My New Year’s Wish List for the Resources Industry

by
Thursday, 16 February 2012

While on holiday mode, I received from my editor, Simon Halley a friendly reminder thru email instructing me to submit my article for the first issue for 2012.  Since the beginning of every new year is the time for best wishes and resolutions, I find it opportune to make my twelve (12) wishes for 2012 for the Philippine resources industry.

1. Congress does not pass a new mining law.  The Philippine Mining Act of 1995 went through a thorough vetting process.  There were two Implementing Rules and Regulations passed by the Department of Environment and Natural Resources (“DENR”) the last one shepherded by one of the staunchest opponent of mining who used to be DENR Undersecretary and is now with the academe.  Even the law’s provisions on Financial and Technical Assistance Agreements (“FTAA”) allowing full foreign ownership of mining projects were challenged in the Supreme Court by anti-mining lobbyist and environmental groups only to be declared constitutional.  The law may have its flaws but to replace at this point is similar to the adage “changing horses midstream”.

2. An expeditious resolution on the legal standing of local government units to ban resources projects in their jurisdiction.  Whether it is the courts or some government agency that will make the final determination, there should be an early resolution of this issue, which is holding up a lot of resources investments.

3. At least one of the FTAA mining projects gets on stream.   We are almost nearing two decades since the Philippine government awarded the first two FTAAs in mid-1990s.  Up to now there is still no certainty if the Didipio or the Tampakan project will proceed because of local opposition and the lack of political will by the national government.  The industry needs to showcase a large-scale, foreign-owned mining project to boost investments.

4. The DENR and the Department of Energy (“DOE”) get their acts together in the administration of energy laws.  The DOE has the mandate over energy resources but most of these projects are located in protected areas or areas covered by other land use agreements like mining or logging concessions under the jurisdiction of the DENR.  The hapless contractor is thus left with an energy service contract but is prevented from accessing its area.  The two agencies should review procedures for permitting and consult private industry in setting up timeframes for obtaining licenses and permits. It has been reported that the DOE and the DENR have executed an agreement to create a technical working group to address the challenges impeding coal development projects.  This is a good start but I want to see if anything concrete will come out of this.

5. The National Commission on Indigenous Peoples (“NCIP”) truly represents the interests of indigenous cultural communities (“ICC”).  Speaking of a government agency that needs to get its act together, the NCIP in my experience as a lawyer in private practice and resource developer, is an enigma. With all due respect, I cannot fathom how rules and judgments are promulgated.  Nevertheless, I give the officials the benefit of the doubt; the NCIP is a relatively young administrative agency with enormous quasi-legislative and quasi-judicial powers.  At the end of the day, the NCIP must be accountable only to the ICCs and not to any interest groups, politician or resource developer.

6. Petroleum in commercial quantity is found in sedimentary basins other than Northwest Palawan.  Experts are unanimous in saying that the Philippines’ potential for oil and gas has not been really investigated despite the fact that we have sedimentary basins located near petroleum rich territories of Indonesia, Malaysia and China. Most of the prospective sites are located in NW Palawan.  The upstream petroleum industry needs a shot in the arm. While the country can benefit from the United Nations Convention on the Law of the Sea (UNCLOS), which can increase the areas that the Philippines can claim as its own for exploration by a factor of twenty, the territorial dispute with China seems to have added political uncertainty to offshore exploration particularly in the South China Sea. Meanwhile, exploration in the Sulu Sea basin near Sabah has been disappointing so far notwithstanding the massive risk capital poured by ExxonMobil. And to further spur petroleum exploration, the government should commence initiatives to revive the Trans-ASEAN Gas Pipeline project, which aims to connect the natural gas fields in the region to the major markets.  With the proposed infrastructure, several marginal fields can be put on-stream if provisions for the pipeline as a “common carrier” can be included in the project package.

7. Congress promulgates a new law that will set the parameters for “energy project of national significance”.  Energy projects are unduly delayed because of “non-aligned and non-harmonized laws” and legal roadblocks from local government units, indigenous people and some interest groups whose opposition to these projects are often time based on misinformation.  The DOE’s initiative in pushing for a law that will recognize projects of national significance announced by Secretary Jose Rene Almendras during the 2011 Energy Investment Forum is a welcome development as a number of projects such as transmission lines and coal power plants cannot move forward because of problems with local government units.

8. Congress reviews existing energy exploration laws.  The petroleum and coal explorations laws were “martial law babies” enacted during the 1970s.  To put an added impetus to high-risk and high-capital energy exploration, the government should revisit these laws and among others, provide more incentives for deep-water petroleum exploration and mine mouth coal power projects.

9. The government implements feed-in-tariffs (“FiT”) rates and guidelines for renewable portfolio standards for renewable energy (“RE”).  Investors are waiting for these and unfortunately their patience doesn’t last forever.  The Philippines passed its RE Law before Malaysia but it has started implementing FiT rates ahead of us.  Whatever the outcome is, government should implement the FiT rates and let RE investors decide if the rates are acceptable to them.

10. The DOE spearhead in implementing a geothermal resource reporting code and develop publicly available database.  I cannot deny the fact that I am very bullish on geothermal energy since the country obviously is blessed with this RE resource.  New geothermal exploration companies have heeded the call of government by taking up exploration acreage. In time these companies will be culling investments locally through initial public offerings or private equity placements.  For the protection of the investing public, there is thus a need for a standardized reporting by these exploration companies similar to the Philippine Mineral Reporting Code.  Protocols and tools for resource assessment will help also in developing technical expertise.

11. Critical collaboration between civil society organizations and the resources industry.  We cannot discount the role of civil society in the resources industry.  In the RE industry, the WWF has initiated a program called the “Ring of Fire” to unleash the potential of geothermal energy in Southeast Asia particularly in the Philippines and Indonesia.  WWF hopes the program will show it is possible to achieve the use of geothermal energy in a sustainable way, conserving biodiversity, and at the same time support innovation and green economic growth, counter climate change and improve the living conditions of targeted communities.  Now if only this can be replicated in other resource industries.

12. Public-private partnership in the field of research, development and demonstration for new technologies in resource exploration.  With the Filipinos propensity to easily adapt to new technologies, their good command of the English language, and the enormous resources potential of the country, the Philippines can be a hub for the geoscientific research.  What we need is private investments in the establishment of research institutions and more data acquisition stimulated by financial incentives by the government and probably grants from development agencies.

With that, I conclude by quoting a New Year aphorism by Bill Vaughan, an American columnist and author: “An optimist stays up until midnight to see the new year in.  A pessimist stays up to make sure the old year leaves.” Dear readers, subscribers and advertisers of the Philippine Resources, I fervently hope that as always, the resources industry will remain optimistic despite all the challenges besetting it!

Fernando “Ronnie” Peñarroyo is the Managing Partner of Puno and Peñarroyo Law Offices (www.punopenalaw.com). He specializes in Energy and Resources Law, Project Finance and Business Development.

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