Z AMBRANO & G RUBA

LAW OFFI CES

AUGUST 2012

For more information about the

topics raised in this article, please
contact any of our partners:

PHILIPPINES MINING LAW UPDATE:

FEATURES OF THE NEW EO 79

Lily K. Gruba
lkgruba@zglaw.com
OVERVIEW OF THE MINING INDUSTRY
Antero Jose M. Caganda
ajmcaganda@zglaw.com
Angelo Patrick F. Advincula
apadvincula@zglaw.com
Jorge Alfonso C. Melo
jcmelo@zglaw.com
Michael Geronimo G. Martin
mgmartin@zglaw.com

Zambrano & Gruba is a mid-sized, full-service

law firm representing and advising clients in
General Corporate & Commercial Matters,
Tax, Banking, Finance & Capital Markets,
and Foreign Investments in the Philippines.
We act for a broad range of clients, from
start up businesses to multinational
conglomerates. Our practice is focused on
commercial issues, such as mergers and
acquisitions, corporate financing, real estate
transactions, tax, commercial litigation, and
labor relations. We represent our clients in
all aspects of their businesses. We also help
foreign businesses and companies in setting
up their investments in the country. We
perform business and corporate formation,
secure tax incentives from government
regulatory agencies, draft and negotiate
lease agreements, and advise on regulatory
concerns for industries such as business
process
outsourcing,
retail,
and
manufacturing.
BUSINESS ADDRESS:
27th Floor, 88
Corporate Center, 141 Sedeo St., Salcedo
Village, Makati City, 1227 Philippines
Contact Numbers: (+632) 889 6060
Fax Number: (+632) 889 6066
Email Address: zga@zglaw.com

According to the data from the Mines and Geosciences Bureau

show that from 1970-2010, the Philippines only produced P878.4 billion out
of P73.47 trillion supply of metallic and non-metallic mineral production in
terms of value.
The economic impact of the mining industry in the country cannot
be ignored. The Chamber of Mines of the Philippines estimated that the
country lost around P10.4 billion worth of foreign direct investments in the
mining sector last year due to uncertainties over the governments policy
direction on the mining sector as well as the delayed issuance of mining
permits.
For the years 1960 to 2008, the gross value added (GVA) in mining
and quarrying at prices in 2011 rose annually by 17.31 percent on average.
For the same period at constant prices, meanwhile, GVA increased yearly by
5.39 percent on average.1 The total mineral exports of the Philippines and
their percentage share to total exports of the country increased annually on
average.2 Likewise, employment in mining and quarrying increased from
141,000 to 166,000 for the period 2006 to 2009.3
The mining industry has been a source of conflict for the
government, non-governmental organizations (NGOs) and the private
sector. The positive economic performance of the mining industry has
always been countered by the negative effects mining operations have on the
environment. But the issues confronting the mining industry is not only
limited to its detrimental effects on the environment. While our mining laws
seek to address the environmental concerns surrounding the mining industry,
enforcement of the law is another.
According to Fraser Institute Annual Survey of Mining Companies
2010-2011, the Philippines ranked 66 out of 79 in the policy attractiveness
survey. The policy potential index of the Philippines is poor in terms of
infrastructure, timely and efficient administration of legal processes, and
transparent and non-corrupt governance.
To address the mining issues on economic, environmental and lack
in enforcement, President Benigno Aquino III issued Executive Order No. 79
(EO 79).

This article has been prepared by Zambrano &

Gruba for information purposes only and is not a
legal advice. Transmission of the information is not
intended to create, and receipt does not constitute,
an attorney-client relationship between the sender
and receiver. Internet subscribers and online
readers should not act upon this information
without seeking professional counsel.

Value addition: the way of the future for Philippine mining by Danilo C. Israel of Philippine Institute for Development Studies October 2011.
Id.
3
Philippine Development Plan 2011-2016.
2

