third Generation Model FTAATerm:  - 25 years; ren...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC.         FTAA• FTAA Phases/Periods (25 years total initial term)...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC.         FTAA• Hectarage  - onshore: 81,000 hectares    -      o...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC.         FTAA• Relinquishment  - 25% of total area for first 2 y...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC.         FTAA• Government may suspend FTAA if:  (1) contractor f...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC.         FTAA• FTAA term may be suspended due to temporary  non-...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC.         FTAA• Arbitration  - government and contractor to agree...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC.         FTAA• Fiscal Regime  - determine “Net Mining Revenue” a...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC.         FTAA•     The required final government share is equiva...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC.         FTAA•     Basic Government Share, consists of the follo...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC.         FTAA• If the Basic Government Share is less than 50%  o...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC.         FTAA• Post-Recovery Period:  -   items (1) to (15) of B...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsEnvironment, Social Programs, IPs,Local Government Consents• Commo...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsEnvironment, Social Programs, IPs,Local Government Consents• Envir...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsEnvironment, Social Programs, IPs,Local Government Consents• Socia...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsEnvironment, Social Programs, IPs,Local Government Consents• Local...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsOil and Gas                                                       ...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service Contract• Allows contractor to conduct “Petroleu...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service Contract• Term:  - exploration: 7 years with des...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service Contract• Government/Contractor’s Share from Ann...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service ContractNet Proceeds                            ...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service Contract• Cost recovery:    -      contractor wi...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service Contract• Filipino Participation Incentive Allow...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service Contract• FPIA    -      maximum 7.5% also given...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service Contract• Abandonment costs  -  contractor requi...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service Contract• Insurance    -      to cover, among ot...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service Contract• Government can cancel SC, in the absen...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service Contract• Performance Bond    -      sufficient ...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsCoal                                                           ©20...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsCoal Operating Contract• Contractor operates COC area on behalf of...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsCoal Operating Contract• Term    -      exploration: 2 years + 2 y...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsCoal Operating Contract• Revenue Sharing    Gross Income [i]      ...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsCoal Operating Contract• Performance Bond    -      amount depends...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsCoal Operating Contract• Contractor’s obligations suspended due to...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsMatrix ofMining Laws of ASEAN Countries     Based on data provided...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPRINCIPAL MINING LEGISLATIONPHILIPPINES    CAMBODIA    LAO PDR    ...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsAUTHORITY THAT ISSUES THE LICENSES/PERMITS OR ENTERS INTO MINERAL ...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsDURATION OF PROSPECTING LICENSES OR EXPLORATION LICENSESPHILIPPINE...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsDURATION OF MINING LICENSES OR MINERAL AGREEMENTSPHILIPPINES    CA...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsFOREIGN OWNERSHIP LIMITATIONSPHILIPPINES   CAMBODIA    LAO PDR    ...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsMINING RIGHTS TRANSFERSPHILIPPINES   CAMBODIA    LAO PDR      MALA...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsFiscal and Taxation PoliciesCORPORATE INCOME TAXPHILIPPINES   CAMB...
Philippine Mineral, Oil and Gas, and Coal Tenure SystemsEXPORT TAXPHILIPPINES   CAMBODIA    LAO PDR      MALAYSIA   MYANMA...
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Philippine Mineral, Oil and Gas, and Coal Tenure SystemsThank You!Dennis A. QuinteroBaker & McKenzie International is a Sw...
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Philippine Mineral, Oil and Gas, and Coal Tenure Systems

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Philippine Mineral, Oil and Gas, and Coal Tenure Systems

Resources Law Conference South East Asia
19 February 2009

Dennis A. Quintero

Published in: Investor Relations
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    Regards
    Andrey Dorofeev
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  • i wonder if u can add a slide for the exploration cost in the philippines and in the ASEAN countries..
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Philippine Mineral, Oil and Gas, and Coal Tenure Systems

  1. 1. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPhilippine Mineral, Oil and Gas, andCoal Tenure SystemsResources Law Conference South East Asia19 February 2009Dennis A. QuinteroBaker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used inprofessional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, referenceto an “office” means an office of any such law firm.
