Undermining the mining industry

Industry players await the final decision on the Mining Act so they can plan how to best move on

By Norman Sison

After a seven-year legal battle, the Supreme Court on 27 January this year handed down a 95-page decision that effectively cut down Republic Act 7942, otherwise known as the Philippine Mining Act of 1995, by declaring its key provisions illegal.

It nullified all provisions concerning the so-called financial or technical assistance agreement (FTAA) and other permits that can be granted to foreign corporations such as exploration permits, and mineral processing permits. The decision also voided the FTAA of Western Mining Corporation, an Australian firm.

The high tribunal said the provisions basically violated the Philippine Constitution because it allowed foreign companies 100 percent equity in mining operations, while the Charter places a limit on foreign ownership of land and gives Filipinos the exclusive right to exploit the country’s national resources.

Benjamin Philip Romualdez, President of Benguet Corporation and the Chamber of Mines of the Philippines, said the Supreme Court decision could undermine hopes for a revival for the industry.

Seeking the SC Ruling’s Reversal

On 24 February, following the SC ruling, the government, led by Solicitor General Alfredo Benipayo, submitted a 105-page motion asking the Supreme Court to reconsider its decision, saying the ruling could throw away up to $11 billion in potential investment and foregone income for the mining industry.

The government, Benipayo added, stands to lose $9.5 billion in lost potential revenues and another $1 billion in taxes.

One mining company estimated it would lose up to P582 million a year if it stops operating, putting 2,500 employees out of work and affecting the lives of 14,700 employee dependents.

At present, that company is planning P1.3 billion in capital investments and is expecting up to P8.4 billion in revenues. It expects the cash-strapped government to earn P2.5 billion in income taxes and P292 million in payroll taxes. If its planned mining operation is expanded, it could provide employment to 2,000 more people.

The Mines and Geosciences Bureau, a unit of the Department of Environment and Natural Resources, says the government could generate revenues up to $400 million annually from only ten “world-class mines” if the Mining Act is fully implemented.

One world-class mine – with a projected milling rate of 25 million tons per year and a projected commercial life span of 20 years – could generate an average of $100 million a year in taxes and other financial benefits to the community, the bureau says.

Romualdez says the mining industry’s export revenues could rise to $3 billion in four years if the Supreme Court reverses its decision.

The industry can also expect up to around $4.5 billion in investments in four months, Romualdez said, and can bring the Philippines’ mining industry back to its level in the 1980s when it was among the country’s top dollar earners with $1.5 billion in annual export revenues. The country currently earns only $500 million.

Plan Bs

But the Supreme Court rarely reverses its decisions. Thus, anticipating the tribunal to uphold its ruling, Trade Secretary Cesar Purisima said the government is already considering alternative plans to attract foreign mining firms.

Click here to view Mining Acts of 1995

Wanting to take advantage of the current high world mineral prices but not having the financial resources and technical expertise to do mining, the government is now exploring alternative structures that can work in attracting large-scale mining contracts, Purisima said.

One possibility is for the government to create companies per mining claim and then subcontract the mining to foreign companies. That way the mine could be developed but its ownership would remain with the government, Purisima added. The return for the foreign investors in the subcontract arrangement would be an agreement on a “cost plus or fair return.”

Purisima is working on the alternative scheme together with the Chamber of Mines, the Department of Environment and Natural Resources (DENR) and with Economic Planning Secretary Romulo Neri. First of all, the government is determining the legality of the proposed alternative structures.

Another alternative is to encourage the transfer of mining assets to the DENR so that the DENR’s Natural Resources and Mineral Development Co. can invite investments in government foreclosed or owned mining companies.

This move would reactivate dormant mines, Purisima said.
Romualdez says the industry is “prepared” whatever the Supreme Court decides.

“What we want is the decision so we will know how to proceed.”