Annex 1: EITI fund Application

Country:  Philippines
Requested Amount: $1 million
Activity Title:  Advancing EITI implementation in the Philippines
Proposed Start Date: September 1, 2017
Estimated End Date: August 19, 2017
Identified Mechanism: Facilitating Public Investment (FPI) project, implemented by the
Development Alternatives Inc.

APPLICATION

1. Main Objectives  

i. Enhance transparency and accountability in the management of the Philippines’ extractive

sector through meaningful engagement with stronger oversight of extractive industries
revenues by local civil society organizations, indigenous groups and local communities;

ii. Broaden support for the EITI the multi-stakeholders group in implementing the EITI
process at sub-national levels

iii. Strengthen governance systems through improved transfers mechanisms of extractive

revenues from the central to local government; better understanding of the and a more
simplified mining and extractive sector’s tax regime; full disclosure of beneficial ownership
of companies operating in the sector; and enhanced contract negotiations between
indigenous communities and extractive companies; and

2. Proposed Activities1   

USAID/Philippines Mission proposes the following activities:

i. Support CSOs to be “oversight ready” on mining and extractive operations in host

communities, through grant awards to interested local civil society organizations.

Previous USAID/EITI funds were instrumental in promoting transparency & accountability

in the extractive industry. Local CSOs were provided with intensive capacity building
interventions that enhanced their skills in negotiating contracts with mining and extractive
companies, articulating their rights and entitlements to local government units and the
National Commission on Indigenous Peoples, and mobilizing local groups and associations
to collectively identify strategies that will benefit their communities, e.g. conflict/dispute
resolution and mediation among indigenous groups in ancestral domains and in
communities that host mining and extractive operations.
1 The word “activities” is used throughout this document in the generic sense, and connotes specific tasks or
components under any USAID-funded mechanism, including mechanisms known as projects, activities, programs,
or grants.
 As a result, a number of local CSOs that benefitted from USAID/EITI grants have gained
momentum in the their advocacy for policy change in the extractive industry operations,
environmental sustainability programming, coastal and shallow seas monitoring, and
organizing the host and neighboring communities of the extractive industries. Many local
CSOs are now lobbying to be part of the mine monitoring team and other committees
related to extractive industries for greater participation and transparency and ultimately
improve the recovery of communities’.

The next challenge is how to boost the momentum towards more impact going forward. If
funding is approved, USAID will: (1) strengthen the newly created interim multi-
stakeholder groups (MSGs) in localities previously assisted (Autonomous Region of Muslim
Mindanao or the ARMM, Surigao del Norte and Dinagat Islands) through intensive capacity
building activities on monitoring extractive/mining operations, extractive revenue watch,
and environmental sustainability; (2) expand the coalition of CSOs advocating for
transparent and accountable governance of the extractive sector through engagement with
local government and media representatives in the process of raising EITI awareness in host
communities; (3) assist CSOs in developing EITI outreach strategies that will deepen host
and neighboring communities’ of the principles of EITI, as well as the benefits and impact
of extractive operations.

ii. Expand sub-national EITI implementation in the Visayas and Luzon groups of islands
through grant awards to interested local civil society organizations.

With support from local CSOs, government agencies such as the Mines and Geosciences
Bureau and Department of Environment and Natural Resources, the National Commission
on the Indigenous Peoples, and the local government units, should take the lead in the
implementation of transparency and accountability initiatives at the subnational level so that
IP groups in host communities become more cooperative and open for engagement.
Previous USAID assistance facilitated the establishment of interim MSGs in the
Autonomous of Region of Muslim Mindanao, and the provinces of Surigao del Norte and
Dinagat Islands. While strengthening and formalizing these interim MSGs, USAID will
work to replicate the process of establishing interim MSGs in host localities and
communities in select provinces of the Visayas and Luzon islands.

