Speech of H.E. Ambassador Delia Domingo Albert at the BAUMA 2010

“Opportunities for Cooperation in Mining in the Philippines and in the ASEAN Region”

21 April 2010, Munich

I.  Introduction

I thank the “Verband Deutscher Maschinen- und Anlagenbau e.V.” (VDMA) for the invitation to speak here at BAUMA 2010.  I am specially delighted that you are featuring the Southeast Asian region.

Today, I am here not only to speak as a diplomat but also in my capacity as the Philippine Special Envoy for Mining.  I recall having been introduced that while “diplomacy is my profession, mining is my mission/ passion.”

Diplomacy has indeed undergone a paradigm shift in this highly competitive world.  Diplomats from developing countries such as the Philippines take a more active role in economic diplomacy in order to be relevant and responsive in serving the country’s national interests.

My task today is primarily to inform and convince you to take a good look at the opportunities the Philippines can offer German technology specially in the machine industry.  Secondly, I would like to share with you what our neighbors in ASEAN can offer.  The Philippines as the Chair of the ASEAN Federation of Mining Associations or AFMA is an active player in promoting mining activities within and outside the region.  I am also glad that experts on the other ASEAN member countries are here to give you a wider view of the region.

At the outset, let me highlight five (5) points for you to remember concerning the mining industry in the Philippines.

1.  Geographical and geological setting

The Philippines is strategically well located in Asia both geographically and in terms of its geological endowment.  It is an archipelago of 7,107 islands lying in the “Pacific Ring of Fire” located at the gateway to Asia from the Pacific Ocean side.  It is precisely this location that attracted the U.S. to gain a foothold in the Philippines in the late 19th century as a jumping board to the rest of Asia specially China.  For this reason, the Philippines became a colony of the U.S. from 1898 to 1946.  Because of parity rights extended to the Americans, most mining companies were owned and operated by them in the early 1900’s.  However, the Spaniards who ruled the Philippines earlier for 300 years also found gold and named places such as “Mindoro” or mine of gold and Cagayan de Oro.

Geographically, our immediate neighbors, China, Japan and Korea are among the world’s biggest consumers of metals.

Geologically, the Philippines is among the fortunate countries that is richly endowed in mineral resources.  Global experts and research institutions rank the resources found in the Philippines as follows:  3rd in gold, 4th in copper, 5th in nickel and 6th in chromite deposits.  Nickel is often referred to as the “oil of the Philippines” because it is a highly valued resource found all over the country.  Recent estimates cite that the Philippines has about 20% of the world’s total nickel resources.

Of the Philippine total land area of 30 million hectares, some 9 million hectares have so far been identified as having rich metallic mineral deposits.  Potentially, if developed, these resources can generate about 600 Billion euros. 

In its November 2009 report, the Department of Environment & Natural Resources identified the following operating mines:  7 major gold mines, 4 medium-scale gold mines, 10 medium-scale nickel mines and one nickel processing plant using the HPL method, a medium-scale chromite mine, 10 cement plants and quarries, a copper smelter plant and more than 2,000 small-scale mines and quarries.

Last month, I was informed that 17 companies were recently given the go-signal to start exploring their mining tenements.  Moreover, since January this year, 20 new exploration permits covering a total area of 122,000 hectares have been approved.

If all these resources are to be developed, there will be a great need for technology and machinery not only for exploration and extraction but also for conveying and transporting, as well as for processing the raw mineral materials.  In some of the mining sites I visited, I noticed some rather aging German extraction and conveyance machines (but not as old as the machine I saw in Nauru).  I also noted competition coming from Scandinavian countries such as Finland for huge combined extractors and loaders, and some efficient conveyor belts from Australia.

For your reference and comfort, I am pleased to inform you that two separate international surveys gave the Philippines good marks as a prospective mining investment partner.

a- The Fraser Institute Annual Survey of Mining Companies for 2008-2009 rated the Philippines favorably in nearly all 14 policy endowment indicators, particularly with regard to mineral potential, absence of land restrictions, labor or employment agreements, environmental regulations, presence of geological database and infrastructure.

b- The Behre Dolbear 2009 ranking of countries for mining investment placed the Philippines 17th after India based on a 7-point criteria, namely, economic system, political system, degree of social issues affecting mining, bureaucratic delays in receiving permits, degree of corruption, stability of currency and tax regime.