Zambrano & Gruba Philippines Mining Law Update: Features of the New EO 79

HISTORY OF MINING LAWS IN THE PHILIPPINES

The 1987 Constitution is the supreme law governing the Philippine mining industry. Article XII on National
Economy and Patrimony provides:
Section 2. 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 coproduction, joint venture, or production-sharing agreements with Filipino citizens, or corporations or
associations at least 60 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 provided by law. In cases of water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of waterpower, beneficial use may be the measure
and limit of the grant.
The State shall protect the nations marine wealth in its archipelagic waters, territorial sea, and exclusive
economic zone, and reserve its use and enjoyment exclusively to Filipino citizens.
The Congress may, by law, allow small-scale utilization of natural resources by Filipino citizens, as well
as cooperative fish farming, with priority to subsistence fishermen and fish workers in rivers, lakes, bays,
and lagoons.
The President may enter into agreements with foreign-owned corporations involving either technical or
financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and
other mineral oils according to the general terms and conditions provided by law, based on real
contributions to the economic growth and general welfare of the country. In such agreements, the State
shall promote the development and use of local scientific and technical resources.
The President shall notify the Congress of every contract entered into in accordance with this provision,
within thirty days from its execution.
During the 1980s and early 1990s, there was, however, a decline in the state of the mining sector that led to the
enactment in 1995 of Republic Act No. 7942, otherwise known as the Philippine Mining Act (Mining Act), as a
means to boost the industry. This law became a subject of controversy and eventually was challenged before the
Supreme Court for being unconstitutional. The Supreme Court in the case of La Bugal-BLaan Tribal Association Inc.
vs. Ramos4 finally resolved the issue on the legality of the Mining Act including those relating to financial and technical
agreements ruling that:
All mineral resources are owned by the State. Their exploration, development and utilization (EDU)
must always be subject to the full control and supervision of the State. More specifically, given the
inadequacy of Filipino capital and technology in large-scale EDU activities, the State may secure the help
of foreign companies in all relevant matters -- especially financial and technical assistance -- provided
that, at all times, the State maintains its right of full control. The foreign assistor or contractor assumes all
financial, technical and entrepreneurial risks in the EDU activities; hence, it may be given reasonable
management, operational, marketing, audit and other prerogatives to protect its investments and to enable
the business to succeed.
When the Supreme Court upheld the Constitutionality of the Mining Act, this resulted in faster growth in
mineral exports, percentage share to total exports, employment in the mining sector and in the total paid-up investments
in mining.5

4
5

G.R. No. 127882, 1 December 2004.

Value addition: the way of the future for Philippine mining by Danilo C. Israel of Philippine Institute for Development Stu dies October 2011.

Zambrano & Gruba Philippines Mining Law Update: Features of the New EO 79

The Philippine mining sector throughout the years has been regulated by the Department of Environment and
Natural Resources (DENR) together with its attached agency Mines and Geosciences Bureau (MGB). On the other
hand, quarrying is within the jurisdiction of local government units in accordance with the Republic Act 7160 otherwise
known as the Local Government Code of 1991.

HIGHLIGHTS OF THE MINING ACT

The core principle of the Mining Act is its strict adherence to sustainable development. The declared policy of
the law is to promote the rational exploration, development, utilization and conservation of mineral resources through
combined efforts of government and the private sector in order to enhance national growth in a way that effectivel y
safeguards the environment and protect the rights of affected communities.

Economic aspect
According to Section 5 of the Mining Act, the government shall get a ten percent (10%) share in all royalties
and revenues to be derived by the government from the development and utilization of the mineral resources within
mineral reservations which shall accrue to the MGB to be allotted for special projects and other administrative expenses
related to the exploration and development of other mineral reservations.
Under the Local Government Code, local government units (LGUs) were given authority to impose taxes on
sand, gravel and other quarry resources under Section 138 thereof. In addition, the Mining Act provides that LGUs have
a share of forty percent (40%) of the gross collection derived by the National Government from mining taxes, royalties
and other such taxes, fees or charges from mining operations in addition to the occupational fees (30% to the Province
and 70% to the Municipalities concerned) in consonance with the Local Government Code.

Environmental aspect
In ensuring that the government protects the right of the people to a balanced and healthful ecology, the
Mining Act has provided limitations on how the mineral resources of the country can be utilized.
It established area limitations, maximum years for mining operations, assignment of mining rights, compliance
with rules and regulations promulgated by the DENR concerning the sanitary upkeep of mining operations. Section 69
of the Mining Law also required every contractor to undertake an environmental protection and enhancement program
covering the period of the mineral agreement or permit which shall be incorporated in the work program which the
contractor or permitted shall submit as an accompanying document to the application for a mineral agreement or permit.
To further ensure the protection of our environment, an environment clearance certificate is required based on
an environmental impact assessment pursuant to Section 70 of the Mining Act. Details of environmental protection
have been outlined in Chapter XVI of Administrative Order No. 2010-21 or the implementing rules and regulations
promulgated of the Mining Act. Under Section 167-A of the Administrative Order, a Certificate of Environmental
Management and Community Relations Record (CEMCRR) is required in the approval of Mineral Agreements, FTAA,
Quarry or Commercial/Industrial Sand and Gravel Permit and Mineral Processing Permits.
The Mining Act and its Implementing Rules and Regulations also gave premium to environmental protection.
Measures were put in place to ensure that mining contractors/operators comply with internationally accepted standards
of environment management.
Mining contractors/operators are mandated to allocate approximately ten percent (10%) of the initial capital
expenditures of the mining project for environment-related activities. A mandatory annual allocation of three to five
percent (3%-5%) of the direct mining and milling costs to implement an Annual Environment Protection and
Enhancement Program (EPEP).

