The Philippines is the fifth most mineralised country in the world, with an estimated USD1 trillion in untapped reserves of copper, gold, nickel, zinc and silver. Recent statistics from the Philippine Mines and Geosciences Bureau (MGB) indicate that there are 56 operating metallic mines in the country, employing around 228,000 workers. In the first semester of 2023, total exports of minerals amounted to almost USD2.865 billion, and the MGB placed the gross production value for large-scale metallic mining at PHP133 billion.
The Philippine legal system is a hybrid of both civil and common law. The civil law elements are primarily derived from the Spanish civil law system, while the common law elements are primarily derived from the Anglo-American system of the United States. Examples of Philippine legal concepts derived from common law include the doctrines of equity, estoppel, laches and stare decisis. The authority of Philippine courts is limited to the interpretation of law. Nevertheless, the Philippine Supreme Court may reverse rulings of lower courts, and even abandon principles laid down in previous rulings.
The mining industry in the Philippines is governed primarily by the Philippine Constitution and the Philippine Mining Act (PMA) or Republic Act No 7942, including its Implementing Rules and Regulations (IRR).
The executive branch, through agencies such as the Department of Environment and Natural Resources (DENR) and the MGB, also issues administrative orders, memoranda and circulars, which, although they are not laws, form part of the regulatory framework of the mining industry.
Under the Philippine Constitution, the state owns all natural resources, including minerals. The Philippine Constitution also provides that the state has full control and supervision over the exploration, development and utilisation of mineral resources. The state may undertake these activities directly or enter into co-production, joint venture or production-sharing agreements with Filipino citizens, or corporations or associations at least 60% of whose capital is owned by those citizens. The President of the Philippines may also enter into agreements with foreign-owned corporations, involving either technical or financial assistance for large-scale exploration, development and utilisation of minerals, petroleum and other mineral oils.
As stated in 1.3 Ownership of Mineral Resources, the state has full control and supervision over the exploration, development and utilisation of mineral resources. Furthermore, the state may undertake these activities directly or may enter into co-production, joint venture or production-sharing agreements with Filipino citizens, or corporations or associations at least 60% of whose capital is owned by those citizens. The President of the Philippines may also enter into agreements with foreign-owned corporations, involving either technical or financial assistance for large-scale exploration, development and utilisation of minerals, petroleum and other mineral oils.
As discussed in 1.5 Nature of Mineral Rights, mineral rights are granted under law through exploration permits (EPs), mineral agreements (MAs) and financial and technical assistance agreements (FTAAs), as well as quarry, sand and gravel, guano, gemstone-gathering permits and small-scale mining permits.
As discussed in 1.3 Ownership of Mineral Resources and 1.4 Role of the State in Mining Law and Regulations, mineral rights have a constitutional basis and are derived under law.
These mineral rights are granted under the PMA through EPs, MAs, FTAAs, quarry, sand and gravel, guano, gemstone-gathering permits and small-scale mining permits.
These mineral rights are treated similarly to property, as they may be transferred or assigned, but are subject to the approval of the government, specifically through the DENR Secretary and the MGB Director.
The DENR is the primary granting authority of mineral rights and is the government agency responsible for the conservation, management, development and proper use of the country’s environment and natural resources, including minerals and mines. Meanwhile, the MGB (a line bureau under the DENR) is responsible for the proper management and disposition of mineral lands and mineral resources, and the promotion of sustainable mineral resources development.
Mineral rights are granted under the law through EPs, MAs, FTAAs, quarry, sand and gravel, guano, gemstone-gathering permits and small-scale mining permits.
The MGB has the authority to grant EPs through its Director. The DENR Secretary has the authority to enter into MAs upon the recommendation of the MGB Director. FTAAs are entered into by the President through the DENR Secretary. However, as further discussed in 2.4 Prior and Informed Consultation on Mining Projects and 2.5 Impact of Specially Protected Communities on Mining Projects, mining projects also require:
Together with the MGB Director, local government units are represented in the Provincial or City Mining Regulatory Board, which awards small-scale mining contracts.
Exploration Permits (EPs)
EPs have a term of two years from the date of issuance, which is renewable for another two years but cannot exceed six years for metallic exploration. EP holders must annually relinquish at least 20% of the permit area during the first two years of exploration and at least 10% of the remaining permit area annually during the extended exploration period. However, if the permit area is less than 5,000 hectares, the EP holder need not relinquish any part thereof.
