Despite mining EO, Tampakan still in limbo

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Environment Secretary Ramon Paje says the open-pit mining ban over Tampakan can only be decided by the courts

MANILA, Philippines – Despite the signing of Executive Order 79 on the government’s new mining policy, the US$6-billion Tampakan copper-gold project still hangs in the balance.

Partly owned by global miner Xstrata and Australia’s Indophil Resources, the project has been delayed by a ban on open-pit mining in South Cotabato province — a local ordinance that investors claimed ran counter to national laws.

The much-awaited EO was expected to but did not address this issue.

While it asserted primacy of national laws over local ordinances, it was silent on the open-pit mining ban.

Environment Secretary Ramon Paje explained on July 9 that the ban remained valid, and could be invalidated only by the courts.

Meantime, a plan to raise royalties under the EO created another cloud of uncertainty over the project.

National vs local

The Tampakan project was suspended after Xstrata’s and Indophil’s local partner, Sagittarius Mines Inc (SMI), was denied an Environment Compliance Certificate (ECC) by the Department of Environment and Natural Resources (DENR).

In January, DENR thumbed down SMI’s application for an ECC, a vital requirement before any mining project can go ahead, because of a local ordinance in South Cotabato that bans open-pit mining, the method to be used in the project’s operations. The local government cited environmental reasons.

SMI appealed the department’s decision the same month, but this was also turned down due to the ban.

SMI and its foreign partners claimed the ban was invalid because it was against the Philippine Mining Act of 1995, which they stressed allowed their mining method.

It was in this light that they urged Malacañang to come up with an EO that would harmonize national and local policies.

EO 79, which was signed by President Aquino on July 6 and released July 9, directed local government units that host mining operations to “conform to regulations, decisions and policies… promulgated and taken by national government.”

Indophil lauded the EO, hoping it would ease the ban affecting its project.

“The most environmentally-friendly and economical method of mining the Tampakan deposit is by open pit mining, a form of mining method permitted under Philippine national law. The issuance of the new executive order should be a catalyst to removing the open-pit mining ban in South Cotabato,” the company said in a statement on its website.

However, Paje said the ban could only be resolved through legal means.

“[The ban] is a valid ordinance until such time provisions banning open-pit mining is declared invalid or contrary to national law by competent courts,” he said.

South Cotabato Gov Arthur Pingoy for his part insisted that the ban was “consistent with national law which upholds the general welfare of the people.”

He maintained that the planned Tampakan project was “inconsistent” with the provincial environment code.

What’s at stake

Tampakan mine has one of the largest copper and gold deposits in the world. It is 62.5% owned by Xstrata, and 37.5% by Indophil.

The mine is expected to produce an average of 375,000 tons of copper and 360,000 ounces of gold over its 17-year life.

Potentially the biggest, single foreign investment in the country at $6 billion, it is expected to add 1% to national gross domestic product for every year that it operates.

Based on SMI’s feasibility study, the mine is expected to pay the government $7.2 billion in total taxes and royalties per year under the current tax regime after a 5-year recovery period.

However, while the government recognized the contribution of mining to the economy, it said the taxes the industry pays do not offset the environmental risks involved in their operations.

The newly issued EO stressed the need for higher government share in mining revenues.

Higher royalties

Paje said the EO would generate additional revenues through:

  • Declaring future mining areas as mineral reservations, which will allow government to impose royalties in addition to existing taxes;
  • Absorbing mining wastes such as tailings and stock pile, and selling them through competitive bidding; and
  • Increasing other mining fees such as filing and occupational fees, although this will require necessary changes in the current mining law.

SMI warned hiking mining taxes will make the Philippine tax regime less competitive internationally.

Among 7 active mining countries, it said the Philippines has the 4th highest tax and royalty rates, next to Argentina, Peru and Chile. Following the Philippines are Australia, Papa New Guinea and Indonesia.

SMI said the Philippines is “doing pretty well under the current tax regime, any more than this will be a bit on the high side.”

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