What is the nature and importance of the mining industry in your country?
The Philippines has been ranked as the fifth most mineralised country in the world, with an estimated US$1 trillion in untapped reserves of copper, gold, nickel, zinc and silver. Despite the foregoing, statistics from the Philippine Mines and Geosciences Bureau (MGB) indicate that, as of 2018, there are only 48 operating metal mines. For the same year, the Philippine Department of Environment and Natural Resources (DENR) has placed the preliminary gross production value for large-scale metal mining at 121.2 billion Philippine pesos.Target minerals
What are the target minerals?
The Philippines’ top mineral exports are copper, gold and nickel. Other target minerals include quartz, mica, iron, gypsum, feldspar, chromite, calcite and sulphur. Some target non-metallic minerals are sand and gravel, limestone, marble, clay and other quarry materials.
Cobalt is the main factor for the increased interest in minerals used in battery technology in the Philippines. The Philippines has the fourth-largest cobalt reserves worldwide, at an estimated 280,000 tonnes.
The MGB has noted that the production value of mixed nickel-cobalt sulfide went up by 6.946 billion Philippine pesos, from 19,641 billion Philippine pesos in 2017 to 26,587 billion Philippine pesos in 2018. The MGB additionally noted that from 2012-15, the joint production value of nickel direct shipping ore and mixed nickel-cobalt sulfide consistently took the top spot with a four-year average of about 49 per cent of the total metal production value. However, in 2016 and 2017, gold outshone nickel owing to a series of nickel mine operation suspensions in Zambales and Palawan.Regions
Which regions are most active?
The following regions have high metal and gold mining activities - Benguet, Masbate, Nueva Vizcaya, Cebu, Compostela Valley, Davao, Palawan and Surigao.
Legal and regulatory structureBasis of legal system
Is the legal system civil or common law-based?
The Philippine legal system is a hybrid of both civil law and common law. The civil law elements are primarily derived from the civil law system of Spain and are evident in the law on family relations, property, succession, and obligations and contracts. The common law elements are primarily derived from the Anglo-American system of the United States. Examples of Philippine legal concepts derived from common law include, among others, the doctrines of equity, estoppel, laches, and stare decisis. The authority of Philippine courts is limited to the interpretation of the law. Nevertheless, the Philippine Supreme Court may reverse rulings of lower courts, and even abandon principles laid down in previous rulings.Regulation
How is the mining industry regulated?
It is regulated by the Philippine Constitution, and through laws, regulations and ordinances issued by the national government and local government units. Mining companies must also comply with the regulatory requirements for corporations in the Philippines.
What are the principal laws that regulate the mining industry? What are the principal regulatory bodies that administer those laws? Were there any major amendments in the past year?
The principal laws that regulate the mining industry are Republic Act No. 7942, otherwise known as the Philippine Mining Act of 1995 (Mining Act), and its implementing rules and regulations, DENR Administrative Order No. 2010-21 (Mining Act IRR), both of which have not been amended in the past year. However, in January 2019, the MGB proposed the review and revision of the Mining Act IRR. In 2012, Executive Order No. 79 (Institutionalising and Implementing Reforms in the Philippine Mining Sector, Providing Policies and Guidelines to Ensure Environmental Protection and Responsible Mining in the Utilisation of Mineral Resources) (EO 79) was issued as the policy of the Aquino administration. EO 79 instituted reforms such as a review of the performance of existing mining operations and cleansing of non-moving mining rights holders, imposed a moratorium against the issuance of mineral agreements (MAs) until the enactment of legislation rationalising existing revenue sharing schemes and mechanisms, and constituted the Mining Industry Coordinating Council (MICC), among others. The Duterte administration has issued no order repealing, amending or replacing EO 79.
The DENR is the primary government agency responsible for the conservation, management, development and proper use of the country’s environment and natural resources, including mines. The MGB, a line bureau under the DENR, is responsible for the proper management and disposition of mineral lands and mineral resources. It promotes sustainable mineral resources development. The MGB director recommends to the DENR secretary the granting of MAs and monitors compliance with the terms and conditions of the MAs.
The MGB and the Environmental Management Bureau (EMB), another line bureau of the DENR, advise the DENR secretary on matters relating to environmental management, formulate plans and policies on environmental quality standards, exercise supervision over regional offices in the implementation of plans and programmes and issue permits and clearances.Classification system
What classification system does the mining industry use for reporting mineral resources and mineral reserves?
The mining industry uses the Philippine Mineral Reporting Code (PMRC) for the reporting of all solid minerals, including industrial minerals and coal where public reporting is required by the Philippine Stock Exchange (PSE). The PMRC is largely based on the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, or the JORC Code (2004), and sets out minimum standards for mining companies in accordance with the principles of transparency, materiality and competence.
Mining rights and titleState control over mining rights
To what extent does the state control mining rights in your jurisdiction? Can those rights be granted to private parties and to what extent will they have title to minerals in the ground? Are there large areas where the mining rights are held privately or which belong to the owner of the surface rights? Is there a separate legal regime or process for third parties to obtain mining rights in those areas?
Under the Philippine Constitution, the state owns all natural resources, including minerals. Thus, the exploration, development and utilisation of mineral resources are under the full control and supervision of the state, which may directly undertake the same, or enter into co-production, joint venture or production-sharing agreements with Filipino citizens, or corporations or associations at least 60 per cent of whose capital is owned by such citizens. The President of the Philippines also may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilisation of minerals, petroleum, and other mineral oils. Because of the state’s full control and supervision over mining rights, owners of surface rights do not automatically have rights over mineral resources found within their properties.Publicly available information and data
What information and data are publicly available to private parties that wish to engage in exploration and other mining activities? Is there an agency which collects mineral assessment reports from private parties? Must private parties file mineral assessment reports? Does the agency or the government conduct geoscience surveys, which become part of the database? Is the database available online?
The MGB regularly publishes information on the mining industry through its official website (www.mgb.gov.ph). The information published includes details on existing exploration permits (EPs), mineral production sharing agreements (MPSAs), financial and technical assistance agreements (FTAAs), mineral processing permits (MPPs), pending mining applications, and pending cases with the Mining Adjudication Board and Panel of Arbitrators. The MGB also releases current and historical statistics on the mining industry such as the production level and prices of each type of mineral. There is also a list of currently producing mines and a map of where these operate.
Under the Mining Act IRR, holders of EPs and MAs are required to submit mineral assessment reports. The submission of an assessment of the mineral potential in a prospected area is a prerequisite to converting an EP into an MA.
The MGB, through its Land Geological Survey Division and Marine Geological Survey Division, conducts geoscience surveys such as geological mapping, mineral exploration, geo-hazard assessment, vulnerability assessment and other geological and geo-environmental studies. Mineral Land Surveys may also be conducted by geodetic engineers of the MGB and regional offices, deputised geodetic engineers in private practice and company-employed deputised geodetic engineers. These surveys and studies, however, are not readily available online.Acquisition of rights by private parties
What mining rights may private parties acquire? How are these acquired? What obligations does the rights holder have? If exploration or reconnaissance licences are granted, does such tenure give the holder an automatic or preferential right to acquire a mining licence? What are the requirements to convert to a mining licence?
