Coal Mining in the Philippines: An Overview and Analysis of Economic Impact Dr. Cielo Magno Mr. Anton Ragos

Mineable Coal Reserves, by area, (in million metric tons) Coal Reserves Mineable Coal Reserves, as of Dec. 2012 Mineable Coal Reserves, by area, (in million metric tons) as of Dec. 2012 Source: Energy Resource Development Bureau, Department of Energy

Coal Production Production share based on mining areas, 2013 5.53% 94.47% Semirara Island Other Areas Market Share of Other Areas, including small-scale mining contractors (in %) Source: Energy Resource Development Bureau, Department of Energy

Coal: Demand and Supply Coal production, importation, and consumption, (in million metric tons) 1977-2012 Production Importation Source: Department of Energy

Coal: Demand and Supply Coal production, importation, and consumption, (in million metric tons) 1977-2012 Production Importation Consumption Source: Department of Energy

Coal: Demand and Supply Coal consumption, by industry, (in %) 2009-2012 16.95 (mmmt) 14.23 (mmmt) 13.31 (mmmt) 12.06 (mmmt) 2009 2010 2011 2012 Power Generation Cement Production Other Industrial Processes* *Include: alcohol, sinter, rubber boots, paper and chemical manufacturing, fertilizer production, and smelting processes Source: Department of Energy Kessels, John (no date), Prospects of Coal and Clean Coal Technologies in the Philippines

Coal: Electricity Generation Electricity generation , by source (in GwH), 1980- 2010 Renewable Oil Natural Gas Hydroelectric Coal Source: World Bank

Coal Development Act of 1976 Presidential Decree 972, as amended by Presidential Decree 1174 Promotes accelerated exploration, development, exploitation, production, and utilization of coal Introduces the Coal Operating Contract (COC) system Assigns the operator to conduct the exploration, development, exploitation, and marketing of coal resources Sets out obligations of operators, and incentives to coal operators and end-users Source: Presidential Decree 972

Coal Operating Contract Exploration Phase and Development and Production Phase Two (2) year period Two (2) year allowable extension (maximum) Development and Production Phase: Remaining period of Exploration Phase and/or Ten (10) year period (additional) Ten (10) year allowance extension (maximum) Series of three (3) year allowable extensions not exceeding a total of twelve (12) years Source: Presidential Decree 972, as amended Coal Model Contract

Coal Operating Contract Incentives and Privileges Exemption from all national taxes except income tax Exemption from payment of duties on machinery/equipment importation Recovery of Operating Expense Entry of foreign technical personnel Preference in grant of government loans* Accelerated Depreciation* *incentives not set out in the COC but are specified in PD 972 as amended Source: Presidential Decree 972, as amended Coal Model Contract

Coal Operating Contract Revenue-Sharing Scheme Gross Proceeds Less: Recoverable Cost Net Proceeds Less: Basic Fees Special Allowances Government Share Department of Energy Local Government Unit 100.00 90.00 10.00 4.00 3.00 1.80 1.20 Gov’t Share Recoverable Cost Basic Fee Special Allowance Source: Presidential Decree 972, as amended Coal Model Contract Coal Operating Contract Accounting Procedure

Local Government Code of 1991 Utilization of LGU share Local government units shall receive 40% of gross collection from mining taxes Divided between province (20%), municipality (45%), and barangay (35%) At least 80% of the said fund shall be used to lower cost of electricity Remaining amount shall be used for local livelihood projects Source: Presidential Decree 972, as amended Coal Model Contract

Coal Operating Contract Revenue-Sharing Scheme Gross Proceeds Less: Recoverable Cost Net Proceeds Less: Basic Fees Special Allowances Government Share Department of Energy Local Government Unit 100.00 90.00 10.00 4.00 3.00 1.80 1.20 Gov’t Share Recoverable Cost Basic Fee Special Allowance Source: Presidential Decree 972, as amended Coal Model Contract Coal Operating Contract Accounting Procedure

