The Philippines, a country with an abundance of natural resources, has remained a largely untapped market for the mining industry. However, it seems the Filipino government has finally decided to start capitalising on its inherent asset by pursuing investor-friendly reforms designed to benefit all stakeholders.
The debate over the exploitation of the country's vast mineral deposits largely stemmed from an extended period of poor regulatory oversight and substandard environmental practices on behalf of the private sector. A prime example came just after the passing of the Mining Act of 1995 when it was discovered that mine tailings had been spilling into the now dead Boac River as a result of negligent mining in the Marcopper Mines in Marinduque.
This sparked the nearly decade-long debate over the country's most recent comprehensive legislation, the Mining Act of 1995, effectively portraying the fervent opposition to the expansion of the industry. Although a Supreme Court ruling in 2004 has seemingly secured the long-term security of the bill, current reforms designed to seriously stimulate the sector will likely face similar opposition from numerous non-governmental organisations, environmentalists, nationalists and local government units alike. Despite the fact that the mining industry has largely improved its environmental approach, correcting its public perception and regaining the public's trust is likely going to take some time.
In 2004, Executive Order No. 270/270A, dubbed "The National Policy Agenda for Revitalising Mining in the Philippines", laid the foundation for the industry's expansion. Despite the advances made through this legislation, for the sector to become a significant contributor to the national economy broader, more inclusive changes will have to take place.
In 2007, mining contributed $1.96bn to the economy, or 1.4% of GDP. While this was a significant improvement from its 0.59% contribution to GDP in 2001, it is still a long way away from the targeted $10bn in 2011, which would equate to 6.6% of GDP (thus making the Philippines a "mining country" according to World Bank criteria). The historic high for the sector came in 1973 when mining contributed 2.41% to the economy.
Despite the ambitious original target set by the government to achieve $1bn in mining investments throughout 2009, the first quarter of the year fell far short of expectations. Investment during the first three months amounted to $11.16m, forcing the government to revise its annual target to $600m. Yet even this could be a challenge, with the Philippines only attracting $577m in actual mining investments last year.
Furthermore, the timing is not favourable for investors. Currently, the bulk of the world's mining companies are operating in a state of uncertainty as they wait to obtain a clear picture on the global outlook of demand for minerals. The good news is that prices of copper, nickel and gold, all of which are found in abundance in the Philippines, seem to be recovering in 2009.
Mines currently classified as producing or expanding in the Philippines are as follows: the Palawan nickel project, the Rapu-Rapu poly-metallic project, the Canatuan silver-gold project, the Santo Tomas II copper project, the Teresa gold project, the Berong nickel project, the Maco gold project, CTP's nickel project, the nickel projects of Surigao IR and the PASAR refinery expansion. An additional seven are currently in the construction and development stage, along with 10 currently undergoing feasibility and financing studies, while eight are in the advanced exploration stage.
According to an earlier study by the Minerals and Geosciences Bureau, a government agency under the aegis of the Department of Environment and Natural Resources (DENR), the country has an estimated 7.1bn tonnes of reserves and 51bn tonnes of non-metallics waiting to be unearthed.
The large quantities of reserves in the country indicate that downstream processing and manufacturing remains an area of immense potential. Clearly a missed opportunity according to most analysts, the potential value added through downstream activities is far greater than the extraction of the minerals themselves. So far, high energy costs, inadequate infrastructure, bureaucracy and corruption have effectively prevented the expansion of downstream processes. Energy and infrastructure have been focal points of the Arroyo government and if the incoming administration continues to address these issues, along with further reform stimulating the mining sector, downstream processing plants could increase their contribution to the economy.
The most important factor in the vitalisation of the mining industry is the appeasement of local government units (LGUs). Keeping the LGUs happy, who have been the primary victim of irresponsible mining practices, is a challenge. Government reform of an over-complicated tax collection and distribution process that breeds corruption is the first step in the process. Allowing companies to bypass federal government and pay local taxes directly to the LGUs will cut down on long processing periods, increase transparency and most importantly directly involve the LGUs in the successes of mining operations.
Emphasising the government's strategy to empower LGUs, Jose L Atienza Jr, the current secretary of the DENR, told OBG that, "Once local governments are given financial stakes in the success of the mining sector their positions will come more in line with that of the federal government."
Another complaint often cited from private sector companies, especially those coming from abroad, is the long registration and lisensing processes. In response to this criticism Atienza told OBG that, "The important thing for investors to understand is that the sector is in its infancy right now… and as these initial disputes are resolved I expect to see fewer and fewer delays in the permitting process. Quicker permitting translates into more investments, more jobs, more production and more taxes for the government."
Regardless of the initial ups and downs of the government's "revitalisation" of the mining sector, this course of action will undoubtedly prove to be a long-term economic winner for the country. Furthermore, the government's newfound strategy based on fair and transparent social, environmental and economic regulation should both ensure the appeasement of all parties and the sustainability of the sector.
