CHAMBER OF MINES OF THE PHILIPPINES
COMMENTS ON HOUSE BILL NO. 6342

November 20, 2009
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I. ON THE EXPLANATORY NOTES

The Chamber of Mines (“Chamber”) in analyzing the explanatory note of the proponents of House Bill No. 6342 (“Bill”) understands where the authors are coming from, including their advocacies. However, to say that the resolution of the constitutionality issue of Republic Act No. 7942 or the Philippine Mining Act of 1995 (“Mining Act”) by the Supreme Court “mirrors the proclivity of government to act against its better judgment once the so-called profits of mining are brought into the picture” is immaturely judgmental. The need to utilize the mining industry as a catalyst to the development of areas particularly the countryside in order to hasten poverty should be among the first and overriding priorities of a developing country like the Philippines. It may be worthwhile for the proponents of the Bill to also recognize mining as one of the nation’s priorities.
A clear, honest and open-minded understanding of the mining industry may be what is necessary to allay fears and dreadful insinuations that mining is dirty, wasteful and destructive. This understanding cannot be achieved by simply copying selectively a paragraph in the 2003 World Report by a Washington-Based Non-Government Organization (“NGO”) - Worldwatch Institute that “mining consumes 10% of the world’s energy, spews out toxic emissions, and threatens 40% of the world’s undeveloped forests” and stopping there and omitting the next line that says “but these effects could be drastically reduced”. The citation is misleading and untruthful. Moreover, the bill proponents must realize, as Worldwatch Institute has, that modern technology has long caught up with humanities’ needs, hence mining activities can now be undertaken responsibly and are sustainable.
Environmental protection measures, social responsibilities and the protection of the rights of indigenous peoples/indigenous cultural communities (“IPs/ICCs”) have been considered by the global mining community and this is well covered by Mining Act. The law, including its implementing rules and regulations are comparable to, or even more advanced in certain aspects (including environmental, social and indigenous peoples protection provisions) than those in developed countries such as Australia, Canada, the United States and United Kingdom. The Mining Act is the result of this legislature’s intelligent and objective discussions and deliberations, the mining industry’s experienced cooperation and the judiciary’s erudite examination. It is touted to be a monumental legislative work that embodies all perceived aspects of the industry and takes into account all interests of legitimate stakeholders.
Justifying an alternative mining bill due to past mining incidents and saying that because of such experience the government should forget about the potentials of the industry is disregarding an economic activity that could help alleviate poverty in areas where minerals are located. An emotional, subjective and radical attempt to push back the innovative and developmental gains achieved from the enactment and current application of the Mining Act is a needless exercise.

Contrary to the claim that mining is one of the weakest sectors in the global market, is the fact that in spite of the global financial crisis that have affected the global financial and commodities market, investor interest in the mining industry did not wane in view of the continuing demand for minerals and metals by China, India, Korea, Japan and other developing countries. Prices of major commodities are still considered above break-even levels with gold breaking the US$1,000/oz level. In the Philippines, a number of mining operations have started in late 2008 and early 2009, defying a lot of skepticism that many seem to project.

Considering historical figures, the mining and quarrying sector performed well in early 1970s and in the 1980s, contributing 21% in export receipts and about 2.5% of the country’s gross domestic product. The roads built and maintained, schools, hospitals and other social infrastructures in sustainable communities are testament to the immeasurable benefits the industry has contributed in nation building.

Recently, the National Statistical Coordination Board (NSCB) reported that the Philippine economy registered a 1.5% growth during the second quarter of 2009 from 4.2% last year, due to the reinvigorated Construction and Mining & Quarrying Sectors and the big push by Government Services. The mining and quarrying sector rebounded to a double-digit growth of 21.4 percent from negative 13.7 percent recorded the previous year with the metallic mining sector posting a three-digit growth of 111.2 percent from 0.9 percent due to the operation of the Atlas copper mine in Toledo, Cebu. These figures only indicate that the sector, in spite of the global crisis has been doing its share in national development and in sustaining community development within its areas of jurisdiction. Certainly, government’s prioritization of the industry was not in vain.

