PHILIPPINES MINING RIGHTS

PERHAPI
Association of Indonesian Mining Professionals

Sustainability Mining in Philippines
(KEBERLANJUTAN PERTAMBANGAN DI FILIPINA)
by: Perisai Ginting - PT INCO
by: Perisai Ginting - PT INCO

PERHAPI

OUTLINE
BACKGROUND
PHILIPPINE MINING INDUSTRY
MINING RIGHTS & PSC
MINING RIGHTS vs. IUP
MINING RIGHTS Social Development & Management Program
ENVIRONMENTAL
TAXATION
BASIC & ADDITIONAL SHARES OF GOVERNMENT FROM MINING
MINING RIGHTS INCENTIVE
MINING CONTRIBUTION TO PHILIPPINE ECONOMICS
SUMMARY

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LATAR BELAKANG MASALAH (BACKGROUND)
Dari total daratan Filipina 30 juta Ha, 9 juta Ha diantaranya potensial
dengan mineralisasi Emas, Nikel, Tembaga & Chromite.
Industri pertambangan Filipina terus berkembang setiap tahunnya yang
ditandai dengan bertambahnya perjanjian investasi antara pemerintah
Filipina dengan investor. Penambahan investasi ini juga diiringi dengan
bertambahnya jumlah konflik antara perusahaan tambang dengan
komunitas lokal.
Kontribusi nilai ekspor di bidang pertambangan masih dapat ditingkatkan,
saat ini masih rendah (7%)
Gross Value Added di bidang pertambangan di Filipina masih rendah sekitar
2-3 % dari GDP.
Berdasarkan survey terakhir oleh “National Statistics Office” ada 5 juta
rakyat Filipina yang mengangur (unemployed) dan rata-rata 1.8 juta rakyat
Filipina yang memasuki dunia kerja setiap tahunnya. Sementara tingkat
penyerapan tenaga kerja di dunia pertambangan Filipina rendah, hanya
0.4% dari total pekerja atau sekitar 125,000 orang.

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RIM OF FIRE

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PHILIPPINE MAP

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11 Copper Projects
Tampakan Copper Project Amacan Gold Project
Far Southeast Copper Project Rapu-Rapu Polymetallic
Boyongan Copper Project Didipio Cu-Au Project
Carmen Copper Project Sto Tomas II Copper Project
Batong Buhay Copper Project Kingking Cu-Au Project
Colet Copper Project

6 Gold Projects
Itogon Gold Project Diwalwal Gold Project
Canatuan Gold Project Siana Gold Project
MasbateGold Project Teresa Gold Project

6 Nickel Projects
Mindoro Nickel Project ACT Nickel Project
Palawan HPP Project Hallmark Nickel Project
Nonoc Nickel Project Berong Nickel Project

1 Cement Project
Akle Cement Project

24 Priority Projects

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OFFSHORE MINERAL RESOURCES

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PHILIPPINE & INDONESIA

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CONTOH KONFLIK

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PHILIPPINE MINING VALUE

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PHILIPPINE MINING PRODUCTION

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PHILIPPINE MINING SECTOR PERFORMANCE

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PHILIPPINE INVESTMENT VALUE

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VAT Turkey
Top 10 Countries for Mining Investment 2008
Investment Share Rank in 2007
(US$ Billion) (Percent)
1. Australia 53 13 1
2. Canada 44 11 2
3. Brazil 39 10 3
4. Russia 35 9 7
5. Chile 28 7 4
6. Peru 28 7 6
7. South Africa 22 6 5
8. Unites States 18 4 8
9. The Philippines 11 3 9
10. Papua New 8 2 12
Guinea
TOTAL 286 68

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PHILIPPINE MINING INDUSTRY STATISTICS (a)

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PHILIPPINE MINING INDUSTRY STATISTICS (b)

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MINING RIGHTS IN PHILIPPINE*
EXPLORATION PERMIT (EP): grant exclusive right to explore and
eventually enter into mineral agreement or FTAA
MINERAL AGREEMENTS
• MINERAL PRODUCTION SHARING AGREEMENT (MPSA)
• JOINT VENTURE AGREEMENT
• CO-PRODUCTION AGREEMENT
FINANCIAL OR TECHNICAL ASSISTANCE AGREEMENT (FTAA):
• involves large-scale mining operation with minimum committed
investment of $50 Million for infrastructure and development
• Needs approval by the President of the Republic of the Philippines
MINERAL PROCESSING PERMIT (MPP)

• Refers to Republic Act No. 7942, otherwise known as the “Philippine Mining Act of 1995”
• 100% foreign participation is allowed under EP, FTAA and MPP except for MA which requires at least 60%
Filipino ownership.

