POLICY BRIEF – Is There A Future For Mining In The Philippines? – Ateneo School of Government (ASoG) – Part I

POLICY BRIEF

Is There A Future For Mining In The Philippines?

Ateneo School of Government (ASoG)

The Graduate School of Leadership and Public Service

This policy brief is based on years of research and stakeholder discussions on natural resource governance and conflict management conducted by the Ateneo School of Government (ASoG). The School has taken every effort to gather empirical data and to understand the concerns of all stakeholders, before synthesizing ideas and formulating recommendations for this policy brief. Most recently, the School invited representatives from relevant sectors to an academic conference on November 22, 2011, to discuss these ideas and recommendations. The School acknowledges the inputs of the experts and stakeholders who greatly contributed to the refinement of this document.

The Ateneo School of Government is neither for nor against mining, a priori, because that would be against its principle of fostering the development of new ideas and approaches that bridge the gap between classroom wisdom and real-world policy decision-making and governance. However, the School does not shy away from taking a principled stand on issues, after rigorous examination of facts and engaging stakeholders with different perspectives in honest and candid discussions. Ultimately, this policy brief is not a consensus document, and ASoG is solely responsible for the views and contents presented.

This policy brief answers ten key questions related to mining and governance:

1. What is the nature of mining in the Philippines?

2. Why does mining generate conflicts?

3. Is mining beneficial to the country and to indigenous and local communities?

4. What are the real costs of doing mining in the Philippines?

5. How do we understand risks and conduct a cost-benefit analysis?

6. What is responsible mining, as applied to the Philippines?

7. What operational conditions must be met to conduct responsible mining in the Philippines?

8. What actions must the government take towards the management of responsible mining?

9. What interim measures must the government take while appropriate mining governance is instituted?

10. What is the future of mining in the Philippines?

1. What Is The Nature Of Mining In The Philippines?

The Philippines is a country rich in mineral resources that would be worth trillions of pesos if sold today (PhP47 trillion, according to a leader in the mining industry). These mineral resources are located within our lands or under our seas, both of which locations are also rich in other living or non-living resources that sustain economic activities such as farming, eco-tourism, and fishing. Mining operations necessarily involve the alteration of the land or seabed, such that people who use the land or sea for settlement and/or livelihood are likely to be displaced by mining operations. The lands where mineral resources are located may also have cultural or ecological values not easily measured in monetary terms.

The benefits derived from mining must balance its costs on people and the environment. Compensation for losses must be provided on top of the rightful share of the country and local people of the income from mineral wealth.

Minerals are non-renewable resources. Therefore, mining operations have a limited lifespan. The scale of alteration or disturbance resulting from mining operations (spatial and temporal) depends on the type of minerals, size of deposit, type of technology used, economic feasibility, and similar factors. The impacts on the environment and people, at any scale, depend on unique local factors: customary traditions and practices, uniqueness of natural ecosystems, risk of accidents brought by natural disasters, availability of livelihood alternatives, or the general ability of people and ecosystems to adjust to the scale of alteration or disturbance.  The extent of alteration or disturbance resulting from mining operations may be limited to the period of operations and controlled to minimize its adverse impacts. However, the impacts on the environment and on people generally last longer than the mining operations, and may or may not be reversible. The impacts of mining operations in the Philippines are magnified because their scale is large compared to the total area and population affected (often in small islands, with many communities living in the area intended for mining, with high risk of natural disasters). This is in contrast to the impact of mining operations in continental settings (e.g., Australia, Canada, the United States) where the size of mining operations is small compared to the vastness of the continent, with a sparse population and less diverse natural ecosystems.  Mining operations are either large-scale or small-scale, depending on the perspective of regulating the mining operator relative to the size of its operations. The policy criteria for categorizing small- versus large-scale mining do not always match the criteria for determining the scale of environmental impacts or economic benefits.

2. Why Does Mining Generate Conflicts?

The conflicts in mining generally relate to the following questions:

. Should mining prevail over current land-uses?

. Are the benefits from mining sufficient and fairly distributed?

. Are the social and environmental costs fully considered and compensated?

. Are the risks of adverse impacts reduced to a minimum and socially acceptable to those who bear them?

. When local stakeholders decide that the risks are unacceptable, can the national government override that decision based on broader criteria?

. Does small-scale mining provide more equitable access to resources? At what cost?