EPs may be transferred, subject to the approval of the DENR Secretary upon recommendation of the MGB Director.
Mineral Agreements (MAs)
MAs have a term of not more than 25 years from the date of their execution, and are renewable for another term not exceeding 25 years. After the exploration period and prior to or upon approval of a declaration of mining project feasibility, the contractor must relinquish any portion of the contract area that will not be necessary for mining operations and that will not be covered by any declaration of mining feasibility. Each mining area after final relinquishment cannot be more than 5,000 hectares for metallic minerals.
MAs may be transferred, subject to the prior approval of the DENR Secretary.
Financial and Technical Assistant Agreements (FTAAs)
FTAAs have a term of not more than 25 years from the date of their execution and are renewable for another term not exceeding 25 years. FTAA contractors must relinquish at least 25% of the original contract area during the first two years of exploration period and at least 10% of the remaining contract area annually during the extended exploration period and pre-feasibility period. During the exploration or pre-feasibility study period, FTAA contractors must finally relinquish any portion of the contract area that will not be necessary for mining operations and that is not covered by any declaration of mining feasibility, provided that each mining area after final relinquishment shall not be more than 5,000 hectares.
FTAAs may be transferred to a qualified person, subject to prior approval of the President.
Grounds for Cancellation, Revocation and Termination
The grounds for the cancellation, revocation and termination of an EP, MA or FTAA are as follows:
The PMA and its IRR require contractors to institute an environmental protection and enhancement programme prior to the commencement of mining operations, and to submit final mine rehabilitation or decommissioning plans to ensure environmental protection beyond the life of the mine.
Other pertinent environmental laws include:
These environmental laws are administered by the DENR and the agencies under it, including the MGB and the Environmental Management Bureau (EMB).
Environmental Compliance Certificates (ECCs) for Mining Projects
An ECC is required for mining projects. To secure an ECC, a proponent must submit an environmental impact statement and go through the environmental impact assessment (EIA) process, which includes baseline environmental conditions, impact assessments and proof of consultation with stakeholders, including communities in the project site and neighbouring areas.
The EIA process involves four steps:
The EMB takes at least 40 days to process an ECC application.
Environmentally protected areas are generally closed to mining. The IRR of the PMA specifically enumerate the following areas as being closed to mining applications:
Executive Order No 79, Series of 2012, expanded the list of protected areas to include:
Stakeholders must be consulted as part of the EIA process and prior to the issuance of an ECC, which is required for the grant of MAs and FTAAs.
Furthermore, the law requires that contractors assist in the development of the mining community, including the promotion of the general welfare of its inhabitants and the development of science and mining technology. Investors are also required to incorporate a Community Relations Office in the organisational structure. As further discussed in 2.6 Community Development Agreement for Mining Projects, contractors are also required to prepare a Social Development and Management Programme (SDMP) and a Community Development Programme (CDP).
Prior consultation with the local government units concerned is mandatory for mining applications intended for exploration through EPs, MAs and FTAAs.
Prior approval by a majority of the Sanggunian (local legislative body) concerned is required in support of mining applications for immediate development and/or utilisation activities.
Consultation and approval are carried out by the investor through the relevant Sanggunian.
For projects located within the ancestral domain of ICCs/IPs, the FPIC of the ICCs/IPs affected must be secured, as further discussed in 2.5 Impact of Specially Protected Communities on Mining Projects.
Rights of ICCs/IPs are recognised under the Constitution and under law. Article II, Section 22 of the Constitution provides that “the State recognises and promotes the rights of indigenous cultural communities within the framework of national unity and development”. Section 16 of the PMA states that “no ancestral land shall be opened for mining operations without prior consent of the indigenous cultural community concerned”. This provision is complemented by the Indigenous Peoples’ Rights Act (IPRA), or Republic Act No 8371, which was enacted to recognise and promote the rights of ICCs/IPs by establishing mechanisms that will take into consideration their customs, traditions, values, beliefs and rights to their ancestral domains or ancestral lands. Therefore, ICCs/IPs are given priority rights in the harvesting, extraction, development or exploitation of natural resources within their ancestral domains.