Under the Philippine Constitution, exploration, development and utilisation of mineral resources shall be under the full control and supervision of the state. Nevertheless, mining rights may be acquired by private parties through an FTAA, an EP or an MA.
The holder of an EP is granted the right to conduct exploration for all minerals in specified areas. The MGB director’s approval of a declaration of a mining project feasibility study grants the holder of an EP the exclusive right to an MA or FTAA. An MA grants to the holder thereof the exclusive right to conduct mining operations and to extract all mineral resources found in the contract area, while an FTAA grants the right to provide financial or technical assistance directly to the government to undertake large-scale exploration, development and utilisation of mineral resources.
EO 79 suspended the issuance of MAs pending enactment of new legislation rationalising existing revenue-sharing schemes and mechanisms. As of the end of March 2019, House Bill No. 422 (An Act Establishing the Fiscal Regime and Revenue Sharing Arrangement for Large-Scale Metal Mining, and for Other Purposes), Senate Bill No. 927 (An Act Establishing the Fiscal Regime and Revenue Sharing Arrangement for Large-Scale Metal Mining, and for Other Purposes), Senate Bill No. 225 (An Act Establishing The Fiscal Regime And Revenue Sharing Arrangement For Large-Scale Metal Mining), and Senate Bill No. 1979 (An Act Amending Chapter VII Title VI and Section 151, And Creating New Sections 151-A and 151-B, of Republic Act No. 8424, Otherwise Known As The National Internal Revenue Code of 1997, As Amended, And For Other Purposes) are currently undergoing public hearing in the Senate Committee on Ways and Means.Renewal and transfer of mineral licences
What is the regime for the renewal and transfer of mineral licences?
The term of an EP is two years from the date of its issuance. It may be renewed for another two years, but the total term of the permit shall not exceed four years for non-metal mineral exploration or six years for metal mineral exploration. In cases, however, where the permittee failed to file the declaration of mining project feasibility during the total term of the EP and further exploration is warranted, the EP may be further renewed by the DENR secretary for another term of two years for the very purpose of preparing or completing the feasibility studies and the filing of the declaration of mining project feasibility and the pertinent MA or FTAA application. In case the permit expires before the declaration of mining project feasibility is approved and the MA or FTAA is filed, the permit is automatically extended until such time that the MA or FTAA application is approved.
The renewal of an EP may be granted by the DENR secretary, through the MGB director, only if the permittee has complied with all its terms and conditions, and has not been found guilty of violating any provision of the Mining Act and its IRR.
The term of an MA shall not exceed 25 years from its date of execution, renewable for another 25 years under the same terms and conditions, without prejudice to changes mutually agreed upon by the government and the contractor. After its renewal, the mining operations may be undertaken by the government or through a contractor. The contract to operate the mine shall be awarded to the highest bidder in a public bidding, with the contractor having the right to match the highest bid upon reimbursement of all reasonable expenses of the highest bidder.
The term of an FTAA shall not exceed 25 years from its date of execution, renewable for another term not exceeding 25 years under such terms and conditions as may be provided for by law and mutually agreed upon by the parties.
EPs may be transferred or assigned subject to the approval of the MGB director. MAs may be transferred subject to the approval of the MGB Regional Director. FTAAs may be transferred subject to the approval of the MGB Regional Director, taking into account the national interest and public welfare.Duration of mining rights
What is the typical duration of mining rights?
Mining rights involve EPs, MAs, FTAAs, quarry, sand and gravel, guano, gemstone gathering permits and small-scale mining permits.
The term of an EP shall be for a period of two years from the date of its issuance, renewable for another two years, but not to exceed a total of four years for non-metal mineral exploration or six years for metal exploration. The DENR secretary, MGB director or MGB regional director concerned may cancel the EP for violations by the permittee of the terms and conditions thereof, including the failure to secure the required proof of consultation with or project presentation to the Sanggunian (the legislative branch of a local government unit, which may be a barangay, a municipality, a city or a province) concerned.
The term of an MA shall not exceed 25 years from the date of its execution, renewable for another term not exceeding 25 years. The MA shall be cancelled, revoked or terminated for the failure of the contractor to comply with the terms and conditions thereof.
The term of an FTAA shall not exceed 25 years from the date of its execution, renewable for another term not exceeding 25 years. The FTAA may be cancelled, revoked or terminated, after due process, under any of the grounds for the cancellation of a mining permit, MA or FTAA.
The respective terms of a quarry permit and a sand and gravel permit shall be five years from the date of its issuance, renewable for a term of five years but not to exceed a total term of 25 years. The term of a guano permit shall be one year or upon the extraction of the quantity as specified in the permit. The term of a gemstone-gathering permit shall not exceed one year from the date of its issuance, renewable for periods of one year.
The grounds for the cancellation, revocation and termination of a mining permit, MA or FTAA are:
- falsehood or omission of facts in the application for the above permits which may alter, change or affect substantially the facts set forth in said statements;
- non-payment of taxes and fees due to the government for two consecutive years;
- failure to perform all other obligations, including abandonment, under the permits or agreements;
- violation of any of the terms and conditions of the permits or agreements; and
- violation of existing laws, policies and rules and regulations.
Is there any distinction in law or practice between the mining rights that may be acquired by domestic parties and those that may be acquired by foreign parties?
Yes. Under the Philippine Constitution, only Philippine citizens or corporations where at least 60 per cent of whose capital is owned by such citizens may enter into MAs. Non-Filipino nationals or corporations that are 100 per cent foreign-owned may enter into EPs and FTAAs only.Protection of mining rights
How are mining rights protected? Are foreign arbitration awards in respect of domestic mining disputes freely enforceable in your jurisdiction?
Mining rights are protected by the Philippine Constitution, particularly the non-impairment clause under section 10 of article III, which states that no law impairing the obligation of contracts shall be passed. The non-impairment clause is limited in application to laws that derogate from prior acts or contracts by enlarging, abridging or in any manner changing the intention of the parties. There is impairment if a subsequent law changes the terms of a contract between the parties, imposes new conditions, dispenses with those agreed upon or withdraws remedies for the enforcement of the rights of the parties.
There is a system of arbitration for mining disputes provided under the Mining Act. The Panel of Arbitrators has exclusive and original jurisdiction to hear and decide mining disputes involving the following:
- rights to mining areas;
- mineral agreements, FTAAs or permits; and
- surface owners, occupants and claim holders or concessionaires.
The jurisdiction of the panel is limited only to those mining disputes that raise questions of fact or matters requiring the application of technical knowledge and experience.
