Philippines Government introduces temporary mining ban until new revenue-sharing arrangements take effect

John Yeap a partner in the Energy & Natural Resources group at Pinsent Masons, the law firm behind Out-Law.com, said that there were issues arising from the country's new Executive Order 79 that would require "careful analysis", particularly by new entrants looking to invest in mining activity in the Philippines in the short term. The proposed overhaul of revenue-sharing arrangements with the Government, for example, whilst not uncommon globally, would nevertheless require further review to properly assess its implications, he added.

Once passed, the new revenue-sharing law could result in the imposition of a 5-7% royalty on revenue from all of the country's mining projects, in addition to an existing 2% excise tax.

The Order temporarily bans the granting of new mineral agreements until the new revenue sharing scheme is established by the country's Congress. In the meantime the Department of Environmental and Natural Resources (DENR), the Government department responsible for administering the permitting regime, will only be able to grant exploration permits. These give explorers the first option to develop and utilise the minerals in their respective regions once the new arrangements come into effect.

In March Indonesia signed a decree limiting foreign ownership in the country's mines to 49% of the total investment, a move that   Natural Resources lawyer Kate Terry of Pinsent Masons said at the time was indicative of a "wider international trend for greater national control over resources and the revenues they generate".

The mining industry in the Philippines is still relatively small; however, the country potentially holds untapped mineral wealth worth more than $840bn, according to a US State Department report on the Philippine economy.  International credit ratings agency Standard and Poor's recently uprated the country's credit rating from BB to BB+ - just one level below stable investment grade – while the country also experienced the biggest rise in GDP in the first quarter of this year since 2004.

At a media briefing the country's Environment and Natural Resources Secretary, Ramon JP Paje, said that the order was aimed "not only at optimising revenues from the mining industry for the government" but also at improving environmental standards on projects. The new policy also provides for a review of the performance of existing mining operations, based on guidelines in the specific mining contract as well as national laws. The Order also expressly prevents mining in specified areas including environmentally protected areas, tourism development areas and "prime agricultural lands".

"These areas are ordered closed to mining in order to ensure their protection for the future generations," Paje said, adding that "only those that are able to strictly comply with all the pertinent requirements will be eligible for the grant of mining rights".

Under the Order potential mining areas with "known strategic mineral reserves" will be declared "mineral reservations", as set out in the Philippine Development Plan and a National Industrialisation Plan. The policy also stipulates that the grant of new mining rights over areas of "known and verified mineral resources and reserves" will be undertaken through a competitive public bidding process, with due consideration given to the "social acceptability" of the proposed project.