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MINING RIGHTS IN PHILIPPINE

Permit Qualified Person Nationality Maximum Onshore Area) Maximum offshore Area Financial Capability Term
(single province) (entire country) entire country, beyond 500m (minimum initial)***
from mean low tide level)

2 years, renewable for
like periods, but not
to exceed total term
Exploration Permit Individual Filipino 1,620 hectares 3,420 hectares 8,100 hectares P2.5m of 6 years

Corporation, 2 years, renewable for
Partnership, like periods, but not
Association, Could be Partially or P10m capital, of w/c P2.5m to exceed total term
Exploration Permit Cooperative Fully Foreign-Owned 16,200 hectares 32,400 hectares 81,000 hectares Paid up** of 6 years

Mineral Production 25 years, renewable
Sharing Agreement Individual Filipino 810 hectares 1,620 hectares 4,050 hectares P2.5m for another 25 years*

Corporation,
Partnership,
Mineral Production Association, At least 60% Filipino P10m capital, of w/c P2.5m 25 years, renewable
Sharing Agreement Cooperative owned 8,100 hectares 16,200 hectares 40,500 hectares Paid up for another 25 years*

25 years, renewable
Financial or for another 25 years.
Technical Assistance Further extention
Agreement Individual Filipino 81,000 hectares 324,000 hectares P2.5m negotiable

P10m capital, of w/c P2.5m
Corporation, paid up. For large scale, 25 years, renewable
Financial or Partnership, current minimum investment for another 25 years.
Technical Assistance Association, Could be Partially or commitment is US$50m, of Further extention
Agreement Cooperative Fully Foreign-Owned 81,000 hectares 324,000 hectares which US$4m is paid up negotiable

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MINING RIGHTS & IUPK (a)
Luas WIUPK
• IUPK Eksplorasi
– Mineral logam: ≤ 100.000 ha
– Batubara: ≤ 50.000 ha
• IUPK Operasi Produksi
– mineral logam: ≤ 25.000 ha
– Batubara: ≤ 15.000 ha
• Exploration Permit (EP): ≤ 81.000 ha (for corporation and ≤
8.100 ha (for individual)
• FTAA (foreign ownership):
– ≤ 81.000 ha onshore (minimum investment US $ 50 Million)
– ≤ 324.000 ha offshore
• Mineral Agreement (Philippine based company):
– Individual: 810-1.620 ha
– Corporation: 8.100 – 16.200 ha

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MINING RIGHTS & IUPK (b)

Jangka waktu maksimal
• IUPK Eksplorasi:
– mineral logam - ≤ 8 tahun
– Batubara – ≤ 7 tahun
• IUPK Operasi Produksi: 20 tahun dan dapat
diperpanjang 2x10 tahun
• Exploration Permit (EP):
– mineral logam : ≤ 6 tahun
– Mineral non logam: ≤ 4 tahun
• FTAA: 25-50 tahun
• Mineral Agreement: 25-50 tahun

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EXPLORATION PERMIT (EP)

Require:
• Approval from local legislative council (Sanggunian)
• Certification Precondition from National Comission on
Indigenous People (NCIC): processing documents less than
100 days
• Certificate of Environmental Management and Community
Relation Record (CEMCRR)
• Submit Environmental Work Program (EnWP)
• Environmental Compliance Certificate (ECC): Processing
documents 4 months
• Environmental Protection & Enhancement Program (EPEP)
• Final Mine Rehabilitation & Decommissioning Plan (FMRDP)
• Contingent Liability & Rehabilitation Fund (CLRF)
mm

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FTAA

Not allowed for cement raw materials, marble,
granite, sand, gravel, construction aggregates
Require approval from local legislative council
(Sanggunian)
Require Certification Precondition from
National Comission on Indigenous People
(NCIC)

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MINERAL AGREEMENT

(Sanggunian)
(NCIC)
Document Processing Time for MPSA: 6
months

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MINING RIGHTS APPLICATION FLOW CHART

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MINERAL PROCESSING PERMIT

Open both domestic & foreign corporation
5 to 25 years
(Sanggunian)
(NCIC)

