The Philippines is the fifth most mineralised country in the world, with an estimated USD1 trillion in untapped reserves of copper, gold, nickel, zinc and silver. Recent statistics from the Philippine Mines and Geosciences Bureau (MGB) indicate that there are only 49 operating metallic mines, employing around 196,000 workers. In the first semester of 2022, total exports of minerals amounted to almost USD3.851 billion, and the Philippine Department of Environment and Natural Resources (DENR) placed the gross production value for large-scale metallic mining at PHP101.1 billion.
The Philippine legal system is a hybrid of both civil and common law. The civil law elements are primarily derived from the Spanish civil law system, while the common law elements are primarily derived from the Anglo-American system of the United States. Examples of Philippine legal concepts derived from common law include the doctrines of equity, estoppel, laches and stare decisis. The authority of Philippine courts is limited to the interpretation of law. Nevertheless, the Philippine Supreme Court may reverse rulings of lower courts, and even abandon principles laid down in previous rulings.
The mining industry in the Philippines is governed primarily by the Philippine Constitution and the Philippine Mining Act (Republic Act No 7942), including its Implementing Rules and Regulations.
The executive branch (through agencies such as the DENR and the MGB) also issues administrative orders, memoranda and circulars, which, although they are not laws, form part of the regulatory framework of the mining industry.
Under the Philippine Constitution, the state owns all natural resources, including minerals. The Philippine Constitution also provides that the state has full control and supervision over the exploration, development and utilisation of mineral resources. The state may undertake these activities directly or enter into co-production, joint venture or production-sharing agreements with Filipino citizens, or corporations or associations at least 60% of whose capital is owned by those citizens. The President of the Philippines may also enter into agreements with foreign-owned corporations, involving either technical or financial assistance for large-scale exploration, development and utilisation of minerals, petroleum and other mineral oils.
As stated in 1.3 Ownership of Mineral Resources, the state has full control and supervision over the exploration, development and utilisation of mineral resources. Furthermore, the state may undertake these activities directly or may enter into co-production, joint venture or production-sharing agreements with Filipino citizens, or corporations or associations at least 60% of whose capital is owned by those citizens. The President of the Philippines may also enter into agreements with foreign-owned corporations, involving either technical or financial assistance for large-scale exploration, development and utilisation of minerals, petroleum and other mineral oils.
As discussed in 1.5 Nature of Mineral Rights, mineral rights are granted under law through exploration permits (EPs), mineral agreements (MAs) and financial and technical assistance agreements (FTAAs), as well as quarry, sand and gravel, guano, gemstone-gathering permits and small-scale mining permits.
As discussed in 1.3 Ownership of Mineral Resources and 1.4 Role of the State in Mining Law and Regulations, mineral rights have a constitutional basis and are derived under law.
These mineral rights are granted under the Philippine Mining Act through EPs, MAs, FTAAs, quarry, sand and gravel, guano, gemstone-gathering permits and small-scale mining permits.
These mineral rights are treated similarly to property, as they may be transferred or assigned, but are subject to the approval of the government, specifically through the DENR Secretary and the MGB Director.
The DENR is the primary granting authority for mineral rights and is the government agency responsible for the conservation, management, development and proper use of the country’s environment and natural resources, including minerals and mines. Meanwhile, the MGB (a line bureau under the DENR) is responsible for the proper management and disposition of mineral lands and mineral resources, and the promotion of sustainable mineral resources development.
Mineral rights are granted under the law through EPs, MAs, FTAAs, quarry, sand and gravel, guano, gemstone-gathering permits and small-scale mining permits.
The MGB has the authority to grant EPs, through its Director. The DENR Secretary has the authority to enter into MAs, upon the recommendation of the MGB Director. FTAAs are entered into by the President, through the DENR Secretary. However, as further discussed in 2.4 Prior and Informed Consultation on Mining Projects and 2.5 Impact of Specially Protected Communities on Mining Projects, mining projects also require:
Together with the MGB Director, local government units are represented in the Provincial or City Mining Regulatory Board, which awards small-scale mining contracts.