For each of these issues, the fundamental questions are: Who has the right to decide? How are decisions made, and on what basis? According to the current legal framework, the State decides these matters, acting as owner of the mineral resources and as protector of the interests of those who may be adversely affected. However, the State recognizes that stakeholders have the right to participate in decision-making and even to decide on some issues for themselves (e.g., free and prior informed consent [FPIC] of indigenous peoples). Since the right to decide is a matter of State recognition, there are also conflicts about how the State decides on who participates in decision-making, and to what extent their participation affects the final decision. The dynamics of “who decides” keep changing as policies change. The net effect is the absence of stability and consistency in decision-making. Conflicts persist.

How are decisions made, and on what basis? Conflicts about mining can only be resolved after examining the facts by answering: How many occupants are affected? How much production is there? How much water is needed? How much pollution is generated? What is the probability of adverse impacts? How many workers are employed? These facts are not readily available to those who have the responsibility to decide. Gathering and analyzing the data require experts’ inputs and considerable time and money.  Understanding these inputs and applying the knowledge to the decision-making process require a certain level of skill. The law places the burden of data generation and analysis on the mining applicant because the studies must relate to the applicant’s proposed activities, and because of the considerable costs. This raises questions about the independence and credibility of the information and analysis.

Box 1. Example of inconsistency in decision-making on land-use in Palawan

MacroAsia Corporation, the flagship of one of the country’s most prominent business conglomerates, is applying for local permits to operate its 25-year lease awarded by the national government, on a property in the town of Brooke’s Point that partly overlaps with a protected area on Mt. Mantalingahan. Two other mining companies – Ipilan Nickel Mining Corp. and Lebach Mining Corp. – are in earlier stages of mining project development, trying to secure all the local endorsements in order to proceed. 

One of the contentious issues being raised about Mt. Mantalingahan is whether mining should be allowed in “core zone” areas or places where there are old-growth forests, which are protected under a special law – the Strategic Environmental Plan (SEP) for Palawan (Republic Act No. 7611). An initial review by the Palawan Council for Sustainable Development (PCSD), the regulatory agency for environmental concerns in the province, showed that all except 91 hectares of the area leased to MacroAsia are “core and restricted zones” protected under the SEP zoning system. The mining company maintains that its legal right to utilize the lease area has precedence over local laws, including the proclamation of Mantalingahan as a protected area. 

There are different institutions responsible for making decisions that determine whether land is to be maintained as a protected area or opened for mining. The inconsistency in decisions, based on differing information on the status of land as a core zone and when mining rights are vested, fuels conflicts.

The people tasked to decide or participate in decision-making have problems securing and effectively using reliable information because:

. Sources of information (e.g., experts) are not acceptable to all;

. Methods and/or outputs are insufficient or not fully relevant to the decision needed;

. Information is in a form that is not easily understood by stakeholders;

. Access to information is limited; and

. Information is unobtainable or unknowable given available resources.

The law requires experts to evaluate the data gathered and recommend actions to decision-makers or stakeholders. The quality of expert advice may vary considerably, thus decisions might be made based on inaccurate, insufficient or unreliable information – or not based on any data at all.  Such decisions are then subject to challenge and reconsideration. The net effect is unreliability of decision-making. Conflicts persist.

When decisions and decision-making are inconsistent or unstable because of the lack of empirical bases, stakeholders tend to appeal to the highest power that can enforce a decision in their favor. This opens up venues for arbitrary decision-making based on factors other than facts. The problem is that decision-makers, even at the highest levels, change with every election. The incumbent may have a different appreciation of particular situations depending on his agenda and what sectors have more political influence.  The net effect is policy uncertainty and more conflicts.

In the Fraser Institute Policy Potential Index (PPI) in 2010/2011, the Philippines ranked 66th out of 72 countries in conduciveness of policies to mining investments.  The country ranked low despite fiscal and other incentives provided by the government to mining companies. Could this be due to the lingering uncertainty and conflicts associated with mining activities in the country?

Are all these conflicts over mining policies, decisions, and operations worth it? A look at the benefits and costs of mining may provide an answer.

Box 2.  Uncertain future of the Tampakan Copper-Gold Project

The Tampakan Project is expected to be the single biggest mining project in the country that could potentially double the current contribution of the sector to national gross domestic product (GDP).  All eyes are on Tampakan and South Cotabato to see how decisions will be made on whether or not to allow the project to push through.

The Province of South Cotabato enacted a Provincial Environment Code that bans open-pit mining, which happens to be the method of choice for the Tampakan Project. The National Government, through Department of Interior and Local Government (DILG) Secretary Jesse Robredo is pressuring the province to reconsider the ban, asserting that the ban is inconsistent with national law.

