Transparency Issues In The Philippine Mining Industry
By: Maita Gomez
Action for Economic Reforms (AER)
Policy Research Paper
V. Summary of Observations and Recommendations
Insufficiently disaggregated data sets. It is commendable that the MGB regularly issues data sets on the mining industry – on production, approved contracts, gross-value added, exports (from the Central Bank), taxes collected (from the BIR), etc… But the data is insufficiently disaggregated.
The sub-sectors of the mining industry are regulated by different arms of the government, operate under different laws, and each distinct. The players, the terms and conditions under which they operate are as different as their effects on localities, with the possible exception of their effect on the environment.
Without disaggregated data, it is difficult for policymakers to evaluate their respective contributions to the economy as well as the problems that their operations create. It is likewise difficult to evaluate their potential in terms of raising government revenues and contributing to local development and poverty alleviation.
In fact, insufficiently disaggregated data can be used to mislead the public. Currently available data, e.g. on contribution to GDP and to employment, has been used by large-scale mining advocates, treating the aggregated data as if these contributions are produced by their sub-sector, when it is not in the least bit certain that these can be ascribed wholly to their particular sub-sector.
Data Discrepancies. Miners declare the volume and value of their production in order to secure permits to transport and export, to file tax returns, and so on. The MGB verifies production. Data on national taxes is provided by the BIR and presumably local tax data is provided by the LGUs. Export data is from the Central Bank. In tax returns, the Central Bank also reports to the BIR on the volume and value of small-scale mining production that it has purchased. Reporting from various government units provides the opportunity for comparison and is useful for a system in which there is check and balance.
A system by which different government agencies report different sets of figures is beneficial to monitoring the industry. As in all other systems of accounting, reporting by another party, can reduce the occurrence of fraud. But, this is so, only if each reporting party is certain that the report will be checked against other reports. To the extent that a party preparing a report is certain that there is no such possibility, the incentive to produce an inaccurate or even a fraudulent report increases.
Figures from different parties do not tally, as in the case of exports being greater than production. However, there is no mechanism to investigate or reconcile discrepancies. Based on inconsistent data, regulation and even mere monitoring of the industry becomes ineffective.
Furthermore, if it is ascertained that reporting is incomplete – as is alleged of LGUs, then this is a problem that should be immediately addressed. Unless, it has other, less salubrious motivations for not doing so, there is no reason for any government office, in this case, a local government unit, to tolerate or turn a blind eye to illegal activities and allow informal sector status to operations that have long-term effects on the stock of the national patrimony. The alleged failure of LGUs to report accurate data on tax and revenues on a sub-sector over which it has jurisdiction. i.e., small-scale mining, is inexcusable and a long-standing and serious governance problem.
The gap between potential and actual collection of excise taxes is a major discrepancy. Although, tax evasion hand-in-hand with corruption seems to be the only reasonable explanation, it is difficult to attribute the blame with any certainty, to a definite party or parties. Producers themselves have to be at least partially responsible. Local government units bear some responsibility as may the Central Bank and regional offices of the MGB. Finally, the BIR that sets collection targets based on production data estimates has to be principally responsible for this gap.
There is a need for further study on the system of estimating potential tax collection, verifying these estimates and taking action when there is failure to realize them.
Environmental Protection. This author maintains that the mandates to promote mining and to protect the environment are inherently conflicting and that it is extremely difficult for the DENR to balance the two.
There is no debate that the extraction of mineral resources does extreme damage to biodiversity, water systems, land viability and the environment in general. In an effort to integrate these negative externalities into mining costs, the Mining Act obliges certain expenditures and contributions to be made by contractors. One of these is dedicated to the expenses required for monitoring compliance with an environmental rehabilitation program. However, having the party that is monitored shoulder the cost of monitoring lends itself to regulatory capture.
The layperson’s view is that they are ridiculously low. Further study is necessary to determine if the level of these charges is sufficient, if the administration of these funds is such that they are actually available when needed, on what they are actually spent, and how they have succeeded in protecting or rehabilitating the environment.
Government Revenues. The level of government revenues derived from large-scale mining depends on the fees it charges relative to the services it provides, the revenues it gains or loses due to the provision of incentives and the efficient collection of taxes due.
Under the present system, government revenues do not reflect the negative externalities generated by the industry (depletion of non-renewable resources, environmental damage and so on). In fact, the fiscal regime is short –sighted. It merely seeks to encourage the entry of investment into the industry without due consideration to future costs in terms of resource depletion and the promotion of sustainable development.