Adopting this Bill will set back and stunt the Philippine mining industry’s continuing growth, and will unduly hamper the Philippine economy’s struggle to cope with the financial crisis. The radical changes which this Bill seeks to introduce will lead to a retrogression of an economic activity enjoying a much needed resurgence. The uncertainty that this Bill, if legislated into law, will bring to the country would be devastating and will again result in a time of languishing stagnation in the development of what is otherwise a rising field in the Philippine economy.

The Mining Act is serving its purpose of implementing responsible mining and is responsive to national development efforts. The Mining Act is current, comprehensive, environment friendly and already addresses much of the supposed concerns of the bill proponents, thus, it needs no further amendments or worse, an alternative law arising from this Bill that is not only constitutionally and legally infirm but fraught with erroneous and redundant provisions.

The Chamber urges this august legislative body to reject the introduction of this radical Bill and consider the same as unnecessary and bereft of justification for adoption.

II. ON THE BILL

A. Constitutional Infirmities of the Bill

The Chamber is of the opinion that provisions of the Bill violate the 1987 Philippine Constitution, as follows:

1. Derogation of the Regalian Doctrine

Section 2, Article XII of the Philippine Constitution provides that all minerals are owned by the State. Thus, all mining projects are considered projects of the State.

The Bill maintains that mineral resources found within ancestral domains/lands are owned by the indigenous peoples/indigenous cultural communities, and only those outside are owned by the State. This is in violation of the Regalian Doctrine. This also runs counter to the pronouncements of the Philippine Supreme Court in the case of Cruz vs. Secretary of Environment and Natural Resources upholding the priority rights of IPs/ICCs.

2. Prohibition against Financial or Technical Assistance Agreement (“FTAA”)

Section 2, Article XII of the Philippine Constitution also provides:

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. (underscoring supplied)
The Mining Act has implemented this Constitutional provision by instituting the FTAA, which is contract that can be entered into by the State and a company that can be up to 100% foreign-owned, involving financial or technical assistance for large-scale exploration, development, and utilization of mineral resources. The validity of the FTAA has been upheld by the Supreme Court in the case of La Bugal B’laan vs. Ramos (G. R. No. 127882) (“La Bugal”).
The Philippine Constitution, in the aforementioned Article and Section of the Philippine Constitution, further provides that (i) the State can directly undertake the exploration, development, and utilization of natural resources, or (ii) the State may enter into agreements with contractors for the conduct of the same, provided that the State shall always that the exploration, development, and utilization activities are under the full control and supervision of the State. In La Bugal, the Supreme Court ruled that the provisions of the Mining Act comply with this Constitutional requirement on full control and supervision. The Supreme Court held in La Bugal that “[f]ull control is not anathemic to day-to-day management by the contractor, provided that the State retains the power to direct overall strategy…[The State] need not micro-manage mining operations and day-to-day affairs of the enterprise.”

As noted above, the Mining Act does not prevent government from conducting exploration activities but because this entails significant cost and substantial risks that exploration will not result in economically viable mineral development, it makes no sense to prevent private entities from conducting this activity. The country actually benefits from private entities including foreign companies assuming the exploration risk instead of the government. The Supreme Court, in upholding the validity of the FTAA, cited the inadequacy of Filipino capital and technology in large-scale mining activities and the need for foreign investments in mining endeavors.

3. Bill Limits the Term of Mineral Agreements to 15 Years

Not only is the 15-year term limit too short, it also violates Section 2, Article XII of the Philippine Constitution which states that “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 be provided by law.” A law may not disallow what the Philippine Constitution permits, i.e., the term of a mineral agreement may exceed 15 years (which is the limit under the Bill), but should not be more than 25 years, renewable for not more than 25 years.

4. Bill Embraces More than One Subject

The Bill includes various provisions on peace and order, environment, human rights, foreign policy, indigenous peoples, and other subject matter which are covered by separate laws and should not be included in a mining law. This violates Section 26, Article VI of the Philippine Constitution which states:

Every bill passed by the Congress shall embrace only one subject which shall be expressed in the title thereof.