From various interviews and public pronouncements, it appears that one of the main reasons behind the open-pit mining ban is that officials are not convinced the project will not cause harm to the environment and to local farmers.  Former South Cotabato Governor Daisy Fuentes has publicly announced that the decision to ban open-pit mining was made as a precaution to protect farmers from potential water scarcity that can result from mining operations.  On the other hand, the mining company claims that water quality and supply issues have been fully considered in its studies and assures the stakeholders that there will be no disruption of water supply for other uses.  

Studies conducted by groups opposed to the project evince water, earthquake, and pollution risks, among other issues. MGB also raised three questions to SMI that have not been answered: the 2km-long tailings dam that the government is expected to maintain forever, the cutting of old growth forests and effect of water degradation and supply on agriculture. 

The national government is insisting on a legalistic approach, which the province has vowed to face.  Underneath the legal posturing are serious issues that cannot be resolved because of the lack of reliable information.

3. Is Mining Beneficial To The Country And To Indigenous And Local Communities? 

Mining operations bring jobs and infuse money into the local economy, and the mining sector contributes to economic growth in general.  Even so, is any positive number in terms of job generation and economic growth always a good thing?  How much incentive does the government give to the mining sector, which should be deducted from the net benefits to the country and local people?  How much more (or less) can the government get if it considers alternative uses of the land? In other words, are Filipinos (as a people) really better off with mining, and is the government getting the best deal for its people?  These are tough questions to answer because the researchers do not have the complete picture, due to the lack of data and a framework to analyze benefits as a whole.  But there are known facts that can help in this analysis:

a. Contribution of mining sector to employment generation – According to the Mines and Geosciences Bureau (MGB), the mining (and quarrying) sector’s contribution to national total employment has always been below 1 percent (1%). Recent data has shown that it has been 0.5% since 2008 until 2010. So far, for the first half of 2011, contribution has been reported as 0.6% (in contrast to agriculture at 33% in 2011). All over the world, extractive mining is known as a low-employment generating activity. The Tampakan project, with expected investments of $5.9 billion, will provide only 2,000 permanent jobs.

b. Contribution of mining industry to growth in other sectors – Habito (2010) observed that the mining sector has relatively low labor-output ratios in terms of employment generation. Labor compensation accounts for only 13.3% against an average of 20.7% in all sectors. The sector has a backward linkage index of only 0.46, meaning there is relatively little input from other domestic industries; even the forward linkage of 0.82 indicates that the sector is below average compared to all other sectors in generating further domestic economic activities. Minerals are being exported with little value-adding that could have generated further employment and industry linkage.

c. Contribution of mining to economic growth – At the macro level, the contribution of mining to GDP has remained in the single digits.  As of 2010, it only contributed 1.0%, with a Gross Value Added in Mining of PhP88.2 billion (MGB, 2011), compared to the agricultural sector’s contribution of 12% in 2010 (BAS, 2011). As for its contribution to total exports, export of minerals and mineral products has averaged 4.5% in the last four years and reporting 4.3% for the first half of 2011 (MGB, 2011).  Total exports of non-metallic minerals’ share are even lower, hovering around 0.4% for the past 4 years (MGB, 2011) compared to agriculture at 8% for 2011. The manufacturing and service sector has always been the main driver of economic growth for the country comprising of over 50% of GDP (ADB, 2011).

However, the picture can be very different from the perspective of a project proponent.  In the Tampakan Copper-Gold Project, Sagittarius Mines, Inc. (SMI) estimates that the project alone will contribute an additional 1% of national GDP, or an additional 10.4% of regional GDP for Regions XI and XII.  It is difficult to access data for relative contribution of existing projects to local economic growth (at provincial and municipal levels), if data exists at all.

d. Inflow of foreign investments and outflow of profits – The figures are not readily accessible to the public, but the government should be able to determine how much of the foreign funds that come in actually remains in the country to generate more jobs and economic activities. How quickly do the funds return to the foreign investors?

e. Revenues/taxes received by the government – The amounts of taxes, fees and royalties from mining change from year to year and do not appear to show a trend.