2.  National policies on the mining industry

The Philippine national policies on mining is supported by the 3 branches of government, namely the executive, legislative and the judiciary.  These policies are contained in the following legislative and executive orders:

a. Philippine Mining Act of 1995
Basically, the Philippines follows the “regalian doctrine” – namely that all minerals under the surface of the earth belong to the State.  The investor therefore enters into contract with the State to extract the mineral.  The Mining Act gave the prerogative to government to enter into financial or technical assistance agreement (FTAA) with foreign companies for large-scale exploration, development and utilization of the country’s vast resources.  In 2004, the constitutionality of the Act was declared with finality.  This means that the Supreme Court upheld the provisions of the law which allows direct participation of 100% foreign-owned corporations to enter the mining industry.

b. Indigenous Peoples Rights Act (IPRA)
Because many of the mining sites are found in places where indigenous people live, the IPRA Law has been operating to ensure that the rights of the people who have lived in these areas are protected and promoted.  The Law has also been responsive to the issues raised by the Church and a number of NGO’s including those based in Germany.

c. Minerals Action Plan (MAP)
To implement the 1995 Mining Law and following the IPRA Law, a concrete Action Plan was set in place with the identification of priorities and activities for responsible mining.  Consultations were held to ensure general acceptability of the Plan.  It is regarded as a roadmap for both public and private sectors in the responsible development of the industry.

d. Minerals Development Council
In 2005 in my role as the President’s envoy for mining, I initiated the creation of the Minerals Development Council which brought together the major stakeholders in the industry which included both public and private sectors to discuss how to efficiently and effectively implement the Minerals Action Plan and the internationally-accepted rules on mining guided by the principles of environmentally-responsible mining.  Moreover, the MDC sought to harmonize both national and local government rules and regulations to ensure clarity and avoid pitfalls.

e. Philippine Minerals Reporting Code (PMRC)
Another initiative I promoted was the establishment of the Philippine Minerals Reporting Code which is based on the Australian system known as the Joint Ore Reserve Classification (JORC) which requires the implementation of a global standard in public reporting for mineral exploration activities, mineral resources and ore resources.  The code ensures transparency, competence and professionalism in the manner of reporting.  It is also used as a reference in the listing of companies in the Philippine stock market.

3.  The Private Sector has itself undertaken initiatives to promote and protect the industry.

a. Chamber of Mines
The Chamber of Mines was organized in 1936 by the major mining companies primarily to serve as a lobby group to support legislation deemed favorable to the industry.  It also undertakes activities to inform the public on the state of the industry by active participation in stakeholders’ meetings as well as participation in international mining conferences. 

The Chamber as a representative of the private sector in the Minerals Development Council recently prepared a guidebook on Corporate Social Responsibility for Mining Companies.

The president of the Chamber is also leading the ASEAN Federation of Mining Associations who regrets that he is unable to participate in our discussions.
 
b. Philippine Mine Safety and Environment Association (PMSEA)
A private sector initiative to look after the safety of miners, the PMSEA is the best trained and best equipped safety organization in the Philippines which responds to all types of emergencies caused by mine accidents, floods, earthquakes, etc.  I remember having introduced the Lubeck-based Draeger Company to them for their safety equipment needs.

c. Philippine Minerals Development Institute Foundation
The Foundation in cooperation with government ministries of Science and Technology and the National Institute of Geological Sciences, initiated a comprehensive inventory of the country’s mineral deposits in a study called, “Compendium of the Mineral Deposits of the Philippine Selected Metallic and Non-metallic deposits.  It is a useful digital summary of the inventory of the Philippine mineral resources which could be found at:
http://www.pcierd.dost.gov.minerals/index.html. 

d. Handbooks on Mining Laws in the Philippines
The general public and the industry are well-guided by rules as contained in published reference documents such as those covering Small-Scale Mining and Mineral Rights Over Ancestral Lands and Mineral and Government Reservations Under Philippine Laws; Financial or Technical Assistance Agreements, Exploration Permits and Other Modes of Acquiring Mineral Rights Under Philippine Laws; and Mining Operations and the Administrative Control and Supervision of Mining Under Philippine Laws.  All of these reference materials are readily available for anyone interested to learn more about the rules covering the industry.

