Mining review sets off fierce debate

A government bid to take a greater share of mining revenues amid the global commodities boom has set off a storm of debate, with the industry mounting an intense campaign to knock it down.

President Benigno Aquino III had intended to sign an executive order (EO) endorsing the regulations to raise taxes on the mining sector at the end of last month, but delayed it as opposition mounted from the industry’s biggest players.

Nevertheless, Finance Secretary Cesar Purisima, a key driver of the plan, has continued to insist that Mining Inc. does not pay enough taxes and that other reforms are needed to improve what is a chaotic and often unregulated industry.

“In the past, the way the laws were implemented, it was not a true win-win situation where the government was able to get its fair share from mining activities,” Purisima said shortly after the deadline for the signing of the EO passed.

Purisima told reporters the government collected a mere P2 billion ($47 million) from the industry in 2011—just 0.17 percent of  the P1.2 trillion in national tax collection.

“You really have to ask yourself whether the way we’re implementing (mining policy) is a responsible way of harnessing the wealth of the country,” he said.

Royalty tax

One of the key draft provisions in the administration’s proposed executive order that was leaked to the press in February was a fresh 5-percent “royalty tax” on the market value of the minerals produced.

But Peter Wallace, an adviser to foreign investors, said at a nationally televised forum on mining this month that the Philippines already had some of the highest taxes on mining in the Asia Pacific region.

Wallace and other mining advocates argue there are many taxes imposed on the industry and other business costs that the government does not take into account when making its case for additional revenues.

“If we make it higher, we won’t get the investments. We won’t get the mines. Maybe that is the idea,” he said.

Stricter requirements

The leaked executive order also called for much stricter environmental requirements, with agricultural land, ecotourism sites and other sensitive areas to be closed to mining.

But industry leaders say the sector is already complying with stringent safety and environmental requirements.

According to them, the real environmental, social and economic problems in the industry rest with the hundreds of thousands of unregistered “small-scale miners” who collude with corrupt local officials.

The small-scale miners typically do not pay taxes and do little to safeguard the environment, often destroying mountainsides and sending dangerous chemicals such as mercury directly into waterways.

Largely untapped

The Philippines is believed to have some of the biggest mineral reserves in the world, but these have been largely untapped due to poor infrastructure, security issues, a strong antimining movement and a range of other reasons.

The government estimates the country has about $840 billion in gold, copper, nickel, chromite, manganese, silver and iron, and this figure could go higher once further exploration is carried out, said Leo Jasareno, head of the Mines and Geosciences Bureau.

Yet only 31 major mining companies are operating in the country, focused mostly on nickel, gold and copper.

Antimining lobby

“We have barely scratched the surface of our country’s mineral wealth,” Jasareno said.

The president of the Chamber of Mines, Philip Romualdez, said last week the industry feared the government’s reform plans had given ammunition to the already very strong antimining lobby, which includes the powerful Catholic Church.

“They are riding on the issue. Cesar Purisima is playing into their hands,” Romualdez said.

Antimining groups, however, are concerned that the industry’s intense lobbying campaign, which has seen a barrage of press conferences and full-page advertisements in newspapers, may lead to a weakening of the planned reforms.

“The President is beginning to feel the pressure of the mining industry,” said Jaybee Garganera, national coordinator of the Alliance to Stop Mining.

Purisima and other government officials have not indicated the actual changes that will be implemented by the upcoming EO.

Better policy

But Purisima has insisted the reforms will bring more certainty to the industry, which will in the end attract more investors.

“Our effort is to make sure that we define this (mining policy) better, we implement this better, and that we clarify various rules that were vague and were conflicting,” he said.

“Then, after this process, I believe that the regulatory environment will be better for mining investors.”

Originally posted: 12:27 pm | Sunday, March 11th, 2012