THE MINING INDUSTRY: ISSUES, ARGUMENTS and FACTS
By: Christian S. Monsod
Dec. 20, 2011
Mining is one of the most contentious social justice issues in our country because most of the minerals are located in the rural and in the mountainous areas where the poorest of the poor are located – farmers and indigenous peoples – and in other areas, especially smaller islands, where, in addition, the livelihood of fisherfolk are also endangered by mining tailings spilling into the rivers and shorelines.
This Paper first discusses three mining issues: (1) the financial benefits of mining vs. its environmental and social costs, (2) the institutional capability of the government to evaluate the real costs and benefits of, and to regulate, mining projects, (3) whether the country is getting a full and fair share of the value of extracted non-renewable resources. The second part discusses the Arguments and the Facts on specific issues.
(1) Environmental and social costs – Mineral operations cannot be conducted without affecting and disturbing the land, water, and air surrounding and connected to the site, as well as the various natural resources found on and in them. Mining does not only result in the extraction of minerals, but often also necessitates the use, removal, or destruction of non-mineral resources, such as freshwater, timber, as well as cause social divisiveness and the need to provide PNP and AFP protection. All these translate into public costs. That is why mining is often cited as an example of what Paul Krugman calls activities that socialize costs and privatize benefits.
This is the social justice issue on mining.
That large-scale mining may not be a major cause of denudation is academic at this time where only 3%-6% of old growth forest is left (or 18%-23% of forestland including second-growth or reforested areas). Having already reached the “irreversible” stage of deforestation, any kind of forest tree-cutting should be banned.
Precautionary Principle. The government should go back to the policy of tolerance for, and not promotion of, mining. In evaluating mining projects, the Aquino administration should explicitly adopt the Precautionary Principle enunciated by the Supreme Court in promulgating the Writ of Kalikasan , to wit:
Part V. Rule 20, “Sec. 1 When there is a lack of full scientific certainty in establishing a causal link between human activity and environmental effect, the court shall apply the precautionary principle in resolving the case before it. “The constitutional right of the people to a balanced and healthful ecology shall be given the benefit of the doubt.”
(2) Institutional Capability -One cannot blame the mining industry for always trying to get the best deal for its shareholders, even if it means engaging in eufemisms about “responsible” mining. But it is the responsibility of government to protect the interests of the country by making sure that not only the benefits but also the costs of mining are properly accounted for.
However, the government itself says in the Philippine Development Plan 2011-2016 Chapter 10 that it does not have the capability to make that kind of assessment, to wit:
(a) “Currently, there is no standard resource and environment valuation. There is a need to have a cost-benefit analysis and standard parameters that will consider all relevant values (including non-market values)”; (page 310)
(b) “Institutional issues need to be addressed to ensure sustainability of the country’s fragile environment and natural resources… (page 320-322)
- “implementation is confused by overlapping and conflicting policies,
-“government capacity for resource management is wanting,
- “enforcement of environmental laws and policies is inadequate…..Relevant environmental laws, specifically those regulating the utilization of natural resources, i.e. NIPAS, etc. are poorly implemented.”
The question begs to be asked: how does the government approve mining projects in the face of these institutional shortcomings?
(3) The issue of fair share.The industry says: “mining can increase revenues, reduce budget deficit”. The Facts: For 2000-2009, the ontribution of mining excise taxes (large-scale, small scale, non-metallic) to total BIR excise tax collections is minimal = about 0.7%. Mining excise taxes relative to total BIR collections is consequently even smaller 0.07%.
DENR says that the country is being shortchanged with only 2% excise tax share in the Mining Production Sharing Agreements. Moreover, there are tax holidays for up to 5 years. And, there is a disturbing discrepancy (excess of P277b from 2000-2009) between exports and reported production values of minerals and a discrepancy in the potential excise taxes from mining vs. actual collections (P7.8 billion from 2000-2009.) Even allowing for substantial under-declaration by small-scale miners, the DENR says that there are also “informal reports of large-scale mining not declaring properly”. (see paper of Ms. Maita Gomez). This should be further investigated.
On the tax effort ratio where the Philippines is already low at about 14%, a recent study by Prof. Bautista of Ateneo estimates (preliminary) that from 1997-2007 the government only collected 7.5% of the production value of mining due partly to the tax incentives and the low share of government. (also paper of Ms . Gomez)
A study by Prof. Renato Recide of the U.P. School of Economics on BOI incentives describes mining incentives as “redundant”, because it is not a “footloose” industry. Mining companies must come because the minerals are here, but when they come, it is not because of incentives but when demand and prices are high.
Associate SC Justice Antonio Carpio in his Dissenting Opinion in the MR in the La Bugay case said that the State has so far gotten zero of “additional share” in FTAA (Financial and Technical Asistance Agreement) and stands to gain zero from the Tampacan project because of the onerousness of the formula. The big profits from mining have gone to foreign companies and corrupt government officials, just like the experience of other countries, as discussed in the book “Escaping the Resource Curse” by internationally acclaimed economists Jeffrey Sachs and Joseph Stiglitz.
The DENR wants to charge a 5% royalty on revenues, but the mining industry is “crying poor”, despite higher profits amidst rising share prices. That’s what’s good for its shareholders.
