Mining is a social justice issue

The mineral wealth of our country, as the mining industry reminds us, is "staggering" – about $840 billion. Its potential to contribute to our country's development cannot be discounted. While mining has never been a driver of our development, not even during the mining boom of the seventies, we are here to find out if there is a way to realize that potential. And I thank the organizers of this Conference for taking this step toward that objective.
 The real question before us today is: Should mining be allowed in the Philippines?

I believe that we should be open to that proposition provided 4 minimum conditions are met:

(1) the environmental, social and economic costs are accounted for in evaluating mining projects;
(2) the country gets a full and fair share of the value of the extracted resources,
(3) and this is addressed to the government, the institutional capabilities of the government to evaluate and regulate mining activities are put in place; and
(4) again addressed to the government, since mining uses up non-renewable natural capital, the money from mining are specifically used to create new capital such as more developed human resources and infrastructure, particularly in the rural areas.

In this regard, I refer you to the paper of Prof Ronald Mendoza of the AIM Policy Center and his proposal for a "middle ground" that involves the establishment of an "inclusive growth" trust fund.
With respect to downstream plants and the total banning of ore exports, I did not include these because the mining industry may have a point on the practicality and long-term feasibility of these conditions – hence the need for more consultations.

I submit that mining is a social justice issue. And we cannot discuss it except in the context of our country's dismal performance in addressing mass poverty and the gross inequalities of income, wealth and political power that persist more than 25 years after the glowing promise of EDSA of a just society.

We are all familiar with the data.

Over 24 million Filipinos are poor, i.e. "poor" meaning per capita income of less than P46/day and about 9.4 million of them are "food poor," i.e those who live on P32/day, not even enough to meet the minimum 2,000 calories a day. Over 28 years, our real per capita income rose only 20% while per capita incomes of our neighbors increased – like Malaysia (400%), Thailand (500%) and China (1100%) – in the process eradicating absolute poverty.

Even more compelling – the inequality of income has not changed since Edsa. The top 1% of the families numbering 185,000 have an income equal to the income of the bottom 30% of the families numbering 5.5 million. There are many more such data but this is not the forum for them.

I just wanted to make the point that history has not been very kind to our poor. And we know this must change.

The increasing inequality of income, wealth and political power is, of course, happening worldwide. In our particular case, the root of the problem is the development paradigm followed by every administration – that rising waters raise all boats – that sustained economic growth driven by investments will eliminate poverty. But conclusive empirical data tell us that sustained high growth is not possible unless we also address the problem of inequality. And that means not only income reform – quality education, universal health care and livelihood – but also asset reform, which is primarily about land and natural resources and a substantive redistribution of their benefits and costs. As you know, the four asset reform programs are agrarian reform, urban land reform and housing, ancestral domain and fisheries.

That is why it is unfortunate that two major stakeholders on the issue of mining were not invited to speak today – the National Commission on Indigenous Peoples and the Department of Agriculture.

Environmental, social and economic costs and benefits
Mining activities are usually located in rural and mountainous areas and can affect farmlands, rivers and shorelines, where the poorest of the poor are located, namely, the farmers, indigenous peoples and municipal fishermen.

The fact is that mining cannot be conducted without affecting the land, water, and air surrounding the site, as well as the various natural resources found in them. Mining involves the extraction of minerals, but may also involve the use or destruction of non-mineral resources, such as fresh water, timber, and wildlife. This may also result in health problems, displacement of people, social divisiveness, even the need to provide PNP and AFP protection to mining companies. Then there are the disasters that can happen from the cutting of trees, from siltation and erosion, and accidents from mining structures. All these translate into public costs.

That is why mining is often cited as an example of what Paul Krugman calls activities that privatize benefits and socialize costs. This is the social justice issue on mining.

