EXTERNAL FACTORS

POLITICAL

 A hefty excise tax on coal.

The Bureau of Internal Revenue has issued the guidelines for the increase in excise
taxes on minerals, cigarettes, vehicles as well as documentary stamp tax rates under the Tax
Reform for Acceleration and Inclusion (TRAIN) Act.

Under RR 1-2018, the BIR said that the excise tax per metric ton to be slapped on
domestic as well as imported coal and coke were as follows: P50 starting Jan. 1 this year;
P100 on Jan. 1, 2019; and P150 from Jan. 1, 2020 onwards.
“Coal produced under coal operating contracts entered into by the government pursuant to
Presidential Decree No. 972 as well as those exempted from excise tax on mineral products
under other laws shall now be subject to the applicable rates above beginning January 1,
2018,” RR 1-2018 read.

The excise tax on locally extracted or produced nonmetallic minerals and quarry
resources will be 4 percent based on the actual market value of the gross output thereof at
the time of removal; for imports, the tax will be 4 percent based on the value used by the
Bureau of Customs in determining tariff and customs duties, net of excise tax and value-
added tax, the BIR said.

 Boosting mining taxes and other fees

 RA 7942: Philippine Mining Act of 1995.

ENVIRONMENTAL AND SAFETY CONCERNS

A significant feature of the Mining Act of 1995 and its IRR is the premium given to
environmental protection. Stringent measures were institutionalized to ensure the
compliance of mining contractors/operators to internationally accepted standards of
environmental management. On top of the ECC conditionalities, herewith are some of the
highlights provided for in the IRR;

• Mandatory allocation of an approximately 10% of the initial capital expenditures of the

mining project for environment-related activities;

• Mandatory annual allocation of 3-5% of the direct mining and milling costs to implement
an Annual Environmental Protection and Enhancement Program;

• Mandatory establishment of a MINE REHABILITATION FUND (MRF) to be composed

of: a) a Monitoring Trust Fund of P50,000 which is replenishable; and b) a Rehabilitation
Cash Fund of P5 Million or 10% of the EPEP cost, whichever is lower. Such Funds are to
be deposited as trust account in a government depository bank to be managed by MRF
Committee composed of the MGB Regional Director, DENR Regional Executive Director,
representatives from the LGU and an NGO, and the Contractor;

• Mandatory establishment of the Contingent Liability and Rehabilitation Fund (CLRF) to

be managed by a Steering Committee chaired by the MGB Director with members coming
from concerned government agencies;

• Conduct of Environmental Work Program (EWP) during the exploration stage and an
Environmental Protection and Enhancement Program (EPEP) during the development and
operations stage.

• Institutionalization of an incentive mechanism to mining companies utilizing engineered

and well-maintained mine waste and tailings disposal systems with zero-discharge of
materials/effluents and/or with wastewater treatments plants;

• Mandatory constitution and operationalization of a Multipartite Monitoring Team

composed of representatives from the MGB, DENR Regional Office, affected
communities, Indigenous Cultural Communities, an environmental NGO, and the
Contractor/Permit Holder, to monitor mining operations;

• Mandatory establishment and operationalization of a Mine Environmental and Protection

and Enhancement Office (MEPEO) in each mining/contract area which shall set the level
of priorities and marshal the resources needed to implement environmental management
programs;

• Conduct of an independent environmental audit to identify environmental risks affecting

mining operations as a basis for the development of an effective environmental
management system;

• Mandatory preparation and implementation of a final Mine Rehabilitation/

Decommissioning Plan at least five (5) year prior to the end of the life of the mine, to be
 undertaken in consultation and in coordination with the concerned communities, and shall
be submitted for approval by the MGB and LGU concerned;

• Imposition of higher penalty (P50.00/MT) to mining companies that are found to have
illegally discharged and/or discharging solid fractions of tailings into areas other than the
approved tailings disposal area;

• Authorizing the MGB Regional Director to summarily suspend mining/quarrying

operations in case of imminent danger to human safety or the environment;

• Mandatory compliance with the rules and regulations of the Mines Safety Rules and
Regulations by all Contractors, Permittees, Lessees, Permit Holders and Service
Contractors; and

• Institution of the Presidential Mineral Industry Environmental Award to be given to

exploration or operating mining companies based on their exemplary environmental
performance and accomplishments.

ECONOMIC

 The mining industry form a large part of Gross National Product of the Philippines.

In 2017, the electricity sector alone, which is comprised of power generation, transmission

and distribution, contributed 8.24% to the whole industrial sector and 2.8% to the entire

Philippine economy. On the other hand, the petroleum products sector contributes less than

1% to the entire GDP in 2017. In fact, the GVA of the sector has remained at around 3.0%

of the country’s GDP and just a little less than 10% of the industrial GVA. On the other

hand, the petroleum products sector to the economy has been declining over the years to

only less than 2% of the GDP from around 4% in 1998.

 Increasing demand for energy consumption in the Philippines.

