The Environmental Impact of Macroeconomic Policies On Mining and Quarrying Sector In Palawan Province

IMAPE Project Impacts of Macroeconomic
Adjustment Policies on the
Philippines Environment Project

IMAPE Research Paper No. 06

The Environmental Impact of Macroeconomic
Policies on Mining and Quarrying Sector in
Palawan Province

Danilo C. Israel, Aida Torres and Adelwisa Sandalo

July 2001

This work was carried out with the aid of a grant from the International
Development Research Centre, Ottawa, Canada.

IMAPE Project. Policy and Development Foundation Inc.

Unit 7B Vernida I Condominium, 120 Amorsolo Street, Legaspi Village, Makati 1229,
Metro Manila, Philippines

Telephone: (632) 813-6178 to 79, 816-3263 Fax: (632) 813-
6179

E-mail: mimap@pacific.net.ph

The Environmental Impact of Macroeconomic Policies on the Mining and
Quarrying Sector in Palawan Province

by

Danilo C. Israel
Adelwisa Sandalo
and
Aida Torres

Abstract

The main objective of this study was to investigate the direct environmental
impact of specific macroeconomic policies on the mining and quarrying sector of
Palawan. A corollary objective was to provide a general overview of the mining and
quarrying sector in the Philippines and Palawan. Rapid rural appraisal (RRA) methods
were employed in the analysis.

The study found that a positive direct effect of financial liberalization was the
increase in the number of banks in Palawan. This gain, however, was tempered by the
low level of use by mining and quarrying firms of banks as source of investment. Since
it did not influence investment and production levels, the increase in the number of banks
and fund availability did not directly influence the rate of mineral extraction and
environmental degradation in the sector.

Foreign exchange liberalization, through devaluation, caused some contraction in
the activities of quarrying firms. This helped reduce the rate of mineral extraction and
environmental degradation in the sub-sector on a firm basis. However, devaluation also
made quarrying households poorer, forcing them to depend more on wood for their
cooking fuel needs and reducing further their willingness to pay for any form of
environmental improvement.

Trade liberalization helped reduce the costs of imported inputs of the single
mining firm but did not directly influence the production of mining and quarrying firms,
which either had pre-set exports or catered only to the domestic market. Consequently,
the policy did not directly influence the rate of mineral extraction and environmental
degradation by the firms and their willingness to pay for environmental improvement.

Investment promotion may has an important role to play if it helps lead to an
environmentally safe nickel processing facility currently being proposed by the single
mining firm in the province. For its part, tight fiscal policy may have improved
environmental management by encouraging private participation in the mining sub-
sector. On the negative side, the reduced budgets for monitoring and enforcement may
have contributed to the significant proliferation of illegal operations in the quarrying sub-
sector.

The Environmental Impact of Macroeconomic Policies on the Mining and
Quarrying Sector in Palawan Province*

by

Danilo C. Israel
Adelwisa Sandalo
and
Aida Torres**

I. Introduction

The Impact of Macroeconomic Adjustment Policies on the Environment (IMAPE)
Project has been conducted in the Philippines in light of the recognition that policies
intended to attain economy-wide objectives could have significant effects on the natural
environment. Among the major undertakings of the project is the evaluation of the
interactions between policies, firms and households, and the environment in a selected
case study area.

An earlier effort of the IMAPE in the above regard was the conduct of a study on
the environmental impact of macroeconomic policies in Palawan (Israel et al. 1999). The
province was specifically investigated because it is a special zone for environmental
protection in the country. In addition, national and local government units (LGUs) in
Palawan in general are relatively well advanced in the application of the Geographic
Information Systems (GIS), a modern technology that is potentially useful for the
purposes of the IMAPE.

As a continuation of the abovementioned study, the IMAPE recently conducted
another effort to further investigate the impact of macroeconomic policies on the
environment in Palawan. This time, the analysis is concentrated on mining and quarrying
because of the great potential of the sector, both as a source economic growth and
environmental degradation in the province. Furthermore, whether or not mining and
quarrying should be encouraged nationally is a current political and social issue that
cannot be overemphasized.

*
This research is part of the Impact of Macroeconomic Adjustment Policies on the Environment
(IMAPE) Project funded by the International Development Research Center (IDRC) of Canada.
**
Ph.D. in Resource Economics and consultant of the Policy and Development Foundation, Incorporated
(PDFI); Head, Policy Research Division, Palawan Council for Sustainable Development (PCSD); and
Head, Technical Services Division, PCSD, respectively. Research assistance was provided by Ms.
Merlinda Hilario and Ms. Concepcion Gilongos of the PCSD and Mr. Edralin Bayona of the PDFI.

This paper is the final report of the IMAPE study on the mining and quarrying
sector in Palawan. It is jointly prepared by members of the staff of the Policy and
Development Foundation, Incorporated (PDFI) and the Palawan Council for Sustainable
Development (PCSD). It benefited from the indispensable assistance provided by various
private and public sector individuals and institutions at the local, provincial, regional and
national levels.

II. Objectives and Activities

The main objective of the study was to investigate the environmental impact of
various macroeconomic policies implemented by the national government over the years
on the mining and quarrying sector of Palawan. Specifically, it looks into the interactions
between policies, firms and households in the mining and quarrying sector, and the
natural environment. A corollary objective was to provide a general overview of mining
and quarrying in the Philippines and Palawan that may be useful for future undertakings
of the IMAPE as well as related research activities.

To attain the abovementioned objectives, the study conducted the following:

a) review of the laws covering the mining and quarrying sector at the national and
local levels;

b) review of the management aspects of the mining and quarrying sector at the
national and local levels;

c) review of the available literature on mining and quarrying development in the
Philippines;

d) development of the theoretical framework for evaluating the environmental
impact of macroeconomic policies on the mining and quarrying sector in
Palawan;

e) profiling of the mining and quarrying sector of the Philippines;

f) profiling of Palawan, its economy and its mining and quarrying sector;

g) conduct of the case study of mining and quarrying firms and households in
Palawan; and

h) generation of conclusions and recommendations from the study.

III. Review of the Laws Covering the Mining and Quarrying Sector

There were various laws passed concerning the mining and quarrying sector in the
Philippines. Commonwealth Act (CA) 137, otherwise known as the Mining Act of 1936,
was the earliest. Among others, this law gave priority to Filipinos to explore and utilize
mineral lands and resources. Later on, Presidential Decree (PD) 463, or the Mineral
Resources Development Decree of 1974, revised CA 137. The overall aim of this
legislation was to provide for a modernized administration, exploitation and development
of all mineral lands in the country.

In 1984, PD 1899 was passed which established small-scale mining as a new
dimension in mineral development. Then, in 1991, Republic Act (RA) 7076, or the
People’s Small-Scale Mining Act, was promulgated. It aimed to further promote,
develop and protect small-scale mining operations so that more employment
opportunities can be created and an equitable sharing of the wealth and natural resources
can be effected.

In 1995, the most recent mining law, RA 7942 or the Philippine Mining Act, was
passed. It aimed to promote the rational exploration, development, utilization and
conservation of mineral resources through the active partnership of the government and
the private sector. Among its important features was the provision of financial or
technical assistance any qualified person or entity that has the capability to undertake
large-scale mineral exploration.

The Philippine Mining Act is unique for some reasons. It is the first law that
specifically addressed the concerns of indigenous peoples in mining areas. Furthermore,
through its Implementing Rules and Regulations (IRR), the law ordered mining firms to
establish the Contingent Liability and Rehabilitation Funds (CLRF) that will guarantee
their compliance to environmental commitments.

Aside from those already mentioned, there are other national laws that affect the
mining and quarrying sector particularly related to the environment. PD 1151, or the
Philippine Environmental Policy Law, mandated that national agencies and
instrumentalities of the government as well as private individuals, corporations and
entities, including those in the mining and quarrying sector, to implement and adopt the
Environmental Impact Statement (EIS) System. PD 1152, or the Philippine Environment
Code, established the environmental management policies and prescribed environment
quality standards to be followed nationally. PD 1586 mandated that no person or entity
shall operate in an environmentally critical area without first securing an Environmental
Compliance Certificate (ECC) to be issued by the President of the Republic or his duly
assigned representatives.

For Palawan, the most important law that relates to the environment is RA 7611,
or the Strategic Environmental Plan for Palawan, which was enacted in 1992. Among
others, this legislation ordered the creation of the PCSD and stipulated the formulation
and implementation of the Strategic Environmental Plan (SEP) for the entire province.
The SEP was intended to serve as basis for the long-term development of the area in an

environmentally sustainable, socially equitable and economically practicable way
(PIADPO n.d.). Among its significant features is the Environmentally Critical Areas
Network (ECAN) that establishes a graded system of protective management from strict
control to very light control over the various ecosystems and environments in the
province.