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FISCAL REGIME
The Government Share shall be the excise tax on mineral
products at the time of removal and at the rate provided for in
Republic Act No. 7729 amending Section 151 (a) of the National
Internal Revenue Code, as amended, in addition to a Royalty
of not less than five percent (5%) of the gross output,
as well as other taxes, duties and fees levied by existing laws.
The Excise Tax shall be paid to the nearest Bureau of Internal
Revenue Office in the province concerned while the Royalty
shall be paid directly to the Mines and Geosciences
Bureau.
To allot annually a minimum of one percent (1%) of the direct
mining and milling costs necessary to implement the activities
undertaken in the development of the host and neighboring
communities. Expenses for community development may be
charged against the royalty payment of at least one percent
(1%) of the gross output intended for the concerned indigenous
cultural community;

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MINING RIGHTS Social Development & Management Program (a)
SURVEY FRASER INSTITUTE

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MINING RIGHTS Social Development & Management Program (b)

Allot 1% from direct mining and milling cost
Programs:
• Tilapia raising
• Mushroom culture
• Backyard gardening
• Cattle and goad gardening
• Pig dispersal
• Training on beauty culture: baking, food processing
• Community Based Forest Management
• Steep Agricultural Land Technology

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MINING RIGHTS Social Development & Management Program (c)

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MINING RIGHTS Social Development & Management Program (d)

Indigenous people entitled to get
at least 1% royalty from the
gross mining output of the
project and can negotiate for
more.

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PHILIPPINE MINING CONFLICT

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PHILIPPINE CRIMES

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ENVIRONMENTAL MINING RIGHTS
Spend at least 10% of exploration costs and the
estimated project development cost on environment-
related infrastructure
Spend 3-5% of direct mining and milling costs on
annual environment protection
Test runs under the supervision of the DENR to prove
that the mining operation does not harm the
environment
Spend another 1% of direct mining and milling costs to
finance social development projects, such as for
education, health, sanitation and livelihood

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TAXES & FEES
There are three levels of payment:
1) national government (through the Bureau of
Internal Revenue, Bureau of Customs, Mines &
Geosciences Bureau and other national
government agencies imposing taxes or fees)
2) local government (specifically where the mining
activity is conducted)
3) communities and people directly affected by the
mining project.

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Payments to the National Government
Excise tax on minerals — 2% of the gross output of mining operations
Corporate income tax — maximum of 32% of taxable income for
corporations
Customs duties and fees on imported capital equipment — the rate is
set by the Tariff and Customs Code (3-7% for chemicals; 3-10% for
explosives; 3-15% for mechanical and electrical equipment; and 3-10%
for vehicles, aircraft and vessels)
VAT on imported equipment, goods and services — 10% of value
Royalties due the government on minerals extracted from mineral
reservations (ie, previously explored by government), if applicable —
5% of the actual market value of the minerals extracted or produced
Documentary stamp tax — the rate depends on the type of transaction
Capital gains tax on traded stocks — 5-10% of the value of the shares
Withholding tax on interest payments on foreign loans — 15% of the
amount of interest
Withholding tax on dividend payments to foreign stockholders — 15% of
the dividend
Wharfage and port fees
Licensing fees (for example, radio permit, firearms permit, professional
fees)
Other national taxes and fees

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Payments to Local Governments
Local business tax — a maximum of 2% of gross sales or receipts
(the rate varies among local government units)
Real property tax — 2% of the fair market value of the property,
based on an assessment level set by the local government
Special education levy — 1% of the basis used for the real
property tax
Occupation fees — P75 per hectare per year; P100 per hectare
per year if located in a mineral reservation
Community tax — maximum of P10,500 per year
All other local government taxes, fees and imposts as of the
effective date of the agreement — the rate and the type depend
on the local government. Example: Renewal fee, charged every 2
years for EP, MPSA or FTAA: P60 per hectare per renewal period
(per DAO 2005-08)

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Other Payments
Royalty to indigenous cultural communities, if
any — minimum 1% of gross output from
mining operations
Special allowance — payment to claim owners
and surface rights holders

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TAXATION COMPETITIVE
Exploration permit holders and other contractors not yet in the
commercial production stage are not required
to pay income
sales and excise taxes
but are required:
to pay licence fees, duties, occupation and other special fees.
The list of taxes and fees is lengthy and weighty.
Not surprisingly, industry participants have grumbled about the
tax burden on mining, although the government maintains
that its combination of taxes and incentives is competitive
with other countries’ tax treatment of mining.