Under this proposed activity, USAID will facilitate the development of site-specific
coalitions (interim MSGs) composed of representatives from the industry (mining and
extractive firms), local government units, and national government agencies that have
presence in the localities (Department of the Environment and Natural Resources, Board of
Investments, Department of Budget and Management and the National Commission on
Indigenous Peoples), and local CSOs. With USAID funding, local CSOs will implement
needs-based capacity building interventions for these sub-national EITI governance systems,
that includes among others: (1) deepening public’s understanding of the EITI, its benefits
and implementation impact at the sub-national level, as well as the role of different
stakeholders in the EITI process; (2) understanding public financial management systems as
they relate to extractive operations, including but not limited to the tracking of extractive
 revenues, wealth sharing between the national and local government and between levels of
local government units, donations received by local governments to village communities;
(3) strategies for mapping of extractive communities operating in communities; and (4)
developing or utilizing environmental monitoring tools as an input in overall decision-
making.

Indicative component activities include: (i) consistent with PH-EITI standards, the
development [and eventual dissemination] of local action plans on how to access,
understand, and use PH-EITI reports and other publicly disclosed extractive/mining data;
(ii) capacity building sessions on community participation in extractive governance
(including understanding the role of IP groups and communities in extractive sites as
partners and not as beneficiaries of government in the management of natural wealth); (iii)
dialogues that will enhance knowledge exchange and public discourse on extractive
governance; (iv) formation of linkages with the academe to deepen understanding of the
economic benefits of the extractive industry and of the governance systems surrounding
extractive governance; and (v) forging partnerships with extractive companies in
maximizing the potential of extractive operations for inclusive and sustainable economic
growth.

iii. Support analytical studies and outreach activities that will contribute to improved
governance systems in the extractive industry.

USAID/EITI funds will support the “Open Data policy” of the Philippines-EITI through
outreach activities, to increase transparency about how the Philippines’ natural resources are
extracted and used, and what and how the revenues from extractive industries are levied,
collected and spent, thereby empowering stakeholders to engage in public discourse and
debate, promoting accountability and helping to combat corruption in resource governance.

USAID will also support PH-EITI’s full information disclosure, particularly the social,
economic and environmental impact of the extractive sector, and strengthen multi-
stakeholder approaches in all levels of extractive governance, through forums and dialogues
with policy makers, local government units, industry representatives, media the academe
and other key actors. USAID will also work with PH-EITI in enhancing the EITI portal, to
include key information about the extractive industry, including the potential for full
disclosure of extractive/mining contracts. These information disclosure activities would
result in a more evidence-based and holistic policymaking, and a more stable policy
environment for the sector.

As applicable, USAID will help replicate models of contract negotiation and

implementation between extractive companies and IP groups in localities in the Visayas and
Luzon islands, and document successes to inform reforms in royalty payments, and the use
of mining rehabilitation fund and the social development management program. In cases
where previously developed model are not applicable, USAID will help IP groups in the
assessment of the current system of royalty payments in their localities, in the development
of a model contract that will be the basis for future IP negotiations, and in identifying laws
 or any implementing rules and regulations that need revisions to allow smooth
implementation of contracts.

Together with the Departments of Finance (DOF), Budget and Management (DBM),
Environment and Natural Resources (DENR), National Economic Development Authority
(NEDA), and the National Commission on Indigenous Peoples (NCIP), USAID through the
FPI project, will discuss and identify technical assistance activities to maximize the potential
of extractive industries in the Philippines, including but not limited to the following: (i) tax
and/or macroeconomic analysis of the mining sector, to determine the costs and benefits of
extractive operations and determine optimal taxation for the mining/extractive industry; (ii)
streamlining and improving guidelines on the utilization of national wealth; (iii) putting in
place mechanisms to monitor local government’s reporting of taxes and revenues from
mining and other extractive operations; and (iv) review and modeling of royalty payments
through case studies to be conducted in select localities in Luzon and Visayas.

To institutionalize the EITI in governance systems, USAID will explore the possibility of
mainstreaming the EITI standards in the Philippines’ governance systems, through
legislation, presidential executive order or joint memoranda between oversight agencies in
the extractive sector (e.g. DENR’s recent Administrative Order 2017-07 that mandates all
mining contractors to comply with the EITI standards or lose their Environmental
Compliance Certificate). For example, it is critical to figure out how oversight agencies in
the extractive sector, e.g. Mines and Geo-Sciences Bureau of the DENR, NEDA,
Philippines Statistics Authority can be linked together to mainstream the EITI standards to
ensure sustained transparency and accountability in the sector. Studying “beneficial
ownership” in the extractive sector would also provide value-added work to ensuring
transparency and accountability in the sector and to address other tax-related issues.

