'Mining a social justice issue' By Christian S. Monsod

[GLT]

'Mining a social justice issue'
By Christian S. Monsod
Posted at 03/03/2012 2:08 PM | Updated as of 03/03/2012 5:00 PM

The mineral wealth of our country, as the mining industry reminds us,
is “staggering” – about $840 billion. Its potential to contribute to
our country’s development cannot be discounted. While mining has never
been a driver of our development, not even during the mining boom of
the seventies, we are here to find out if there is a way to realize
that potential. And I thank the organizers of this Conference for
taking this step toward that objective.

The real question before us today is: Should mining be allowed in the
Philippines?

I believe that we should be open to that proposition provided four
minimum conditions are met: (1) the environmental, social and economic
costs are accounted for in evaluating mining projects; (2) the country
gets a full and fair share of the value of the extracted resources,
(3) and this is addressed to the government, the institutional
capabilities of the government to evaluate and regulate mining
activities are put in place; and (4) again addressed to the
government, since mining uses up non-renewable natural capital, the
money from mining are specifically used to create new capital such as
more developed human resources and infrastructure, particularly in the
rural areas. In this regard, I refer you to the paper of Prof. Ronald
Mendoza of the AIM Policy Center and his proposal for a “middle
ground” that involves the establishment of an “inclusive growth” trust
fund.

With respect to downstream plants and the total banning of ore
exports, I did not include these because the mining industry may have
a point on the practicality and long-term feasibility of these
conditions – hence the need for more consultations.

I submit that mining is a social justice issue. And we cannot discuss
it except in the context of our country’s dismal performance in
addressing mass poverty and the gross inequalities of income, wealth
and political power that persist more than 25 years after the glowing
promise of EDSA of a just society.

We are all familiar with the data.

Over 24 million Filipinos are poor, i.e. “poor” meaning per capita
income of less than P46/day and about 9.4 million of them are “food
poor”, i.e those who live on P32/day, not even enough to meet the
minimum 2,000 calories a day. Over 28 years, our real per capita
income rose only 20% while per capita incomes of our neighbors
increased – like Malaysia (400%), Thailand (500%) and China (1100%) -
in the process eradicating absolute poverty.

Even more compelling – the inequality of income has not changed since
EDSA. The top 1% of the families numbering 185,000 have an income
equal to the income of the bottom 30% of the families numbering
5,500,000. There are many more such data but this is not the forum for
them.

I just wanted to make the point that history has not been very kind to
our poor. And we know this must change.

The increasing inequality of income, wealth and political power is, of
course, happening worldwide. In our particular case, the root of the
problem is the development paradigm followed by every administration–
that rising waters raise all boats – that sustained economic growth
driven by investments will eliminate poverty. But conclusive empirical
data tell us that sustained high growth is not possible unless we also
address the problem of inequality. And that means not only income
reform – quality education, universal health care and livelihood -
but also asset reform, which is primarily about land and natural
resources and a substantive redistribution of their benefits and
costs. As you know, the four asset reform programs are agrarian
reform, urban land reform and housing, ancestral domain and fisheries.

That is why it is unfortunate that two major stakeholders on the issue
of mining were not invited to speak today – the National Commission on
Indigenous Peoples and the Department of Agriculture

Environmental, Social and Economic Costs and Benefits

Mining activities are usually located in rural and mountainous areas
and can affect farmlands, rivers and shorelines, where the poorest of
the poor are located namely, the farmers, indigenous peoples and
municipal fishermen.

The fact is that mining cannot be conducted without affecting the
land, water, and air surrounding the site, as well as the various
natural resources found in them. Mining involves the extraction of
minerals, but may also involve the use or destruction of non-mineral
resources, such as freshwater, timber, and wildlife. This may also
result in health problems, displacement of people, social
divisiveness, even the need to provide PNP and AFP protection to
mining companies. Then there are the disasters that can happen from
the cutting of trees, from siltation and erosion, and accidents from
mining structures. All these translate into public costs.

That is why mining is often cited as an example of what Paul Krugman
calls activities that privatize benefits and socialize costs. This is
the social justice issue on mining.

