Repeal

A lot of economic experts are quite bullish about the Philippine market. Although we are getting a pitiful share of foreign direct investments into the region, our market appears capable of expanding on the basis of available domestic liquidity. That liquidity is due mainly to two factors: OFW remittances and the vast potential of our mining sector.

Remittances continued to grow, the global slowdown notwithstanding, because the profile our expatriate labor force upgrades through time. The volume will not increase dramatically over present levels, however, considering receding demand for imported labor.

Our mining sector, for its part, is hemmed in by an imperfect policy environment, the high cost of doing business, and political uncertainty. These are factors we can do something about if the national leadership gives the matter the attention it deserves.

During a recent business conference, world-renown expert on emerging markets Mark Mobius argued that the Philippines’ economic potential hinges on four commodities: gold, copper, nickel and coal.

For the economic potential to be realized, however, government needs to do a number of things quickly enough.

An important first step is to repeal a truly bad law: the People’s Small-Scale Mining Act of 1991. This is a law shaped by populist interests and devolves supervision of “small-scale” mining to local governments. Intentionally or not, it encouraged environmental damage, inefficient mining, variances in environmental standards enforced, poor revenue collection and a wide door for corruption.

To exploit the loopholes offered by this badly designed law, irresponsible mining enterprises have cut deals with local politicians in order to be accredited as “small-scale.” Having been accredited as such, they escape supervision by the DENR. This creates an uneven playing field between “large-scale” and “small-scale” mining.

 The reckless processing of mineral ores in the “small-scale” sector is bad enough. The law also enables these mining activities to evade proper taxation. It is estimated that government loses billions every year due to the loopholes opened by this imperfect law. Sadly, repealing this imperfect law did not appear on the agenda of the last Ledac meeting.

Experts likewise recommend that the sole regulator for mining ought to be the DENR. This will prevent conflicting regulations, such as the ban on open pit mining imposed by the South Cotabato provincial government, that derail flagship mining projects.

In a paper recently presented at the China-ASEAN business and investment summit, former DENR secretary Horacio Ramos urged that a cap be set on the 50 percent government share of net revenue. Major potential investors consider raising government’s share beyond that. This adds to the uncertainties already posed by volatility in commodity prices, considering the large volumes of investment mining entails.

It is worthwhile noting that the areas benefited by ample mineral deposits are also the poorest. These are provinces from Bicol to Samar to Surigao suffering from what is called the “Pacific deficit” where per capita incomes are 30 percent lower than the national average.

Unsure

While on the subject of uncertainties weighing down on investors, we might mention here an unholy cycle involving courts and insurance companies that makes businesses unsure about the reliability of their insurance cover. Much exasperation has been expressed by businessmen regarding the ineffectiveness of the Insurance Commission in screening out unscrupulous insurers and preventing them from resorting to judicial intervention to avoid paying valid insurance claims.

Closely observed by the business community is the case involving Vitarich Corp. and an insurance company owned by a big bank.

Vitarich bought a P1.4 billion insurance cover from the insurance company for a premium of P2.9 million covering the period from November 4, 2008 to November 6, 2009. The Vitarich facilities in Bulacan were badly hit by Typhoon Ondoy in September 2009. The company sought compensation in the amount of P320 million against its insurance cover to replace damaged machinery and get back to business as quickly as possible.

The insurer then proceeded to delay action on the balance of the claim. Desperate over the unexplained delays in insurance payments, Vitarich sought legal redress from the Malolos RTC, which served as rehabilitation court. The court directed the insurer to pay Vitarich the proceeds from its insurance cover commensurate to the losses incurred from the storm. The insurer paid Vitarich a mere P10 million and then continued to delay.

Exasperated, Vitarich sought, and was granted, a writ of execution from the lower court for a partial payment of insurance claims in the amount of P150 million. The insurer sought to quash the writ but the Malolos RTC denied that. A sheriff, pursuant to the writ of execution, tried to serve an order of garnishment of P150 million on the bank deposits of the insurer. The sheriff was turned away by the bank on the grounds there was a pending petition for certiorari at the Court of Appeals.

On April 6, 2011, the CA granted the insurer’s prayer for a temporary restraining order (TRO) on the enforcement of the lower court’s writ. Vitarich immediately pleaded for reconsideration but the CA denied that on June 21, 2011. On July 12, the CA issued a preliminary injunction. Lawyers for Vitarich argue this constitutes grave abuse of discretion but the fact remains their insurance claims remain indefinitely delayed.

The insurer, it must be mentioned, was just as fortunate when, along with four other insurance companies, won a TRO from the CA that stopped a ruling from the Batangas RTC regarding a P41 million claim by the Steel Corporation of the Philippines. The case of Vitarich is clearly not an isolated one.

The ultimate casualty in these cases is, of course, business confidence in the reliability of their insurance covers that should enable them to bounce back into business from calamities.