New Mine Sharing Rule Comes Too Late

New mine sharing rule comes too late

Jarius Bondoc - The Philippine Star, http://www.abs-cbnnews.com/storypage.aspx?StoryId=83364

4th July 2007

The good news is that new profit-sharing rules on foreign miners offer big take for the government. The bad news is that it may be too late.

All new foreign mining deals under Financial/Technical Assistance Agreements (FTAAs) will have 50-50 revenue splits after taxes and capital recovery. Filipinos are not covered, but must pay more taxes. Past FTAAs did not require foreign miners to share — an oddity upheld in 2004 by the Supreme Court but opposed by Justice Antonio Carpio. Last week the Dept. of Environment and Natural Resources issued the new scheme that makes foreign investors contractors for the government. “(It) will result in a more equitable sharing of benefits, where the contractor gets a reasonable return on investments while the government gets a reasonable share,” DENR Sec. Angelo Reyes said.

There’s a catch, though. The rule will be applied prospectively; that is, for newcomers. More than $700 million in FTAAs granted since 2004 will still enjoy the old package of low taxes and no obligation to share incomes. Prospective (versus retroactive) use is justified as normal in any new regime. But the anti-mining lobby fears that old FTAA holders will enjoy undue edge even though they knew they came in under wrong zero-sharing rules. The 1987 Constitution holds that use of natural resources shall be under full State control, even if through joint venture or production sharing for “real contributions to economic growth.” The 1995 Mining Act at first was declared unconstitutional for breaching this mandate. And when upheld constitutional after all in 2004, the Supreme Court said the President or Congress could change the sharing scheme any time. So the early FTAA grantees expected to be put under changed rules.

What makes thing worse, anti-miners cry, is that FTAA applications under the old rule flooded the DENR before the new one was issued. The government expects $300 million new mining investments this year. Bulk of it may already be in process under the low-tax, no-sharing bonanza.

Anti-miners expectedly will contest the new rule before the High Court. Tribesmen driven out of ancestral lands uncompensated by foreign mines will demand their just rewards this time, under a retroactive instead of prospective operation of 50-50 sharing. New justices since 2004, plus the old dissenters, could win the day for them.

In leading the 2004 dissent, Carpio twitted both the law and its sub-rules. The rules questionably gave miners three ways to compute the State’s share of revenues. Abusing undue power, Carpio said, miners would opt only for the second formula, which looked good only on paper. The State under that scheme would get a hefty 25-percent of profit once the miner’s ratio of net income to gross output hits 40 percent in two consecutive years. Using the Bureau of Mines’ own figures, the ratio has never happened nor ever will; the ratio can only be 23 percent in the best of times for mining in the Philippines or elsewhere.

Carpio then proceeded to raze the Mining Act as the culprit. In spite of the Constitution’s call for real economic earnings from any use of natural resources, the law is silent on income splitting. Five sections even state that State shares in mining shall come only from corporate income, dividend, excise, and import taxes.