Economic Update

The Philippines: Regulations in mining

Asia | 16 Jul 2012

A new mining policy in the Philippines is intended to bring greater regulatory clarity to the sector and is an important step towards unfreezing the current hiatus in an industry that has huge potential. However, until a new revenue-sharing bill for the sector – which will likely raise taxes on mining operations – is implemented, no new contracts will be awarded.

The executive order (EO) on mining that President Benigno Aquino signed in early July is expected to have a significant effect on projects worth $12bn over the next five years, according to recent international press reports. The EO sets standards for environmental protection and paves the way for the government to raise more revenue from mining.

The finance secretary, Cesar Purisima, said the order would initiate a “thorough review of all mining operations … to strengthen and promote efficient and effective regulation of the industry, as well as gain popular support for the development of our mineral resources”.

Environmental measures included in the order are bans on mining in areas identified as sites for ecotourism, agriculture and fishing; tighter regulation on small-scale mining; and a ban on the use of mercury. The EO also requires local mining regulations to be consistent with national legislation, a centralising move likely to be welcomed by the industry, which has occasionally found local administrations sceptical of mine development.

Importantly, the order respects existing mining agreements and allows exploration activities, feasibility studies and the processing of environmental compliance papers to restart. A moratorium on new projects imposed in January 2011, when the government began a review of its mining policy, has been a cause of great frustration for the industry, particularly given the Philippines’ resource wealth and rising global demand for minerals.

However, no new contracts will be awarded until the government has secured a new revenue-sharing bill for the sector. It is proposing a 5-7% royalty fee on gross earnings on all mines. At present, only operations within designated mining reserves pay a 5% charge, and this applies to only 11 of 33 firms present in the country. The others pay a 2% excise charge. The International Monetary Fund (IMF) has urged the country to streamline its royalty fees and the excise charge into a single tax, which would simplify the system and help bolster public finances.

Indeed, the government is keen to increase its revenues from the industry and has implied that the extra cash will be spent on social development, as well as on projects protecting the environment and local communities in mining regions. The environment secretary, Ramon Paje, has said that he expects a 7% charge to raise P16bn ($375m) by 2016 if imposed.

Despite the prospect of higher royalty charges, the mining industry on the whole has welcomed the EO. The Chamber of Mines of the Philippines said it was “ hopeful that the policy will harmonise conflicting interests, encourage investments, and foster sustainable development, especially in the countryside where it is greatly needed”, according to the international press.

The changes have also been welcomed by Sagittarius Mines, a Philippine company involved in the huge Tampakan project, a $5.9bn copper and gold mine in the south of the country. The project, in which Anglo-Swiss mining company Xstrata has a majority share, has been on hold for some time after the regional government introduced a ban on open-pit mining and the firm’s environmental compliance permit was withheld pending the national authorities’ policy review.

Tampakan contains an estimated 2.94bn tonnes of minerals, including around 15m tonnes of copper and 18m ounces of gold. It is forecast to produce an annual average of 375,000 tonnes of copper and 360,000 ounces of gold over a 17-year lifespan. Tampakan is expected to be one of six or seven projects given approval over the next four years.

Sector leaders will be hoping that the EO and the new legislation it is expected to usher in will create a more favourable regulatory environment for mining. Bringing in more investment would help the Philippines move towards making the most of its considerable mining potential, after years of underachievement. The country has an estimated $1trn worth of mineral reserves and the opportunity to expand the industry is considerable, given the proximity of resource-hungry markets, particularly China.

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