The recent experience of the Philippines as a high-growth country brings about an increase

in demand in sectors that provide basic utilities like electric power for industrial,

commercial and residential sectors as well as fuel sources for the transport sector.
Furthermore, the increase in purchasing power of Filipino consumers as a result of increase

in income also trickles down to the energy demand. As revealed by electricity sector value

chain, demand from the various 21 industries, particularly from manufacturing sectors,

will be a driver for energy demand in the Philippines. Indeed, more economic activity

would lead to higher demand for fuel and electric power. In understanding the factors that

will impact energy demand and supply in the next few years, understanding the value chain

of the energy sector. For the case of the electric power sector, the value chain starts either

from the coal mining sector as shown in Figure 8. On the other hand, power generators

involved in renewable energy harness power from the environment thereby bringing in a

sector not usually considered into the economic value chain. In 2016, the total power

generated is 90.8 terawatt hours (TWh) which is equivalent to 7.8 MTOE. This has

increased slightly from 82.4 TWh (7.1 MTOE) in 2015. Coal is the main source of electric

power generation in 2016 comprising 47.7% of the total power generated, followed by

natural gas at 21.9 percent. Oil-based energy generation is only 6.2 percent. Power from

renewal energy comprise 24.2 percent. This includes geothermal energy (12.2 percent),

hydropower (8.9 percent) and solar, wind and biomass sources (3.1 percent). Electricity

consumption in 2016 was 6.4 MTOE which is 19.3 percent of total energy consumption.

The biggest consumers of electric power are the residential sector with a total electricity

demand of 2.2 MTOE in 2016, the industrial sector at 2.1 MTOE, the commercial sector

at 1.9 MTOE, and the agricultural sector at 0.2 MTOE. Negligible amounts are consumed

by the transport sector as can be expected. After generation, electric power goes through

the transmission sector through the high-voltage power lines towards distribution to end-

consumers through low-voltage power lines. In the Philippines, the National Transmission
 Corporation (TransCo) is a government-owned corporation created in 2003 through the

EPIRA. Since 2009 however, the management and operation of TransCo has been awarded

to the National Grid Corporation of the Philippines (NGCP) which secured the

congressional franchise after a public bidding. However, ownership of all transmission

asset remains with the government. The distribution utilities (DUs) can be either be

privately-owned like the Manila Electric Company (Meralco) or owned by cooperatives.

The supply sector of the electricity industry would then refer to spot markets that allow for

the trade of electric power from generators to DUs or end-consumers.

 Trend of hiring local or indigenous workers and more female participation.

 Surging of commodity prices to all time high and rising of energy cost which

resulted to an increased cost of doing business across the board.

In most cases of domestic price surges, the source of a fuel price hike is the increase

in world prices transmitted to prices in domestic markets (Ardnt, et al., 2008). This

is due to the fact that fuel products are usually imported commodities in developing

countries. Owing to the interindustry linkages, higher fuel prices are then

transmitted to other sectors and ending up influencing the prices in food markets

and transport markets. Hence, fuel prices can also have substantial impacts on the

poverty situation of the country owing to the network effects of the fuel industry.

Furthermore, the discussion can then be extended to understanding who among the

vulnerable sectors become most affected due to such fuel price surges.
 In the Philippines, a recent study undertaken by Ang (2018) that current year

inflation for food has positive direct impacts on the incidence of underweight

children, while negative indirect impacts on the incidence of wasted children. A one

percent increase in the price of a typical household’s food basket leads to 0.5%,

0.36%, and 0.245% increase in the incidence of underweight, stunted, and wasted

children. This implies the importance of ensuring that food prices, especially of

meat, fruit, and vegetables, should be managed especially in regions (and

neighboring areas) where the incidence of child malnutrition is high. In the same

SAM-based price model, Chapa and Ortega (2017) extended their discussion by

looking at households as well. The explain that the impact of carbon tax on

consumption and welfare differs by strata. In rural strata, it was not a defined pattern

while on urban strata, the carbon tax was regressive because of household

expenditure share in inland transport and petroleum products which showed highest

price increased while household income decreased. He added that the Mexican

government should use subsidies on transport services that uses clean energy

services which will act also as subsidy to poor and non-poor households that uses

clean energy services.

 Labor crunch for the inadequacy of manpower.

The mining industry claims that 1 direct job in mining creates 5 more jobs in the rest of
the economy – a multiple of 5. NEDA denies that it has any such data. However, a study
by Madeleine B. Dumaua based on the 2000 Input-Output tables of the economy shows
that:

A peso change in the final demand for the mining/quarrying generates P1.70 pesos worth
of additional output for the economy;
 On employment, every one million of additional investment in mining/quarrying
generates additional employment of 2.2, not 5.

The average multiplier of 2.2 jobs includes SSM which requires virtually no capital
investment and capital-intensive LSM, like Tampacan, that will generate 10,000
temporary jobs and 2,000 permanent jobs with a $5.9 billion investment (about P120
million per permanent job). The mineral extractive industry is considered worldwide as a
low job generating activity.

Deloitte warns that there simply are not enough people to power projected mining
company growth and each year skill gaps extend to a wider range of functions. “Steps
companies can take to find willing workers include applying science to workforce
planning, introducing industry-level cross-training, and building a global culture.”

 Depleted reserves of gold, silver, copper, and cobalt that currently plague the mining

industry.

Among others, copper production growth will slow to 4.6% annual average over 2018-
2027 from an actual 18% in 2008-2017, while nickel ore production growth is projected to
decelerate even more to 2.7% annually over 2018-2027 from 22% in 2008-2017 “because
of the introduction of stringent regulations and depleting ore grades”.

Only gold will likely see better fortunes — turning around to a 5.7% annual average growth
over 2018-2027 from an actual 2.6% drop in 2008-2017 — to be driven by “new projects
coming on line and higher prices” of the precious metal in the years ahead. Fitch Solutions
said it projects world gold prices to increase to $1,525 per ounce (/oz) by 2021 from
$1,300/oz last year.