Foreign arbitral awards in respect of domestic mining disputes are recognised and enforceable in this jurisdiction. Under section 42 of Republic Act No. 9285 (the Alternative Dispute Resolution Act of 2004), the recognition and enforcement of such arbitral awards shall be filed with the Regional Trial Court (RTC). When confirmed by the RTC, they are enforced as a foreign arbitral award and enforced in the same manner as final and executory decisions of Philippine courts of law. Thus, foreign arbitral awards are not immediately executory in the sense that they may still be judicially reviewed and need to be confirmed by the RTC.Surface rights
What types of surface rights may mining rights holders request and acquire? How are these rights acquired? Can surface rights holders oppose these requests?
Permit holders and contractors, upon written notice and payment of just compensation, are entitled to enter, occupy and explore said mining areas or lands when mining areas are so situated that, for purposes of more convenient operations, it is necessary to build, construct or install on the mining areas or lands owned, occupied or leased by other persons, infrastructure such as roads, railways, mills, waste dump sites, tailings ponds, warehouses, staging or storage areas and port facilities, tramways, runways, airports, electric transmission, telephone or telegraph lines, dams and their normal flood and catchment areas, sites for water wells, ditches, canals, new river beds, pipelines, flumes, cuts, shafts, tunnels or mills. Further, holders of mining rights cannot be prevented from entering their contract areas for purposes of exploration, development and utilisation, provided that written notices are sent to the surface owners, occupants and concessionaires, and that a bond is posted. If the surface owner cannot be found, the permit holder may notify the Regional Director concerned, copy furnished the concerned local officials in case of private land or the government agency concerned in case of concessionaires, which notice shall be deemed notice to the surface owner. In case of disagreement, the matter shall be brought before the Panel of Arbitrators.
Permit holders, however, may execute agreements with the surface owners, occupants or concessionaires regarding entry and use of their land for mining purposes.
Where the surface owners, occupants or concessionaires refuse to allow the permit holder or contractor entry into the lands, the permit holder or contractor shall bring the matter before the Panel of Arbitrators for proper disposition.Participation of government and state agencies
Does the government or do state agencies have the right to participate in mining projects? Is there a local listing requirement for the project company?
Yes. The Philippine Constitution allows the government and state agencies to participate in mining projects. The state may directly undertake exploration, development and utilisation of mineral resources. It may also enter into co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or associations at least 60 per cent of whose capital is owned by such citizens. Finally, the state may enter into agreements with foreign-owned corporations involving either technical or financial assistance for large-scale exploration, development, and utilisation.
Neither the Philippine Constitution nor the Mining Act requires mining project companies to be listed with the PSE.Government expropriation of licences
Are there provisions in law dealing with government expropriation of licences? What are the compensation provisions?
The Mining Act provides that contractors’ properties are generally free from expropriation. By way of exception, however, the government may expropriate when the purpose is public use or in the interest of national welfare or defence. The law does not provide for the specific manner of determining compensation but requires that just compensation be paid.Protected areas
Are any areas designated as protected areas within your jurisdiction and which are off-limits or specially regulated?
The Mining Act IRR specifically enumerates the areas that are closed to mining applications, as follows:
- areas covered by valid and existing mining rights and mining applications subject to item (iii);
- old growth or virgin forests, designated watershed forest reserves, wilderness areas, mangrove forests, mossy forests, national parks, provincial and municipal forests, tree parks, greenbelts, game refuges, bird sanctuaries and areas designated as marine reserves and marine parks and tourist zones as defined by law and identified initial components of the National Integrated Protected Areas System (NIPAS) pursuant to Republic Act No. 7586 and such areas expressly prohibited thereunder, as well as under Department Administrative Order No. 25, series of 1992, and other laws;
- areas that the DENR secretary may exclude based, among others, on the proper assessment of their environmental impacts and implications on sustainable land uses, such as built-up areas and critical watersheds with appropriate barangay, municipal, city or provincial council ordinance specifying therein the location and specific boundary of the concerned area;
- offshore areas within 500 metres of the mean low tide level and onshore areas within 200 metres of the mean low tide level along the coast;
- in the case of seabed or marine aggregate quarrying, offshore areas of less than 1,500 metres from the mean low tide level of land or island and where the seabed depth is less than 30 metres, measured at mean sea level; and
- areas expressly prohibited by law.
The following areas may be opened for mining applications, subject to the pertinent conditions:
- military and other government reservations, upon prior written clearance by the government agency having jurisdiction over such reservations;
- areas near or under public or private buildings, cemeteries, archaeological and historic sites, bridges, highways, waterways, railroads, reservoirs, dams or other infrastructure projects, public or private works, including plantations or valuable crops, upon written consent of the concerned government agency or private entity subject to technical evaluation and validation by the bureau;
- areas covered by FTAA applications that shall be opened for quarry resources mining applications upon the written consent of the FTAA applicants (provided that sand and gravel permit applications shall not require consent from the FTAA, EP or MA applicant, except for MA or EP applications covering sand, gravel or alluvial gold and provided, further, that the MGB director shall formulate the necessary guidelines to govern the foregoing);
- areas covered by small-scale mining under Republic Act No. 7076 and Presidential Decree No. 1899 upon prior consent of small-scale miners, in which case a royalty payment, upon the utilisation of minerals, shall be agreed upon by the parties concerned and shall form a trust fund for the socio-economic development of the community concerned; and
- DENR project areas upon prior consent from the agency concerned.
The above enumeration notwithstanding, it appears that the list of protected areas was expanded by EO 79 to include the following:
- prime agricultural lands, in addition to lands covered by Republic Act No. 6657, or the Comprehensive Agrarian Reform Law of 1988, as amended, including plantations and areas devoted to valuable crops, and strategic agriculture and fisheries development zones and fish refuge and sanctuaries declared as such by the secretary of the Department of Agriculture;
- tourism development areas, as identified in the National Tourism Development Plan; and
- other critical areas, island ecosystems and impact areas of mining as determined by current and existing mapping technologies, that the DENR may hereafter identify pursuant to existing laws, rules and regulations such as, but not limited to, the NIPAS Act.
Further, under the IRR, no MAs, FTAAs or mining permits shall be granted in areas subject to certificates of ancestral domains or ancestral land claims or in areas verified by the Department Regional Office or other office or agency of the government authorised by law for such purpose as actually occupied by the indigenous cultural communities (ICCs) under a claim of time-immemorial possession except with their prior consent.
Duties, royalties and taxesDuties, royalties and taxes payable by private parties
What duties, royalties and taxes are payable by private parties carrying on mining activities? Are these revenue-based or profit-based?
The total government share in an MPSA shall be the excise tax on mineral products as provided under the National Internal Revenue Code (NIRC), as amended.
The share of the government in co-production and joint venture agreements shall be negotiated by the government and the contractor taking into consideration the following:
- capital investment in the project;
- risks involved;
- contribution of the project to the economy; and
- other factors that will provide for a fair and equitable sharing between the parties.