There are other factors to consider in how much the government actually gets. It would seem that a tax holiday for Financial and Technical Assistance Agreements (FTAAs) and the 2% limit of government (excise) tax on Mineral Production and Sharing Agreements (MPSAs) translate to almost zero revenue for government. Bautista (2009) estimated that 19.60% to 29.74% of mining revenue accrues to government tax collection. Action for Economic Reforms (2009) calculated only a 7.5% effective tax rate in the industry (1997-2000). AER also cited that the government loses an average of 32% of revenues annually (1999-2004) because of incentive laws.  Compared to other countries, the Philippines’ effective tax rate is low. Deutsche Bank (2010) reported that effective tax rate for minerals in other countries are as follows: US (40%), Australia (38%), Brazil (38%), and Canada (23%).

In the Tampakan Project, SMI estimates that the project will produce a revenue stream of up to US$37B (PhP1.85 trillion) over the life of the mine – US$7 billion will go to government as taxes/duties/royalties and US$2 billion will go to local governments and host communities.  According to the Chamber of Mines, government already gets 41% of the mining firm’s income before taxes, which is much higher compared to Africa (average 34.4%) or Latin America (average 39.5%).

f. Poverty incidence in mining areas – There are a few studies that appear to associate poverty incidence with mining.  It is difficult to make sweeping conclusions, but the data shows that provinces hosting mining operations do not necessarily demonstrate improvement in the lives of local people.

In a recent study by Balisacan (2011), the poverty incidence among individuals engaged in mining has continued to increase, compared to workers in other sectors. In 2006, income poverty in the sector was at 34.64 and by 2009 it increased to 48.71. The author also uses a multidimensional poverty index (MPI) that captures various dimensions of poverty (see Table 2). The mining sector also shows a high deprivation in health and education compared to other industries (see Table 3).

The 2003 small area poverty incidence of National Statistical Coordination Board (NSCB) shows that Bataraza, Palawan, where Rio Tuba has been operating for 30, years has a poverty incidence that is twice the national rate, and is in the bottom 25% of municipalities on poverty incidence.

Some may argue that at the project level, mining operations can have a significant impact on the local community income from royalties and social benefits, which could lift families out of poverty. For the Tampakan Project, SMI expects royalty payments and social development contributions to reach US$800 million to host indigenous and local communities.

There are no systematic studies to track the impact of the mining sector (as a whole or at a project level) to improving the lives of local communities. It is important to measure this economic impact especially after mining activities end.

g. Improvement of health and education services in mining areas – According to Bautista (2009), a paltry 0.11% to 0.26% (with gold mines at 1.23%) of mining revenues go to community development. How much of this goes to improving the health and education of local communities?  Since these services are the responsibility of government, it is also important to know how much of the government’s share from mining revenues has been put into improving basic services.

There are many reports of adverse health impacts associated with mining, both large- and small-scale (Sakoan, 2003; Drasch et al., 2001; Appleton, et al., 1999; 2006). These have shown poor health in communities mostly due to exposure to high levels of mercury, specifically in areas of small-scale mining .Even granting that these incidents are accidental or isolated instances, the health impacts of mining require accurately accounting for the improvement of health services together with the dangers to life and health.

The benefits that the country and local people can derive from mining have a limit in amount and in time period. A visit to a mining operation typically shows new roads and access to transportation, increased trade of goods and services supplied to the mining operations, even improved access to health centers and schools.  These added benefits might be provided by the mining operator or the government, or made possible because of the presence of mining operations.  Mining companies claim that there are huge economic and social benefits during mining operations, although there are no independent studies that measure the net benefits after accounting for the costs.

On the contrary, there is no dispute that there is little or no economic benefits after operations end.  The sustainability of the benefits from mining depends on how the benefits will be allocated among the beneficiaries in the present and for the future.  But, is there any municipality that shows significantly better quality of life than neighboring municipalities after mining has left?

Based on available verifiable information, it can be argued that the contribution of mining to the overall economy is small. The Philippine government does not appear to be getting the best deal for the people, especially compared to other countries with mining industries, and most of the benefits go to a very narrow set of beneficiaries. The researchers encourage the mining industry to provide verifiable information on benefits that are not considered here.

4. What Are The Real Costs Of Doing Mining In The Philippines?

As part of assuming the risk of adverse impacts, mining operators are required to set aside funds to compensate for damages. Mining operators may compensate the displacement of communities and economic losses from disturbance based on negotiations with affected stakeholders. Given that the same affected or at-risk stakeholders are also entitled to a share in mining revenues, there should be a net economic benefit to them apart from the costs of displacement, disturbance, or risk of damages.