IV. Review of the Management Aspect of the Mining and Quarrying Sector

4.1 Mining Sub-Sector

Nationally, the Department of Environment and Natural Resources (DENR)
manages mining in the country. This is the department mandated by law to manage,
conserve, protect and develop natural resources in the pursuit of sustainable development.
The DENR carries out its mining-related functions through its Mines and Geosciences
Bureau (MGB) and Environmental Management Bureau (EMB).

The DENR Secretary is the entity authorized to grant permits and enter into
mineral agreements in behalf of the government. These permits and agreements include
the Exploration Permit (EP) for exploration activities, Mineral Agreement (MP), which is
either a Mineral Production Sharing Agreement (MPSA), Co-Production Agreement, or a
Joint-Venture Agreement, for extraction activities, and the Financial or Technical
Assistance Agreement (FTAA) for the large-scale exploration, development and
utilization of mineral resources. The Secretary also supervises the Regional Directors of
his department who are responsible for the coordination and implementation of the
programs and activities in the different regions, including the administration of all
mineral lands and related resources within their regional jurisdiction. The Regional
Directors are also the ones responsible for coordinating with the LGUs, Non-government
Organizations (NGOs) and other stakeholders in matters relating to mining management.

The Director of the MGB is directly in charge of managing all mineral lands
resources of the country. He has various powers, including the authority to enforce
guidelines and policies concerning the safe and sanitary operations of all mining
operations. He also recommends to the Secretary the granting of permits and mineral
agreements to qualified applicants and can cancel mining rights because of
noncompliance to the important mining and environment-related rules and regulations.

At the regional level, the MGB Regional Director has the primary responsibility
of implementing the mining laws, rules and regulations and the programs of his Bureau in
his assigned region. Monitoring and enforcement of mining-related rules and regulations
in the regions is an important task of the Regional Directors. Part of these activities is the
conduct of safety inspection of storage facilities and installations and the conduct of on-
site validation of the reports submitted by the mining operations to his office and similar
activities.

The EMB is involved in mining since by law, it has the primary responsibility to
accept, process, monitor and evaluate EIS and recommend the rules and regulations for
the Environmental Impact Assessments (EIAs) of all industrial activities, including
mining operations. Furthermore, the agency is required to provide critical technical
assistance for the implementation and monitoring of the EIAs and make
recommendations to the DENR Secretary regarding the issuance of ECCs to mining
applications.

At the provincial level, the Provincial Environment and Natural Resources Office
(PENRO) and the Community Environment and Natural Resources Office (CENRO) are
DENR offices that implement the policies, programs and projects of the department in the
province and community levels. Working with the Regional Offices of the national
government and the environmental offices of the LGUs, these agencies assist in the
conduct of on-site inspections and monitoring of all mining operations within their
jurisdiction.

4.2 Quarrying Sub-Sector

The management of quarrying activities covering more than 5 hectares is under
the DENR through the regional MGB. For operations covering 5 hectares or less, the
LGUs are in charge of management. In this case, the Provincial Governor or City Mayor
issues the permits for quarrying operations, subject to the recommendation of the
Provincial or City Mining Regulatory Board (PMRB/CMRB). For Palawan, only the
Provincial Governor can issue quarrying permits. The City of Mayor of Puerto Princesa
does not issue permits because it is still a component, not a chartered, city.

4.3 ECC Requirement

In general, mining and quarrying applicants have to get an ECC from the DENR
before they can start operations. In this particular aspect, the role of PCSD in Palawan is
crucial since mining and quarrying applicants have to get its endorsement before the
DENR issues the ECC. By virtue of the Local Government Code (LGC), the provincial
government of Palawan, the city government of Puerto Princesa and some of the
municipalities now have Environment and Natural Resources Offices (ENRO) under their
administrative set-up and control. As part of their functions, these local agencies assist in
the mining and quarrying management in the province, particularly in the review of
permit applications and the monitoring and enforcement of rules and regulations within
their jurisdictions.

V. Review of the Literature on Mining and Quarrying in the Philippines

There were several studies already done about mining in the Philippines although
only a few were available about quarrying. Most of the studies on mining were mainly
descriptive and provided only a general overview of the industry. A few of the studies
discussed the environmental impacts of mining, either in support or opposition to the
industry.

De Vera (1996) explained the importance of the mining industry to economic
development. He stated that its contributions were significant in terms of production,
employment and foreign exchange generation. He also argued that mining supports the
program of countryside development that aims to draw the population away from
congested urban areas. De Vera, however, stated that due to several technical, economic,
social and environmental factors, some of the biggest mining firms have closed down in
recent years resulting to the significant drop in the production of some important
minerals. In a more optimistic note, Ramos (2000) argued that despite the various
problems faced by the industry, it still faces a bright future. He cited that while minerals
production in the country was dormant, exploration activities were progressively
expanding.

Tujan and Guzman (1998) reviewed the mining sector and made a strong critique.
They stated that like many of the other sectors of the economy, mining is either small-
scale and isolated or large-scale but concentrated in the hands of the local rich and their
foreign cohorts. They asserted further that it is export-oriented yet import dependent,
thus, condemning the country to backwardness and plunder by foreign corporations and
comprador-landlords.

A few works highlighted the negative environmental effects of mining in specific
areas (Bennagen 1998, UBC abd UP 1996, Briones 1987; Briones n.d). They
emphasized that mining is an environmentally destructive and accident-prone economic
activity that needs strict and proper management if it is to appropriately contribute to
national development. Other studies, on the other hand, defended mining in relation to
the environment. Angeles (1995) asserted that the criticisms that mining received were
the results of misinformation and the lack of knowledge on the environmental aspects of
mining. MGB (2001a) further argued that if mining is done in a sustainable and
environment friendly manner, it can actually enhance instead of degrade the environment.

Only two studies dealing on quarrying were available. Martin and Discipulo
(1996) explained the importance of the quarrying industry of the Southern Tagalog
Region to the growth and development of Metro Manila. Martin (2000) chronicled the
experience of the MGB in addressing the environmental problems caused by quarrying in
Rizal province. He explained that the agency, in cooperation with the quarrying
operators, LGUs and the various other stakeholders did much to improve environmental
management in quarrying in controversial sites.

VI. Theoretical Framework for Evaluating The Environmental Impact

The framework for evaluating the environmental impact of macroeconomic
policies in Palawan was discussed by Israel et al. (1999), based on earlier framework-
building works of the IMAPE (Intal 2000, Francisco and Sajise 1992, Quesada 1992,
Lamberte et. al. 1991). This theoretical framework was reworked to fit the current
analysis of the mining and quarrying sector.

In theory, the relationships between macroeconomic policies, mining and
quarrying firms and households, and the natural environment can be viewed as follows
(Figure 1). Macroeconomic policies affected the environment through different
transmission channels and mechanisms that exist from the national level down to the
microeconomic level. In return, the state of the environment influences macroeconomic
policy-making because of the growing acceptance among countries that sustainable
development is the appropriate path to follow. Furthermore, the environment affects the
world and national economies because of the important role it plays in the production of
goods and services.

In the forward flow of relationships, the implemented macroeconomic policies
affect the national economy through the national output, employment inflation, balance
of payments and other macroeconomic aggregates. A tier below, the policy-induced
changes in the national economy influence specific sectors in the economy through three
transmission channels: the labor and capital market, goods and services market and the
provision of public goods. Policies influence through these channels by inducing
changes in the prices of capital and labor, prices of product and services and the amount
of available public goods. Since the microeconomic units of the sectors, specifically the
firms and the households, participate in the three transmission channels, the changes
eventually affect them by way of three transmission mechanisms, particularly the changes
in the relative prices, changes in the incomes and the changes in their purchasing power.

In the case of mining and quarrying, the behaviors and decision-making of the
firms that have environmental significance are affected by changes in the relative prices
they face, the incomes they generate and in their purchasing power in several ways. For
instance, an increase in the incomes and purchasing power of firms as a result of
macroeconomic policy may increase their willingness to pay for activities for
environmental improvement. On the other hand, it may encourage the same firms to
increase the rate of mining and the level of mineral depletion and environmental
degradation. Like the firms, the activities of households that have bearings on the
environment are affected by changes in the relative prices, incomes and purchasing
power as well. An increase in the incomes and purchasing power of the households, for
instance, may raise their willingness to pay for activities for environmental improvement.
Or it may increase their rates of consumption, and, thus, their capacity to potentially
contribute to environmental degradation.

While the interactions between macroeconomic policies, mining and quarrying
firms and households and the environment can be theoretically analyzed, they are
actually difficult to empirically estimate. The main reason for this is that the secondary
data on the different economic and environmental variables needed for such analysis are
generally sketchy or downright non-existent, particularly at the local levels. Primary data
gathering can be done to address this constraint but a survey, for instance, can also be
very costly and time-consuming to conduct, especially where respondents have limited
knowledge and understanding of macroeconomic policies and their impacts. A third
and equally important reason is that even if primary and secondary data and information
can be had, a quantitative model that can accurately measure all the different

relationships has yet to be developed for local situations. Most modeling efforts at
present have been concentrated on analyzing the relationships between macroeconomic
policies and the environment at the national level where secondary data are relatively
more available.

