Department of Environment and Natural Resources (DENR) Secretary Angelo T. Reyes on Friday said he is optimistic that more big ticket players would firm up their mining investments in the Philippines now that the new fiscal regime for the Financial or Technical Assistance Agreement (FTAA) is in place.

“A clear fiscal regime was the final missing ingredient for a competitive FTAA, which many of our big mining players have been waiting for. Now that we have put it in place, we expect more of them firming up their investments as well as new ones coming in,” said Reyes, who was the keynote speaker during Friday’s Lecture Series hosted by the Chamber of Mines of the Philippines.

Currently, there are already 56 applications for FTAA covering various parts of the country and many are converting their Mineral Production Sharing Agreements to FTAA.

The FTAA is a mode of mining contract that allows majority foreign equity, and is open to large-scale mining projects with initial capital of at least US$50 million for mine infrastructure and development. The fiscal regime defines the benefit sharing scheme between the FTAA contractor and the government, as owner of minerals.

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

The crafters of the Mining Act had envisioned the FTAA 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 High Court upheld the constitutionality of the law and its FTAA provision with finality.

Harmonizing SC decision
Reyes said the new fiscal regime was a product of a long review to ensure equitable sharing of benefits where the contractor gets a reasonable return for its investments while the government, which also represents the Filipino people, gets its reasonable share from the utilization of the country’s mineral resources.

A major reform to be found in the new fiscal regime was retaining only the option on the 50%-50% sharing of the Net Mining Revenue inclusive of all taxes and after recovery period in the determination of the Additional Government Share coming from the FTAA holder. 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.

“Retaining only one option which is equitable simplifies the negotiation process,” he said even as he assured everyone that the new fiscal regime provides nothing than a fair deal.

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

He said the Supreme Court in its decision in 2004 said that the government would get the highest share from the option that is based on the net mining revenue as compared with the other two options. On the other hand, he said, a dissenting opinion given by Associate Justice Antonio T. Carpio shot down the Additional Profits Option saying that it imposes impossible conditions.

Marketing contract
The new fiscal regime also required government approval for marketing contract in order to ensure that the government gets its fair share from the utilization and development of its minerals.

A marketing contract is an essential document in the sale of minerals and mineral by-products as it provides the basis for how much minerals are sold by mining contractors to smelters. The sale price of minerals is also the basis in the calculation of gross output and the subsequent excise tax which is the basic share of the Filipino people in the utilization of the country’s minerals.

“The government owns the minerals and is the partner of the private sector in the exploration, development, and utilization of the minerals through the FTAA,” he said adding that the Supreme Court decision recognized the authority of the government to exercise control over utilization of minerals including marketing and pricing of mineral products.

“The Mining Act requires the highest price for the sale of minerals and by-products, and the only way to ensure this is through the marketing contracts.”

In some cases, submitted marketing contracts do not reflect actual market conditions and prices, he said.

To address the issue of delay of approvals, he said, marketing contracts shall be deemed approved within 15 days upon receipt if not acted upon by the DENR.

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

He said the DENR is also looking at simplifying the procedures in the grant of mining tenements and possibly cut down the period of application for Exploration Permit (EP), Mineral Production Sharing Agreement (MPSA) and Financial or Technical Assistance Agreement (FTAA) by two and a half months more.

In the proposed simplification plan presented by the DENR’s Mines and Geosciences Bureau in the same event, the approval of new EP would be delegated back to the MGB Regional Directors and would no longer require the clearance of the Secretary.

On the other hand, the approval of EP renewals for purposes of exploration would be by the MGB Director. However, EP renewals for purposes of declaring mining project feasibility would need approval from the Secretary.

The announcement of the Notice of Application would be limited to publication in 2 newspapers as well as posting in the provinces and municipalities where the applied area is located. Radio announcement would no longer be required. Relatedly, filing of adverse claim, protest or opposition to a mining project would be reduced to within 10 calendar days from the previous 30 days.

If these are implemented, the processing time for EP applications would be reduced from 5 months to 2 ½ months, while that of MPSA would be trimmed down from 7 months to 4 ½ months. The FTAA application period would also be slashed from 8 months to 5 ½ months, at the DENR level, before it is endorsed to the President for approval.

July 13, 2007