The Philippines is host to a multitude of mineral riches waiting to be explored, extracted and processed. Located in the Pacific Ring of Fire – a region of frequent earthquakes and volcanic eruptions – the Philippines has established reserves of 7.1 billion tonnes of 13 metallic minerals and 51 billion tonnes of 29 nonmetallic minerals.
With the world’s third largest gold deposits, fourth largest copper deposits, fifth largest nickel deposits, and sixth largest chromite deposits, the Philippines is ranked as one of the five most mineralized countries.
Senior Partner
CVCLAW Villaraza Cruz Marcelo & Angangco
Recognizing this competitive edge, the Philippine government has created an attractive and welcoming environment for investors, while ensuring that its citizens derive the maximum benefit from mining. Mining policies promote responsible minerals development, as well as offering fiscal and non-fiscal incentives.
Under the Philippine constitution, all natural resources are owned by the state, and the state has full control and supervision of the exploration, development and use of natural resources. The state may undertake such activities directly, or it may enter into co-production, joint venture or production sharing agreements with Filipino citizens, or corporations or associations whose capital is at least 60% owned by Filipino citizens.
These agreements may be for up to 25 years, renewable for a period not exceeding 25 years. Under the agreements, the private entities are not the transferees of mineral resources, but are the partners or contractors of the government.
Mineral agreements
The Philippine Mining Act provides for three kinds of mineral agreements:
- Mineral production sharing agreements, where the government grants a corporation the exclusive right to conduct mining operations over a specified area. The government shares in the production of the minerals. The corporation provides the financing, technology, management and personnel;
- Co-production agreements, where the government assists in the mining operations. The government’s share is negotiated by the parties; and
- Joint venture agreements, where the government and a corporation create a joint venture company, each holding shares. The government receives dividends as well as a share from the gross output.
Foreign corporations, or corporations which are more than 40% foreign-owned, are not excluded from the mining industry. The Philippine constitution allows them to enter into a financial or technical assistance agreement (FTAA) for the exploration, development and use of minerals. An FTAA requires a minimum authorized capital of US$4 million and a capital investment of at least US$50 million over the life of the project.
Corporations which are 100% foreign owned may also be granted exploration permits. However, once these corporations engage in mining activities, if they are not qualified as FTAA companies, they will have to meet the 60% Filipino ownership requirement.
Both Filipino and foreign-owned corporations may be granted mineral processing permits, which allow them to conduct all activities involving the processing of minerals.
Approval process
In the approval process for mineral agreements and FTAAs, perhaps the most challenging steps involve obtaining the free prior and informed consent of any affected indigenous cultural communities/indigenous peoples (ICCs/IPs). Free prior and informed consent refers to a consensus of all members of the ICCs/IPs, to be determined in accordance with their customary laws and practices, free from any external manipulation, interference and coercion, and obtained after fully disclosing the intent and scope of the activity, in a language and process understandable to the community. Without this, the ICCs/IPs have the right to suspend or stop the project.
In addition, the Local Government Code mandates that no project or programme is to be implemented by government authorities unless consultations are conducted with the local government units, and prior approval of the Sanggunian concerned is obtained. Occupants in areas where such projects are to be implemented cannot be evicted unless appropriate relocation sites have been provided, in accordance with the provisions of the Philippine constitution.
Environmental compliance certificates, environmental protection enhancement programmes (integrated with final mine rehabilitation/decommissioning plans), certificates of environmental management and community relations records are all required for applications for mineral agreements. Environmental work programmes are also required for applications for mineral agreements, exploration permits and FTAAs. Annual environmental protection and enhancement programmes are submitted to ensure the implementation of the environmental protection enhancement programmes.
Incentives offered
While the Philippine mining industry is strictly regulated, those who invest in mining projects also benefit from incentives. FTAA holders are entitled to the recovery of capital investments for a period of five years. National taxes are waived but local government taxes are payable during this period.
After the recovery period, the benefits are shared 50-50, based on the net mining revenue, inclusive of taxes.
FTAA holders that will engage in downstream processing may also apply for ecozone status under the Special Economic Zone Act of 1994 for entitlement to exemptions from certain national and local taxes.
Incentives provided by the Mining Act include: income tax carry forward of losses; income tax accelerated depreciation of fixed assets; exemption from payment of real property taxes on pollution control devices; investment guarantees; repatriation of capital; remittance of earnings and interest on foreign loans; freedom from expropriation and requisition of properties; and the confidentiality of information with regards to endeavours and transactions.
Finally, the Omnibus Investments Code provides: an income tax holiday for four to eight years; exemption from wharfage dues and export tax, duty, impost and fees; tax credit on raw materials and supplies; additional deduction for labour expense; additional deduction for major infrastructure works; and other, non-fiscal incentives.
Venturing into the Philippine mining industry requires knowledge, experience and expertise. Applications for the various mineral agreements and permits require constant interaction with government offices and agencies, and involve the interplay of various laws. Thus, at the outset, it is imperative to seek competent professional advice and to identify a local partner that can provide support, not only in technical matters, but also in community relations. More than the mineral resource itself, these are the keys to a successful mining venture in the Philippines.
Patricia AO Bunye is a senior partner at CVCLAW Villaraza Cruz Marcelo & Angangco, a full-service law firm in the Philippines that represents participants in the country’s leading mining projects. She can be contacted on +632 9886088 or by email at po.bunye@cvclaw.com