5. Bill Increases Appellate Jurisdiction of the Supreme Court without its Advice and Concurrence

The Bill makes decisions of the Mine Adjudication Board’s (“MAB”) directly appealable to the Supreme Court. Under current rules of procedure, MAB decisions are appealable to the Court of Appeals. This provision of the Bill violates Section 30, Article VI of the Philippine Constitution which provides:

No law shall be passed increasing the appellate jurisdiction of the Supreme Court as provided in this Constitution without its advice and concurrence.

6. Bill Violates the Constitutional Due Process Clause, Equal Protection Clause, and Non-Impairment Clause

Section 1, Article 3 of the Philippine Constitution provides:

No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws.

The Bill seeks to limit the government incentives given to mining contractors to “pollution control or mitigation devices or infrastructure, mineral, processing plants and development of downstream industries.” While the Chamber shares the importance to national development of pollution control/mitigation, infrastructure development, and adding value to mineral output, we believe that the aforementioned limitation of incentives against mining contractors, considering mining’s contribution to the national economic development, violates the equal protection clause of the Philippine Constitution.

The Bill also provides for a moratorium on “all mining activities until all the systems are in place for the proper implementation of the law. In addition, the Bill provides that “[a]ll existing mining permits, licenses and agreements are deemed cancelled.” This not only violates the aforementioned due process clause of the Philippine Constitution, but also the non-impairment clause under Section 10, Article III of the Philippine Constitution which provides that “[n]o law impairing the obligation of contracts shall be passed.”

B. Other Infirmities

Many other sections and provisions of the Bill are irrelevant, superfluous, or are addressed sufficiently and appropriately under existing mining and environmental laws/regulations, such as the following:

1. Policies

Statements of government policy on peace and order, human rights, and foreign policy may not be appropriate to be included in the Bill as there are existing separate laws and programs that deal with government policy on these matters.

The fiscal provisions of the Bill will totally discourage investments in the mining industry particularly at this time when developing mineral-rich countries compete for venture capital and large financing requirements. A satisfactory and stable fiscal regime is almost always a pre-condition for private investment along with geology and infrastructure, secure title to mining rights, stability in environmental management, right to market mine products, right to assign, freedom of commercial operation and international arbitration. On top of taxes and fees levied to the company as proposed in the Bill, a government share of 10% of gross revenues, and another 10% as royalty to the IPs/ICCs are considered too burdensome. Compounding these prohibitive provisions are the need to set aside a Scientific Research and Development Fund, and Legal Support Services Fund, and the entitlement of the local government units (“LGUs”) to a share of the net revenues from mining operations which shall be directly paid to them with a percentage of the amount set aside for Disaster Risk Management. A semi-annual Mine Waste and Tailings Fees is also being imposed that will accrue to a fund to be used for the monitoring activities of the Multi-Sectoral Mineral Council. Additionally, incentives are limited to pollution control devices or infrastructure, mineral processing plants and downstream activities.

The fiscal regime for minerals cannot move too far out of line with that of countries with competing deposits and should avoid additions to investor risk aiming both at more investments and higher shares of rent. In balancing these two considerations, measures such as accelerated depreciation and the imposition of fair excise tax/royalty are made to facilitate early payback. In most instances, focus is made on taxation of profit (not inputs or gross output) thereby minimizing pre-and post-tax rates of return. Common tax instruments include corporate income tax, excise/royalty tax, import duties and Value-Added Tax and withholding payments for services. These form important tax base in many countries.

In mineral-rich ASEAN countries, excise/royalty tax is in the range of 1.5% to 3% and is normally based on gross revenues for ease of computation and collection. In Southern Africa, the rates are also within the same range of 2% - 5%, with Botswana and Mozambique imposing 10% only on diamonds being a high value mineral. Corporate income tax rates in ASEAN and South African countries are in the 30% rate with Botswana and Cambodia imposing only 25% and 20% respectively.