The mission will make sure that the proposed activities will employ gender sensitive approaches
to planning and implementing interventions, as well as demonstrate sensitivity to marginalized
sectors, including IP groups and communities across places where USAID will work. For
example, interventions that will cut across proposed activities include the development of skills
of men and women, local civil society actors and key leaders in monitoring the IP royalty
payments, SDMP Social Development and Management Program and MRF Mine Rehabilitation
Fund allocations and expenditures in their respective communities. USAID can also provide a
platform to discuss and collectively identify mechanisms that will create a balance between IP
cultural norms and legal regulations in implementing royalty payments. (Invite Badet to provide
inputs to this section)

3. Criteria under which the Mission is applying.

X Proposal is for additional funding for EITI -related activities under an existing Mission
mechanism.

Please Explain: Identify the existing mechanism. Identify the Mission's estimated date
for obligating the funds, and demonstrate the ability to obligate the funds by September 30, 2017.
The Facilitating Public Investments Project (FPI) is a $15.3 million five-year project (August
2013-August 2018) funded by the United States Agency for International Development
(USAID), which supports the Philippine Government in expanding public and private investment
in the Philippines through higher tax revenues, improved public expenditure management and
greater fiscal transparency.

One component of the FPI project is the EITI grant fund, implemented through a Grants Under
Contract (GUC) mechanism by the Development Alternatives, Inc. The EITI grant fund was
implemented to: (i) expand and promote more meaningful Civil Society Organization (CSO)
engagement in the EITI process; (ii) increase transparency and accountability in the management
of the extractive sector; and (iii) contribute to sustainable reforms in extractive sector
governance.

In ________, (for Kat to provide) DRG made available to USAID/Philippines a total of

US$750,000 to implement EITI activities. USAID/Philippines obligated this amount to the FPI
contract on August 28, 2015. As of the latest reporting date, around US$640,000 was disbursed
for grants to local CSOs, outreach and communication activities that deepened the public’s
understanding of the EITI, particularly at the local levels, and the administration of the grants.
The remaining amount, i.e. $108,000 is currently being implemented by two local CSOs whose
major objectives are to build the capacity of Indigenous Peoples in the provinces of the
Autonomous Region of Muslim Mindanao ’ to monitor Royalties paid by companies to
indigenous groups and the use of the Mining Rehabilitation Fund and the of the Social
Development Management Program funds, and to establish EITI multi-stakeholder groups
(MSG) at the local level.

The FPI contract will end on August 19, 2018. If approved, additional EITI funds in the amount
of $1 million will be sub-obligated to the FPI contract as soon as the funds are transferred, i.e.
before September 30, 2017, and activities will be implemented before August 19, 2018.

In addition, USAID/Philippines has a current EGDG bilateral to implement Partnership for

Growth activities that is valid through September 2018, but can be extended beyond that date, on
an annual basis. The EGDG bilateral mechanism has enough life than can absorb funds before
September 30, 2017. Once the $1 million is approved and obligated to the EGDG bilateral, the
Mission will work on the sub-obligation of funds to activities that have current mechanisms to
implement the EITI funds, such as the FPI.

□ Proposal is for funding of a EITI-related activities under a new Mission mechanism.

Please Explain: Identify the mechanism to be used, and list potential implementing
partners. Identify the mission's estimated date for obligating the funds, and demonstrate the
ability to obligate the funds by September 30, 2017.
4. Which Operating Unit (Mission, Regional Mission, Washington office) will manage the
proposed activities? If the request is for a non-presence country, please also identify the
AOR/COR.

USAID/Philippines Office of Economic Development and Governance (OEDG) will manage the
proposed activities, through the COR of the Facilitating Public Investments project, implemented
by the Development Alternatives, Inc. Whenever applicable and possible, USAID will also
explore other activities with similar mechanisms that can absorb and implement EITI funds
within a reasonable time frame. As necessary, USAID will coordinate with the State Department
and other USG agencies in the Philippines Mission all EITI activities to ensure greater
collaboration of USG development assistance.

