final eiti legal framework october2014

Final EITI Legal Framework Study

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LEGAL FRAMEWORK GOVERNING THE EXTRACTIVES INDUSTRIES AND

TRANSPARENCY

EITI PHILIPPINES1

I. Introduction

The Philippines, subject to reasonable conditions prescribed by law, adopts a policy of full

public disclosure of all its transactions involving public interest.2 Among the transactions

that the government enters into involve agreements relating to the exploration,

development, and utilization of minerals, coal, and petroleum.3 These transactions are

regarded with public interest not only because these involve the States acts of dominion of

public resources, but also because of their strong potential to generate revenues that the

government could use to enhance national development, and at the same time, because of

their impact on the welfare of communities and the environment.

In order to improve transparency, accountability, and governance in the coal, petroleum,

and mining sector, the Philippine government made its commitment in 2012 to participate

in the Extractive Industries Transparency Initiative (EITI), a set of international standards

for transparency and accountability in the extractive industries and in government.4 In

2013, the President instituted the Philippine EITI, which would be implemented through a

multi-stakeholder group (MSG) and a decision-making body (PH-EITI-MSG) chaired by the

Secretary of the Department of Finance (DOF), and assisted by a Secretariat.5

Part of the mandate of the PH-EITI-MSG is to set the strategic direction for effectively

implementing the EITI initiative in the country and to assess and seek the removal of

barriers to its implementation. It is also tasked to produce reports with contextual

information about the extractive industries.6

This paper presents the legal framework governing the extractive industries and

transparency in the Philippines as an input to the work of the PH-EITI-MSG.

1 Prepared by Atty. Brenda Jay Angeles Mendoza for the Multi-Stakeholder Group, EITI Philippines, under contract with the Embassy of Canada, Development Section. 2 CONST. Art.. II, Sec. 28. 3 Rep. Act No. 7942 (1995); Pres. Decree No. 87 (1973); Pres. Decree No. 972 (1976). 4 Exec. Order No. 79 (2012), Sec. 14. 5 Exec. Order No. 147 (2013), Sec. 1-2. 6 Id.,Sec. 4-5.


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II. Natural Resources Governance

The Constitution is the fundamental legal basis of Philippine law and policy. All laws must

conform to the provisions of the Constitution. Thus, Republic Acts passed by Congress,

Executive Orders issued by the Office of the President, Administrative Orders and Circulars

issued by the executive agencies, and decisions of the judiciary must be consistent with the

Constitution.

A. Constitutional Provisions

The 1987 Constitution of the Philippines provides the overall legal framework governing

natural resources in the Philippines. The Constitution adheres to the Regalian Doctrine,

which provides that the State is the owner of all lands of the public domain and natural

resources of the country. Natural resources include waters, minerals, coal, petroleum, and

other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora

and fauna.7

Lands of the public domain are classified into agricultural, forest or timber, mineral lands,

and natural parks.8 Save for agricultural lands of the public domain, all other natural

resources of the country shall not be alienated, which means that the States ownership

over these natural resources cannot be conveyed or transferred to other persons.9

However, the State may, under its full control and supervision, allow the exploration,

development, and utilization of natural resources. Natural resource use may be undertaken

directly by the State or it may enter into co-production, joint venture, or production-

sharing agreements with Filipino citizens, or with corporations or associations at least 60%

of whose capital is owned by Filipinos. This may be allowed for a maximum period of 25

years, and may be renewed for another period of not more than 25 years, under such terms

and conditions as may be provided by law.10

As an exception to the 60-40 ownership rule, the President may enter into agreements with

foreign-owned corporations involving either technical or financial assistance for large scale

exploration, development and utilization of minerals, petroleum, and mineral oils. Such

agreements must be made: (a) according to the general terms and conditions provided by

law; and (b) based on real contributions to the economic growth and general welfare of the

7 CONST. Art.. XII, Sec. 2. 8 Id., Art.. XII, Sec. 3. 9 Id., Art.. XII, Sec. 2. 10 Id.


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country. These agreements must also (c) promote the development and use of local

scientific and technical resources.11

Congress may, by legislation, allow small-scale utilization of natural resources by Filipino

citizens.12 In the case of small-scale use of mineral resources, the applicable law is Rep. Act

No. 7076 (1991) or the Peoples Small Scale Mining Act.

In allowing the exploration, development, and use of natural resources, two constitutional

rights are considered:

1. Article XII, Section 5 on the protection of the rights of indigenous cultural

communities to their ancestral lands to ensure their economic and social being; and

2. Article II, Sections 16 and 15 on the protection and advancement of the peoples right

to a healthful and balanced ecology and the promotion of the peoples right to

health.

B. Law and Policy (mineral resources)

Rep. Act (RA) No. 7942, otherwise known as the Philippine Mining Act of 1995 (Mining Act),

governs the exploration, development, utilization, and processing of all mineral resources

in the country. The Act promotes mining through joint government and private sector

efforts as a means to enhance national growth and in a manner that effectively safeguards

the environment and protects the rights of affected communities. Together with its

Implementing Rules and Regulations (IRR), the Mining Act defines the agreements for

mineral resources development, provides the requirements for acquiring mining rights,

and outlines the responsibilities of the parties during the term of the mineral agreement.13

From 1936 to 1974, the mining industry was regulated by Commonwealth Act (CA) No. 137,

otherwise known as the Mining Act of 1936.

In 1974, Pres. Decree (PD) No. 463 or the Mineral Resources Development Decree of 1974

was promulgated. The decree adopted an index map that divided the country into

meridional blocks apparently to prevent claims from being located haphazardly. It pushed

claimants to actively develop their claim in order to prevent speculation in mining claims.

There were also provisions in the law that aimed to expedite the processing of claims as

well as those relating to pollution prevention and environmental protection.

11 Id. 12 Id. 13 Rep. Act No. 7942 (1995); DENR Adm. O. No. 2010-21 (2010).


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Among the changes that Pres. Decree No. 463 introduced were as follows:

CA 137 PD 463 A claimant has a preferential right over an area based on discovery, actual occupation, and registration. Minerals are located either as a lode or placer depending on the kind of minerals discovered.

A persons preferential right over an area is based on the Registration of the Declaration of Location. The classification of location of claims was abolished. Mineral resources are divided into mining claims and quarry resources.

One claim is 9 or 8 hectares depending on whether it is lode or placer; corporations can claim up 9 hectares (lode) and 64 hectares (placer).

One claim or meridional block is 81 hectares more or less.

Maximum area that may be leased in any one province is 1,350 ha. (lode) and 400 ha. (placer) for individuals; and 400 ha. (lode) and 3,250 ha. (placer) for corporations.

Maximum area that may be leased in any one province is 500 hectares for individuals and 5,000 hectares for corporations.

Maximum area that may be leased in the entire country is 500 lode claims.

Maximum area that may be leased in the entire country is 1,000 hectares for individuals and 10,000 hectares for corporations.

Pursuant to the 1987 Constitution, then President Corazon Aquino issued Exec. Order (EO)

No. 279, which authorized the DENR Secretary to negotiate and conclude joint venture, co-

production or production-sharing agreements for the exploration, development and

utilization of mineral resources, and prescribed guidelines for such agreements and those

involving technical or financial assistance by foreign-owned corporations for large-scale

exploration, development and utilization of minerals in the country. Such agreements were

subjected to the Presidents approval. The provisions of PD 463 that are not inconsistent

with EO 279 remained in force and effect.

In 1995, Rep. Act No. 7942, entitled An Act Instituting a New System of Mineral Resources

Exploration, Development, Utilization, and Conservation or the Philippine Mining Act of

1995, was passed by Congress. The law contains, among others, specific chapters on

exploration permits, mineral agreements, financial or technical assistance agreements,

small-scale mining, quarry resources; transport, sale and processing of minerals;

development of mining communities, science and mining technology; and safety and

environmental protection.


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The constitutionality of RA 7942 was challenged before the Supreme Court in La Bugal

Blaan Tribal Association vs. Sec. Victor O. Ramos.14 The case mainly involved the

interpretation of the phrase agreements involving either technical or financial assistance

under the Constitution for large-scale mining.