As for the argument that minerals are meant to serve humanity and are the raw materials for the modern conveniences we use everyday, the point is that, in cases where mining is allowed, the minerals should be priced at full cost, including environmental, social and economic costs. Otherwise, our poor who mainly bear these costs would be subsidizing the consumerism of the rich, both domestic and foreign.

We cannot find the answers to the plight of the poor unless we listen to the poor. In this regard, you might want to read 3 public documents – the National Rural Congress II of the CBCP in 2007, the Climate Change National Consultations of 2009 and the Summit on Poverty, Inequality and Social Reform conducted last October to December 2011.

Why climate change? Because the new normal arising from climate change requires a watershed approach to mitigation, adaptat,ion and disaster management and watersheds are where the forests and minerals are mostly located. In these conferences, one of the deepest concerns of the poor are the environmental, social and economic costs of mining.

The benefits and costs of mining
What we want to know are the real contributions of mining to GDP, exports, employment, government revenues, investments, industrialization, poverty alleviation, etc.

Here are some statistics:
  • Ave. contribution to GDP
2000-2009 = .91%
2010 = 1.30%
  • Ave share to total employment
2000-2009 = 0.376%
2010 = 0.5% = 197,000
  • Ave contribution of metallic mining to total exports
2000-2009 = 2.96%
2010 = 3.7%
  • Ave. share of mining investments to total investments = 2.5%
  • Total government taxes, fees and royalties
1997-2010 = P64.2 B
  • Total production value of mining companies
1997-2010 = P842 B
On industrialization: Per former NEDA Secretary Cielito Habito: Based on national I-O tables: Backward linkages of mining = .46 (less than half of other industries); Forward Linkages is a low .82. These mean that mining is not considered enough of a value-adding activity.
  • On poverty alleviation: Mining has the highest poverty incidence of any sector in the country 48.7%. The only sector where poverty incidence increased between 1988-2009. High poverty incidence in many mining areas i.e. CARAGA (47.5%), Zamboanga Peninsula (42.75%), Bicol region (44.92%), the national average being 26%. At the municipality of Bataraza in Palawan where Rio Tuba has been operating for 30 years, the poverty incidence (53%) is double the national rate. The mining industry is correct in pointing out that the statistics do not establish causality. But the data at least shows an association between mining and poverty that raises questions on the claim that mining improves the quality of life in its communities.
Investment and export proceeds
The mining industry's absolute figures on gross investment inflows and export proceeds are impressive, but they are only one-half the picture.

Mining companies are allowed to recover and repatriate all pre-operating and development costs up to 4-5 years after start of operations. Thus, the inflows and outflows on investment may even out during that period.

On export proceeds, mining operations usually front load production during the first five years, arguably to exploit market opportunities, but this also happens to coincide with their tax holidays. Profit remittances can, thus, be considerable.

Government revenues
The DENR says that there is a discrepancy between potential excise taxes from mining and actual collections (P7.8 billion from 2000-2009). The LSM sector claims that their payments in 2008-2009 equaled the collectible amount and that the uncollected excise taxes are attributable solely to small-scale miners and quarrying. That may be true. But it is interesting that if one takes a longer view, from 1997-2007, there is no such correlation. Actual collections for 6 of the 11 years are lower than the collectibles from LSM ranging from 4%-36%.

It is unfortunate, that the small-scale mining sector was not invited to speak at this conference so it can defend itself and justify its role in the development of the mining industry. After all, the production value of SSM from 1997-2010 was the same as that of LSM at about P300 billion.

The mining industry claims that 1 direct job in mining creates 5 more jobs in the rest of the economy – a multiple of 5. NEDA denies that it has any such data. However, a study by Madeleine B. Dumaua based on the 2000 Input-Output tables of the economy shows that:

A peso change in the final demand for the mining/quarrying generates P1.70 pesos worth of additional output for the economy;

On employment, every one million of additional investment in mining/quarrying generates additional employment of 2.2, not 5.