The government shall also be entitled to compensation for its other contributions, which shall be agreed upon by the parties and shall consist of, among other things, the contractor’s income tax, excise tax, special allowance, withholding tax due from the contractor’s foreign stockholders arising from dividend or interest payments to the said foreign stockholders in case of a foreign national, and all such other taxes, duties and fees as provided for in existing laws.
The government share in an FTAA shall consist of the basic government share and the additional government share. The basic government share is the minimum share that the government is entitled to receive consisting of the contractor’s income tax, customs duties and fees on imported capital equipment, value-added tax on imported tax and services, withholding tax on interest payments on foreign loans, withholding tax on dividends to foreign stockholders, documentary stamps taxes, capital gains tax, excise tax on minerals, royalties for mineral reservations and to indigenous peoples (IPs), local business tax, real property tax, community tax, occupation fees, registration and permit fees and all other national and local government taxes, royalties and fees. It shall be negotiated by the government and the contractor taking into consideration the capital investment of the project, risks involved, contribution of the project to the economy, the technical complexity of the project and other factors that will provide for a fair and equitable sharing between the parties. When the basic government share is less than fifty per cent of the net mining revenue, FTAA contractors are obliged to pay an additional government share consisting of the difference between the basic government share and 50 per cent of the net mining revenue.
The entitlement of the government to its share in the FTAA shall only commence after the contractor has been given an opportunity to recover the expenses incurred during the pre-operating period. The recovery period pertains to either a maximum of five years or at the date when the aggregate of the net cash flows from the mining operations is equal to the aggregate of its pre-operating expenses, reckoned from the date of commencement of commercial production, whichever comes first.
After the lapse of the income tax holiday that is available under existing laws, the contractor shall pay income tax as provided in the NIRC. The contractor is also liable for excise tax on mineral products and value-added tax under the NIRC and customs duties under the Tariff and Customs Code of the Philippines. Last, the contractor is also liable for local business taxes and real property tax under the Local Government Code.
The contractor is also liable for an annual occupation fee and mine waste and tailing fees. The amount of the occupation fee to be paid will depend on the size of the area occupied by the contractor.
For MAs, FTAAs, or mining permits covering ancestral lands, the contractor shall pay royalties to the concerned ICC based on gross output. Such payment shall depend on the agreement between the ICC and the contractor.
For MAs and FTAAs over areas covered by small-scale miners, the contractor shall pay royalties to the concerned small-scale miners upon utilisation of the minerals. Such payment shall depend on the agreement between the small-scale miners and the contractor.
Mining operations within mineral reservations are subject to a royalty paid to the MGB that shall not be less than 5 per cent of the market value of the gross output of the minerals or mineral products extracted or produced from the mineral reservations exclusive of all other taxes.Tax advantages and incentives
What tax advantages and incentives are available to private parties carrying on mining activities?
The Mining Act provides that contractors in mineral agreements and FTAAs shall be entitled to fiscal and non-fiscal incentives as provided in the Omnibus Investments Code. It mandates that mining activities always be included in the Investment Priorities Plan that is prepared annually by the Board of Investments. Under the 2017-19 Investment Priorities Plan, approved on 28 February 2017, mining projects are limited to capital equipment incentives.
The Mining Act provides for the following incentives:
- pollution control devices acquired, constructed or installed by contractors will not be considered as improvements on the land or building where they are placed, and will not be subject to property tax and other taxes or assessments;
- a net operating loss without the benefit of incentives incurred in any of the first 10 years of operations may be carried over as a deduction from taxable income for the next five years immediately following the year of such loss. The entire amount of the loss will be carried over to the first of the five taxable years following the loss, and any portion of such loss that exceeds the taxable income of such first year will be deducted in a like manner from the taxable income of the next remaining four years;
- fixed assets may be depreciated as follows:
- to the extent of not more than twice as fast as the normal rate of depreciation or depreciated at normal rate of depreciation if the expected life is 10 years or less; or
- depreciated over any number of years between five years and the expected life if the latter is more than 10 years, and the depreciation thereon allowed as a deduction from taxable income; and
- the contractor may opt to deduct exploration and development expenditures accumulated at cost as of the date of the prospecting or exploration and development expenditures paid or incurred during the taxable year, up to 25 per cent of the net income from mining operations. The actual exploration and development expenditures minus the 25 per cent net income from mining shall be carried forward to the succeeding years until fully deducted.
The Mining Act also provides that the contractor will be entitled to the basic rights and guarantees provided in the Philippine Constitution and such other rights recognised by the government, which include the following:
- repatriation of investments, or the right to repatriate the entire proceeds of the liquidation of the foreign investment in the currency in which the investment was originally made and at the exchange rate prevailing at the time of repatriation;
- remittance of earnings, or the right to remit earnings from the investment in the currency in which the foreign investment was originally made and at the exchange rate prevailing at the time of remittance;
- foreign loans and contracts, or the right to remit at the exchange rate prevailing at the time of remittance such sums as may be necessary to meet the payments of interest and principal on foreign loans and foreign obligations arising from financial or technical assistance contracts;
- freedom from expropriation, or the right to be free from expropriation by the government of the property represented by investments or loans, or of the property of the enterprise except for public use or in the interest of national welfare or defence and upon payment of just compensation. In such cases, foreign investors or enterprises will have the right to remit sums received as compensation for the expropriated property in the currency in which the investment was originally made and at the exchange rate prevailing at the time of remittance;
- requisition of investment, or the right to be free from requisition of the property represented by the investment or of the property of the enterprises except in cases of war or national emergency and only for the duration thereof. Just compensation will be determined and paid either at the time or immediately after cessation of the state of war or national emergency. Payments received as compensation for the requisitioned property may be remitted in the currency in which the investments were originally made and at the exchange rate prevailing at the time of remittance; and
- confidentiality, where any confidential information supplied by the contractor pursuant to the Mining Act and its IRR will be treated as such by the DENR and the government, and during the term of the project to which it relates.
Does any legislation provide for tax stabilisation or are there tax stabilisation agreements in force?
At present, there are no tax stabilisation agreements in force in the Philippines.Carried interest
Is the government entitled to a carried interest, or a free carried interest in mining projects?
The Mining Act does not provide that the government is entitled to a carried interest or a free carried interest in mining projects. Nevertheless, the law appears to limit the supposed government share to the usual taxes, royalties and fees.Transfer taxes and capital gains
Are there any transfer taxes or capital gains imposed regarding the transfer of licences?
Gains realised on a transfer of licence are generally subject to income tax.Distinction between domestic parties and foreign parties
Is there any distinction between the duties, royalties and taxes payable by domestic parties and those payable by foreign parties?
The law makes no distinction between the duties, royalties and taxes payable by domestic and foreign parties whether to the government or the indigenous communities in the area.
