How can mining work for Philippines?

Manuel V. Pangilinan

Manuel V. Pangilinan delivered this speech during a mining forum in Makati City on Friday, March 2 before an audience of anti- and pro-mining advocates in a packed hotel ballroom. Pangilinan heads the country’s largest gold producer, Philex Mining Corp, as well as 2 diversified conglomerates that control the leading telecommunications firm Philippine Long Distance Telephone Co. (PLDT) and top power distributor Manila Electric Co. (Meralco).  


Who of you does not have a cellphone? Do you know that an average cellphone contains about 24 mgs of gold, 250 mgs of silver, 3,800 mgs of cobalt, and 9 mgs of palladium?

As with cellphones, mining touches most aspects of our daily life – when you build your home, use your laptops, take your car to work, or even protest against mining.

Clearly, we cannot live without mining.

Why invest in mining

You may ask – why did we invest in mining? The answer is simple.

Rapid economic development in emerging markets has led to rising demand for resources – fuel, food, minerals, even water.

According to McKinsey, we have never before seen growth in income of such speed and magnitude: China and India are doubling their per capita income at about 10 times the pace which England achieved during the Industrial Revolution.

Both countries are adding floor space every year at 3.5x the entire residential and commercial square footage of Chicago. And in the coming decades, up to 3 billion people – and their spending power – will be added to the global middle class.

The world is indeed entering an era of sustained resource demand, and high resource prices.

So the questions for us must be – Does the Philippines have the capacity to supply some of these resources? Is it reasonable to stop developing our resources, knowing the world and the country need them?

The answer to the first question is, yes, we do. The Philippines is the 5th most mineralized country in the world and, in terms of defined resource, 2nd in gold and 3rd in copper. We have the potential to develop world-class mines.

On the second question – if we choose not to participate in the global supply chain for minerals – either by outright ban or a moratorium – our need for mining products will not stop.

Our only recourse would be to import. We would then pay for the foreign exporter’s cost of production and profit – and the cost of protecting his environment.

This is not common sense. Why should we pay somebody else to do the job we ought to be doing?

Alternatives to mining

What are the alternatives to the use of mineral land? Tourism is certainly an option to consider. However, most mining sites are not ideal for tourism. Our mines in Padcal and Surigao are hardly suitable for tourism simply because they don’t have the features of an attractive tourist site.

And even if tourism were possible, we must ask: Are the expected returns from tourism comparable to the benefits which mining can provide?

Another suggested land use is agriculture. I’m a believer in the potential and need for agriculture in this country. I consider the imperative of feeding ourselves as an urgent national priority.

But again, most mines are situated in areas that are inhospitable to agriculture.

The land is often too steep, too arid or too mineralized for agriculture to prosper.

Related to this, there’s an attempt to introduce the new concept of “total economic value” or TEV in assessing mining opportunities. The thrust of TEV is to measure environmental hazards and social costs in calculating gains and losses from mining projects. The goal is commendable.

But the calculus of the value is intangible, elusive, and extremely subjective. How does one quantify and test the value attached to the beauty of a sunset, the feel of early morning mist, or the music of water rippling through a stream?

Please don’t get me wrong. I value the beauty of nature as much as you do. All I ask is for some objective and tangible standard by which any proposed economic activity in a locality – be it tourism, agriculture, or mining – can be evaluated. For mining, that standard is already in place.

Mining projects require an environmental compliance certificate (ECC) and a feasibility study – which together quantify the potential benefits to all stakeholders, especially the community and the government, along with the environment impact.

Addressing the problems of mining

Our country has enough laws to address concerns in most areas of our lives. This is true insofar as environmental protection and social welfare in the mining industry are concerned.

The problem has always been enforcement and implementation of such laws.

I admit that our industry is not perfect, and could benefit from improvements.

Unfortunate accidents have happened, even to large mines, which lead to a perception that mining is dangerous and destructive.

But the mistakes of a few should not be construed that the whole is wrong – anymore than one car accident or one oil spill should shutdown an entire industry.

Let me briefly discuss some of our thoughts:

First, health-related and safety concerns, exploitation of women and child workers, the absence of livelihood plans and post-mining rehabilitation are issues brought about, in large part, by small-scale and illegal miners.

These miners operate freely and thrive without being subjected to the regulation and sanctions imposed on large-scale mining.

