Mining and mandatory community development programs in the Philippines: A legal interrogation

Community Development and Mining

In the Fourth Quarter of 2023 National Accounts of the Philippines, the mining and quarrying industry experienced a year-on-year growth of 10.3%. While the mining of iron and other non-ferrous metals contributes to around 20% of the entire mining and quarrying section, it accounts for almost 67% of the entire workforce of the industry. While mining contributes to 0.70% of the country’s GDP, the Philippine government recognises that mining imposes risks and generates negative externalities to community health and safety. Based on the 9th Philippine EITI Report, mandatory expenditures for the social development management program (SDMP) amounted to around Php 959 million, while government reports that direct expenditures in SDMP amount to P1.35 billion.

To strengthen governance on extractive industries, the Philippine government committed to the institutionalisation of Extraction Industries Transparency Initiative (EITI) principles at national and sub-national levels. In the 9th Philippine EITI Report, it was noted that significant progress is to be made in strengthening spaces for multi-stakeholder participation along the extractive industries value chain. However, a report by Bantay Kita shows that local communities are often left out in hearings, or when there is community participation, are conducted on unbalanced ground (i.e. on the premises of the mining firm or the operation of CSO and communities under the State’s security framework.

Therefore, the following issue arises: Are mandatory socio-development programs imposed by the State in the form of resource regulation an effective measure to address the problems of negative externalities and social costs borne by the operations of extractive industries, specifically that of mining and quarrying? What are the inherent legal limitations in mining regulation, especially that of mandatory community development programs like the SDMP?

THE LEGAL FRAMEWORK

More than forty countries have either adopted or have pending legislation requiring community development agreements (CDA) in their respective national and sub-national statutes. Among the countries with this requirement, the Philippines is one of the five Southeast Asian countries that has adopted mandatory CDAs in the mining industry.

In the Philippines, minerals, mineral oils, and other natural resources are owned by the state; thus, the exploration, development, and use of these natural resources are under the state’s full control and supervision. By constitutional fiat, the State may undertake these activities directly or with Filipino citizens or corporations. The main statute that regulates the mining industry is Republic Act No. 7942, otherwise known as the Philippine Mining Act of 1995 (PMA). Under the PMA, contractors are mandated to assist in the development of the mining community and the promotion of the general welfare of its inhabitants. For activities to be credited as expenditures for the development of mining communities, such activities should be intended to enhance the development of mining and neighbouring communities in a mining operation other than those required or provided for under existing laws, collective bargaining agreements, and similar agreements.

To operationalise the provisions of the PMA, specifically the provision on community development, the Philippine Department of Environment and Natural Resources (DENR) issued Administrative Order No. 2010–21 or the Revised Implementing Rules and Regulations of R.A. 7942 (RIRR). Under RIRR, contractors are obligated to prepare an SDMP or, in the case of holders of Exploration Permits, Mineral Agreements, or Foreign or Technical Assistance Agreements still in the exploration stage, a Community Development Program (CDP).

The SDMP is a comprehensive five-year plan of the contractor for sustained improvement in the living standards of the host and neighbouring communities by creating responsible, self-reliant, and resource-based communities capable of developing, implementing, and managing community development programs, projects, and activities consistent with the principle of people empowerment.

Under RIRR, the minimum allocation for SDMP is 1.125% of the contractor’s operating costs. For purposes of computing the budget for the SDMP, the operating cost is defined as the specific cost of producing a saleable product on a commercial scale incurred in the calculation of the net income before tax, which includes all costs and expenditures related to mining/extraction, treatment/processing, exploration activities during the operation stage, power, maintenance, administration, excise tax, royalties, transport and marking, and annual progressive/environmental management. Under the regulation, the following programs, projects, and activities under the following areas are considered proper expenditures and chargeable to the SDMP:

• Human Resource Development and Institutional Building
• Enterprise Development and Networking
• Assistance to Infrastructure Development and Support Services
• Access to Education and Educational Support Programs
• Access to Health Services, Health Facilities, and Health Professionals
• Protection and Respect of Socio-Cultural Values
• Use of facilities/services within the mine camp or plant site

The RIRR also provides that the SDMP must be prepared in consultation and partnership with the host and neighbouring communities. While the SDMP is submitted by the contractor to the Regional Office of the Mines and Geosciences Bureau (MGB) of DENR and subsequently reviewed and evaluated by the said office, the Contractor is required to enter into a Memorandum of Agreement (MOA) with the host and neighbouring communities as represented by the barangays and municipalities concerned. On the basis of the approved SDMP and MOA, the contractor is obligated to submit to the Regional Office annual programs thirty days prior to the beginning of every calendar year.

To manage the SDMP, the RIRR requires contractors to incorporate into its organisational structure a Community Relations Office (CRO) headed by a Community Relations Officer (COMREL) who reports directly to the highest company on-site official. The RIRR requires that the said officer be a graduate of any social science course or any person with experience and training in community development work, with preference for those with strong knowledge of the local culture.

Regarding monitoring, the determination of the level of implementation of the annual SDMP is done jointly by the CRO and the representatives of the host and neighbouring communities. The CRO must provide quarterly reports of the Annual SDMP to the Regional Office, and the latter also conducts semi-annual monitoring to audit the reports submitted. Failure to implement the SDMP shall subject the contractor to penalties, which may be a fine for the first offense and, the suspension of mining operations and fines for subsequent violations.

