The $23-Billion FDI potential

Vanessa Pepino, Environment Fellow of the Stratbase ADR Institute

The Philippine government is displaying an ambitious goal of speeding up infrastructure development through its “Build, Build, Build” program. The initiative is anchored on the goal of making economic growth more inclusive and pro-poor. While its first tax reform package, the Tax Reform for Acceleration and Inclusion (TRAIN) law, and increased and new taxes can be a positive fiscal measure to support it, transforming the economy may need something more.

The mining sector is one of the industries that has the potential to turn our industrial sector into a global powerhouse. The $5.9-billion project Tampakan copper-gold deposit in South Cotabato is said to be one of the largest undeveloped deposits in the world, with 2.94 billion tons of ore with 0.6% copper and some 18 million ounces of gold. However, data from the Philippine Statistics Authority show that Mining and Quarrying declined by 1.1% during the 3rd quarter of 2018 and had the lowest contribution in the industry sector. Clearly, the country continues to fail to make the most of our mineral prospects. Other countries with a similar profile such as those in South America, Australia, and even Indonesia have taken advantage of their resources, while the Philippine mining sector is mired in regulatory and legal uncertainty.

House Bill 8400, passed on third and final reading in the House of Representatives in November and transmitted to the Senate soon after, presents a promising development in the mining sector to generate more revenues and boost economic development. The bill, which seeks to rationalize and institute a single fiscal regime applicable to all mineral agreements, paves the way toward a new mining revenue law and therefore the lifting of Executive Order 79, which bans the approval of new mining permits.

The interagency Mining Industry Coordinating Council (MICC) has recommended to lift the open pit ban in the country once mining laws, rules, and regulations are strictly enforced. The Department of Environment and Natural Resources (DENR) continuously consults and collaborates with industry experts to thoroughly understand the complex technical, social and environmental issues in the sector. This hopefully results in a more enlightened, scientific and balanced policy environment anchored on sustainability and inclusiveness.

This is in line with what UP School of Economics professor Ramon Clarete advised in a roundtable discussion organized by independent think tank Stratbase ADR Institute (ADRI), Philippine Business for Environmental Stewardship, and the DENR. In his proposed mining fiscal regime, Clarete said it is more beneficial to attract more foreign investors to expand the mining tax base rather than impose new and higher taxes. This is especially true for large upfront investments in exploration and development even before revenues from mining operations come in. High taxes will not amount to anything if the mining tax base remains stagnant. He adds, “the only way I can have a good base is to encourage investors to find it for me. You can’t do that if you have an onerous taxation.” In hindsight, perhaps improving policies and generating more investment opportunities might be more strategic than taxing industries and the public.

Tampakan is not an isolated case of missed opportunities. Up north, Mindoro Nickel’s $2.5-billion project reportedly has some 2.9 million tons or 6.6 billion pounds of nickel. Philex Mining’s Silangan project in Surigao del Norte projects an estimate of 4.94 billion pounds of copper and 9 million ounces of gold, valued at P752 billion and P605 billion, respectively. Other pending multibillion-dollar investments include Nadecor’s King-king project in Davao del Norte, Davao Oriental’s Asiaticus project, Lepanto Mining’s FSE project in Benguet, and Masbate’s Philsaga Mining contract, among others. According to data from the American Chamber of Commerce of the Philippines, our total Foreign Direct Investments (FDI) in 2017 was only USD 10 Billion. These projects could have unleashed $23 billion in FDIs. Imagine the multiplier effect to the local and national economy when these projects are in full operation — local and national taxes, infrastructure development, employment generation, and linked industries.

These huge FDI potential should be more than enough reason for our policy makers to break the decades-long policy impasse that has frozen what used to be a great pillar of national development which contributed 5% of GNP. There is now opportunity with the passing on third reading of House Bill 8400 which proposes a new mining fiscal and revenue sharing regime that was painstakingly debated on by all of mining’s stakeholders.

Sen. Sonny Angara, chairman of the Senate committee on ways and means, has rightly acted by prioritizing the proposed bill in his committee’s agenda. If he is successful in leading his colleagues in the Senate to pass a new mining revenue regime into law, he will be credited with increasing the government’s share and the awakening of a sleeping economic giant that has been hibernating underground for decades. We hope that all the senators will also realize the strategic economic potential, seize this opportunity, and work together to pass this into law before the end of this Congress.

As growth is seen to slow down this year, it is high time to start building the foundations of sustainable economic growth. Much of the delay has been due to the uncertain policy environment that had disincentivized doing business in the Philippines for local and foreign investors. We may have several things going for us such as tourism, real estate, and construction, but there is responsible mining, too. While marred by negative media and public attention, the mining industry is not incompatible with high regard for environmental safeguards, monitoring, and enforcement. Energizing the sector will be an uphill task, but, when done sustainably, it is an opportunity we cannot afford to miss.

 

 

 

This article was originally published in BusinessWorld.

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