Zambrano & Gruba Philippines Mining Law Update: Features of the New EO 79

There is also a mandatory establishment of a Mine Rehabilitation Fund (MRF) to be composed of the
following:
a. a Monitoring Trust Fund of Php50,000.00 which is replenishable; and
b. a Rehabilitation Cash Fund of Php 5,000,000.00 or ten percent (10%) of the EPEP cost, whichever is lower.
Such funds are to be deposited as a trust account in a government depository bank to be managed by the MRF
Committee composed of the MGB Regional Director, DENR Regional Executive Director, representatives from the
LGU and an NGO, and the contractor.
Conduct of Environmental Work Program during the exploration stage and an Environmental Protection and
Enhancement Program during the development and operations stage is also required under the Mining Act.
As an incentive to mining companies, the Mining Act mandates the institutionalization of an incentive
mechanism to mining companies utilizing engineered and well-maintained mine waste and tailings disposal systems
with zero-discharge of materials/effluents and/or with wastewater treatments plants.
To ensure compliance with the mining laws, a Multipartite Monitoring Team composed of representatives
from the MGB, DENR Regional Office, affected communities, Indigenous Cultural Communities, an environmental
NGO, and the Contract/Permit Holder shall undertake the monitoring of mining operations. On the other hand, the Mine
Environmental and Protection and Enhancement Office in each mining/contract area will set the level of priorities and
marshal the resources needed to implement environmental management system.
The MGB Regional Director shall also have the power to summarily suspend mining/quarrying operations in
case of imminent danger to human safety or the environment.

ISSUES FACED BY THE GOVERNMENT

With the advent of Climate Change or Global Warming, people have shifted their focus from utilization to
preservation. The environmental community has been clamoring for the government to push for stringent environmental
protection.
Moreover, according to the 10-year review of the mining industry published by International Institute for
Environment and Development, despite the emergence of global rules for best practices in the mining industry, more
often than not, there is lack of implementation, independent verification, public reporting, or consequences of noncompliance.
The government is also not getting its fair share in the mining industry as espoused by President Benigno
Aquino III. Mining contractors of Mineral Production Sharing Agreement and Financial or Technical Assistance
Agreements can avail of fiscal and non-fiscal incentives granted under the Omnibus Investment Code of 1987, as
amended. In addition to these incentives, the Mining Act also granted incentives for pollution control devises, for
income tax carry forward of losses, for income tax accelerated depreciation on fixed assets, and investment guarantees,
such as investment repatriation, earning remittance, freedom from expropriation, and requisition of investment, and
confidentiality of information.
For FTAA contractors, an additional incentive, in the form of a tax holiday on national taxes is granted from
the start of the construction and development period up to the end of the cost recovery period, but not to exceed five
years from the start of commercial operation.
These issues led the Aquino administration to review the existing mining laws and policies of the country
which resulted in the execution of Executive Order No. 79 aimed at addressing the deficiencies in the current laws and
rules and regulations with respect to environmental protection and income derived by the government from the mining
industry.

Zambrano & Gruba Philippines Mining Law Update: Features of the New EO 79

HIGHLIGHTS OF E.O. 79 NEW MINING REGULATION

The thrust of Executive Order 79 is to improve environmental mining standards and increase revenues to
promote sustainable economic development and social growth, both at the national and local levels.
Pursuant to these objectives, the order focused on enhancing coordination among stakeholders to ensure strict
compliance by mining operators to the existing mining laws and regulations.
A careful look at the Mining Act and Executive Order No. 79 will show the different path the government is
now taking with respect to the mining industry.

Changes introduced by EO 79 on the environment aspect

In addition to the areas closed to mining applications as provided under Section 19 of the Mining Act has been
expanded by EO 79 to include the following:
a. Protected areas categorized and established under the National Integrated Protected Areas System (NIPAS)
under Republic Act No. 7586;
b. Prime agricultural lands, in addition to lands covered by Republic Act No. 6657, including plantations and
areas devoted to valuable crops, and strategic agriculture and fisheries development zones and fish refuge and
sanctuaries declared as such by the Secretary of the Department of Agriculture;
c. Tourism development areas, as identified in the National Tourism Development Plan; and
d. Other critical areas, island ecosystems, and impact areas of mining as determined by current and existing
mapping technologies, that the DENR may hereafter identify pursuant to existing laws, rules, and regulations
and the terms and conditions of the grant thereof.
Implementation of ensuring environmental compliance is now not solely the responsibility of the National
Government. Enforcement will now be done in coordination with LGUs. The LGUs shall, however, confine themselves
only to the imposition of reasonable limitations on mining activities conducted within their respective territorial
jurisdictions that are consistent with national laws and regulations.
Existing mining operations will now be placed under review by a multi-stakeholder team led by the DENR.
Likewise, the use of mercury in small-scale mining is strictly prohibited and small-scale mining shall be confined only
to declared Peoples Small-Scale Mining Areas or Minahang Bayan.