An ancestral domain covers all areas owned, occupied or possessed by ICCs/IPs, including lands, inland waters, coastal areas and natural resources therein, specifically ancestral lands, forest, pasture, residential, agricultural and other lands individually owned (whether alienable and disposable or otherwise), hunting grounds, burial grounds, worship areas, bodies of water, mineral and other natural resources, and lands that may no longer be exclusively occupied by ICCs/IPs but to which they traditionally had access for their subsistence and traditional activities.
Therefore, before any issuance, renewal or grant of any concession, licence or lease, or before entering into any mineral agreement with the government, an applicant must obtain a Certificate of Non-Overlap (CNO) or a Certification Precondition (CP) from the National Commission on Indigenous Peoples (NCIP), which is the main agency tasked with enforcing the provisions of the IPRA. The CNO attests to the fact that the area affected does not overlap with any ancestral domain, while the CP attests to the grant of FPIC by the ICCs/IPs concerned.
FPIC means the consensus of all members of the ICCs/IPs to be determined in accordance with their respective 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 that is understandable to the community. It is manifested through a Memorandum of Agreement containing the relevant terms and conditions, including the benefits to be received by the ICCs/IPs. The amount of royalty payment of not less than 1% of the gross output is subject to the agreement of the contractor and the ICCs. The royalty shall be kept in trust for the socio-economic wellbeing of the ICCs.
If a project proceeds without complying with the requirements of the IPRA for Certification Pre-condition and securing of their FPIC, the IPRA provides that the NCIP, motu proprio or upon the instance of the ICCs/IPs, shall have the right to stop and suspend the project.
Community development agreements are not mandatory. However, investors are required to prepare an SDMP and to implement a CDP in connection with the project for the benefit of the local communities. The CDP shall be developed in consultation and in partnership with the host communities.
The Philippine Securities and Exchange Commission (SEC) requires Publicly Listed Companies (PLCs) to submit sustainability reports (SRs) disclosing material information gathered after undergoing a materiality assessment process. The material information may constitute data relating to:
The SEC plans to release revised SR Guidelines, where PLCs are mandated to submit a Sustainability Report Form (the “SuRe Form”). The form covers three major sections: first is the Sustainability and Climate-related Opportunities and Risks Exposures, where the PLC rates the impact of climate and sustainability-related risks to its business model; second is the Cross-Industry Standard Metrics, where the PLC discloses its metrics and targets for physical, transition and sustainability risks; and third is the Industry-Specific Metrics, guidelines for which the SEC has yet to release.
The SuRe Form must be submitted annually through the Electronic Filing and Submission Tool System of the SEC. Failure to submit will result in a reprimand for the first offense, followed by fines ranging from PHP50,000 to PHP1 million for subsequent offenses.
The SuRe Form seeks to enhance the standard of sustainability reporting and uphold the uniformity of non-financial information submitted by PLCs.
In October 2023, the SEC released a copy of the draft revised SR Guidelines for PLCs to provide comments or feedback. The deadline for submitting comments was on 16 October 2023. Presently, the SEC has not yet issued the final version of the updated SR Guidelines.
Under the Current Strategic Investment Priorities Plan (SIPP), incentives such as income tax holidays are granted to environment- or climate change-related projects, such as manufacturing of electronic vehicles, energy efficient maritime vessels bioplastics, etc.
Furthermore, the PMA allows exemption from real property tax and other taxes or assessments of pollution-control devices.
Businesses generating green jobs or jobs that contribute to preserving or restoring the quality of the environment may avail of an income tax deduction of 50% of the total expenses for skills training and research development expenses, which is above the allowable ordinary and necessary business deductions, under the Philippine Green Jobs Act.
Good environmental and community relations around mining projects involve conducting stakeholder consultations in the form of meetings with the community, by co-ordinating with the local government units and local MGB offices, which results in the development of various projects in the community, such as providing vocational education and training programmes, contributing to the needs of local schools and developing local agricultural industries. These also include ensuring that the concerns of the affected communities are heard and promptly addressed.
Bad examples involve bypassing or mishandling stakeholder engagement, which results in the mismanagement of the project’s SDMP and CDP, leading to a failure to uplift the welfare of the host communities, focusing on programmes that are not needed by the community or failing to implement programmes that would otherwise benefit the community.
