Speech of the Honorable Feliciano Belmonte Jr.

Mining Philippines 2012 Conference and Exhibition Chamber of Mines of the Philippines Sofitel Philippine Plaza Hotel September 18, 2012 Vice President Jejomar Binay, Executive Secretary Paquito Ochoa, Chamber of Mines of the Philippines President Benjamin Romualdez, leading representatives of the mining industry, distinguished guests from both the public and private sectors, ladies and gentlemen. Good morning to you all. It is a great privilege to be your Guest of Honor in this Conference entitled Shaping the Future of Philippine Mining. First of all, let me commend the Chamber of Mines for hosting this very timely meeting. Let me also commend your organization and your member companies for your contribution to the growth of the mining industry and our economy. From 2008 to 2011, your sector contributed roughly 1 percent to our GDP each year. In 2011, minings contribution to GDP amounted to P99.2 billion. Your sector has also helped generate employment. The jobs you create have been increasing, from 158,000 in 2008 to 210,000 in 2011. The mining industry has also contributed to the revenues of the government. The President himself noted in his Third State of the Nation Address that in 2010, out of P145 billion total production value derived from mining, P13.4 billion or 9 percent went to the national treasury. In 2011, out of the total production value of P163.2 billion, P10.4 billion went to the national treasury.
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Notwithstanding these facts, I think all of you will agree with me that the Philippine mining industry can grow much further, and contribute more to government revenues, rural development, and economic growth. According to the Mines and Geosciences Bureau, the country has an estimated 14 billion tons of metallic ore deposits and over 69 billion tons of non-metallic ore deposits. In terms of reserves, the country is third in the world in gold, fourth in copper, and fifth in nickel. So why has the great potential of the Philippine mining industry remained unrealized? In 1995, the Philippine Congress enacted Republic Act 7942 or the Philippine Mining Act. It was hailed by many as very progressive and liberal, and yet socially and environmentally sensitive. The law recognizes the highly capital intensive nature of mining. Consequently, it allows three major types of mining rights, namely, mineral production sharing agreement, exploration permit, and financial or technical assistance agreement. The FTAA allows foreign capital participation in the utilization of the countrys mineral resources. Another notable provision is the concept of prior informed consent, which seeks the permission of the indigenous cultural community concerned before a mining operation can commence. On the matter of environmental protection, the Philippine Mining Act prohibits mining in the following areas: old growth of virgin forests, proclaimed watershed forest reserves, wilderness areas, mangrove forests, national parks and provincial/municipal forests.

Sadly, however, as is the case in other well-intentioned and reformist legislation, the limiting factor is implementation. Moreover, the Philippine Mining Law was challenged in the Supreme Court. In January 2004, the Supreme Court ruled that the law was unconstitutional, but then reversed its decision in December of the same year. Today, the constitutionality of the Mining Act of 1995 is still brought into question notwithstanding the Supreme Courts decision. This is because of the 1987 Constitutions 60-40 equity limitation clause on foreign ownership of land and natural resources. This is why I am advocating that we reconsider the economic provisions of the Constitution that restrict growth and progress. The prohibitions to foreigners on the ownership of land and the exploitation of natural resources are among such provisions. During the opening of the Third Regular Session, I proposed that the Constitution be amended NOT by categorically reassigning equity proportions to Filipinos and foreigners, but by allowing Congress to enact the laws that would define foreign participation and nationality requirements in strategic sectors of our economy. This strategy serves two ends. First, we do not relinquish our sovereignty on the preservation of our God-given resources. Second, by making the assignment and reassignment of equity proportions a legislative measure rather than a constitutional given, we necessarily make reviewing and revising such proportions an ongoing task. Timely policy amendments are thus more easily undertaken, and we give our economy a responsive and robust policy environment within which to flourish. Let me now go to another disturbing development - the issuance of local ordinances by some local government units that bans or limits mining operation in their jurisdiction, in spite of mining permits already granted by national government agencies.
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I know that large scale mining is a highly capital intensive and risky venture. Compounding this inherent difficulty with regulatory risks, such as conflicting national laws and local ordinances, certainly produces worrysome conditions. I have been a Local Chief Executive myself, and I understand the apprehensions and dilemmas of local officials. We have to understand that local government executives are rational decision-makers like yourselves. They weigh the costs and benefits of a project that potentially affects their communities. Like the national government, they also want improvement in the living conditions of their constituents and socioeconomic development within their jurisdictions. Thus, it is important to know the reasons for LGU resistance to mining operation in their areas. Mining is essentially a local activity. While the benefits of mining may accrue to everyone, its negative effects such as health and environmental risks are borne mainly by the inhabitants in the mining site and its immediate environs. Thus, while LGUs would logically want to be given just shares in the proceeds from mining activities in their localities, they also want to be assured that the welfare of their communities will not be sacrificed at the expense of development. Unfortunately, our LGUs have very disappointing experiences in this regard. The Local Government Code entitles LGUs to a 40-percent share in the proceeds from development of natural resources in their localities. However, the shares of LGUs are not automatically given to them. The sharing of proceeds to LGUs is characterized by delays and uncertainties. In many instances, the LGUs do not even have any idea about the amount of revenues earned by companies in their area and much less, the shares that they are entitled to.

