BWorld 168, Uncertainty in mining policy and the Manicani debate

* This is my column in BusinessWorld last November 23, 2017.

The Duterte administration’s mining policy shows continuing uncertainty.

First, ex-DENR secretary Gina Lopez issued a Department Administrative Order (DAO 2017-10) banning open-pit mining for metallic products.

After her rejection by the Commission on Appointments (CA) last May, it was expected that her successor, Sec. Roy Cimatu, would recall or reverse the order. He did not. So the Mining Industry Coordinating Council (MICC) formally recommended the lifting of the ban last October. Then President Duterte himself declared that the ban remains.

This roller-coaster style in policy is captured in recent stories in BusinessWorld, their publication date this year is indicated:

1. “End open-pit mining ban — MICC” (Oct.25)

2. “Miners face longer wait for end to open-pit ban” (Nov. 21)

3. “Better prices push up value of metal production even as volumes drop” (Nov.22)

The last report mitigates the gloom in the industry, that while metallic mineral output in the country from January-September 2017 has declined, world prices of copper, nickel and silver have increased, according to the Mines and Geosciences Bureau (MGB).

MINERAL RENTS
This leads us to the big mining potential of the Philippines compared to its neighbors in North and Southeast Asia. One indicator of such potential is mineral rents, defined by the World Bank as “the difference between the value of production for a stock of minerals at world prices and their total costs of production. Minerals included in the calculation are tin, gold, lead, zinc, iron, copper, nickel, silver, bauxite, and phosphate.”

In 2015 in the ASEAN, only Laos has a higher mineral rents/GDP ratio than the Philippines. Even Indonesia and China, which are abundant in mineral resources, have lower ratio than the Philippines. Many African countries have very high ratio, partly because they have high output and partly because they have a low denominator, GDP size (see table).

Russia’s ratio that year was 0.9, Canada 0.5%, US 0.1%. World average was 0.4%, all lower than the Philippines. Australia indeed is a good model in developing the industry with high ratio despite its huge denominator.

MANICANI ISLAND MINING DEBATE
Among the recent high profile debates in the industry is the renewal of the Mining Production Sharing Agreement (MPSA) of Hinatuan Mining Corp. (HMC) in Manicani Island, municipality of Guiuan, province of Eastern Samar. The current MPSA (1992-2017) will expire this year and hence, a renewal is applied by the company.

Some facts and numbers here which I got from a friend, BS Geology student in UP Diliman, Ralph Abainza, who went to Manicani last Nov. 14-15.

• MPSA covers 420 hectares or 36% of Manicani Island’s total land area of 1,165 hectares but actual mine area is less than 3% of total land area, the other 33% are roads, community projects like school buildings, housing, offices and equipment area, etc.

• Of the 25 years MPSA, active but discontinuous mine operations occurred only for an accumulated 5 years.

• Island’s soil is mainly LATERITIC, highly mineralized that agriculture may survive but will never be sustainable nor profitable.

• Barangay surveys of residents in Manicani showed a 85% — 15% approval vs disapproval of mining in the island.

AUSTRALIA MINING MODEL
Australia is a good model for the Philippines and other countries. Mining occupies only 0.02% of total land area but the sector contributes 9% of GDP — compare that with the Philippines’ exports of millions of OFWs who contribute 10% of GDP annually. There are also no “small scale” mining in Australia, only big corporate operations that are easier to monitor for compliance with mining laws by the government.

The sector is heavily mechanized, monster machines, and engines at work at open-pit mines, giving high-paying jobs to tens or hundreds of thousands of people, and can give lots of community projects to cover even nonworkers of the industry.

The Philippine government should learn more from rich and developed Australia. There are more mining entrepreneurs, investors, workers, community beneficiaries and tax revenues there than anti-mining activists.

With this in mind, we should just strictly implement existing laws and not change them arbitrarily depending on the whims of the Environment secretary or the President. We should have a rule of law, not arbitrary rule of men.