Exploration Permits (EPs)
EPs have a term of two years from the date of issuance, which is renewable for another two years but cannot exceed six years for metallic exploration. EP holders must annually relinquish at least 20% of the permit area during the first two years of exploration and at least 10% of the remaining permit area annually during the extended exploration period. However, if the permit area is less than 5,000 hectares, the EP holder need not relinquish any part thereof.
EPs may be transferred, subject to the approval of the DENR Secretary upon recommendation of the MGB Director.
Mineral Agreements (MAs)
MAs have a term of not more than 25 years from the date of their execution, and are renewable for another term not exceeding 25 years. After the exploration period and prior to or upon approval of a declaration of mining project feasibility, the contractor must relinquish any portion of the contract area that will not be necessary for mining operations and that will not be covered by any declaration of mining feasibility. Each mining area after final relinquishment cannot be more than 5,000 hectares for metallic minerals.
MAs may be transferred, subject to the prior approval of the DENR Secretary.
Financial and Technical Assistant Agreements (FTAAs)
FTAAs have a term of not more than 25 years from the date of their execution and are renewable for another term not exceeding 25 years. FTAA contractors must relinquish at least 25% of the original contract area during the first two years of exploration period and at least 10% of the remaining contract area annually during the extended exploration period and pre-feasibility period. During the exploration or pre-feasibility study period, FTAA contractors must finally relinquish any portion of the contract area that will not be necessary for mining operations and that is not covered by any declaration of mining feasibility, provided that each mining area after final relinquishment shall not be more than 5,000 hectares.
FTAAs may be transferred to a qualified person, subject to prior approval of the President.
Grounds for Cancellation, Revocation and Termination
The grounds for the cancellation, revocation and termination of an EP, MA or FTAA are as follows:
The Philippine Mining Act and its implementing rules and regulations require contractors to institute an environmental protection and enhancement programme prior to the commencement of mining operations, and to submit final mine rehabilitation or decommissioning plans to ensure environmental protection beyond the life of the mine.
Other pertinent environmental laws include:
These environmental laws are administered by the DENR and the agencies under it, including the MGB and the Environmental Management Bureau.
Environmental Compliance Certificates (ECCs) for Mining Projects
An ECC is required for mining projects. To secure an ECC, a proponent must submit an environmental impact statement and go through the environmental impact assessment (EIA) process, which includes baseline environmental conditions, impact assessments and proof of consultation with stakeholders, including communities in the project site and neighbouring areas.
The EIA process involves four steps:
The Philippine Environmental Management Bureau takes at least 40 days to process an ECC application.
Environmentally protected areas are generally closed to mining. The Implementing Rules and Regulations of the Philippine Mining Act specifically enumerate the following areas as being closed to mining applications:
Executive Order No 79, Series of 2012, expanded the list of protected areas to include:
Stakeholders must be consulted as part of the EIA process and prior to the issuance of an ECC, which is required for the grant of MAs and FTAAs.
Furthermore, the law requires that contractors assist in the development of the mining community, including the promotion of the general welfare of its inhabitants, and the development of science and mining technology. Investors are also required to incorporate a Community Relations Office in the organisational structure. As further discussed in 2.6 Community Development Agreement for Mining Projects, contractors are also required to prepare a Social Development and Management Programme (SDMP) and a Community Development Programme (CDP).
Prior consultation with the local government units concerned is mandatory for mining applications intended for exploration through EPs, MAs and FTAAs.
Prior approval by a majority of the Sanggunian (local legislative body) concerned is required in support of mining applications for immediate development and/or utilisation activities.
Consultation and approval are carried out by the investor through the relevant Sanggunian.
For projects located within the ancestral domain of ICCs/IPs, the FPIC of the ICCs/IPs affected must be secured, as further discussed in 2.5 Impact of Specially Protected Communities on Mining Projects.