The incentives granted to mining contractors are appalling to civil society organizations as well as not a few government officials. These incentives, guarantee the return of virtually all the expenditures by mining contractors – investment and tax expenditures – such that they virtually remove all risk from investment.
From the country’s point of view, they are ominous and violate all sense of fair play. The government eventually rebates all these expenditures and forsakes almost all gains from the contractors’ operations while it loses valuable and non-replenishable resources. Even taxes not paid by the contractor (such as tax on dividends to stockholders) and other expenses (such as royalties to indigenous peoples for surface rights) are eligible for deduction from the government’s share. Where is the partnership in that?
There is a need for the government to estimate the level of revenues foregone due to the prevailing fiscal regime and the system of sharing gains from large-scale mining. There is a need for a new Mining Law – one that goes beyond guaranteeing profits for investors and ensures a fair share of gains for the country as well.
The Mining Controversy. The mining controversy has caused division within affected communities and created a policy gap where a number of local government units have taken positions that are in opposition to those held by the national agencies that promote the industry.
A major problem is that many members of “host” localities and communities are unconvinced that large-scale mining ventures actually bring development or progress to their localities. While it may be debatable whether or not, mining has brought social or economic upliftment, what is certain is that the presence of large-scale mining projects has brought strife and social conflict to many localities.
In each locality, there is a small minority that benefits from the presence of mining projects – suppliers, recipients of assistance, employment and other largesse from the mining company, that are fiercely in favour of mining operations. The majority, maintain that the decision to mine in their areas was secured without their informed consent, live in fear of the environmental devastation they observe, and are just as fiercely anti-mining.
The amount of revenues derived by LGUs from large-scale mining can only be described as pathetic. Revenues derived by local governments do not begin to compensate for the long-term and enduring destruction and alteration of thousands of hectares within their territories. In addition, these giant injuries are committed by entities over which they little have limited jurisdiction – neither in terms of regulation nor taxation.
In the past year, several LGUs have legislated measures to recover their autonomy and dominion over mining companies. In doing so, they have placed themselves in a conflicting position vis-avis the national government.
Aware of the paucity of LGU revenues, a representative of the Chamber of Mines of the Philippines has suggested that the 40% share of LGUs, be paid directly to LGUS. If the national government should adopt this suggestion, the LGUs would definitely be in better position to budget and manage mining revenues, rather than be in the dark about fund releases and schedules.
However, the real question is: What would it take – in terms of environmental, development, and revenue generation programs – for LGUs to agree to allow mining in their areas? Furthermore, what powers would LGUs need to have to ensure gains from these programs?
On the ground, it does appear that current mining policy burdens LGUs and local populations with the costs but fails to include them in the benefits. What must LGUs and local populations receive in order to consider mining a worthwhile trade-off?
Transparency. Revenue transparency issues cannot be properly viewed in isolation, i.e., outside the context of greater transparency issues that relate, most particularly to the consent process.
Revenue transparency is a tool to ensure that all stakeholders (companies, local populations, national government, local government and future generations) shoulder their share of costs and receive their fair share of gains from the extraction of non-renewable mineral resources.
LGUs, local populations and future generations are the most directly affected by large-scale mining operations. However, these stakeholders are the most disadvantaged – in a system in which negotiations and contracts are entered into between companies and the national government and in which the national government dictates the terms and conditions of the operations of these companies. The national government is disadvantaged by the very conditions dictated by the Mining Law and its failure to effectively monitor, regulate and garner adequate revenues from the operations of large-scale mining projects. The Law bends over backwards to encourage entry into the industry and contains ominous conditions that disproportionately favour private investors. Through generous incentives and income shares, these investors are assured of profits. But, over time, these gains are endangered and can be secured only to the extent that they are able to fend off the growing opposition from the respective localities that they operate in.
 This author once asked a representative of large-scale mining if the monitoring team did not tend to use this fund as a source of junket and luxury expenditures. The representative replied in the positive. To the succeeding question, “what do you do about it?”, the reply was, “What can we do? They are monitoring us.”
 Some examples: The province of South Cotabato has passed an environmental resolution banning open-pit mining, the method used by the mining project in their area. The province of Romblon has declared a moratorium on mining until such time as all issues and controversies are threshed out. The municipality of Cantillan, in Surigao del Sur refused to issue a business permit to a mine that has encroached on its watershed, nevertheless the mine continues to operate with authorization from the national government.
 These are discussed extensively in the Bantay Kita report.