The Climate Change Act requires the formulation of a Framework Strategy on Climate Change, which serves as the basis for a programme for climate change planning, research and development, extension and monitoring of activities to protect vulnerable communities from the adverse effects of climate change. A National Climate Change Action Plan shall also be formulated in accordance with this Framework.
On 25 January 2019, the Climate Change Commission issued Resolution No 2019-001, entitled “A Resolution adopting the National Climate Risk Management Framework to address intensifying adverse impacts of climate change”, which was deemed necessary to harmonise and integrate various climate risk management efforts among sectors and stakeholders. It also functions to strengthen the country’s early action system in view of the increasing losses and damages from recurring extreme weather events. These factors are taken into consideration during the EIA process when applying for an ECC for mining projects.
As a private initiative, the Chamber of Mines of the Philippines, to which the major mining companies in the country belong, has adopted a major climate change protocol to align with the global sustainability initiative: the Climate Change Protocol of the Towards Sustainable Mining (TSM) initiative of the Mining Association of Canada (MAC).
The DENR Secretary has likewise announced several initiatives on accelerating climate change action and delivery of the Philippines’ international commitments on climate change. In November 2023, the DENR and the United States Agency for International Development (USAID) signed a Memorandum of Understanding (MOU) to implement a project aimed at enhancing the adaptive capacity of key cities in the Philippines to climate change impacts. The five-year PHP836.5 million (USD15 million) project will help enable the cities of Batangas, Borongan, Cotabato, Iloilo, Legazpi and Zamboanga adapt to, mitigate and endure the impacts of climate change through knowledge-enhancement and improving access to climate change financing.
On 3 December 2023, the Philippines joined the Blue Carbon Action Partnership of the World Economic Forum (WEF), taking another step to solidify the government’s pursuit of a green and blue socio-economic agenda. The three-year partnership agreement aims to strengthen coastal ecosystems, boost blue carbon conservation and mitigate climate change. Further, the partnership agreement will bring support from WEF for the Philippine government to work with businesses, communities and civil society organisations to restore, conserve and sustainably manage coastal ecosystems.
No climate change legislation specifically related to mining has been enacted.
The DENR is undertaking a series of initiatives to formalise small-scale mining operations, recognising their vital role in the industry. The DENR is reviewing laws that cover small-scale mining, with the goal of modernising industry standards and increased protection for small-scale miners. According to the DENR Undersecretary, “a properly regulated small-scale mining industry will benefit the community in terms of job creation and livelihood, and the country in terms of mining assets and taxes. More importantly, it will address the violation of environmental laws and mining regulations, and minimize environmental risks and promote mine safety”.
The Chamber of Mines of the Philippines (see 3.1 Climate Change Effects) adopted the Mining Association of Canada’s “Towards Sustainable Mining” (TSM) sustainability standards in response to the call for the mining industry to align with the responsible mining practices of Australia and Canada. TSM requires mining companies to annually assess their tailings management, community outreach, safety and health, biodiversity conservation, crisis management, energy use and greenhouse gas emissions management.
Based on the United States Geological Survey, the Philippines has the fourth largest nickel reserves in the world, and according to S&P Global, accounted for 11% of the global mined nickel production in 2022. Thus, even during the downturn of the mining industry in the Philippines, local mining companies continued to ship nickel to China, Japan and other markets.
The Philippine government recognises the following:
As an energy-transition mineral (ETM), nickel is a vital component for the lithium-ion batteries used in electric vehicles, the use of which is currently being endorsed and developed by the Philippine government, having passed Republic Act No 11697, An Act Providing for the Development of the Electric Vehicle Industry, in 2021.
In connection with the above, the President of the Philippines signed Executive Order No 12 on 13 January 2023 providing a temporary zero importation tariff on electric vehicles and their spare parts for a period of five years. It is hoped that this will encourage motorists to shift from traditional modes of transportation to electric vehicles. An influx of electric vehicles could lead to a demand for nickel which, in turn, may necessitate new government or legislative action. In this regard, it has been reported that the current Trade Secretary believes that the Philippines can be a supplier of electric vehicle components, specifically ETMs, for batteries. In this connection, the Department of Energy has publicly announced that it aims to roll out approximately 2.5 million electric vehicles by 2028.