  2. 2. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsI. Introduction• Minerals, petroleum, and coal are owned by the State• Revenue-sharing or Production- Sharing Agreements between government and contractors ©2009 Baker & McKenzie 2
  3. 3. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsI. Introduction• Open to 100% foreign ownership: (1) Large-scale minerals development through Financial or Technical Assistance Agreements (requires US$50 million for development and construction) (“FTAA”); (2) petroleum Service Contracts (“SC”); (3) mining Exploration Permits (“EP”); and (4) Mineral Processing Permits
  4. 4. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsI. Introduction• Limited to Filipino citizens or corporations at least 60% Filipino-owned: (1) Mineral Agreements: a. Mineral Production Sharing Agreement (“MPSA”), b. Co-Production Agreement (“CPA”), c. Joint Venture Agreement (“JVA”) (2) Coal Operating Contracts (“COC”) ©2009 Baker & McKenzie 4
  5. 5. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsMost Recent Developments• Minerals Sector: (1) Third Generation Model FTAA (2) Amendments to the Mining Act Implementing Rules and Regulations• Oil and Gas/Coal Sector: - latest model SCs and COCs formulated during latest Philippine Energy Contracting Round ©2009 Baker & McKenzie 5
  6. 6. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsII. Mineral Tenure Systems ©2009 Baker & McKenzie 6
  7. 7. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsA. Exploration Permit• Exploration includes prospecting, trenching, drilling, shaft sinking, and tunneling• Term: 2 years, renewable for similar periods; maximum 6 years for metallic and 4 years for non-metallic• Submit a Declaration of Mining Feasibility (“DMF”) to the government during EP term – to qualify for MPSA or FTAA (to proceed to extraction) ©2009 Baker & McKenzie 7
  8. 8. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsA. Exploration Permit• Hectarage (per company): - onshore, per province: 16,200 hectares - onshore, entire Philippines: 32,400 hectares - offshore: 81,000 hectares ©2009 Baker & McKenzie 8
  9. 9. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsA. Exploration Permit• Relinquishment: - first 2 years of EP term: at least 20% of EP area - rest of extended EP term: at least 10%• Grounds for EP Cancellation by Government: (1) violation of Mining Act, IRR, and EP provisions (2) adversity or breach of peace in EP area ©2009 Baker & McKenzie 9
  10. 10. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsA. Exploration Permit• Accounting Treatment of Exploration Costs: - Prior to drilling: charged to operations - Costs for drilling, acquisition of property rights: deferred as a non-current asset; transferred to PPE if exploration results are viable; otherwise written off ©2009 Baker & McKenzie 10
  11. 11. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• MPSA is one of three types of “Mineral Agreements” between government and contractor under Mining Act (requiring minimum 60% Filipino equity) - other two being CPA and JVA - among three types, only MPSAs, and no CPA or JVA, have been entered into by government ©2009 Baker & McKenzie 11
  12. 12. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• MPSA - gives exclusive right to conduct mining within the MPSA area - MPSA holder to provide financing, technology, management, and personnel• CPA - government to provide other inputs to operation other than mineral resource• JVA - government and contractor set up a joint venture corporation, with each holding equity interests ©2009 Baker & McKenzie 12
  13. 13. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• Term:(1) Integrated MPSA - Entered into prior to effectivity of DENR Admin. Order 2005-15 - term of 25 years, renewable for another 25 years – contains an exploration phase (similar to EP), aside from development/operating phase – within the term of exploration period, MPSA holder to submit DMF and Three-Year Development Work Program – development of mine must be completed within 36 months from approval of DMF by government ©2009 Baker & McKenzie 13
  14. 14. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• Term: (2) MPSA Entered into Upon DAO 2005-15 Effectivity - this type of MPSA originated from an EP that has been converted into an MPSA, after DMF filing - no longer includes an exploration phase; only development and operating phases - Upon DMF approval, this type of MPSA will have a new term of 25 years ©2009 Baker & McKenzie 14
  15. 15. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• Term Renewal: - after expiration of initial 25 year term, renewable for another 25 years upon mutual agreement - government may bid the project after initial 25-year term, but original MPSA holder has right to match highest bid• MPSA can be converted into FTAA, subject to DENR approval ©2009 Baker & McKenzie 15
