Philippines & Indonesia: Mining companies face increased compliance risks, further uncertainty

• Both the Philippines and Indonesia are seeking to reinforce environmental regulations and increase revenues from the mining sector, compounding longer-term difficulties for mining operators in both countries.
• Mining firms could face penalties for not complying with previously unenforced regulations, especially in the Philippines where President Rodrigo Duterte has spoken against the negative effects of mining on communities.
• Meanwhile, mining companies in Indonesia could suffer from the planned transfer of licencing powers from local to provincial authorities as well as government demands for greater shares of revenue in mining contract negotiations.                                                                                                    Mining firms in the Philippines and Indonesia are facing increased exposure from an impending crackdown on environmental compliance. Both countries have poor records for enforcing environmental regulations, leading to tensions between communities and the mining sector, which the leaders of both countries have pledged to address. In the Philippines, President Rodrigo Duterte has issued a sweeping review of all mining contracts for environmental and communal impact and has already suspended six contracts for compliance violations since he took office on 30 June. Although Indonesia’s President Joko Widodo has been less confrontational in his rhetoric and some reforms under his presidency have improved the operating prospects for international miners, the transfer of mining oversight from local to provincial authorities in October 2016 will complicate already established bureaucratic procedures and could increase the risk of penalties by activist provincial governors.
• The Philippines
  Duterte’s plans to review mining contracts that are causing environmental damage will further undermine investment in a sector that has long struggled to meet its full potential. Decades of environmental scandals, incoherent or inhibitive regulations, poor infrastructure, and security concerns have deterred mining investment in the Philippines, where only 3 percent of the country’s estimated 9 mn hectares of mineral reserves are under development. The mining sector represents just 1 percent of GDP, and investment in mining dropped to a three-year low of USD 924 mn in 2015.
  Plans to develop the sector have been further impeded by a 2012 moratorium on new mining licences that was intended to allow for reforms to revenue-sharing licences. The moratorium was initially planned to last for just three years, but remains in place as the previous government failed to pass the reforms. The proposed changes to the licences, which are supported by the new Duterte administration, would increase the government’s share of mining revenues. Mining companies in the Philippines already face the most burdensome tax regime in Southeast Asia, with an average of 40 percent of revenues transferred to the government, via a 30 percent corporate income tax and several mining-specific taxes.
  Moreover, Duterte has proposed policies that stand to make the enforcement of environmental regulations more onerous, thereby increasing the likelihood of contract cancellation or financial penalties. On his first day in office, he ordered a review of all mines in the country for environmental and communal wrongdoing, threatening to cancel permits for any mines deemed to be damaging to the environment. Mines and Geoscience Bureau Director Leo Jasareno said in June that half of the country’s 44 metal miners had repeatedly violated environmental laws and yet had only received warnings under the six-year administration of Duterte’s predecessor President Benigno Aquino. New Environment Secretary Regina Lopez has called for a ban on all open pit mining, while Philippine Mine Safety and Environment Association head Louie Sarmiento said that companies must have comprehensive health and safety plans for all stages of projects, and are required to set aside funds for an environmental clean-up. The government appears likely to focus on enforcement rather than legislative change, with Duterte saying he has no plans to amend existing mining laws.
  The suspension of six mines, which were operated by domestic mining companies, since Duterte came to office nonetheless proves that he and mining minister Lopez are following through with the promised compliance drive. Three of the six mines shut down were nickel ore pits, which the government claims were affecting coral reefs and the ecology of the soil in Palawan and Manicani. These early suspensions less than one month into the new administration provide a key indicator of the trajectory of enforcement of regulation, not least as the environment secretary has stated that mines with certification from the International Organisation for Standardization will not be protected from punishments.
  Until the audit is completed and wrongdoers are censured, mining companies in the country will be reluctant to invest in new projects and may continue the trend of divestments seen in recent years due to declining profitability. In August 2015, Glencore sold the Tampakan gold mine for a record USD 290 mn due to a ban on opening mining in South Cotabato. Plans to increase the government’s share of mining revenues will further deter investors. Lopez has already started efforts to push through the mining-contract reforms begun by the Aquino administration, demanding as much as 55 percent of net revenues from mining projects. The timeline for when this bill will be put to congress remains unclear.
• source:https://www.google.com.ph/search%3Fq%3Dphilippine%2Bmining%26espv%3D2%26biw%3D1360%26bih%3D613%26source%3Dlnms%26sa%3DX%26ved%3D0ahUKEwin9tjHz7PPAhUDupQKHbCDBo4Q_AUIBygA%26dpr%3D1