In December 2004,15 the Supreme Court reversed its earlier decision and ruled that the

provisions of the Mining Act involving foreign participation under the Financial and

Technical Assistance Agreement (FTAA) do not violate the general provisions of the

Constitution reserving to Filipino citizens and corporations the use and enjoyment of the

countrys natural resources. It explained that the phrase involving either technical or

financial assistance does not indicate the intent to exclude other modes of assistance, but

rather implies that there are other things being included or possibly being made part of the

agreement, apart from financial or technical assistance.

During the administration of President Gloria M. Arroyo, the government shifted its policy

from tolerance to promotion of the mining industry. In 2004, she issued EO 270 or the

National Policy Agenda on Revitalizing Mining in the Philippines. The issuance provided

guiding principles for pursuing the exploration, development and use of the countrys

mineral resources within the framework of sustainable development, which it says must

contribute to economic growth, environmental protection, and social equity and

development. Based on these principles, a Minerals Action Plan was subsequently

formulated as the governments road map for the revitalization of the minerals industry.

In 2005, by virtue of EO 469, the government created an inter-agency Minerals

Development Council (MDC) under the Office of the President to mobilize the entire

government bureaucracy to support the operations and programs relative to minerals

development. It was given the primary responsibility of advancing the governments policy

of responsible and sustainable development of mineral resources.

Until 2010,16 the MDC attempted to streamline government rules and regulations to

actively promote the mining industry. It also convened regional stakeholder meetings and

participated in international forums to deliver the message that the country was back in

the mineral resources business.17

14 G.R. No. 127882, January 27, 2004 and December 1, 2004. 15 Id. December 1, 2004 decision. 16 The MDC, along with 9 other agencies, was abolished in 2010 as part of President Benigno S. Aquinos efforts to streamline the operations of the Office of the President and to cut perceived unnecessary spending by channeling its resources in areas where they are needed most. 17Keynote address of Ambassador Delia D. Albert, Breaking Walls, Building Bridges: Public-Private Partnership in the Mining Industry, at the 56th Annual Mine Safety and Environment Conference, November 14, 2009. http://www.mgb.gov.ph/pgs.aspx?pgsid=5, Accessed: October 1, 2014.


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In 2012, Pres. Benigno Simeon C. Aquino III issued EO 79 providing for reforms that would

accordingly ensure environmental protection and responsible mining in mineral resource

use, and promote sustainable economic development and social growth at national and

local levels. EO 79 specifically seeks to improve mining environmental standards and

increase revenue from mining to promote sustainable economic development and social

growth. Among the important provisions of the Executive Order relate to the establishment

of additional No Go Zones for mining and the imposition of a moratorium on new mining

agreements pending the enactment of a law that would rationalize existing revenue sharing

scheme.

Under EO 192 (1987), the Department of Environment and Natural Resources (DENR) is the

primary government agency that is responsible for the conservation, management,

development, and proper use of the States mineral resources. The Mines and Geosciences

Bureau (MGB) of the DENR is directly in charge of the administration and disposition of

mineral lands and mineral resources. The Environmental Management Bureau (EMB) of

the DENR, on the other hand, administers all activities related to pollution prevention and

control as well as management and enhancement of the environment, including of the

Philippine Environmental Impact Statement (EIS) System.

The Philippine EIS system requires all proponents of environmentally critical projects

(ECPs) and projects within environmentally critical areas (ECAs) to first secure an

environmental compliance certificate (ECC) from the DENR.18 Among others, petroleum

and petro-chemical industries, including oil and gas, major power plants (fossil-fueled,

nuclear fueled, hydroelectric or geothermal), and major mining projects are considered as

environmentally critical projects.19

C. Law and Policy (oil and gas)

The governing law for oil and gas is PD 87 or the Oil Exploration and Development Act of

1972. This decree was issued to hasten the discovery and production of indigenous

petroleum using government and/or private resources under agreements that would yield

maximum benefit to the Filipinos and revenues to the government, and at the same time to

assure reasonable returns to companies that render financial and technical services. Its

predecessor law, RA 387 (1949), continues to be the basis for determining auxiliary rights

in petroleum projects. PD 87 was amended in 1983 by PD 1857 primarily to grant new

incentives to petroleum service contractors.

18 Pres. Decree No. 1586 (1978). 19 Proc. No. 2146 (1981).


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RA 7638 (1992) created the Department of Energy (DOE), the government agency in charge

of all programs and projects relative to energy exploration, development, utilization,

distribution, and conservation. In an earlier decree, PD 1459 (1978), the DOE Secretary,

subject to the Presidents approval, was given the authority to enter into petroleum service

contracts, and re-negotiate or modify existing ones. Among the issues that the DOE

Secretary needs to look into in performing this task are the governments share, including

all taxes, and the technical competence and financial capability of the petroleum operators.

In all cases, the Decree requires the DOE Secretary to consult with the Secretary of the

Department of Finance (DOF) on all matters involving revenue.

D. Law and Policy (coal)

PD 972, also known as the Coal Development Act of 1976, as amended by PD 1174, governs

coal resources. The decree promotes as state policy the accelerated exploration,

development, exploitation, production, and utilization of the countrys coal resources.

The decree introduced the coal operating contract system and established guidelines for

coal operations in the country. The government retains ownership of the resource, while

the operator, under the contract system, is assigned the right to explore, develop, exploit,

and market the coal based on certain terms and conditions within a specific period of time.

Like oil and gas, the authority to carry out the provisions of the Coal Development Act is

vested with the DOE (previously, Energy Development Board).20

III. Transparency

A. Constitutional Provisions

The 1987 Constitution does not have a straightforward provision on transparency. It

nonetheless contains Sections that characterize or can be associated with transparency,

such as those relating to public disclosure, public information, and public participation.

(1) Public disclosure

The Constitution lays down the States policy of full public disclosure of all its transactions

involving public interest, subject to reasonable conditions prescribed by law.21

20 Rep. Act No. 7638 (1992). 21 CONST. Art. II, Sec. 28.


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Specific disclosure requirements are addressed to the legislative branch and particular

officials and employees in the public sector, to wit:

1. Public officers and employees must submit a sworn declaration of their assets,

liabilities, and net worth upon assumption of office and as often thereafter;22

2. The President, Vice-President, members of the Cabinet, the Congress, the Supreme

Court, the Constitutional Commissions and other constitutional offices, and officers

of the armed forces with general or flag rank must disclose such declaration to the

public in the manner provided by law;23

3. Each House of Congress must keep a Journal of its proceedings, and from time to

time, publish the same, except only such parts that may affect national security.

Each House must also keep a Record of its proceedings, although the Constitution is

silent as to whether this can be published in the same manner as the Journal;24

4. Congress must preserve its records and books of accounts and must keep these

open to the public in accordance with law. The Commission on Audit shall audit the

books and publish every year an itemized list of amounts paid to and expenses

incurred for each Congressional member.25

(2) Public information and access to information

The Constitution recognizes the peoples right to information on matters of public concern.

Filipino citizens are likewise afforded access to official records, and to documents and

papers pertaining to official acts, transactions, or decisions, as well as to government

research data used as basis for policy development, subject only to such limits as may be

provided by law.26 In particular, information on foreign loans obtained or guaranteed by

the government shall be made available to the public.27

However, the peoples right to information is not absolute. In his commentary to the 1987

Constitution, Fr. Joaquin Bernas S.J. explains that the right to information is restricted in

terms of national security matters, trade secrets, banking transactions, law enforcement,

22 Id., Art. XI, Sec. 17. 23 Id. 24 Id., Art. VI, Sec. 16 (4). 25 Id., Art. VI, Sec. 20. 26 Id., Art. III, Sec. 7. 27 Id. Art. XII, Sec. 21.