2. Governance/Regulation

The present institutional framework that implements the current Mining Act through the Department of Environment and Natural Resources (“DENR”) / Mines and Geosciences Bureau (“MGB”) is efficient and well-established. Moreover the processes involved in the grant of mining tenements, Environmental Compliance Certificates, Social Development Management Program, Health and Safety Standards, Reforestation and rehabilitation and post-mining activities related to mining and mineral resource development are well in place.

The Safety and Environmental provisions under the Bill were patterned largely on the pertinent provisions of the Mining Act. The difference between the two is that the Mining Act’s provisions are more complete and specific since all the organizations, systems and processes mandated by the Mining Act are already in place and working very well.

The concerns of local communities, LGUs, and IPs/ICCs are being adequately addressed and considered under the current laws and regulations such as the Local Government Code and the Indigenous Peoples Right Act. The Free and Prior Informed Consent (“FPIC”) of IPs/ICCs is required even before any exploration work in areas within ancestral domain/ancestral lands can be conducted. Before a mining company can proceed to construction and development, it must obtain (i) an Environmental Compliance Certificate from the DENR and (ii) the consent of the majority of the local government councils concerned, which is in accord with democratic principles. Various concerns including alternative land uses and environmental sustainability are discussed and debated during the process of consultation and obtaining the consent of the aforementioned stakeholders.

3. Regulating Agency

The proposed transfer of MGB from the DENR to the Department of Science and Technology (“DOST”) is inappropriate. The DOST is mandated to provide central leadership and coordination of scientific and technological efforts while mining pertains to natural resource extraction and is logical to be with the DENR.

4. Multi-Sectoral Council (“Council”)

The Bill proposes a Council which will have the power to decide whether or not mining should be conducted. The Bill proposes that the Council be composed of a representative each from the MGB and the DENR (which by itself already conflicts with the proposal to have the MGB under the DOST), and one representative each of the affected provincial government, independent component cities/highly urbanized cities, representatives from development NGOs as many as the representatives of LGUs and the affected ICCs/IPs, with MGB acting only as the convenor of the Council. This institutional framework tasked to decide for the State is indefensible. The composition of the Council indicates that there is no required educational or professional requirement of the members or required experience in the mining industry which is disturbing considering that it will have to decide on the fate of the mining industry. As the number of the Council is not fixed by law, the size appears to be impractical and unwieldy.

The Council does not have the technical capability to make decisions involving maximum areas to be held under mineral agreements, terms, capitalization requirements, consultation process and other technical matters. This will undoubtedly undermine the governance of strategic mineral resources that needs long-term foresight and perspective. The MGB with its technical staff is presently competent and qualified to comply with its mandate under the Mining Act to “have direct charge in the administration and disposition of mineral lands and mineral resources”.

5. Conflict Resolution

The Mines Adjudication Board (MAB) as proposed is made to function like a special or statutory court; has the power to cite any person in contempt and the power to issue injunctive orders. These proposed powers deviate from the adjudicatory powers exercised by the current MAB.

6. Terms Used/Provisions are Vague or Contrary to Internationally Accepted Usage and Practice

Various terms used in the Bill, such as those for “Exploration” and “Critical Watershed” are vague, unrealistic, or not in accord with internationally accepted usage and practice.

The Bill seeks to prohibit the use of cyanide for gold extraction. The prohibition of the use of cyanide will kill the gold mining industry. Cyanide is widely used by large-scale mining operators in the Philippines and internationally because cyanide is the most cost and recovery-efficient chemical for extracting gold. Contrary to popular belief, the educated and responsible use of cyanide in mining can be safe and with minimal adverse effects.

7. Bill Seeks to Create Certain Legal Presumptions that are Contrary to Law/Jurisprudence

The Bill provides for a presumption that an area is part of ancestral domain by virtue of historic rights and self-delineation by the IPs/ICCs. This broad presumption may sweep across and trample private land rights, in derogation of the current system of land ownership in the Philippines and land rights that have vested prior to those of IPs/ICCs (or those that claim to be IPs/ICCs).

