PHILIPPINES MINING LAW UPDATE:
FEATURES OF THE NEW EO 79

OVERVIEW OF THE MINING INDUSTRY

According to the data from the Mines and Geosciences Bureau show that from 1970-2010, the Philippines only produced P878.4 billion out of P73.47 trillion supply of metallic and non-metallic mineral production in terms of value.

The economic impact of the mining industry in the country cannot be ignored. The Chamber of Mines of the Philippines estimated that the country lost around P10.4 billion worth of foreign direct investments in the mining sector last year due to uncertainties over the government’s policy direction on the mining sector as well as the delayed issuance of mining permits.

For the years 1960 to 2008, the gross value added (GVA) in mining and quarrying at prices in 2011 rose annually by 17.31 percent on average. For the same period at constant prices, meanwhile, GVA increased yearly by 5.39 percent on average. 1 The total mineral exports of the Philippines and their percentage share to total exports of the country increased annually on average. 2 Likewise, employment in mining and quarrying increased from 141,000 to 166,000 for the period 2006 to 2009. 3

The mining industry has been a source of conflict for the government, non-governmental organizations (“NGOs”) and the private sector. The positive economic performance of the mining industry has always been countered by the negative effects mining operations have on the environment. But the issues confronting the mining industry is not only limited to its detrimental effects on the environment. While our mining laws seek to address the environmental concerns surrounding the mining industry, enforcement of the law is another.

According to Fraser Institute Annual Survey of Mining Companies 2010-2011, the Philippines ranked 66 out of 79 in the policy attractiveness survey. The policy potential index of the Philippines is poor in terms of infrastructure, timely and efficient administration of legal processes, and transparent and non-corrupt governance.

To address the mining issues on economic, environmental and lack in enforcement, President Benigno Aquino III issued Executive Order No. 79 (“EO 79”).

HISTORY OF MINING LAWS IN THE PHILIPPINES

The 1987 Constitution is the supreme law governing the Philippine mining industry. Article XII on National Economy and Patrimony provides:

“Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least 60 per centum of whose capital is owned by such citizens. Such agreements may be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under such terms and conditions as may provided by law. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of waterpower, beneficial use may be the measure and limit of the grant.

The State shall protect the nations marine wealth in its archipelagic waters, territorial sea, and exclusive economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.

The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well as cooperative fish farming, with priority to subsistence fishermen and fish workers in rivers, lakes, bays, and lagoons.

The President may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and other mineral oils according to the general terms and conditions provided by law, based on real contributions to the economic growth and general welfare of the country. In such agreements, the State shall promote the development and use of local scientific and technical resources.

The President shall notify the Congress of every contract entered into in accordance with this provision, within thirty days from its execution.”

During the 1980s and early 1990s, there was, however, a decline in the state of the mining sector that led to the enactment in 1995 of Republic Act No. 7942, otherwise known as the Philippine Mining Act (“Mining Act”), as a means to boost the industry. This law became a subject of controversy and eventually was challenged before the Supreme Court for being unconstitutional. The Supreme Court in the case of La Bugal-B’Laan Tribal Association Inc. vs. Ramos 4 finally resolved the issue on the legality of the Mining Act including those relating to financial and technical agreements ruling that:

“All mineral resources are owned by the State.  Their exploration, development and utilization (EDU) must always be subject to the full control and supervision of the State.  More specifically, given the inadequacy of Filipino capital and technology in large-scale EDU activities, the State may secure the help of foreign companies in all relevant matters -- especially financial and technical assistance -- provided that, at all times, the State maintains its right of full control.  The foreign assistor or contractor assumes all financial, technical and entrepreneurial risks in the EDU activities; hence, it may be given reasonable management, operational, marketing, audit and other prerogatives to protect its investments and to enable the business to succeed.” 