Rights of ICCs/IPs are recognised under the Constitution and under law. Article II, Section 22 of the Constitution provides that “the State recognises and promotes the rights of indigenous cultural communities within the framework of national unity and development.” Section 16 of the Philippine Mining Act states that “no ancestral land shall be opened for mining operations without prior consent of the indigenous cultural community concerned.” This provision is complemented by the Indigenous Peoples' Rights Act (IPRA) (Republic Act No 8371), which was enacted to recognise and promote the rights of ICCs/IPs by establishing mechanisms that will take into consideration the customs, traditions, values and beliefs of ICCs/IPs, and their rights to their ancestral domains or ancestral lands. Therefore, ICCs/IPs are given priority rights in the harvesting, extraction, development or exploitation of natural resources within their ancestral domains.
An ancestral domain covers all areas owned, occupied or possessed by ICCs/IPs, including lands, inland waters, coastal areas and natural resources therein, specifically ancestral lands, forest, pasture, residential, agricultural and other lands individually owned (whether alienable and disposable or otherwise), hunting grounds, burial grounds, worship areas, bodies of water, mineral and other natural resources, and lands that may no longer be exclusively occupied by ICCs/IPs but to which they traditionally had access for their subsistence and traditional activities.
Therefore, before any issuance, renewal or grant of any concession, licence or lease, or before entering into any mineral agreement with the government, an applicant must obtain a Certificate of Non-Overlap (CNO) or a Certification Precondition (CP) from the National Commission on Indigenous Peoples (NCIP), which is the main agency tasked with enforcing the provisions of the IPRA. The CNO attests to the fact that the area affected does not overlap with any ancestral domain, while the CP attests to the grant of FPIC by the ICCs/IPs concerned.
FPIC means the consensus of all members of the ICCs/IPs to be determined in accordance with their respective customary laws and practices, free from any external manipulation, interference and coercion, and obtained after fully disclosing the intent and scope of the activity, in a language and process that is understandable to the community. It is manifested through a Memorandum of Agreement containing the relevant terms and conditions, including the benefits to be received by the ICCs/IPs. The amount of royalty payment of not less than 1% of the gross output is subject to the agreement of the contractor and the ICCs. The royalty shall be kept in trust for the socio-economic wellbeing of the ICCs.
If a project proceeds without complying with the requirements of the IPRA for Certification Pre-condition and securing of their FPIC, the IPRA provides that the NCIP, motu proprio or upon the instance of the ICCs/IPs, shall have the right to stop and suspend the project.
Community development agreements are not mandatory. However, investors are required to prepare an SDMP and to implement a CDP in connection with the project for the benefit of the local communities. The CDP shall be developed in consultation and in partnership with the host communities.
The Philippine Securities and Exchange Commission requires publicly listed companies to submit sustainability reports disclosing material information gathered after undergoing a materiality assessment process. The material information may constitute data relating to:
Incentives such as income tax holidays are granted to environment- or climate change-related projects, under the current Philippine Investments Priorities Plan.
Furthermore, the Philippine Mining Act allows exemption from real property tax and other taxes or assessments of pollution-control devices.
Businesses generating green jobs or jobs that contribute to preserving or restoring the quality of the environment may avail of an income tax deduction of 50% of the total expenses for skills training and research development expenses, which is above the allowable ordinary and necessary business deductions, under the Philippine Green Jobs Act.
Good environmental and community relations around mining projects involve conducting stakeholder consultations in the form of meetings with the community, by co-ordinating with the local government units and local MGB offices, which results in the development of various projects in the community, such as providing vocational education and training programmes, contributing to the needs of local schools, and developing local agricultural industries. These also include ensuring that the concerns of the affected communities are heard and promptly addressed.
Bad examples involve bypassing or mishandling stakeholder engagement, which results in the mismanagement of the project’s SDMP and CDP, leading to a failure to uplift the welfare of the host communities or focusing on programmes that are not needed by the community, or failing to implement programmes that would otherwise benefit the community.
