Presentation

1. 8 2 N D P H A L T R A N A T I O N A L C O N V E N T I O N
P I C C , M A N I L A
F E B R U A R Y 5 , 2 0 1 5
F L O R E N C I O C . D I N O I I
O I C – R E G I O N A L D I R E C T O R , B L G F I V
M E M B E R , P R B R E S
Current Issues and Concerns:
Properties in the Extractive
Industries

2. Outline
 Introduction
 The Philippine Extractive Industry Transparency
Initiative (PH-EITI)
 The Philippine Valuation Standard (PVS): Guidance
Note No. 14
 Local Finance Circular No. 2-09 (Aug. 20, 2009):
Prescribing the Guidelines Governing the Power of
Provinces, Cities and Municipalities to Impose Local
Taxes, Fees and Charges on Mining Companies
Pursuant to the LGC (RA 7160) and its IRR
 Conclusion

3. Introduction
 Some statements in the Introduction and Conclusion
of this presentaton were excerpts from the Keynote
Remarks delivered by Manuel V. Pangilinan during
the 61st Annual National Mine Safety and
Environment Conference held at Camp John Hay
Convention Center, Baguio City on November 14,
2014 with the Theme: “Responsible Mining and
Nation Building”.

4. Introduction
 The City of Baguio is known as the “Cradle of Philippine
Mining”.
 Benguet and the Cordilleras (are) lands rich with mineral
resources.
 The Spaniards saw this as early as 1572 – attracted by
(its) cool mountains and fertile valleys – and of course,
its gold.
 The first roads the Americans built were as much to pave
the way for mining – as to establish a summer city.
 Kennon Road, carved from the Bued River canyon in
1904 is a proud witness.

5. Introduction
Mining and nation – building:
 If we choose not to participate in the global supply
chain for minerals by discouraging mining or worse,
shutting down our mines – which can happen if our
tax regime turns unfavorable – our need for mining
products will not stop.
 We would be importing the same minerals we refuse
to mine.
 We would then be paying the Indonesians,
Malaysians, Australians – everybody else – for their
riches.

6. Introduction
Mining and nation – building:
 We would giving them not only their profit, but also
the cost of protecting their environment.
 This makes no sense at all – why pay somebody else
to do the job we ourselves can and should do?
 If we continue to stifle mining, the criticism that it
promises much and delivers little will be self-
fulfilling.

7. Introduction
Mining and nation – building:
 Yet, if we look elsewhere, mining has been a
significant driver of economic development.
 Here are some examples of mining’s annual
contribution to the economies of other countries:
1. Australia - $ 142 billion
2. Canada - $ 37.5 billion
3. United States - $ 1.9 trillion
4. Brazil - $ 24 billion

8. Introduction
Mining and nation – building:
 We are far from capturing the implied value of our
reserves.
 Out of 9 million hectares regarded to be geologically
prospective for minerals, only 1.5% or 135,000
hectares have actual mining permits.
 Hence, it is not surprising that the contribution of
mining to GDP has stagnated to about 1%.

9. The PH-EITI
 Philippine Extractive Industries Transparency
Initiative (PH-EITI)
 Initiate fiscal transparency in the extractive industry.
 A report disclosing the revenues of extractive
industries and government revenues from these
industries will be published by December 2014.

10. The PH-EITI
 The PH-EITI, spearheaded by the DOF, is one of the
Administration’s good governance initiatives to
improve transparency and citizen’s participation,
specifically, improved access to information.
 It is committed under the Open Government
Partnership (OGP) and part of the Philippine
National Action Plan 2013 – 2015.

11. Open Government Partnership (OGP)
“ Government institutions are strengthened when
they are not merely open to the active participation
of their citizens, but when they encourage the people
to engage it by empowering them and garnering
their trust.”
- President Benigno Simeon C. Aquino III
- The OGP was established in 2011 with 8 member
countries, including the Philippines. As of February
2014, it has grown to 64 countries.
- A unique feature of OGP is the Independent
Reporting Mechanism (IRM).

12. The PH-EITI
 It is a tripartite initiative among government, civil
society and business to ensure greater transparency
in revenues from extractive industries, specifically
through the publication of a report that compares
government and industry figures on government
revenues in mining, oil and gas. This publication is
verified by an independent and internationally
accredited auditor.

13. The EITI Standard
A national multi-stakeholder group
(government, industry & civil society)
decides how their EITI process should work.
Government revenues and company payments
are disclosed and independently assessed in
an EITI Report.
The findings are communicated to create
public awareness and debate about how
the country should manage its resources
better.