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and other confidential matters.28 The Supreme Court has also ruled that privileged

information (such as, diplomatic negotiations and inter-government exchanges prior to

conclusion of treaties and executive agreements); military and diplomatic secrets; and

matters affecting public order may not be covered by this constitutional precept.29 It also

cited that Congress has prescribed other limitations on the right to information in several

legislations.30

Nonetheless, the Supreme Court made an important distinction between the States duty to

disclose (Article II, Section 28) as discussed in the preceding section and this duty to permit

access to information on matters of public concern (Article III, Section 7). It explained that

the disclosure of information is mandatory under the Constitution, while the other aspect

of this right to information (also, right to know) requires a demand or request for a person

to obtain access to an agencys documents. Further, the duty to disclose only concerns

transactions involving public interest, while the duty to allow access has broader scope of

information which embraces not only those dealings involving public interest, but any

matter contained in official communications and public documents of the agency.

According to the Court, relief must be granted to persons who request access to official

records, documents and papers relating to official acts, transactions, and decisions that are

relevant to a government contract.31

(3) Public participation

The Constitution guarantees the right of the people and their organizations to effective and

reasonable participation at all levels of social, political, and economic decision-making. The

State shall, by law, facilitate the establishment of adequate consultation mechanisms.32

B. Law and Policy (General)

(1) Transparency in government frontline services

The Anti-Red Tape Act of 2007 declares the States policy to promote integrity,

accountability, proper management of public affairs and public property and to establish 28 Bernas, J. The 1987 Constitution of the Republic of the Philippines: A Commentary, 2009 ed., Rex Bookstore, Manila, Philippines. 29 IDEALS vs. PSALM, G.R. No. 192088, October 9, 2012; Akbayan, et.al. vs. Aquino, G.R. No. 170516, July 16, 2008; Chavez v. Public Estates Authority, G.R. No. 133250, July 9, 2002. 30 Id. The decision in Chavez cited Section 270 of the National Internal Revenue Code; Section 14 of Rep. Act 8800 (Safeguard Measures Act); Section 3(n) of Rep. Act No. 8504 (Philippine AIDS Prevention and Control Act); Section 6(j) of Rep. Act No. 8043 (Inter-Country Adoption Act); and Section 94 (f) of Rep. Act No. 7942 (Philippine Mining Act). 31 Id. IDEALS v. PSALM. 32 CONST., Art. XIII, Sec. 16.


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effective practices aimed at preventing graft and corruption in government. To achieve this,

the law mandates the State to maintain honesty and responsibility among its public officials

and employees, and to take appropriate measures to promote transparency in each agency

with regard to the manner of transacting with the public. This covers the adoption of

simplified procedures that reduce red tape and expedite transaction in government, such

as posting of information billboards (Citizens Charter) about an agencys process for

obtaining the service, the persons responsible, maximum processing time, amount of fees,

and procedure for filing complaints.33

The law applies only to government agencies that provide frontline services or those

transactions between clients and government agencies involving applications for any

privilege, right, permit, reward, license, concession, or for any modification, renewal or

extension of certain applications and/or requests which are acted upon in the ordinary

course of business of the agency or office concerned.34 It does not cover agencies that

perform judicial, quasi-judicial and legislative functions.35

(2) Transparency in government procurement process

RA 9184 (2003), otherwise known as the Government Procurement Reform Act, directs the

procurement of all infrastructure projects, goods, and consulting services by the

government, including government-owned and controlled corporations and local

government units. The procurement process is governed by the principles of transparency,

competitiveness, uniformity, and accountability. Among others, it calls for the posting of

bid invitations, notices of award, notices to proceed, and approved contracts in the

procuring entitys premises, in newspapers of general circulation, the Philippine

Government Electronic Procurement Services (PHILGEPS), and the website of the

procuring entity.

(3) Transparency in local government budget and finances

RA 7160 or the Local Government Code of 1991 mandates the posting by local government

units (LGUs) of a summary of all revenues collected and funds they received, including the

appropriations and disbursements of such funds during the preceding fiscal year, in at least

three (3) publicly accessible and conspicuous places in the LGU within 30 days prior to the

end of each fiscal year.

33 Rep. Act No. 9485 (2007), Secs. 2-3. 34 Id., Secs. 3-4. 35 Id., Sec. 3.


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Based on this provision, and in line with the Government Procurement Reform law, the

Department of Interior Local Government (DILG) has directed all local chief executives at

the provincial, municipal and city levels to faithfully comply with the law and facilitate full

disclosure and public access to local government budget and spending. Among the items

that should be posted in various media include the (a) annual budget; (b) quarterly

statement of cash flows; (c) statement of receipts and expenditures; (d) utilization of the

trust fund (PDAF), special education fund, gender and development funds, and 20%

component of the internal revenue allocation; (e) statement of debt service; (f) annual

procurement plan or procurement list; (g) items to bid; (h) bid results on civil works, and

goods and services; and (i) abstract of bids as calculated.36

The above circular was amended in 2011 to provide guidance on the documents that need

to be posted on a quarterly basis, the modalities for posting, and the conspicuous places

where the documents may be posted. In addition, it provides for the sharing of such

financial documents with civil society organizations and the private sector.37

C. Transparency in the Extractives Industry (Revenue and Investments)

Except for a brief reference in EO 79 about the countrys commitment to participate in the

EITI, there is yet no overarching law that broadly governs transparency in transactions or

processes involving the extractive industries. Pertinent laws on mining, oil and gas,

revenue, and investments nonetheless provide the scope of specific matters that are either

protected by a confidentiality clause, allowed to be fully disclosed to the public, or are given

limited degree of disclosure and availability.

(1) Public disclosure

(a) Mining law

One of the investment guarantees given to mining contractors relates to the confidentiality

of information supplied by them pursuant to the Mining Act and its implementing rules and

regulations. The IRR elaborated that such information refers to those that have been

agreed upon by the parties in the negotiation as confidential. In this case, the information

shall be treated as confidential by the DENR and the government during the term of the

project to which it relates.38

36 DILG Memorandum Circular No. 2010-83 (2010). 37 DILG Memorandum Circular No. 2011-134 (2011). 38 Rep. Act No. 7942 (1995), Chap. XVI, Sec. 94 (f); DENR Adm. Order No. 2010-21 (2010).


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However, the Rules provide that the following information shall not be classified as

confidential:

production and sales of minerals;

employment;

royalty and tax payments;

metallic and non-metallic reserves;

operational parameters, such as mining and milling capacities and rates, mine and

mill recoveries, dilution factors, etc.; and

other data as may be agreed upon by the parties

The Rules qualified its use of the term confidentiality to the act of divulging publicly any

information classified as such. Thus, the confidential nature of any such information does

not prevent the DENR-MGB Director or his/her representative/s from using the data

internally within the Bureau for the purpose of monitoring and for policy, planning and

research studies.39

With respect to documents that are not covered by a valid Confidentiality Agreement

between the parties, the Rules state that the same shall be made available to the public

upon the filing of an appropriate request duly approved by the authorized officer.

Reproduction of such documents shall also be allowed upon presentation of an approved

written request in sufficient form and payment of reasonable fees.40

In order to ascertain compliance with the provisions of the law, implementing rules and

regulations, and the terms and conditions of their Mineral Agreement or FTAA, Contractors

are obliged to allow the MGBs representatives to inspect and examine their books of

accounts and other pertinent records and documents. This is one of the conditions for

availing the incentives provided under the law.41

39 DENR Adm. Order No. 2010-21, Sec. 229 (2010). 40 Id. 41 Id., Sec. 228.


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The rules on confidentiality for the mining sector are summarized in the following table:

Confidential Information42 Non-Confidential Information43 Information supplied by mining contractors to DENR as part of investment guarantee

Documents not covered by a valid confidentiality agreement between the parties

Information agreed upon by the parties in the negotiations as confidential

Production and sales of minerals

Employment Royalty and tax payments Metallic and non-metallic reserves Operational parameters, such as mining and

milling capacities and rates, mine and mill recoveries, dilution factors, etc.

Other data agreed upon by the parties

Matters that are required to be reported to the DENR-MGB, including related reports that

should be prepared by the MGB/Regional Office and other groups, are discussed in the

Mandated Information section.

