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Demolish the policy wall

"A glimmer of hope comes with House Bill 8400."

 

 

Nearing the halfway mark into the Duterte administration’s tenure and much-vaunted development agenda, a potentially critical cog remains missing—or blocked. Executive Order 79, issued in 2012 by then-President Benigno Aquino, effectively forbids the approval of new mineral agreements until a legislation rationalizing existing revenue sharing schemes and mechanisms have taken effect.

Almost seven years into its implementation, the measure clearly presents a restriction in the growth of the beleaguered sector, which already suffers from a notoriously uncertain policy environment. Industry and other stakeholders feel like they are up against a policy wall, which continues to frustrate much-needed quality investments in the mining industry.

While the rationale of trying to make mining revenues equitable across the board is understandable, doing so via exorbitant taxation is counterproductive. In a study, UP School of Economics professor Ramon Clarete argued that high taxes will not amount to anything if the mining tax base remains stagnant.

He explained: “The state owns the minerals, but if I am the Secretary of Finance, I need to have a good base of that particular tax. The only way I can have a good base is to encourage investors to find it for me. You can’t do that if you have onerous taxation.”

Writing in the context of proposed excise taxes on mining, Clarete said attracting high-quality investments is the crucial first step in building and sustaining a competitive mining sector; these companies, after all, possess the technical know-how and capital necessary to harness these resources in a way that is as cost-efficient as it is mindful of the environment. Absent these players, the country’s vast potential remains literally untapped.

Such potential could turn the industry into a global powerhouse, a trillion-dollar sector that other countries in a similar stage of development could only envy. Other nations with a similar mineral profile such as many in South America, Australia, and even Indonesia have taken advantage of the wealth under their feet, while the Philippine mining sector produces, relatively, trickles, long mired in regulatory and legal squabbles. Because of its blanket nature, EO 79 did more harm than good in the slowdown of the sector, similar to the recent ban on open-pit mining.

The issue has garnered renewed attention in light of the government’s ambitious stance toward inclusive economic growth, national industrialization and infrastructure boom, and poverty reduction. For example, the Tampakan copper-gold deposit in South Cotabato is said to be one of the largest undeveloped deposits in the world, with 2.94 billion tons of ore with 0.6 percent copper and some 18 million ounces of gold.

But the $5.9-billion project has faced a number of setbacks over the past few years, including the host province’s environment code that bans open-pit mining. Once developed, the mine has the potential to be a key driver of both national and regional growth, with an average yield of 375,000 tonnes per annum of copper and 36,000 ounces per annum of gold in concentrate over a 17-year period. A simple computation based on prevailing copper and gold prices translates to some P126.6 billion and P24.2 billion in annual potential, respectively.

Tampakan is not an isolated case. Up north, Mindoro Nickel’s $2.5-billion project is looking at reserves with some 2.9 million tonnes or 6.6 billion pounds of nickel. Philex Mining’s Silangan project in Surigao del Norte projects an estimate of 4.94 billion pounds of copper and 9 million ounces of gold, valued at P752 billion and P605 billion, respectively.

Other pending multi-billion-dollar investments include Nadecor’s Kingking project in Davao del Norte, Davao Oriental’s Asiaticus project, Lepanto Mining’s FSE project in Benguet, and Masbate’s Philsaga Mining contract, among others. From a 2016 list of only 11 pending mining projects, the total capital investments is already at USD 23 billion. Note that according to data from the American Chamber of Commerce of the Philippines, our total Foreign Direct Investments in 2017 was only US$ 10 billion. Very interesting.

Bear in mind that these figures, staggering as they are, are just quick estimates of the direct value of mineral resources. They don’t even include the multiplier effect that they bring to the national and local economies in terms of taxes, infrastructure development, employment, and linked industries. Taken together, they can certainly make a serious dent in the government’s poverty alleviation agenda.

And even if these projects proceed as planned, the industry would have only started to scratch the surface of the country’s vast mineral wealth, and even then the actual affected footprint would only constitute below 1 percent of the country’s total land mass. Thus, if the government is serious in making the sector instrumental in economic growth, the first step is to guarantee that we have the critical mass of mines with which to harvest the millions of tons of raw materials under the ground.

Amid some enduring regulatory and legal challenges, Department of Environment and Natural Resources Secretary Roy Cimatu appears to be on the right track in terms of disentangling the Gordian policy knot that has bogged down the sector. Continuous consultations with industry experts and understanding the complex technical, social, and environmental issues affecting all stakeholders will hopefully result in a more enlightened, pragmatic, and balanced policy environment.

A glimmer of hope comes with House Bill 8400, which seeks to rationalize and institute a single fiscal regime applicable to all mineral agreements and was passed on third and final reading at the lower house in November. If the Senate moves fast enough, their next move can potentially blast the stodgy policy wall that had long blocked the unleashing of the country’s enormous mineral potential.

We can only imagine the boundless benefits of multi-billion dollars’ worth of investments on the many communities that had remained poor and isolated for decades. As the government’s economic managers scramble to build the foundations of prolonged and sustainable economic growth, energizing the mining sector is that low-hanging fruit that is ripe for the picking.

Topics: Orlando Oxales , House Bill 8400
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