Business structuresPrincipal business structures
What are the principal business structures used by private parties carrying on mining activities?
The Mining Act allows any Filipino citizen of legal age and with capacity to contract, or a corporation, partnership, association or cooperative, to engage in mining; however, considering the capital requirement, private parties ordinarily make use of corporations or enter into joint ventures to carry on mining activities. Applicants for EPs, MAs, and FTAAs must have authorised capital in the amount of 100 million Philippine pesos with 6.25 million Philippine pesos paid up. Applicants for FTAAs are required to have a minimum paid-up capital of 500 million Philippine pesos upon the grant of the FTAA.Local entity requirement
Is there a requirement that a local entity be a party to the transaction?
Yes. With regard to MAs, applicants must be Filipino citizens, or a corporation, partnership, association, or cooperative at least 60 per cent of the capital of which is owned by Filipino citizens. However, as to EPs, FTAAs or MPPs, the participation of a local entity is not required since it may be held by a 100 per cent foreign-owned entity.Bilateral investment and tax treaties
Are there jurisdictions with favourable bilateral investment treaties or tax treaties with your jurisdiction through which foreign entities will commonly structure their operations in your jurisdiction?
To date, the Philippines has signed bilateral investment agreements with Argentina, Australia, Austria, Bangladesh, Belgium-Luxembourg Economic Union, Cambodia (not in force), Canada, Chile, China, Czech Republic, Denmark, Finland, France, Germany, India, Indonesia (not in force), Iran (not in force), Italy, Kuwait, Laos, Mongolia, Myanmar, Netherlands, Pakistan (not in force), Portugal, Romania, Russia, Saudi Arabia, South Korea, Spain, Sweden (not in force), Switzerland, Syria, Taiwan, Thailand, Turkey, the United Kingdom, the United States and Vietnam.
The Philippines has also entered into tax treaties with Australia, Austria, Bahrain, Bangladesh, Belgium, Brazil, Canada, China, the Czech Republic, Denmark, Finland, France, Germany, Hungary, India, Indonesia, Israel, Italy, Japan, Kuwait, Malaysia, the Netherlands, New Zealand, Nigeria, Norway, Pakistan, Poland, Qatar, Romania, Russia, Singapore, South Korea, Spain, Sweden, Switzerland, Thailand, Turkey, the United Arab Emirates, the United Kingdom, the United States and Vietnam.
FinancingPrincipal sources of financing
What are the principal sources of financing available to private parties carrying on mining activities? What role does the domestic public securities market play in financing the mining industry?
The principal sources of financing available to private parties carrying on mining activities are debt and equity financing, as well as foreign investments. The domestic public securities market finances the mining industry through bond issuances, initial public offering and sale of preferred shares.Direct financing from government or major pension funds
Does the government, its agencies or major pension funds provide direct financing to mining projects?
In general, the government, its agencies or major pension funds do not provide direct financing to mining projects. Nevertheless, government financial institutions, such as the Social Security System and the Government Service Insurance System, have investments in certain mining corporations.Security regime
Please describe the regime for taking security over mining interests.
There is currently no Philippine legal framework for taking security over mining interests. However, the Mining Act IRR requires that MAs and FTAAs include a stipulation that the financial institutions that have granted loans to contractors shall have the authority to designate their assignees in case of default by the contractors.
What restrictions are imposed on the importation of machinery and equipment or services required in connection with exploration and extraction?
The Mining Act and its IRR impose the policy of preferential use of local goods, services and technologies over its imported counterparts of comparable quality to the extent compatible with efficient mining operations. In relation to labour, the Mining Act IRR specifically requires that the majority of a contractor’s personnel in its mining operations are qualified Filipino citizens originating from the host and neighbouring communities in the municipality and province where the mine is located. Further, the Mining Act IRR provides strict limitations in the hiring of foreign personnel.Standard conditions and agreements
Which standard conditions and agreements covering equipment supplies are used in your jurisdiction?
The standard conditions covering equipment supplies that must be observed by the contracting parties are in DENR Administrative Order No. 2000-98 or the Mine Safety and Health Standards, issued by the DENR to comply with the Philippines’ international obligations relating to safety and health.
All contractors, permittees, lessees, permit holders and service contractors must comply strictly with all the rules and regulations embodied under Department Administrative Order No. 2000-98. For new technologies and equipment in mining and milling operations not covered under Department Administrative Order No. 2000-98, the Central Office of the Philippine MGB shall formulate the appropriate rules and regulations to govern the same after due consultation with all parties concerned.
The Philippine Chamber of Mines, a local organisation of miners, recently adopted the mining sustainability standards of the Mining Association of Canada (MAC) in answer to the incumbent president’s call for the mining industry to follow the responsible mining practices of Australia and Canada. The MAC initiative, Towards Sustainable Mining, requires mining companies to annually assess their:
- tailings management;
- community outreach;
- safety and health;
- biodiversity conservation;
- crisis management;
- energy use; and
- greenhouse gas emissions management.
What restrictions are imposed on the processing, export or sale of minerals? Are there any export quotas, licensing or other mechanisms that prevent producers from freely exporting their production?
There is no requirement that metal minerals be processed or sold in the Philippines. However, the Philippine government examines all sales and exportation of minerals or mineral products, including the terms and conditions of all sales commitments. The government must be informed when any marketing agreement or sales contract is entered into with foreign and local buyers.
Furthermore, certain permits must be obtained for certain types of activities. For mineral trading either domestically or internationally, the party must be registered with the Department of Trade and Industry and accredited by the DENR. Marketing contracts and sales agreements involving commercial disposition of minerals and by-products shall be subject to approval by the Secretary of the DENR upon the recommendation of the Director of the MGB. The approved marketing contracts and sales agreements shall be registered with the MGB and are confidential between the Philippine government and the contractor. In addition, the sale must be made at the highest commercially achievable market price and lowest commercially achievable commissions and related fees under circumstances then prevailing. Parties must likewise negotiate sales terms and conditions compatible with world market conditions.
For the transport of ores, a permit must first be secured from the regional director for mines under the DENR, having jurisdiction over the area where the ores were extracted. For exportation of ores, a permit must be secured from the MGB.
Two bills requiring mandatory domestic processing of all mineral ores are pending before the Philippine Congress:
- House Bill No. 2165 (An Act Providing for the Mandatory Domestic Processing of All Mineral Ores, Amending for the Purpose Republic Act No. 7942 Otherwise Known as the Philippine Mining Act of 1995 and for Other Purposes); and
- Senate Bill No. 1634 (An Act Providing for the Mandatory Domestic Processing of All Mineral Ores Before Exportation and a Certification Showing Presence or Lack of Rare Earth Elements, Amending for the Purpose Republic Act No. 7942 Otherwise Known as the Philippine Mining Act of 1995 and for Other Purposes).
