Coal Mining in the Philippines:

An Overview and Analysis of Economic Impact

Dr. Cielo Magno

Mr. Anton Ragos
 Coal Reserves
Mineable Coal Reserves, as of Dec. 2012

Semirara 101.91
C. Valley 70.18
S. Cotabato 48.64
Surigao 47.55
Zamboanga 22.79
Samar 7.28
Cebu 6.97
PBC 3.61
Negros 1.21
Mindoro 0.87
Davao 0.12
Quezon 0.06
Masbate 0.04
0.00 20.00 40.00 60.00 80.00 100.00 120.00

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

Cebu 0.84

Surigao 0.76

Zamboanga 0.35

Albay 0.29

SSMC 1.36

0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6

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

25

20

15

10

0
77 79 81 83 8 5 87 89 91 9 3 95 97 99 01 03 05 0 7 09 11
19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20

Production
Importation

Source: Department of Energy

 Coal: Demand and Supply
Coal production, importation, and consumption, (in million metric tons) 1977-2012

25

20

15

10

0
77 79 81 83 8 5 87 89 91 9 3 95 97 99 01 03 05 0 7 09 11
19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20

Production
Importation
Consumption

Source: Department of Energy

 Coal: Demand and Supply
Coal consumption, by industry, (in %) 2009-2012

4.83
3.86
4.14
5.96
19.81 16.95
21.8 14.23
13.31 (mmmt)
18.79 12.06 23.42
72.44 (mmmt) 74.33 75.35
(mmmt)
(mmmt) 75.24

2009 2010 2011 2012

Power Generation
Cement Production
Other Industrial Processes*

*Include: alcohol, sinter, rubber boots, paper and

Source: Department of Energy chemical manufacturing, fertilizer production, and
Kessels, John (no date), Prospects of Coal and Clean Coal Technologies in the Philippines smelting processes
 Coal: Electricity Generation
Electricity generation , by source (in GwH), 1980- 2010

80000

70000

60000

50000

40000

30000

20000

10000

0
80 82 8 4 86 88 90 92 94 96 98 00 02 04 06 08 10
19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20

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

Exploration 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 100.00

Less: Recoverable Cost 90.00
Net Proceeds 10.00
Less: Basic Fees 4.00
Special Allowances 3.00
Gov’t Share Government Share 3.00
Recoverable Cost Department of Energy 1.80
Basic Fee
Special Allowance Local Government Unit 1.20

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 100.00

Less: Recoverable Cost 90.00
Net Proceeds 10.00
Less: Basic Fees 4.00
Special Allowances 3.00
Gov’t Share Government Share 3.00
Recoverable Cost Department of Energy 1.80
Basic Fee
Special Allowance Local Government Unit 1.20

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

18000

16000

14000

12000

10000

8000

6000

4000

2000

0
2004 2005 2006 2007 2008 2009 2010 2011 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

450.0

400.0 422.6

350.0

300.0 327.5
309.2
250.0
237.0
200.0

150.0

100.0

50.0
49.7
63.3 -4.7 -16.4
0.0 11.5
-50.0
2004 2005 2006 2007 2008 2009 2010 2011 2012
Statutory 32.00 32.50 35.00 35.00 35.00 30.00 30.00 30.00 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

2500

2000 1,917.40
1,834.55

1500
1,219.92

1000

584.81
500
118.43
0
2008 2009 2010 2011 2012

Statutory 35.00 30.00 30.00 30.00 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
Cauayan City
Gattaran
Iguig
Tandag
Compostela
Danao City
Bislig
Lianga
Balamban
Calatrava
Buug
Malangas
Imelda
Diplahan
Caluya
Marihatag
San Miguel
Bulalacao
Lake Sebu
Dalaguete
Rapu-Rapu
Payao

0 10 20 30 40 50 60 70

Provincial Poverty Incidence Notes:

Municipal/City Poverty Incidence
National Poverty Incidence
Source: Department of Energy
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
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 (%) 42,732 1.65 6.07 0.00 56.69
HH head educ (none) 42,732 0.03 0.17
HH head educ (elem. undergrad) 42,732 0.21 0.41
HH head educ (elem. grad) 42,732 0.19 0.39
HH head educ (HS undergrad) 42,732 0.12 0.32
HH head educ (college undergrad) 42,732 0.08 0.27
HH head educ (college grad) 42,732 0.11 0.32
HH members wage-earners (%) 42,732 0.24 0.25 0.00 1.00
Earns from farming and gardening 42,732 0.25 0.43
Earns from poultry and livestock 42,732 0.06 0.24
Earns from fishing 42,732 0.05 0.21
Earns from forestry and hunting 42,732 0.02 0.14
Earns from wholesale and retail 42,732 0.20 0.40
Earns from manufacturing 42,732 0.04 0.20
Earns from social, community services 42,732 0.05 0.21
Earns from transportation 42,732 0.07 0.26
Earns from construction 42,732 0.01 0.08
Earns from entrepreneurship 42,732 0.02 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