When the Supreme Court upheld the Constitutionality of the Mining Act, this resulted in faster growth in mineral exports, percentage share to total exports, employment in the mining sector and in the total paid-up investments in mining. 5

The Philippine mining sector throughout the years has been regulated by the Department of Environment and Natural Resources (“DENR”) together with its attached agency Mines and Geosciences Bureau (“MGB”). On the other hand, quarrying is within the jurisdiction of local government units in accordance with the Republic Act 7160 otherwise known as the Local Government Code of 1991.

HIGHLIGHTS OF THE MINING ACT

The core principle of the Mining Act is its strict adherence to sustainable development. The declared policy of the law is to promote the rational exploration, development, utilization and conservation of mineral resources through combined efforts of government and the private sector in order to enhance national growth in a way that effectively safeguards the environment and protect the rights of affected communities.

Economic aspect

According to Section 5 of the Mining Act, the government shall get a ten percent (10%) share in all royalties and revenues to be derived by the government from the development and utilization of the mineral resources within mineral reservations which shall accrue to the MGB to be allotted for special projects and other administrative expenses related to the exploration and development of other mineral reservations.

Under the Local Government Code, local government units (“LGUs”) were given authority to impose taxes on sand, gravel and other quarry resources under Section 138 thereof. In addition, the Mining Act provides that LGUs have a share of forty percent (40%) of the gross collection derived by the National Government from mining taxes, royalties and other such taxes, fees or charges from mining operations in addition to the occupational fees (30% to the Province and 70% to the Municipalities concerned) in consonance with the Local Government Code.

Environmental aspect

In ensuring that the government protects the right of the people to a balanced and healthful ecology, the Mining Act has provided limitations on how the mineral resources of the country can be utilized.

It established area limitations, maximum years for mining operations, assignment of mining rights, compliance with rules and regulations promulgated by the DENR concerning the sanitary upkeep of mining operations. Section 69 of the Mining Law also required every contractor to undertake an environmental protection and enhancement program covering the period of the mineral agreement or permit which shall be incorporated in the work program which the contractor or permitted shall submit as an accompanying document to the application for a mineral agreement or permit.

To further ensure the protection of our environment, an environment clearance certificate is required based on an environmental impact assessment pursuant to Section 70 of the Mining Act.  Details of environmental protection have been outlined in Chapter XVI of Administrative Order No. 2010-21 or the implementing rules and regulations promulgated of the Mining Act. Under Section 167-A of the Administrative Order, a Certificate of Environmental Management and Community Relations Record (CEMCRR) is required in the approval of Mineral Agreements, FTAA, Quarry or Commercial/Industrial Sand and Gravel Permit and Mineral Processing Permits.

The Mining Act and its Implementing Rules and Regulations also gave premium to environmental protection. Measures were put in place to ensure that mining contractors/operators comply with internationally accepted standards of environment management.

Mining contractors/operators are mandated to allocate approximately ten percent (10%) of the initial capital expenditures of the mining project for environment-related activities. A mandatory annual allocation of three to five percent (3%-5%) of the direct mining and milling costs to implement an Annual Environment Protection and Enhancement Program (“EPEP”).

There is also a mandatory establishment of a Mine Rehabilitation Fund (“MRF”) to be composed of the following:

  1. a Monitoring Trust Fund of Php50,000.00 which is replenishable; and
  2. a Rehabilitation Cash Fund of Php 5,000,000.00 or ten percent (10%) of the EPEP cost, whichever is lower.

Such funds are to be deposited as a trust account in a government depository bank to be managed by the MRF Committee composed of the MGB Regional Director, DENR Regional Executive Director, representatives from the LGU and an NGO, and the contractor.

Conduct of Environmental Work Program during the exploration stage and an Environmental Protection and Enhancement Program during the development and operations stage is also required under the Mining Act.

As an incentive to mining companies, the Mining Act mandates the institutionalization of an incentive mechanism to mining companies utilizing engineered and well-maintained mine waste and tailings disposal systems with zero-discharge of materials/effluents and/or with wastewater treatments plants.