As for the argument that minerals are meant to serve humanity and are
the raw materials for the modern conveniences we use everyday, the
point is that, in cases where mining is allowed, the minerals should
be priced at full cost, including environmental, social and economic
costs. Otherwise, our poor who mainly bear these costs would be
subsidizing the consumerism of the rich, both domestic and foreign.

We cannot find the answers to the plight of the poor unless we listen
to the poor. In this regard, you might want to read 3 public documents
– the National Rural Congress II of the CBCP in 2007, the Climate
Change National Consultations of 2009 and the Summit on Poverty,
Inequality and Social Reform conducted last October to December 2011.

Why Climate Change? Because the new normal arising from climate change
requires a watershed approach to mitigation, adaptat,ion and disaster
management and watersheds are where the forests and minerals are
mostly located. In these conferences, one of the deepest concerns of
the poor are the environmental, social and economic costs of mining..

The Benefits and Costs of Mining – What we want to know are the real
contributions of mining to GDP, exports, employment, government
revenues, investments, industrialization, poverty alleviation, etc..
Here are some statistics:

- Ave. contribution to GDP, 2000-2009 = .91%
2010 = 1.30%

- Ave share to total employment 2000-2009= 0.376%
2010 = 0.5% = 197,000

- Ave. contribution of metallic mining to total exports - 2000-2009 =
2.96%
2010 = 3.7%

- Ave. share of mining investments to total investments = 2.5%

- Total government taxes, fees and royalties 1997-2010 = P64.2 B=
7.6% of
- Total production value of mining companies 1997-2010 = P842 B

- On industrialization: Per former NEDA Sec. Cielito Habito: Based on
national I-O tables: Backward linkages of mining = .46 (less than half
of other industries); Forward Linkages is a low .82. These mean that
mining is not considered enough of a value-adding activity.

- On poverty alleviation: Mining has the highest poverty incidence of
any sector in the country 48.7%.. The only sector where poverty
incidence increased between 1988-2009. High poverty incidence in many
mining areas i.e. CARAGA (47.5%), Zamboanga Peninsula (42.75%), Bicol
region (44.92%) , the national average being 26%. At the municipality
of Bataraza in Palawan where Rio Tuba has been operating for 30 years,
the poverty incidence (53%) is double the national rate. The mining
industry is correct in pointing out that the statistics do not
establish causality. But the data at least shows an association
between mining and poverty that raises questions on the claim that
mining improves the quality of life in its communities.

Investment and Export Proceeds

The mining industry’s absolute figures on gross investment inflows and
export proceeds are impressive, but they are only one-half the
picture.

Mining companies are allowed to recover and repatriate all pre-
operating and development costs up to 4-5 years after start of
operations. Thus, the inflows and outflows on investment may even out
during that period.

On export proceeds, mining operations usually front load production
during the first five years, arguably to exploit market opportunities,
but this also happens to coincide with their tax holidays. Profit
remittances can, thus, be considerable.

Government Revenues

The DENR says that there is a discrepancy between potential excise
taxes from mining and actual collections (P7.8 billion from
2000-2009). The LSM sector claims that their payments in 2008-2009
equaled the collectible amount and that the uncollected excise taxes
are attributable solely to small-scale miners and quarrying. That may
be true. But it is interesting that if one takes a longer view, from
1997-2007, there is no such correlation. Actual collections for 6 of
the 11 years are lower than the collectibles from LSM ranging from
4%-36%.

It is unfortunate, that the small-scale mining sector was not invited
to speak at this conference so it can defend itself and justify its
role in the development of the mining industry. After all, the
production value of SSM from 1997-2010 was the same as that of LSM at
about P300 billion.

Employment

The mining industry claims that 1 direct job in mining creates 5 more
jobs in the rest of the economy – a multiple of 5. NEDA denies that
it has any such data. However, a study by Madeleine B. Dumaua based on
the 2000 Input-Output tables of the economy shows that :

A peso change in the final demand for the mining/quarrying generates
P1.70 pesos worth of additional output for the economy;

On employment, every one million of additional investment in mining/
quarrying generates additional employment of 2.2, not 5.