4.  Let me give you a brief profile of the political framework and current economic condition of the Philippines.

1. Political framework:
The Republic of the Philippines is one of the largest democractic countries in Asia with a population of nearly 98 million of which 90% are Christians.  It has adopted the American presidential type of government.  The president is elected directly by popular vote every 6 years with one term only and assisted by a cabinet that is chosen by the President from the general public.  The three branches – executive, legislative and judicial – make for a check-and-balance in government decision-making.  The legislative consists of the Upper House or the Senate consisting of 24 members elected nationally and the House of Representatives elected at the local level.  The judiciary is led by the Supreme Court with justices recommended by the Judicial and Bar Council (JBC) and appointed by the President.  There are 17 regional authorities and local government units which are rather influential at local levels.  The Philippines is about to have its first fully automated presidential elections on 10 May 2010.  All previous elections were registered manually.

2. Economic profile
The Philippines ranks #37 among the world economies with a GDP at 215.8 Billion Euro.  Its main trading partners are the USA, and its neighbors Japan, China, Singapore and Germany.  The Philippines has proven to be resilient in the face of the global financial crisis with the help of remittances sent by 9 million overseas Filipinos amounting to 10% of GDP.  The economy registered a positive 0.9% growth by end of 2009 which can be attributed to increased spending in infrastructure and social services.  Leading economic activities are manufacturing in automotive parts, food processing, electronics, garments and textiles, as well as business process outsourcing (BPO).  Mining is the country’s biggest potential growth industry especially in chromite, copper, nickel, gold and natural gas.

The Philippines’ exports to Germany consist of brake system parts for motor vehicles, computer input/output and aircraft parts.  The Philippines imports parts of electronic integrated circuits as well as machines and mechanical appliances.  Most of these export items are manufactured in export processing zones such as PEZA which I believe is the most efficiently-run and corruption-free institution that is focused on high and clean technology manufacturing.  Philippine trade with Germany has been increasing at a yearly average of 8.95% for the past 5 years.  As import supplier, German ranks 14th supplying 1.88% import requirements of the Philippines in 2008.  This year, Germany became our largest export market in the European Union.

Our biggest German success story is the operation of Lufthansa Technik in the maintenance, repair and overhaul of aircraft not only from Asia but Europe as well.  The secret is the presence of highly-skilled, German-trained technicians who are prepared to work diligently  in shifts to provide efficient and timely service.

We are presently looking at technologies for renewable energy making use of the abundant supply of geothermal, solar, wind and biomass energies.  Last month, the Department of Energy signed 26 contracts to generate 466 megawatts of power.

5.  The Philippines as an important player in the Asian region

The Philippines is a founding member of ASEAN and the U.N. as well as the Asia-Pacific Economic Cooperation (APEC), among many other international organizations.

And now let me turn to ASEAN which has identified mining as an engine for growth and development in the region.

Similarly let me cite 5 points to remember about ASEAN.

1. Mineral Endowment and Resources of ASEAN

Most members of the ten countries in the Association of Southeast Asian Nations (ASEAN) region are well endowed with mineral resources.

ASEAN resources represents a significant share of world production, accounting for 29% of tin, 11% of nickel and 8% of copper.  The contribution of minerals production to GDP is highest in Indonesia followed by the Philippines, Myanmar and Vietnam.  Other metallic minerals produced on a smaller scale in the region include bauxite, lead, zinc and iron ore.

The minerals sector indeed plays a crucial part in supporting ASEAN to achieve its goal of becoming an ASEAN Economic Community by 2020.  It underpins ASEAN’s economic activity through provision of the primary materials on which both industry and society depend.

2. ASEAN cooperation in the minerals sector

a. To date, the role of ASEAN cooperation in the minerals sector has yet to be fully realized.  However, the ASEAN Minerals Cooperation Action Plan (AMCAP) 2005-2010 has become one of the most comprehensive regional minerals cooperation programs in the world.  It identified a comprehensive list of activities and projects to be carried out toward facilitating and enhancing trade and investment in minerals, promoting environmentally and socially sustainable mineral development, and strengthening institutional and human capacities.

b. Over the long term, cooperation in minerals will be guided by the ASEAN Vision 2020.  This calls for increased intra-ASEAN trade and investment including, among others, the minerals sector through networking and sharing of information on minerals and geosciences.

c. The ASEAN Investment Area (AIA) Agreement signed in 1998 aims at providing an environment that will facilitate free flow of direct investment, technology and skilled professionals in the region.  The AIA arrangement also covers mining and allows private investors to harness the various complementary advantages of ASEAN member countries in order to maximize business and production efficiency at lower costs.

To document all these activities, an ASEAN Minerals Database has been put together for more information on this specific area of cooperation.