Environmental Regulation General Provisions Subject to the Environmental Impact System (EIS) of the Department of Energy and Natural Resources. Outside the scope of EIS, coal operators are required to: Rehabilitate affected sites after contract termination Render comprehensive anti-pollution reclamation plan Follow government guidelines on: mining procedures to minimize environmental damage; water waste control; erosion control; and re-vegetation Source: Coal Model Contract

Semirara Mining Corporation Coal Revenue, Cost of Sales, and Government Share, (in million PhP) 2004-2012 Government Share Net Revenue Cost of Sale Source: Semirara Mining Corp. Consolidated Financial Statements, 2006-2012

Semirara Mining Corporation Income Tax (in million PhP), Statutory and Actual Income Tax Rate (in %) 2004-2012 Statutory 32.00 32.50 35.00 30.00 Effective 3.34 20.97 33.96 34.06 22.94 3.32 -0.90 -0.36 0.62 Source: Semirara Mining Corp. Consolidated Financial Statements, 2006-2012

Semirara Mining Corporation Foregone Revenue from the Income Tax Exemption (in million PhP), 2008-2012 Statutory 35.00 30.00 Exemption 11.46 30.62 31.14 30.68 29.97 Source of basic data: Semirara Mining Corp. Consolidated Financial Statements, 2006-2012

Economic Impact Poverty incidence in localities of coal operation Provincial Poverty Incidence Notes: Gattaran, Iguig, Danao City, Imelda, San Miguel, and Payao have two (2) contract operators, respectively Dalaguete has three (3) contract operators Rapu-Rapu has four (4) contract operators Municipal/City Poverty Incidence National Poverty Incidence Source: Department of Energy

Economic Impact Regression Analysis: Descriptive Statistics Variable Obs. Mean Std. Dev. Min. Max. HH Total Income 42,583 107,009.70 135,336.80 1,942.00 4,286,302.00 Coal share of province (%) 42,732 0.02 0.35 0.00 5.47 Share from other nat’l tax collection (%) 1.65 6.07 56.69 HH head educ (none) 0.03 0.17 HH head educ (elem. undergrad) 0.21 0.41 HH head educ (elem. grad) 0.19 0.39 HH head educ (HS undergrad) 0.12 0.32 HH head educ (college undergrad) 0.08 0.27 HH head educ (college grad) 0.11 HH members wage-earners (%) 0.24 0.25 1.00 Earns from farming and gardening 0.43 Earns from poultry and livestock 0.06 Earns from fishing 0.05 Earns from forestry and hunting 0.14 Earns from wholesale and retail 0.20 0.40 Earns from manufacturing 0.04 Earns from social, community services Earns from transportation 0.07 0.26 Earns from construction 0.01 Earns from entrepreneurship 0.13

Economic Impact Regression Analysis: Results HH Total Income Coefficient Robust Std. Err. Coal share of province (%) -4,420.27* 1,245.47 Share from other nat’l tax collection (%) -10.44 84.00 HH head educ (none) -52,340.7* 1,608.27 HH head educ (elem. undergrad) -44,592.1* 1,232.01 HH head educ (elem. grad) -32,630.9* 1,278.75 HH head educ (HS undergrad) -28,808.1* 1,477.81 HH head educ (college undergrad) 32,175.5* 2,821.99 HH head educ (college grad) 136,175.6* 3,711.40 HH members wage-earners (%) 516.844* 29.02 Earns from farming and gardening -2,023.4 1,265.22 Earns from poultry, livestock raising -1,082.14 1,838.96 Earns from fishing -1,639.14 2,564.52 Earns from forestry and hunting -13,289.1* 2,313.41 Earns from wholesale and retail 27,301.35* 1,814.09 Earns from manufacturing 7,609.863* 2,461.89 Earns from social, community services 42,635.01* 4,552.18 Earns from transportation 19,551.73* 2,629.76 Earns from construction 92,968.28* 31,020.83 Earns from entrepreneurship 82,033.83* 12,342.07 (Constant) 87,991.64* 1,496.28 *significant at 1%

Conclusion Coal mining operation remains small in some areas Earmarking for electrification leads to spending constraint among LGU’s Government is subsidizing coal operation Existing laws are silent in terms of absorbing negative externalities of coal mining Coal mining has negative impact on household income