14. The EITI Standard
Licenses &
contracts
Monitoring
production
Tax
collection
Revenue
distribution
Expenditure
management
As companies disclose payments, government discloses receipts.
The EITI Report shall contain:
Licensing information
State ownership
Contract transparency
Beneficial ownership
State – owned enterprises
Transfers to local government
Social and infrastructure investments

15. The EITI Standard
The EITI Standard has two core elements:
1. Companies publish what they pay and
governments publish what they receive in an EITI
Report.
2. This process is overseen by a multi-stakeholder
group of governments, companies and civil society.

16. The EITI Standard
EITI Requirements:
1. Effective oversight by the multi-stakeholder group.
2. Timely publication of EITI Reports.
3. EITI Reports shall include contextual information about the
extractive industries.
4. EITI Reports shall include full government disclosure of
extractive industry revenues and disclosure of all material
payments to government by oil, gas and mining companies.
5. Credible assurance process applying international standards.
6. EITI Reports that are comprehensible, actively promoted,
publicly accessible and contribute to public debate.
7. The multi-stakeholder group take steps to act on lessons
learned and review the outcomes and impact of EITI
implementation.

17. The EITI Standard
 The EITI Standard is an international standard that
ensures transparency around countries’ oil, gas and
mineral resources. It is developed and overseen by a
coalition of governments, companies, civil society,
investors and international organizations. All these
groups are represented in the EITI Board which is
supported by the EITI International Secretariat.

18. The EITI Standard
 The EITI Standard has robust yet flexible
methodology, which countries adopt to address the
specific issues they are facing. When implemented,
the EITI ensures more transparency in how the
country’s natural resources are governed, and full
disclosure of government revenues from its
extractive sector.

19. The PVS: Guidance Note No. 14
 DOF Department Order No. 37-09 (Oct. 19, 2009):
“Prescribing the Philippine Valuation Standards (1st
Edition) – Adoption of the IVSC Valuation Standards
under Philippine Setting”.
 Guidance Note No. 14: Valuation of Properties in the
Extractive Industries
 Extractive Industries, include:
1. Minerals industry
2. Petroleum industry

20. The PVS: Guidance Note No. 14
 Extractive industries are characterized by the
extraction from the earth of natural resources, which
may pass through a series of ownership, processing
and measurement stages.
 Valuers shall distinguish the real property, personal
property and business interests involved in the
stages.
 Valuations in the extractive industries rely heavily on
information provided by:
1. Technical experts
2. Accredited specialists specific to the industry

21. The PVS: Guidance Note No. 14
 A peculiar characteristic of the extractive industry is
the depletion or wasting of natural resources that
can be replaced by in their original state by natural
action only in special cases.
 Examples of depleting or wasting natural resources:
1. Metallic mineral deposits
2. Non-metallic deposits
3. Construction materials
4. Petroleum deposits

22. The PVS: Guidance Note No. 14
 Mineral industry:
1. Surface mine (open pit, open – cast, open cut, quarry)
2. Underground mine
3. Wells (sulphur extraction)
4. In-situ leaching (solution mining of various salts and uranium
minerals)
5. Dredging the floors of water bodies (for gravel, mineral sands,
diamonds and alluvial gold)
6. Extraction of mineral products from water (such as halite or
common salt and magnesium)
 Petroleum industry:
1. Wells drilled into the earth’s crust
2. Open pit mining methods for oil sand and oil shale
3. Oil and gas extraction by pumps and valves

23. The PVS: Guidance Note No. 14
Difference Between the Mining and Petroleum Industries
Mining Industry Petroleum Industry
Extraction
Once extraction is completed, no known
economically recoverable asset remains in
place at that time except when extended
through mineral reserve additions.
At the conclusion of the initial (primary)
extraction phase, secondary and/or
enhanced recovery methods are often
applied to recover more oil and natural
gas.
Land Surface Requirement for Processing Plant and Infrastructure
Often requires a larger land area for
stockpiles and disposal of waste material.
Relatively little surface area is required
for oil or gas well operations.
Transport
Mined product is generally transported to
market or port by rail or truck
Crude oil, natural gas and refined
petroleum products are often transported
to market or port by pipeline.

24. The PVS: Guidance Note No. 14
Similarities Between the Minerals and Petroleum Industries
Both are major global industries.
Their products are essential in all modern economies by provision of raw
and refined materials for downstream industries, such as;
Energy generation
Construction
Manufacturing
Transport
Communications
Both are high risk activities – considerable work and study must be
undertaken to determine the technical and economic viability of
production.