Conflicts regarding costs are not only about measurable economic losses, but also about environmental and social costs that are either unknown or not measurable in monetary terms.  The basic issue is: if these costs are unknown or not measurable, how can decision-makers make accurate cost-benefit decisions? If the environmental and social costs have no equivalent in money, are these costs then ignored? Or should decisions be suspended, pending a better appreciation of these costs?  Who decides?

Over the past decade, valuation methods have been introduced to estimate the value of biodiversity and other ecosystem services.  As applied to mining, environmental and social valuation is useful for conducting cost-benefit analysis, damage assessment and compensation, regulatory analysis, land-use planning, and natural resource accounting, among others. There is no single valuation technique that can be applied to the Philippine mining sector, considering the diverse nature of the interactions between the economy, the environment, and human communities.  Therefore, several techniques must be used in conjunction with one another in order to ensure that the worth of social and environmental health is not undervalued.  These methods and results are at best complex and contested, and data-gathering has not been regular.

For instance, although information already exists that shows the financial value of negative environmental impacts due to mining, it is albeit incomplete and outdated.  According to data from NSCB (2010), the cost of these negative environmental impacts steadily increased from 1992 to 1996. However, the data data does not distinguish small-scale from large-scale mining.

While determining the social value of a good or a service is complicated, there are several approaches that can be used to establish a reasonable figure. Examples of such methods include willingness to pay, measures of damages (lost wages, health care requirements due to injury or disease), and travel costs (Matthews and Lave, 2000).

One study done in the Philippines that weighed mining benefits against other land uses is the Samar Island Biodiversity (SAMBIO) Project in 2000. The Island is known for its extensive bauxite, copper, and nickel mines. One component of the study showed that total non-use value (i.e., to preserve resources) is around PhP54 million per year, revealing a significant willingness of Samar Island residents to pay to preserve its natural resources. The willingness to pay (WTP) value showed that resources can be equally or more valuable, and also likely to be as profitable as mining (through eco-tourism and non-timber products), with much less risk and uncertainties involved, making conservation a viable land-use option.

Valuation studies are few and limited.  The Philippines does not have a system of measuring the value of ecosystems for services provide such as waste treatment and detoxification, nutrient dispersal and cycling, crop pollination, disease control, etc. – services that could be lost when natural ecosystems are destroyed by mining operations. Mining operations directly cause the loss of these services, which must be compensated.

On social costs, how do decision-makers account for the changes in a people’s way of life, their health and well-being, their personal and property rights, and the erosion of their cultural values brought about by the sudden wealth of individuals and communities? These are especially crucial questions as over half of the mining sites in the Philippines is found in socially vulnerable areas, including areas where conflict is ongoing, such as the island of Mindanao (Miranda, et al., 2003; AER, 2009). There is an undeniable and glaring conflict between mining activities and the culture and lifestyle of indigenous peoples (IPs). A UN report in 2007 concluded that in Benguet, Cordillera, the Kankanaey and Ibaloy who had been displaced from their ancestral lands and traditional livelihood have become illegal occupants in the area.  Mining activities have occupied lands used to cultivate and raise livestock. This is a common trend in indigenous peoples’ communities across the country.

Recent news reports highlight the security risks of mining operations, as with the reported attack by the New People’s Army (NPA) on mining facilities in Surigao del Norte. The costs to the government of protecting mining companies from these risks represent the real costs of mining. The Philippine National Police and Armed Forces of the Philippines should have estimates of government expenditure to make mining operations secure.

In many coastal provinces, such as Negros Occidental and those along the Ilocos coastline, local governments and local communities are at risk of losing millions of pesos and are compelled to invest hundreds of work hours invested in protecting coastal ecosystem because the Mines and Geosciences Bureau (MGB) opened up the coastal areas for magnetite mining.  Despite LGU opposition through resolutions and ordinances, MGB still entertains applications for sand mining that can destroy fisherfolks’ livelihoods and marine habitats. Losses to government and community investments are not accounted for in the decision to allow coastal mining.

We are struggling with measuring the cost of environmental and social impacts in the present.  We have no idea what the costs will be in the future.  There are many unknown impacts, and unknown risks.  It seems that we are doing no better than guesswork in assessing the real costs of mining.

Is this a responsible thing to do – to base decisions on guesswork? Should we exercise caution instead?  How much benefit will we forego if we decide to exercise precaution? Can we afford to gamble our future for so little benefit that extends to so few?  Can we afford the cost of conflicts that leave so many with ill feeling, which could prevent cooperation in more inclusive productive activities? Unless we gain a better handle on the value of what we lose in exchange for mining, we have no rational basis for decision-making. 

Blantyre