Communists turn up heat on Philippine mining industry

The Communist Party of the Philippines (CPP) is threatening violence against mining companies and the government just weeks after reforms were announced that will bring extractive industries more closely under the president’s control.

Philippine President Gloria Arroyo announced on July 18 she would take direct control of the country’s largest and most important state-run mining corporation, and that her brother-in-law would be appointed head of the House Committee on Natural Resources — two moves that triggered the CPP to issue what amounts to a call to arms against the government.

Accusing Arroyo of committing a “double coup” over the country’s mineral wealth, the CPP says its armed wing, the New People’s Army (NPA) has been issued standing orders to carry out all necessary action (armed and unarmed) to prevent “foreign big mining companies. . . and bureaucratic collaborators from carrying out the all-out plunder of our natural resources.”

In a statement, the CPP says any mining operations in the revolutionary territory — which is understood to be certain rural areas of Luzon, in the north, Visayas, in the central Philippines, and Mindanao, in the south — could be targets.

“With their heightened control, Arroyo and her kin and collaborators will be pocketing billions of pesos in cuts and bribes,” the statement reads.

Alex Gorbansky, managing director at Cambridge, Mass.-based risk assessment firm Frontier Strategy Group, says the CPP’s threat is yet another issue investors must consider when contemplating investing in the tumultuous country.

“The communists certainly have the capacity to create very difficult situations for mining companies on the ground,” he says. “They can mobilize communities in an aggressive manner, somewhat along the lines of what we’ve seen in Bolivia and Peru.”

The CPP stepped up verbal attacks on foreign-owned miners at the end of 2004, after the Philippine Supreme Court upheld the constitutionality of the Mining Act of 1995.

Nick Owen, a Southeast Asia analyst with London-based Control Risks, says that through the NPA, the CPP poses a continually high risk to miners in the Philippines.

“The NPA attacks mining ventures, both out of ideological opposition to extractive activities, but also because of refusals to accede to rebel extortion demands,” Owen says.

In 2002, the NPA and CPP were designated as terrorist organizations by the U.S. and European governments, but the move only increased the rebel’s demands for “revolutionary taxes.”

However, Owen says, mining companies that pay close attention to community relations and local development can insulate themselves to some degree from NPA attention.

And while Gorbansky isn’t surprised by Arroyo’s decision to take greater control over the country’s natural resources, he says she failed to adequately address concerns from grassroots groups in mining regions.

Arroyo placed the Philippine Mining Development Corp. (PDMC), a government-owned and controlled body active in all aspects of the mining stream, under her direct supervision in mid-July.

She said the measure was necessary to “closely monitor and oversee the efficient and effective implementation of the country’s utilization and development of its mineral resources.”

Patric Barry, president and chief executive of Tiger International Resources (TGR-V, TGILF-O) — a junior exploration company operating in the country — says that while it’s still too early to tell whether Arroyo’s move will have a positive effect on the industry, it is a good first step towards unleashing the country’s long pent-up mineral potential.

“If the president gets a hand around this industry and frees up some of the piddly bureaucracy and gets on with it, this has got to be a good thing,” he says. “It can’t be worse than the old way, where things weren’t getting done. Everyone was getting bogged down at the local level, where it’s very bureaucratic. . . Everything takes a fee, this is the Filipino way.”

Barry says that the changes Arroyo made were likely done with an eye towards winning back investor confidence, which was damaged back in the dark days of the Marcos regime and has never fully recovered.

But another executive with exploration properties in the country, Niyazi Kacira, president and chief executive of Altai Resources (ATI-V, ARSEF-O), isn’t quite as optimistic about the reforms.

Like Barry, Kacira sees local bureaucracies as the biggest impediment to juniors trying to get projects off the ground. But he believes the central government must take more drastic measures to reign in localities that act independently of central government decrees.

“Unless they change the whole permitting system, the changes won’t do much good,” he says.