The Climate Change Act requires the formulation of a Framework Strategy on Climate Change, which serves as the basis for a programme for climate change planning, research and development, extension and monitoring of activities to protect vulnerable communities from the adverse effects of climate change. A National Climate Change Action Plan shall also be formulated in accordance with this Framework.
On 25 January 2019, the Climate Change Commission issued Resolution No 2019-001, entitled “A Resolution adopting the National Climate Risk Management Framework (NCRMF) to address intensifying adverse impacts of climate change”, which was deemed necessary to harmonise and integrate various climate risk management efforts among sectors and stakeholders. It also functions to strengthen the country’s early action system in view of the increasing losses and damages from recurring extreme weather events. These factors are taken into consideration during the EIA process when applying for an ECC for mining projects.
As a private initiative, the Chamber of Mines of the Philippines, to which the major mining companies in the country belong, has adopted a major climate change protocol to align with the global sustainability initiative: the Climate Change Protocol of the Towards Sustainable Mining (TSM) initiative of the Mining Association of Canada (MAC).
No climate change legislation specifically related to mining has been enacted.
The Chamber of Mines of the Philippines (see 3.1 Climate Change Effects) adopted the mining sustainability standards of the MAC in response to the call for the mining industry to align with the responsible mining practices of Australia and Canada. The MAC’s initiative, “Towards Sustainable Mining”, requires mining companies to annually assess their tailings management, community outreach, safety and health, biodiversity conservation, crisis management, energy use and greenhouse gas emissions management.
Based on the United States Geological Survey, the Philippines has the fifth largest nickel reserves in the world and, according to S&P Global, accounted for a quarter of Asian mined nickel production in 2021. Thus, even during the downturn of the mining industry in the Philippines, local mining companies continued to ship nickel to China, Japan and other markets.
The Philippine government recognises the following:
As an energy-transition mineral (ETM), nickel is a vital component for the lithium-ion batteries used in electric vehicles, the use of which is currently being endorsed and developed by the Philippine government, having passed Republic Act No 11697, An Act Providing for the Development of the Electric Vehicle Industry, in 2021.
In connection, the President of the Philippines signed Executive Order No 12 on 13 January 2023 providing a temporary zero importation tariff on electric vehicles and their spare parts for a period of five years. It is hoped that this will encourage motorists to shift from traditional modes of transportation to electric vehicles. An influx of electric vehicles could lead to a demand for nickel which, in turn, may necessitate new government or legislative action. In this regard, it has been reported that the current Trade Secretary believes that the Philippines can be a supplier of electric vehicle components, specifically ETMs, for batteries.
Taxes
After the lapse of the income tax holiday granted to the contractor by the Omnibus Investments Code, the contractor pays income tax. The contractor is also liable for excise tax on mineral products, value-added tax under the National Internal Revenue Code, customs duties under the Tariff and Customs Code, and local business taxes and real property tax under the Local Government Code.
The contractor must likewise pay an annual occupation fee, based on the area occupied, and mine waste and tailings fees.
Royalties
Contractors shall pay royalties to the indigenous cultural communities concerned, based on the agreed payment, which may not be less than 1% of the gross output.
For mineral agreements and financial and technical assistance agreements over areas covered by small-scale miners, the contractor shall pay royalties to the small-scale miners concerned upon utilisation of the minerals, depending upon their agreement.
Mining operations within mineral reservations are subject to a royalty paid to the MGB of not less than 5% of the market value of the gross output of the minerals or mineral products extracted or produced, exclusive of all other taxes.
Government Share
The total government share in mineral production-sharing agreements is the excise tax on the mineral product or 4%, based on the actual market value of the gross output thereof at the time of removal.
The government’s share in co-production and joint venture agreements shall be negotiated with the contractor, considering the capital investment, the risks involved, the contribution to the economy and other factors for fair and equitable sharing. The government is also entitled to compensation for its other contributions, as agreed upon by the parties, consisting of the contractor’s income tax, excise tax and other taxes, duties and fees provided in existing laws.
