Mining ban raises risks in the Philippines

A decision to close, suspend and cancel mining operations has come under fire as yet another of President Rodrigo Duterte's ill-considered policies

Manila, March 1, 2017 3:36 PM (UTC+8)
Workers cover a stockpile of nickel ore minerals with a tarp to avoid moisture in Tubay, Agusan del Sur, in southern Philippines February 16, 2017. Photo: Reuters / Erik De Castro
Workers cover a stockpile of nickel ore minerals with a tarp to avoid moisture in Tubay, Agusan del Sur, in southern Philippines February 16, 2017. Photo: Reuters / Erik De Castro

Companies are fighting back following the fallout from new environmental czar Regina Lopez, who ordered the shut down of 23 mining operations and the suspension of five others due to alleged violations of environmental laws that left just 12 still active.

The order was followed by the February 14 cancellation of 75 contracts between the government and mining companies for projects still in development. The contracts, known as mineral production-sharing deals, were agreed on the basis that they were all located in protected watershed zones. Now, mining firms are fighting back in a political battle that will have wide-reaching implications for the industry’s future in the mineral-rich country.

The Chamber of Mines of the Philippines (Comp) has vowed to block Lopez’s confirmation as Secretary of the Department of Environment and Natural Resources by the Commission on Appointments, saying she lacks the education and experience, is biased against mining, and has a poor track record in leading and managing environmental projects. (Presidential nominees can assume their posts and start working before being formally confirmed in the Philippines.)

Philippines Environment and Natural Resources (DENR) Secretary Regina Lopez answers a question during a news conference at the department's headquarters in Quezon city, metro Manila, Philippines August 11, 2016. REUTERS/Romeo Ranoco - RTSML2Y
Environment and Natural Resources Secretary Regina Lopez answers a question at a media briefing. Photo: Reuters/Romeo Ranoco

Some of the affected mining companies reportedly plan to sue the Philippine government for millions of dollars in potential lost revenue and breach of contract.

Ronald Recidoro, Comp’s vice-president on legal affairs and policy, said the move would adversely affect 1.2 million people who directly or indirectly rely on mining for their livelihoods and cost national coffers around 70 billion pesos (US$1.4 billion) in lost revenues.

Recidoro claims the decision to close and suspend half of the country’s mining operations is a gross abuse of power since “there were no clear reasons, the companies affected were denied due process and no opportunities for them to remediate whatever the violation was.”

He told Asia Times that while Lopez justified her decision on the grounds that miners violated environmental laws, she did not provide any clear explanation for what caused the alleged violations and what specific laws were violated.

“What’s in her mind is her advocacy. In her mind that mining is bad,” said Dante Bravo, president of Global Ferronickel Holdings, a mining company impacted by the decision.

Neither Lopez nor Finance Secretary Carlos Dominguez responded to requests for comment on the issue.

According to the Mines and Geosciences Bureau, the Philippines has an estimated US$840 billion worth of untapped mineral reserves. The country has some of the largest reserves of resources – the world’s third biggest for gold, the fourth largest for copper, the fifth biggest in nickel and the sixth largest in chromite.

It also provides half of the world’s supply of nickel ore, which is mainly used in stainless steel and corrosion-resistant metals. Following the nickel ore export ban imposed in Indonesia in 2014, the Philippines became the world’s top nickel ore exporter and is now supplying 90% of China’s needs, Recidoro noted.

Despite those rich stores, minerals and mineral product exports still only represent around 6% of the country’s total exports. The amount of foreign direct investments in mining to the Philippines is also substantially lower compared to other Association of Southeast Asian Nations member countries, according to a research study by De La Salle University in Manila. One reason for the low level of investment, the study found, is the high level of political and regulatory risk.

While the previous Benigno Aquino administration tried to attract investments in mining, President Rodrigo Duterte’s government indicated soon after winning elections last May that mining will face tough scrutiny, sending a signal to foreign investors that policies and contract agreements under one government may no longer be valid under the next.

A view of nickel-ore mine Zambales Diversified Metals Corporation ordered closed by Environment secretary Regina Lopez in Sta Cruz Zambales in northern Philippines February 7, 2017. Picture taken February 7, 2017. REUTERS/Erik De Castro - RTSYP9K
A Zambales Diversified Metals Corp nickel ore mine in Santa Cruz Zambales, northern Pgilippines that was closed under a sweeping order. Photo: Reuters/Erik De Castro

Despite her lack of technical background, Duterte appointed Lopez as his government’s environment chief. In fact, her only managerial experience was with the ABS-CBN Foundation, the civic arm of her family’s media conglomerate, the largest TV broadcaster in the Philippines.

While Lopez’s move has stirred a hornet’s nest in the mining industry and threatens to bring an early end to her high office, it is also likely she was merely following Duterte’s orders, analysts and officials say. While Duterte initially supported his embattled environment chief, he later sounded misgivings when he described the controversy as a “mess.”

He has since promised to review the decision based on the business community’s strong reaction and senior government official warnings that the issue could send a wrong signal to investors beyond the mining industry.

On February 23, the Philippines’ central bank (based on the Business Expectation Survey) reported that business sentiment continued to drop for a third straight month to 39.4%, its lowest level in 10 months.  Analysts say Lopez’s decision to close or suspend half the country’s mines will likely send that sentiment lower in the months ahead.

The Mining Industry Coordinating Council – co-chaired by the Department of Finance and the Department of Environment and Natural Resources – has ordered a review of Lopez’s decision and formed a review committee, which is expected to take three months to complete.

If the decision to close and suspend the mines is reversed, while warmly welcomed by the mining industry, it will represent yet another of Duterte’s many unrealized campaign promises.

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