A more practical way of empirically studying the interactions between policies,
mining and quarrying firms and households and the natural environment then was
needed. For this study, it was decided that only the direct and observable effects of
macroeconomic policies were looked into as these can be easily ascertained and validated
among the firms and households in the field. For the data gathering and actual analysis
itself, Rapid Rural Appraisal (RRA) and case study approaches were applied. These
methods were considered ideal for the rural nature of the mining and quarrying sector, the
type of research problem at hand and the research conditions and constraints faced by the
study.

Five macroeconomic policies have important bearings on the environment and
Intal (2000) made a thorough discussion of the direct and indirect impacts of some of
these on the entire economy and the environment. Below, the direct interactions between
the macroeconomic policies, the mining firms and households and the natural
environment are summarized (Figure 2).

The first macroeconomic policy is financial liberalization, which was initiated by
the national government through a series of financial reforms (Reyes and Cororaton
1996). Briefly, the general intents of this policy are to reduce interest rates and increase
the availability of credit in the economy. Other things the same, easier credit and lower
interest rates will encourage the firms in the mining and quarrying sector to invest more,
resulting to the expansion and growth of the sector. Environmentally, more production
in the sector will lead to more intense mineral extraction and environmental degradation
per se.

The second policy is foreign exchange liberalization, which was also
implemented by the government through a series of reforms. The policy aimed to correct
an overvalued currency and abolish various controls related to foreign exchange
transactions. The potential positive and direct effects of these are the inflow of foreign
capital into the mining and quarrying sector and the increased participation of firms in the
export market. A potential negative effect is that the devaluation will raise the level of
prices and dampen growth in the economy. If mining and quarrying are mostly non-
tradable, then further contraction results as costs of production go up while demand goes
down. Environmentally and on the negative side, the growth that the inflow of capital
and increased exportation brings will worsen mineral extraction and environmental
degradation. Furthermore, households made poorer by devaluation will be less willing to
pay for environmental improvement and more willing to exploit natural resources to meet
their needs. On the positive side, if a non-tradable mining and quarrying sector contracts,
overall mineral extraction and environmental degradation may also significantly slow
down.

The third policy is trade liberalization, which was pursued mainly through the
Tariff Reform Program (TRP). As a result of this policy, the tariff range for various
imported production inputs was reduced and various import restrictions were reduced or
eliminated (Austria and Medalla 1996). The potential negative impact of these reforms
on the mining and quarrying sector is the reduced production by firms if relatively
cheaper imported substitutes for its products are available in the market. The potential
positive impact is increased production due to higher investment by firms in cheaper
imported and more efficient equipment. If most of the products are tradable and trading
partners also practice trade liberalization, firms may increase exportation resulting to the
expansion of the sector. Environmentally, the decreased production by firms due to
intense competition from import substitutes will reduce mineral extraction and
environmental degradation. If higher investment in imported equipment includes those
for environmental protection and management, the level of environmental degradation is
also lowered. However, if increased exportation results from trade liberalization, then
worsening mineral extraction and degradation occurs.

The fourth policy is investment promotion, which was initiated again through a
series of reforms (Reyes and Cororaton 1996, Austria and Medalla 1996). This policy
was intended to increase the flow of invested foreign and domestic funds into the
economy. Like some of the other policies, the potential positive impacts of investment
promotion are the increased investment and growth in the mining and quarrying sector.
These should promote further resource extraction and environmental degradation in the
mining and quarrying sector. However, if investment into environmental protection and
management accompanies overall investment, then some mitigation of the environmental
problems may happen.

The fifth policy is tight fiscal policy, which was intended to improve the
deteriorating fiscal position of the country (Manasan 1998). This policy was pursued
through improved tax generation and reduced government expenditures. Reduced
government expenditures for environmental protection and management, particularly in
the area of monitoring and enforcement, may result to increased incidence of violation of
environmental rules and regulations, worsening mineral extraction and environmental
degradation. Higher taxation can significantly increase costs of firms and households and
reduce their willingness and ability to spend on environmental protection and
management.

VII. Profile of the Mining and Quarrying Sector of the Philippines

The Gross Value Added (GVA) of the mining and quarrying sector contributed
about 1.56 percent to both the Gross National Product (GNP) and the Gross Domestic
Product (GDP), on average annually, from 1985 to 1998 (Table 1). In money terms,
national mineral production amounted to about P24.9 billion, on average annually, over
the same period (Table 2). Of this, approximately 65 percent was metallic production
while 35 percent was non-metallic production.

In recent years, nickel was the only metallic mineral significantly mined in
Palawan while sand and gravel were the most important quarrying products. Thus, it is
instructive to look into the production performance on these minerals nationally. In
money terms, national nickel production was about P484 million, on average annually,
from 1985 to 1998 and comprised 3.11 percent of the total metallic mineral production
(Table 3). National sand and gravel production was approximately P4 billion and formed
39.33 percent of the total non-metallic mineral production, on average yearly, over the
same period (Table 4).

In terms of volume, the average national production annually of nickel from 1985
to 1999 was 580.25 thousand dry metric tons of beneficiated ore (Table 5). From 1985 to
1997, 13.88 thousand metric tons of metal were produced. The estimated national
reserves of nickel, on average, annually were 1,307 billion metric tons for the 1985 to
1996 period. The average annual ratio of the production of beneficiated nickel ore to the
estimated nickel reserves was approximately only .09 percent for the 1985 to 1996
period.

The average annual volume of sand and gravel production was 29.55 million
cubic meters for the 1985 to 1999 period while the estimated annual reserves of sand and
gravel was 70.04 million cubic meters from 1993 to 1996 (Table 6). The average annual
ratio of the production of sand and gravel to total reserves of sand and gravel was 38.92
percent for the 1993 to 1996 period.

In summary, over the years, the annual contribution of the mining and quarrying
sector to the overall economy has been small compared to the other sectors. The
contribution of nickel to total metallic mining production has been modest also while that
of sand and gravel to total non-metallic mining output has been much more significant.
The potentials for the expansion of both nickel mining and sand and gravel quarrying,
however, are great given that only a tiny portion of the estimated nickel reserves and less
than half of the sand and gravel reserves have been exploited by the sector on an annual
basis.

VIII. Profile of Palawan, Its Economy and Its Mining and Quarrying Sector

8.1 Profile of the Province of Palawan and Its Economy

Palawan is the largest province of the Philippines and among the richest in
natural resources. Owing to its relatively preserved environment, it is dubbed as the “last
ecological frontier”. For a long time, the development of the province has been slow
because of its far distance from the national capital region and other population centers.
In recent years, economic prospects have improved to some extent as its rich natural
resources got advertised and both the local and foreign entrepreneurs started to come in.

Palawan belongs Region IV or the Southern Tagalog region of the
Philippines (Figure 3). It is located in the western part of the archipelago bounded in the
east by the Sulu Sea, in the west by the South China Sea, in the north by the Mindoro

Strait and in the South by the Balabac Strait. Its southernmost tip is only about 97
kilometers from Sabah, Malaysia.

Palawan is composed of one main island and several surrounding islands
(Figure 4). It has a total land area of 14,896 square kilometers and is the largest province
in the country (Table 7). Palawan is a second-class province with one first class
municipality, the capital City of Puerto Princesa, and 23 other municipalities that are
either third, fourth, fifth or sixth-class. Puerto Princesa is the largest municipality while
the smallest is Kalayaan Island. The province has a total of 431 barangays. Puerto
Princesa has the most number of barangays while Kalayaan Island only has one barangay.

In 1995, Palawan had a total population of 640,486 people (Table 8). It is
expected to grow to 789,417 individuals in 2000. The estimated annual growth rate was
3.56 percent from 1903 to 2000. The population density increased from 2.4 persons per
square kilometer in 1903 to 43 persons per square kilometer in 1995. It is expected to be
at 52.99 individuals per square kilometer in 2000.

A great majority of the population of Palawan lived in the rural areas
although more and more people, in absolute and percentage terms, resided in the urban
areas in recent (Table 9). Given that mining and quarrying activities were located in the
rural areas, the sector has the potential to affect the lives of a great number of people in
the province.

The biggest contributor to the GDP of Palawan for the 1994 to 1998 period,
in current prices an on average annually, was the agriculture, fishery and forestry sector
(Tables 10, 11 and 12). In the agriculture, fishery and forestry sector, fishery and
agricultural crops were the major contributors; fishery and poultry were the fastest
growing; while agricultural crops were declining on average annually. In the services
sector, wholesale and retail trade was the most important while finance was the fastest
growing on average yearly. The most significant industrial activities were manufacturing
and mining while construction and manufacturing were the fastest growing on average
annually. It should be noted that the percentage share of the mining and quarrying sector
to the GDP was much larger in Palawan than at the national level (Tables 1 and 11). This
indicates that mining and quarrying was a relatively more significant sector in the
province than in the entire country.

