'Under-Mining' Paje

Is someone in the Mining Industry trying to “Under-Mine” Secretary Ramon Paje or using him as a scapegoat?

Over the weekend, a number of news articles and commentaries popped up and even our very own Business section at the Philippine Star headlined: “Paje junks ECC bid of $5.9-B mining project”.

The story was so big and apparently well orchestrated that whoever was behind it even made sure that the Presidential sisters were appraised and sufficiently alarmed to merit a call to the Secretary to clarify matters.

I don’t know what the “really” big story was; that Paje denied the ECC application of the single largest investment in the country or that the DENR Secretary who has been labeled as “pro-mining” actually rejected a mining company’s application.

As it turns out, there is more to the story than a simple rejection. On the surface it would look like whoever is managing the press releases is using the situation to flex political muscles in order to get stronger commitments from the President as well as to protect the image and share values of mining companies abroad.

But I have reason to believe that part of the reason for “scandalizing” the ECC rejection is to warn Paje not to push through with his campaign for imposition of a 5% royalty tax on whatever mining companies are making in the Philippines. So it’s not about the ECC after all.

From what I’ve gathered, Sagittarius Mines Inc or SMI set-up shop in South Cotobato where the local government had issued an ordinance that “Open pit” mining would not be allowed, something that SMI had intended to do in South Cotobato.

When SMI and lawyers for the Chamber of Mines brought the matter to DENR Secretary Ramon Paje, the Secretary reportedly stated that a “local” authority or government cannot legislate or impose a policy over National Policy. Paje reportedly even suggested that he would coordinate with DILG Secretary Jesse Robredo in order to straighten out the matter.

Being concerned about their image with the community, it seems that SMI decided to play the Paje card later and opted to try and work things out directly with officials of South Cotobato, this led to their undoing because by submitting themselves before the local authority and its process and requirements, SMI unwittingly recognized or agreed that the South Cotobato LGU had power of supervision over them.

Subsequently, that action on the part of SMI nullified the option of using national policy and domain over the matter. As much as Paje may have wanted to support the single largest “investment” in the country, SMI had signed its own “death sentence”.

Unmindful of their blunder, SMI went ahead and applied for their ECC. Once SMI submitted their ECC application for the site and entered “open pit” as their method of operations, the DENR had no choice but to deny the ECC application because it was against the LGU policy under which SMI submitted itself.

If Paje acted “Immediately” it was because of a Presidential Administrative Order issued during the Arroyo administration that requires the DENR to act on all ECC applications within 120 days, failure to do so would automatically render the application as “Approved”. If the SMI ECC lapsed into automatic approval, Paje and his team would be left holding a bag full of lawsuits and graft charges. Either way Paje had no choice but to immediately deny the application.

Since this technical blunder was known to SMI and the DENR, the question is who is to gain from stirring the pot and alarming or misinforming presidential siblings?

In the case of the ECC rejection, it seems that some spin doctor is trying to take the heat off local SMI Executives, protect share value and image, more importantly the “incident” is a launching pad to pressure the Aquino administration to impose National Policy in complete disregard of Local government autonomy.

But an even nastier agenda I suspect that’s in the making, is to threaten or discourage DENR Secretary Paje from pushing through with his proposal to the cabinet that the Philippine Government must now impose a 5% royalty tax on all mining related income in the Philippines.

It seems Paje has been very busy trying to correct a blatantly disadvantageous situation between what mining companies earn in the billions versus the measly 2% excise tax that government collects. The “better” solution for Paje is a 5% Royalty tax on profits.

All the President needs to do is declare highly profitable areas of mining operations as “Mineral reserves” and based on Presidential Decree 1001 and a succeeding law passed in 1995, the government can increase its revenues from 7 billion, up to 16 billion pesos every year!

The mining industry is understandably upset about such a possibility but putting things in perspective, I learned that other countries have long practiced the collection of Royalty tax to as much as 18%. Australia even practices a very proactive policy of taxation and has reportedly passed a law where it will start charging as much as 44% tax on “Bonanza profits” from mining.

Based on an established value per ounce, the government collects X % Royalty tax. But let’s say gold average were at $500 an ounce suddenly leaped to $1,500, Australia now enforces the 44% tax on the unexpected or abnormal profits called a Bonanza.

They say it was just a matter of time before our government officials caught up and gave foreign investors a taste of their own “Home made” medicine. If some spin doctor is trying to shake the bushes or the Aquino administration, let us all bear in mind what African nations have discovered about foreign investors and International business diplomacy:

For every nation or corporation who threatens to move out in the field of Petroleum or natural resources, there are three more ready and eager to replace them. Yes we must honor our commitments to investors, but they should not take us for fools either.

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