Business World, 20 February 2012


Few can put it better than William Shakespeare in Julius Caesar : “There is a tide in the affairs of men that taken at a flood leads on to fortune; omitted, all their journeys are mired in the shallows and in miseries.” I can’t help but think of the Philippine development experience in Shakespearean terms. For truly, the annals of underdevelopment are painted on the tapestry of wasted opportunity, not on the canvas of resource scarcity.  Japan, South Korea, and now China have overcome resource scarcity to become world leaders in development. They seized the opportunity offered by galloping demand in the West for products that intensively used their then-cheap labor to jumpstart their march. The oil crisis in the 70s opened the window for gas savers in the West, and Japan seized the opportunity to export small cars that made sense in a high gas price environment.

Opportunities occur randomly in the life of a nation but they are seized only by societies with enough internal coherence and nimbleness to harness the fleeting current. Those rent by indecision and ideological paralysis will suffocate in the dust of those who are not. When  the Plaza-Louvre Accord in mid-80s forced the Japanese yen to appreciate from 240 to 140 yen to a dollar, a Japanese foreign investment tsunami hit Southeast Asia, which instantly transformed Malaysia and Thailand into major electronics export platforms for the Japanese. Meanwhile, a Japanese foreign investment delegation coming to explore the Philippine potential stayed in Mandarin Hotel. The hotel was caught in the eye of yet another coup attempt launched by rightist crazies to foil the designs of leftist crazies. These were going to be their partners? We were too much at each other’s throat for the stability-obsessed Japanese. The foreign investment tsunami never even touched our shores.

The growth rampage of China and India has created problems for our manufacturing sector but has also opened the window for mineral exports.  Australia, Brazil and Russia have seized the day and continue to do so. But the Philippines is a mineral-rich country too, a grace we received from Providence in exchange for travails of being in the Ring of Fire.  We could easily join the mining-boom club if only we did not let our inner demons get in the way.   As it is, we are literally burning our chances. In early October last year, mining operations of Nickel Asia’s Taganito Mining Corp. and the Platinum Group Metals Corp. in Surigao del Norte were attacked and saw their assets burned by the NPA. The inevitable reason given by the NPA is that they wish to “protect the people”—all the while robbing them of jobs and livelihood. Still the signal to other mining operations is this: fail to come across and you will risk an NPA attack. But why would they kill the goose that lays the golden egg?  The simple reason is that in the exalted game of extortion, the binding dictum is the Mafia’s: grave threats become stale unless carried out once in a while.

Today the nation is rent asunder with what to do about mining. Some sketchy details of a proposed EO have emerged (PDI, 20 February 2010): sweeping aside the “first-come first-served” modality in favor of public auction, requiring total economic valuation, reviewing all existing contracts and promoting downstream processing. At the risk of tripping on inaccurate reportage, it is still best to speak now before it is finalized.

Let us start with the last one: promotion of downstream processing. This looks innocent enough and why not indeed? For who would oppose higher value- added? But if licensing of mineral extraction projects is conditioned on more advanced downstream processing, it becomes an invitation to killing the mining industry. For example, advanced processing of copper concentrate (smelting) requires massive electricity use and involves very different economics than copper extraction. With power costs so high and unreliable in the Philippines, the viability of smelting absent subsidies is a real issue. In Australia, the share of ore in iron exports is 100%, since Ausralians have realized that their competitive advantage is not in steel making. Such decisions should be left to firms doing the market calculus. As an imposition by the state, it is import substitution all over again.

Second, the review of all existing mining contracts and incentives if with the view to unilateral alteration is chilling and dangerous. The latter spells massive regulatory uncertainty and paints the Philippines as an unreliable counterparty that cannot abide by contracts. Modifications to existing contracts should be effected only after proper negotiation with and with adequate compensation to adversely affected contract holders. New conditions without compensation should apply only to new entrants.

Third, nobody can quarrel with “Total Economic Valuation” if this can be done with dispatch and is based on international best practice. Controversies and uncertainties associated with valuing opportunity costs and use-option can make decision making catatonic. If there can be no full certainty even in science, full certainty is certainly a fool’s errand in this inherently risky business of mining. But we can certainly require contingency funds dedicated to responding to unintended consequences (assuming they are not raided for other uses). It is however the height of stupidity to suggest (as one school of governance effectively did!) that mining should be suspended until total economic value can be ascertained. That is like saying air travel should be stopped because some airplanes do crash and extinguish lives. All progress is predicated on taking calculated risk.

Finally, again who can quarrel with award by public auction? But isn’t this insistence the very reason that PPP program has failed to take off? There is a dearth of bid-ready contracts, and somebody has to draw up the specifications of the contract for it to be bid-ready. Who will do and pay for the exploration to determine the size, quality and depth of the deposit? How do you establish the reservation value of a prospective area without a proper exploration and evaluation? Requiring award by public auction must answer these tough questions.

The main message of the proposed EO as reported is tougher rules. This is understandable. Our past experience with mining has been mostly negative and cautionary. This has everything to do with our past incapacity to properly regulate and enforce rules. But tougher formal rules alone do not make for good governance. After all, the rulebook “Compliance and Beyond: A Guidebook on Corporate Social Responsibility for the Philippine Mining Industry”  of the Philippine Chamber of Mines cannot be described as soft. Adequate enforcement must complement. On the latter, however, the impending EO as reported is eloquently mute. Good governance of mining has resulted in good outcomes in other countries. The suggestion that we stop mining because we do not have adequate regulatory and enforcement capacity today amounts to saying that we should let our sordid past hold our future hostage. A better guide is the experience of water privatization in MetroManila. Water regulation was dismal or non-existent before water privatization. But we managed to create an adequate regulatory environment and regulator for the MetroManila service area through the contract itself. This experience is now a global template.

We should replicate this in mining. We could for example create a dedicated mining regulator for say Tampakan Gold and Copper Mine, which has passed all national requirements. This will see to the proper enforcement of contract obligations, the wise  deployment of the sinking fund and the disposal of mining proceeds for worthy projects through Tampakan’s lifetime. The board of this agency should include adequate local representation and hardboiled technocrats. In other words create a new Tuwid na Pamamalakad in mining via a learning-by-doing mode. Getting your feet wet is the only way to learn to swim.

Even the Gospel’s Parable of the Talent has only unequivocal contempt for the timid. A man going on a journey left his servants with talents. The first put his talent to work and made five more; as did the second who made two more. The Gospel states:”But the one who had received one talent went out and dug a hole in the ground and hid his master’s money in it.” For he was afraid. To the returning master he presented one talent saying   “See, you have what is yours.”  But answered the master: “Evil and lazy slave! …you should have deposited my money with the bankers, and on my return I would have received my money back with interest! Therefore take the talent from him and give it to the one who has ten…And throw that worthless slave into the outer darkness, where there will be weeping and gnashing of teeth’” (Matthew 25:13-30). Weeping and gnashing of teeth await the pall-bearers. May we be these no longer!


(*The author is grateful for comments by Prof Emmanuel de Dios. Errors are the author’s sole responsibility.)