It is good that government, with the support of your Chamber, has come up with Joint Memorandum Circular No.2009-1. It provides the guidelines on the early release of the share of LGUs from the collection derived by the national government from mining taxes. We, in the House of Representatives, have also approved on third reading a bill that provides for the direct remittance to LGUs of their share in mining taxes. LGUs also necessarily compare their earnings from shares in mining taxes with the costs or risks that they face as host of mining operations. And you must understand that oftentimes, this consideration makes them nervous. Therefore, we must review the revenue sharing scheme itself between the government and the mining contractor. In 2009, the Action for Economic Reforms estimated that the Philippines effective tax rate for minerals was only 7.5 percent, even as it cited that the government loses an average of 32 percent of revenues because of incentive laws. Compared to those of other countries, our countrys effective tax rate is low. In 2010, Deutsche Bank, reported that the effective tax rate for minerals in other countries is as follows: 40 percent in the United States, 38 percent in Australia, 38 percent in Brazil, and 23 percent in Canada. We acknowledge that large-scale mining is risky, and capital and investments are scarce and heavily competed for by many countries. We understand that a rational revenue sharing scheme is not simply a matter of raising excise taxes on minerals. We certainly would not want your firms to suffer from excessive tax rates. I forward that we tame the drive to raise taxes by pursuing the rationalization of fiscal incentives extended to mining activities, and applying our mining rules equally to both small and large scale mining. The suggestion from your ranks for the adoption of a progressive form of taxation is also worth considering. This

system of taxation is based on profits, and will allow the government a higher share in mining revenues when profits achieved by mining firms are also high. As House Speaker, I assure you that we in the 15th Congress are studying and weighing these issues carefully. Ultimately, we need to ensure that the overall benefits from mining activities unquestionably outweigh the overall costs. Our challenge is enlarging the pie of benefits so that at the end of the day, all stakeholders are properly compensated, and we have the available resources to ensure the proper management and protection of the environment. What we face today is global and unabated environmental degradation. What we need today is a new paradigm shift adopting a new way of thinking that is in line with notions of sustainability. We need to see ourselves not merely as users and beneficiaries of precious natural resources. We have conveniently played out that role for too long. It is high time that we see ourselves as stewards of our countrys mineral resources. For a change, let us give, because we have taken and will continue to take. This is not a trite statement, but if I may borrow Al Gore's term an inconvenient truth. Stewardship demands a strong sense and acceptance of responsibility. It demands the participation of everyone the government, your mining firms, our communities, and our people. An Indian Chief -- Chief Seattle during his time, said, We do not inherit the earth from our ancestors; we borrow it from our children. I am very sure that not one of us here would consider shortchanging his children and their future.