At the time of writing, House Bill No. 2165 remains pending with the Committee on Natural Resources, while Senate Bill No. 1634 is pending its second reading.Import of funds restrictions
What restrictions are imposed on the import of funds for exploration and extraction or the use of the proceeds from the export or sale of minerals?
The Philippine government encourages inward foreign investments in mining. As a rule, foreign investments need not be registered with the Philippine Central Bank (BSP). However, if a foreign investment is classified as a direct investment or an inward foreign portfolio investment in a peso-denominated debt instrument issued onshore by private resident firms, it must be registered with the BSP.
Moreover, there are no restrictions on the disposition of the proceeds from the export of minerals and mineral products. Under BSP regulations, foreign exchange receipts or earnings of residents from exports may be used freely for any purpose. Such proceeds may be sold for Philippine pesos, retained or deposited in foreign currency accounts, whether in the Philippines or abroad at the option of the exporter.
EnvironmentPrincipal applicable environmental laws
What are the principal environmental laws applicable to the mining industry? What are the principal regulatory bodies that administer those laws?
The Mining Act and its IRR contain provisions on environmental protection. Mining contractors are required to institute an environmental protection and enhancement programme prior to the commencement of mining operations and to submit final mine rehabilitation or decommissioning plans to ensure environmental protection beyond the life of the mine. Other environmental laws that may apply to mining operations include:
- the Toxic Substance and Hazardous and Nuclear Wastes Control Act of 1990;
- the Clean Air Act of 1999; and
- the Clean Water Act of 2004.
The DENR, and the agencies under it, including the MGB and EMB, ensure compliance with environmental laws.Environmental review and permitting process
What is the environmental review and permitting process for a mining project? How long does it normally take to obtain the necessary permits?
An environmental compliance certificate (ECC) is required for mining projects. To secure an ECC, a proponent must prepare and submit an environmental impact statement (EIS). The EIS should include, among others, the following:
- baseline environmental conditions focusing on the sectors (and resources) most significantly affected by the proposed action;
- impact assessment focused on significant environmental impacts (in relation to project construction and commissioning, operation and decommissioning), taking into account cumulative impacts;
- supporting documents, including technical and socio-economic data used and generated, certificate of zoning viability and municipal land use plan;
- proof of consultation with stakeholders; and
- proposals for environmental monitoring and guarantee funds, including a justification of the amount, if any.
The environmental impact assessment (EIA) process involves four steps: scoping, conduct of EIA study and report preparation, review and evaluation of the EIA report, and decision making. The EMB takes at least 40 days to process an ECC application.Closure and remediation process
What is the closure and remediation process for a mining project? What performance bonds, guarantees and other financial assurances are required?
The Mining Act IRR requires that a final mine rehabilitation and decommissioning plan (FMRDP) or mine closure plan be integrated in the environmental protection and enhancement programme (EPEP) to be submitted by contractors to the Mine Rehabilitation Fund Committee. The FMRDP shall consider all mine closure scenarios and shall contain cost estimates for the implementation of the FMRDP, taking in consideration expected inflation, technological advances, the unique circumstances faced by the mining operation, among others. Contractors and permit holders must rehabilitate the excavated, mined-out, tailings covered and disturbed areas to the condition of environmental safety pursuant to the FMRDP or mine closure plan.
The government has established an environmental guarantee fund mechanism known collectively as the Contingent Liability and Rehabilitation Fund (CLRF). The CLRF comprises the Mine Rehabilitation Fund (MRF), Mine Waste and Tailings (MWT) fees and the Final Mine Rehabilitation and Decommissioning Fund (FMRDF). The MRF must be established and maintained by each operating contractor and permit holder as a reasonable environmental deposit to ensure availability of funds for the satisfactory compliance with the commitments and performance of the activities stipulated in the EPEP. MWT fees are collected biannually from each operating contractor and permit holder based on the amounts of mine waste and mill tailings it generated for the said period to be used for payment of compensation for damages caused by any mining operations. The FMRDF must be established by each operating contractor or permit holder to ensure that the full cost of the approved FMRDP is accrued before the end of the operating life of the mine.
Under the Administrative Order issued by the DENR on 17 August 2018, contractors of MAs or FTAAs and holders of other similar mining tenements are required to submit and secure the approval of the Three-Year Development/Utilization Work Program (3YD/UWP) for the conduct of mining operations. Such 3YD/UWP must provide a detailed description of the course of every phase of mining operations covering a three-year mining cycle within the term on a mining tenement.Restrictions on building tailings or waste dams
What are the restrictions for building tailings or waste dams?
DENR Memorandum Order No. 32-99 (MO 32-99), issued in 1999, provides for policy guidelines and standards for mine wastes and mill tailings management. Mining permit holders must first secure clearance from the MGB, without prejudice to other required permits from other agencies of the DENR, before constructing and operating building tailings or waste dams. Permit holders are required to establish contingency and emergency preparedness plans to deal with significant events, which are assessed by the MGB prior to issuing the clearance.
Health & safety, and labour issuesPrincipal health and safety, and labour laws
What are the principal health and safety, and labour laws applicable to the mining industry? What are the principal regulatory bodies that administer those laws?
The Mining Act is the principal health and safety law for the mining industry. The DENR, through the MGB, is the principal regulatory body that administers the Mining Act. The Mining Act IRR contains provisions on mining health and safety measures.
The principal labour law applicable to the mining industry is the Philippine Labour Code. The Department of Labour and Employment (DOLE) is the principal regulatory body that administers the Labour Code.Management and recycling of mining waste
What are the rules related to management and recycling of mining waste products? Who has title and the right to explore and exploit mining waste products in tailings ponds and waste piles?
Contractors have rights over their mine production, including the mining waste products, but are required to use the best available appropriate anti-pollution technology and facilities to protect the environment and rehabilitate areas affected by mine waste, mill tailings and other pollution. Moreover, MWT fees are collected in order to cover damages caused by pollution.
Under EO 79, all valuable metals in abandoned ores and mine wastes and mill tailings generated by previous and now defunct mining operations belong to the state and shall be developed and utilised through competitive public bidding in accordance with the pertinent provisions of law. Under DENR Administrative Order No. 2012-07, or EO 79’s IRR, these include those that were abandoned during transport or shipment and which are not covered by valid and existing ore transport permits, mineral ore export permits or delivery receipts. Further, in the case of existing mining operations, all valuable metals in mine wastes and mill tailings shall automatically belong to the state upon the expiry of the pertinent mining contracts and shall be similarly developed and utilised through public bidding.Use of domestic and foreign employees
What restrictions and limitations are imposed on the use of domestic and foreign employees in connection with mining activities?
The Mining Act mandates that a party to a mining agreement or an FTAA shall give preference to Filipinos who are qualified to perform the corresponding work with reasonable efficiency and without hazard to the safety of the mining operations within the Philippines. However, as an exception, a party may hire foreign employees, subject to the provisions of Commonwealth Act No. 613, as amended (Philippine Immigration Act), for technical and specialised work that, in his or her judgement and with the approval of the MGB director, requires highly specialised training or lengthy experience in the exploration, development or utilisation of mineral resources.