(b) Oil and gas law

In service contracts, the Contractor is obliged, among others, to allow examiners of the

Bureau of Internal Revenue (BIR) and the DOE full access to their accounts, books, and

records for tax and other fiscal purposes.44

The DOE Secretary or his representative has visitorial and examining authority over non-

government entities with contracts for the exploration, development, and utilization of

natural resources for energy purposes in order (a) to determine the governments share in

the revenue or product thereof; and (b) to ascertain all funds and collectibles due to the

government, and whether those funds have actually been collected or delivered. The entity

concerned is obliged to produce all the reports, records, books of accounts, and other

papers that may be required during the examination.45

42 As discussed, the information is confidential during the term of the project. Said information should not be divulged to the public, but may be used by the DENR-MGB Director or his authorized representatives internally for purposes of monitoring, policy, planning, and research. 43 This means that the information may be made available to and reproduced by the public upon submission of an appropriate request to the DENR-MGB. 44 Pres. Decree No. 87 (1973), Sec. 8(j). 45 Rep. Act No. 7638 (1992), Sec. 24.


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Interest held in the contractor by domestic mining and petroleum companies and/or the

latter's stockholders may be allowed to any extent after full disclosure of such interest to,

and approved by the DOE.46

It is noted, however, that one of the privileges that may be given to contractors in service

contracts executed under PD 87 is the exemption from the publication requirements under

RA 545547 and RA 6173 with respect to the exploration, sale or disposition of crude oil

discovered and produced in the Philippines.48 Section 7 of RA 5455 requires the Board of

Investments (BOI) Secretary to publish applications filed with it in the Official Gazette and

in newspapers of general circulation, and to post the same in conspicuous places, in the BOI

office or in the building where the BOI office is located. The notices must state the

applicants name, business or proposed investment, and other data required by the BOI.

Without such publication and posting, any approval or certificate issued is considered as

not valid.

It is observed that Section 7 of RA 5455 refers to the publication of investment

applications, not duly executed service contracts, as a pre-requisite for the validity of an

investment approval or certificate. However, with its mention in PD 87 as a privilege that

may be given to a contractor, in an agreement executed under the Decree, the exemption

from such publication requirement appears to extend to the publication of data in service

contracts. Yet, such exemption from publication is not construed in this study as making

the said data confidential.

Negotiations of contracts with the government shall be given publicity that is consistent

with the governments best interest.49 Currently, the DOE Circular DC2014-02-005 is the

basis for the competitive bidding of service contracts for the exploration of potential coal

and petroleum areas in the country under the Philippine Energy Contracting Round 5

(PECR-5) that was launched in May 2014.50 It applies to the determination of the legal,

technical, and financial qualification of applicants, the evaluation of their applications, and

46 Pres. Decree No. 87(1973), Sec. 14. 47 Id. Sec. 12 (d). Rep. Act No. 5455 (1968) is entitled An Act to require that the Making of Investments and the Doing of Business within the Philippines by Foreigners or Business Organizations Owned in Whole or in Part by Foreigners should Contribute to the Sound and Balanced Development of the National Economy on a Self-Sustaining Basis, and for Other Purposes. 48 Pres. Decree No. 87 (1973) Sec. 12. 49 Id., Sec. 29. 50 The Department Circular is entitled Reiterating a Transparent and Competitive System of Awarding Service and Operating Contracts for Petroleum and Coal Prospective Areas, Repealing for this Purpose DC 2011-12-0010 and DC 2012-02-003.


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the award of corresponding service and operating contracts for petroleum and coal

resources.51

Presumably based on the foregoing privilege under Section 12 (d) of PD 87, model

contracts under PECR-5 regard all documents, information, data, and reports related to

petroleum operations within the contract area as confidential. Without the written consent

of the DOE, the contractor and its assignees are prohibited from disclosing such

information to third parties,52 particularly to those not directly connected with the

implementation of the contract. The DOE is also obliged to maintain such confidentiality

within specific confidentiality periods.

By way of exception, the DOE, under the provisions of the model contracts, has the right to

provide any third parties with original information of the following:53

Raw and/or processed data generated and held by contractor for over 5

years from the date the data were generated; and

Interpretations of information and data generated and held by the contractor

for over 7 years from the date the data or report was generated (provided

the contract is still existing and active).

Further, the model contracts provide that any party to the service contract may disclose

confidential information in the following circumstances:

When required by law of any relevant jurisdiction;54

When required by any relevant authority to which the party making the disclosure

is subject, whether or not such requirement has the force of law;

When required by existing contractual obligations; 51 Id. A Review and Evaluation Committee (REC) is constituted to: (a) identify prospective petroleum and coal areas, including to notify LGUs of the offered areas within their territorial jurisdiction, prior to the inclusion to the PECR; (b) review the capabilities of the applicants and their applications; (c) recommend to the DOE Secretary the award of such contracts after evaluation; (d) address any questions that may be raised by the DOE Secretary; and resolve issues in relation to the capabilities of applicants, including motions for reconsideration. 52 Id. The third parties to whom a Contractor may disclose confidential information, with written consent of DOE, refer to: (a) banks or other credit institutions from which finance is sought by any party to the contract for the implementation of the contract; (b) third parties and affiliates which provide services for the petroleum operations, including subcontractors and service contractors; (c) a prospective assignee/s to whom rights and obligations under the contract are intended to be assigned; and (d) consultants, auditors, officers, or employees and persons engaged by the contractor, where necessary for the performance of its obligations and in pursuance of its rights under the contract. Such third parties receiving confidential information are also required to assume the same confidentiality obligations. 53 Id. 54 The model contract provides that this includes necessary confidential information to governments and stock exchanges in accordance with the laws of the relevant countries.


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When required to vest full benefit of the contract in any of the parties;

When disclosure is made to the professional advisers, auditors, and bankers of any

of the parties;

When confidential information has come into the public domain through no fault of

the contracting party;

When the other parties have given prior written approval to the disclosure.

The standards of confidentiality and disclosure for oil and gas are summarized below:

Information Exempt from Publication

Requirement

Publicity consistent with governments best interest

Confidential Information55

Exceptions56 (Information that may be

disclosed)

Investments data required by BOI

Negotiations of contracts

Documents, information, data, and reports related to petroleum operations within the contract area

With written consent of DOE, confidential information that a contractor or its assignee discloses to specific third parties57

Data on exploration, sale or disposition of crude oil discovered and produced in the Philippines

Specific data or confidential information58 that the DOE discloses as a matter of right to any third parties

Information required by law of any relevant jurisdiction

Information required by any relevant authority to which the party making the disclosure is subject, whether or not such requirement has the force of law

Information required by existing contractual obligations

Information required to vest full benefit of the contract in any of the parties

Information disclosed to professional advisers, auditors, bankers of any of the parties

55 Confidentiality clause found in the model contract and presumably based on Sec. 12 (d) of Pres. Decree No. 87 on exemption from the publication requirement. 56 Under the model contracts, certain documents, otherwise held confidential, may be disclosed to specific or general third parties. 57 Id. See Note 52. 58 Id. See Note 53.


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Confidential information that has come into the public domain through no fault of the contracting party

Information disclosed with prior written approval of the other parties

(c) Coal resources law

Like oil and gas contracts, the operator of coal operating contracts is obliged, among others,

to allow authorized DOE representatives full access to their accounts, books, and records

for tax and other fiscal purposes. It is also obliged to promptly furnish the DOE with all

information, data and reports which it may require.59

Further, interest held in coal operating contracts by domestic mining companies and/or its

stockholders may be allowed after there is full disclosure of such interest and approval by

the DOE.60

(d) Revenue law

Section 270 of the National Internal Revenue Code of 1997 is the relevant provision on

transparency and divulgence of tax-related information. Except in three instances, the

Code declares it unlawful for any officer or employee of the BIR to divulge to any person or

make known in any other manner than that provided by law the following information: (a)

information regarding the business, income, or estate of any taxpayer; (b) the secrets,

operation, style or work, or apparatus of any manufacturer or producer; or (c) confidential

information regarding the business of any taxpayer. The law requires that such knowledge

must have been acquired by the officer or employee in the discharge of his official duties. 61

The exceptions to the above confidentiality rule are as follows:

1. When the BIR Commissioner exercises its authority to inquire into bank

deposit accounts and other related information held by financial institutions

of: (a) a decedent to determine his gross estate; (b) a taxpayer who has filed

an application for compromise of his tax liability by reason of financial

incapacity to pay the tax assessed, upon written waiver of his privilege from

public disclosure of tax information; and (c) a specific taxpayer/s subject of

59 Pres. Decree No. 972 (1976) Sec. 9 (i) and (e). 60 Id., Sec. 12. 61 Rep. Act No. 8424, as amended by Rep. Act No. 10021 (2009).