  16. 16. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• Hectarage (for corporations): - onshore, per province: 8,100 hectares - onshore, entire Philippines: 16,200 hectares - offshore, entire Philippines: 40,500 hectares ©2009 Baker & McKenzie 16
  17. 17. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• Relinquishment: - area after final relinquishment must not be more than 5,000 hectares for metallic minerals and 2,000 hectares for nonmetallic mineral - the DENR may allow a contractor to hold a larger mining area depending upon the nature of the deposit and technical/financial capability of the contractor ©2009 Baker & McKenzie 17
  18. 18. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• Fiscal Regime and Obligations to Local Community/Indigenous Peoples (“IPs”) - 2% excise tax payable to government based on gross output (actual market value from each mine without deducting mining, processing, refining, transporting, handling, marketing and other expenses) minimum royalty to IPs equivalent to 1% of gross output - minimum funding for Social Development and Management Program (“SDMP”) equivalent to at least 1% of direct mining and milling costs ©2009 Baker & McKenzie 18
  19. 19. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• MPSA obligations suspended on account of Force Majeure - force majeure determined by DENR - force majeure includes dispute with NGOs - action/inaction by government, rebellion• Government can suspend MPSA if: - contractor does not comply with Mining Act and/or IRR - contractor fails to timely pay taxes, fees, and charges owing to the government ©2009 Baker & McKenzie 19
  20. 20. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• MPSA will terminate or be terminated if: - term expires - contractor withdraws from MPSA due to non-viability of mining operations - contractor violates MPSA’s terms and conditions - contractor fails to pay taxes, fees, charges owing to the government for two straight years - contractor makes false statement or omits facts ©2009 Baker & McKenzie 20
  21. 21. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• MPSA will terminate or be terminated if: - contractor fails without just cause to commence commercial production within agreed timetable - contractor violates approved work program or approved modification thereof ©2009 Baker & McKenzie 21
  22. 22. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsB. MPSA• Arbitration Tribunal of three arbitrators - subject to Philippine Arbitration Act: » an aggrieved party can petition a Philippine court to direct that the arbitration proceed » court can appoint third arbitrator if parties cannot agree » hearing to start within 5 to 15 days from appointment of arbitrators » written award must be made within 30 days after hearings close, but extendible upon parties’ mutual consent ©2009 Baker & McKenzie 22
  23. 23. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC. FTAA• Large-scale exploration, development, and commercial utilization of mineral resources• Contractor has exclusive rights to explore, mine, process, refine, and dispose of minerals and mineral products and by-products from FTAA area ©2009 Baker & McKenzie 23
  24. 24. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC. FTAA• Supreme Court upheld Constitutionality of Mining Act and FTAA in December 2004 ruling, in rare reversal of court’s own decision issued in January 2004• Court upheld validity of up to 100% foreign ownership of companies holding EPs, FTAAs, and Mineral Processing Permits• Oil and gas SCs likewise validated ©2009 Baker & McKenzie 24
  25. 25. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC. FTAA• Third Generation Model FTAATerm: - 25 years; renewable for an additional 25 years upon mutual agreement - basis of renewal is identification of sufficient mineral resource ©2009 Baker & McKenzie 25
  26. 26. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC. FTAA• FTAA Phases/Periods (25 years total initial term) (1) Exploration: 2 years + 2 years extension (2) Pre-feasibility Study: 2 years (3) Feasibility Study: 2 years (submit DMF) (4) Development and Construction: from DMF approval and after environmental and local government consents are obtained (5) Operation: from date of declared date of commercial operation until end of term ©2009 Baker & McKenzie 26
  27. 27. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC. FTAA• Hectarage - onshore: 81,000 hectares - offshore: 324,000 hectares - or both combined• Surface Areas - may be acquired by government for the contractor at latter’s expense ©2009 Baker & McKenzie 27
  28. 28. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC. FTAA• Relinquishment - 25% of total area for first 2 years of exploration: 10% of remaining area during each year of extended exploration period - FTAA area after relinquishment not to exceed 5,000 hectares, unless size of deposit or operations warrants larger area (increase in size subject to DENR approval) ©2009 Baker & McKenzie 28
