Philippines' mining down in the
dumps By David L Llorito
MANILA - These should be boom times for
the Philippines' mining industry, given that the
country has some of the world's biggest
under-exploited deposits of copper, gold and to a
lesser degree nickel, and commodity prices are at
historic highs. Instead, a toxic spill at an
Australian-run mine has the entire industry in
turmoil, with powerful political interest groups
calling for a total ban on mining activities.
Mining opponents, including the Catholic
Church, nationalistic politicians and
non-governmental organizations (NGOs), have
recently taken hard aim at a tailings spill on
Rapu-Rapu Island, where seepage of toxic metals
allegedly polluted fishing waters. An independent
commission submitted a 169-page report to the
government last Friday urging
it to stop all mining in the area, revoke
Australian mining concern Lafayette's
Environmental Compliance Certificate (ECC), and
force the company to pay damages.
Philippine President Gloria
Macapagal-Arroyo on Saturday declined the
commission's request to ban all mining activities,
though she has promised to study carefully the
report's various other recommendations, including
a review of the 1995 Mining Act's provisions for
foreign participation and management. Lafayette
has dismissed the commission's findings as
"unscientific and flawed", while other
Philippines-based mining executives have
questioned the ad hoc body's independence.
The whole affair has greatly undermined
investor confidence in the Philippine
mining-policy regime. Hundreds of millions of
dollars' worth of proposed new mining projects
have recently stalled because of foreign investor
and bank reservations about the legal status of
their established and planned investments.
Liberal on paper, restricted in
practice On paper, the Philippines has some
of the region's more liberal mining codes,
including the Mining Act, which allows for 100%
foreign-equity participation through so-called
financial and technical assistance agreements with
local miners. Challenged by nationalist
politicians, the Supreme Court upheld the Mining
Act as recently as December 2004.
However,
the lingering memories of the 1996 Marcopper
mining disaster on Marinduque Island, where toxic
pollution spoiled fishing waters and caused health
problems among local villagers, still casts a long
shadow over the entire industry. So does the
government's poor record of handling and
distinguishing between minor and major
environmental incidents.
Manila has
nonetheless actively sought new foreign mining
investments, offering a wide raft of tax and
non-tax incentives to potential investors and
creating the Mineral Development Council to help
foreign investors cut through red tape and quickly
begin digging. The government has said it expects
mining to generate between US$5 billion and $7
billion annually in foreign exchange and to create
as many as a quarter of a million jobs over the
next six years.
It doesn't always work
that way on the ground, however. Strident,
widespread opposition from local-level activists
and the Catholic Church are undermining the
government's efforts to attract more foreign
mining-oriented investment. When local mining
companies backed by Canadian, Australian and
Japanese investors recently started probing around
local communities for undiscovered deposits of
precious metals, they were frequently confronted
by environmentalists, civil-society groups, and
the politically influential Catholic bishops, who
together represent a formidable political force
against miners.
The outspoken Bishop
Dinualdo Gutierrez of South Cotabato recently
accused the Tampakan Gold and Copper Project
invested by Australia's Indophil Resources of
"environmental degradation" and "displacement" of
indigenous peoples - even though the project was
still in the exploration stage. (According to a
study by Peter Walpole, an academician-priest who
has studied the social impact of mining in the
Philippines, to date there have never been any
documented cases of people being displaced to make
way for mining sites.)
Similar
unsubstantiated complaints have recently been
leveled against, and complicated the workings of,
the Didipio Gold/Copper Project operated by
Australian Philippines Mining Inc, the Teresa Gold
Project operated by Lepanto Consolidated Mining in
Mankayan, Benguet, and the Canatuan Gold Project
in Siocon, Zamboanga del Norte, backed by Canada's
TVI.
Those complaints, regardless of their
scientific or technical veracity, can bring mining
operations in the Philippines to a screeching
halt. In 2001, protests led by NGOs, left-leaning
groups and Catholic priests forced
then-environment secretary Heherson Alvarez to
cancel the mining rights of the Mindoro Nickel
Project financed by Crew Minerals, a Norwegian
company. President Arroyo has only recently
reinstated Crew's mining rights, after more than
five years of lost revenues.