8.2 Profile of the Mining and Quarrying Sector of Palawan

Based on PCSD computations, of the total output of the mining and
quarrying sector in Palawan in current prices, about 26 percent came from nickel mining,
5 percent was generated from quarrying, and 69 percent came from oil in 1988 (Table
13). By 1994, the output of the sector was 46 percent nickel mining, 3 percent quarrying
and 51 percent oil. No computations were available from the agency for later years. In
percentage terms, the share of nickel mining has increased while those of quarrying and
oil have fallen between 1988 and 1994.

While nickel is the only significant metallic mineral output of Palawan, the
province has deposits of several other mineral resources, including copper, mercury, iron,
manganese and chromite (PIADPO 1999). Chromite and mercury were mined in the past
but due to decreasing world prices, the activities stopped. Palawan also has various non-
metallic resources other than sand and gravel, such as silica sand, limestone, coal and oil.
Silica sand is presently exploited while limestone and coal have not encountered major
quarrying yet.

A significant amount of oil and natural gas have been found in the west
coast of Palawan and is in the process of exploitation. For this purpose, the U.S. $4.5
billion Malampaya Deep Water Gas-to-Power project was established. This project was
planned to generate natural gas that will provide 2,700 megawatts of power for a period
of 20 years starting January 2002 and reduce foreign fuel dependence by 30 percent. In
addition, it was expected to generate substantial long-term revenues of about U.S.$10
billion to the Philippine Government over its lifetime. The development of the project
started in 1998 and is continuing.

In terms of the environment, a controversial issue related to mining in
Palawan was the case of the Palawan Quicksilver Mining Inc. (PQMI) that operated from
1953 to 1976. This firm deposited mercury laden mining wastes into Honda Bay located
close to Puerto Princesa. Benoit et al. (1994) cited the high concentrations of mercury
were found in wastes and sediments originally coming from the mine. Later, Williams et
al. (1996), however, contradicted the earlier finding and argued that the concentrations
were not as high and dangerous as reported. Whichever is the case, the incident showed
to the people of the province that mining has potentially significant impacts on them and
the environment.

It was due to the great concern for the conservation of the natural
resources and environment of Palawan that the SEP was enacted. Among the measures
of this plan was the subdivision of the area into various zones of development and
environmental protection. The GIS-generated ECAN map of Palawan (Figure 5 and List
1) shows that that while the province and various municipalities have substantial areas
open for economic development activities, including mining and quarrying, it also has
significant hectarage where these are either strictly disallowed or highly restricted. The
main intent of this zoning approach is to attain a more sustainable form of development
where economic progress is made more compatible with environmental protection and
management.

IX. Case Studies of the Mining and Quarrying Sector

Case studies were undertaken both the mining and quarrying sub-sectors of
Palawan. For mining, nickel mining was chosen since it was the only major mining
activity. For quarrying, sand and gravel quarrying was selected since these were the most
important quarrying products.

There is only one firm into nickel mining in Palawan, the Rio Tuba Nickel
Mining Corporation (RTNMC). This firm and the households it affected were covered in
the mining case study. The quarrying firms and the affected households in Puerto
Princesa and Aborlan were covered in the quarrying case study. Due to budget
constraints, only the two municipalities were included. They were selected because
quarrying activities there were the most intense in the province.

9.1 Methods

As earlier mentioned, RRA techniques were used because of specific
reasons. In addition to these, the techniques were suited for gathering data and
information about rural life in a short span of time. They were also highly applicable in a
multidisciplinary fashion that fits the nature and composition of the study team. The
techniques included secondary data analysis, direct observation and semi-structured
interviews.

For the mining case study, senior officers of the RTNMC at the site and at
the head office in Makati City were interviewed to generate various primary data and
information. These were enhanced by secondary data taken from the firm and
institutional sources. Aside from the officers of the firm, the households affected by
mining were also interviewed to generate various data and information. The households
were selected at random and available time and resources limited the coverage. There
were 33 households covered, of which 21 were located close to the rivers affected by
mining, 5 resided beside the main road used by the mining firm for transport and 2 lived
in the coastal area where the mouth of the affected rivers were located.

For the quarrying case study, firms and households living close to
quarrying sites in Puerto Princesa and Aborlan were interviewed to get primary data and
information. These data were enhanced by information from the institutional sources.
As in the mining case study, the quarrying firms and households were selected at random
and the numbers covered were limited to the available time and resources at hand. There
were 19 quarrying firms interviewed, 9 from Puerto Princesa and 10 from Aborlan.
There were 74 households covered, 48 from Puerto Princesa and 26 from Aborlan. Of
the households interviewed, 60 lived downstream of the rivers affected by quarrying, 7
resided upstream and 7 lived in the coastal areas close to the mouth of the affected rivers.
The quarried rivers where the households were located were the Bacungan river, Tanabag
river, Maoyon river and Iratag river in Puerto Princesa and the Iraan river and Aborlan
river in Aborlan (see Table 29).

To augment primary data from the mining and quarrying firms and
households, interviews with key government and private sector informants were further
conducted. All in all, the specific primary data and information collected were the socio-
economic and demographic data for profiling, environmentally-related data for the
assessment of the environmental impact of mining and quarrying, and the
macroeconomic policy-related data to evaluate the environmental impact of
macroeconomic policies on the mining and quarrying sector.

As expected, the mining and quarrying firm and household respondents
were not very knowledgeable and conversant about the various macroeconomic policies
and their potential impacts on their activities and the environment. Thus, many of the
interview questions were asked in an open-ended and indirect manner to generate as
much data and information as possible. Some of the questions raised were not answered
either because individual respondents had no answers for them or were hesitant to
provide answers. The study team conducted the actual interviews on October-November
2000.

9.2 Case Study on Mining

Profile of The Rio Tuba Nickel Mining Corporation

The RTNMC is located in the barangay of Rio Tuba in the municipality of
Bataraza in the southern tip of Palawan. The firm has a total land area of mining claim of
5,265 hectares, of which 353 hectares are currently operated (RTNMC 2000). Bataraza
has 23 barangays and Rio Tuba is located in its middle portion (Figure 6). Rio Tuba had
the largest population of the barangays of the municipality in 1995 (Figure 7). It had an
estimated population of 6,000 individuals, of which more than 700 are employees of the
mining firm.

The nickel deposit in Rio Tuba was discovered in 1969. Mine
construction and development of the RTNMC commenced in 1975 and two years later,
the first shipment was made to Japan. The operation does not process its ore but sends it
directly to its foreign buyers. Since the start up to the present, an estimated total of 11
million wet metric tons (WMT) of beneficiated nickel silicate ore has already been
produced and shipped out of the country by the company.

From 1977 to the third quarter of 2000, the average annual shipment of
RTNMC was at 491,585 WMT and growing at an annual rate of 1.85 percent (Table 14).
The noticeably lower shipments in 1998 and 1999 were attributed to the La Nina that
brought in a higher than average rainfall in the area. The weather phenomenon made it
more difficult for the company to meet the moisture content of the ore required. Data on
nickel production, in value terms, indicates that on average annually, from 1985 to 1997,
the nickel production of Palawan comprised approximately 76 percent of the total annual
national production (Table 15). This made the province of Palawan and the RTNMC the
most important nickel producer of the entire country specifically in terms of production
volume.

Profile of Households Affected by Mining

The profile of the household respondents for the mining case study
indicates that most were the father of the family although a good number were mothers
(Table 16). Some of them were community officials but most were ordinary citizens. A
few of the respondents worked in the mining company but most did not. Most were

educated only below the high school and college levels but all had at least an elementary
education.

The profile of the households show that most originated from outside
Palawan. The average annual household income level among the households was low.
Comparing with income figures in Israel et al. (1999), this household income in mining
was lower that the average household income in Palawan, Southern Tagalog and the
Philippines. Most of these mining households also belonged to the lower income
brackets than the higher income brackets.

In retrospect, since mining households heads had at least some level of
education, they were expected to have at least some knowledge and awareness of the
environmental and other problems created by the mining firm in their area. The low level
of the incomes of the mining affected households may have a bearing on their willingness
to pay for environmental improvement and their dependence on natural resources for
survival.

RTNMC and the Environment

The ECAN map of Bataraza showing the barangay subdivisions is
presented in Figure 8. As is the case of Palawan as a whole, Bataraza and Rio Tuba have
substantial areas where environmentally critical economic activities were either strictly
disallowed or highly controlled. The ECAN map of the municipality of Bataraza
showing the mine claim and currently operated mine area of the RTNMC is presented in
Figure 9 while a blown-up ECAN map of the mine area is presented in Figure 10. As
shown, the mining claim covered mainly controlled use zones and restricted use zones.
Thus, part of the mining claim was located in restricted use zones where either only non-
consumptive activities or controlled forest extraction, not necessarily mining, are allowed
by the SEP. The currently operated area, however, clearly included only multiple use
zones, traditional use zones and controlled use zones where mining activities are allowed.