  29. 29. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC. FTAA• Government may suspend FTAA if: (1) contractor fails to comply with any provision of the FTAA, Mining Act, or IRR (2) contractor fails to pay government taxes and fees• Contractor’s obligations suspended due to Force Majeure - definition of Force Majeure similar under MPSA - suspension due to Force Majeure subject to MGB approval ©2009 Baker & McKenzie 29
  30. 30. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC. FTAA• FTAA term may be suspended due to temporary non-feasibility (economic or technical) declared by contractor, subject to DENR approval• Government may terminate FTAA due to: (1) material violation of FTAA (2) contractor’s failure to pay taxes and fees for two straight years (3) intentional and material false statement (4) contractor’s failure to establish a Mine Rehab Fund (5) contractor’s failure to register FTAA and payment of fees at MGB Regional Office after execution ©2009 Baker & McKenzie 30
  31. 31. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC. FTAA• Arbitration - government and contractor to agree on rules of arbitration (Philippine Arbitration Act, UNCITRAL, or ICSID) - in case of UNCITRAL or ICSID arbitration, venue is SIAC or ICSID Centre as the case may be ©2009 Baker & McKenzie 31
  32. 32. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC. FTAA• Fiscal Regime - determine “Net Mining Revenue” and “Basic Government Share” Net Mining Revenue: Gross Output from sale of mineral products Less: Deductible Operating Expenses (cash basis) Plus: Government Taxes, duties, and fees included as part of deductible expenses __________________ Net Mining Revenue ©2009 Baker & McKenzie 32
  33. 33. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC. FTAA• The required final government share is equivalent to at least 50% of the Net Mining Revenue• Basic Government Share, consists of the following: (1) FTAA holder’s income tax; (2) customs duties and fees on imported capital equipment; (3) value-added tax on imported goods and services; (4) withholding tax on interest payments on foreign loans; (5) withholding tax on dividends to foreign stockholders; (6) documentary stamps taxes; (7) capital gains tax; ©2009 Baker & McKenzie 33 (8) Excise tax on minerals;
  34. 34. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC. FTAA• Basic Government Share, consists of the following: (9) royalties for mineral reservations and to indigenous peoples, if applicable; (10) local business tax; (11) real property tax; (12) community tax; (13) occupation fees; (14) registration and permit fees; and (15) all other national and local government taxes, royalties and fees as of the Effective Date of the FTAA. ©2009 Baker & McKenzie 34
  35. 35. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC. FTAA• If the Basic Government Share is less than 50% of the Net Mining Revenue, an "Additional Government Share", to bring up the total government share to 50% of Net Mining Revenue, must be paid by the contractor• Recovery Period: - contractor can recover actual pre-operating expenses - five years from start of commercial production or NCF = Total Pre-op Expenses, whichever comes first - only items (1) to (8) of Basic Government Share are paid by contractor ©2009 Baker & McKenzie 35
  36. 36. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsC. FTAA• Post-Recovery Period: - items (1) to (15) of Basic Government Share are paid by contractor + applicable Additional Government Share• Sale of Minerals by contractor (basis of Gross Output) - must be at market price - arms-length - marketing agreements/sales contracts subject to DENR approval• Stabilization Clause - in case of change in law or regulation reducing or prejudicing the rights of contractor under FTAA, government and contractor undertake to negotiate amendments to FTAA so that contractor will enjoy terms and conditions no less favorable ©2009 Baker & McKenzie 36
  37. 37. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsEnvironment, Social Programs, IPs,Local Government Consents• Common to MPSA and FTAA• Environment: - Environmental Compliance Certificate (“ECC”) - Environmental Protection and Enhancement Program (“EPEP”) = 10% of Total Project Cost - AEPEP = 3-5% of direct mining and milling cost ©2009 Baker & McKenzie 37
  38. 38. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsEnvironment, Social Programs, IPs,Local Government Consents• Environment: - Contingent Liability Rehab Fund, consisting of (1) Monitoring Trust Fund = at least PhP50,000 (2) Rehabilitation Cash Fund = 10% of EPEP cost or PhP5 Million, whichever is lower (3) Environmental Trust Fund = PhP50,000 (4) Mine Waste and Tailings Reserve Fund (5) Final Mine Rehabilitation and Decommissioning Fund = annual contributions starting from commercial operations to cover full extent of work necessary for mine closure ©2009 Baker & McKenzie 38