Another
project, the Kalaya-an Gold Project, commissioned
to the Manila Mining Corp, was stymied after a
vigorous campaign led by local community
organizations and militant leftist groups against
feared environmental degradation.
The
situation for foreign miners has become all the
more precarious since January, when the
politically influential Catholic Bishops
Conference of the Philippines (CBCP) issued a
pastoral statement denouncing mining as a
"destroyer of life", and called for the repeal of
the 1995 Mining Act and the closure of big mining
operations across the country.
In their
statement, the bishops echoed the sentiments of
militant environmental groups, claiming that
mining operations often displace indigenous
peoples, gives away control of lands to
foreigners, and destroy the environment. "The
adverse social impacts on the affected communities
far outweigh the gains promised by [transnational
mining] corporations," the public statement said.
The Ghost of Marcopper The
opposition movement draws heavily on one tragic
mining accident to push its agenda. In 1996, the
plug in the Tapian pit drainage tunnel operated by
the Marcopper Mining Corp on Marinduque Island
failed, unleashing 1.6 million cubic meters of
toxic mining slurries and tailings into the
Makulapnit and Boac rivers. The spillage caused
health problems among local residents and
devastated the island's ecosystems.
Ten
years later, the national government still has not
decided on how best to clean up the social and
environmental mess, even after the commissioning
and availability of extensive scientific and
technical studies of the incident. The executives
of Canada's Placer Dome, which then controlled the
Marcopper Mining Corp, have packed their bags and
returned home unscathed.
The lack of
foreign-company accountability has not gone down
well with the Philippines' active and vocal
civil-society, environmental and faith-based
groups. Now, the controversy over the tailings
spill at the Rapu-Rapu mine operated by Lafayette
Philippines and Lafayette Mining of Australia has,
rightly or wrongly, conjured up the bitter
memories of Marinduque.
Mining-industry
sources say their current headaches started last
October, when a pump at the Rapu-Rapu mines
failed, causing the overflow of cyanide-laden
tailings into nearby creeks, killing about 2
kilograms of fish. About three weeks later, a
heavy six-hour rain caused the tailings pond to
overflow into the nearby Ungay and Hollowstone
creeks, this time killing 15kg of fish.
"It was really a minor incident, a drop in
the ocean," said Benjamin Philip Romualdez,
president of the Philippines' Chamber of Mines.
A Mines and Geosciences Bureau (MGB)
source said, "The total volume of the tailings
released in the two incidents is just about 20
cubic meters. It's just about a truckload. It's
nowhere near the scale of the Marcopper mine
tailings spill."
Regardless, the
government has contended that Lafayette
Philippines has violated some of the conditions of
its original ECC. On January 6, the Pollution
Adjudication Board (PAB) slapped the company with
a P10.7 million ($210,000) fine for three
different ECC violations.
To resume
operations, PAB said Lafayette Philippines must
submit an environmental-management system or ISO
14001 certification, implement a comprehensive
pollution-control program, put up a surety bond
equivalent to 25% of the total cost of the
pollution-control program, and hire a full-time
pollution-control officer.
The Rapu-Rapu
incident occurred in October, notably at the same
time the government and Chamber of Mines were
actively pursuing new foreign mining investments
as part of a state-led job-creation scheme. Arroyo
at first tried to ignore the Rapu-Rapu
controversy, but as the protests and media
coverage became more widespread, Arroyo finally
acquiesced to the political pressure.
On
March 10, Arroyo announced the creation of an
allegedly "independent commission" to investigate
the health and environmental impacts of the twin
tailings spills. The commission was to be headed
by Bishop Arturo M Bastes, a well-known opponent
of the mining industry. In a surprising move,
Arroyo, politically embattled over allegations she
had attempted to rig national elections, also
announced a congressional review of the Mining
Act, a statement that immediately sent shock waves
through the foreign investment community.
"It's not good news for the Philippines as
there is a perception now that policy is going the
other way," Ted Leschke, mining analyst with Shaw
Stockbroking based in Sydney, was quoted as saying
in the Malaya newspaper. "From a geological
standpoint, the Philippines is A-1. But if they
keep changing things, miners will go to Mongolia
or somewhere else."