There were various environmentally related issues concerning the
operation of the RTNMC. One of these was air pollution. As in many other mining
areas, the main road used by the firm for ore transport was unpaved. Because of this,
passing vehicles produced significant amounts of dust particularly during the summer
months. Inside the mine site, substantial dust and air pollution were also produced when
the ore dug from the ground was crushed to smaller sizes. Health-wise, the inhabitants
of Rio Tuba were at risk because of the dust, including the employees of the mining firm.

As in other mining areas also, pollution, siltation and sedimentation of
downstream water bodies and areas were consequences of the RTNMC operations. The
mine site was located close to two rivers, The Ocayan River and the Rio Tuba River, and
the coast. Although the mine established 5 siltation ponds to divert, store and treat
effluents, the danger of polluted runoffs flowing into the rivers during the rainy season
remains. These runoffs add to the natural silt and sediments carried down from the
upstream area. The net effect is the reduced viability of the nearby rivers and the coast

for fisheries and other activities that are economically and recreationally important to the
inhabitants living in the downstream areas and the coast.

Soil erosion and deforestation were other environmental problems also
existing in the RTNMC operations. The mine was an open-pit operation and substantial
scraping of the land cover has occurred over time. This led to soil erosion, deforestation
and the destruction of the topography and aesthetic value of the mining area. The scope
of these problems could be significant enough to also cause problems to affected
inhabitants and even society as a whole.

In order to validate the extent of the environmental problems caused by
the RTNMC, the study team visited the mining site. The interviewed key personnel
mentioned that indeed, dust have been significant in the main road used by the mine, a
fact that was validated through personal observation by the study team. The interviewed
personnel mentioned that the problem has been alleviated by the constant spraying of
water and the installation of humps to control vehicle speed. They also asserted that
inside the plant, chutes and dust collector boxes in the screening and crushing plant area
were also installed, as well as windbreaker. A tour around the mining area showed that
the equipment were in place.

To control pollution, siltation, sedimentation and soil erosion, the
interviewed personnel mentioned that the firm conducted various activities. These
included slope stabilization, slope engineering, boulder toe dressing, and the construction
of silt collector sump, proper drainage, dikes and siltation ponds. They also asserted that
the firm was aggressively addressing the problem of deforestation through reforestation.
Of the total current mining area of 353 hectares, 114 hectares were rehabilitated and
extensively planted with various types of trees. Through a tour of the relevant facilities
and sites, the study team found that reforestation was indeed done by the RTNMC in the
mining area. It also observed that the other activities and equipment mentioned by the
interviewed personnel for the control of siltation, sedimentation, soil erosion and related
problems were in place.

There were no technical records that can help ascertain the extent of air
pollution caused by the RTNMC but the interviewed personnel mentioned that their tests
showed that the pollution levels meet the standards. For water pollution, the firm submits
a monthly report on the water quality analysis of collected samples, in compliance to the
requirements of the DENR and as embodied in the ECC. Effluent was being tested to
determine how the concentration levels of chromium, lead, nickel, cobalt and iron from
the siltation ponds, rivers, coastal area and other selected sampling sites. The resulted
were then compared with the standard set by the DENR. A summary of these reports for
a 15-month period between April 998 to September 2000 was made available by the
interviewed personnel to the study team. For chromium, the maximum allowable
concentration was 0.2 milligrams per liter set by the DENR. Based on the available
reports for 15 months, the concentration levels exceeded the standard at certain periods
for only two of the sampling points (Table 17). The study team was informed that in the
two sampling points, the heavy rains lasted for several days during the sampling and this

agitated the siltation ponds resulting to the detection of more traces of chromium in the
water. To address the problem, the firm diluted the effluent to the allowable level as it
flowed along the spillway before discharging to the Rio Tuba River. Overall, the data
showed that the concentration of chromium due to the RTNMC operations met the
allowable limit in most sampling points.

For lead, the maximum allowable concentration set by the DENR was 0.3
milligrams per liter. Except for tests done in August 1998 in two sampling points, the
lead levels in the water samples due to the RTNMC were all below the standard (Table
18). For nickel, cobalt and iron, the department, set the maximum allowable
concentration at 1.0 milligrams per liter. Results for these metals showed that
concentration levels were generally below the limit (Tables 19, 20 and 21). However,
traces of iron beyond the allowable limit however, were observed during the October and
December 1998 monitoring period for two sampling points. Overall then, the operation
of the RTNMC met the standard for the concentration levels for various pollutants set by
the government.

The interviewed personnel and other informants explained that as
mandated by the IRR of the new mining law, the RTNMC has set up funds (Table 22) for
its Environmental Protection and Enhancement Program (EPEP). Specifically, it pays for
a Contingent Liability and Rehabilitation Fund (CLRF) that includes a Mine Waste and
Tailings Fee (MWTF) and Mine Rehabilitation Fund (MRF). The MRF is further
composed of the Rehabilitation Cash Fun (RCF) for rehabilitation and similar purposes
and the Monitoring Trust Fund (MTF) to finance environmental monitoring. In addition,
the firm was recently mandated to set up the Environmental Trust Fund (ETF) that serves
as guarantee for environment-related damages.

The interviewed firm personnel and other informants further explained
that the RTNMC was among the first mining firms in the country to have a Multipartite
Monitoring Team (MMT) that monitors its compliance to its environmental commitments
as stipulated in its ECC. The MMT for the firm was comprised of representatives from
the different regional MGB, LGUs, NGOs and RTNMC. It started its work in 1998 and
has produced quarterly reports detailing its findings and recommendations related to the
environmental performance of the firm.

The MGB-Region IV has been compiling the RTNMC MMT quarterly
reports (e.g. MGB 2001b). Key informants at this office mentioned that the reports
showed that the firm has been complying with its environmental commitments. This
positive observation was strongly supported by another key informant who is serving as a
current member of the MMT. A look at the reports by the study team, however, showed
that in general they do not contain categorical statements as to the overall performance of
the firm in relation to compliance to its environmental commitments but contains findings
and recommendations for specific activities only.

To further validate the environmental effects of RTNMC operations,
similar information were gathered from the affected households (Table 23). The average

distance of the household residence from the mining site was 5 kilometers. The study
team was informed that this was close by rural standards. Although only a minority of
the households lived by the main road used for mining activities, many of them indicated
that they were affected by the air pollution caused by mining vehicles passing through the
road. Of those affected, all asserted that they experienced sickness in the form of
respiratory and skin problems. Some households mentioned that the mining company
addressed the problem of air pollution by sprinkling water, but only on an irregular basis.

Most of the households reported that the mining operations caused
pollution, siltation and sedimentation in the water bodies. However, a much fewer
number cited that they were directly affected by the problem. Of these, a few mentioned
that it caused sickness among humans and death among fish among fish and animals.
Many households reported that the water affected by mining was used for irrigation and
this caused the siltation of ricelands. Some households also said that because of mining,
coastal waters were polluted which resulted to low fish catch and a silted coast. Several
mentioned that RTNMC constructed dikes and diversion canals to address the pollution
of water bodies. A few cited that mining also caused the soil erosion in riverbanks that
was mitigated by the construction of diversion canals. Some mentioned that
deforestation was a problem and the mining company addressed this problem through
reforestation.

From the above discussions, it was apparent that although the RTNMC has
been conducting some activities for environmental improvement, the households affected
perceived that the problems continued to exist and that in some instances, these caused
health and economic problems on their part. There was an implied suggestion that the
firm should do more, particularly related to the air pollution in the main road used by the
firm and the pollution, siltation and sedimentation in the water bodies downstream of the
mine.

Macroeconomic Policies, Mining Firm and Households and the
Environment

A key firm official in Makati City was interviewed about the potential
impact of various macroeconomic policies on the operation of the RTNMC, including
those that have environmental implications. The key official mentioned that in general,
the RTNMC does not borrow money from banks and other institutional sources to invest
into its mining operations. He also believed that the prevailing interest rates have been
stable in recent years, except during the economic crisis. He pointed out, however, that
this was not a factor in the decision of the firm to invest more, including in areas related
to environmental protection and improvement.

The key official cited that RTNMC exports all of its beneficiated ore output
to Japan. Therefore, on the one hand, the firm benefited from the devaluation as its
proceeds increased in peso terms. On the other hand, the same devaluation raised their
expenses on oil, spare parts and other imported inputs and this had a dampening impact
on earnings. Overall, since most of the production inputs of the firm were locally

sourced and only about 20 percent at most was imported, the devaluation on the net
benefited the firm by raising its earnings. The key official mentioned that like other
firms involved in exportation, the abolition of controls related to foreign exchange
transactions benefited the firm since it decreased government control over the handling of
dollar proceeds of exporters.