  39. 39. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsEnvironment, Social Programs, IPs,Local Government Consents• Social Programs - Social Development and Management Programs = annual minimum of 1% of direct mining and milling costs• IPs - prior consent required before DENR approves any mining tenement - IPs entitled to royalty of at least 1% of gross output ©2009 Baker & McKenzie 39
  40. 40. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsEnvironment, Social Programs, IPs,Local Government Consents• Local Government Consents: - for exploration applications (under EP or FTAA): proof of consultation and/or project presentation to the concerned local government units is required; - for projects in the development stage: prior approval or endorsement in the form of a resolution or certification by at least majority of the local government councils concerned (barangay council, municipal or city council, and provincial council) is required before the contractor can proceed to development and/or utilization activities. ©2009 Baker & McKenzie 40
  41. 41. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsOil and Gas ©2009 Baker & McKenzie 41
  42. 42. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service Contract• Allows contractor to conduct “Petroleum Operations” - searching for petroleum, drilling and natural flow or suction or the like, and incidental operations• “Petroleum”: - crude oil or mineral oil, natural gas or hydrocarbon gas, condensate, casinghead petroleum spirit, bitumen, asphalt, mineral gas, and all other similar or naturally associated substances ©2009 Baker & McKenzie 42
  43. 43. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service Contract• Term: - exploration: 7 years with designated sub- phases + 3 years extension + 1year “additional” extension (to determine commerciality) - production: 25 years less the additional extension of exploration period + [5+5+5 year renewals] ©2009 Baker & McKenzie 43
  44. 44. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service Contract• Government/Contractor’s Share from Annual Production: Gross Proceeds 100 Less: Filipino Participation Incentive Allowance (maximum is 7.5) 7.5 Less: Cost Recovery (not to exceed 70% of Gross Proceeds) 70 Net Proceeds 22.50 ©2009 Baker & McKenzie 44
  45. 45. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service ContractNet Proceeds 22.50Government Share (60% x 22.5) 13.50 (income tax will be paid out of this government share)Contractor’s Share (40% x 22.5) 9Income Tax (Contractor’s Share/70%) x 30% (new income tax rate effective 1 January 2009) 3.86Government Share, after deduction of income tax: (13.5 less 3.86) 9.64National Government Share (60% x 9.64) 5.78Local Government Share (40% x 9.64) 3.86 ©2009 Baker & McKenzie 45
  46. 46. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service Contract• Cost recovery: - contractor will be reimbursed for all operating expenses not exceeding 70% of the gross proceeds from annual production - if the operating expenses exceed 70% of gross proceeds, excess recovered from the operations of the succeeding year ©2009 Baker & McKenzie 46
  47. 47. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service Contract• Filipino Participation Incentive Allowance (“FPIA”): Filipino Participation Incentive Allowance 30% and above 7.5% 27.5% but less than 30% 6.5% 25% but less than 27.5% 5.5% 22.5% but less than 25% 4.5% 20% but less than 22.5% 3.5% 17.5% but less than 20% 2.5% 15% but less than 17.5% 1.5% Below 15% 0% ©2009 Baker & McKenzie 47
  48. 48. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service Contract• FPIA - maximum 7.5% also given by DOE if: (1) Filipino participation is at least 15% + SC is in a Deepwater Area (at least 85% of SC area in depths beyond 200 meters); or (2) Filipino participation is at least 15% + well drilled is in water depths beyond 200 meters, even if outside Deepwater Area ©2009 Baker & McKenzie 48
  49. 49. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service Contract• Abandonment costs - contractor required to establish a sinking fund within one year from commercial production• Marketing of Petroleum - contractor will market government’s share of petroleum, unless government elects to receive its share in kind• Stabilization - in case of change in law or regulation, the Parties Parties shall immediately meet and negotiate on an equitable allocation of the benefits with the end in view of retaining the commercial terms or gains by which this Contract was agreed to by the Parties ©2009 Baker & McKenzie 49
  50. 50. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service Contract• Insurance - to cover, among others: (1) damages to drilling installations (2) third party liability (3) liability for pollution and clean up expenses (4) expenses for killing blow-outs ©2009 Baker & McKenzie 50
