Environment and Natural Resources Secretary Angelo T. Reyes pulled off another major breakthrough in the government’s revitalization program for mining as he issued the new fiscal regime for foreign-owned mining projects, a move that would ensure equitable sharing among various stakeholders in mining and make the Philippine minerals industry more competitive.

“This reform is crucial to our revitalization program because it will firm up the competitiveness of the Financial or Technical Assistance Agreement or FTAA as a form of mining contract, while at the same time ensuring that the government and the communities get their proper share of benefits from such mining projects,” Reyes said.

The guidelines defining the new fiscal regime of the FTAA, a mining tenement that allows more than 40 percent of foreign equity are embodied in Department Administrative Order No. 2007-12 signed by Reyes recently.

“We assure everyone that the new fiscal regime is nothing less than a fair deal for all stakeholders of FTAA projects.”

Reyes said the new guidelines would apply only to future FTAAs, and do not cover existing contract holders. Currently, there are only two approved FTAAs: the Didipio Copper-Gold Project of Oceana Gold in Nueva Vizcaya and the Tampakan Copper Project of Sagittarius Mines, Inc. in South Cotabato.

Reforms in the previous FTAA fiscal regime have been sought following a Supreme Court decision upholding the constitutionality of the FTAA provisions of the Philippine Mining Act of 1995 two years ago.

The crafters of the Philippine Mining Act of 1995 had envisioned the FTAA provision as the primary tool to encourage foreign investments in mining. But the government has since been unable to approve a single FTAA application due to a question on its constitutionality. It was only in 2005 that the case was resolved when the Supreme Court upheld the constitutionality of the law and its FTAA provision with finality.

A major amendment imposed was the adoption of a single benefit-sharing scheme where the government (that also represents the community) and the mining contractor share 50-50 from the net mining revenues after the recovery of the capital investment by the contractor.

Under the previous fiscal regime, there were three options available for FTAA projects, namely, the Cumulative Net Cash Flow Option, the Additional Profits Option and the Net Mining Revenue Option.

“By retaining the Net Mining Revenue Option, the DENR believes that it will result in a more equitable sharing of benefits where the contractor gets a reasonable return of its investments while the government gets its reasonable share from the utilization of the country’s mineral resources,” Reyes said.

In retaining the Net Mining Revenue Option, the DENR also harmonized the majority and minority opinions raised in the Supreme Court decision regarding the benefit sharing scheme for FTAA projects.

Other reforms to be implemented under the new fiscal regime: the requirement for the FTAA contractor to pay only the excise tax, royalties to Indigenous Peoples, if applicable, and local taxes during the recovery period; allowing a recovery period longer than five years for projects with very large investments, high production and extensive mine life; and allowing the contractor to avail of the incentives under the Omnibus Investments Code provided there are sufficient ore reserves and mine life.

Reyes said the amendment to the FTAA Fiscal Regime is only one of the major reforms under the revitalization plan for the minerals industry.

“We are now working on the various guidelines for the simplification of procedures in the grant of mining permits,” Reyes said.

He said this would include the guidelines on the delegation of the approval of new exploration permits to the Regional Directors of the MGB and their renewal to the MGB National Director, leaving only the last renewal for the purpose of declaring mining feasibility, to the DENR Secretary

The DENR is also eyeing on reducing the time for posting mining applications, and the streamlining of requirements on the National Commission on Indigenous Peoples (NCIP) clearance and endorsements from local government units.

“We are also revisiting the 24 priority mining projects to include new projects that have potentials of contributing to the goals of the program, and we are also preparing an industrialization plan to promote development of upstream and downstream industries,” Reyes said.

The DENR is taking the lead in implementing the revitalization program for the minerals industry, one of the priority economic agenda of the administration of President Arroyo. The government projects to generate US$6.7 billion in mining investments from its 23 priority projects alone by 2010.

Since the implementation of the revitalization program in 2003, a total of US$694 million in investments have been placed in the local mining industry and around 6,500 jobs have been generated. DENR Secretary Reyes has projected a boom in mining next year, when the industry is expected to reach the billion mark at about US$1.6 billion.

June 22, 2007