Reasserting the Relevance of the Geology Profession Under the Duterte Administration

Atty. Fernando S. Peñarroyo

GEOCON 2016

13 December 2016

Puno & Peñarroyo Law Offices

Contents• Recent Global Trends - Global mining and petroleum update - China and the South China Sea strategy - Trump presidency • Resources Industry Philippine Update - petroleum, coal, geothermal; West Philippine Sea Arbitral Ruling; Duterte administration; legal and regulatory issues; climate change• Bright Spots

Contents• Recent Global Trends - Global mining and petroleum update - China and the South China Sea strategy - Trump presidency• Resources Industry Philippine Update - petroleum, coal, geothermal; West Philippine Sea Arbitral Ruling; Duterte administration; legal and regulatory issues; climate change• Bright Spots

PwC’s Mining Industry 2015 Perspective

• Top 40 mining companies experienced first time collective lost, lowest return on capital, 32% capex write-off – signaling an almost stagnant investment environment

• Lower demand for bulk commodities combined with a bleak global outlook and production hangover resulted in 25% fall in commodity prices

• Leverage is an all time high of 46%

Present Oil Market

• Saudi Arabia maintaining high output levels since mid-2014 despite a global supply glut to defend market share

• OPEC and non-OPEC producers agreed to curb oil output and ease a global glut – first joint action since 2001

• Companies have cut spending on exploration in anticipation of uncertain period of lower prices

China’s Nine-Dash Lines

• Area 7 (1)Recto Bank

• Exploration Phase (10)SCs 50, 54, 55, 57, 58

59, 63,72, 74 & 75

• Production Phase (3)SCs 6, 6A, 6B, 14 &

38 (Malampaya gas field which supplies 40% of the energy requirement of Luzon)

ACTIVE PETROLEUM SERVICE CONTRACTS (SCs) within

the Nine-dash lines

AREAS OFFERED IN THE5th PHILIPPINE ENERGY CONTRACTING

ROUND (PECR5)

WE

ST

PH

I LI P

PI N

E S

EA

Trump Presidency and the Resources Industry

• Oil and gas industry buoyed by Trump election

• Mining companies also seen as winners

• US will continue to intervene in South China Sea dispute even under Trump

Contents• Recent Global Trends - Global mining and petroleum update - China and the South China Sea strategy - Trump presidency

• Resources Industry Philippine Update - petroleum, coal, geothermal; West Philippine Sea Arbitral Ruling; Duterte administration; legal and regulatory issues; climate change• Bright Spots

Current Producing Petroleum Service Contracts (DOE, December 2015)

Geothermal Power Plants

1,896 MW Total Installed

Capacity (as of December 2014)

Development increments and plant decommissioning since 2005 (DOE)

West Philippine Sea Dispute Arbitral Ruling

Chinese Interference in Philippine Petroleum Exploration ActivitiesChina Claimed Reed Bank - SC 72

in February 2010

In August 2010, a Chinese Embassy Official in Manila

informed Nido Petroleum that SC 58 was claimed by China

Chinese Interference in Philippine Petroleum Exploration Activities

In 2011, Chinese government protested the inclusion of Areas

3 and 4 in the PECR 5

In March 2011, Chinese coast guard vessels prevented a

seismic vessel from conducting a survey for in Reed Bank

Permanent Court of Arbitration Ruling• China’s Claim to historic rights under the Nine-

Dash Lines is contrary to UNCLOS and cannot be the basis of nay maritime entitlements (territorial sea, exclusive economic zone, extended continental shelf)

• All historic rights in the EEZ were extinguished upon the effectivity of UNCLOS

• China violated the exclusive right of the Philippines to its EEZ by interfering with the petroleum activities of Filipino vessels within the EEZ

Duterte Presidency – What to Expect

• Laying the grounds for Federalism

• Peace and Order – peace agreements with NPA and Muslim secessionist

• Warming relations with China

• Renewable Energy vs. Coal-fired Power Plants – Review of Energy Mix

Existing, Committed and Indicative Coal-fired Power Plants as at September, 2016 (DOE)

List of Existing Coal-fired Power Plants (DOE)

Mining Industry Under Duterte

• Appointment of Gina Lopez, DENR Secretary

• Audit of Existing Mines started 08 July 2016

• Halted operations for environmental lapses of 10 mines ( 8 nickel producers); 12 more mines recommended for suspension

• Next on the block: audit of non-metallic mines and review of ECCs granted to coal mines

