Despite being geologically blessed, the Philippines remains one of the most challenging places in Asia for foreign miners. Accounting for nearly 20% of GDP in the 1970’s, after decades of neglect by successive governments, mining now accounts for less than 2% of GDP.
Since the mid 90’s the government has strongly courted new investment to re-establish the sector. However political and country risk issues continue to hold back the development of a serious mining industry in the country.
Source: Global Metals News (2010)
A welcoming investment and regulatory framework for mining – on paper
The 1995 Mining Act allows 100% foreign ownership of mining entities where there is a US$50million dollar investment or higher, via Financial and Technical Assistance Agreements (FTAA). Mines operating under a FTAA have recourse for disputes to be arbitrated offshore, avoiding the cumbersome Philippine legal system. Despite opposition to the Act, especially from the powerful Catholic Church, successive presidents have supported the framework.
Nationally, mining is strongly supported by the new President, Nignoy Aquino who has decided to retain the head of the Department of Environment and Natural Resources (DENR), Horacio Ramos, a keen supporter of mining. The appointments of Ramos and Ramon Jesus Paje, a DENR career bureaucrat as Environment Secretary (Minister) signal that development of the mining sector remains a government priority.
Despite the investment framework being good ‘on paper’, bureaucracy, corruption and policy uncertainty makes the on-the-ground climate for foreign miners challenging.
While the risk of expropriation is low, the government and the judiciary have a track record of policy changes which can frustrate the development of mining projects and create sufficient uncertainty for potential investment. CLC Asia provides an overview of some of these policy risks.
Top three policy challenges for miners in the Philippines
The government strongly supports the 1995 Mining Act that allows 100% foreign ownership of mining operations. Nevertheless, there are continual ‘spanners’ thrown in the works by provincial governments, regulators and the judiciary which undermine confidence in the Philippines mining industry. These include:
• Repeated attempts to repeal the 1995 Mining Act;
• Recent environmental protection laws (‘Writ of Kalikasan’) and judicial procedures opening up the potential for mining opponents to stall mining projects unfairly; and
• Provincial level ‘laws’ banning open-cut mining, although the legal basis for doing so is questionable
Repeal of the 1995 Mining Act
The Catholic Bishops’ Conference of the Philippines (CBCP) is a powerful lobby group in the Philippines and a strong political force. The Church’s social and political pronouncements carry great weight in the Philippines, where more than 80 percent of the Philippines’ 90 million-plus population is Catholic.
The Church, along with other opposition groups, regularly accuse foreign mining companies of being responsible for environmental degradation, human rights abuses and economic disenfranchisement, though conveniently ignoring the contribution of local miners to the same problem. The CBCP were vocal supporters of (ultimately unsuccessful) efforts from 1997 to 2005 to have the Act declared unconstitutional.
In July 2010, the CBCP sent the new President Aquino a public letter asking him to scrap the 1995 Mining Act. The letter, according to media reports asked for the law to be repealed noting that it “only opens the country’s natural resources to exploitation by foreigners.”
While the current government strongly supports the Mining Act, the threat of the CBCP to frustrating mining developments via other means can not be underestimated.
Writ of Kalikasan – Judicial imposed rights for environmental protection
The Supreme Court confirmed in 2010 a new remedy called the ‘Writ of Kalikasan’. Environmental cases and injunctions can be filed when the “constitutional right to a balanced and healthful ecology is violated, or threatened with violation by an unlawful act”
The Writ of Kalikasan comes as a part of comprehensive judicial reform program to environmental justice and address delays in the resolution of environmental cases caused by stringent requirements in litigation, and the lack of courts. Subsequently, 117 “green” courts were designated in 2008 to resolve some 3,000 cases.
Low evidence threshold created to obtain writ could slow down mining projects on environmental grounds
According to a court spokesperson the writ is a “remedial measure meant to immediately stop the alleged violation”.Green courts will be obliged to hear all petitions under the writ within 60 days and 72-hour restraining orders can be imposed in ‘extreme’ cases.
The intent of the court is to speed up due process, badly needed in the Philippines where cases against genuine environmental vandalism can be bogged down for years.
Courts appear to be obliged to issue writs so long as a petition is “deemed proper in form and substance” with what appears to be a very low threshold of evidence to prove that environmental degradation is being caused and by which parties.
The mining industry in the Philippines is taking a ‘wait and see’ attitude to how the processes surrounding the writ develop. The great fear amongst miners however is that anti-mining advocates’ will use the low evidential thresholds required in these ‘Green courts” to issue writs with the intent on stalling development, regardless of merit of the underlying environmental complaint.
Provincial level ‘bans’ on mining
In mid 2010, outgoing governor of the southern Philippine province of South Cotobo placed a ban on “open cut mining and all other forms of mining”. The “ban” created uncertainty for a gold and copper project being developed jointly by global giant Xstrata and Australian company Indophil.
The move in South Cotobo follows similar bans in Marinduque, Mindoro and Palawan provinces.
Reasons for the law are also highly political. Sources close to CLC Asia have indicated that given the outgoing governor was running for national congress, the populist law helped her electoral chances. The law also created a political time bomb for her incoming political opponents, as repealing this ‘ban’ would be locally unpopular.
According to legal opinion, the ban is illegal as national law takes precedence over provincial law, although this has yet to be fully tested.
Additionally, the ban still has to face further local approvals before it passes into law. Nevertheless, it does provide ammunition to the anti-mining lobby in the country, and similar bans, though ultimately unenforceable, could be used to frustrate mining activities while the legal process to overturn the provincial level ban occurs.
For more detailed analysis
CLC Asia has conducted extensive country and political risk analysis for international funds looking to invest in the Philippine mining sector. For more information please contact us at enquiries@clc-asia.com
About CLC Asia
CLC Asia is a political and market intelligence advisory firm. We specialise in:
• political risk analysis
• market intelligence
• government relations
• policy advisory