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request for the supply of tax information from a foreign tax authority

pursuant to a tax treaty or convention to which the Philippines is a signatory

or party, on which basis the BIR may use the information obtained for tax

assessment, verification, audit, and enforcement purposes. In the last case,

the Code requires that the exchange of information between the two tax

authorities is done in a secure manner to ensure confidentiality.62

2. Income tax returns filed with the Office of the BIR Commissioner constitute

public records and are open to inspection as such upon order of the

President of the Philippines, under rules and regulations prescribed by the

Finance Secretary. In each year, the BIR Commissioner may also cause to be

prepared and published in any newspaper the lists of names and addresses

of persons who have filed income tax returns.63

3. An individual who files a sworn Certificate of Candidacy for an electoral post

is required to provide income tax information for the last two years

immediately preceding the election. This must include a waiver of the

privilege from public disclosure of the candidates income tax return and tax

census statement for the said two-year period. However, for financial

statements attached to the certificates, the waiver is effective only during the

period of the candidacy.64

(e) Investments law

The Omnibus Investments Code of 1987 declares the confidential nature of all applications

and supporting documents that are filed under the Code. Disclosure of such information to

any person is prohibited, except (a) with the consent of the applicant; or (b) on orders of a

court of competent jurisdiction.65

Applications filed under the Code include those that relate to the registration of enterprises

with the BOI in preferred areas of investment or under the Investment Priorities Plan.

These are evaluated according to information submitted on the extent of ownership and

control of the enterprise by Filipino citizens, economic rates of return, measured capacity,

foreign exchange earned, used or saved in operations, and use of labor, among others.66

62 Tax Code, Sec. 6 (f), as amended by Rep. Act. No. 10021 (2009). 63 Id., Sec. 71, as amended by Rep. Act No. 10021(2009). 64 Rep. Act No. 6388, Sec. 26. 65 Exec. Order No. 226 (1987), Art. 81. 66 Id., Art. 33.


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Once an application is processed and subsequently approved, a registered enterprise is

issued a Certificate of Registration which states, among other matters, the name of the

registered enterprise, the preferred area of investment, the nature of activity it will

undertake, its registered capacity, and other terms and conditions of such registration.67

These terms and conditions may include refund of incentives, restrictions in availing

certain incentives, requiring performance bonds and other guarantees, limitation in

availing tax holiday incentive, and other terms and conditions deemed necessary to

promote the objectives of the Code.68

While applications and supporting documents filed with the BOI are clearly confidential,

the Code is silent about the nature of the documents that are issued following the approval

of such applications, such as those stated in the Certificate of Registration.

(2) Public information and access to information

The MGB is supposed to have established a national and regional filing and recording

system, including a mineral resource database system. It is mandated to publish, at least

annually, a national mineral gazette containing a current list of mineral rights, their

location in a map, mining rules and regulations, official acts affecting mining, and other

information relevant to mineral resources development.69

To increase public information and encourage public participation, the MGB Director is

tasked to conduct public hearings on the establishment, disestablishment, or modification

of boundaries of mineral reservations. Such public hearings are announced through

publication in a newspaper of general circulation in the province, or by posting in all

affected municipalities and barangays.70

Applicants of exploration permit, mineral agreement, or FTAA are required by the Rules to

cause the publication of their application once in two (2) newspapers, one of general

circulation and another in the municipality or province where the proposed permit area is

located. The MGB Regional Office shall then cause the posting of the Notice on its bulletin

board, and those of the concerned political units, in a language generally understood in the

relevant locality. Radio announcements shall also be made in a local radio program. The

various media are intended to inform the public and to give opportunity to anyone to raise

67 Id., Art.. 37. 68 Id., Art.. 7(3). 69 Rep. Act No. 7942 (1995), Sec. 14. 70 DENR Adm. O. No. 2010-21, Sec. 9 (2010).


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any adverse claim, protest or opposition to the application. No application shall be

approved unless these requirements are complied with.71

The Rules further provide that any Order approving the declaration of mining project

feasibility must be posted on the bulletin boards of the MGB and concerned Regional Office

for at least a week.72

In securing the free and prior informed consent (FPIC) of indigenous communities, the

process must meet the minimum requirements of public notice through various media,

such as, but not limited to newspaper, radio or television advertisements, and sector

consultation. The Rules require the Contractor to fully disclose the activity to be

undertaken through a community assembly, notice of which should also announced or

posted in a conspicuous place in the area for at least a month before the assembly.73 This

provision must be implemented in accordance with RA 8371 or the Indigenous Peoples

Rights Act of 1997 and related rules.

The EIA rules also emphasize the importance of timely, full, and accurate disclosure of

relevant information in conducting an effective regulatory review of the EIS submitted by

proponents of environmentally-critical projects like mining, oil and gas.74

(3) Public participation

Public participation through local community consultations and consent is required before

starting any project or activity that affects communities and the environment.

Under the Local Government Code of 1991, proponents of projects that may cause pollution,

climate change, depletion of non-renewable resources, loss of land, and extinction of

animal or plant species are obliged to consult with LGUs, non-governmental organizations

(NGOs), and other concerned sectors to explain the projects goals, its environmental

impact upon the people and the community and the proposed measures to prevent or

minimize its adverse effects. Aside from the consultation requirement, prior approval of

the local legislative body must also be obtained.75 This approval is typically expressed in

the form of a local ordinance or resolution.

71 Id., Secs.21, 38 and 55. 72 Id., Sec. 30. 73 Id., Sec. 16. 74 DENR Adm. O. No. 2003-30 (2003). 75 Rep. Act. No. 7160 (1991), Secs. 26-27.


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The Department of Justice (DOJ), in a query about the validity of LGU ordinances and

resolutions declaring a ban on large-scale mining in their respective areas, opined that it is

not within its authority to declare an ordinance, other than a tax or revenue measure, as

invalid..76 The DOJ nonetheless issued guidance to the DENR-MGB on what constitutes a

valid ordinance. It also explained that while LGUs have the power to pass ordinances,

which may express views different from that of the national government, this does not

mean that LGUs may enact ordinances that go against national laws.77

In line with the Local Government Code provisions, the mining rules mandate an

Exploration Permit holder to conduct local consultations prior to the implementation of its

Exploration Work Program.78

The review of the EIS submitted by proponents of environmentally-critical projects like

mining, oil and gas projects includes an assessment of its social acceptability that is based

on informed public participation. This public participation process in the EIA envisions the

involvement of the broadest range of stakeholders, commencing at the earliest stage of

project design and development and continuing until post-assessment monitoring.79

For projects that affect the ancestral lands of indigenous communities, their FPIC must be

secured. This relates to the process of fully disclosing the intent and scope of the proposed

activity, in a language and process understandable to the community, after which

consensus of all its members is determined without any restraint according to their

customary laws and practices.80

D. Mandated Information

Under DAO 2010-21, mining contractors are required to submit several reports to the

DENR-MGB, as follows:

Type of Report Date of Submission Submitted to Basis 1 Monthly report on production,

sales, and inventory of metallic minerals and employment

Within 15 working days after the end of each calendar month

MGB Director Section 270 (a)

2 Integrated Annual Report Within 2 months after MGB Director Section

76 DOJ Opinion No. 008, series of 2005. (February 2, 2005) It explains that in order for local ordinances to be valid, it must not contravene the Constitution or any law; it must not be unfair or oppressive; it must not be pArt.ial or discriminatory; it must not prohibit but may regulate trade; it must be general and consistent with public policy; and it must not be unreasonable. 77 Id. 78 DENR Adm. O. 2010-21 (2010), Sec. 23. 79 Pres. Decree No. 1586 (1978) and DENR Adm. O. No. 2003-30 (2003). 80 Rep. Act No. 8371 (1997) and NCIP Adm. O. No. 3 (2012).