The government share in a financial and technical assistance agreement is negotiated by the government and the contractor and consists, among other things, of the contractor’s income tax, customs duties and fees on imported capital equipment, excise tax on minerals, royalties for mineral reservations and to indigenous peoples, local business tax, and other national and local government unit taxes, royalties and fees.
Contractors are entitled to fiscal and non-fiscal incentives under the Omnibus Investments Code. The Philippine Mining Act provides that mining activities should always be included in the Investment Priorities Plan prepared annually by the Board of Investments. The guidelines issued by the Board state that the exploration of mineral resources or the processing of minerals to produce semi-processed mineral products may qualify for registration with incentives limited to capital equipment.
There are currently no tax stabilisation agreements on mining in force in the Philippines.
Gains realised on a transfer of licence are generally subject to income tax. Transfers through corporate structuring outside the Philippines are not subject to tax levies.
Aside from untapped mineral reserves, investors are provided with fiscal and non-fiscal incentives, such as income tax holidays. Furthermore, mining activities are included in the Investment Priorities Plan.
Generally, foreign investments are not required to be registered with the Bangko Sentral ng Pilipinas (Philippine Central Bank – BSP). However, a foreign investment classified as a direct investment or an inward foreign portfolio investment in a peso-denominated debt instrument issued onshore by private resident firms must be registered with the BSP.
There are no restrictions on the disposition of proceeds from exporting minerals and mineral products. Under BSP regulations, foreign exchange receipts or earnings of residents from exports may be used for any purpose. Such proceeds may be sold for pesos or retained or deposited in foreign currency accounts, whether in the Philippines or abroad, at the exporter’s option.
Although they are not specific to exploration and mining, the Philippines has so far entered into bilateral investment agreements with:
The Philippines has also entered into tax treaties with:
The principal sources of financing are debt and equity financing and foreign investments.
The international and domestic securities markets provide financing to the mining industry through bond issuances, initial public offerings and the sale of preferred shares. Mining stocks are also actively traded on the Philippine Stock Exchange.
There is currently no Philippine legal framework for taking security over mining interests. However, Implementing Rules and Regulations of the Philippine Mining Act require MAs and FTAAs to include a stipulation that the financial institutions that have granted loans to contractors are given the authority to designate their assignees, in case of default by the contractors.
Outlook and Trends
Executive Order No 130, Series of 2021 (EO 130), lifted a nine-year moratorium and allowed the government to enter into new mineral agreements. It amended Section 4 of Executive Order No 79, Series of 2012, which suspended the grant of new mineral agreements “until legislation rationalising existing revenue-sharing schemes and mechanisms shall have taken effect.” The DENR has also issued Administrative Order (AO) No 2021-25, providing for the Implementing Rules and Regulations of EO No 130, Series of 2021.
The lifting of the moratorium on new mineral agreements came after the enactment of Republic Act No 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Act in 2017, which raised the rate of excise tax on minerals, mineral products and quarry resources from 2% to 4%.
With the lifting of the moratorium on new mineral agreements, there is anticipation that investors will renew their interests in the mining prospects in the Philippines, moving forward.
In 2021, the Philippines produced PHP160.9 billion worth of metallic minerals, up by 20.34% from the PHP133.7 billion recorded the previous year. This growth was attributed to strong metal prices and higher production.
In the first half of 2022, the output of the metallic minerals industry continued to rise, increasing by 39.42% to PHP112.66 billion from PHP80.81 billion during the same period in 2021. The strong performance is still being attributed to the high prices of gold, copper and nickel. It was reported that nickel ore and its by-products contributed the most to production value, at PHP51.32 billion of the total, or 45.55%. However, in terms of volume, nickel direct shipping ore output posted a 20% decline in production from 13.57 million dry metric tons (DMT) to 10.82 million DMT.
In December 2021, the DENR issued Department AO 2021-40, which lifted the four-year ban on open-pit mining for copper, gold, silver and complex ores under the DENR AO No 2017-10, and provided for additional enhanced parameters and criteria for surface mining methods. The practice of open-pit mining in the country is expected to help reinvigorate the mining industry and provide employment opportunities in rural areas.