Theorizing Mining and Mandatory Community Development

From the nature of the industry, extractive firms are often required to obtain a social license to operate (SLO) to address both the social costs of the firm’s operation and the management of social risks. Legitimacy in firm operations is acquired through the firm’s legal, economic, and social licenses to operate. Social license is defined as “demands on and expectations for a business enterprise that emerge from neighbourhoods, environmental groups, community members, and other elements of the surrounding civil society.” In this manner, SLO goes beyond the requisites of operation as may be legally required from them; it allows the community to be informed of the firm's operations and participate fully with the firm to preserve community interest. SLO can also be seen both from the perspective of the firm and the community: on the one hand, SLO reduces the social risk of community conflict between the firm and the community, and on the other hand, the grant of SLO implies meaningful community participation and indicative of sufficiency that the community gains from the firm.

On the one hand, governments may require, in the exercise of their regulatory power over the mining industry, to engage communities in their operations. On the other hand, the disruptive nature of the industry requires firms to maintain public goodwill with the communities in which they operate.

The development and maintenance of community relations by an entity outside the firm require them to interact with the worldview shared by the community, and this can be done through community social responsibility and, in this case, community development programs.

Maconahie and Hilson posit that the social construction of community development reveals how these initiatives impact their beneficiaries. On the one hand, community-driven development is better understood in its relationship to ‘accumulation by exploitation’ and ‘accumulation by dispossession. Accumulation by exploitation refers to the unequal relations of production. In contrast, accumulation by dispossession refers to the appropriation of key livelihood resources shared by the community in favour of extractive industries granted permission by the state. The perception of these types of accumulation, as Maconahie and Hilson propose, is dependent on the social construction by the actors involved in community development. On the other hand, community development controlled by corporate entities engaged in the extraction of resources is ripe for disaster as it is not responsive to the community’s needs.

While SLO may be considered as an informal requirement for firms to operate, compelling firms to engage in community development to address externalities transforms and coopts SLO as a legal and formal requirement by making it part of the statutory requirements for firms to continue operation. With this, mandated community development becomes susceptible to issues that plague government regulation, like state capture, overlapping and incomplete regulations, or hyper-regulation. All the more, the responsiveness of mandatory community development as a way to secure a firm’s slo becomes more problematic when it is too focused on a top-down corporate approach towards development and sustainability or when community development is designed to be low-impact and constrained.

However, the government’s mandate for firms to formulate a community development plan with the communities affected by their operations recognises that: first, the firm is only capable of crafting and implementing a community development program that is responsive to the needs of the community if they (the community) are involved in all stages of its formulation and implementation; second, the government recognises that for firms to maximise the economic value generated from the mining activity, it requires an SLO from the community, and this can be acquired both in the process and output of community development; and third, the community’s participation in the firm’s community development program will assist the government in exercising its regulatory function while ensuring that the community receives the benefits of community development. Thus, in this case, the internalisation of social costs relies not solely on coercive government regulation; this mandated community development in the extractive industry includes the community in the corporate governance of firms engaged in this economic activity.

The effectiveness of government-mandated community development, however, is dependent on the character and strength of the institutions where these programs are to be formulated and implemented. For example, the definition of “community” in the PMA can be easily interchanged with the administrative and political sub-unit of the State. This definition may pose complications in formulating and implementing community development programs. For one, modern communities are not monolithic social groups, and political subdivisions may not necessarily represent the inherent diversity of a defined “community.” For example, there are barangays in the Philippines where indigenous peoples and the common folk are placed under one political unit. In some communities where mining operations are present, religious and cultural differences are more highlighted than in urban communities. Thus, it may have a profound impact on the direction of the community development program of the firm. In this case, community representatives, usually elected local officials, may not be able to represent the interests of cultural minorities in their jurisdiction. This is on top of prevailing issues on the existence of authentic public local consultations in crafting the community development program.

By fostering greater participation of CSOs in regulatory processes and decision-making, accountability, transparency, and equity in the mining sector can be further enhanced. This shift towards more participatory governance is essential for mitigating the adverse effects of mining and ensuring that its benefits are equitably distributed among all stakeholders involved.

CONCLUSION

Mandatory community development imposed by the Philippine Government on mining firms can be understood from the view of allowing firms to internalise the externalities inherent in their industry and, at the same time, facilitate the acquisition of the SLO from the communities they operate. While the formulation and implementation of the SDMP are already integrated into the existing legal framework for mining, more can be done to make its programs, projects, and activities relevant and responsive to community needs.

This can be done by expanding CSO participation in the formulation, evaluation, and monitoring of SDMP. By opening spaces for CSO participation and maximising the already existing regulatory mechanisms within the PMA and its RIRR, increased collaboration, reduced information asymmetries, and more responsive programs, projects, and activities are to be implemented to the benefit of communities and the environment. As the Australian Government emphasises collaboration with Southeast Asian partners to promote Australia’s capabilities in mining, energy, and mining equipment, technology, and services (METS) for sustainable development in the region, the integration of smart regulation becomes critical. In this way, the Australian government may assist in capacitating stakeholders in formulating and monitoring mandatory community development programs that ensure the alignment of resource extraction with both environmental sustainability and the socio-economic well-being of local communities.