Stewardship is directly in line with the triple bottom line approach which many firms adopt today. As many of you know, this approach for measuring organizational and social success considers three criteria: economic profitability, social acceptability, and ecological soundness. Or, as The Economist, has put it: profits, people, and planet. To reinforce this triple-bottom line, I believe that the mining sector needs to enter into value-added activities, and undertake more processing and downstream activities. Mining products undergo numerous intermediate steps where the potential for value adding exists at every step. What I propose is a long-term plan for the sustainable development of our countrys mineral resources. A component of this plan involves more processing, more value addition, and more downstream activities. These lead to the development of community-based supplier industries and services. The economic participation of the mining communities is tapped because they are provided with new livelihood opportunities from the downstream and processing activities. The long-term plan will help define the roles and responsibilities of all stakeholders, and set an underlying development framework by which all stakeholders can peg their goals and activities on. The plan, of course, reflects the official government policies and directions on mining, and serve as the clear basis for development reforms. Inconsistencies in government policies and private sector activities will be avoided because all players will commit themselves to the plan.

I believe that through the development and implementation of a long-term plan for the mining industry, we can finally realize the higher benefits that should accrue not only to your mining firms, not only to our government and our communities, but to the entire Philippine economy. China and India have important lessons and experiences that we can look at. Both countries have large mining sectors that employ millions of workers, yet primarily serve their domestic markets. Both countries relied on their domestic mining sectors for economic growth. The GDP per capita in India and China grew at impressive annual rates of 3.7 percent and 8.5 percent, respectively during the 1990s, well above most other mining countries. The rapid growth of mineral production in China can possibly be attributed to a combination of long-term central planning and the dynamic forces created by the market economic approach of each mining enterprise. Let me point out that China improved the use of its domestic resources through strategic measures. These measures included increasing exploration expenditures, implementing a partial privatization strategy, and improving the utilization of all existing resources in all steps of the process chain from mining to recycling. Meanwhile, India is an example of a country with a large and well-developed state sector in the mining industry. While privatization there has been slow and in phases, the government in India recognizes that an increased role of the private sector can secure the necessary growth in mineral resource production to guarantee Indias continued growth trajectory.

I am confident that the success of both China and India can be replicated in the Philippines if the right strategies are pursued and the necessary accompanying reforms are carried out. I am therefore pleased to note that Section 8 of EO 79 provides that concerned government agencies, the mining industry and other stakeholders shall submit, within a period of six months, a national program and road map based on the Philippine Development Plan and a National Industrialization Plan. The Plans will be crucial for the development of value-adding activities and downstream industries for strategic metallic ores. EO 79, I believe, is already a step in the right direction -- a first step in a series of necessary reforms. We need to resolve revenue-sharing issues as soon as possible, and if necessary, review the consultation process undertaken with indigenous peoples to ensure their protection and safety. Furthermore, we need to improve transparency and accountability. The Extractive Industries Transparency Initiative under EO 79 should help us determine not only how much mining firms should pay to the government but also, equally important, how government should these revenues. What we can also do is consider the role of dedicated instruments, such as foundations, trusts and funds, or FTFs. These are independent vehicles that can be used to channel resources to communities. FTFs can be designed to meet multiple goals, namely to fund development projects, to increase transparency and traceability of financing from mining into development initiatives, and to formalize agreements between indigenous people and mining companies. There must also be continuous, appropriate, and specific capacity building within relevant institutions. Government must have the capacity to implement natural resources valuation, and monitoring and evaluation of environmental, social and

economic impacts at all levels. These reform actions must be set in a clear plan with a reasonable timetable and budget as well as adequate personnel support. As I already emphasized, we need to work together to ensure that the overall benefits outweigh the overall costs. During this Conference, let us start produce useful inputs for a meaningful long-term plan for the mining industry. As I close, let me leave you with the following quote from John McConnell, founder of International Earth Day: Let every individual and institution now think and act as a responsible trustee of Earth, seeking choices in ecology, economics and ethics that will provide a sustainable future; eliminate pollution, poverty and violence; awaken the wonder of life and foster peaceful progress in the human adventure. As we ponder on these words, let me formally declare the Mining Exhibition open. Thank you to all of you.

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