In 2022, Ferdinand Marcos, Jr was elected President of the Philippines and appointed Maria Antonia Yulo-Loyzaga as the DENR Secretary. President Marcos, Jr has expressed the need to strengthen the regulatory powers of the DENR over small- and large-scale mining to ensure the safety of miners and to provide them with the assistance they need. As recently as November 2022, during a meeting of the cabinet with the DENR, the President directed the DENR to submit its proposed amendments to the Philippine Mining Act and the People’s Small Scale Mining Act of 1995, and to strengthen its regulatory capabilities on both large-scale and small-scale mining to ensure that all mining projects are compliant with law.
Finance Secretary Benjamin Diokno has also recognised the mining industry’s potential to be a key driver in the country’s economic recovery and long-term growth, and underscored the benefit of mobilising investments for mine development. In line with this, it is expected that more nickel mine projects will begin commercial operations.
With new leaders at the helm of the government, along with continued strong metal prices and increases in Philippine production of metals, there is an expectation that investors may regain interest in mining prospects in the Philippines.
Response to the COVID-19 Pandemic
The MGB issued Memorandum Order No 2020-004 (MO 2020-004) providing the guidelines or protocols for the resumption of mining and mineral-processing operations to control the effects of COVID-19. MO 2020-004 requires the provision of personal protective equipment, supplies and materials, and the observance of personal hygiene, disinfection and physical distancing at the mine or plant site.
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po.bunye@cruzmarcelo.com www.cruzmarcelo.comThe Mining Industry – the New White Knight of the Energy Industry?
The Philippines is the fifth most mineralised country in the world, with an estimated USD1 trillion in untapped reserves of copper, gold, nickel, zinc and silver. Notwithstanding this, its mineral wealth remains largely untapped. Recent statistics from the Philippine Mines and Geosciences Bureau (MGB) indicate that there are only 49 operating metallic mines, employing around 196,000 workers. In the first semester of 2022, total exports of minerals amounted to almost USD3,851 billion, and the Philippine Department of Environment and Natural Resources (DENR) placed the gross production value for large-scale metallic mining at PHP101.1 billion.
Reticence towards mining
Despite its competitive advantage in mineral resources, the Philippine mining industry has not prospered under the last few administrations due to inconsistent regulatory policies, including mining bans, and a strong – if misguided – anti-mining lobby from activist and religious groups, which have all led to a negative perception of mining among the general public.
The reticence of previous administrations and the general public towards mining needs to be re-examined in light of the country’s energy crisis. It has been widely reported that the new Secretary of Energy, the Honourable Raphael Lotilla, has said that the country’s 2023 power supply will most likely encounter difficulties, with some hydropower plants anticipated to be unable to deliver the expected electricity capacity. This may constrain the Department of Energy to periodically declare yellow alerts, which are issued whenever energy reserves are thin. Such yellow alerts will invariably lead to outages as the country struggles to stretch out its available electricity.
Government response
While the Philippines remains dependent on fossil fuels for electricity generation, the Department of Energy has openly advocated increasing generation through renewable energy sources, which would not only alleviate the imminent 2023 and future electricity shortages but also address the soaring cost of electricity in the Philippines.
It appears that other national government agencies are responding to this call. On 29 September 2022, the Philippines’ Department of Justice (DOJ) issued DOJ Opinion No 21, Series of 2022, at the request of the Department of Energy, clarifying that the exploration, development and utilization of solar, wind, hydro and ocean or tidal energy is not subject to the 40% foreign equity limitation under the Philippine Constitution, which provides the primary basis for the utilisation of natural resources in the country.
Section 2, Article XII, of the Constitution provides that: “All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State. The State may directly undertake such activities, or it may enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least sixty per centum of whose capital is owned by such citizens. 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. In cases of water rights for irrigation, water supply, fisheries, or industrial uses other than the development of water power, beneficial use may be the measure and limit of the grant.”
