‘Zero’ share from mining wealth?

“All …minerals … and other natural resources are owned by the State….”  That is part of Section 2, Article XII of the 1987 Constitution, and is a reiteration of the so-called regalian doctrine (“all mineral wealth was the prerogative of the crown or the feudatory lord”) which is reportedly followed by mining countries in the world except the United States.

The Philippines claims to be the fifth most mineralized country in the world, and to hear Gary Teves tell it (quoting DTI/BOI), our reserves of gold, copper, nickel and chromite are second, fourth, fifth and sixth largest in the world, not to mention silver, coal, gypsum, sulfur, clay.

What is the value of these mineral resources?  In 2004, then Neda Director General Romulo Neri cited the amount of P47 trillion to the Supreme Court (as quoted in Justice Antonio Carpio’s dissenting opinion in the La Bugal case, where the high court reversed an earlier decision and upheld the constitutionality of the Philippine Mining Law, RA 7942 and its implementing rules and regulations) as the “potential mining wealth” of the Philippines.

Since the state owns these mineral resources, how much should its share be of the profits (revenues minus costs) from their exploitation?  At least 50 percent, wouldn’t you say? Or 60 percent, if the government goes into some form of joint venture with a foreign corporation. In any case, something that represents a “fair share” of the profits.

Certainly not a zero share. But that is exactly what the government’s share is of the income from the mineral resources it owns. Zilch. Nada. This, Justice Carpio pointed out in his dissenting opinion.

Only consider.  There are some 30 large commercial mining operations in the country today, all apparently operating under so-called Mineral Production Sharing Agreements (MPSAs) entered into with the government.

Section 80 of the Philippine Mining Law, titled “Government Share in Mineral Production Sharing Agreement,” provides the following:  “The total government share in a mineral production sharing agreement shall be the excise tax on mineral products as provided in Republic Act No. 7729, amending Section 151 (a) of the National Internal Revenue Code, as amended.”

And how much is the excise tax on mineral products? Two percent on metallic and non-metallic minerals.

But isn’t 2 percent greater than zero?  Excuse me.  As Carpio explains, “The excise tax is imposed not only on mineral products, but also on alcohol, tobacco and automobiles produced by companies that do not exploit natural resources owned by the State.  The excise tax is not payment for the exploitation of the State’s natural resources, but payment for the “privilege of engaging in business.” Clearly, under Section 80 of RA 7942, the State does not receive as owner of the mineral resources any income from the exploitation of its mineral resources (emphasis his).

Thunders Carpio: “Natural resources are non-renewable and exhaustible assets of the State.  Certainly, no government in its right mind should give away for free its natural resources to private business enterprises, local or foreign, amidst widespread poverty among its people.”  And further on, “Under the 1987 Constitution, the State must receive its fair share as owner of the mineral resources, separate from taxes, fees and duties paid by taxpayers.  The legislature may waive taxes, fees and duties, but it cannot waive the State’s share in mining operations.”(emphasis his)

So how come the majority opinion didn’t see it his way?  A non-lawyer’s (but one who understands English) take:  it looked to me like a weaseling operation—the reason was that the MPSA wasn’t the issue at bar, but rather the FTAA, which is also provided for in RA 7942.

FTAA stands for Financial or Technical Assistance Agreement, where private companies act as contractors of the State (and in the particular case, a foreign private company, although it has since sold 60 percent of its shares to a Filipino company).   Presumably, the difference between the MPSA and the FTAA is that in the latter, it is the State that is directly exploiting the natural resource, but using the contractor and paying it a share of the income from the exploitation of the resource.

Well, does the government get its fair share under the FTAA?  Here is where Carpio goes to town.  He points out that the State doesn’t begin to get its share until after the contractor has fully recovered its pre-op, exploration and development expenditures—for which there is no time limit (!).  And then, the State’s share consists solely of taxes, fees and duties. Zero share of profits again, this time, says Carpio, because the conditions in the implementing rules and regulations (DAO 56-99) are impossible to fulfill (this in the dissenting opinion to the motion for reconsideration on the case).

What conditions?  Well  government will get an additional “share”  (to the taxes, etc), only if the contractor’s net income after tax amounts to more than 40 percent of gross output, for two successive years.  Carpio, using data from the six largest Philippine mining companies, shows that the highest net income after tax/gross output ratio was only 25 percent, with the average ratio being 16 percent over a nine-year period.

Carpio then cites data from the mother company of the FTAA contractor (average ratio of 10 percent), as well as the world’s largest mining companies (largest average ratio was 13 percent).  Clearly the 40-percent “trigger” will never be reached.

So who benefits?  Not the government. While the people are left to deal with a devastated land.