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BASIC & ADDITIONAL SHARES OF GOVERNMENT FROM MINING

SHARES:
BASIC SHARES: TAXES & FEES
ADDITIONAL SHARES: charged after reaching post-recovery period or after 5 years
commencement of commercial production
cash flow-based option — a 50:50 sharing in the cumulative present value of cash
flows (calibrated annually; any shortfall in the government share to be paid up annually by
the contractor);
profit-based option — an amount equivalent to 25% of the additional or excess profits
(ie, after tax income) of the enterprise reckoned against a benchmark return on
investments (currently 0.4 or 40% benchmark);
net mining revenue-based option — an amount that will result in a 50:50 sharing of
the cumulative net mining revenue from the end of the recovery period up to the taxable
year in question (also calibrated annually; any shortfall in the government share to be paid
up annually by the contractor).

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INCENTIVE MINING RIGHTS (a)
Holders of MPSAs and FTAAs can avail of the incentives below, as
provided for by the Omnibus Investment Code of 1987:
Tax Exemption: Income Tax Holiday, Exemption from taxes and duties on
imported spare parts, Exemption from wharfage dues, export tax, impost
and fees
Tax Credits: Tax Credits on raw materials and supplies
Additional Deductions on Taxable Income: Additional Deduction for Labour
Expense, Additional deduction necessary for major infrastructure works
Non-Fiscal Incentives: Employment of foreign nationals, Simplification of
customs importation procedures, Importation of consigned equipment for a
period of ten years
Other Incentives: Incentives for pollution control devices, Incentives for
income tax carry forward of losses, Incentives for income tax accelerated
depreciation on fixed assets, Investment guarantees (such as investment
repatriation, earnings remittance, freedom from expropriation and
confidentiality of information)
Source: Mines & Geosciences Bureau

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INCENTIVE MINING RIGHTS (Under new Mining Act of 1995)
Income Tax Holiday – Full exemption from income tax for
either four or six years from start of commercial operations
depending on whether the project is considered pioneer or
non-pioneer. Exemption period can be extended for another
year in each of the following cases:
the project uses indigenous raw materials,
the project meets the BOI-prescribed ratio of capital equipment
to number of workers
the net foreign exchange savings or earnings amount to at
least $500,000 annually during the first three (3) years of
the project. In any case, the total period of exemption shall
not exceed eight (8) years. Any project established in less
developed areas shall be entitled to six (6) years holiday.

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INCENTIVE MINING RIGHTS (c)
100% foreign ownership of mining projects
Companies can repatriate all profits, equipment & investment
Excise duties cut from 5% to 2%
Recovery of Pre-Operating Expenses for FTAA
Pollution Control Device
Losses can be carried forward against income tax
Income Tax-Accelerated Depreciation
Incentive
• Fiscal incentive: (Under Omnibus Investment Code of 1987)
– Tax exemption, tax credit on raw materials and supplies, additional deduction from taxable income,
Tax holiday of from 5 to 10 years
– Tariff free importation of equipment and tools
• Non-fiscal incentives:(Under Omnibus Investment Code of 1987)
– Employment of foreign nationals
– Simplication of custom importation procedures
– Importation of consigned equipment for a period of 10 years
• Investment guarantee : full repatriation of investment
• Full remittance of earnings
• Foreign loans & contracts
• Freedom from expropriation
• Requisition of investment
• Confidentiality

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MINING CONTRIBUTION TO PHILIPPINE & INDONESIA ECONOMICS (a)

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MINING CONTRIBUTION TO PHILIPPINE ECONOMICS (b)

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MINING CONTRIBUTION TO PHILIPPINE ECONOMICS (c)

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MINING CONTRIBUTION TO PHILIPPINE ECONOMICS (d)

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COST EXTERNALIZATION IN PHILIPPINE MINING

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POLICY POTENTIAL INDEX (PPI)

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Taxation Regime PT Inco

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Coal Royalty & Taxes in Different Countries of the World
Country Royalty Rate Corporate Tax Customs
(%) Rate (%)
(%)
China 0.5-4 30 0

