TVI urges gov’t to plug loopholes in mining talks

Copper producer TVI Resource Development (Phils.) Inc. urges the government to expand its view on revenue sharing by the minerals industry to “public sector share” rather than the “more limited government share.”

TVIRD president Eugene T. Mateo said in a letter to President Aquino and to concerned Cabinet officials that in the Philippines, companies exploring for and producing minerals were required to invest significant amount “in areas that would, in other countries, be the responsibility of the state, in addition to the usual taxes paid to the state.”

Contributing to local government benefits as well as to the national government, Mateo said, was “taxation by another name.”

Citing TVIRD’s operation in Zamboanga del Norte province, he said that since the project started operating in 2004 up to 2011, the company had spent nearly P1.2 billion on roads, employment, property, water, education, training, health services, transportation, environmental cleanup, taxes and royalties (including royalties to indigenous peoples, or IPs).

Through our contribution in infrastructure, services and IP royalties, the state has in effect been relieved of having to spend for these projects with its own funds. This represents the contribution of the mining operation to the public sector.

The full cycle and risks of minerals development investment had not been well discussed either, Mateo said.

“Even in the minerals-rich Philippines, companies have to kiss many, many frogs before they find their princesses,” he said.

The figures on the Canatuan mine in Zamboanga del Norte starting 2004, for example, do not reflect the “substantial amount of initial exploration investment” brought into the Philippines by Canadian parent company TVI. “This is not only in Canatuan but in many other attempted projects, including King King and Rapu Rapu, to mention only two,” Mateo said.

Mateo stressed that, as with any mining company, risky and expensive exploration works were being done before an economically “viable project” would be developed. The “viable project” has to cover not only its own capital requirements and operating expenditures but it also has to pay for all of the unsuccessful ventures that preceded it, Mateo said.

In the case of TVI, this injection of funds into the economy, prior to the start of investment in Canatuan, amounted to about P2.6 billion, he said.

Apparently, for every 25,000 prospects identified by the industry, in general, only 500 will see some form of drilling or exploration. Of these 500, only one will go on to become a mine. But so many of these other prospects still have to be drilled to determined whether they could be developed into successful mines.

Mateo noted that the chances of finding a viable prospect in mineral-rich Philippines may be slightly better, at one mine being developed for every 1,000 to 5,000 prospects.

The third missing element in present discussions on mining, Mateo said, was the recognition of the economic effects of spending.

In Canatuan, Mateo said, TVI invested P2.8 billion in capital expenditures to prepare and build the project and another P10.1 billion for operations.

“Adding the injection into the economy from pre-Canatuan exploration spending plus Canatuan’s capital and operating expenditures, plus taxation and equivalent taxation,  all the above would make for a total injection of money into powering the Philippine economy of P14.64 billion, or about $340 million, or a full cycle injection of P17.24 billion, or $400 million,” he said.

He further noted that the debate on taxation had centered only on the excise tax and the proposal to increase it. In practice, he said, there were other taxes paid by operating mining companies. These include corporate income tax, customs duties, fringe benefits tax, tax on royalty to surface owners, documentary stamp taxes, excise tax, business tax, real property tax, occupation fees and others, withholding tax on compensation, withholding tax on fees and interest payments, and withholding tax on contractors and suppliers.

Added to these, he said, were the mandatory additional contributions to the public sector, including royalties to indigenous peoples (1 to 2 percent of gross revenue) and Social Development and Management Plan (1.5 percent of all operating expenses).

“We believe that the government’s share, if viewed properly in terms of the ’public sector share,’ is indeed fair and the government is reaping appropriate rewards from its encouragement of and, in some cases, investment in an active sector of minerals exploration and development,” Mateo said.—Riza T. Olchondra