In its opinion, the DOJ states that solar, wind, hydro and ocean or tidal energy should not be subject to the 40% foreign equity limitation of the Constitution because such energy resources are beyond the ambit of the terms “natural resources” and “all forces of potential energy” as contemplated under said Constitutional provision.
In this regard, the Department of Energy has amended the Implementing Rules and Regulations of the Renewable Energy Act to be consistent with the DOJ’s opinion. Subject to further amendments and the repeal of pertinent provisions of the Water Code of the Philippines and applicable jurisprudence, this opinion mayopen up more renewable energy projects in the country, particularly to foreign investments. This is consistent with the long-term (2023–2040) action plan of the Department of Energy to utilise cleaner technologies in power generation and increase flexibility in power generation. However, these are just the first steps on the long road to energy independence.
Shift to renewable energy
In this light, it should be considered that the mining industry has much to offer the country. It is acknowledged that certain critical minerals, such as lithium, nickel, cobalt, manganese, graphite, copper and aluminium, are essential in the development of renewable energy facilities and even electric vehicles. An energy system powered by clean energy technologies differs profoundly from one fuelled by traditional hydrocarbon resources.
Solar photovoltaic (PV) plants, wind farms and electric vehicles (EVs) generally require more minerals to build than their fossil fuel-based counterparts. According to the International Energy Agency, an onshore wind plant requires nine times more mineral resources than a gas-fired plant. Since 2010, the average amount of minerals needed for a new unit of power generation capacity has increased by 50% as the development of renewable facilities has accelerated.
The types of mineral resources used vary by technology. Lithium, nickel, cobalt, manganese and graphite are crucial to battery performance, longevity and energy density. Rare earth elements are essential for permanent magnets that are vital for wind turbines and EV motors. Electricity networks need a large amount of copper and aluminium, with copper being a cornerstone for all electricity-related technologies.
Any shift to renewable energy sources by the Philippines will result in a huge increase in the requirements for these minerals and resources. If the Philippines is serious about this shift, the Philippine energy sector will need to delve deep into the mineral markets. The Philippines may not have to look far. With the Philippines’ significant but largely untapped mineral reserves, the country has the potential to become a key market, both for the local demand and for foreign requirements.
In connection, the issuance of Executive Order No 130, Series of 2021 (EO 130), lifting a nine-year moratorium and allowing the government to enter into new mineral agreements, was timely. EO 130 amended Section 4 of Executive Order No 79, Series of 2012, which suspended the grant of new mineral agreements “until legislation rationalising existing revenue-sharing schemes and mechanisms shall have taken effect.”
The DENR has also issued Administrative Order (AO) No 2021-25, providing for the Implementing Rules and Regulations of EO No 130, Series of 2021. The lifting of the moratorium on new mineral agreements has created the expectation that investors will renew their interests in the mining prospects in the Philippines, moving forward.
Metallic minerals industry output
In the first half of 2022, the output of the metallic minerals industry continued to rise, increasing by 39.42% to PHP112.66 billion from PHP80.81 billion during the same period in 2021. The strong performance is still being attributed to the high prices of gold, copper and nickel. It was reported by the MGB that nickel ore and its by-products contributed the most to production value, at PHP51.32 billion of the total, or 45.55%.
However, in terms of volume, nickel direct shipping ore output posted a 20% decline in production from 13.57 million dry metric tons (DMT) to 10.82 million DMT. In the foreseeable future, this output could further increase with the demand for lithium, cobalt, manganese and graphite surging in response to the renewable energy sector.
The Philippine Extractive Industries Transparency Initiative (PH-EITI)/Beneficial Ownership Disclosure
The PH-EITI is an initiative instituted pursuant to Executive Order No 147, Series of 2013, and is mandated to mainly ensure the Philippines’ commitment to the implementation of the EITI Standards, a set of global standards that promote transparency and accountability in extractive industries and in government.