25. The PVS: Guidance Note No. 14
 The value of an extractive industry natural resource
property is the projected net earnings derived or
potentially derived which may vary from year to year
– depending on;
1. The type of natural resource commodity.
2. The cyclical nature of the commodity markets, and
3. The prices and variations in production rate and
costs.

26. The PVS: Guidance Note No. 14
 The quantity and quality of mineral and petroleum
natural resource properties may vary over time due
to changing economic and technical advances, as
well as exploration success and are valued primarily
based on;
1. Presence of reserves,
2. Presence of resources, and
3. Potential for discovery of resources.

27. The PVS: Guidance Note No. 14
 Scope of GN14: Valuation of Properties in the Extractive
Industries supplements;
 GN 1: Real Property Valuation
 GN 2: Valuation of Lease Interests
 GN 3: Valuation of Plant, Machinery and Equipment
 GN 4: Valuation of Intangible Assets
 GN 6: Business Valuation
 GN 8: The Cost Approach for Financial Reporting –
(DRC)
 GN 9: Discounted Cash Flow Analysis for Market
Valuations and Investment Analysis

28. The PVS: Guidance Note No. 14
 Definitions:
1. Extractive industries – involved in the finding,
extracting and processing on natural resources
located on, in or near the earth’s crust composed of
the minerals and petroleum industries, including
extraction of geothermal fluid for its energy
content, but excluding the water industry sector.
2. Exploration property or area – a mineral or
petroleum real property interest that is being
actively explored for deposits but for which
economic viability has not been demonstrated.

29. The PVS: Guidance Note No. 14
 Definitions:
3. Feasibility study in the extractive industries – a
comprehensive study in which all geological,
engineering, operating, economic, marketing,
environmental, regulatory and other relevant
factors are considered in sufficient detail which
serve as the basis for a final decision by a
proponent or financial institution to proceed with
or finance the development of the prospective
property for mineral or petroleum production.

30. The PVS: Guidance Note No. 14
 Definitions:
4. Mineral – any naturally occurring material useful
and valued by mankind found in or on the earth’s
crust.
5. Minerals [as defined in Sec. 3(aa) of the Philippine
Mining Act of 1995 (RA 7942)] – refers to all
naturally occurring inorganic substance in solid,
gas, liquid or any intermediate state excluding
energy materials such as coal, petroleum, natural
gas, radioactive materials and geothermal energy.

31. The PVS: Guidance Note No. 14
 Definitions:
6. Mineral lands – [as defined in Sec. 199(p) of the Local
Government Code of 1991 (RA 7160)] – are lands in
which minerals, metallic or non-metallic, exist in
sufficient quantity or grade to justify the necessary
expenditures to extract and utilize such materials.
7. Mineral reserve [as defined by the Combined Reserves
International Reporting Standard Committee
(CRIRSCO)] – the economically mineable part of a
measured and/or indicated mineral resource. Mineral
reserves are subdivided in the order of increasing
confidence into – probable mineral reserves and proved
mineral reserves.

32. The PVS: Guidance Note No. 14
 Definitions:
8. Mineral reservations [as defined in Sec. 5(bb) of the
Philippine Mining Act of 1995 (RA 7942)] – refer to areas
established and proclaimed as such by the President upon
recommendation of the Director through the Secretary,
including all submerged lands within the contiguous zone
and exclusive economic zone.
9. Mineral resources (as defined by CRIRSCO) – a
concentration of occurrence of material of intrinsic
economic interest in or on the earth’s crust in such form and
quantity that there are reasonable prospects for eventual
economic extraction. Mineral resources are subdivided in
the order of increasing geological confidence into – inferred,
indicated and measured categories.

33. The PVS: Guidance Note No. 14
 Definitions:
10. Minerals industry – entities involved in
exploration, mining, processing and marketing of
minerals (GN 14 is NOT designed to cover assets
downstream from the metals refineries or minerals
processing plants, such as assets involved in the
distribution of refined metals to metals fabricators,
or mineral products to retailers or the final market.
11. Mining area (as defined in Sec. 3(ae) of the
Philippine Mining Act of 1995 (RA 7942)] – a
portion of the contract area identified by the
contractor for purposes of development, mining,
utilization ant sites for support facilities.

34. The PVS: Guidance Note No. 14
 Definitions:
12. Petroleum – any naturally occurring hydrocarbon,
whether in a gaseous, liquid or solid state. Raw
petroleum products are primarily crude oil and natural
gas.
13. Petroleum industry – entities involved in exploration
for petroleum and the extraction, processing, refining
and marketing of crude petroleum and associated gases
(GN 14 is NOT designed to cover assets downstream
from refineries and processing plants, such as assets
involved in the distribution of refined petroleum
products to retailers).

