Like It Is

Is the government serious about fighting poverty, or not?


12:33 AM September 12th, 2013

By: Peter Wallace, September 12th, 2013 12:33 AM

Close to 1,000 people lost their jobs and an investment of $6 billion, the biggest single investment the Philippines has ever attracted, is on hold and may well disappear. As a result of the endless lack of commitment by this government to support the mining industry, Sagittarius Mines may never get going. The firm and its major shareholder, Glencore Xstrata, have put the Tampakan project on hold as they reevaluate if it’s worth proceeding.

In one of its most ill-considered decisions, the administration of President Aquino—an administration that has generally been making the right decisions, so this one is hard to understand—has practically stopped all new mining operations; and it has decided to ask Congress to review the mining tax regime before allowing new projects.

The President said government only receives a 2-percent tax on the gross revenue of mining firms, or 7 percent if royalties are included. But this is only one of the many taxes and benefits (investment in infrastructure, health and education in the community where mining firms operate, etc.) local communities derive from the industry.

The government says it wants a 50-50 sharing of net mining revenues. But according to a recent International Monetary Fund study, the government already gets more than 50 percent—actually around 60 percent from FTAA (Financial or Technical Agreement) contracts—and this is significantly above the share other mining countries are getting, especially those with whom the Philippines is in competition for dollar investments.

With the mining projects on hold, the loss to the economy will be far, far in excess of whatever supposed additional revenues will be generated from higher taxes. For example, there’s a high possibility that the $6-billion Tampakan mine investment will be withdrawn permanently. Meanwhile, no other projects are being approved. The explorers are leaving, no one is coming in.

Last year foreign direct investment (FDI), the investment that creates jobs, increases national wealth and spurs other multiplier effects for the economy, was $2.8 billion, the lowest by a factor of 3+. Thailand drew in $8.6 billion. The largest recipient, Singapore, got $54 billion. So you’d think the government would be rather strongly determined to do everything it could to attract more FDIs and refrain from any action that would drive them away. (Note that the $6-billion Tampakan FDI is more than twice the total of all FDIs last year; another mining firm, TVI, is expected to shut down as it has been stopped from expanding its mining operations.)

Yet that’s what President Aquino has done through his ill-advised request for Congress to review the tax regime for mining and with Environment Secretary Ramon Paje’s refusal to approve any new or expansion projects.

Fifteen billion pesos, that’s how much it would cost to build the additional classrooms the country needs; P13 billion, that’s how much it would cost to hire around 50,000 new teachers to solve the shortage of teachers in public schools; P75 billion, that’s how much it would cost to rehabilitate 25-30 ailing government hospitals. About P370 billion, that’s how much the Philippines will lose this year and over the next four years because of government’s aversion to mining. That amount would pay for health and education three times over.

Except for a few existing mines, the local sector is practically at a standstill. That’s about 44,000 lost job opportunities in mining for Filipinos and 180,000 lost jobs in other activities mining generates.

The mining tax revisions the government wants will take at least two years to get Congress approval; it could take longer.  After that, it will take a minimum of another two years for any new mine to get started, and five years more before it can start paying taxes. That means a long wait to 2020, well beyond this administration’s term.

For now, only six companies are—or should I say were—ready to begin mining. Their operations are on hold until a new tax law shall have been passed, or until the government comes to its senses and recognizes the harm to the economy this ill-considered tax review is doing and cancels it. No one will invest when they don’t know what tax they’ll pay.

What the government doesn’t seem to realize is that  it has been getting good revenues from large-scale, responsible mining companies. In 2011 exports were $2.7 billion, or some 5.6 percent of GDP. The mining companies have also been contributing to host areas and their neighborhood communities through social development management programs (SDMPs), as mandated by the Philippine Mining Act of 1995. Their total contributions to socio-civic activities since 2005, through SDMPs, have reached P1.3 billion.

But these legitimate mining companies aren’t the only ones who have been doing mining. The Bangko Sentral ng Pilipinas recently reported that as much as 95 percent of mined gold is now smuggled out of the country. So if illegal mining is stopped—not a difficult thing to do if government really wants to—and mined gold is traded legally, we estimate that an additional P3.5 billion (equivalent to about 20 percent of total taxes from mining) could be collected annually at existing tax levels.

But for some reason the government is spending all its time attacking the responsible mining industry sector and doing nothing about the rampant illegal mining in the country.

Mining can, in the future, provide the country enormous wealth—if the President actively supports it.

* The IMF uses a formula called the Average Effective Tax Rate or AETR: measuring the total share of the net value of a mining project over its life.

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