Clearing Mines

The Supreme Court comes out with a landmark decision on the mining industry

Twenty years ago, mining companies were among the largest corporations in the Philippines and were familiar names in business circles. Today, hardly anyone can name a top mining corporation and many mines have slipped into oblivion or notoriety. In spite of its being one of the best mineral resource-endowed countries in the world, the Philippines remains a weak player in the mining sector.

Part of the reason behind this is a Mining Act which was passed in 1995 and then challenged in court as being unconstitutional, but only in 1997-1998. That long-running case only got resolved on 1 December 2004 when the Supreme Court reversed its own earlier decision and reiterated the Mining Act as constitutional.

It also did not help the industry any when environmental disasters brought about by mining operations beset the industry and tarnished its image among local communities. But more about that later.

On 1 December 2004, the Supreme Court voted 10 to 4 (with one abstention), declaring the Philippine Mining Act of 1995 (RA 7942) as constitutional, effectively reversing a ruling it made earlier in the year. The law allows foreign investors to perform large-scale exploration, development, and utilization of the country's mineral resources.

In a 246-page decision, the Court en banc overturned its 27 January 2004 decision that nullified the mining law as well as the Financial and Technical Assistance Agreement (FTAA) between the government and Western Mining Corporation Philippines. Western Mining is a wholly-owned subsidiary of Western Mining Corporation Holdings Limited – a publicly-listed Australian mining and exploration company.

Voting in favor of the reversal of the January decision were Chief Justice Hilario Davide, Jr. as well as Justices Renato Corona, Cancio Garcia, Angelina Sandoval-Gutierrez, Alicia Austria Martinez, Minita Chico-Nazario, Artemio Panganiban, Reynato Puno, Leonardo Quisumbing, and Dante Tinga.

Dissenting were Justices Consuelo Ynares-Santiago, Antonio Carpio, Conchita Carpio-Morales, and Romeo Callejo. Justice Adolfo Azcuna abstained because he was a former lawyer of one of the parties.

The December decision, written by Justice Panganiban, ruled that the 1995 FTAA did not contravene the 1987 Constitution because the Charter expressly allowed service contracts in "large-scale exploration, development, and utilization of minerals, petroleum, and mineral oils."

Under RA 7942, foreign corporations are allowed to own 100% equity and for a minimum investment of US$50 million (or its equivalent in pesos for a Filipino corporation), a mining firm can also get a maximum 81,000 hectares of land for mineral exploration for a period of 25 years per contract, renewable for a maximum of another 25 years. Foreign companies are also given easement rights and are allowed to repatriate 100% of the profits they generate.

The law also provides for a Financial and Technical Assistance Agreement to be signed between the government and a mine operator. Basically a concession agreement, the FTAA is a contract involving financial or technical assistance for large-scale exploration, development and utilization of mineral resources. The FTAA provision of the Mining Act allows foreign companies to have full control of mining projects. Under the FTAA, the government is entitled to its share of the contractor's corporate income tax, excise tax, special allowance, withholding tax due from the contractor's foreign stockholders arising from dividend or interest payments to the said foreign stockholder in case of a foreign national and all such other taxes, duties and fees as provided for under existing laws. An occupation fee of P50 per hectare will also go to the government every year.

RA 7942 was signed into law on 6 March 1995 by then President Fidel Ramos. In August of that year, the Department of Environment and Natural Resources issued the law's implementing rules and regulations.

However, in February 1997, a group of NGOs challenged the Mining Act by filing a case in the Supreme Court that questioned its constitutionality. Following a series of environmental disasters brought about by mining operations (foremost of which was the toxic waste leakage from the Marcopper mine in Marinduque in 1996) that heightened public concerns, environmentalists, social activists, and indigenous peoples organizations criticized the law, particularly its FTAA provisions. Their major contention was that the 1987 Constitution classified the FTAA as an agreement for financial or technical support from foreign entities in the development of mineral resources but that the Mining Act allowed them to have full control of mining operations.

By allowing 100% foreign control over large-scale mineral exploration, development and utilization, the law supposedly jeopardized the lawful claim especially of indigenous peoples over mineral lands and violated the Constitution’s equity ceilings on foreign investment in extractive and national resource businesses.

In 1998, the government implemented a 100-day moratorium on the signing of FTAAs on mining areas in response to the continued confusion in the ownership of mineral resources. But even after the moratorium expired, the low level of investments in mineral exploration and mine development persisted given the lack of clarity on the issue.

With this long awaited court decision, the government and the mining industry are confident that investors will reappear on the scene, invest in mines, create approximately 240,000 jobs in the next six years, and generate some US$5 billion-US$7 billion in foreign exchange earnings. There is no question that mining investments can contribute significantly to the national economy. After all, mines are typically set up in remote areas – precisely where investments are needed most and where government services are felt the least. But it will take more than the removal of a major legal hurdle to get the mining industry revved up. Twenty years after the industry was in its heyday, mines will have to work hard to restore some polish to their names, too.