BUSINESS CLIMATE REPORT
Chinese mining firms skirt PH laws
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MANILA, Philippines—China has put on its menu thousands of hectares of mineral-rich land in the Philippines to feed its appetite for metals but with barely a regard for the environment or for Philippine laws, according to a report by a multinational research firm.
Pacific Strategies and Assessments (PSA), a company supplying foreign embassies and corporations in Manila with intelligence and business climate reports, said the last few years had seen a spike in Chinese mining activity in the Philippines.
The PSA report—titled “Exploitive Chinese Mining in the Philippines” and dated April 2011—said that as a result of the increase in Chinese mining, the Philippines is now China’s leading supplier of nickel.
The hunger for metals, the report said, could partly be responsible for China’s growing role as a major export market for the Philippines. It said that from 2009 to 2010, Philippine exports to China grew by 94.32 percent.
Demand for minerals
But the surge, said the report, “was largely attributed to China’s increasing demand for minerals and metals, such as iron, copper and nickel from the Philippines.”
Quoting Philippine government figures, the report—a copy of which was obtained by the Inquirer—said the shipment of refined copper, copper concentrates and other metals accounted for as much as 11 percent of Philippine exports to China during the two-year period.
The incursion of Chinese firms into mineral-rich lands in the Philippines, however, brings unpalatable effects on the environment, said the report.
“While few are surprised over the assertiveness and penetration of Chinese mining investors, there is substantial evidence of unaccountability, misconduct and corruption in many Chinese mining deals,” the report said.
It alleged that the entry of Chinese firms exposes the Philippines to irresponsible mining practices that don’t deliver correct compensation for environmental damage and value of minerals extracted from devastated mining areas.
“Chinese mining companies have a reputation for poor adherence to environment standards, especially with regard to small-scale mining projects,” said the report.
Worse, the Philippine government is losing billions of pesos a year in unreported extraction of minerals that are smuggled into China, the report said.
It said that in 2008, the Department of Environment and Natural Resources reported that at least 3 million metric tons of various mineral ores found their way into China but were untaxed in the Philippines.
“The reality is Chinese mining firms are not playing by the same business ethics, rules and practices which Western mining firms are expected to follow, nor is the Philippine government holding China to the same benchmarks chiseled into law and applied to Western firms,” the report claimed.
Reached for comment on the PSA allegations, the deputy chief of the political section and spokesperson of the Chinese Embassy in Manila, Ethan Y. Sun, said:
“I don’t have any knowledge of what you’ve mentioned in the report concerning mining operations by Chinese companies in the Philippines. What I want to point out is that the Chinese government always urges Chinese companies investing or operating overseas to respect and observe the related laws and regulations in the host countries, the Philippines included.”
Circumventing the law
According to the report, Chinese firms in the Philippines are able to circumvent a mining law that sets high standards for environmental protection and rightful compensation by using a law on small-scale mining by Filipino-owned cooperatives.
These firms hide “under the cover of domestic small-scale miners to bypass Philippine mining laws and protocols as well as avoid the large capital requirements, fees and taxes associated with large-scale mining,” the report said.
The report claimed that Chinese firms bribe their way into local government units to gain access to mining sites with the help of Philippine partners that operate as small-scale mining groups.
In these mining sites, Chinese firms equip their local dummies with tools that are normally used for large-scale mining but which the law governing small-scale mining prohibits, it said.
“One local mayor admitted that there have been several cases in which small-scale miners bypass the mayors’ office and go directly to the local barangay (village) to obtain a mining permit,” the report said, without identifying the mayor.
“Consequently, there are cases of overlapping claims between large-scale mining companies with permits issued by the national government and small-scale miners whose permits were issued by the local government.”
Dummies, minimal fees
China gets to obtain the volume of minerals it needs not through the size of its firms’ operations in the Philippines, but through the number of dummies and local small-scale mining partners that help keep the flow of metals to China going.
“Very simply, many Chinese firms circumvent the enormous expense and time of complying with large-scale mining requirements by co-opting a Philippine proxy and acquiring a small-scale mining permit from local government units for a minimal fee,” it said.
In some instances, Chinese mining firms are able to obtain permits to explore minerals from an LGU for as little as P10,000, the report said.
Huge deposits near China
It said the Philippines had become an appetizing destination from which to obtain minerals to continue feeding China’s hunger for metals for two reasons—the Philippines has an estimated $1 trillion worth of unexplored copper, gold, nickel and zinc and it is close to mainland China.
“There is little surprise that China would look to the Philippines to meet its mineral needs,” said the report. “For the Philippines, Chinese money has been a welcome respite for a deteriorating industry impacted by fleeing Western mining giants and frozen projects.”
Among the biggest mining deals that China brought into the Philippines, the report alleged, is an agreement between Zijin Mining Group Co. Ltd. and the Philippine government for Zijin to invest $1 billion in five years to explore gold and copper in various Philippine sites.
The Philippine government also entered into mining deals with Chinese firms Wei-Wei Group, supposedly worth $100 million, for exploration of nickel in Masinloc, Zambales, and Jiangxi Rare Earth and Rare Metals Tungsten Group Co. Ltd., purportedly worth $150 million, also for nickel exploration and also in Zambales in Botolan town.
26 Chinese firms
Since the surge of Chinese mining in the Philippines, 26 Chinese companies have entered into deals with the Philippine government to explore minerals in 16 provinces on the Philippines’ three main islands of Luzon, the Visayas and Mindanao—Cagayan, Benguet, Zambales, Camarines Norte, Camarines Sur, Palawan, Leyte, Eastern Samar, Bohol, Cebu, Misamis Oriental, Davao Oriental, Surigao del Norte, Sultan Kudarat, Zamboanga del Norte and Zamboanga del Sur.
Chinese firms are able to skirt national laws on mining with the help of Philippine officials who, in some cases, benefit directly from mining ventures with China, the report claimed.
“Specifically, there are reports that local government officials and known political heavyweights with interests and investments in mining have helped Chinese firms with contracts and obtain permits,” the report alleged.
It did not mention the precise dates when the deals were allegedly reached but it said that one private contract signing agreement in 2008 involving Chinese and Philippine firms was done supposedly in the presence of former President Gloria-Macapagal Arroyo.
It said that this “triggered speculation of another shady government deal.”
The report said that critics of that deal questioned how a small Philippine firm without any track record in the mining industry “could easily back multimillion (dollar) deals with a big foreign mining firm.”
The report said it was not surprising that “Chinese mining investments are generally met with suspicion” since Chinese firms were known not to balk at paying off officials to get what they want.
“Considering the implications and licensing requirements for conducting mining operations, corrupt officials view the mining industry as an opportunity to advance special interests,” said the report.
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