ANNA LIZA F. BONAGUA Bureau of Local Government Development Department of the Interior and Local Government Philippines

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1 South-South Exchange and Training Workshop on Extractive Industries and Sustainable Development October 6-8, 2015 Novotel, Ploenchit, Bangkok, Thailand Philippe Poverty Environment Initiative ANNA LIZA F. BONAGUA Bureau of Local Government Development Department of the Interior and Local Government Philippines

2 Outline Overview of the Extractive Sector Potential of the country s minerals, oil and gas, and coal Contribution to the economy in terms of added value, exports, employment, and revenue Natural Resource Governance Revenue Sharing Mechanisms Revenues and benefits Distribution of LGUs Share Utilization of Revenues Transparency in the Extractive Industry Laws governing transparency Philippine EITI and its benefits Issues and Challenges

3 Philippines Potential Philippines is one of the world s richest countries in mineral resources attributed to its location in the Pacific Ring of Fire, an area that is heavily endowed with mineral deposits. Ranks 5 th in terms of total mineral reserves. In terms of specific metals, 3 rd in gold, 4 th in copper, 5 th in nickel, and 6 th in chromite. Total metallic mineral reserves were assessed at 14.5 billion metric tons while its non-metallic mineral reserves were estimated to be billion metric tons. 30% of total land area or 9 million hectares is found to be geologically prospective for metallic minerals. Map of Areas with Potential Minerals

4 Still untapped potential Philippines has the potential to become one of the biggest player in the global metallic resource sector Estimate Value of the Philippine Mineral Reserves Ranking 5 th in the world, total mineral reserves is estimated to reach US$ 1.387trillion. Gold, nickel and copper contribute 75% of the total value However, mining activities in the country lag behind their potential to significantly contribute to economic growth. Only 7.9 % of the total area known to be geologically prospective for metallic minerals, were covered by mining permits Mineral Production Sharing Agreement (MPSA) Financial and Technical Assistance Agreement (FTAA) Leaves 92.1% untapped

5 Contribution to Economy Gross Value Added and Gross Domestic Product Relative low contribution to the economy compared to its potential Average GVA ( ) was P58.052M amounts O.58% GDP ( )

6 Contribution to Economy Exports Contribution to exports is larger than the GDP. Average total exports of 4.48% with value of $2.144M Metallic mining exports increased from 2009 to 2012 by about 46% Copper contributed the largest, followed by copper concentrates, gold, iron ore agglomerates, and chromium ore

7 Contribution to Economy Employment Employment increased by 49% from 2009 to 2012, associated with significant increase in the number of operating mines Contribution to job creation is small, accounts for only 0.5% of total employment (300K of 30M employment) No. of Metallic Mines ( ) Contribution of Mining Industry to Employment ( )

8 Contribution to Economy Revenues Increased from P12.7B to 22.2B in 2011 Due to increase in production inputs which is in turn due to rising world metal prices Declined in 2012 due to falling metal prices Share of Mining Tax Revenue to Total Govt Receipts ( ) Although mining tax revenues increased, the contribution of mining to total government revenue remained low, averaging at 1.18%

9 Natural Resource Governance 1987 Constitution adheres to Regalian Doctrine State is the owner of all lands of public domain and natural resources of the country. Natural resources include waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna. State may, under its full control and supervision, allow the exploration, development, and utilization of natural resources, taking into consideration two constitutional rights : protection of the rights of IP/ICC to their ancestral lands to ensure economic and social being protection and advancement of the people s right to a healthful and balanced ecology and the promotion of people s right to health Philippine Mining Act of 1995 (Mining Act) governs the exploration, development, use, and processing of mineral resources in the country promotes mining as a means to enhance national growth in a way that safeguards the environment and protects the rights of communities. Executive Order (EO) 79 (2012) improve environmental standards and increase revenue in mining. Among other reforms, the EO added No Go Zones for mining and imposed a moratorium on new mining agreements until such time that a revised revenue sharing scheme is legislated by Congress. Presidential Decree (PD) 87 (Oil and Gas) governing law for oil and gas which aims to hasten the discovery and production of indigenous petroleum under agreements that would benefit the Filipinos, Presidential Decree (PD) 972 (Coal) governs the country s coal resources and introduced coal operation contract system