After the lapse of the income tax holiday granted to the contractor by the Omnibus Investments Code (OIC) and the Corporate Recovery and Tax Incentives for Enterprises Act of 2022 (CREATE Act), the contractor pays income tax, which is set at a preferred rate for up to ten years. The contractor is also liable for excise tax on mineral products, value-added tax under the National Internal Revenue Code, customs duties under the Tariff and Customs Code and local business taxes and real property tax under the Local Government Code.
The contractor must likewise pay an annual occupation fee, based on the area occupied, and mine waste and tailings fees.
Contractors shall pay royalties to the ICCs concerned, based on the agreed payment, which may not be less than 1% of the gross output.
For MAs and FTAAs over areas covered by small-scale miners, the contractor shall pay royalties to the small-scale miners concerned upon utilisation of the minerals, depending upon their agreement.
Mining operations within mineral reservations are subject to a royalty paid to the MGB of not less than 5% of the market value of the gross output of the minerals or mineral products extracted or produced, exclusive of all other taxes.
The total government share in Mineral Production Sharing Agreements is the excise tax on the mineral product or 4%, based on the actual market value of the gross output thereof at the time of removal.
The government’s share in co-production and joint venture agreements shall be negotiated with the contractor, considering the capital investment, the risks involved, the contribution to the economy and other factors for fair and equitable sharing. The government is also entitled to compensation for its other contributions, as agreed upon by the parties, consisting of the contractor’s income tax, excise tax and other taxes, duties and fees provided in existing laws.
The government share in an FTAA is negotiated by the government and the contractor and consists, among other things, of the contractor’s income tax, customs duties and fees on imported capital equipment, excise tax on minerals, royalties for mineral reservations and IPs, local business tax, and other national and local government unit taxes, royalties and fees.
Contractors are entitled to fiscal and non-fiscal incentives under the OIC. The PMA provides that mining activities should always be included in the Investment Priorities Plan (now the SIPP). The relevant guidelines state that the exploration of mineral resources or the processing of minerals to produce semi-processed mineral products may qualify for registration with incentives limited to capital equipment.
Under the CREATE Act, income-tax incentives are now categorised according to tiers depending on the location and industry of the registered project or activity. Under the 2022 SIPP, mining activities are classified under Tier I, in which case registered projects or activities may enjoy an income tax holiday for up to six years, and a further ten years to avail of either the special corporate income tax or certain enhanced deductions.
There are currently no tax stabilisation agreements on mining in force in the Philippines.
Gains realised on a transfer of licence are generally subject to income tax. Transfers through corporate structuring outside the Philippines are not subject to tax levies.
Aside from untapped mineral reserves, investors are provided with fiscal and non-fiscal incentives, such as income tax holidays, special corporate income tax and certain enhanced deductions. Furthermore, mining activities are included in the SIPP.
Generally, foreign investments are not required to be registered with the Bangko Sentral ng Pilipinas (BSP, the Philippine Central Bank). However, a foreign investment classified as a direct investment or an inward foreign portfolio investment in a peso-denominated debt instrument issued onshore by private resident firms must be registered with the BSP.
There are no restrictions on the disposition of proceeds from exporting minerals and mineral products. Under BSP regulations, foreign exchange receipts or earnings of residents from exports may be used for any purpose. Such proceeds may be sold for pesos or retained or deposited in foreign currency accounts, whether in the Philippines or abroad, at the exporter’s option.
Although they are not specific to exploration and mining, the Philippines has so far entered into bilateral investment agreements with:
The Philippines has also entered into tax treaties with:
The principal sources of financing are debt and equity financing and foreign investments.
The international and domestic securities markets provide financing to the mining industry through bond issuances, initial public offerings and the sale of preferred shares. Mining stocks are also actively traded on the Philippine Stock Exchange.
There is currently no Philippine legal framework for taking security over mining interests. However, the IRR of the PMA requires MAs and FTAAs to include a stipulation that the financial institutions that have granted loans to contractors are given the authority to designate their assignees, in case of default by the contractors.
In September 2023, the House of Representatives passed on the third and final reading House Bill No 8937, or the proposed New Fiscal Regime for the Mining Industry (HB No 8937).