The average multiplier of 2.2 jobs includes SSM which requires
virtually no capital investment and capital-intensive LSM, like
Tampacan, that will generate 10,000 temporary jobs and 2,000 permanent
jobs with a $5.9 billion investment (about P120 million per permanent
job). The mineral extractive industry is considered worldwide as a low
job generating activity.

These data put in question the expansive claim by the Chamber that the
projected LSM $15 billion investments will generate 70,000 direct jobs
that will result in 350,000 other jobs, leading to 2,050,000 jobs by
2018 with 10.25 million Filipinos as “direct beneficiaries of
mining”. A recalculation would look more like = 576,000 Filipino
beneficiaries

The Share of Government in Mining Revenues

The Chamber is objecting to the proposed royalty of 5% on mining
revenues on the ground that it would drive investors to other
countries with more favorable financial regimes. The industry in Nov.
2011 appealed to the government not to increase the royalties because
the “current fiscal regime…. may be the only thing that’s keeping the
industry afloat.”

At the same time, the stock market is at new highs and the newspapers
banner unprecedented mining profits in some companies.

RA 7942, Sec. 80: “The total government share in a mineral production
sharing agreement shall be the (2%) excise tax on mineral products as
provided in Republic Act No. 7729, amending Section 151(a) of the
National Internal Revenue Code, as amended.”

An excise tax is a tax on the use or consumption of certain products,
or a tax on an activity. In the case of mining, no value is given to
our minerals.

Some comparisons by the MGB of the fiscal regimes of selected
countries (China, India, Indonesia, Mongolia, Myanmar, Papua New
Guinea, Peru, Chile) show that the fiscal regime in the Philippines is
quite competitive with, if not more favorable than, those of other
countries.

Moreover LSM are given generous tax incentives, to wit:
(1) income tax holidays of 5 years (including excise taxes);
(2) deduction of 50 percent of labor expenditure from taxable income,
(3) tax and duty exemptions on imported capital equipment and spare
parts,
(4) exemptions from wharfage fees, and additional incentives for
enterprises that locate in less developed areas.
(5) the privilege to deduct 100 percent of expenditures on
infrastructure from taxable income, over a period of 10 years
(6) during the exploration period are not liable for income taxes.
When they begin commercial operations, they are entitled to register
with the Board of Investments for a five–year income tax holiday
(7) exemption of pollution control devices from real property and
other taxes41;
(8) income-tax carry forward of net-operating losses incurred in the
first 10 years, which may be deducted from taxable income over a five-
year period;
(9) accelerated depreciation of assets—at twice the normal rate
(10) option to deduct the cost of all exploration and development
expenditures from taxable income over a four-year period from
commencement of commercial operations;
In the case of FTAA (financial and technical assistance agreements)
(11) they are allowed to recover all their tax and operating
expenses before they begin to pay either the basic or the additional
shares of government, such as:
(12) “(a) contractor’s income tax; (b) customs duties and fees on
imported capital equipment; (c) value-added tax on imported goods and
services; (d) withholding tax from interest payments on foreign loans;
(e) withholding tax on dividends to foreign stockholders; (f)
documentary stamp taxes; (g) capital gains tax; (h) excise tax on
minerals; (i) royalties for mineral reservations and to indigenous
peoples , if applicable; (j) local business tax; (k) real property
tax; (l) community tax; (m) occupation fees; (n) registration and
permit fees; and (o) all other national and local taxes, royalties and
fees as of effective date of the FTAA.”
To summarize the issue on the revenue sharing: Not only are our
minerals not given any value, our government pays the contractors to
extract them through fiscal incentives. What do we get in return?
(a) Very little by way of taxes, fees and royalties, and practically
none at all during the tax holiday period;
(b) Very little by way of job generation;
(c) Probably little net foreign exchange inflows;
(d) Very little contribution to GDP;
(e) Very little industrialization linkages;
(f) Questionable poverty alleviation results

Of course, there is always the potential. But there may be another
side to the relatively low benefits from mining – there is not much to
lose should the government refuse to give in to the demands of mining
that would compromise the environment. Timely alternative development
strategies may, in fact, result in a net gain.