Further, under Republic Act No. 7610, as amended (Special Protection of Children Against Abuse, Exploitation and Discrimination Act), children under the age of 18 shall not be allowed to work under circumstances that are hazardous or likely to be harmful to their health and safety.
In addition, foreign nationals seeking admission to the Philippines for employment must secure a permit from the DOLE after a determination that there is no available Filipino employee who is competent, able and willing to do the job intended for the foreign national.
Moreover, employment in connection with mining activities shall likewise be subject to the provisions of Commonwealth Act No. 108 (Anti-Dummy Law), as amended, which prohibits any person not possessing the necessary requisites under the law and constitution to intervene in the management, operation, administration or control thereof. Technical personnel, however, may be exempted after having been specifically authorised by the secretary of the Department of Justice. Further, the election of foreigners as members of the boards of directors or governing bodies of corporations or associations engaged in partially nationalised activities is allowed in proportion to their allowable participation or share in the capital of such entities.
Social and community issuesCommunity engagement and CSR
What are the principal community engagement or CSR laws applicable to the mining industry? What are the principal regulatory bodies that administer those laws?
There are currently no principal community engagement or CSR laws that are applicable to the mining industry. However, community engagement or social development provisions are found in various laws and regulations, including the Mining Act IRR. Under the Mining Act IRR, a contractor is mandated to annually allot a minimum of 1.5 per cent of operating costs to do the following:
- promote the general welfare of the inhabitants within the host and neighbouring communities;
- develop a programme for advancement of mining technology and geosciences; and
- develop and institutionalise an information, education and communication programme for greater public awareness and understanding of responsible mining and geosciences.
Further, public participation is one of the three general criteria in the EIS system. It helps the community reach an informed decision on the social acceptability of a mining project. In this regard, the local government units and the MGB facilitate the dialogue process. In the case of ICCs or IPs, free and prior consent of the concerned ICCs and IPs must be secured prior to the conduct of mining operations.
Under mining regulations, the contractor is mandated to coordinate with proper authorities in providing:
- development plans for host and neighbouring communities;
- promote community service and volunteerism in the community; and
- help create self-sustaining income-generating activities such as reforestation and production of goods and services needed by the mine and the community.
The DENR, the MGB and the concerned local government units administer the above requirement.Rights of aboriginal, indigenous or disadvantaged peoples
How do the rights of aboriginal, indigenous or currently or previously disadvantaged peoples affect the acquisition or exercise of mining rights?
ICCs and IPs are given priority rights in the harvesting, extraction, development or exploitation of natural resources within their ancestral domains. No ancestral land shall be opened for mining operations without the free and prior consent of the ICCs and IPs concerned. The parties must enter into an agreement with ICCs and IPs indicating the royalty payment, which may not be less than 1 per cent of the gross output. The said royalty shall form part of a trust fund for the socio-economic well-being of the ICCs and IPs.
Since March 2019, two bills are pending in the House of Representatives proposing an increase in the rate of royalty payments given to the ICCs. House Bill No. 391 proposes 20 per cent of gross output, while House Bill No. 4959 proposes 5 per cent of gross output.International law
What international treaties, conventions or protocols relating to CSR issues are applicable in your jurisdiction?
The Philippines is not a signatory to treaties, conventions or protocols that specifically relate to CSR issues.
Anti-bribery and corrupt practicesLocal legislation
Describe any local legislation governing anti-bribery and corrupt practices.
Republic Act No. 3019, as amended (the Anti-Graft and Corrupt Practices Act), enumerates all corrupt practices of any public officer, declares them unlawful and provides the corresponding penalties of imprisonment, perpetual disqualification from public office, and confiscation or forfeiture of unexplained wealth in favour of the government. Among the corrupt practices, the following practices are usually cited:
- directly or indirectly requesting or receiving any gift, present or other pecuniary or material benefit, for him or herself or for another, from any person for whom the public officer, in any manner or capacity, has secured or obtained, or will secure or obtain, any government permit or licence, in consideration for the help given or to be given;
- causing any undue injury to any party, including the government, or giving any private party any unwarranted benefits, advantage or preference in the discharge of his or her official administrative or judicial functions through manifest partiality, evident bad faith or gross inexcusable negligence;
- entering, on behalf of the government, into any contract or transaction manifestly and grossly disadvantageous to the same, whether or not the public officer profited or will profit thereby; and
- directly or indirectly becoming interested, for personal gain, or having a material interest in any transaction or act requiring the approval of a board, panel or group of which he or she is a member, and which exercises discretion in such approval, even if he or she votes against the same or does not participate in the action of the board, committee, panel or group.
The law also penalises private individuals who participate with public officers in the commission of the corrupt practices listed under the statute.
Republic Act No. 6713 (the Code of Conduct and Ethical Standards for Public Officials and Employees) was enacted in light of the state policy to promote a high standard of ethics in public service. The law provides the norms and duties of public officers. It requires all government personnel to make an accurate statement of assets and liabilities, disclose net worth and financial connections. It also requires new public officials to divest ownership in any private enterprise within 30 days from assumption of office to avoid conflict of interest. Further, the law prohibits public officers from engaging in acts and transactions, such as:
- having any financial or material interest in any transaction requiring the approval of their office;
- disclosing and/or misusing confidential information; and
- soliciting or accepting gifts in the course of their official duties or in connection with any operation being regulated by, or any transaction which may be affected by the functions of their office.
Republic Act No. 7080 (Defining and Penalising the Crime of Plunder) penalises any public officer who, by him- or herself or in connivance with members of his or her family, relatives by affinity or consanguinity, business associates, or other persons, accumulates or acquires ill-gotten wealth, through a combination or series of overt criminal acts, an aggregate amount of at least 50 million Philippine pesos.
Act No. 3815 (the Revised Penal Code) penalises public officers for malfeasance, misfeasance and nonfeasance in office. Among the enumerated crimes therein are direct bribery, indirect bribery and qualified bribery. It also penalises private individuals who offer, promise or give gifts to a public officer under circumstances that will make the public officer liable for direct or indirect bribery.
Presidential Decree No. 46 makes it punishable for any public official or employee, whether of national or local governments, to receive, directly or indirectly, any gift, present or other valuable thing on any occasion, including Christmas, when such gift is given by reason of his or her official position, regardless of whether the same is for past favour or the hope or expectation of future favours or better treatment from the public official or employee in the discharge of his or her official functions. Included within the prohibition is the throwing of parties or entertainments in honour of the official or employee or of his or her immediate relatives. The decree also punishes private persons who give, or offer to give, such gifts.
Republic Act No. 1379 (Declaring Forfeiture In Favor Of The State Any Property Found To Have Been Unlawfully Acquired By Any Public Officer Or Employee And Providing For The Proceedings Therefor) provides for forfeiture in favour of the state any property found to have been unlawfully acquired by any public officer or employee.