3.  ASEAN relations with other countries and regions

After 40 years as a regional organization, ASEAN can be proud of its record of keeping the peace and stability in the region (except for some internal upheavals which do not affect the solidarity of the organization), ASEAN has formed strong alliances specially with its neighbors. 

This year, the ASEAN Free Trade Agreement created a free trade area among the original 6 member states lowering tariff rates to 0% and by 2015 for the CLMV (Cambodia, Laos, Myanmar, Vietnam) states.  AFTA is designed to facilitate inter-ASEAN trade and create a more favorable environment for foreign investments by making the region a seamless production base and market.

Because ASEAN wants to be inclusive, it has signed Free Trade Agreements with Korea, India, Japan, Australia, New Zealand and China.

May I say at this point how pleased we are that the 12th Asia-Pacific Conference of German Business to be led by the Federal Minister of Economics and Technology, Mr. Bruederle and Asia-Pacific Committee of German Business Chairman,  Dr. Juergen Hambrecht, will take place in Singapore, an ASEAN member, on 18 May.  I hope some of you can avail of this opportunity, not only to be in Singapore but take a side trip to the Philippines.

4.  ASEAN-China relations

In the mining industry, we cannot help but highlight ASEAN relations with China.  Continued growth in demand in China is expected to be one of the key drivers of world metals consumption in the coming years.  More specifically, annual growth of more than 10% is expected in China’s consumption of nickel, tin and zinc.  Aluminium and copper consumption in China continue to grow by 9%.  The strong demand for minerals in China can be expected to provide significant opportunities for minerals from ASEAN.  China accounted for close to 7% of total exports of mineral products from ASEAN.  The Philippines alone accounts for 55% of China’s nickel imports.  The expected growth in China’s minerals demand represents an important opportunity for ASEAN member countries to become more prominent players on the international minerals scene by taking advantage of their mineral prospectivity, geographical proximity to key markets and relatively low labor costs.  Just think of the scheduled projects in China consisting of 50,000 kilometers of new expressways and 12,000 kilometers of new express railways - that would need a lot of mineral and metal resources.

5.  Asia-Pacific Economic Cooperation (APEC)

Most ASEAN members are concurrently members of the regional economic group known as Asia-Pacific Economic Cooperation (APEC).  It links ASEAN with both the U.S. and Canada in North America as well as the South American countries of Mexico, Peru, and Chile.  The Philippines also cooperates with them on mining-related activities as with the other APEC members as China, Chinese Taipei, Japan, Korea, and Russia. 

Conclusion

In conclusion, I am pleased to inform you that Germany is an active partner of the Philippines in its efforts to ensure efficient management of the country’s rich resources.  We recently inaugurated a project known as “COSERAM” or “Conflict-Sensitive Resource and Management in the Caraga region” in southern Philippines located in the resource-rich island of Mindanao.  The 3-fold aim of the €7 million project is to ensure efficient management of natural resources by building capacities of local governments in managing assets and providing services which would ultimately address conflicts peacefully and inclusively. 

It is our hope that through these partnerships, we can contribute in building long-term relationships that will not only be mutually beneficial but also establish more just and prosperous societies.

For anyone who may be interested, I will be pleased to assist you further in my other capacities as adviser to the Chamber of Mines, the Minerals Development Council as well as the Chairman of the Baguio Historical and Mining Museum Foundation which we hope could be the first interactive museum to educate the Filipino public on the country’s resources and its relevance to the nation’s development.  Needless to say, I have been inspired by the German mining museums such as those found in Bochum, Rammelsberg and in Freiberg.

May I end with a quote from the The Frankfurter Allgemeine Zeitung (FAZ) which carried an interesting article on the Philippines published on 25 February 2010.  The article described in great detail certain features of the country from a German perspective.

„Nicht Asien, nicht Amerika, nicht Europa und doch von allem etwas – die Philippinen sind ein schwer zu fassendes, unfassbar schönes Land, das mehr Glück verdient hätte, als es hat.“

“The Philippines is neither Asia, nor America, nor Europe – nevertheless, it has a bit of everything from all three continents – it is a country difficult to understand, but it is an incredibly beautiful country, which deserves something more than it has had.”

Perhaps the development of the mining industry will serve to turn the economy around and give the people what they have been missing all these years.

I invite the members of VDMA to take a second look at the Philippines and ASEAN.  I am sure you will not be disappointed.