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See also: 
BWorld 162, Open pit mines and open economy, November 05, 2017 

BWorld 165, Airport transfers and tourism, November 25, 2017
BWorld 166, US energy trading and implications for Asia and Philippines, November 26, 2017 

BWorld 167, Multilateral, bilateral, or unilateral liberalization, November 27, 2017

Energy 78, AEMO on the S. Australia blackout last Sept. 28

More on the huge, state-wide blackout for many hours in S. Australia last September 28. There was a storm, strong winds with gust at 100-120 kph, so the wind farms should produce more power, right? Wrong. Wind power suddenly went AWOL. Huge supply deficiency, plus some transmission towers were knocked down. And there was massive power blackouts.

The wind farms shut down their turbines and locked the blades from spinning as there is danger that the blades might go out of control, the turbine can overheat/burn?

SA energy mix is 48% from wind, 34% energy import from Victoria, and 18% from thermal/gas power. Data from the AEMO Report, PRELIMINARYREPORT – BLACK SYSTEM EVENT IN SOUTH AUSTRALIA ON 28 SEPTEMBER 2016.

From The Advertiser, 4 October 2016:

Australian Energy Market Operator Orders 10 SA Wind Farms To Limit Generation After Statewide Electricity Blackout

Paul Starick

TEN South Australian wind farms have been ordered to limit generation in the wake of the disastrous statewide power blackout because the national electricity market operator has declared they have not performed properly.

The state’s biggest wind farm, at Snowtown, is among those which the Australian Energy Market Operator has targeted in its “management and analysis” of last Wednesday’s unprecedented power outage as it gradually restores the power network....

And from The Australian, October 05, 2016:

Green Disaster: South Australian Blackout Due To Loss Of Wind Power

Graham Lloyd

A dramatic, sudden loss of wind power generation was the root cause of South Australia’s state wide blackout last week...

My Australian engineer friend, Bernd Felsche, commented last October 06,

The AEMO preliminary report released yesterday does not state specifically if any wind generators locked; only that the power generated declined over a short period.

The "wind farm" operators ought to be able to tell if their turbines locked up. But they've said nothing … in a week.

As you note; wind power will drop to zero when the turbines lock up; something of which the State government and energy operators must have been aware; but totally unprepared in any event; transmission line failure to the wind generators OR the generators themselves.

South Australia's government hasn't yet announced a Royal Commission into the grid infrastructure (failure). They must do so IMNSHO because the grid structures failed catastrophically at wind speeds well below what they are supposed to survive. Such failures are indicative of a failure of competence or corruption.

From September 28 to October 4, the wind farm operators were silent? wow. Silence is admission that they indeed locked up their blades. I think they were designed for winds of 100 kph max, so when the winds reached 90+ kph, they locked up their blades, zero output.

The irony of wind power -- when there is a storm with strong winds, instead of wind turbines producing more electricity, they instead produce zero. The huge blackout in S. Australia occurred even before some transmission towers were knocked down. Wind power simply went AWOL.

From ABC, South Australian blackout: When the lights go out, it's a sign the electricity grid isn't working well, October 06, 2016:

"Wind presents two engineering problems when it is hooked up to a grid that was designed before it was viable.

First, it is intermittent so all of it has to be backed up by baseload power for those days when the wind does not blow.

Second, for an electricity network to function, demand and supply have to be kept near the perfect harmony of 50 cycles (50 hertz) every second of every day. If the frequency gets out of tune it trips the shutdown switch.

This electrical harmony is called synchronous supply, and thermal power is very good at delivering it. Wind power is asynchronous as its frequency fluctuates with the breeze, so it has to be stabilised by the give and take of other sources of demand and supply."

The endless reminder: Governments should step back from energy rationing and cronyism, telling picking winners and losers, mandating which energy sources should continue and expand and which ones should be curtailed, if not discontinued and killed.
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See also:
Energy 75, the PH solar confederation, electric coops and Meralco, August 01, 2016 
Energy 76, PEMC reply to my article on AEMO, WESM, September 11, 2016 
Energy 77, South Australia's blackout last September 28, October 08, 2016

Energy Econ 23: Death of Australia's Carbon Tax

Today, Australia officially killed the onerous and climate alarmism law, carbon tax. I am posting below portions of selected news reports on the subject.