This initiative is predicated on the idea that a country’s natural resources belong to its people, and resource extraction should ultimately benefit the public in general. Making mining companies’ beneficial ownership data accessible to the public is seen as a way of empowering citizens to be part of resource governance. With this information, anyone can scrutinise transactions in the mining sector and check who benefits from extractive activities and who is accountable for the impact of such operations, and particularly the environmental impact. Civil society and members of the affected communities would be in a better position to safeguard the area concerned and their communities.
In addition, advocates argue that making such beneficial ownership data publicly accessible enables the public to do their own fact-checking or data verification, and to pursue not just advocacy activities but also academic or scientific research based on robust data.
Beneficial ownership disclosure is one of the Philippines' commitments to meeting international standards, including those of the EITI, Open Government Partnership and the Financial Action Task Force. PH-EITI has already started a beneficial ownership register for the extractive sector, but the public disclosure of data remains voluntary for companies.
The Opening Extractives Programme is a global programme aiming to transform the availability and use of beneficial ownership data for effective governance in the extractive sector, and is expected to help the Philippines enhance this initiative and even advocate a cross-sector beneficial ownership register over the long term, meaning that companies outside the sector would also make beneficial ownership disclosures.
Countries implementing the EITI, such as the Philippines, are required to file annual EITI Reports to ensure adherence to the EITI Standards.
Section 2.5 of the EITI Standards recommends that implementing countries maintain a publicly available register of the beneficial owners of companies engaged in the exploration or production of oil, gas or mining; if possible, this beneficial ownership information should be incorporated into existing filings by companies to corporate regulators. Pursuant to this, companies that are engaged in the mineral, oil and gas industries are required to disclose beneficial ownership information to PH-EITI, which, in turn, will report the compliance of such companies to EITI.
The EITI’s direction is to encourage companies to “systematically disclose” information or to publish data themselves using their own systems, at source.
This is notably not the current requirement under Securities and Exchange Commission (SEC) Memorandum Circular No 15, Series of 2019, nor under the proposed amendments that are currently being discussed. Under the proposed amendments, the SEC will not accept the submission of any General Information Sheet without the declaration of beneficial ownership information.
However, the requirement remains that any information submitted shall not be uploaded to the SEC’s publicly accessible electronic database. It will nevertheless be made accessible or available in a timely manner to competent authorities for law enforcement or other lawful purposes. This is consistent with the declared purpose of the Memorandum Circular, which is to assist in the implementation of the Anti-Money Laundering Act and the Terrorist Financing Prevention and Suppression Act.
The collection of the beneficial ownership information required by the SEC is pursuant to its mandate under the Revised Corporation Code and in the implementation of the two aforementioned laws. Such information therefore needs to be safeguarded and only used for those purposes, and must not be published nor made publicly available. Otherwise, said information could be improperly used.
In view of this, the mining industry is of the view that the disclosure to the SEC, as currently required by the SEC, is already sufficiently transparent and detailed. In fact, the SEC requires that all SEC-registered stock and non-stock companies submit their General Information Sheets with the corresponding beneficial ownership information, and that they inform the SEC in a timely manner of any updates to such information. In the 2019 Memorandum Circular, the requirement was to provide the update within seven working days. Under the proposed amendments, this is to be shortened to seven calendar days.
In addition to SEC MC 15, Series of 2019, SEC MC 01, Series of 2021, prescribes detailed Beneficial Ownership Transparency Guidelines to prevent the misuse of corporations for illicit activities.
A number of the aforementioned proposed amendments relate to increased penalties for late disclosure, failure to comply with orders of the SEC to disclose beneficial ownership information, the liability of directors/trustees and officers, and false disclosures. Understandably, the increased amounts, as well as the change in the basis for the penalty from retained earnings (in the case of stock corporations) or fund balance (in the case of non-stock corporations) to their total assets, is causing concern.
Mining industry representatives have urged a more cautious approach, by studying where the gaps are in the current framework, including:
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Taguig 1634
Metro Manila
Philippines
+632 88 105 858
+632 88 105 858
po.bunye@cruzmarcelo.com www.cruzmarcelo.com