35. The PVS: Guidance Note No. 14
 Definitions:
14. Petroleum reserves [as defined by the Society of
Petroleum Engineers (SPE) and the World
Petroleum Congress (WPC)] – those quantities of
petroleum which are anticipated to be commercially
recovered from known accumulations from a given
date forward; classified as either proved or
unproved. Proved reserves can be categorized as
developed or undeveloped, while unproved reserves
are sub-classified as probable or possible.

36. The PVS: Guidance Note No. 14
 Definitions:
15. Petroleum resources – GN 14 only considers petroleum
reserves and contingent resources. Contingent
resources, as defined by the SPE/WPC, in conjunction
with the American Association of Petroleum Geologists
(AAPG), are “those quantities of petroleum which are
estimated, on a given date, to be potentially recoverable
from known accumulations, but which are not currently
considered to be commercially recoverable.
16. Pre-feasibility study in the extractive industries – a
study of a mineral or petroleum deposit in which all
geological, engineering, operating, economic,
environmental and other relevant factors are
considered in sufficient detail to serve as the reasonable
basis for a decision to proceed to a feasibility study.

37. The PVS: Guidance Note No. 14
 Definitions:
17. Royalty or royalty interest in the extractive industries –
the landowner’s or lessor’s share of production, in
money or product, free of charge for expenses of
production. An overriding royalty is a share of mineral
or petroleum produced, free of the expense of
production, paid to someone, other than the lessor, over
and above any lessor’s royalty.
18. Technical expert in the extractive industries – a person
who is responsible for all or part of the technical
assessment that supports an extractive industry
valuation.
19. Technical assessment in the extractive industries – a
technical document prepared by a technical expert/s
that supports the extractive industry valuation and is
appended to or forms part of a valuation report.

38. The PVS: Guidance Note No. 14
 The Philippine Mining Act of 1995 (RA 7942)
 Sec. 5 (par. 2). “A ten per centum (10%) share of all
royalties and revenues to be derived by the government
from the development and utilization of the mineral
resources within mineral reservations as provided under
this Act shall accrue to the Mines and Geosciences Bureau
to be allotted for special projects and other administrative
expenses related to the exploration and development of
other mineral reservations...”
 Sec. 26. Modes of Mineral Agreement
 Mineral production and sharing agreement
 Co-production agreement
 Joint venture agreement

39. Composition of the Extractive Industry
Extractive
Industry
Resources/
Reserves
Proved Unproved
Mineral
Resources/
Reserves
Proved/
Probable
Petroleum
Developed Undeveloped Probable Possible Inferred Indicated Measured

40. Local Finance Circular No. 2-09
 Local Finance Circular No. 2-09 (August 20, 2009)
 Subject: Prescribing the Guidelines Governing the Power
of Provinces, Cities and Municipalities to Impose Local
Taxes, Fees and Charges on Mining Companies Pursuant
to the Pertinent Provisions of RA 7160, Otherwise Known
as the Local Government Code of 1991 and its IRR.
 To clarify the rules on the taxability of mining companies
to ensure the proper and effective exercise by provinces,
cities and municipalities of their taxing powers under the
LGC.
 Secs. 138, 143, 147, 150, 151, 205d and 234e, LGC
 Art. 287, Rule XXX of the IRR, LGC
 The Philippine Mining Act of 1995 (RA 7942)

41. Local Finance Circular No. 2-09
 Business Tax on Mining Companies (levied on gross
receipts for the preceding calendar year)
a) Extraction of minerals (metallic or non-metallic):
 Not exceeding 2% (Sec. 143h, LGC), or as imposed by local
ordinance.
b) Processing of extracted minerals to finished
products:
 Not exceeding 37 1/2% of 1% (Sec. 143a, LGC), or as imposed
by local ordinance.

42. Local Finance Circular No. 2-09
 Situs of the tax.
a) All sales transactions made in a locality;
 With branch office – to the locality where such branch is
located.
 Without branch office – to the locality where the principal
office is located.
b) All sales transactions recorded in the principal
office of mining companies with project
offices/mining areas shall be allocated to the
locality with;
 Principal office – 30%
 Project office/mining area – 70%

43. Local Finance Circular No. 2-09
 Situs of the tax.
c) In cases where project offices/mining areas are
geographically located in 2 or more localities, the
allocation of the business tax imposed by LGUs
shall be decided by the “Committee” which will be
composed of the affected LGUs subject to Sec. 150,
LGC. (70% shall be prorated among the localities
concerned).
d) In case of transfer or relocation of the principal
office or branch office, the mining company shall
give due notice to the LCE concerned within 15 days
after such transfer or relocation is effected.