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the end of each calendar year

270 (g)

3 Quarterly Energy Consumption Report

Within 15 working days after the end of each calendar quarter

MGB Director Section 270 (h)

4 Quarterly Drilling Report Within 30 calendar days after the end of each calendar quarter

MGB Director Section 270 (i)

5 Annual Mineral Reserve Inventory Report

On or before the end of the first quarter of each calendar year

MGB Director Section 270 (j)

6 Monthly General Accident Report Within 15 working days after each calendar month

Regional Office and MGB

Section 270 (k)

7 Accidents Reports Within 24 hours, in case of incident or accident causing or creating danger of loss of life or serious physical injuries; monthly

Regional Office (copy to MGB)

Section 155

8 Monthly Explosive Consumption Report

Within 15 working days after each calendar month

Regional Director (copy to MGB Director)

Section 270 (l)

9 Reports of explosives transactions and explosives and accessories consumption (as Purchasers License Holders)

Within 15 working days after every calendar month

MGB Director Section 162

10 Report on Mine Waste and Tailings Generated

Semi-annual MGB Sections 191 and 270 (m)

11 Semi-Annual Status Report on the Environmental Work Program (EWP) detailing environmental impact control and rehabilitation activities, including costs

Within 30 days from the end of 6 months after approval of the EWP and every 6 months thereafter

MGB/ Regional Office (copy to Provincial Government concerned)

Sections 168 and 270 (n)

12 Report on pollution control devices and facilities used or built

To avail incentive for pollution control devices


13 Annual Land Use Report Within 60 days after each calendar year

MGB Director Section 270 (p)

14 Report on fixed assets relevant to operation

To avail incentive for income tax accelerated depreciation


15 Semi-Annual Status Report on the Exploration Work Program

Within 30 calendar days after the end of each semester

MGB/Regional Office

Sections 22 (d) and 270 (s)

16 Final Report of Exploration Work Program findings, including

Upon the expiration or relinquishment of an

MGB/Regional Office

Section 22 (h)


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detailed expenditures incurred during exploration

exploration permit or its conversion into Mineral Agreement or FTAA

17 Progress report on Final Mine Rehabilitation/Decommissioning Plan (FMRD/P)

Within 30 days from the end of the term of the preceding work and financial plan

MRF Committee Section 187-D

18 Final Rehabilitation Report (with 3rd Party Environmental Audit)

For evaluation and approval

MRF Committee then to CLRF Steering Committee

Section 187-F

Should mining contractors fail to submit or delay in submitting the above reports, the MGB

is authorized to impose basic and daily fines depending on the type and occurrence of the

violation.81 Such non-submission or delay also constitutes a ground for MGB to withhold

pending transactions or processing of other mining applications, and to deny renewal of

applications.82

In addition, reports are required to be submitted by the MGB/Regional Office and other

relevant committees:

Type of Report Schedule of Submission

Person Responsible

Office to Submit Report

Basis

1 Report of confiscation or seizure of minerals/mineral products

Monthly Quarterly

MGB Regional Director MGB Director

MGB DENR Secretary

Section 126, IRR

2 Report of accomplishments on Annual Social Development and Management Program (ASDMP)

Quarterly Annual

Community Relations Office (CRO) CRO

MGB Regional Office MGB Regional Office (copy to MGB)

Section 136-D

3 Monitoring Report on implementation of approved programs

Semi-Annual Regional Office MGB Section 136-D

4 Mine Safety Inspection Report

Quarterly Regional Director or representative


5 Environmental monitoring report (of EPEP and AEPEP)

Quarterly Multi-partite monitoring team (MMT)

Mine Rehabilitation Fund (MRF)

Section 174

81 DENR Adm. O. 2010-21 (2010) Sec. 271. 82 Id.


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Committee CLRF Steering Committee

6 Accomplishment Report Annual CLRF Steering Committee

DENR Secretary

Section 193 (o)

IV. Regulatory Framework

Apart from being the primary government agency tasked with the conservation,

management, development, and use of the countrys environment and natural resources,

the DENR is also in charge of the licensing and regulation of all natural resources. The

DENR Secretary promulgates relevant rules, regulations, and other issuances to carry out

its mandate.83

Among its bureaus, the MGB advises the DENR Secretary on all matters pertaining to

mineral resources exploration, development, and conservation.84 With the passage of the

Mining Act in 1995, MGB became a line bureau, effectively giving it the power to directly

implement mining-related programs of the DENR. The MGB Director now exercises direct

supervision and control over all units, including the regional offices of the Bureau,

establishes policies and standards for its operations, and promulgates rules and regulations

needed to carry out its functions.85

With respect to oil and gas, the DOE takes charge of all programs and projects relative to

the exploration, development, utilization, distribution, and conservation of all forms of

energy products and resources. Specifically, it regulates private sector activities in all

energy projects and formulates such rules and regulations to implement the provisions of

the law.86

Other government agencies are likewise involved in regulating the activities of the

extractives industry. The following paragraphs describe the specific mandate and role of

the DENR-MGB, DOE, and other regulatory agencies as these may relate to EITI (collection,

payment, reporting of revenue, and other matters relevant to the EITI report):

83 Exec. Order No. 192 (1987), Sec. 4 and Sec. 7 (c). 84 Id., Sec. 15. 85 Rep. Act No, 7942 (1995) and Exec. Order No. 192 (1987). 86 Rep. Act No. 7638 (1992), Secs. 4-5.


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Agency Mandate Role Basis DENR-MGB Promulgate rules and

regulations pertaining to mineral resources exploration, development, and utilization.

Collect payment of royalty in mineral reservations87 Allocate 10% share of all royalties and revenues derived from the development and utilization of the mineral resources within mineral reservations to special projects and administrative expenses related to the exploration and development of other mineral reservations. Collect annual occupation fees from contractor or permit holder on public or private lands.

Exec. Order No. 192 (1987); Rep. Act No. 7942 (1995); DAO 2010-21

DOE Supervise and control all government activities relative to energy projects; regulate private sector activities in all energy projects; formulate rules and regulations necessary to implement the law

Collect annual rent on area retained by contractor after exploration period (if petroleum in commercial quantity has been discovered) and during the effectivity of the contract. Devise ways and means of giving direct benefits to the province, city or municipality, especially community and people affected, and equitable and preferential benefit to the region that hosts the energy resource and/or energy-generating facility; provided that other provinces, cities, municipalities or regions shall not be deprived of their energy requirements. Its Compliance Division formulates plans, policies and programs related to compliance by service contractors with their financial obligations under their contracts and ensures effective implementation thereof and compliance with government regulations and standards. Its Petroleum Division formulates fiscal policy recommendations relative to petroleum service

Rep. Act No. 7638, Sec. 5; Pres. Decree No. 87, Sec. 9(e), (i) DOE website , date accessed June 8, 2014

87 Mineral reservations are areas established and proclaimed as such by the President of the Philippines upon the recommendation of the MGB Director through the DENR Secretary, including all submerged lands within the contiguous zone and Exclusive Economic Zone. [Sec. 5 (bg), DAO 2010-21]


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contracts, conducts detailed audit of their books of accounts, evaluates their compliance with their financial and other contractual obligations, prepares and maintains a database on government shares service contractors revenues, expenditures and performance bonds, remits to the DOEs treasury division all monies due from petroleum service contractors. Its Geothermal and Coal Division formulates and implements policies, plans, programs and regulations relating to exploration, development, exploitation and market development of geothermal and coal resources. Its Special Compliance Concerns Division formulates policy recommendations relative to DOE-administered energy funds, allocates LGU shares on national wealth taxes from service contractors, assists in the interpretation of pertinent government fiscal policies relative to the national wealth taxes, benefits to host communities, and other DOE-administered energy funds, conducts periodic audit of electricity sales of power producers/energy resource developers and expenses from the ER 1-94 fund and other DOE-administered energy funds, prepares and maintains database on national wealth taxes, benefits to host communities and other DOE-administered energy funds, monitors reports submission by the LGUs on receipts and utilization of the national wealth taxes, and coordinates with various DOE unties and concerned government agencies on national wealth taxes, ER 1-94 and other DOE-administered energy funds.