Under the bill: (i) the royalty taxes for large-scale mining operations shall depend on whether such operations are within or outside mining reservations; (ii) a royalty tax of one-tenth of 1% is imposed on the gross output of the minerals or mineral products extracted in small-scale metallic mining operations; (iii) a windfall profits tax on income from metallic mining operations with a maximum rate of 10% is imposed; and (iv) each metallic mining operation that is the subject of a mineral agreement or FTAA shall be treated as a separate taxable entity for tax and royalty reporting and payment.
HB No 8937 is anticipated to give the Philippine government a fair and increased tax take from mining while ensuring the competitiveness, attractiveness and sustainability of the country’s mining industry.
Moreover, after years of delay, the Tampakan Mine, considered one of the largest copper gold mines in the world, is now in the early access development stage and is expected to begin its operations in three years. Operator Sagittarius Mines, Inc has confirmed that all regulatory concerns have been addressed and that the development of the Tampakan Mine, which will lead to the construction of roads, port facilities, and processing facilities, among others, will promote economic and industrial growth within the country, specifically in Southern Mindanao. While the project has been opposed by many sectors due to its possible impact on the environment, Sagittarius Mines, Inc has assured the public that it will use modern technology to ensure environmental protection.
Moreover, in November 2023, an MOU was entered into by the DENR, Department of Trade and Industry, Department of the Interior and Local Government, Department of Finance, Anti-Red Tape Authority, COMP, Philippine Nickel Industry Association, and University of the Philippines Public Administration Research and Extension Services Foundation, Inc (UPPAF), which implements the Regulatory Reform Support Program For National Development (RESPOND), a policy-regulatory programme supported by USAID.
The MOU aims to maximise the potential of the Philippine mining sector and stimulate socio-economic growth by promoting a more responsible, sustainable and inclusive exploration, development and utilisation of mineral resources. Under the MOU, the UPPAF RESPOND shall extend technical assistance to key government agencies in the areas of pursuing extractive policy reforms, drafting a sound mining taxation framework, streamlining the business permitting and licensing system of regulatory agencies, conducting training and capacity-building sessions and identifying possible areas for research. The MOU, which takes a holistic approach in its promotion of mineral extraction activities, is expected to be a framework of co-operation that will drive economic growth.
In 2022, the Philippines produced PHP238 billion worth of metallic minerals, amounting to a surge of 31.73% from the previous year. In the first half of 2023, the output of the metallic minerals industry continued to rise, increasing by 8.06% to PHP123.07 billion. Nickel was the top contributor with a total production value of PHP57.32 billion, equivalent to 46.5% of the total output.
The Philippines is rich in copper, nickel and chromite. Nickel is essential in batteries, solar technologies and other renewable energy (RE) technologies. This puts the country at the forefront of the mining industry worldwide because of the increasing demand for nickel, which is crucial to the world’s transition to RE in the face of climate change and global warming.
The Mining Industry: The New White Knight of the Energy Industry?
The Philippines is the fifth-most mineralised country in the world, with an estimated USD1 trillion in untapped reserves of copper, gold, nickel, zinc and silver. Notwithstanding this, its mineral wealth remains largely untapped. Recent statistics from the Philippine Mines and Geosciences Bureau (MGB) indicate that there are only 56 operating metallic mines, employing around 228,843 workers. In the first semester of 2023, total exports of minerals amounted to almost USD2,865 million, and the gross production value for large-scale metallic mining is pegged at PHP109.1 billion, with PHP89.5 billion or 0.78% contribution to gross domestic product.
A paradigm shift in the mining industry
Recognising the nexus between critical minerals and the long-term global transition to renewable energy, the Philippine government has expressed support for responsible mining in the country. This signals a new era for the industry in the Philippines after it has long grappled with negative perceptions against mining under the last few administrations, owing largely to inconsistent regulatory policies, including a ban on open-pit mining, and a strong – if misguided – anti-mining lobby from activist and religious groups.
Central to the government’s positive attitude toward the mining industry under the current administration is the recognition of its importance in addressing the country’s looming energy crisis, global warming, and long-term commitments to sustainable goals and development.
Ripples of change in government policies
The positive shift in the government’s position was ushered in by the issuance of Executive Order No 130, Series of 2021 (EO 130), which lifted a nine-year moratorium and allowed the government to enter into new mineral agreements. EO 130 amended Section 4 of Executive Order No 79, Series of 2012, which suspended the grant of new mineral agreements “until legislation rationalizing existing revenue-sharing schemes and mechanisms shall have taken effect”.