Changes introduced by EO 79 on the economic aspect

A new feature has been introduced by EO 79 when it comes to granting new mineral agreements is the
necessity of a public bidding. Under the Mining Act, the rule is a first come first serve policy. Whoever reserves first
and is qualified to undertake the mining operation can be granted the permit, subject to limitations imposed by the laws
and rules and regulations. EO 79 has completely changed the way mining agreements will now be granted by
undergoing a public bidding.
As provided in Section 6 of EO 79:
Section 6 The grant of mining rights and mining tenements with known and verified mineral
resources and reserves, including those owned by the Government and all expired tenements, shall
be undertaken through competitive public bidding. While all other mining rights and tenements
applications shall be processed and approved through existing procedures.
A moratorium has also been placed on the grant of new mineral agreements until a legislation rationalizing
existing revenue sharing schemes and mechanisms shall have taken effect. Likewise, existing mining contracts and
agreements will also be reviewed by the DENR for possible renegotiation of terms and conditions, which, shall in all
cases be mutually acceptable to the government and the mining contractor.
In addition, Section 7 of EO 79 provides that:

Zambrano & Gruba Philippines Mining Law Update: Features of the New EO 79

All valuable metals in abandoned ores and mine wastes and/or mill tailings generated by previous and
now defunct mining operations belong to the State and shall be developed and utilized through
competitive public bidding. Likewise, upon expiration of the pertinent mining contracts, the said
metals shall belong to the State and will be developed and utilized through public bidding.

Changes introduced by EO 79 on the enforcement aspect

A new council called the Mining Industry Coordinating Council (MICC) has also been created under Section
9 of the said executive order. The MICCs powers and functions can be categorized into two purposes: coordination
with stakeholders and enforcement of mining laws.

a.
b.
c.

d.

a.

b.

a.
b.

c.
d.

The following are the powers and functions of the MICC as to coordination:
Ensure continuing dialogue and coordination among all stakeholders in the industry
Conduct and facilitate the necessary capacity and institutional building programs for all concerned government
agencies and instrumentalities;
Conduct an assessment and review of all mining-related laws, rules and regulations, issuances, and agreements
with the view to formulating recommendations to enhance coordination between the National Government and
LGUs to ensure implementation of mining laws and regulations, and to properly regulate small-scale mining
participants and ensure that they are accountable to the same environmental and social obligations as large-scale
mining companies;
Serve as the Oversight Committee over the operations of Provincial/City Mining Regulatory Boards (P/CMRBs);
The following are the powers and functions of the MICC as to enforcement:
As may be directed by the President, constitute and create a Task Force Against Illegal Mining and seek the
assistance of all law enforcement agencies, such as, but not limited, to the Philippine National Police (PNP) and the
Armed Forces of the Philippines (AFP) to ensure strict compliance with relevant laws, rules and regulations;
Request the assistance of any government agency or instrumentality, including government-owned and controlled
corporations and local government units (LGUs), in the implementation of this Order
Other powers and functions:
Submit a work plan to implement the EO and implement other reforms related to the mining industry;
Conduct an assessment and review of all mining-related laws, rules and regulations, issuances, and agreements
with the view to formulating recommendations to improve the allocation of revenues and risk between the
government and the mining sector;
Submit periodic reports to the President on the status of the implementation of this Order; and,
Perform such other functions and acts as may be necessary, proper or incidental to the attainment of its mandates
and objectives, or as may be directed by the President.

As a means of improving regulation in the processing of mining application, Section 13 of EO 79 sought the
creation of an inter-agency one-stop shop for all mining related applications and processes. The DENR will issue
authority to verify mineral deposits only for areas open to mining as defined in Section 9 of EO 79.
Securing free and informed prior consent of the concerned indigenous peoples and compliance with the social
acceptability requirement of the communities affected before a Mineral Production Sharing Agreement, Financial and
Technical Assistance Agreement, Joint Venture Agreement or Co-Production Agreement can be approved has also been
mandated by EO 79.
The changes introduced by EO 79 basically focused on three areas: economic, environmental, and
enforcement. Aiming for a more equitable distribution of opportunities, income, and wealth while protecting the right of
the Filipino people to a balanced and healthful ecology are the core principles of EO 79. These goals will only be
achieved through stricter enforcement of our mining laws and policies with the help of all the stakeholders in the
mining industry.

Zambrano & Gruba Philippines Mining Law Update: Features of the New EO 79