OCTOBER 1997 · VOLUME 18 · NUMBER 10

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E C O N O M I C S

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SAGADA, THE PHILIPPINES -- Two men sit beneath a rusted iron roof, gently tipping metal pans filled with water and mud. The water swirls, lifting lighter particles away and leaving a yellowish smudge across one curve of the pan. The smudge is gold, and when it grows large enough it is carefully washed into a small bowl. Behind the men, an ancient gasoline engine thumps wearily, driving a flywheel of rusty iron, which in turn drives a crude grinder, which pulverizes soft grey rock dug from tunnels that pierce as far as 50 meters into the mountain above. The ground rock runs into a spillway, where a barefoot man washes it with a hose. The men pan the sludge left behind, sack by sack, each sack leaving another small smudge in the bottom of the pan. On a good day, a miner may process 3 or 4 sacks of crushed rock, extracting a single gram of gold and netting around 280 pesos (less than $10.00).

The gold is under the barangay of Fidelisan, in the town of Sagada, Mountain Province, in the heart of the Cordillera in Northern Luzon, the largest Philippine island. This is the land of the Kankanaey, one of the half-dozen indigenous groups of the Cordillera. The deposit, in accordance with the customary law that still prevails here, is communally held.

At one time, the miners recount, they allowed people from other parts of Sagada to mine here. The operation grew, and some miners began using mercury-based extraction methods.

Elders from the downstream village of Dantay complained that silt and mercury residues washed from the mine site were affecting the quality of their stream water. The elders of Fidelisan acted promptly. They declared the mine closed, and it remained closed for two years. Now it is operating again, but on a much smaller scale. It is operated solely by Fidelisan residents, and only manual separation methods are used.

Few of the Fidelisan miners mine full time. During planting and harvest season, they work in rice fields and vegetable gardens. For them, and many other small-scale miners in these mountains, gold mining is a way to earn badly needed cash income during slack periods in a predominantly agricultural economy.

Small-scale mines like these have operated in the Cordillera for centuries, and the indigenous residents of the mountains have managed until now to keep control of their gold. Spanish colonists sent expeditions into the mountains in search of the mines; they returned empty handed, defeated by the rugged terrain and implacable local opposition. After the United States took control of the Philippines in 1898, U.S. prospectors entered the area. Gold mines were opened in the area of Benguet, not far from Manila, but residents of the Sagada-Bontoc area stood firm, and after several heated confrontations, U.S. authorities, perhaps remembering the local tradition of head-hunting warfare, banned prospecting in the area.

Today's Philippine government, desperately seeking export commodities to pay a huge foreign debt and a rapidly increasing import bill, is set to rekindle the controversy over outsider exploitation of communally owned mineral resources in the Cordillera. A new mining law throws open the country's mining sector to complete foreign ownership, and foreign mining companies are frothing over the possibilities awaiting them in mineral-rich areas that have not been exploited with modern machinery.

THE RUSH BEGINS

The Philippines is endowed with rich deposits of gold and other minerals, but its mining industry has been fading for years. Ten major mines shut down between 1985 and 1993, and mine employment fell from 16,000 in 1988 to 7,500 in 1994. The decline, experts say, is due to primitive technology, the small scale of mine operations and the absence of a clear government policy on mine development. To correct these perceived deficiencies, the Philippine Congress passed a new mining code in 1995. The new law opens up mines to 100 percent foreign ownership for the first time in decades, circumventing a constitutional requirement of 60 percent national ownership with a neat semantic shuffle.

The law permits the government to enter into agreements with foreign companies for "financial and technical assistance." Critics point out that the scope of the agreement goes far beyond financial and technical assistance, and amounts to a grant of ownership. The matter has been brought before the Philippine Supreme Court, but it is expected to rule in favor of the government.

Meanwhile, multinational mining firms have filed over 100 applications for Financial and Technical Assistance Agreements (FTAAs), each covering up to 80,000 hectares of land and representing a commitment to invest a minimum of $50 million. The applications, along with applications for smaller Mineral Production Sharing Agreements, cover 13 million hectares of land, almost 45 percent of the country's land area. The Cordillera, with 17 active FTAA applications covering 60 percent of the region, is among the areas most affected.

Supporters of the new law predict that it will revitalize the mining industry, bringing the country back into the top ranks of mineral producers and generating employment and badly needed dollar income. "We can easily quadruple production," announced Joel Muyco, director of the government's Bureau of Mines and Geosciences. "What we have now is not even large-scale mining." President Fidel Ramos, an ardent supporter of the law, has stated that the country stands "at the threshold of a major breakthrough in the mining industry."