The key official said that in recent years, RTNMC has been selling its ore
to only one buyer and because of this, production is contracted based on the demand of
the buyer. This means that the level of production and exportation by the firm is not
affected by the devaluation and the elimination of controls on foreign exchange
transactions. The key official also mentioned that the firm makes its investment in
machinery and equipment, including those that are environment-related, based on
requirement and not on market price. Therefore, even when they are imported, such as
the laboratory equipment for environmental monitoring, the devaluation and the
elimination of controls did not affect the decision of the firm to buy the equipment. For
the same reasons, he said that the reduction in tariffs and import restrictions has not
affected the RTNMC in its decisions related to levels of production and export. It also
has not affected the decision to purchase imported equipment, including those intended
for environmental protection and management.

The key official explained that the RTNMC is now proposing to the
government the establishment within its mining site of a processing facility for low-grade
nickel ore. This facility will be about 80 percent owned by Japanese investors and the
other 20 percent by the local investors. He opined that the policy of investment
promotion by the government as manifested by the granting of various incentives through
the new mining law could have a positive impact on the decision of both the foreign and
local investors involved of investing in the processing facility. He also mentioned that
under the law, their company has benefited from certain incentives offered by the
government, including the reduction of excise taxes from 5 percent to about 2 percent and
income tax holidays. The incentives, however, have been balanced by the stricter
financial requirements set by the government for environmental protection and
management, particularly the setting up of the CLRF.

The key official mentioned that the RTNMC realized that because of
tightening public resources, the national and local governments were not in the position
to fully meet the basic social services in their area. To assist the government, the firm
established various infrastructure and facilities that were open for use by mining
employees and the general public. These included a 20-bed hospital, school for
kindergarten, elementary and high school, farm to market roads, dry and wet market,
church and mosque and many other facilities (RTNMC 2000). He added, however, that
their investment in facilities related to environmental improvement is programmed based
on requirements and not on the inability of the government to provide for said facilities.

The key official mentioned that the level of monitoring and enforcement
by the government did not appear to have waned due to the tight fiscal policy. He
asserted that there has been good synergy between the government and the RTNMC in

activities related to environmental monitoring, particularly through activities related to
the MMT. This encouraged the firm not to violate environmental rules and regulations
and instead follow them as much as possible. This also motivated the firm to agree to put
up the specific funds for aggressively addressing the environmental problems in the mine
site.

The data and information generated from the households affected by the
mining operations of the RTNMC also provided interesting insights about the interactions
between macroeconomic policies, the households and the environment. All households
did not save in banks while a few borrowed from them (Table 24). Those who borrowed
mentioned that the interest rate either increased or remained the same in recent years.
The study team learned that there was no bank in Rio Tuba and Bataraza although there
were a few in Brookes Point, a municipality located kilometers away. Key informants
mentioned that this could be a factor influencing the households to have a low level of
use of banks as source of funds.

Practically all of the households did not earn dollar currency.
Furthermore, most of the household respondents mentioned that the peso devaluation
made their lives worse by raising the prices of commodities and transport. The increase
in the price of energy, however, did not force households to use wood as substitute for
fuel oil. According to key households informants, if there was an environmental effect
of the devaluation among households, it was negative. They mentioned that the higher
cost of living made the households even poorer and less willing to spend anything for
environmental protection and management. The households simply hoped that the
RTNMC, which caused the environmental problems in their area, is responsible enough
to do something positive about them.

Some households cited that the inflow of imported consumers goods in
their localities benefited them in the form of increased availability and lower prices of
these commodities. On the other hand, key household informants mentioned that while
this increased availability and lower prices improved their purchasing power, they have
no impact on the willingness of households to pay for environmental protection as they
were already very poor in the first place.

All households did not receive any kind of financial investment from the
government and thus had no investment made as result of financial incentives. Key
informants argued that the households were too poor to indulge in any major financial
investment. It was difficult to get information from the households on their violation of
environmental rules and regulations. Some said that the government was not
significantly involved in the environmental management in their areas but this did not
encourage them to violate rules and regulations. Key informants mentioned that the
households in general paid little taxes and were not were affected by increased taxation
by the government. Their willingness to spend for environmental protection and
management was not influenced by taxation as well.

Overall, the households mentioned that they were economically worse off
now than five to 10 years ago. All also said that they have not spend on environmental
improvement in their areas.

9.3 Case Study on Quarrying

Profile of Quarrying in Palawan

River quarrying is the most prevalent quarrying practice in Palawan. The
rivers of the mainland alone have estimated reserves of sand and gravel materials of
about 5.36 million cubic meters. The exploitation of these reserves was granted to
various construction firms, business enterprises and private individuals. From 1990 to
1999, the average annual production of sand and gravel in the province was 35,902 cubic
meters while the average annual reserves were about 5.6 million cubic meters (Table 25).
This means that only a minimal portion of the sand and gravel reserves in the province
was actually exploited. The provincial production of sand and gravel also comprised
only a very insignificant .13 percent of the average annual national production (Table
26). The production data, however, reflected an increasing production over the years.
Key informants said that an important reason for this was that in recent years, sand and
gravel and concrete materials became substitutes for lumber in construction when the log
ban was implemented. Another reason was that the construction of roads, bridges,
buildings and other forms of public infrastructure greatly intensified in recent years. An
example of this is the ongoing concreting of the national highway from the capital city to
the northern portion of the province.

Briefly, river quarrying in Palawan is generally operated as follows. First a
loader extracts the sand and gravel and other filling materials from the riverbed. The
materials are then stockpiled by the loader in the riverbank or loaded into a dump truck
and transported to the stockyard or construction site. As in other areas, in Palawan, the
sand and gravel were sold by the operator through its own outlets, used in its own
construction activities such as the building of structures and roads, or used in the
construction activities of other firms. If the sand and gravel were not directly used in
construction, they were utilized in the production of building materials such as hollow
blocks and concrete electrical posts.

Quarrying operators in Palawan can be classified into three types: (a)
operating permittees; (b) non-permittee operators who paid the royalty fee to exploit
quarry sites of non-operating permittees; and (c) buyers who collected aggregates from
different quarry areas and pay for said materials. There were two types of permits, the
commercial permit and industrial permit. The usual volume applied and approved for
extraction under a commercial permit was 500 cubic meters annually. An industrial
permit allowed a volume that ranged from the 2,500 cubic meters to as much as 10,000
cubic meters. The number of sand and gravel permittees increased in recent years and
Puerto Princesa and Aborlan had the most number (Table 27). This rising number of
operations in the entire province was consistent with the increasing production in recent
years.

There were various fees and expenses paid by the quarrying operators
during the application of the permit (Table 28). Key informants mentioned that some of
these fees and the length of time to process the applications discouraged applicants to file
and application and instead just operate without a permit. When a firm operates, various
fees have to paid as well. These included road right of way of about P80.00 to P100.00
per 6 cubic meter load truck, road maintenance of about P200.00 to P100.00 per cubic
meter of aggregates, barangay fee of about P20.00 per truck. If one operated by paying a
royalty fee, this ranged from P300.00 to P1000.00 per truck or was based on a 50:50
sharing arrangement between the permittee holder and the actual non-permittee operator.

The maps of the city showing the barangays and their populations are
presented in Figures 11 and 12. The ECAN map that also shows the location and names
of owners of the quarrying applications with commercial and industrial permits is
presented in Figure 13. The maps of Aborlan showing the barangays and their
populations are presented in Figures 14 and 15. The ECAN map that also shows the
location and names of owners of the actual quarrying operations with commercial permits
is presented Figure 16. The ECAN maps for both Puerto Princesa and Aborlan indicate
that the sand and gravel quarrying operations were located in multiple use zones and
other areas where they are generally allowed under the SEP. Also, all the commercial
permittees in the two areas had one-hectare operations while the industrial permittee in
Puerto Princesa had a five-hectare operation. It can be noted further that the actual
quarrying operations with permits numbered less than those granted permits (see Table
27). This was because some permittees may have opted not to actually exploit their
quarries.

While in theory the quarrying operations in Palawan were conducted in
allowed areas, in reality this was not the case. According to key informants, quarrying
operations in the province were infested with illegal operators that either have no permits
at all or do not renew expired permits. These illegal operators were estimated to
comprise one-third of the sub-sector in terms of number and two-thirds in terms of
production volume. They violated rules by quarrying not just in riverbeds but also in
riverbanks, hauling more volume than what was allowed in a given site, and extending
their quarrying operations into sites not allowed by the SEP. Key informants mentioned
that from time to time, illegal operators were caught and their equipment impounded.
However, they were allowed to retrieve their equipment for a measly fee and not
anymore brought to court and prosecuted. Of the rivers quarried in Puerto Princesa and
Aborlan, most were quarried intensively and a majority had a high concentration of
illegal mining operations (Table 29).