  51. 51. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service Contract• Government can cancel SC, in the absence of justifiable cause, and after due notice, if contractor fails to : (1) fulfill its work obligations (2) remit the government share within 60 days from lifting or delivery date (3) post required performance bond (4) implement required safety measures (5) submit required reports ©2009 Baker & McKenzie 51
  52. 52. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPetroleum Service Contract• Performance Bond - sufficient to cover minimum expenditure commitments for exploration and development - surety(ies) must be acceptable to DOE• Consultation and Arbitration - if dispute cannot be settled amicably, ICC rules apply - 3 arbitrators - Venue is the Philippines, unless parties otherwise agree ©2009 Baker & McKenzie 52
  53. 53. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsCoal ©2009 Baker & McKenzie 53
  54. 54. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsCoal Operating Contract• Contractor operates COC area on behalf of government• Contractor provides services, technology and financing for coal operation ©2009 Baker & McKenzie 54
  55. 55. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsCoal Operating Contract• Term - exploration: 2 years + 2 years - development and production : 10 years + 10 years + [3+3+3+3 years] (need environmental and indigenous people’s consent, if COC is within ancestral domain area) ©2009 Baker & McKenzie 55
  56. 56. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsCoal Operating Contract• Revenue Sharing Gross Income [i] 100.0 (net of commission and brokerage/delivery expenses) Less: Cost recovery (90% of gross proceeds or actual operating expenses[I whichever is lower) 90.0 Net proceeds 10.0 Less: Operator’s fees and allowances Basic operator’s fee (40% of net proceeds) 4.0 Special allowance[(30% of net proceeds) 3.0 ___ Government share 3.0 DOE/National Government Share (60% x 3): 1.8 Local government share ©2009 Baker & McKenzie 56 (40% x 3): 1.2
  57. 57. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsCoal Operating Contract• Performance Bond - amount depends on approved annual work program - surety(ies) must be acceptable to DOE• Abandonment - contractor has obligation to properly abandon and rehabilitate all sites affected by the coal operation ©2009 Baker & McKenzie 57
  58. 58. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsCoal Operating Contract• Contractor’s obligations suspended due to force majeure• DOE may cancel the COC, after due notice, if contractor fails: (1) to fulfill work obligations (2) secure ECC within time required (3) timely remit government share (4) timely post performance bond (5) meet DOE safety standards (6) submit reporting requirements to DOE (7) comply with Coal Act and applicable regulations ©2009 Baker & McKenzie 58
  59. 59. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsMatrix ofMining Laws of ASEAN Countries Based on data provided by individual member countries of the ASEAN Federation of Mining Assocications and supplemented by Quisumbing Torres/Baker & McKenzie ASEAN offices as of 16 October 2008
  60. 60. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsPRINCIPAL MINING LEGISLATIONPHILIPPINES CAMBODIA LAO PDR MALAYSIA MYANMAR THAILAND VIETNAMMining Act Law on Mining Law Mineral Mines Law Minerals Act Mineral Law(1995) Management (1997) Development (1994) (1967) (1996) and Act (1994) amended by Exploration the Law of Mineral State Amending and Resources Mineral Supplementing (2001) Enactments a number of Articles of The Law on Minerals (2005)
  61. 61. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsAUTHORITY THAT ISSUES THE LICENSES/PERMITS OR ENTERS INTO MINERAL AGREEMENTSPHILIPPINES CAMBODIA LAO PDR MALAYSIA MYANMAR THAILAND VIETNAMMines and Council for Department State Department Department MinistryGeosciences Development of Promotion Governments of of Primary of NaturalBureau and of Mines Industries Resources Cambodia and and and EnvironmentDepartment Management (CDC) Mines in consultationof Ministry of of Domestic w/ provincialEnvironment Industry, level Peoples’ and Foreignand Natural Mines and Committees for InvestmentResources Energy mineral prospecting, exploration schemes and mineral activity permits
  62. 62. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsDURATION OF PROSPECTING LICENSES OR EXPLORATION LICENSESPHILIPPINES CAMBODIA LAO PDR MALAYSIA MYANMAR THAILAND VIETNAM2 years 2 years 2 years but Varies across 3 years, 3 years, re- 12 months rene-renewable renewable may be States renewable newable for wable forfor up to for up to extended up Example: for 2 years a period not another6 years 4 years to 2 years (1yr and longer, exceeding 12 months forfor for at a time) for 2 years, if required 2 years prospectingprospecting exploration prospecting renewable for pros- (total of 5and (2 years at a for anotherexploration time) for 3 years 2 years for pecting and years for 2 years prospecting renewable prospecting exploration prospecting renewable for and for up to and explo- 2 years for exploration to 4 years (2 10 to 15 ration exploration years Years for at a time) for exploration exploration