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DOF Manage the financial resources of the government

Institutionalize and administer fiscal policies in coordination with other government agencies. Generate and manage the financial resources of the government. Supervise the revenue operations of all LGUs. The DOF Secretary, in consultation with the DBM Secretary: promulgate the necessary rules and regulations for a simplified disbursement scheme for the speedy and effective enforcement of the internal revenue allotment provisions of the Code.

Exec. Order No. 292 (1987) Rep. Act No. 7160 (1991), Section 288

DOF-BIR Assess and collect all national internal revenue taxes, fees, and charges; enforce all related forfeitures, penalties, and fines, including execution of judgments in cases decided in its favor by the Court of Tax Appeals and ordinary courts.

Obtain information from any person or entity other than the person whose tax liability is subject to audit or investigation, summon any person, examine any data relevant to the inquiry, and take testimony of persons in ascertaining the correctness of any return, or in making a return, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance. Make assessments of correct amount of tax due and prescribe additional requirements for tax administration and enforcement. Conduct inventory of goods to determine tax liability and place business under surveillance if with reason to believe that income, sale, or receipt is not correctly declared for tax purposes. Prepare an annual report containing detailed statement of the collection of the BIR and specifying sources of revenue by type of tax, manner of payment, by revenue region and by industry group and its disbursement by classes of expenditures.

National Internal Revenue Code of 1997, Sections 5, 6, 19, 20


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Notwithstanding Section 270 of the Code (on confidentiality of tax information), upon request of Congress and in aid of legislation, furnish the appropriate Committee pertinent industry audits, collection performance data, status reports in criminal actions initiated against persons and taxpayers returns. Provided that, if the return information can be associated with or identify a particular taxpayer, the information shall be furnished only to the Committee when sitting in an executive session, unless taxpayer otherwise consents in writing in such disclosure.

DOF-BOC Collect customs duties, taxes, and corresponding fees, charges, and penalties, account for all customs revenues collected, exercise police authority for the enforcement of tariff and customs laws, prevent and suppress smuggling, pilferage and all other economic frauds within all ports of entry, supervise and control exports, imports, foreign mails and clearance of vessels and aircrafts in all ports of entry administering all appropriate legal requirements, prevent and prosecute smuggling and other illegal activities in ports under its jurisdiction, exercise supervision and control over its constituent units.

Its Collection Districts are tasked to: Collect duties, taxes, fees, charges, penalties and fines accruing to the Government under the Tariff and Customs Code and related laws. Exercise police powers conferred by the Code which include enforcement of penalties and fines. Examine goods, assess duties, fees, charges, penalties, and fines accruing to the Government under the Code. Its Customs Revenue Collection Monitoring Group is tasked to: Maintain an updated accounting of all Customs revenues collected; Provide the Commissioner with accurate and timely information and analysis of collection statistics.

Exec. Order No. 127 (1987), Sections 33, 36, 37

DOTC-PPA88

Establish, develop, regulate, manage, and operate a rationalized

Collect all dues, fees, and rates collectible under Title VII but excluding Part VII of the Tariff and

Exec. Order No. 513 (1978), which amended

88

Department of Transportation and Communications Philippine Ports Authority.


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national port system in support of trade and national development.

Customs Code, as amended, regardless of the port or place of call of the vessel, whether government or private port.89 Supervise, control and regulate all matters and affairs pertaining to the operation of and issuance of permits or licenses to construct ports, port facilities, warehouses, and other facilities within port districts. Exercise all powers pertaining to all matters concerning port facilities, port operations or port works. Exact reasonable administrative fines in specific amounts for specific violations arising out of the use of the port. Note: all revenues of the PPA generated from the administration of its port or port-oriented services and from whatever sources shall be used exclusively for the operations of the PPA, as well as for the maintenance, improvement, and development of its port facilities, upon approval of the PPA Board of Directors of its budget requirements, as exemption to PD 1234 and the budgetary processes in PD 1177, as amended.

Pres. Decree No. 857 (1975), Sections 8 and 9. Exec. Order No. 159, as amended (1987)

DTI-BOI90 Regulate and promote investments in the country

Prepare investments priority plan (IPP), promulgate rules and regulations to implement law, approve applications for registration (including refund and limit of incentives), inspect books and compliance, cancel or suspend enjoyment of incentives, regulate investment/doing of business by foreigners/business organizations owned in whole or in part by

Exec. Order No. 226 (1987), Chap. III

89 Title VII, Parts I-VI of the Code deal with harbor fees, wharfage due, berthing charge, storage charge, arrastre charge, and tonnage due. This modified and amended the provisions of the Tariff and Customs Code to the extent that all the powers, duties, and jurisdiction of the Bureau of Customs concerning these matters were transferred to and vested with the PPA. 90

Department of Trade and Industry Board of Investments.


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foreigners NCIP Formulate and

implement policies, plans, and programs to promote and protect the rights and well-being of the indigenous peoples and indigenous cultural communities (IPs/ICCs), including recognition of their ancestral domain as and rights thereto.

Through its Ancestral Domains Office, issue, upon the free and prior informed consent (FPIC) of the ICCs/IPs concerned, appropriate certification prior to any grant of any license, lease or permit for the exploitation of natural resources affecting the interests of ICCs/IPs.91 Promulgate rules and regulations to implement the provisions of the law. Register the indigenous peoples organization that will be authorized to receive and manage the royalties. Give its concurrence to the release of royalties to the IP organization or its trustee bank to check on the use of the funds. Direct financial and management audits of IP organizations managing its royalties and other benefits, or exercise visitorial powers as provided for by law.

Rep. Act No. 8371 (1997), Sections 44, 46 NCIP Admin. Order No. 3 (2012), Part VIII

LGUs Exercise its power to create its own sources of revenue and to levy taxes, fees, and charges subject to the Local Government Code, consistent with the basic policy of local autonomy. Exercise its right to receive a just share in the national taxes and an equitable share in the proceeds of the utilization and development of the

Through an appropriate ordinance, impose tax, fee, or charge or generate revenue under the Local Government Code. Collect local taxes, fees, and charges (to be done by its city, municipal, or barangay treasurer, or their duly authorized deputies)92 Observe process for the approval of local tax ordinances and revenue measures, and conduct public hearings prior to its enactment. Publish all local tax ordinances or

Rep. Act No. 7160 (1991), Sections 129, 130, 132, 170, 186, 188, 189; Sections 3, 18

91 The phrase free and prior informed consent is defined under the Act as the consensus of all members of the ICCs/IPs, to be determined in accordance with their respective customary laws and practices, free from any external manipulation, interference, and coercion, and obtained after fully disclosing the intent and scope of the activity, in a language and process understandable to the community. 92 Sections 133 141 of the Local Government Code of 1991 provides the scope of and limitations to the local taxing authority of the LGUs.


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national wealth within their respective areas, and to share the same with their inhabitants by way of direct benefits.

revenue measures in full for 3 consecutive days in a newspaper of local circulation, or if no such local newspaper, post the same in least two conspicuous and publicly accessible places. Furnish all tax ordinances and revenue measures to their respective local treasures for public dissemination. Note: Revenue collected shall inure solely to the benefit of, and subject to the disposition by, the LGU levying the tax, fee, charge or other imposition, unless otherwise specifically provided. Receive their share in the national internal revenue taxes (IRA) and in the proceeds from the development and utilization of national wealth, and share the same with the local inhabitants by way of direct benefits.

Rep. Act No. 7160, Title III, Chapters I-II,

In March 2009, the DOF, DBM, DILG, and DENR issued a joint circular to streamline the

procedures for the release of the shares of LGUs from mining taxes. The circular aims to

expedite such process, enhance the accuracy of mining tax collections, and clarify the roles

and responsibilities of the concerned government agencies in this aspect.93

To achieve these objectives, all the concerned agencies are urged to establish and share

among themselves information and an updated database to facilitate the exchange of

information. Specifically, their respective roles and corresponding timeframe are outlined

as follows:

Agency Role in expediting release of LGU shares from mining taxes

Timeframe

DOF-BIR Submit to DOF, for budget preparation purposes, the estimated or projected mining tax to be collected for the current year and the corresponding 40% share of the LGUs. Note: Such estimated tax collection shall be equivalent to the amount of excise tax from the mining industry allocated from the total revenue target of BIR.