Profile of Quarrying Firms and Households

All of the quarrying operations interviewed were Filipino-owned and all
except one were sole-proprietorships (Table 30). The average number of years of
operations was 4 years in Puerto Princesa and 2 years in Aborlan. Most of quarries
covered a hectare or less and so were below the allowed five hectares. The average

number of employees was 3 to 4 individuals that included the operator of the loader,
driver of the truck and helper(s). Specific data on the compensation of workers in the
quarrying were difficult to generate from the respondents but many of them mentioned
that they were paid better than the average worker in their fields. This was because
quarrying operators were said to pay incentives and other bonuses to their workers.
Many of the operations were fully mechanized but a few were both mechanized and
manually operated. Key informants said that approximately 40 percent of the quarrying
operations were vertically integrated where the quarrying operator also owned retail
outlets for the quarrying products and/or a construction company that utilizes the
products.

Most of the operations had a permit to operate but one in Aborlan had no
permit. All had commercial permits and none had an industrial permit. Several of the
quarrying operations were intermittent but others continuously operated the whole year
round. The average annual income of the operations was lower in Aborlan than in Puerto
Princesa. The levels of income generated in the interviews were probably undervalued
because of the fear of the respondents that their answers will be utilized for tax purposes.
Key informants mentioned that the estimated average net income required for quarrying
operations in the province to continue operating was about P200,000.00 a year. In
general, the quarrying operations can be considered small-scale as reflected by the
average area of the quarry, the number of years of operation, length of years of
operations, and average income of operators.

For the households affected by quarrying, the interview respondents were
either the father or mother of the family (Table 31). A few respondents in Puerto
Princesa were community officials but most in both areas were ordinary citizens.
Practically all respondents were not involved in quarrying operations so it was hoped that
this will make them talk more openly about the quarrying operations. Most of the
respondents were educated below the college level but all have attained some education.
Thus, as in the case of the mining households, they were expected to have some
awareness of the environmental problems caused by quarrying in their areas. The
households came from different ethnic backgrounds indicating more diversity compared
to mining households. The average annual household income was even lower than those
for mining households. Again, most of the households belonged to the lower income
brackets than higher income brackets.

Quarrying and the Environment

Most of the quarrying operations interviewed acquired an ECC but one in
Aborlan did not comply with this requirement (Table 32). Only a few of the operations
had a staff assigned to attend to environmental concerns. All of the firm respondents
mentioned that their quarrying vehicles did not cause any significant air and noise
pollution in the roads used for transport. A few mentioned that they did something to
minimize any air pollution they caused, through the calibration and maintenance of
vehicle engines and water sprinkling. Only a few accepted that their operations resulted
to pollution, siltation and sedimentation downstream in the river where their quarries

were located. A significant number of respondents mentioned that they mitigated the
environmental problems they caused in the river by quarrying at the riverbed only or by
re-routing and re-channeling the water flow.

Only a few of the firm respondents mentioned that they caused significant
soil erosion and asserted that any erosion that occurred was mitigated through the re-
routing and re-channeling of the water flow in the river. Most operations did not
construct the roads leading to the quarry sites since these were already existent before
they operated in their areas.

To validate the information coming from the quarrying firms,
environment-related data and information were gathered from the households. All of the
households lived less than a kilometer from the quarrying site (Table 33). Most of the
households in Puerto Princesa and many in Aborlan also lived close to the roads leading
to the quarry site. A significant number of the household respondents indicated that the
dust caused by quarrying vehicles passing through the roads affected them and caused
problems in the form of respiratory and skin illnesses. Some also reported that the
quarrying firms did nothing to address the problem although others said otherwise. Of
those who said that firms did something, the reported action taken was water sprinkling
but only irregularly.

Most of the household respondents reported that the quarrying operations
in their area caused pollution, siltation and sedimentation in the rivers. They said that
because of these, the water in the rivers could not be used for everyday activities and
sometimes even flooding occurs. Only a few respondents said that the pollution of the
rivers caused sickness to humans and mortality to fish and animals. Some mentioned that
the river water affected by quarrying was used for irrigation and this has caused the
siltation of ricelands. Some further reported that because of quarrying, coastal waters
were polluted and silted. Most respondents said that the quarrying firms did nothing to
alleviate the pollution, siltation and sedimentation of the rivers their operations have
affected. A few said that firms actually did something to address the problem, in
particular, by deepening the riverbeds and installing boulders along the riverbanks. Some
respondents cited that quarrying also caused the soil erosion in riverbanks while a few
mentioned that operations did something about this by constructing siltation ponds and
diversion canals.

As in the case of mining, there was disagreement between the firms and
households on the extent of the environmental problems caused by quarrying and the
degree of the activities done by the firms to abate them. The households suggested that
firms should do more to address the environmental hazards which have been them
significant health and economic problems. The ocular inspection revealed that indeed,
the extent of the problems caused by quarrying, particularly pollution, siltation and
sedimentation, in some quarrying areas was significant.

Up to the present, there has been no water quality monitoring done by any
national or provincial agency in the rivers affected by quarrying in Palawan that could

have validated the contentions of either the firms or households. These could have
helped confirm the extent of the water pollution caused by quarrying activities. The
PCSD has promised to initiate this year a monitoring effort in at least two rivers in Puerto
Princesa and results will be made available to the IMAPE as soon as they are ready. Key
informants mentioned that an MMT for quarrying has already been set up but is still not
operational at the moment. Putting this team into action is considered by the concerned
LGUs and the PCSD.

Macroeconomic Policies, Quarrying Firms and Households and the
Environment

Quarrying firms were asked questions related to the potential impact of
various macroeconomic policies on their operations, including those that have
environmental implications. The number of banks in Puerto Princesa and Aborlan
increased in recent years (Table 34). However, only a few of the quarrying firms
borrowed money from banks to invest or finance its operations (Table 35). Those who
borrowed said that the interest increased or stayed the same in the last three years. Some
mentioned that the interest rate level discouraged them from expanding operations and/or
spending on environment-related activities.

Many of the quarrying firm respondents mentioned that they were affected
by the devaluation in the form of reduced demand and increased operating costs. Several
said that the devaluation discouraged them from expanding operations but none said it
affected their decision to spend on environment-related activities. All of the firms also
did not maintain dollar accounts for their operations through which they could have
benefited from the devaluation.

All the firm respondents mentioned that they did not export any of their
products and did not import their equipment. They also thought that trade liberalization
had no direct effect in their decision to produce or spend on environment-related
activities. Key informants also said that there were no imported substitutes to the
quarrying products and so, this aspect of trade liberalization could not have directly
affected the operations of quarrying firms as well.

All of the firm respondents mentioned that they did not receive any
financial incentive from the government. All also thought that the investment promotion
thrust had no effect on their decisions on investment and production in general and on
their activities related to the environment in particular. All the firm respondents
suggested that both the local and national governments were actively involvement in the
environmental management in their areas. All also mentioned that the tight fiscal policy
did not influence their decisions related to production and spending on environment
related activities. Key informants, however, mentioned that in terms of monitoring and
enforcement, the LGUs were weak and this led to the growth of illegal quarrying
activities and the further exploitation of mineral resources and environmental degradation
in quarrying areas. They mentioned that the weak presence of government in the
quarrying sub-sector also encouraged firms to violate environmental rules and regulations

and spend little efforts on environmental protection and management than what they
ought to do.

Overall, only one of the respondents said that the operations of his firm
expanded in the last three years. The various reasons forward include high interest rates,
too many requirements and low demand. Key firm informants also mentioned that
corruption in government, particularly in the processing of permit renewals and payment
of fees, played a major role in the decision of firms not to expand their quarrying
operations.

It is interesting to note that while the individual firms professed that their
operations did not expand, the overall production of sand and gravel operations in the
province significantly increased in recent years (Tables 25 and 26). Key informants
opined that the increased production could have come from the illegal operations or due
to the increasing number of both legal and illegal operators. Furthermore, informants
believed that some of the respondents did not admit that they expanded operations for
their fear that it may be utilized for tax purposes.

For the households affected by quarrying, practically all did not save in
banks while only a few borrowed from banks (Table 36). Those who borrowed
mentioned that the interest rate either increased or remained the same. All of the
quarrying households did not earn dollar currency. Most said that the peso devaluation
made them worse off by raising the price of commodities and transport. More
importantly, most of the households said they used wood as fuel substitute. Key
informants mentioned that the use of wood for fuel has been a popular practice in
Palawan because of the deteriorating economic situation of the people and the increased
employment of charcoal in restaurants and other establishments catering to the tourism
sector.