The solution is to subject small-scale miners to the same regulations and sanctions for large-scale mining.

Correlatively, national and local policies on mining need to be harmonized, and the cooperation of LGUs in their enforcement must be procured.

Second, the capacity and competence of our regulators must be improved, particularly in regard to equipment and quantity and quality of regulatory staff.

For example, in Surigao del Norte, there are only 9 mining engineers and one geologist to oversee mining activities – which include 3 major mining projects, several exploration projects, 18 approved small scale mining permits and more than a thousand illegal small-scale miners.

The private sector should help government raise its supervisory capabilities through funding of scholarships and training here and abroad, procurement of equipment, and hiring of requisite personnel. Part of the funding could come by way of a fee on mining companies, akin to the supervisory and regulatory fee payable by telecoms companies to the NTC (National Telecommunications Commission).

Our industry must learn to accept that proper regulatory attention will provide the comfort to all stakeholders – and critics – that responsible mining is possible in our country – as it has been, and still is, in other countries like Australia, South Africa, Canada, Sweden, and even Indonesia.

Third, creating an independent environmental commission responsible for supervising and enforcing environmental concerns. At present, both the EMB (Environmental Management Bureau) and MGB (Mines and Geosciences Bureau) are agencies under the DENR (Department of Environment and Natural Resources).

MGB is charged with the promotion, development, and supervision of mining. EMB’s mandate is to enforce environmental laws.

These apparently conflicting goals can, at times, place the DENR in a policy dilemma. Our suggestion therefore is to spin off the EMB into a separate and independent body, similar to the environmental protection agency in the U.S.

Profit-sharing scheme

Fourth, the private sector should be open to a profit-sharing scheme, which will assure the government of a more appropriate share in the benefits derived from the resources it owns.

Frankly, I’m not suggesting something new. Profit sharing is standard in the oil and gas industry in most parts of the world, as indeed it exists in our FTAA (Financial or Technical Assistance Agreement) regime.

In the case of Philex, despite operating under an MPSA, we paid P2.3 billion in national and local taxes, representing 37% of our pre-tax income for 2011.

Finally, the mining benefits between host LGUs and the national government should be shared more equitably.

Further, the national government must ensure the timely remittance of taxes due lgu’s. After all, mining is location-specific, and I sympathize with LGUs’ desire to realize the fruits of the resources situated in their communities.

Economies of scale

If we continue to stifle mining, the criticism that it promises much and delivers little could be self-fulfilling.

Yet when we look elsewhere, mining has been a driver of economic development. Mining in Australia contributes US$142 billion each year; in Canada, $37.5 billion; in the US, $1.9 trillion, and in Brazil, $24 billion.

The challenge is precisely to grow mining so that it creates more value-added for all of us. Only a larger and healthier industry can enable us to achieve forward linkages in downstream processing plants.

We can’t have more refineries and smelters simply because there are no economies of scale to make them commercially feasible.

Only an operation as large as Tampakan or Far Southeast or Silangan can generate the volume which could justify processing in the Philippines. I understand Tampakan will cost $6 billion to develop.

In our (Philex) case, Silangan will require an investment of more than $1 billion.

Conclusion

Let me close by saying that mining is not the enemy. Poverty is.

The lack of means, the lack of the most basic necessities, the lack of opportunities, the lack of choices – for far too long, in far too many places – these pernicious inadequacies have plagued our people.

Yet the supreme irony is that, in the midst of all this poverty, lie some of the world’s richest natural resources, a gift of providence for our people to make use of – not abuse.

It really is as simple as this – where poverty persists, small scale mining continues.

Poverty for us is not just some utopian notion. Its stark imperatives go beyond the poetry of blue skies and tangerine sunsets. You and I in this hall are not ordinary folks who worry about the next meal, the next rent, the next Meralco or PLDT bill – who do not have a 2nd home somewhere in the foothills of Mount Makiling.

This isn’t a contest between those of us who would protect the environment and those who would favor development.

We should be neither one nor the other.

In the end, it all comes down to a very basic choice that we have to make for our future. Other peoples – Australians, Indonesians, Canadians, Brazilians – have already made their choice. If they can do it and succeed, so can we.

We have a choice between fear and faith, between hardship and hope, between division and unity.

Our task is to find the common ground of reason, through patient dialogue and constructive suggestions – and from there, move forward to the more prosperous future our people deserve. – Rappler.com

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