From The Australian today, 

The Prime Minister, while claiming victory after a five-year campaign against carbon pricing, also launched a new campaign against the Labor Party’s promise to take a replacement emissions trading scheme to the next election.

And from the WSJ today,  

"He said the carbon price was acting as a A$9 billion a year handbrake on the economy, which was adjusting to the end of a record mining investment boom that helped shield Australia through much of the recent global economic downturn....

The carbon tax has affected industries ranging from mining and energy to aviation, and was widely opposed by manufacturers and a majority of business representative groups including the country's main chamber of commerce....

Airline operators also said they had been hurt badly by the tax, at a time when intensifying competition in Australia's domestic travel market was already driving down ticket prices. Virgin Australia Holdings Ltd. VAH.AU 0.00% said it lost A$27 million in the six months through December 2013 due to the carbon tax, saying it couldn't pass costs on to passengers because of stiff market competition. It reported a first-half loss of A$83.7 million."

Earlier, WUWT, June 10, 2014, noted the alliance between the two leaders of Australia and Canada. 

“It’s not that we don’t seek to deal with climate change,” said Harper. “But we seek to deal with it in a way that will protect and enhance our ability to create jobs and growth. Not destroy jobs and growth in our countries.”

From Ottawa Citizen,

Abbott, whose Liberal party came to power last fall on a conservative platform, publicly praised Harper for being an “exemplar” of “centre-right leadership” in the world.

Abbott’s government has come under criticism for its plan to cancel Australia’s carbon tax, while Harper has been criticized for failing to introduce regulations to reduce greenhouse gas emissions in Canada’s oil and gas sector.

From International Business Times (IBT) Australia, June 10, 2014, 

Tony Abbott to 'Forge Alliance' to Counter Obama's Efforts to Push Climate Change on Top

Abbott, who is visiting Canada for talks with the country's prime minister and his close friend Stephen Harper, said efforts are underway to form a new "center-right" alliance under the leadership of Canada, UK, Australia, India and New Zealand....

In a report by the Sydney Morning Herald, it said the alliance may be a "calculated attempt" to push back on what both Mr Abbott and Mr Harper sees as a "left-liberal agenda" to raise taxes and "unwise" plans to address the issue of global warming.

  

From The Telegraph, June 10, 2014,

""Like-minded” countries such as Britain, Canada and India should form a conservative alliance with Australia to limit action on climate change and to prevent the introduction of carbon pricing, the country's prime minister Tony Abbott has said.

Seeking to counter Barack Obama’s efforts for international action to reduce carbon emissions, Mr Abbott has reportedly sought to create a “combined front” with fellow Commonwealth nations that have conservative governments."

September last year, Tony Abbott also abolished the Ministry of Climate Change, helped shrink the size of Australian government.

From pointcarbon.com,

AUSTRALIA AXES MINISTERIAL ROLE FOR CLIMATE CHANGE

16 Sep 2013 09:40 Last updated: 16 Sep 2013 09:51

BEIJING, Sept 16 (Reuters Point Carbon) - The new Australian Cabinet will be the first in six years to not have a ministerial role for climate change issues, merging instead global warming with the wider environment portfolio.

Announcing his Cabinet on Monday, incoming Prime Minister Tony Abbott appointed Greg Hunt, the Liberal-National Coalition’s spokesman on climate change issues since 2009, as the new Minister for the Environment.

So, RIP, carbon tax, at least in Australia.

I hope that other developed countries will realize the folly of making things, from electricity to manufacturing to mining to flying and tourism, become more expensive than what they should be. People want affordable products and services so they can live a more prosperous, more comfortable life. It is the reward for their hard labor and work efficiency.
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See also:
Energy Econ 16: Electricity and Development, March 20, 2014

Energy Econ 19: Wind Power, Feed in Tariff and Electricity Subsidy, April 23, 2014

Energy Econ 20: On Slashing the Max Power Generation Charge, May 05, 2014

Energy Econ 21: Joint Statement on EPIRA Implementation, May 27, 2014

Energy Econ 22: FEF on FIT for Solar Power Plants, June 13, 2014

Migration and Freedom 5: Conferences on Liberty and Migration

(Note: this is my article for People's Brigada News last weekend. It should have been published two weekends ago, but I failed to submit it on time, so they posted it only last weekend.)
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Jakarta, Indonesia – Liberty is absence of coercion. A society that has less coercion, less regulations, restrictions and prohibitions, is more free. Whatever regulations and coercion that are instituted in society, these are meant to enhance individual freedom, not restrict it.