44. Local Finance Circular No. 2-09
 Termination or transfer of office.
a) Transfer of business to other location (same LGU)
– no additional tax required during the period if the
business tax has already been paid.
b) Termination of business – in case of total stoppage
or complete cessation of mining operations,
Sec. 145, LGC shall apply.

45. Local Finance Circular No. 2-09
 Liability to the real property tax.
 Any person, grantee or concessionaire of mining
operations, whether;
1. Exploration
2. Development
3. Commercial utilization
 Real property owned by RP, its instrumentalities and
political subdivisions, the beneficial use of which has
been granted, for consideration or otherwise, to a
taxable person, shall be listed, valued and assessed in
the name of the possessor, grantee or of the public
entity if such property has been acquired or held for
resale or lease (Sec. 205d, LGC).

46. Local Finance Circular No. 2-09
 Mayor’s permit and other regulatory fees.
Shall be collected before the start of mining
operations (Secs. 147 and 151, LGC as enacted by
local ordinance)
 Incentives for pollution control devices.
Exempted from RPT (Sec. 91, RA 7942 amending
Sec. 234e, LGC).
Mine wastes and tailings – not exempted from
regulatory fees.

47. Local Finance Circular No. 2-09
 Mobile equipment used in mining operations – dump
trucks, excavators, bulldozers, payloaders, etc.
Personal properties, not subject to RPT.
• Quarrying for sand, gravel and other quarry
resources.
Not considered a mining activity.
Subject to Secs. 138 and 151, LGC.
• Time of tax payment.
1st 20 days of January or of each subsequent quarter,
unless otherwise fixed in the local ordinance.

48. Local Finance Circular No. 2-09
 Examination of books of accounts and pertinent
records of businessmen by local treasurers.
Done once for every tax period.
To ascertain, assess, and collect the correct amount
of tax, fees and charges.
BIR records shall be made available to the local
treasurer.

49. Local Finance Circular No. 2-09
 Definitions:
1. Branch office – an extension of the principal office;
display areas where no stocks or items are stored for
sale shall not be considered as a branch.
2. Contract area – land or water body delineated for the
purpose of exploration, development or utilization of
minerals.
3. Gross receipts – total amount of money or its
equivalent representing the contract price,
compensation or service fee, including the amount
charged or materials supplied with the services and
deposits or advanced payments actually or
constructively received during the taxable quarter for
the services performed or to be performed for another
person, excluding discounts if determinable at the time
of sales, sales return, excise tax and VAT.

50. Local Finance Circular No. 2-09
 Definitions:
4. Principal office – the head or main office of the
mining company indicated in the SEC documents;
the city or municipality mentioned in the Articles of
Incorporation and official registration papers as the
official address of said “Principal Office” shall be
considered as the site thereof.
5. Pollution control devices and facilities – the
infrastructure, machinery and/or improvements
used for impounding, treating or neutralizing,
precipitating, filtering, conveying and cleansing
mine industrial waste and tailings...

51. Conclusion
 It is important to expand the extractive industry so it
can contribute significantly to nation – building.
 In the 60’s and 70’s, mining companies were pre-
eminent in our national life;
1. They were major companies in the stock exchange, and
2. They were substantial foreign exchange earners.
 We cannot have forward linkages simply because
our mines are too small to make downstream
smelters and refineries commercially feasible.

52. Conclusion
 There is a need to improve the capacity and competence
of regulation. The private sector can help government
regulators raise its supervisory capabilities through
funding of scholarships and training here and abroad,
and the hiring of requisite personnel.
 There is a need for a revised taxation scheme which can
provide government with a more appropriate share of the
benefits from the resources it owns.
 And the benefits from mining between host LGUs and
the National Government should be shared more
equitably.

53. Conclusion
 “Mining is not the enemy. Poverty is.” (MVP)
 The lack of the most basic necessities, the lack of
opportunities, the lack of choices – these pernicious
deficits have plagued our people for far too long, in
far too many places.
 The Australians, Indonesians, Canadian, Brazilians
have made their choice. If they can do it and succeed,
why can’t we?

54. Conclusion
 More than a year ago, Pope Francis put on a hard hat
as he visited a coal mine in Italy.
 There, the Holy Father declared, “Where there is no
work, there is no dignity.”
 This was greeted by shouts from the coal miners of
“Lavore! Lavore! – Work! Work!”
 Indeed, there is a lot of work to be done, if
only to make the extractive industries work
for us.

55. Thank You! Maraming
Salamat Po!
PHALTRA
National
Convention
PICC, Manila
Feb. 5, 2015