The average multiplier of 2.2 jobs includes SSM which requires virtually no capital investment and capital-intensive LSM, like Tampacan, that will generate 10,000 temporary jobs and 2,000 permanent jobs with a $5.9 billion investment (about P120 million per permanent job). The mineral extractive industry is considered worldwide as a low job generating activity.

These data put in question the expansive claim by the Chamber that the projected LSM $15 billion investments will generate 70,000 direct jobs that will result in 350,000 other jobs, leading to 2,050,000 jobs by 2018 with 10.25 million Filipinos as "direct beneficiaries of mining." A recalculation would look more like 576,000 Filipino beneficiaries.

The share of government in mining revenues
The Chamber is objecting to the proposed royalty of 5% on mining revenues on the ground that it would drive investors to other countries with more favorable financial regimes. The industry in November 2011 appealed to the government not to increase the royalties because the "current fiscal regime…. may be the only thing that's keeping the industry afloat."

At the same time, the stock market is at new highs and the newspapers banner unprecedented mining profits in some companies.

RA 7942, Sec. 80:
"The total government share in a mineral production sharing agreement shall be the (2%) excise tax on mineral products as provided in Republic Act No. 7729, amending Section 151(a) of the National Internal Revenue Code, as amended."

An excise tax is a tax on the use or consumption of certain products, or a tax on an activity. In the case of mining, no value is given to our minerals.

Some comparisons by the MGB of the fiscal regimes of selected countries (China, India, Indonesia, Mongolia, Myanmar, Papua New Guinea, Peru, Chile) show that the fiscal regime in the Philippines is quite competitive with, if not more favorable than, those of other countries.

Moreover LSM are given generous tax incentives, to wit:
(1) income tax holidays of 5 years (including excise taxes)
(2) deduction of 50 percent of labor expenditure from taxable income
(3) tax and duty exemptions on imported capital equipment and spare parts
(4) exemptions from wharfage fees, and additional incentives for enterprises that locate in less developed areas
(5) the privilege to deduct 100 percent of expenditures on infrastructure from taxable income, over a period of 10 years
(6) during the exploration period are not liable for income taxes. When they begin commercial operations, they are entitled to register with the Board of Investments for a five–year income tax holiday
(7) exemption of pollution control devices from real property and other taxes
(8) income-tax carry forward of net-operating losses incurred in the first 10 years, which may be deducted from taxable income over a five-year period;
(9) accelerated depreciation of assets—at twice the normal rate
(10) option to deduct the cost of all exploration and development expenditures from taxable income over a four-year period from commencement of commercial operations

In the case of FTAA (financial and technical assistance agreements)
(11) they are allowed to recover all their tax and operating expenses before they begin to pay either the basic or the additional shares of government, such as:
(a) contractor's income tax; (b) customs duties and fees on imported capital equipment; (c) value-added tax on imported goods and services; (d) withholding tax from interest payments on foreign loans; (e) withholding tax on dividends to foreign stockholders; (f) documentary stamp taxes; (g) capital gains tax; (h) excise tax on minerals; (i) royalties for mineral reservations and to indigenous peoples , if applicable; (j) local business tax; (k) real property tax; (l) community tax; (m) occupation fees; (n) registration and permit fees; and (o) all other national and local taxes, royalties and fees as of effective date of the FTAA.

To summarize the issue on the revenue sharing: Not only are our minerals not given any value, our government pays the contractors to extract them through fiscal incentives. What do we get in return?

(a) Very little by way of taxes, fees and royalties, and practically none at all during the tax holiday period
(b) Very little by way of job generation
(c) Probably little net foreign exchange inflows
(d) Very little contribution to GDP
(e) Very little industrialization linkages
(f) Questionable poverty alleviation results

Of course, there is always the potential. But there may be another side to the relatively low benefits from mining – there is not much to lose should the government refuse to give in to the demands of mining that would compromise the environment. Timely alternative development strategies may, in fact, result in a net gain.