10 Revenues and Benefits from Extractive Industries Across the sector, the government s share is often negotiated by government and contractor, with the law merely providing the minimum sharing standards national internal revenue taxes (taxes, fees, and charges) to national and local governments royalties to concerned indigenous cultural communities/indigenous peoples (IPsICCs) special funds to implement social development and environmental management programs made in consideration of government s agreements

11 Distribution of Local Governments Share 40% of gross collections from mining taxes, and royalties. allocation among LGUs depends on location of natural resources Sharing Allocation Criteria Barangay 35% Province 20% Municipalit ies 45% Sharing Allocation Criteria!f location within 1 province: 20% for provinces, 45% for municipalities/component cities and 35% for barangays. Land area 30% Population 70% Sharing Allocation Criteria Barangay 35% Province 0% City 65% if the natural resources are located in 2 or more provinces, or 2 or more cities, or 2 or more municipaliites or 2 or more barangays, their respective share shall be computed on the basis of population (70%) and land area (30%) if natural reource is located in HUC or ICC, the city gets 65% and the barangay gets 35%.

12 Utilization of Revenues National Government used to transform economic and social conditions at the national and local levels Local Government local development and livelihood projects. for energy revenues, at least 80% earmerk or reducing electricity cost Indigenous People/ Indigenous Cultural Communities programs and projects that will redound to the benefit of ICCs/IPs entitled to Special Funds environmental protection, enhancement, and rehabilitation, or for social developmentand management purposes

13 Transparency in the Extrative Sector Declared State Policy Philippine Constitution provides Subject to reasonable conditions prescribed by law, the State adopts and implements a policy of full public disclosure of all its transactions involving public interest. LGC (RA 7160) DILG Policy Local Government Code of 1991 directs LGUs to regularly post a summary of all revenues collected and disbursed in publicly accessible and conspicuous places in the LGU. Full Disclosure Policy (FDP) directs LGUs full disclosure and public access to local government finances including revenues, procurement, budget and spending, including sharing such documents with CSOs and the private sector. Executive Order (EO) No. 79 expressed Philippines commitment to participate in the EITi EO 147 formally established the Philippine EITI Multi- Stakeholder Group (MSG) composed of government, companies and civil society

14 Philippine EITI

15 Benefits of EITI Government benefits from following an internationally-recognized transparency standard that demonstrates commitment to reform and anti-corruption, leading to improvements to the tax collection process, and enhanced trust and stability in a volatile sector. Companies benefit from a level playing field, in which all companies are required to disclose the same information. They also benefit from an improved and more stable investment climate in which they can better engage with citizens and civil society. Filipino citizens and civil society organizations benefit from receiving reliable information about the extractives sector, and a multi-stakeholder platform where they can better hold the government and companies to account.

16 Issues and Challenges in the Extractive Sector Capacity of regulating agencies to negotiate, regulate and monitor extractive sector Low capacity to negotiate government share, to regulate and monitor operations Revenue Sharing Major issue among LGUs is that they do not receive their right amount of share at the right time. The share that they receive is NOT compensating of the environmental damage and cost of displacement of people in affected areas. Environmental and Social Costs Low acceptance and strong opposition from communities due to observations that it inflicts environmental damage and displace people. Mining is deemed to overexploit and adversely affect environmentally critical areas, leading to risks and hazards to the public s health, safety and general welfare. Coal mining also has a significant health impact such as respiratory diseases due to steam coal dust. Moreover, coal production in the country has been a significant contributor to the country s CO2 emissions, a greenhouse gas linked to the increasing rate of global warming Overlapping and Weak Enforcement of Mining Laws Some provisions in the country s current mining act either overlap or run counter with other national and local laws such as IPRA, NIPAS, and LGC

17 Maraming Salamat po! In order to attain the vision of the country of a sustainable development, ENR-related activities, especially those extractive industries should be operated in harmony with the national and local environment, especially with the rural communities, poor people, IPs and other community stakeholders so that they become the permanent beneficiaries and not the victims of natural resource extraction and development. -SEC. JESSE ROBREDO