This was followed by the open support of the Department of Energy (DOE) for the development of renewable energy sources to address future electricity shortages and the soaring cost of electricity in the Philippines. Other national government agencies have responded to this call. On 29 September 2022, the Philippines’ Department of Justice (DOJ) issued DOJ Opinion No 21, Series of 2022, at the request of the DOE, clarifying that the exploration, development and utilisation of solar, wind, hydro and ocean or tidal energy is not subject to the 40% foreign equity limitation under the Philippine Constitution, which provides the primary basis for the utilisation of natural resources in the country.
In its opinion, the DOJ states that solar, wind, hydro and ocean or tidal energy should not be subject to the 40% foreign equity limitation of the Constitution because such energy resources are beyond the ambit of the terms “natural resources” and “all forces of potential energy” as contemplated under said Constitutional provision.
In this regard, the DOE has amended the Implementing Rules and Regulations of the Renewable Energy Act to be consistent with the DOJ’s opinion. Subject to further amendments and the repeal of pertinent provisions of the Water Code of the Philippines and applicable jurisprudence, this opinion may open up more renewable energy projects in the country, particularly to foreign investments. This is consistent with the long-term (2023–2040) action plan of the DOE to utilise cleaner technologies in power generation and increase flexibility in power generation. However, these are just the first steps on the long road to energy independence.
During the Mining Philippines 2023 Conference of the Chamber of Mines of the Philippines (COMP), the Honourable Undersecretary Carlos Primo David, speaking on behalf of Department of Environment and Natural Resources (DENR) Secretary Maria Antonia Yulo Loyzaga, explained how the DENR is shifting to government-led exploration of critical minerals needed to transition to renewable energy. This will put the Philippines at the forefront of the mining industry worldwide because of the increasing demand for nickel, which is crucial in the world’s transition to renewable energy in the face of climate change and global warming.
Further, the Philippine government’s favourable attitude towards the mining industry is manifest in the current administration’s desire to explore and exploit deep-sea mineral resources. The Philippine government and the International Seabed Authority recently hosted a national capacity development workshop to discuss among others, a framework for the country’s potential participation in deep-sea mining. The Honourable Charles Jose, Undersecretary of the Department of Foreign Affairs, explained that the seabed ocean floor is teeming with critical minerals, such as cobalt, manganese, copper, nickel, among others. Notably, these minerals are needed in the renewable energy transition.
Finally, the DENR has undertaken initiatives to recognise small-scale mining operations by reviewing potential amendments to Republic Act No 7076, also known as the People’s Small-Scale Mining Act of 1991. The review is geared towards formalising the small-scale mining industry sector in order to ensure their protection and advancement, and harness their potential to contribute to the country’s economic development.
Shift to renewable energy
It is acknowledged that certain critical minerals, such as lithium, nickel, cobalt, manganese, graphite, copper and aluminium, are essential in the development of renewable energy facilities and even electric vehicles. An energy system powered by clean energy technologies differs profoundly from one fuelled by traditional hydrocarbon resources.
Solar photovoltaic (PV) plants, wind farms and electric vehicles (EVs) generally require more minerals to build than their fossil fuel-based counterparts. According to the International Energy Agency, an onshore wind plant requires nine times more mineral resources than a gas-fired plant. Since 2010, the average amount of minerals needed for a new unit of power generation capacity has increased by 50% as the development of renewable facilities has accelerated.
The types of mineral resources used vary by technology. Lithium, nickel, cobalt, manganese and graphite are crucial to battery performance, longevity and energy density. Rare earth elements are essential for permanent magnets that are vital for wind turbines and EV motors. Electricity networks need a large amount of copper and aluminium, with copper being a cornerstone for all electricity-related technologies.
Any shift to renewable energy sources by the Philippines will result in a huge increase in the requirements for these minerals and resources. If the Philippines is serious about this shift, the Philippine energy sector will need to delve deep into the mineral markets. The Philippines will not have to look far. With the Philippines’ significant but largely untapped mineral reserves, the country has the potential to become a key market, both for local demand and for foreign requirements.