Institutional capacity of government to evaluate and regulate mining
One cannot blame the mining industry for always trying to get the best deal for its shareholders. But it is the responsibility of government to protect the interests of the country.

However, the government admits in the Philippine Development Plan 2011-2016, that it does not have the capability to make that kind of assessment:

(a) Page 310 of the PDP: "…currently, there is no standard resource and environment valuation. There is a need to have a cost-benefit analysis and standard parameters that will consider all relevant values (including non-market values)"
(b) "government capacity for resource management is wanting"
(c) "enforcement of environmental laws and policies is inadequate...Relevant environmental laws, specifically those regulating the utilization of natural resources, i.e. NIPAS, etc. are poorly implemented."

The question begs to be asked – how can the government approve any mining application or allow any mining operation in the absence of these institutional safeguards?

The proposal is to adopt TEV (Total Economic Valuation) and WAVES (Wealth Accounting and Valuation of Ecosystem Services) which is an integration of TEV and natural capital accounting. WAVES is an initiative of the World Bank which is supportive of "responsible mining." It complements the Extractive Industry Transparency Initiative (EITI) – a priority advocacy of the Chamber of Mines.

The exercise is not "catatonic" because "significant advances have been made in defining and conceptualizing protected areas valuation." There are at least 60 instances, at least 3 in the Philippines, where TEV has been done. There are enough research work and examples to arrive at a less than perfect, but nonetheless usable, formula.

WAVES is a comprehensive wealth management approach to long-term sustainable development that includes all assets – manufactured capital, natural capital, human and social capital. The methodological framework is the UN's System of Environmental and Economic Accounting (SEEA) developed over the past 20 years.

This is a good time to adopt these analytical tools since the Philippines is one of 6-10 countries where WAVES is being piloted by the World Bank. Why the Chamber of Mines seems to object to their explicit application to mining projects in the new policies is frankly hard to understand.

We need these tools. For example, there is an apparent oversight in the Mining Law or its IRR – because the so-called final rehabilitation fund for phased out mines applies only to the capital costs of rehabilitation – like land restoration and reforestation. There is no perpetual accountability or trust funds for the maintenance of structures like tailings dams or the disasters that could happen years later from dam breakages. These risks should be borne by the mining companies and not by our taxpayers, which seems to be the case today. This is not responsible mining. If my understanding of the rules is wrong, I will be happy to be corrected.

Until the new policies are fully in place, the government should strictly apply the precautionary principle to pending issues. The principle is public policy under RA 9729 (Climate Change Act of 2009), and was enunciated by the Supreme Court in issuing the Writ of Kalikasan:

Part V. Rule 20, "Sec. 1 When there is a lack of full scientific certainty in establishing a causal link between human activity and environmental effect, the court shall apply the precautionary principle in resolving the case before it. The constitutional right of the people to a balanced and healthful ecology shall be given the benefit of the doubt."

This safeguard is needed. The present mining system is simply no longer workable because it is onerous to the country and is open to corruption and to decisions that are vulnerable to future questionings, and we need a little more time to put things right.

In closing, may I say that the mining industry is correct that our fragmented views on mining heightens the uncertainty of mining investors, although this may have the reverse effect on other investors, as in tourism. The mining industry should thus welcome the initiative of the government to put in place a new set of rules that can promote solidarity with consultations. If the rules turn out to be too tough on mining, at least the decision to invest will have less uncertainties and its parameters will be clear. On the other hand, the government and other stakeholders should be fully aware of their consequences on mining investments and the need for a fair and proper disengagement process, if necessary, as well as the urgency of implementing alternatives to mining.

In times like this, it is good to remember the words of Albert Camus when he received the Nobel Peace Prize – we should put ourselves at the service not of those who make history but of those who suffer it.

Author: Christian Monsod

This is the speech delivered by Mr Christian Monsod at the "Conference on Mining’s Impact on Philippine Economy and Ecology" held Friday, March 2, at the Interncontinental Hotel in Makati City.

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