For critics, mainly environmentalists and indigenous people advocates, that breakthrough is a frightening prospect. Catalino Corpuz, director of the Benguet-based Mining Communities Development Center, claims that the law is "a virtual sellout of the country's mineral resources to transnational mining companies." Corpuz says that the tax breaks, repatriation guarantees and other financial incentives the law offers will negate the financial benefits, and that the high-technology methods used in large-scale mines means few jobs will be created.

Environmentalists point out that the Philippine islands are recently formed, geologically unstable and already in a state of ecological crisis, largely due to uncontrolled exploitation of forest and mineral resources. They predict environmental disaster if companies from Australia, Canada and the United States are permitted to mine on the same scale that they use on their own larger and more stable land masses.

The mining industry and the Philippine Department of the Environment and Natural Resources (DENR) respond that the law requires stringent environmental protection measures. But environmentalists doubt the will of the industry and the government's capacity to enforce these regulations. These doubts were highlighted in March 1996, just after the passage of the new mining law, when a major accident at the Marcopper mine on the island of Marinduque spilled millions of tons of mine waste into the Boac River (see "Placing Placer Under Arrest," Multinational Monitor, November 1996). A report on the incident by the UN Environmental Program criticized both the company and the DENR.

The Implementing Rules and Regulations (IRR) of the new law were hauled back for revisions after the accident, delaying processing of FTAAs and leading mining executives to threaten that "shortfall in revenue earnings and wide-scale unemployment will result if the new IRR will impede the rational exploration, development, utilization and conservation of the country's mineral resources."

The government released the revised IRR in January 1997. The mining industry responded critically, particularly to a provision requiring companies to set aside 10 percent of their operating expenses to repair potential environmental damage and to the requirement that a negotiable royalty be paid to indigenous residents. Industry representatives called the royalty provision "an invitation to excessive demands."

The most controversial point of all, though, has yet to be resolved. Mining companies and the government are negotiating over the "fiscal regime" -- the formula by which they will divide mining revenues. These negotiations are taking place behind closed doors, and indigenous and environmental groups are not invited.

Consideration of the FTAA applications has been shelved while the negotiations proceed, but mining companies are widely believed to be negotiating for a "fast-tracked" approval process once an agreement is reached. Many fear this process is likely to reduce IRR community consultation requirements to rubber-stamp status. Activists fear that the cash-strapped government will give in to industry demands for accelerated approval of FTAA and Mineral Production Sharing applications.

"WHY SHOULD WE LEASE WHAT IS OURS?"

Perhaps those most threatened are indigenous small-scale miners like those of Fidelisan. The deposit there is a rich one; even with primitive techniques, miners are extracting a gram of gold from 100 kilograms of ore. The area is within an FTAA application filed by Newcrest Mining of Australia, and the local miners are worried about what will happen when the application comes up for approval. DENR representatives point to clauses in the law forbidding exploration of mining within ancestral domain areas without the "informed consent" of the indigenous groups affected. The Fidelisan miners, though, remain suspicious. "They want the gold," says one. "If we won't agree, they'll find another way."

That fear is part of a long legacy of distrust, stemming from a fundamental dispute over ownership of land and resources. Few indigenous groups possess legal title to their ancestral land, and Philippine law claims all untitled lands, as well as all natural resources, as property of the state. Indigenous customary laws claim both land and resources as the property of those who occupy the land.

The distinction is not academic. During the 1980s, the government, with World Bank support, began a major hydroelectric dam on the upper Chico River and an upland forest exploitation scheme covering parts of three Cordillera provinces. Indigenous peoples resisted, first with protests, then with civil disobedience and finally through armed insurrection, turning the area into a battleground. The government finally abandoned both projects, but the people have not forgotten.

The DENR says that small miners will be protected by a Small-Scale Mining Act passed in 1992, but the miners actually see the Act as another threat. The law requires miners to organize into formal cooperatives, pay fees and taxes and sell their gold directly to the government. The indigenous miners, claiming the right to manage their own resources in their own way, resist any government regulation. They particularly object to a requirement that miners sell a minimum of 300 grams of gold at a time, saying it will force them to boost their operations to environmentally unsustainable levels and use extraction techniques requiring hazardous chemicals. Perhaps more ominous, the term of small-scale mining leases is a mere 2 years, unlike the 25 years (renewable for another 25) granted to large-scale miners. Small-scale miners fear that once they submit to government regulation their areas will be awarded to large companies after their leases expire.

"Why should we lease what is ours?" grumbles one Fidelisan miner, summing up the objections to the law.

Again, the fears of the small miners are grounded in recent history: a large group of small-scale miners was recently ejected from a gold vein in Antamok, Benguet to make way for the open-pit mining operation of the Benguet Corporations, which held a longstanding claim to the area.

To economists and government planners, the small miners are a mere nuisance. Their output is minimal, and they stand in the way of "rational" exploitation of mineral deposits. But until their claims are addressed, it is likely that more confrontations -- possibly violent ones -- will occur.