Institutional Capacity of Government to Evaluate and Regulate Mining

One cannot blame the mining industry for always trying to get the best
deal for its shareholders. But it is the responsibility of government
to protect the interests of the country.
However, the government admits in the Philippine Development Plan
2011-2016, that it does not have the capability to make that kind of
assessment:
(a) Page 310 of the PDP: “…currently, there is no standard resource
and environment valuation. There is a need to have a cost-benefit
analysis and standard parameters that will consider all relevant
values (including non-market values)”;

(b) “government capacity for resource management is wanting”;

(c) “enforcement of environmental laws and policies is
inadequate.....Relevant environmental laws, specifically
those regulating the utilization of natural resources, i.e.
NIPAS, etc. are poorly implemented.”
The question begs to be asked – how can the government approve any
mining application or allow any mining operation in the absence of
these institutional safeguards?

The proposal is to adopt TEV (Total Economic Valuation) and WAVES
(Wealth Accounting and Valuation of Ecosystem Services) which is an
integration of TEV and natural capital accounting. WAVES is an
initiative of the World Bank which is supportive of “responsible
mining”. It complements the Extractive Industry Transparency
Initiative (EITI) - a priority advocacy of the Chamber of Mines.

The exercise is not “catatonic” because “significant advances have
been made in defining and conceptualizing protected areas valuation ”.
There are at least 60 instances, at least 3 in the Philippines, where
TEV has been done. There are enough research work and examples to
arrive at a less than perfect, but nonetheless usable, formula.

WAVES is a comprehensive wealth management approach to long-term
sustainable development that includes all assets – manufactured
capital, natural capital, human and social capital. The methodological
framework is the UN’s System of Environmental and Economic Accounting
(SEEA) developed over the past 20 years.

This is a good time to adopt these analytical tools since the
Philippines is one of 6-10 countries where WAVES is being piloted by
the World Bank. Why the Chamber of Mines seems to object to their
explicit application to mining projects in the new policies is frankly
hard to understand.

We need these tools. For example, there is an apparent oversight in
the Mining Law or its IRR – because the so-called final rehabilitation
fund for phased out mines applies only to the capital costs of
rehabilitation – like land restoration and reforestation. There is no
perpetual accountability or trust funds for the maintenance of
structures like tailings dams or the disasters that could happen years
later from dam breakages. These risks should be borne by the mining
companies and not by our taxpayers, which seems to be the case today.
This is not responsible mining. If my understanding of the rules is
wrong, I will be happy to be corrected.

Until the new policies are fully in place, the government should
strictly apply the precautionary principle to pending issues. The
principle is public policy under RA 9729 (Climate Change Act of 2009),
and was enunciated by the Supreme Court in issuing the Writ of
Kalikasan:

Part V. Rule 20, “Sec. 1 When there is a lack of full scientific
certainty in establishing a causal link between human activity and
environmental effect, the court shall apply the precautionary
principle in resolving the case before it. The constitutional right of
the people to a balanced and healthful ecology shall be given the
benefit of the doubt.”

This safeguard is needed. The present mining system is simply no
longer workable because it is onerous to the country and is open to
corruption and to decisions that are vulnerable to future
questionings, and we need a little more time to put things right.

In closing, may I say that the mining industry is correct that our
fragmented views on mining heightens the uncertainty of mining
investors, although this may have the reverse effect on other
investors, as in tourism. The mining industry should thus welcome the
initiative of the government to put in place a new set of rules that
can promote solidarity with consultations. If the rules turn out to be
too tough on mining, at least the decision to invest will have less
uncertainties and its parameters will be clear. On the other hand, the
government and other stakeholders should be fully aware of their
consequences on mining investments and the need for a fair and proper
disengagement process, if necessary, as well as the urgency of
implementing alternatives to mining.

In times like this, it is good to remember the words of Albert Camus
when he received the Nobel Peace Prize – we should put ourselves at
the service not of those who make history but of those who suffer it.

Thank you.

Monsod delivered this speech during a mining conference organized by
business groups in Makati City on March 2, 2012.

http://www.abs-cbnnews.com/-depth/03/03/12/christian-monsod-mining-social-justice-issue