Consistent with promoting the Philippines in the global value chain of the clean energy sector, a Memorandum of Understanding on the operationalisation of a PHP280 million United States-funded technical assistance was signed on 16 November 2023 by various Philippine government officials, the Philippine Nickel Industry Association, and representatives from USAID’s Regulatory Reform Support Program for National Development (RESPOND) Project and the COMP. In a statement, the United States Embassy in the Philippines stated that the “comprehensive program will support the Philippine government’s goal to become a major global value chain player in the clean energy sector by maximizing the country’s mineral potential and increasing value addition through minerals processing”.
Towards sustainable mining
As a pushback against the negative perception of the mining industry, the DENR has pledged to revise the guidelines for the Social Development and Management Programs (SDMP) of mining firms in the Philippines. This is consistent with the Philippine Development Plan for 2023–2028 and the government’s commitment to the achievement of the United Nations’ Sustainable Development Goals.
SDMP is mandated under Republic Act No 7942, or the Philippine Mining Act of 1995, and implemented through DENR Administrative Order No 2010-21, or the Revised Implementing Rules and Regulations of the Philippine Mining Act of 1995. It is a comprehensive five-year plan for “the sustained improvement in the living standards of the host and neighboring communities by creating responsible, self-reliant and resource-based communities capable of developing, implementing and managing community development programs, projects, and activities in a manner consistent with the principle of people empowerment”. In particular, revisions to the guidelines for SDMP will focus on improving standards of living in the host and neighbouring communities even beyond the life of the mine.
The DENR has also emphasised the participation of women in extractive industries, such as mining. In an event organised by non-government organisation Diwata - Women in Resource Development, DENR Secretary Loyzaga emphasised mainstreaming gender-sensitive policies in the mining sector which will simultaneously prevent practices that harm women and build resilient corporate institutions.
Further, the role of Indigenous Peoples (IP) communities cannot be gainsaid. During the 2023 Community Relations Conference, the Honourable Jennifer Pia Sibug-Las, Chairperson of the National Commission on Indigenous Peoples, said that IPs recognise the potential of the mining industry in uplifting and empowering IP communities. In this regard, engaging with IP communities through consultation, consistent with self-determination, is crucial to a sustainable mining industry.
Metallic minerals industry output
In the first semester of 2023, the output of the metallic minerals industry continued to rise, increasing by 7.91% to PHP109.10 billion from PHP101.1 billion during the same period in 2022. It was reported by the MGB that, in the year 2022, nickel ore and its by-products contributed the most to production value, at PHP117.64 billion of the total, or 49.38%. This trend is expected to increase in the foreseeable future, considering the surging demand for lithium, cobalt, manganese and graphite in response to the renewable energy sector.
The proposed new fiscal regime for the mining industry
In the Philippines, nine million hectares is identified as having high mineral potential but only 779,446.41 hectares or 2.60% is covered by mining tenements as of June 2023. The untapped potential of the mining industry to contribute to national development is partly due to the uncertain and complex fiscal mining regime of the Philippines.
On 26 September 2023, House Bill No 8937 (HB No 8937), or the proposed New Fiscal Regime for the Mining Industry, passed the third and final reading at the House of Representatives. Under HB No 8937, four new sections were incorporated to Republic Act No 8424, otherwise known as the National Internal Revenue Code of 1997, as amended.
Under HB No 8937, the fiscal regime for large-scale metallic mining operations is bifurcated; ie, large-scale mining operations: (i) within mineral reservations; and (ii) outside mineral reservations. The proposed tax rate for large-scale mining operations within mining reservations is a flat 4%, while the tax rate for those outside mining reservations is graduated and margin-based (which is the ratio of income to gross output). It bears emphasising that for the latter, despite being a graduated rate, the maximum royalty rate is 5%.
Further, for large-scale mining operations within mining reservations, tax is imposed on gross output, while for outside mineral reservations, tax is imposed on income (ie, gross output less deductions). Notably, for large-scale mining outside mineral reservations, expenses for the development of host and neighbouring communities and for the development of geosciences and mining technology may be claimed as deductions.
HB No 8937 also proposes windfall profits tax and ring-fencing, among metallic mining operations.
During the COMP’s Mining Philippines 2023 Conference, the Honourable Karlo Fermin Adriano, OIC Undersecretary of the Department of Finance (DOF), said that the DOF is willing to negotiate with the mining industry players for an equitable fiscal regime for the mining industry. He emphasised that the government approach is to grow not only the mining industry itself, but more importantly, the whole value-chain of the industry.