To ensure compliance with the mining laws, a Multipartite Monitoring Team composed of representatives from the MGB, DENR Regional Office, affected communities, Indigenous Cultural Communities, an environmental NGO, and the Contract/Permit Holder shall undertake the monitoring of mining operations. On the other hand, the Mine Environmental and Protection and Enhancement Office in each mining/contract area will set the level of priorities and marshal the resources needed to implement environmental management system.

The MGB Regional Director shall also have the power to summarily suspend mining/quarrying operations in case of imminent danger to human safety or the environment.

ISSUES FACED BY THE GOVERNMENT

With the advent of Climate Change or Global Warming, people have shifted their focus from utilization to preservation. The environmental community has been clamoring for the government to push for stringent environmental protection.

Moreover, according to the 10-year review of the mining industry published by International Institute for Environment and Development, despite the emergence of global rules for best practices in the mining industry, more often than not, there is lack of implementation, independent verification, public reporting, or consequences of non-compliance.

The government is also not getting its “fair share” in the mining industry as espoused by President Benigno Aquino III. Mining contractors of Mineral Production Sharing Agreement and Financial or Technical Assistance Agreements can avail of fiscal and non-fiscal incentives granted under the Omnibus Investment Code of 1987, as amended. In addition to these incentives, the Mining Act also granted incentives for pollution control devises, for income tax carry forward of losses, for income tax accelerated depreciation on fixed assets, and investment guarantees, such as investment repatriation, earning remittance, freedom from expropriation, and requisition of investment, and confidentiality of information.

For FTAA contractors, an additional incentive, in the form of a tax holiday on national taxes is granted from the start of the construction and development period up to the end of the cost recovery period, but not to exceed five years from the start of commercial operation.

These issues led the Aquino administration to review the existing mining laws and policies of the country which resulted in the execution of Executive Order No. 79 aimed at addressing the deficiencies in the current laws and rules and regulations with respect to environmental protection and income derived by the government from the mining industry.

HIGHLIGHTS OF E.O. 79 – NEW MINING REGULATION

The thrust of Executive Order 79 is to improve environmental mining standards and increase revenues to promote sustainable economic development and social growth, both at the national and local levels.

Pursuant to these objectives, the order focused on enhancing coordination among stakeholders to ensure strict compliance by mining operators to the existing mining laws and regulations.

A careful look at the Mining Act and Executive Order No. 79 will show the different path the government is now taking with respect to the mining industry.

Changes introduced by EO 79 on the environment aspect

In addition to the areas closed to mining applications as provided under Section 19 of the Mining Act has been expanded by EO 79 to include the following:

  1. Protected areas categorized and established under the National Integrated Protected Areas System (“NIPAS”) under Republic Act No. 7586;
  2. Prime agricultural lands, in addition to lands covered by Republic Act No. 6657, including plantations and areas devoted to valuable crops, and strategic agriculture and fisheries development zones and fish refuge and sanctuaries declared as such by the Secretary of the Department of Agriculture;
  3. Tourism development areas, as identified in the National Tourism Development Plan; and
  4. 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 and the terms and conditions of the grant thereof.

Implementation of ensuring environmental compliance is now not solely the responsibility of the National Government. Enforcement will now be done in coordination with LGUs. The LGUs shall, however, confine themselves only to the imposition of reasonable limitations on mining activities conducted within their respective territorial jurisdictions that are consistent with national laws and regulations.

Existing mining operations will now be placed under review by a multi-stakeholder team led by the DENR.  Likewise, the use of mercury in small-scale mining is strictly prohibited and small-scale mining shall be confined only to declared People’s Small-Scale Mining Areas or Minahang Bayan.

Changes introduced by EO 79 on the economic aspect

A new feature has been introduced by EO 79 when it comes to granting new mineral agreements is the necessity of a public bidding. Under the Mining Act, the rule is a first come first serve policy. Whoever reserves first and is qualified to undertake the mining operation can be granted the permit, subject to limitations imposed by the laws and rules and regulations. EO 79 has completely changed the way mining agreements will now be granted by undergoing a public bidding.

