Learning from AMEC's Oil and Gas Asset Support ... - CommDev

5.2.1 GovernmentIn January 2004, following a petition brought by civil society groups that included farmers andresidents, the Supreme Court of the Philippines declared null and void certain provisions of theRepublic Act 7942, also known as the Philippine Mining Act of 1995. This included certainimplementing rules and regulations. The court found that the Constitution limits foreign companies toproviding only technical and financial assistance to government in the large-scale exploration,development, and utilisation of the country’s mineral, petroleum, and mineral oils, and does notprovide for beneficial ownership of natural resources. As a result of this ruling, concerns have beenraised by foreign oil and gas companies as to the safety of the Production Sharing Contracts (PSCs)that will apply to the next gas exploration licensing round, which are in the geographic region near tothe Shell operated Malampaya gas-to-power project. 27The significance of this ruling is its foundation in local grievances over asset compensation,environmental damage, indigenous people’s rights, and adherence to social and economic benefitsassociated with mining projects 28 . It is suspected that the government will make further concessions.For example, it is possible that the local content terms of future PSCs for the current (i.e. the 2 nd )exploration licensing round will be strengthened. It is also likely that amendments to the Mining Act,implementing rules and regulations will see greater emphasis on the need for local economic benefitsto accrue to those communities affected by on-shore operations. This may include stronger rules forlocal preference of employees and suppliers, manpower training and succession, and theirenforcement through earlier use of tripartite environmental and social impact monitoring in relation toproject-specific social management plans.The 1995 Mining Act requires that a proportion of resource revenues be distributed to the regions ofproduction. For the Malampaya gas-to-power project this includes the provinces of Oriental Mindoro,Palawan and Batangas, the municipality of Batangas City (the location of the on-shore desulphurisationgas plant) and the Barangay (elected community council) for the five ‘T.A.L.I.M.’communities in the vicinity of the on-shore gas plant (OGP). Commercial gas production commencedin 2001 and under a production sharing arrangement, revenue will have accrued to centralgovernment. Allowing for capital cost recovery by the project’s joint venture partners, a proportion ofthese revenues should, in theory, already be redistributed to the above areas. Yet it is not clearwhether this is taking place. Experience from similar regions suggests that delays in revenuedistribution carry risk for projects. One example is the case of Caltex Pacific Indonesia (CPI) inrelation to oil production in the Sumatra’s Riau Province, Indonesia. Here, “…more than 40% of its[the province’s] 4.3 million people live below the official poverty line….The provincial governmentestimates it sent USD 8.4 billion in revenues [profit oil] to Jakarta last year, but only got back 2% ofthat in its provincial budget. A new law will allow provinces to keep up to …30% of revenues from27Upstream, 13 th February 200428See for example World Rainforest Movement Bulletin No 77 – http://www.wrm.org.uy/bulletin/77/Philippines.html34