Alternative Mining Bill• As a general rule, all

areas closed to mining• MGB to conduct mineral

exploration• Mining and mineral

processing reserved to Filipinos

• 500 hectares maximum mining area

• Mining rights are non-transferable

• Maximum term of MPSAs shall be mine life + 5 years but not to exceed 15 years

• FPIC for every stage of mining operations

• No open pit mining• Government share –

10% of gross; IP royalty – additional 10% of gross

Upstream Petroleum Issues• Service Contract No. 46

Constitutional Challenge (Resident Marine Mammals vs. Sec. Reyes)

• Commission on Audit’s (COA’s) Notice of Charge for income tax deducted from the National Wealth share of the Government

• Award of the three (3) Service Contracts in recently conducted PECR 5 is still pending and dependent on the resolution of the cases above.

• DENR Water Quality Guidelines and General Effluent Standards – no technologies available

Permitting IssuesLocal government

• 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.

Indigenous Peoples• Given the complexity in applying the concept of free

and prior informed consent, development agencies and the private industry are more inclined to adopt the standard of 'free, prior, and informed consultation resulting in broad community support’ where 'broad community support' is interpreted as requiring 'good faith negotiation with and informed participation of indigenous peoples'.

Geothermal Exploration Projects with Permitting Issues (DOE)

Petroleum Service Contracts Under Force Majeure (DOE)

Vulnerability to Climate Change

• The Philippines is highly vulnerable to the impacts of climate change.

• Risks include increased frequency of extreme weather events, sea-level rise, rising temperatures and extreme rainfall.

• Key Findings of “Climate Change in the Philippines” report:

- increase in annual mean temperature by 0.57°C;& - in terms of maximum and minimum temperatures, the increases have been 0.35°C and 0.94°C

Global Climate Risk Index 2015:10 Most Affected Countries

Contents• Recent Global Trends - Global mining and petroleum update - China and the South China Sea strategy - Trump presidency • Resources Industry Philippine Update - petroleum, coal, geothermal; West Philippine Sea Arbitral Ruling; Duterte administration; legal and regulatory issues; climate change

• Bright Spots

Bright Spots for the Geology Profession

• Energy projects as projects of national significance to address permitting issues

• “Golden Age of Infrastructure”• Possible workable solution to the West Philippine

Sea petroleum exploration impasse• Benham Rise• Water resources management• Climate change adaptation and disaster

reduction and risk management

Can there be joint development in the Philippine EEZ?

Benham Rise – The New Frontier• DOE is open to the idea

that exploratory projects in the Benham Rise may be included in the Philippine Energy Contracting Round for petroleum.

• But MGB admitted that there are no administrative rules that will regulate deep seabed exploration and development of mineral resources, similar to the "Mining Code", which refers to the comprehensive set of rules, regulations and procedures issued by the International Seabed Authority (“ISA”).

Philippines Water Governance

• Governance is very complex due to the number of institutions involved, all with different hierarchical coverage, varied mandates and representing the interests of diverse constituencies.

• The government must embark on a “national water security assessment” to determine the extent of its water resources to provide the framework for an integrated, coherent and sustainable water resources management program. Following this integrated approach to water resources development and management, the government can proceed with the streamlining of regulatory procedures to attract investments into the water sector.

Conclusion

• Slowdown in greenfield exploration for both minerals and petroleum in the short term

• Resources industry is in for a rough ride but is expected to weather the storm

• BUT: Other areas include environmental planning, hydrogeology, pollution control, civil engineering and construction, climate change and disaster risk reduction/management strategies

• Vigilance is always needed to protect the profession!

Acknowledgments

• Department of Energy for the maps, figures and data

• Supreme Court Senior Associate Justice Antonio T. Carpio for his learned insights on the West Philippine Sea Arbitral Ruling

About the Speaker• Master of Laws (Univ. of Melbourne), Bachelor of Laws BS

Geo, (UP) • Managing Partner, Puno and Penarroyo Law (

www.punopenalaw.com)• VP and Treasurer, Clean Rock Renewable Energy Corp.• Trustee and Secretary, Philippine Mineral Exploration

Association• Director, Geological Society of the Philippines• Legal Counsel, National Geothermal Association of the

Philippines• Former Director, International Geothermal Association• Lecturer, Asian Institute of Technology (Bangkok), UP

National Institute of Geological Sciences• http://www.philippine-resources.com/

Reasserting the Relevance of the Geology Profession Under the Duterte Administration

Atty. Fernando S. Peñarroyo

GEOCON 2016

13 December 2016

Puno & Peñarroyo Law Offices