Bernardo M. Villegas
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Rebalancing Strategy
published: Mar 31, 2017



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Balancing Varied Interests in Mining

           Executive Order 79 on the mining industry has been generally welcomed by all the different stakeholders.  The bone of contention is found in Section 9 of the EO 79's implementing rules and regulations (IRR) which state that government can renegotiate mining contracts after their first 25-year term ends.  According to the leaders of the mining industry, the IRR impinged on the legal rights of the industry and would adversely impact on future investments.  I hope that cool heads on both sides can really consider the common good of the entire country in resolving the seeming conflicts of interest between private industry and the State.

          The State, on one hand, should take a more comprehensive view of the total benefits that the mining industry confers on the entire Philippine society.  My impression is that some of the cabinet Secretaries have a very limited perception of the good that this industry brings to the country by focusing almost exclusively on the tax revenues it gets from the large mining firms (since small miners hardly pay any taxes).  Without prejudging the forthcoming legislation about increasing the tax rate on the mining industry, as inspired by an IMF study, it is important to point out that the industry confers benefits on the entire economy that go much beyond the taxes paid by the large mining firms.  An economist of the University of Asia and the Pacific, Dr. Cid Terosa, used the tools of input-output or inter-interindustry analysis to measure the favorable impacts of the industry on total GDP, total employment, household income and consumer spending.  His analysis followed the same line of thinking of President Benigno Aquino III when he pronounced in his last State of Nation Address that in addition to directly employing 1.3 million workers, the Business Process Outsourcing sector will generate in 2016 an "estimated 3.2 million jobs for taxi drivers, baristas, corner stores, canteens, and many others that will benefit from the indirect jobs that the BPO industry will create."

          In like manner, the mining industry will have major impacts on employment, income and consumption that go much beyond the taxes paid by the mining enterprises.  Using the concept of the multiplier, the total output multiplier of the mining industry is 2.6.  This means that 2.6 pesos additional output is created in the economy every time final demand such as export demand of the mining industry increases by one peso.  Since total exports of the mining industry in 2011 reached 115.2 billion pesos, the total output multiplier effect is about 299.52 billion pesos, which is 3.3% of the nominal GDP in 2012.  The total household income multiplier of the mining industry is 0.32.  Applying this multiplier, the additional household income induced in the economy by total exports is estimated to be 36.9 billion pesos.  This is about 1% of total family income in 2009.  The total employment multiplier effect of the mining industry is 179,158 additional direct and indirect jobs in the economy (this is very visible in the town of Toledo, Cebu which became a ghost town when Atlas Mining had to close down for a few years but has bounced back strongly with the opening of the copper mine in recent times).  The increase in employment is about 6.3% of the total number of employed persons, not an insignificant amount during these periods of world-wide unemployment.  The total compensation received by the mining industry workers, which is 6.8 billion pesos, can induce a multiplier effect of 10.8 billion pesos.  Finally, the fiscal spending multiplier will lead to an additional output of 37.4 billion pesos as a result of the total taxes paid by the industry, which was 10.4 billion pesos in 2011.  Only by considering the totality of the multiplier effects of the mining industry can the Government make a more rational assessment of costs and benefits of the entire mining industry.

          On the other hand, the big mining companies should continue to take a very positive view of the profitable opportunities in the Philippine mining sector.  The suspension of the granting of new mineral agreements does not mean that there should be a halt to investments in mining until the new legislation is in place. There are numerous existing agreements that can be more fully utilized even before new legislation is passed.  Although the limitation of foreign investment in mining to no more than 40 percent has impeded a larger inflow of foreign capital into this sector, there have been arrangements in which full foreign ownership has been allowed if the President enters into financial or technical assistance agreements (FTAA) with foreign-owned corporations for large-scale exploration, development, and utilization of minerals and petroleum.  There are also local license agreements with small-scale miners.  Large mines have existing Mining Production Sharing Agreements (MPSAs) in which companies have acquired mineral extraction rights upon satisfying the constitutional requirement for a minimum 60 percent Filipino ownership.  As of February 2012, there are 339 MPSAs and six FTAAs in place.  There are 99 MPSAs in the development or exploration stages and two FTAAs in the development stages. 

          Those who are covered by the existing MPSAs and FTAAs can now make fuller use of their rights, even before new legislation covering the granting of new mining rights is approved.  They just have to be subject to the provision of the Executive Order about the review of the performance of existing mining operations and the cleansing of non-moving mining rights holders.  The Executive Order provides for a multi-stakeholder team led by the DENR which will conduct a review of the performance of existing mining operations.  The said review shall be based on guidelines and parameters set forth in the specific mining contract or agreement and other pertinent or applicable laws, rules and regulations, such as the Mining Act of 1995 and the Labor Code.  The DENR is also mandated by the Executive Order to undertake a review of existing mining contracts and agreements for possible renegotiation of the terms and conditions of the same, which shall in all cases be mutually acceptable to the government and the mining contractor.  I would suggest that all holders of these rights should waste no time in determining if their contracts are among those that will be examined for renegotiation.

          The interested parties who will apply for new mining rights after the appropriate legislation is passed should make sure they are aware of the areas that are closed to mining applications so that they will not waste their time and effort in choosing prohibited areas.  These areas are as follows:

          a) Areas expressly enumerated under Section 19 of RA No. 7942.

          b) Protected areas categorized and established under the National Integrated Protected Areas System (NIPAS) under RA No. 7586.

          c) Prime agricultural lands, in addition to lands covered by RA No. 6657, or the Comprehensive Agrarian Reform Law of 1988, as amended, including plantations and areas devoted to valuable crops and strategic agricultural and fisheries development zones and fish refuge and sanctuaries declared as such by the Secretary of the Department of Agriculture.

          d) Tourism development areas, as identified in the National Tourism Development Plan (NTDP), and

          e) Other critical areas, island ecosystems, and impact areas of mining as determined by current and existing mapping technologies, that the DENR may hereafter identify pursuant to existing laws, rules, and regulations, such as, but not limited to, the NIPAS Act.

          For comments, my email address is bernardo.villegas@uap.asia.