Advancing individual freedom and the free market is a continuing theme of the annual Pacific Rim Policy Exchange. The last conference was held in Sydney, Australia last week, September 28-30. I was one of the 80-plus participants from countries surrounding the Pacific Rim from four continents – North America, South America, Asia and Australia. I was given a travel scholarship by the main sponsor, the Americans for Tax Reforms. The other 3 sponsors of that activity were the Property Rights Alliance (PRA, US), Heartland Institute (US) and the Institute for Public Affairs (Australia). I was one of the panel speakers on the panel, “Getting free market messages out”.

After that, there was a one-day activity, “Pacific Rim Conference on Climate Change”, October 1, held in the same hotel, Sheraton on the Park, and was sponsored by the Heartland Institute. I also attended that conference.

This week, I attended another important forum, the Economic Freedom Network (EFN) – Asia Conference held in Sultan Hotel in the capital city of Indonesia, October 6-8, 2010. The theme of this year’s conference is “Migration and the Wealth of Nations”. The event was mainly sponsored by the Friedrich Naumann Foundation for Liberty (FNF) and co-sponsored by six other free market-oriented think tanks, three based in Indonesia, three based in the US, Canada and UK.

FNF invited me in the conference to be one of the 9 moderators in 9 panel discussions. I moderated the panel on “Preparing migrants before departure” and the two speakers in the panel were Dr. Arianto Patunru, Director of LPEM and Economics Professor at the University of Indonesia, and Zubair Ahmed Malik, former VP of the Pakistan Chamber of Commerce and Industry.

Migration happens because people want freedom. Economic, political, cultural, religious, personal freedom. People mobility across countries and continents is a perfectly rational human behavior. Restricting such freedom by individuals is not an appropriate role or function by governments. Unless some people have committed a crime against their fellows in their home country, then their freedom to move outside should be curtailed.

Liberty and migration will continue as people seek better lives for themselves, their families and their communities.

* See also Migration and Freedom 4: Filipino entrepreneur in Germany, June 04, 2009

Tax Cut 1: Australia

Australia, one of the most dynamic economies in the world, announced some tax cuts. The rates are still high compared to say, many Asian developed and emerging markets like HK, Singapore and Taiwan. Nonetheless, the cuts can further spur private and household consumption or go into private investments, either way will further enhance the economy.

Australia is attracting a lot of talented middle class Filipino households and professionals as migrants. If those talented and self-driven migrants (Filipinos, Vietnamese, Malaysians, other nationalities) will find the opportunities they need there, it won't be long that Australia will overtake many European countries in both economic dynamism and GDP size.

If this happens, many of its neighbors in Asia like the Philippines will benefit, as more trade, more tourism, more migration and people mobility will happen.
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http://news.ft.com/cms/s/1eef20da-df86-11da-afe4-0000779e2340.html
Sydney announces tax-cutting budget
By Sundeep Tucker in Sydney
May 9, 2006

In a 30-minute address to Australia’s parliament in Canberra, Mr Costello, Australia's Treasurer, announced that the country’s highest marginal rate of personal income tax would fall from 47 per cent to 45 per cent while the next highest rate would also fall by two percentage points to 40 per cent.

Tax thresholds will also rise, with only those earning above A$150,000 a year paying the highest marginal rate. Mr Costello said the changes would make Australia’s tax regime more internationally competitive, as it struggled to attract and retain key workers.

The government will also cut business tax by A$3.7bn over the next four years with reforms to the small business taxation system and higher depreciation allowances. Mr Costello further announced that super-annuation, or pension, benefits paid to over-60s from July 2007 would be tax-free, and he extended family tax benefits to more people....

Mr Costello denied the tax cuts would precipitate an increase in interest rates, as the budget would remain in surplus....