Sean Georget,
executive director of the Canadian Chamber of
Commerce of the Philippines, told Asia Times
Online that the Philippine Mining Act compares
favorably with similar mining legislation in
Canada, Australia and the United States. "What is
there to review? If you say you are going to
review the law, you are putting uncertainty into
the policy landscape."
Foreign banks
exposed to the industry, including NM Rothschild
& Sons (Australia), ABN AMRO Bank NV
(Australia), Australia and New Zealand Banking
Group Ltd, Investec Bank (Mauritius) Ltd, and
Standard Chartered First Bank Korea Ltd, have also
reportedly been shaken by the possibility of a
policy flip-flop.
The growing uncertainty
surrounding Philippine mining comes as the
industry was clearly re-emerging from the
Marcopper Marinduque Island debacle. A total of 17
metal mines were operating across the country in
1997, but because of the fallout of the Marcopper
incident, that number was down to seven by 2002,
according to statistics provided by the Philippine
Embassy in Washington.
Since then,
however, mining investments have steadily
increased, reaching $345 million and employing
7,000 workers by the end of 2005. Romualdez said
that as of this month, total "on the ground"
investments have reached about $500 million, and
that another $2 billion in so-called "announced
investments" are in the pipeline.
The
Chamber of Mines also said in a recent statement
that by continuing to allow foreign investments in
mining, the industry would in the coming years
ensure the inflow of $10 billion into the economy
through the expansion of existing projects and the
operation of new ones. However, with a pending
congressional review of the Mining Law, many of
those promised projects have stalled or have
failed to secure the necessary foreign financing
needed to commence operations, according to MGB
officials.
Political mine
shaft Last Friday, Bastes presented his
report to Arroyo at a closed-door meeting in the
presidential palace. Sources inside the Bastes
Commission said the final report echoed the PAB's
findings against Lafayette and, in an extreme
measure, called for the cancellation of
Lafayette's ECC. The report also reiterated calls
for a congressional review of the Mining Act,
especially the provisions allowing for greater
foreign-equity participation.
Cancellation
of Lafayette's ECC would mean that the company
could not resume operations and would be forced to
close shop - an outcome that industry sources
contend would scare off resident and potential new
foreign investors.
"It's really up to the
Department of Environment and Natural Resources
[DENR] now. But how could 17kg of dead fish force
the closure of a multimillion-dollar project that
is benefiting more than a thousand workers and the
community in terms of social development
projects?" asked one mining executive. "All [the
fact-finding commission] had in the report are
pure allegations. They haven't built a case
against the company."
Indeed, in a
statement this week Lafayette challenged the
scientific accuracy of the Bastes Commission's
allegations that the company caused mercury
contamination of coastal water areas, saying that,
in fact, the company does not use any mercury in
its production processes.
Still, the
threat of closure compounds the company's daily
losses suffered by their padlocked operations. The
firm claims it has already hired an independent
group of mining and engineering experts to help it
comply with the requirements of the PAB.
Since early this month, Lafayette's
managers have repeatedly asked the government to
allow it to conduct test runs and eventually
resume normal operations. The DENR, however, did
not act on the company's request because at the
time it was still waiting for the results of the
Bastes Commission's investigation. It's still
altogether unclear what the department will do
next now that the report is in hand.
"If
the restart of the project is subjected to further
delays, despite having completed all the required
remedial measures, [it] may be forced to close,"
said Lafayette's Manny Agcaoili. He claims that
the company is bleeding about $2.7 million each
month in overhead costs and about $13 million in
forgone revenue.
"Investment losses would
amount to $259 million in terms of bank loans,
shareholder advances, and bank hedging exposures.
Loss of employment ... would be approximately
$1,000 ... Now the company fears that its
creditors might foreclose on their dormant
operating assets." Not exactly the sort of
financial result that Lafayette had in mind when
it signed up, at the government's invitation, to
tap the Philippines' rich bounty of natural
resources.
David Llorito is a
researcher at the BusinessMirror, a Manila-based
daily newspaper. He has more than a decade of
experience in socioeconomic research, policy
analysis, and business-economy journalism in the
Philippines.
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