Tighter mining rules readied, Foreign investors find draft order ‘profoundly disturbing’

The Philippines is considering tightening rules, cutting tax breaks and reviewing resource contracts in what could be the biggest revamp in its mining policy since a 2004 court ruling supporting foreign investment.

President Benigno Aquino III is proposing competitive bidding for mining rights, widen a ban on the activity to more areas and boost state revenue from the industry, according to a draft executive order obtained by Bloomberg News. The eight-page document, which was sent by Aquino’s office to various departments for feedback, was confirmed by Finance Secretary Cesar Purisima.

“Mining should be done in a manner that doesn’t destroy the environment, in a way that benefits are properly shared between the companies and the country,” Purisima said in an interview Feb. 10. “The revenue that the government shares from mining must be increased.”

The draft rules are “profoundly disturbing in that it creates great uncertainty for established and potential investors into the Philippines,” the Joint Foreign Chambers of the Philippines said in a Feb. 9 letter to Aquino obtained by Bloomberg News. The letter was signed by the American, Australian-New Zealand, Canadian, European, Japanese and Korean chambers as well as by the Philippine Association of Multinational Companies Regional Headquarters Inc.

The proposals reflect Aquino’s struggle to balance efforts to spur investment in the Philippines with the need to protect the environment and ensure Filipinos benefit from the plans. The Philippines, whose government has had annual budget deficits since a surplus in 1997, would join at least 11 countries from Australia to Ecuador that Deutsche Bank AG says announced plans to increase taxes or royalties on sales of resources such as gold and coal last year.

The new guidelines could affect companies including Xstrata Plc, whose stalled $5.9-billion copper and gold project in South Cotabato province would be the country’s biggest foreign investment, and OceanaGold Corp., the Australian gold producer with mines in New Zealand and the Philippines that is developing the $185-million Didipio mine in Luzon in Nueva Vizcaya.

Aquino’s proposals include demanding economic valuations before allowing projects, and a review of all existing mining agreements to ensure that they are in line with the new policies, “provided however that the review shall not result in the impairment of contracts,” according to the document.

The Philippines had more than 500 mining lease contracts, permits and agreements with companies including OceanaGold as of Jan. 31, according to the Mines and Geosciences Bureau. In 2004, the Supreme Court affirmed a law that allows overseas investors to skirt a constitutional ban on owning the country’s mining companies, easing foreign access to untapped mineral wealth estimated to be worth $1 trillion. Bloomberg, Karl Lester M. Yap