The Bill also provides that in instances where there are questions on the legality or validity of the issued FPIC of IPs/ICCs, mining operations will not be allowed to be conducted in the ancestral domains or lands of the ICCs/IPs without the final resolution of such question on the legality or validity of the FPIC. The issuance by the National Commission on Indigenous Peoples (“NCIP”) of a Certification Precondition signifying the grant of FPIC by the IPs/ICCs is entitled to a presumption of regularity under Philippine law. The aforementioned provision of the Bill contravenes this legal presumption.

In addition, the Bill provides that “[w]hen the separate personality of the corporation from its shareholders is being invoked as defense in order to perpetuate a crime, fraud or other machinations, or evade liability, the separate personality of the corporation shall be set aside. Civil, criminal and administrative actions may thus be filed directly against the members of the Board of Directors, officers and/or individual stockholders.” This is contrary to established corporate law and jurisprudence, which requires a court to decide whether or not to pierce the veil and impose liability directly on the persons behind the corporation.

CONCLUSION

In light of the foregoing, the Chamber believes that the Bill will definitely be rejected by currently producing mining companies, exploration companies, would-be foreign and local investors, and national and local officials. The Bill is also constitutionally and legally infirm as various sections of the Bill violate the Philippine Constitution and established legal principles.

The Mining Act has been accepted by all stakeholders and is considered one of the best because it has all the provisions for environmental protection, protection of the rights of IPs/ICCs and communities, corporate social responsibilities and the right of people to be consulted. The constitutionality of the Mining Act has also been upheld by the Supreme Court in its landmark en banc decision issued in December 2004.

The environmental and social concerns and issues about stakeholder consultation/consent that the Bill appears to raise are already adequately addressed under existing laws and regulations. Benefits to the local communities are addressed through the sharing of mining revenues between the national and local government, the implementation of government-required Social Development and Management Programs by the mining company, and payment of royalties to IPs/ICCs and the government. Revenue sharing of benefits from mining is clearly provided not only in the Mining Act but also in the Local Government Code and the National Internal Revenue Code. The share of LGUs from excise taxes will now be given directly to them after the first quarter of every year as provided in the Joint Memorandum Circular of government agencies involved in this matter.

Concerning the distribution of excise tax and royalty tax collections, BIR and DENR figures indicate that in 2007, the total collections reached PhP1.68 billion of which PhP1.03 went to the national government and PhP649 million went to the local government units. Total collections went down a bit in 2008 to PhP1.07 billion with the national government getting PhP662 million and the LGUs, PhP413 million. These figures indicate that the LGUs share the benefits from mining activities.

The foregoing statistics also indicate that since the finality of the Supreme Court’s decision in the La Bugal case in early 2005 and with government providing the direction for its development, the mining industry has taken off and optimism remains high for its continuing development. To introduce a radical change through the adoption of the Bill will only lead to needless uncertainty and stunt the otherwise growing sector of mining of the Philippine economy.

While the intentions of the Bill for a rational exploration, development and utilization of mineral resources and to ensure the equitable sharing of benefits for the government, the communities and indigenous peoples are all laudable, these are sufficiently and adequately covered by the Mining Act and other relevant laws. It may be necessary for the proponents of the Bill to have a deeper understanding of the Mining Act, its implementing rules and regulations, and related laws to appreciate how the Mining Act is implemented. The Chamber finds the alternative bill as unnecessary. Changing a mining law that has been studied since the promulgation of the 1987 Constitution, filed and deliberated in Congress until signed into law in 1995, subsequently challenged in 1997 until finally affirmed in early 2005 by the highest court of the land indicate that the Mining Act has been fully studied and debated. Problems in implementation have been manageable and reforms have already been initiated. A different perspective on mineral resources development can be discussed. However, in the final analysis, the Bill’s proposed deviation from constitutionally mandated minerals development and the resulting weak regulatory framework will not be accepted by major stakeholders and investors.