5. Explain how the proposed activities align with host-country EITI commitments. Explain how
the activities will work with existing government and/or civil society partners.  

Valuable lessons were drawn from USAID’s involvement in EITI implementation in the
Philippines in the past two years. These lessons were accomplished through activities including
an Indigenous Peoples’ Summit, capacity building activities for local CSOs, and in-depth studies
on the extractives industry, held in specific target areas in the ARMM.

The IP Summit became an open ground for the IP groups and the Local Government Units
(LGU) to discuss how they can work together to foster a transparent and accountable extractive
industry within their localities. One of the findings of the Summit was that IP communities have
the capacity of initiating better mechanisms to manage and utilize their royalties and other
communal resources. IP communities and their leaders can work with the LGUs in terms of
harmonizing local mechanisms that will benefit both parties. The LGUs on the other hand, can
be the collecting agents of resource rents and other royalties to ensure proper recording and
avoid indiscriminate collections of payments by IP clans or communities.

It can be noted that in the past EITI reports, non-attention to or negligence of the issues of
indigenous peoples in communities hosting extractive operations (particularly insufficient or
non-payment of royalties) was one of the biggest challenges in EITI implementation. With
USAID assistance, attention to the issues and causes of indigenous groups host communities are
gaining more recognition, e.g. the NCIP is now looking at reforms in the free prior and informed
consent (FPIC), and in royalty payments to indigenous groups. Local governments are also more
aware of the need to ensure CSO engagement and participation in extractive operations within
host localities.

Compelling challenges and issues were brought up during the capacity building activities in
Surigao Del Norte and Dinagat Islands. Based on these capacity building activities, it was
learned that the national government has no substantial transparency and accountability
mechanisms to protect the interest of its people from possible abuse or anomalies by the mining
companies in the provinces and municipalities. Moreover, the national government agencies,
LGUs and the host communities do not have the technical capacity, including the necessary
equipment, to countercheck the information and data that are provided to them by the mining
companies.

While transparency and accountability in the extractive industry were improving at the national
level (e.g. declining variances from revenue reconciliation across the years, more transparent
reporting of revenues paid to the government), evidence has shown that transparency and
accountability in extractive operations are wanting at sub-national level. USAID assistance filled
the gap by expanding the support base for EITI implementation, i.e. through building capacities
of local actors, both CSOs and local governments. During the regional EITI roadshows, more
CSOs now clamor for more transparency and accountability in the extractive sector, thus creating
pressure for the government to institute reforms in the governance of the sector (e.g. improved
systems for royalty payments, greater transparency in the flow and utilization of extractive
revenues, better implementation of the Free Prior and Informed Consent).

From the scoping study conducted in the ARMM, Surigao del Norte and the Dinagat Islands, it
was learned that there are two crucial elements for the successful roll-out of transparency and
accountability initiatives in the autonomous region: first is the political support from and the
readiness of the local government to engage all stakeholders in the extractive sector; and second
is the need for capacity development of the interim multi-stakeholders group (MSG) to
collectively work in addressing the key issues and concerns of the extractive industries in the
region with trust and confidence.

USAID’s assistance facilitated the establishment of MSGs in these provinces, a process that is
critical in raising the standards for a more collaborative engagement in promoting transparency
and accountability in the extractive sector at the sub-national level.

USAID’s involvement in EITI complemented the host-country’s EITI commitments. In the

2016-20108 PH-EITI work plan, resources are dedicated to activities that will support and build
the capacities of the national MSG and the PH-EITI Secretariat, while USAID’s proposed
activities will concentrate on building the capacities of and partnering with local CSOs in
promoting transparency and accountability in the extractive sector.

