Local Autonomy and Resource Development: Legal Issues and Policy Uncertainties

Atty. Fernando S. Peñarroyo

National Geology and Mining Engineering Convention

09 March 2016

Puno & Peñarroyo Law Offices

Contents

• Overview• Legal Framework on Local Autonomy on

Natural Resources• Issues with LGU• Summary of Government Response• Addressing the Issue

“NO TO MINING!”

LGUs outright refusal of consents • declaration of mining moratoriums, ban of particular

technologies like open pit mining and submarine tailings disposal, opposition to energy projects like coal-fired and hydro power plants, wind farms and geothermal exploration • Industry is not paying its fair share and that mineral

wealth has rarely translated into the alleviation of poverty. • Other issues: wastes, emissions and pollution; loss of

agricultural land and subsequent livelihood; threat to water resources; relocation and right of way; and health and safety of workers and communities.

Legal Framework on Local Autonomy re Natural Resources• Philippine Constitution of 1987

(“Constitution”)• Philippine Mining Act of 1995• Local Government Code• EO 79• Dept. of Justice Legal Opinion• DILG Memorandum Circular

Constitution

ARTICLE X: Local Government• Section 6. Local government units shall have a just

share, as determined by law, in the national taxes which shall be automatically released to them.• Section 7. Local governments shall be entitled to

an equitable share in the proceeds of the utilization and development of the national wealth within their respective areas, in the manner provided by law, including sharing the same with the inhabitants by way of direct benefits.

Constitution

ARTICLE XII (National Economy and Patrimony)• Section 2. All lands of the public domain,

waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are owned by the State. With the exception of agricultural lands, all other natural resources shall not be alienated. The exploration, development, and utilization of natural resources shall be under the full control and supervision of the State.

Republic Act No. 7942 (Mining Act)

• Section 8: The Department shall be the primary government agency responsible for the conservation, management, development, and proper use of the State’s mineral resources including those in reservations, watershed areas, and lands of the public domain.• Section 82: The Government share [as referred

to in the preceding sections] shall be shared and allocated in accordance with Sections 290 and 292 of Republic Act No. 7160 otherwise known as the Local Government Code of 1991.

Republic Act No. 7160 (Local Government Code)

• Proponents applying for mining applications intended for exploration activities are required to conduct consultation with all LGUs concerned, or the legislative councils (sanggunian) at the provincial, city/municipal, and barangay levels.

• Section 289. Local government units shall have an equitable share in the proceeds derived from the utilization and development of the national wealth within their respective areas, including sharing the same with the inhabitants by way of direct benefits.

• Section 290. Local government units shall, in addition to the internal revenue allotment, have a share of forty percent (40%) of the gross collection derived by the national government from the preceding fiscal year from mining taxes, royalties, forestry and fishery charges, and such other taxes, fees, or charges, including related surcharges, interests, or fines, and from its share in any co- production, joint venture or production sharing agreement in the utilization and development of the national wealth within their territorial jurisdiction.

Issues with LGU

• Local government veto/moratorium on mineral development and production• Small scale mining regulation• LGU share and local taxation

LOCAL GOVERNMENT VETO/MORATORIUM ON MINERAL DEVELOPMENT AND PRODUCTION

LGUs with Anti-Mining Resolutions

Congress Anti-Mining Bills

Limitations Imposed by EO 79

• EO 79 issued by President Aquino on 06 July 2012 directed LGUs that host mining operations to “conform to the regulations, decisions and policies…promulgated and taken by the National Government." It basically reminded LGUs that they are inferior to the national government and ordinances passed by local government officials believed to conflict with national law or policy may be “corrected” by the President. EO 79 purports to address the industry concern on LGUs passing ordinances banning open-pit mining as in the case of South Cotabato.

Department of Justice Opinion No. 87 Series of 2012 (18 September 2012)• In response to the questions of the DILG about LGU ordinances

that ban open-pit mining activities. • Legality of administrative remedies through a MOA between

the DILG and the Office of the Ombudsman to address abuses of power of local officials invoking local autonomy; and the filing of administrative cases on grounds of grave abuse of authority or grave misconduct.

• DOJ raised the general rule that ordinances are valid only if they are consistent with the Constitution and existing laws and that the national legislature is still the principal of the LGUs. The DOJ also affirmed that administrative charges proposed by the DILG against the local officials and found no constitutional, statutory or legal infirmities in the proposals.

DILG Memorandum Circular No. 2012-181 (08 November 2012)• The DILG issued Memorandum Circular No. 2012-181, which

directed provincial, city, and municipal elective officials to confine themselves only to the imposition of reasonable limitations on mining activities conducted within their respective territorial jurisdictions that are consistent with national laws and regulations in accordance with Section 12 of EO 79.

