In early January 2000, President Estrada set up the Economic Coordinating Council (ECC) to ensure the consistency and complementation of all pronouncements, plans, programs and projects to further promote deregulation, liberalization, free and fair market competition and increased private sector participation. One of the principle aims of the ECC is to encourage greater foreign investment by identifying impediments and streamlining project facilitation.

The ECC is chaired by President Estrada and has Secretary of Finance, Jose Pardo, as the Vice Chairman. Other members include Mar Roxas, Department of Trade and Industry, Paeng Buenaventura of Bangko Sentral ng Pilipinas, Agricultural Secretary Ed Angara, NEDA director general Felipe Medalla, and Executive Secretary Ronnie Zamora.

Secretary Jose Pardo wrote to the Australian & New Zealand Chamber of Commerce explaining the initiatives of the ECC and requesting feedback from the Chamber. As such, the Chamber has initiated a number of Industry Position Paper’s such as Agriculture, Technology and Mining to meet these aims.

This Mining Position Paper highlight the tremendous investment opportunities mining can bring to the Philippines. These investments occur in the poorer rural areas, generating jobs, infrastructure and Regional Taxation. Mining has contributed significantly to Australia’s export earnings, and the Philippines, with its highly ranked mineral endowment is poised to do the same.

It is intended that this paper be distributed widely so that the problems that confront the industry, hence investment confidence, can be understood from a rational perspective and addressed.

William Mason

President ANZCHAM

The Philippines has a very high mineral endowment ranking being in the top 8 countries in the world for copper, nickel and gold. There is no doubt that the Philippines has the potential and the ability to sustain a successful mining industry with economic world class deposits. The exploration effort and investment to achieve this would provide a massive boost to the economy in its own right.

Five years ago there were a large number of companies committed to investing in exploration and mining in the Philippines. Programmes totaling $US 200million per annum were committed for exploration and three to four major new mines were in the advanced planning stage with potential investment exceeding $US2 billion. The companies were here with the funds but because of frustrating delays most of the companies have now left and have spent their funds elsewhere.

By international standards the Philippines remains under-explored. Over the last 10 years the discovery of the Didipio, Tampakan, Victoria Lode and Far South East deposits and the recent discovery at Boyungan in Surigao has significantly reinforced the perception of international exploration companies that new "world class" ore-bodies can be found.

Assuming that currently known gold and copper projects were developed, and excluding the huge potential of new ore-bodies being found, the following key macro and micro economic contributions could be made to the Philippine economy.

Applying some technical assumptions for development timing and production schedules, it is estimated that $US 3.2 Billion would be invested over the next five years. The majority of this investment would occur in less developed rural areas such as Mindanao and the Cordilleras.

These projects would be generating within 5 years $US 1.2 Billion / Yr. in export earnings making the Philippines ranked in the top 10 gold producers and top 8 copper producers in the world and adding 6% to the GDP.

These projects would generate significant Taxation revenue not only for the Philippines National Government, but also the Provincial, Municipal and Barangay LGU’s where these projects are located. The estimated annual Tax collections would be 21 Billion pesos with the LGU share being in excess of 12 Billion pesos.

Although mining does not directly employ large numbers of people, the multiplier effect from mining is quite significant. In the USA, where downstream processing and manufacturing is now quite developed, the multiplier factor is 21. 1.2 million American’s owe their living to mining. Given the more labor intensive nature of Philippine industry in general, the multiply effect may be as high as 40. A mining operation also encourages secondary employment through satellite industries in the vicinity of the mine. The mining company will support the establishment of livelihood projects which will become well established and continue after closure of the mine.

Presidential visits and Trade missions have invited companies to invest in the country but when they arrive they find there is not the clear level of support that is found in other countries.

Today, the Philippines has "world class" Environmental Protection Legislation that detects and prevents poor practices. Multi-party monitoring by the community, government and NGO’s ensures transparency of all operations. Modern mining, using world’s best practices, ensures only clean water leaves the property. Rehabilitation Guarantee Funds, ensure that the land is returned to useful land-use such as agriculture.

Despite these measures enshrined in the new legislation, the history of past poor practices, including those of small-scale mining, continues to hamper new investors who propose modern responsible mining methods.

One of the fundamental principles of all mining and mineral exploration companies is that the investor must have clear title to the mineral rights in the area in which they are investing. The title to the mineral rights has to be clean, simple, transparent and be able to be completed in a reasonable timeframe. The current requirement of area clearances and consents involving many government and non-government agencies causes companies’ considerable difficulties and delays. These procedures are currently being reviewed and streamlined by the MGB with the aim of significantly reducing the period.

A major deterrent to foreign investors has been the 60/40 Filipino foreign ratio requirement of the Constitution. However the Constitution does allow 100% foreign equity under the Financial or Technical Assistance Agreement (FTAA). The FTAA fiscal regime has only recently been finalized. It has not yet been tested but appears to be less favourable than the fiscal regime for local investors. A recent study conducted by the Institute for Global Resources Policy and Management at the Colorado School of Mines has shown that, using the FTAA Contract on a model copper mine, the After Tax Rate of Return (IRR) the Philippines ranked fourth in attractiveness after Sweden, Chile and Argentina and that for a model gold mine, the Philippines ranked third after Sweden and South Africa. Many in the industry believe that it would be appropriate to have a fiscal regime for foreign investors similar to the MPSA which would provide a level playing field between local and foreign investors. The loss, by the foreign companies, of up front tax incentives embodied in the FTAA would be compensated by the simpler and more straight forward MPSA Contract.

Republic Act No 7942, otherwise known as the Philippine Mining Act of 1995 and the accompanying Implementing Rules and Regulations is a modern Act, the equal of any in the world. However, since 1996 there has been a Supreme Court Challenge based on the 1997 Mining Act being unconstitutional. This challenge and the long delay in having it resolved has given uncertainty to investors and proved a major deterrent to investment.

The passing of the IPRA law has also given rise to another level of uncertainty as to the ownership of the mineral wealth of the country. Part of the uncertainty was removed by the amendments to the IPRA Implementing Rules and Regulations but the Act is still subject to a Supreme Court Challenge.

Despite meeting and exceeding all mandated laws and regulations required for project development, Investors often confront questionable delaying tactics used by determined anti-development groups. For example, the current unresolved Comelec issue involving the use of "peoples initiative" to nullify an agreement forged with the local community by a mining company has significance for the whole Industry. These types of invalid issues continue to be entertained by various agencies, causing added costs, delays and uncertainties.

1. Request the current Administration to issue a strong message stating that it supports a Sustainable, Responsible Mining Industry in the Philippines and welcomes foreign investment to achieve this. This could be done by endorsing, at Presidential level, the National Mineral Policy. This would give a strong message to investors that they are welcome in the Philippines and empower the DENR/MGB to resolve problems with LGU’s and NGO’s.
2. Adopt all current advanced mineral development projects as Flagship status to fast-track the construction of showcase modern "worlds best practice" mines.
3. Develop a regime that encourages investment in mineral development and mandate that all agencies accept the terms negotiated between the Government and companies and assist in their delivery. Consider making provision for foreign companies to sign an FTAA Contract similar in fiscal terms to the MPSA.
4. Mandate, empower and resource the MGB to enable them to implement the title processing system in a speedy and efficient manner.
5. Seek early resolution of the current Supreme Court Challenge to the Mining Act.
6. Seek early resolution of the current Supreme Court Challenge to the IPRA Act.
7. Protect Investors from issues that contravene due process.

October 25, 2000