While the bulk of the EITI funds will be allocated for direct engagement with CSOs, FPI will
closely coordinate with the PH-EITI (MSG and/or the Secretariat) to ensure alignment of
activities with the PH-EITI work plan and with development partners working on EITI in the
Philippines, to ensure effectiveness of assistance. USAID will work will work with the
Department of Finance, which is the Secretariat for the EITI initiative; the Department of Budget
and Management, which is involved in the transfers and monitoring of the use of extractive
revenues; the Department of Environment and Natural Resources, as necessary, on mining-
related issues; as well as with select local governments hosting extractive operations. USAID
will also continue working with Bantay-Kita, a coalition of CSOs that are advocating for
transparency and accountability in the extractive sector, and other individual local CSOs working
in EITI and the extractive sector.
6. Explain how the proposed activities align with the Mission’s Democracy, Human Rights, and
Governance strategy generally, and any existing USAID transparency and accountability
mechanisms specifically.

EITI promotes fiscal transparency that affects fiscal and economic performance. Specifically,
EITI-driven fiscal transparency informs investment decisions and can lead to greater fiscal
discipline in the public sector. It also reduces incentives for fund abuse and misuse, thereby
reducing corruption in the sector.

The FPI project is one of the projects under the USAID/Philippines’ Office of Economic
Development and Governance, which is composed of the economic growth and the democracy
and governance teams. Consistent with the activities of the democracy and governance team,
which are basically aimed at promoting transparency, accountability, civic engagement and
reduced corruption, the proposed activities are intended to support the expansion of and
strengthen civil society engagement in the governance of natural wealth, with particular focus on
the impact of extractive operations on indigenous peoples and on the sustainable management of
the environment. In line with the FPI goal of increasing transparency and fiscal performance, the
proposed activities will inform reforms in the taxation of mining firms, as well as in public
financial management systems.

Further, USAID is helping the Philippines in implementing its Open Government Partnership
action plan, by supporting the country’s compliance to the EITI standards, and by promoting the
OGP throughout the country.

7. Please identify any applicable indicators. Please Note: Missions are required to annually (by
October 31, 2017, and then by October 31st of each subsequent year where EITI funds are used)
report on all relevant indicators (standard F and any custom indicators proposed) to the EITI
fund Manager as part of the annual impact and outcomes narrative. This information will be
incorporated into briefing materials and outreach to EITI fund stakeholders, including those at
the Department of State.

USAID/Philippines Mission is aware of the need to annually report all relevant indicators to the
EITI Fund Manager as part of the annual impact and outcomes narrative, staring October 17,
2017. Since 2015, USAID/Philippines has been reporting on the activities and accomplishments
of the EITI Grant Fund previously provided. For the purpose of implementing this round of EITI
funds, the Mission will use and monitor the following indicators:

F indicators:

DR.4.2 DR.4.2 Civil Society Organizational Capacity Development

DR.4.2-1c New Number of indigenous people's groups
DR.4.2-2 2.4.1-9 Number of civil society organizations (CSOs) receiving USG assistance engaged
in advocacy interventions
DR.4.2-2c New Number of indigenous people's groups

Once EITI funding is approved and scope of work is finalized with FPI or other implementing
mechanism, the following custom indicators will be explored:
  Number of interim MSG established to implement EITI at the local level
 Number of agreements on contract negotiations signed between indigenous groups and
mining firms
 Number of public dialogues and consultations with the NCIP and select extractive/mining
firms
 Number of additional contextual information included in the EITI report, including study
on the beneficial ownership of extractive companies, tax policy analysis of mining, etc.
 Number of skills training for CSOs supported (contract negotiations workshops, data
analysis workshops, etc.)
 Number of contract digitized and publicized in the EITI portal

8. Will other USAID funds or activities be leveraged for the proposed activities?  Will the
requested funds leverage funds from other donors?

There are current funding limitations within the USAID/Philippines Mission. But to the extent
possible, USAID through the FPI activity, will leverage funds for the proposed activities,
including the use of technical experts who can help assess current mining taxation (including
transfer pricing issues, investment tax incentives and tax simplification) and improve business
processes for the allocation, release and monitoring of extractive revenues, and simplify current
taxation processes. The requested funds will leverage the 2017-2018 funds from Government of
the Philippines ($1.34 million), the World Bank ($705,471), and potentially other donors like the
DFAT-Australian Aid and the British Embassy who have previously indicated their support to
EITI implementation in the Philippines.