As provided in Section 6 of EO 79:

“Section 6 The grant of mining rights and mining tenements with known and verified mineral resources and reserves, including those owned by the Government and all expired tenements, shall be undertaken through competitive public bidding. While all other mining rights and tenements applications shall be processed and approved through existing procedures.”

A moratorium has also been placed on the grant of new mineral agreements until a legislation rationalizing existing revenue sharing schemes and mechanisms shall have taken effect. Likewise, existing mining contracts and agreements will also be reviewed by the DENR for possible renegotiation of terms and conditions, which, shall in all cases be mutually acceptable to the government and the mining contractor.

In addition, Section 7 of EO 79 provides that:

“All valuable metals in abandoned ores and mine wastes and/or mill tailings generated by previous and now defunct mining operations belong to the State and shall be developed and utilized through competitive public bidding. Likewise, upon expiration of the pertinent mining contracts, the said metals shall belong to the State and will be developed and utilized through public bidding.”

Changes introduced by EO 79 on the enforcement aspect

A new council called the Mining Industry Coordinating Council (“MICC”) has also been created under Section 9 of the said executive order. The MICC’s powers and functions can be categorized into two purposes: coordination with stakeholders and enforcement of mining laws.

The following are the powers and functions of the MICC as to coordination:

  1. Ensure continuing dialogue and coordination among all stakeholders in the industry
  2. Conduct and facilitate the necessary capacity and institutional building programs for all concerned government agencies and instrumentalities;
  3. Conduct an assessment and review of all mining-related laws, rules and regulations, issuances, and agreements with the view to formulating recommendations to enhance coordination between the National Government and LGUs to ensure implementation of mining laws and regulations, and to properly regulate small-scale mining participants and ensure that they are accountable to the same environmental and social obligations as large-scale mining companies;
  4. Serve as the Oversight Committee over the operations of Provincial/City Mining Regulatory Boards (P/CMRBs);

The following are the powers and functions of the MICC as to enforcement:

  1. As may be directed by the President, constitute and create a Task Force Against Illegal Mining and seek the assistance of all law enforcement agencies, such as, but not limited, to the Philippine National Police (PNP) and the Armed Forces of the Philippines (AFP) to ensure strict compliance with relevant laws, rules and regulations;
  2. Request the assistance of any government agency or instrumentality, including government-owned and controlled corporations and local government units (LGUs), in the implementation of this Order

Other powers and functions:

  1. Submit a work plan to implement the EO and implement other reforms related to the mining industry;
  2. Conduct an assessment and review of all mining-related laws, rules and regulations, issuances, and agreements with the view to formulating recommendations to improve the allocation of revenues and risk between the government and the mining sector;
  3. Submit periodic reports to the President on the status of the implementation of this Order; and,
  4. Perform such other functions and acts as may be necessary, proper or incidental to the attainment of its mandates and objectives, or as may be directed by the President.

As a means of improving regulation in the processing of mining application, Section 13 of EO 79 sought the creation of an inter-agency one-stop shop for all mining related applications and processes. The DENR will issue authority to verify mineral deposits only for areas open to mining as defined in Section 9 of EO 79.

Securing free and informed prior consent of the concerned indigenous peoples and compliance with the social acceptability requirement of the communities affected before a Mineral Production Sharing Agreement, Financial and Technical Assistance Agreement, Joint Venture Agreement or Co-Production Agreement can be approved has also been mandated by EO 79.

                The changes introduced by EO 79 basically focused on three areas: economic, environmental, and enforcement. Aiming for a more equitable distribution of opportunities, income, and wealth while protecting the right of the Filipino people to a balanced and healthful ecology are the core principles of EO 79. These goals will only be achieved through stricter enforcement of our mining laws and policies with the help of all the stakeholders in the mining industry.

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1 "Value addition: the way of the future for Philippine mining" by Danilo C. Israel of Philippine Institute for Development Studies October 2011.
2 Id.
3 Philippine Development Plan 2011-2016.
4 G.R. No. 127882, 1 December 2004.
5 "Value addition: the way of the future for Philippine mining" by Danilo C. Israel of Philippine Institute for Development Studies October 2011.


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