(4) The mining industry is pressing for approval of mining applications and operations, warning that the international community is becoming alarmed at the instability of the rules and the delays in government approvals, and this might turn off investors.
All the more reason why the above safeguards must first be put in place for reasons of transparency and consistency. The present case-to-case approach opens the door to corruption big amounts are involved) and to decisions that are vulnerable to future questioning, which results in an unstable regulatory environment.
Moreover, the consequences of wrong decisions are so huge and irreversible that it is better to take a longer view today. In any case, the demand for minerals will continue into the future and there is no real opportunity cost to deferring decisions on mining.
We might as well put in place the plans that we have been postponing for decades, such as, making a complete inventory of our natural resources, determine the actual metal needs of the country, require mining companies to establish downstream plants (PDP, page 327), etc. to capture more of the values of our minerals for ourselves, when allowed.
(5) Joining the issues on mining.
Arguments vs. Facts
(a) The Argument: “mining will substantially increase exports, and foreign exchange reserves.”
The Facts: Large-scale mining typically cites gross investment inflows and export proceeds but do not include data on the foreign exchange outflows. Since they are allowed to recover and repatriate all pre-operating costs (including investments) up to 5 years, the net flows are likely to be about equal during that period. As for export proceeds, mining operations usually front load production during the first five years, arguably to avail of world market opportunities. But it also happens to coincide with their tax exemptions. Profit remittance can, thus, be considerable. Unfortunately, the DENR does not consolidate the data across government agencies, i.e. DTI, Bangko Sentral, SEC, and it is difficult to get a true picture of the NET foreign exchange flows from mining From available data, however, it is unlikely that the net foreign exchange benefits are “huge” as the mining industry claims.
(b) The Argument: “mining can be a catalyst for economic growth”
The Facts: The role of mining is always described as “potential” because mining has never played a major role in our development, even during the mining boom of the seventies and early eighties. Former Sec. Habito estimates, based on the national input-output tables, that the backward linkages of mining is .46 or less than half of other industries and the forward linkages is a low .82 (below 1) – which does not put mining in “enough value adding activity” to merit priority. The reason, of course, is because most of the mining in our country, after 50 years, is still extract-and-export-ore activity and there is no significant industrialization footprint based on our mineral resources. Not surprising, since the mining companies have to protect their downstream plants or those of their partners abroad.
(c) The Argument: “mining can provide jobs and prevent exodus of jobseekers that affects social fabric.
The Facts: Extraction mining is known all over the world as a low job-generating activity. In our country, its average employment contribution over the years is about 1/3 of 1% of total employment. As of Oct. 2009, the total employment in mining and quarrying of 169,000, is hardly a factor in preventing exodus. Former NEDA Sec. Habito cites other statistics: Labor share in mining = 13.3% compared to the average share of labor in all activities = 20%.
In the proposed Tampakan project in Mindanao involving some $5.9 billion investments, the permanent jobs will only number 2,000, or an invested capital per job of about P125 million. The comparable rate for call centers is reportedly P6 million per job.
(e) The Argument: “mining can reduce poverty”
The Facts: Figures derived from FIES 1988-2009. Mining has the highest poverty incidence (48.7%) of any sector in the country. It is the only sector where poverty incidence increased between 1988-2009. As for the argument that national figures do not tell the whole story: among the highest poverty levels are regions with mining operations, i.e. CARAGA (47.5%), Zamboanga Peninsula(42.75%), Bicol region (44.92%). At the municipality level, (small area poverty estimates 2003), Bataraza in Palawan where Rio Tuba has been operating for 30 years has a poverty incidence double (53%) the national rate (26%).The mining industry is correct in saying that the figures do not establish causality. But they do show an association between mining and poverty that at least raises questions on the claim that mining substantially improves life in their communities.
(f) The Argument: “mining is God’s bounty that’s meant to be exploited to serve humanity”
The Facts: Minerals can serve other purposes than being dug up and exported. Science says that they are needed to anchor forests (especially in island ecosystems). Since we are the number one disaster area from typhoons, the value of mineral rocks to our forests and hence to the conservation of our waters and biodiversity is just as high. As for the argument that minerals are the raw materials for modern conveniences, the point is that, in cases where mining is allowed, the minerals should be priced at full cost, including environmental and social costs. Otherwise, our poor, who bear these costs are effectively subsidizing the consumerism of the rich, both domestic and foreign.
There is another value to not cutting our trees to get to our minerals – the carbon sink value of our forests. The Palawan Council for Sustainable Development estimates the carbon sink value in a future carbon market of the Palawan forests at P140 billion.
(6) In the face of contrary empirical evidence, past Presidents bought into the rhetoric of mining and made it public policy (both quotes were taken from the SC decision on the La Bugay case).
“Long term, high profit mining translates into (1) higher revenues for government, (2) more decent jobs for the population, (3) more raw materials to feed the engines of downstream and allied industries, and (4) improved chances of human resource and countryside development by creating self- reliant communities away from urban centers. (Ramos)
(1) “responsible exploration, development and utilization,
(2) to enhance economic growth,
(3) in a manner that adheres to the principles of sustainable development
(4) with due regard for justice and equity, sensitivity to the culture of the Filipino people and respect for Philippine sovereignty.” (Arroyo)
The new mining policies being formulated by the Aquino Administration can surely do better than these.