Republic Act No. 1827 (Regulating Lobbying In The Congress Of The Philippines And In The Commission On Appointments) prohibits corrupt or undesirable methods of lobbying in Congress, and provides for the licensing of lobbyists and the suspension or revocation of these licences. It penalises the employment of corrupt means to influence legislation or confirmation of appointments.Foreign legislation
Do companies in your country pay particular attention to any foreign legislation governing anti-bribery and foreign corrupt practices in your jurisdiction?
No. Although the Philippines has been a signatory to the United Nations Convention Against Corruption (UNCAC) since 2003, the Philippine Congress has not yet enacted a law specifically implementing all of UNCAC’s provisions. However, there has been partial and full implementation of some of its provisions as reflected in various laws such as:
- Republic Act No. 9160, as amended;
- the Anti-Money Laundering Act;
- Republic Act No. 9485;
- the Anti-Red Tape Act; and
- the Anti-Graft and Corrupt Practices Act, among others.
Also, in accordance with UNCAC objectives, the Philippines has entered into various mutual legal assistance treaties.
Companies registered in the United States and the United Kingdom must also comply with the US Foreign Corrupt Practices Act and the UK Bribery Act of 2010, respectively.Disclosure of payments by resource companies
Has your jurisdiction enacted legislation or adopted international best practices regarding disclosure of payments by resource companies to government entities in accordance with the Extractive Industries Transparency Initiative (EITI) Standard?
The president, through EO 79, mandated the establishment of mechanisms to operationalise the EITI in the mining sector. Following EO 79, the president issued Executive Order No. 147, series of 2013, creating the Philippine EITI Multi-Stakeholder Group. Executive Order No. 147 affirmed the Philippine government’s commitment to ensure greater transparency and accountability in the extractive industries specifically in the way the government collects and companies pay taxes from extractive industries. To date, the Philippines’ EITI status is ‘Satisfactory progress’. Philippine EITI developments may be found at www.ph-eiti.org.
Foreign investmentForeign ownership restrictions
Are there any foreign ownership restrictions in your jurisdiction relevant to the mining industry?
Yes. Mining is considered a nationalised industry, the conduct of which is limited by the Philippine Constitution to Philippine citizens or corporations at least 60 per cent of whose capital is owned by such citizens. Hence, only Philippine citizens or such corporations may enter into MAs. Nevertheless, non-Philippine nationals, or corporations that are 100 per cent foreign-owned, may still enter into EPs and FTAAs.
Philippine courts and administrative agencies apply two tests to determine whether a corporation meets the 60 per cent requirement - the ‘control test’ and the ‘grandfather rule’. The control test computes the total percentage of foreign ownership based on the shares directly held by foreigners in a corporation. The grandfather rule computes the total percentage of foreign ownership by tracing both the direct and indirect shareholdings of foreigners based on the company’s corporate structure. In Narra Nickel Mining and Development Corporation v Redmont Consolidated Mines, 722 SCRA 382 (2014), 748 SCRA 455 (2015), the Supreme Court held that the control test remains the primary test and must be complied with in all cases. However, notwithstanding compliance with the control test, the grandfather rule may additionally apply when doubt exists as to the extent of control and beneficial ownership in a corporation, such as when a foreign-owned corporation practically provided all the funds in an ostensibly Filipino-owned corporation.
In Roy v Herbosa, 810 SCRA 1 (2016), the Supreme Court clarified that compliance with nationality restrictions was validly limited by the Securities and Exchange Commission to the voting shares and the total outstanding capital stock of the corporation. This clarified the earlier ruling of the same court in Heirs of Gamboa v Teves, 682 SCRA 397 (2011), which ostensibly required the nationality restrictions to be applied to each class of shares.
International treatiesApplicable international treaties
What international treaties apply to the mining industry or an investment in the mining industry?
There is currently no multilateral international treaty or convention to which the Philippines is a party that specially applies to the mining industry or an investment in the mining industry. However, the Philippines has bilateral investment treaties, 32 of which are in force with other states and economic unions, specifically: Argentina, Australia, Austria, Bangladesh, Belgium-Luxembourg Economic Union, Canada, Chile, China, Czech Republic, Denmark, Finland, France, Germany, India, Italy, Kuwait, Mongolia, Myanmar, the Netherlands, Portugal, Romania, Russia, Saudi Arabia, South Korea, Spain, Switzerland, Syria, Taiwan, Thailand, Turkey, the United Kingdom and Vietnam. These bilateral investment treaties typically include provisions generally prohibiting the expropriation of investments in the Philippines of nationals or permanent residents of a contracting state (except for a public purpose, under due process of law, in a non-discriminatory manner and against prompt, adequate and effective compensation) and enjoining the state to accord fair and equitable treatment to foreign investors and investments. Further, the bilateral investment treaties typically contain an investor-state dispute settlement provision, which allows the nationals or permanent residents of a contracting state to submit a dispute involving the Philippine government to international arbitration.
Update and trendsRecent developments
What were the biggest mining news events over the past year in your jurisdiction and what were the implications? What are the current trends and developments in 2019 in your jurisdiction's mining industry (legislation, major cases, significant transactions)?
The Philippine government’s policy to ban open-cast mining dominated mining news in 2018.
In January 2018, months after President Rodrigo Duterte rejected the November 2017 MICC proposal to lift the ban on open-cast mining, he warned that the current open-cast mining ban could be extended or a new one declared in 2019. President Duterte also called on mining companies to reforest areas cleared for mining. This comment came even as the current mining regulations already require the reforestation of areas cleared for mining and even if responsible mining companies are already complying with this requirement.
In September 2018, Speaker of the House, Gloria Macapagal Arroyo, said that she would include a provision that explicitly bans open-cast mining in the bill establishing the fiscal regime for the mining industry. However, in March 2019, during Philippine Nickel Initiative 2019 (a forum for nickel mining companies) where she was the keynote speaker, Speaker Macapagal Arroyo expressed support for the mining industry, especially for open-cast mining. She said that despite the Philippine government’s apparent dislike for the mining industry, the Philippine Congress should not oppose it. Instead, Congress should help the mining industry because of its contribution to government revenues, exports, economic growth and job creation. She particularly stressed the importance of the nickel mining industry because the Philippines is the second largest supplier of nickel in the world.
In September 2018, DENR Secretary Roy Cimatu suspended all small-scale mining operations in the Cordillera Administrative Region in response to the deaths of miners owing to a landslide while they were trapped in a mining bunkhouse during the height of Typhoon Ompong (also known as Mangkhut). The landslide prompted President Duterte to suggest the idea of closing the country’s mining industry despite it being responsible for 7 per cent of the Philippines’ total exports in the first quarter of 2018 and for providing employment to nearly a quarter of a million Filipinos during the same period.