Indonesia Up to 13.5 30 0

Laos 2.5 20-33 0

Malaysia 5 34 -

Mongolia 2.5 40 0-5

Vietnam 1-8 25 0

Peru 0 30 0

Australia 2.5-7.5 30 5

Brazil 3 30 -

Chili 0 35 -

Pakistan 1 35 5

Ghana 3-12 - -

Uzbekistan 5.4 - -

Different countries practice different royalty rates but the difference is not significant and is within the range of
1-8%. It is true that Indonesia has the highest royalty rate (13.5%, as per amended laws of 1996) in the world
but Indonesian coal is at relatively shallower depth (in some instances at the surface and exposed in water
courses), of good quality and moreover easy to transport to the international market directly by sea going large
vessels.

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Mining Law Update in Turkey
Pertumbuhan PDB (%) Inflasi (%)
2007 2008 2007 2008
China 11.5 10.6 3.4 3.2
Korea Selatan 4.9 5.0 1.6 2.5
Taiwan 5.4 4.4 0.2 0.8
Hongkong 6.0 5.3 2.1 2.4
Singapura 7.9 6.6 2.5 2.2
Indonesia 6.2 6.4 6.7 6.6
Thailand 4.6 5.0 4.2 4.0
Malaysia 5.7 5.8 2.2 2.4
Filipina 6.7 6.3 2.9 3.3
Vietnam 8.4 8.7 8.6 8.1
10 Negara ASEAN 6.0 6.1 5.0 5.0
10 Negara Asia 8.7 8.2 3.1 3.2

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PHILIPPINE MINING PROJECTS

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SUMMARY-1
Filipina di bawah pemerintahan Arroyo tampil lebih stabil. Undang-Undang Tambang 1995
(1995 Mining Law) telah membawa perubahan yang signifikan yang mengijinkan 100%
investasi asing di bawah perjanjian yang dikenal sebagai Financial or Technical Assistance
Agreement (FTAA) dan juga memperkenalkan Mineral Production Sharing Agreement
(MPSA).
Pemerintah dan investor menginginkan MPSA karena:
Menarik investasi yang akan menggairahkan perekonomian dan juga memastikan
keamaman Negara yaitu mengurangi ketergantungan terhadap impor energi
Usaha eksplorasi dan ekstraksi mineral yang dibutuhkan tidak memerlukan dukungan
dana karena semua sumber daya disediakan oleh investor
Pemerintah mempunyai kesempatan untuk membuat perjanjian jangka panjang (long-
term agreements) dengan investor sehingga dapat mengukur pertumbuhan pemasukan
(budget income)
Lebih memudahkan dalam hal pembayaran pajak karena pemerintah mendapat porsi dari
produksi
Diinginkan oleh investor karena memperoleh kepastian untuk pajak.
Sampai Juni 2008 ada 265 perusahaan yang sudah memperoleh MPSA dengan total luas area
428,000 Ha.
Pada tahun 2008 Filipina masuk ke dalam 10 besar negara dengan investasi tambang terbesar
di dunia dengan jumlah 11 Milliar dólar (11 Billion US$).
Walaupun mendapat beberapa perdebatan dengan pihak anti-mining, industri pertambangan
di Filipina telah memberikan kontribusi yang semakin meningkat bagi GDP Filipina dari 0.7% di
2003 dan menjadi 1.2% pada tahun 2007 dan menjadi 3.0% pada 2008. Sementara kontribusi
terhadap ekspor juga meningkat dari 1.8% di 2003 menjadi 5.2% di tahun 2007 dan mnejadi
7.1% pada 2008.

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SUMMARY-2

Negara Kazakhstan menjadi negara dengan tingkat penyerapan tenaga kerja di bidang
pertambagan 5%
Negara Papua New Guinea mempunyai kontribusi sebesar 20% dari dunia pertambangan
untuk GDP

SURVEY Policy Current Mineral “Best Practices” Room to Composite
COUNTRY Political Potential Index Mineral Potential Improvement PPI & BMPI
Index (PPI) (CMPI) Index (BMPI)
Indonesia 14.2%/62 48%/48 100%/1 52%/11 65%/20
Filipina 19.4%/60 44%/52 100%/1 56%/1 68%/18
Turkey 35.7%/47 64%/32 92%/29 28%/27 70%/13
Quebec (Canada) 97%/1 88%/2 98%/1 10%/58 98%/1

PHILIPPINES MINING RIGHTS

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