• The DILG Memorandum Circular explained that local governments are inferior to the national government and the power of legislation of LGUs is merely a delegated power coming from Congress. Municipal governments are only agents of the national government and cannot act as superior to the principal or exercise powers higher than those of the national government.

SMALL SCALE MINING REGULATION

Small-Scale Mining• PD 1899 “A Decree Establishing Small Scale Mining As

a new Dimension in Mineral Development” allowed local government units to issue mining permits • RA 7076 “People's Small-Scale Mining Act” (1991)

mandates that all applications for small scale mining will now be under the approval of the Secretary of the DENR• PD 1899 and RA 7076 shall continue to govern small-

scale mining operations. For areas not declared as People’s Small-Scale Mining area (PSSMA) under RA No. 7076, the pertinent rules and regulations of PD 1899 shall apply.

Limitations Imposed by EO 79

• Proliferation of black sand mining purportedly covered by “dredging permits” issued by LGUs, which the national government claims do not fall under the ambit of EO 79 on small-scale mining. • Some LGUs have issued “local mining permits” for black

sand mining even if EO 79 and RA 7076 prohibit them from doing so. Dredging permits were also issued by LGUs as a disguise for a “mining permit,” so that the extraction of black sand from the seashore will not fall under the ambit of EO 79 or RA 7076 and at the same time dodging the payment of taxes.

Limitations Imposed by EO 79• Issuance of the revised IRR for the reforms on small-scale

mining, featuring the Minahang Bayan, prohibition of the use of mercury, centralized mineral processing plants and the transfer of the permitting authority from the Provincial Governor and City Mayor to the Provincial/City Mining Regulatory Board, all intended to rationalize small scale mining in the country;• Pursuit of a serious illegal mining campaign, especially

with the help of the DOJ-DILG-DENR Fact-Finding Committee on Illegal Mining, leading to the stoppage of illegal black sand mining operations in Cagayan and Ilocos Sur and other hotspots;

LGU SHARE AND LOCAL TAXATION

Measures to address economic or revenue-related concerns

• Fast-track release and access of LGUs to their share from mining revenues

Specific legislative measures gov’t will pursue in light of the EO• Bigger LGU shares from mineral resource

utilization and providing better mechanisms for the faster release of their share

Local Taxes and Ordinances• In addition to shared revenues from the national wealth,

LGUs levy local business taxes, real estate taxes, and various fees and charges, which have become prone to the abusive exercise of regulatory authority by some LGU officials.

• Under the Local Government Code, LGUs have the power to enact ordinances that will regulate the operation of businesses by imposing fees and charges for revenue and regulatory purposes.

• Excessively amount of “regulatory fees”, which exceeds the cost of the inspections and other government services . LGUs has “mislabelled” the exaction as mayor’s permit, when by its very character it is undeniably a tax. Regulatory fees must be based on flat rates and not on the type of products or goods.

Government Response• “Carrot and stick” approach used in order for LGUs to toe the

line. By increasing the revenue from mining and fast tracking the distribution of LGU shares, the national government hopes to make mining an acceptable development option for LGUs. The national government hopes to crack the whip against recalcitrant LGU officials through the enforcement of available administrative remedies and sanctions.

• LGUs must be encouraged to integrate natural resources planning in their local development plans, programs, budget systems and governance regimen. It is important that there is transparency and accountability in the collection, distribution and utilization of revenues. Unless these are addressed, revenues will be perceived as lining the pockets of corrupt politicians rather than benefiting the host community.

Addressing the Issue• The legal issue of local autonomy in relation to the

exploration, development and utilization of natural resources vis a vis the power of control by the executive over LGUs will only be settled by judicial interpretation and until then lingering uncertainties will prevent developers to put more money into the ground. • Problem: Who is going to initiate?• National government should develop a transparent

system of accounting for and allocation of sharing of revenues and taxes with LGUs.• Expedite and streamline the release of LGU share on

revenues and taxes through a simplified process with timeframe requirements to lessen local opposition.

About the Lecturer• FERNANDO S. PEÑARROYO obtained his Bachelor of Science

in Geology and Bachelor of Laws from the University of the Philippines, and Master of Laws from the University of Melbourne. He also has a Diploma in Petroleum Exploration from the Norwegian Institute of Technology and a Certificate in Oil and Gas Financial Management from the University of Texas at Dallas. He was a professorial lecturer at the MBA-JD Program of the De La Salle-FEU Institute of Law and at the National Institute of Geological Sciences.

• Atty. Penarroyo is currently a Trustee and Secretary of the Philippine Mineral Exploration Association. He has authored and presented many articles on mining and energy in local and international conferences. He is currently the Managing Partner at the Puno and Penarroyo Law and specializes in energy and resources law, project finance and business development.

Local Autonomy and Resource Development: Legal Issues and Policy Uncertainties

Atty. Fernando S. Peñarroyo

National Geology and Mining Engineering Convention

09 March 2016

Puno & Peñarroyo Law Offices