  63. 63. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsDURATION OF MINING LICENSES OR MINERAL AGREEMENTSPHILIPPINES CAMBODIA LAO PDR MALAYSIA MYANMAR THAILAND VIETNAM25 years. 5 years. 30 years. Varies 25 years. 25 years Based on eachRenewable renewable renewable across renewable project’sfor another for another for another states 5 years (mineral feasibility25 years 10 years 20 years at a time license) study report (5 years at (10 years at Example: on(mineral at a time) at a time) A mining (mining mineral mining,agreement) lease license) shall be but (mineral (mineral granted for the shall not license) license) maximum exceed economic life 30 years and of the mining renewable for operation but shall not 20 years Exceed an Initial term of (mineral 21 years. license) Renewal shall not exceed 21 years
  64. 64. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsFOREIGN OWNERSHIP LIMITATIONSPHILIPPINES CAMBODIA LAO PDR MALAYSIA MYANMAR THAILAND VIETNAM40% foreign None Joint None. Joint Venture Thai None.Equity Venture (Subject to with the ownership (except forLimit for between the fulfillment Government of shares at preciousMPSA government of applicable least minerals) and domestic government 40% ofNo and/or criteria) totalforeign foreignequity parties capitallimits forholders ofExplorationPermits,FTAAor MineralProcessingPermits
  65. 65. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsMINING RIGHTS TRANSFERSPHILIPPINES CAMBODIA LAO PDR MALAYSIA MYANMAR THAILAND VIETNAM Possible Possible Possible. Possible Indefinite Possible Possible Provided activities have progressed past the prospecting stage
  66. 66. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsFiscal and Taxation PoliciesCORPORATE INCOME TAXPHILIPPINES CAMBODIA LAO PDR MALAYSIA MYANMAR THAILAND VIETNAMThe higherof 30% or2% MinimumCorporate 20% 20% 27% 30% 30% 25%Income Tax(MCIT)based ongrossincome
  67. 67. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsEXPORT TAXPHILIPPINES CAMBODIA LAO PDR MALAYSIA MYANMAR THAILAND VIETNAM No No No No Yes No Yes
  68. 68. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsKEY ENVIRONMENTAL REGULATIONSPHILIPPINES CAMBODIA LAO PDR MALAYSIA VIETNAMEnvironmental Work Environmental Environmental Impact Plan for OrganizationsProgram Impact Assessment rehabilitation And individuals assessment permitted toEnvironmental and study exploit EnvironmentalCompliance minerals must impactCertificate Environmental pay assessment Management plan collateral forEnvironmental Protection Environmentand Enhancement andProgram Mine site land restoration restoration and to the VietnamAnnual Rehabilitation EnvironmentEnvironmental Protection Protectionand Enhancement FundProgram Financial guaranteesFinal MineRehabilitation/DecommissioningPlanMonitoring Trust FundRehabilitation Cash Fund
  69. 69. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsSMALL SCALE MINING PHILIPPINES LAO PDR VIETNAM CAMBODIATwo types of small scale mining Only Lao citizens A small scale mining Artisan Mining Licensepermits: using their own permit shall be granted may be issued only to sources of funds may only to Vietnamese persons of Khmer(1) Small Scale Mining be artisanal miners organizations and/or nationality Permits individuals; - granted to Philippine Nationals (Filipino citizens or priority given to corporations at least organizations and/or 60% Filipino owned); and individuals residing in the locality(2) Small Scale Mining Contracts where minerals are located - granted under the regulations to cooperatives composed of Filipino small scale miners
  70. 70. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsMINERAL EXPORT PERMIT PHILIPPINES LAO PDR THAILAND VIETNAMRequired Required Required Generally, none.Mineral Ore Export Permit The Ministry of Ministry of Mineral export license Certain minerals need toissued by the Secretary of Industry-Handicraft grants meet quality standardsthe Department of approvals for export of minerals before they can beEnvironment and Natural exported; quality isResources; needs proofof payment of the validated by accreditedrequired excise tax Laboratories minerals coming from mines identified by the government for domestic deep processing cannot be exported
  71. 71. Philippine Mineral, Oil and Gas, and Coal Tenure SystemsThank You!Dennis A. QuinteroBaker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used inprofessional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, referenceto an “office” means an office of any such law firm.

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