On or before March 15

93 DOF-DBM-DILG-DENR Joint Circular No. 2009-1(2009).


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Prepare and approve a Joint Certification with the Bureau of Treasury, for budget execution purposes, the actual collections from mining taxes during each calendar year and the schedule of corresponding shares of the beneficiary LGU.

Transmit to Bureau of Treasury for validation and approval within 75 days after the end of the quarter

Determine the correct mining taxes paid and collected during the immediately preceding year based on the estimated and actual volumes and value of the minieral products submitted by the DENR-MGB

DOF-Bureau of Treasury

Validate (based on reports of its regional offices and authorized agents/government depositary bank) and approve the Joint Certification from BIR

Within 30 days from receipt

Transmit to DBM the validated and approved Joint Certification


Furnish BIR a copy of the validated and approved Joint Certification, together with a summary of recorded mining tax deposits/collection and the Journal Entry Voucher of total BIR collections

Within 15 days from transmittal to DBM

DENR-MGB Furnish BIR the estimated volume and values of metallic mineral production of mining companies for the current year

Before the end of February

Furnish BIR the actual annual volume and values, on a per project basis, of metallic minerals produced during the immediately preceding year.

Before the end of March

Provide BIR with the list of new metallic permit holders, actual volumes and values of their production and extraction sites

Within 60 days after the end of each quarter

DENR-LMB94 After coordination with DBM, furnish BIR with an updated copy of the consolidated master list of land area

Before December 15 of every third year after CY 2001

DILG-BLGS95 Prepare and submit to BIR the validated list of actual extraction sites of all non-metallic mineral products, with a summary of LGUs where such production or extraction originated

Before May 15

Enjoin local chief executives to ensure submission by mining permit holders of quarterly production and sales report form to the MGB Regional Offices

Furnish the DBM, BIR, Bureau of Treasury with the updated master list of LGUs during the first quarter of the year.

DBM-Regional Operations and Coordination

For budget preparation purposes, program the amount representing LGU shares of mining taxes in the budget of the following year (based on estimated/projected mining

94

DENR-Land Management Bureau. 95

DILG-Bureau of Local Government Supervision.


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Services and Regional Offices (ROCS/ROs)96

taxes to be collected for the current year and the corresponding 40% share of the LGUs submitted by BIR).

Release the shares of the LGUs on the mining taxes by issuing the allotment and corresponding cash allocation, based on the Joint Certification. Funding check to be deposited to the government servicing banks for direct credit to the LGUs account

For mining taxes collected during the first 3 quarters, in February of the ensuing year; for those collected during the 4th quarter, in May of the ensuing year.

In a similar effort, the four (4) departments issued in 2010 another joint circular that

would govern the timely release of the LGU shares derived by the national government from

royalty income in mineral reservations.97

Agency Role in expediting release of LGU shares from royalty income in mineral reservations

Timeframe

DENR-MGB For budget preparation purposes, submit to DBM the estimated or projected royalty income to be collected for the current year and the corresponding 40% share of the LGU

On or before March 15 of every year

For budget execution purposes, prepare a Joint Certification of the actual collection from royalty income during each calendar year and transmit to BTr for validation and approval purposes.

Within 60 days after end of the year.

Inform the LGUs of their share from the proceeds of the royalty income from the mineral reservations of the preceding year.

Within 30 days after receipt of a copy of the validated and approved Joint Certification

DOF-BTr98 Validate (based on confirmed royalty collections and reports of BTr regional offices and government depositary bank) and approve the Joint Certification from BIR


Transmit to DBM the validated and approved Joint Certification, together with validated collections and schedule of corresponding LGU shares

Within 30 days from receipt of documents from MGB

Furnish MGB a copy of the validated and approved Joint Within 15 days

96

Department of Budget and Management. 97 DOF-DBM-DILG-DENR Joint Circular No. 2010-1(2010). 98

DOF-Bureau of Treasury


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Certification from transmittal to DBM

DILG-BLGS Enjoin local chief executives to ensure submission by contractors and permit holders of the quarterly production and sales report form to the MGB Regional Offices

Furnish the DBM and MGB with the updates of the master list of LGUs during the first quarter of the year as a result of creation, conversion, merger, and abolition of LGUs.

DBM Budget and Management Bureau and Regional Offices

For budget preparation purposes, program the amount representing LGU shares on the royalty income in the budget of the following year (based on DENR-MGB estimated/projected royalty income to be collected for the current year and the corresponding 40% share of the LGUs).

Release the shares of the LGUs in royalty by issuing the allotment and corresponding cash allocation, based on the Joint Certification by MGB and BTr. Funding check to be deposited to the government servicing banks for direct credit to the beneficiary LGUs account.

Within 30 days

V. Payments

In allowing the exploration, development, and use of the countrys natural resources, the

Government looks at the extractives sector to make certain payments as a means to

generate wealth in terms of taxes, promote fair sharing of its benefits, and enhance national

growth in a way that effectively safeguards the environment and protect the rights of

affected communities.99

In a broad sense, mining, coal, oil, and gas companies are required to make payments to the

national government and to relevant local government units in the form of national internal

revenue taxes (taxes, fees, and charges); and to concerned indigenous cultural

communities/indigenous peoples (IPs/ICCs) in the form of royalty payments.

Mechanisms required by law to be set up with funds coming from the companies, or

expenditures that need to be allocated, spent, and reported by them for specific use, such as

for environmental protection, enhancement, and rehabilitation or for social development

and management purposes, shall not be considered in this paper as payments per se. These

will be discussed in the Social and Environmental Provisions section.

99 Rep. Act No. 7942 (1995), Sec. 2; DENR Adm. O. No. 2010-21, Sec. 4 (2010).


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A. Payments to the national government (by mining companies)

1. Income Taxes paid after the lapse of the income tax holiday as provided for in the

Omnibus Investments Code.100 Domestic corporations pay this tax at the rate of 30%

upon taxable income derived during each taxable year from all sources within and

outside the Philippines; foreign corporations pay the same rate upon taxable income

derived from all sources within the country.101

A minimum corporate income tax of 2% of the gross income as of the end of the

taxable year is paid, starting on the fourth taxable year immediately following the

year that business commenced, when the minimum income tax is greater than the

tax computed in the preceding paragraph for the taxable year.102

It is noted that the income tax holiday granted to mining companies has been

suspended by the Board of Investments in 2012. The suspension applies to mining

firms that are applying or renewing their permits with the government.103

2. Excise Taxes paid on mineral products as provided for under Section 151 of the

National Internal Revenue Code. With respect to mineral production sharing

agreements (MPSA), the excise tax on mineral products shall already be the

government share under the MPSA.104

Referring to the Revenue Code, the implementing rules of the Mining Act provide

that the excise tax on locally extracted or produced metallic mineral or mineral

products, a tax based on the actual market value of the gross output thereof at the

time of its removal, shall be paid in accordance with the following schedule:105

100 Rep. Act No. 7942, (1995), Sec. 83; DENR Adm.O No. 2010-21, Sec. 217 (2010). 101Beginning in 2000, the President upon the recommendation of the Finance Secretary may allow corporations the option to be taxed at 15% of gross income after satisfaction of certain conditions. Rep. Act No. 9337 (2005); Rep. Act No. 8424 (1997), Secs. 27 and 28, as amended by Rep. Act No. 9337 (2005). 102 Rep. Act No. 8424 (1997), Sec. 27, as amended. 103K. Manlupig, Mining income tax holiday suspended BOI Chief. Rappler. Sept. 17, 2012. http://www.rappler.com/business/special-report/whymining/whymining-latest-stories/12579-mining-income-tax-holiday-suspended-boi-chief Accessed: October 10, 2014. 104 Rep. Act No. 7942 (1995), Sec. 84; DENR Adm. O. No. 2010-21, Sec. 217 (2010); Rep. Act No. 7229, amending Sec. 151 (e) of the Tax Code. 105 For purposes of Section 151 of the NIRC,