A few of the households mentioned that the inflow of imported
consumers goods in their areas benefited them in the form of increased availability and
lower prices of these commodities. According to some informants, this is an important
positive effect of trade liberalization for households in general. Key informants,
however, opined that this has no discernible impact on the willingness of households to
pay for environmental protection and management since they are still poor even with
these changes.

All households said that they made no investments due to any incentives
offered by the government. A majority mentioned that the government was actively
involved in the environmental management in their areas. However, Key informants
argued that monitoring and enforcement by the government was actually weak and this
encouraged households to violate rules and regulations, such as in the case of illegal
cutting of trees for firewood. Key informants also mentioned that the households in
general paid no or little taxes and were not affected by increased taxation by the
government. As in the case of mining, only a minority of the households said that they

were better off now than five to 10 years ago and none mentioned that they have spend
on activities related to environmental protection and management in their particular areas.

X. Summary and Conclusions

To summarize, the study generated the following general findings related to the
environment in the mining and quarrying sector in Palawan. First, there was a significant
divergence of opinion between mining and quarrying firms on one side and the affected
households on the other side on the environmental effects of mining and quarrying
activities. The firms argued that the problems were less serious than thought to be and
that significant efforts have been done already to address them. In contrast, the
households asserted that the problems were very disturbing and that more have to be done
by the firms to mitigate them. The differences in the opinion between firms and
household were expected and reflected the great divide separating various stakeholders in
the environmental debate.

While it was beyond the scope of the study to serve as arbiter in the mining and
quarrying sector, the study team found technical evidence that showed that the single firm
in the mining sub-sector in Palawan has been meeting at least some of the environmental
standards set by the government. Furthermore, the existence of an operating MMT for
the firm is a strong sign that its environmental commitments will be seriously pursued in
the future. For quarrying, the team found that no similar technical evidence and MMTs
were in place.

As to the impacts of macroeconomic policies on the mining and quarrying sector
of Palawan, important caveats first must be mentioned before conclusions are made. The
results generated by the study should be taken as preliminary and validated further. In
particular, since the study only looked into the direct effects of policies and disregarded
the indirect effects and overall effects, a more detailed and comprehensive future
evaluation could lead to different conclusions. Furthermore, the results here only reflect
on the mining and quarrying in Palawan and not that of the entire country. The province
does not represent other areas where mining and quarrying are practiced more intensively
and macroeconomic policies may have more profound impacts on the different
microeconomic units in the sector.

The results indicate that a direct and positive impact of financial liberalization
was the increase in the number of banks in the province that cater to the investment and
financial needs of local businesses and households. This advantage, however, was
minimized by the fact that mining and quarrying firms and households in general did not
use the banking system to source their investment and financial needs. Hence, financial
liberalization for the time being did not result to increased investment and production in
the mining and quarrying sector in the province. By the same reasoning, it has no
significant influence on the rate of mineral extraction and environmental degradation in
the sector.

A direct and positive result of foreign exchange liberalization was the financial
windfall to the lone mining firm due to the increased peso value of its exported product
that the devaluation brought about. The abolition of controls in foreign exchange
transactions also benefited the firm as an exporter and dollar earner. The firm, however,
had pre-set production and exports based on the demand of the single foreign buyer of its
output which were unaffected by devaluation. While the devaluation provided significant
financial windfall, it did not motive the mining firm to increase its purchase of
environment-related equipment since this was also based on programmed requirements
and needs.

The devaluation raised the cost of production of the quarrying firms who served
only the domestic market and did not earn foreign currency. It also caused the
contraction of some quarrying firms and this may have reduced the rate of extraction and
helped the environment. The devaluation, however, increased the cost of living of
households and forced some quarrying households to depend more on wood for their fuel
needs to the detriment of the environment. It may also have made both quarrying firms
and households who are already poor even less willing to spend for environmental
improvement.

Trade liberalization positively impacted the mining firm by lowering the cost of
some of its production inputs. But for both mining and quarrying firms, again, this was
not a factor in their decisions related to production and the purchase of environment-
related equipment. Some households were benefited by the inflow of imported
consumers goods in the form of increased availability and lower prices of these
commodities and this was an important direct positive impact of trade policy. In terms of
the environment, however, these gains did not make households any more willing
environmental protection and management since they are still poor even with the
changes.

Investment promotion directly benefited the mining firm through the availed tax-
based incentives and could have helped motivate investors to think of getting into nickel
processing. Thus, the policy has an environmental role to play if it can help lead to an
environmentally safe nickel processing facility in the future. The quarrying firms and
households in general did not receive any form of incentives so this policy may have no
direct bearing in terms of the willingness to pay for environmental improvement among
these groups.

Tight fiscal policy may have benefited environmental protection and management
in the mining sub-sector as the mining firm has fill in the gap by setting up the necessary
funds for the purpose. The existence of the CLRF helps ensure that the environmental
commitments of the company will be strongly pursued. The setting up of the MMT with
funding from the MTF also makes effective monitoring possible even with limited
resources coming from the government. The case of quarrying was different. The lower
resources for monitoring and enforcement that tight fiscal policy has resulted to may have
contributed to a significant extent to the proliferation of illegal quarrying in the province.

To conclude, macroeconomic policies have some important positive impacts on
the mining and quarrying sector and the environment in Palawan. To some extent, these
impacts have been tempered by the inability of the firms and households to take
advantage of the positive changes that the policies brought about. Policies brought
negative impacts on the sector and the environment as well. The devaluation, in
particular, increased the cost of operations of firms and the cost of living of households
making them less willing to spend on environmental improvement and more dependent
on natural resources for survival.

X. Recommendations

For the mining and quarrying sector in general, much remains to be done to
improve the environmental conditions in the mining and quarrying sites. Yet, in recent
years, the budgets of national agencies doing the work on the environment in general and
on the mining and quarrying sector in particular have decreased. For instance, the annual
budget of the DENR has been falling since 1997, particularly that for operations (Table
37). Except for 1998, the budget of the MGB Region IV overall and for operations has
likewise decreased (Table 38). At the local level, the budgets of environmental agencies
in the province have been fluctuating (Table 39). The increased provision of government
funds and their judicious use for environmental management in the mining and quarrying
sector of Palawan is much needed.

In order to effectively monitor the environmental conditions in the mining and
quarry sites, pertinent government agencies have to do the following: a) establish the
physical, economic, social and environmental data base in all mining and quarrying areas
and watersheds; b) process these data and produce related maps using the GIS
technology; and c) periodically update the data to monitor changes over time. The
mining and quarrying firms may do part of these activities in collaboration with the
agencies. At present, these activities are not done in quarrying so at the least, the PCSD
should start its planned efforts for water quality monitoring in a few o the intensely
quarried rivers.

Monitoring is an important area of work in mining and quarrying where
improvement is clearly needed. The MMT for the mining firm should be strengthened
and continuously supported to ensure success. On the part of quarrying, the creation and
operation of MMTs for specific quarrying firms or areas should now be done. An MMT
for individual quarrying firms may be expensive to finance so perhaps firms located in
the same rivers can be banded together for monitoring under a single MMT. A fund
similar to the MTF in mining should be set up to ensure continued funding for monitoring
in the quarrying sub-sector.

To improve on the mining situation in particular, the local and national
governments should strictly screen mining applicants in Palawan, including the nickel
processing project proposed by RTNMC. The screening, however, should be in a fair
and judicious manner so that worthwhile mining projects that fit into the SEP can be
accommodated. It is to the best interest of the country that the natural environment of
Palawan is well protected but not too zealously so that viable economic development
projects and activities that can still continue provide employment and incomes to the
population.

Illegal quarrying operations are a major source of environmental problems in
Palawan. The problem is difficult to address because it is multi-faceted with different
actors on both sides of the fence. One thing certain is that illegal quarrying must be
contained if the environment is to be protected. An obvious approach is to impose higher
fines and penalties to violators. Key informants mentioned that currently, those who are
caught violating the terms and conditions of their permits are rarely brought to court.
Another reason for the proliferation of illegal operations is the difficulty in securing a
permit, particularly related to the length of time one has to get it. There is a lot of
duplication in the processes used by local and national agencies for processing
applications. A thorough study should be done to reduce this duplication. For instance, a
way of shortening the processing of permit applications is to streamline the requirements
of the LGUs, DENR and PCSD.

Still another reason for the existence of illegal operations is the high investment
needed in securing the permit, both in terms of the legitimate and illegitimate costs
involved. The so-called “grease money” in particular has become an integral part of the
whole application process that discourages permit applicants. If this cost is reduced,
quarrying proponents may be encouraged to apply for a permit. Solving corruption,
which is endemic in society, is clearly better said than done. For a start, the government,
together with the business sector and civil society, can institute a values formation
program not just for the mining and quarrying sector but the entire population. This
program should fit well with the moral recovery pronouncements of the newly installed
national administration

In quarrying, the environmental problems can be minimized if monitoring and
enforcement is made more efficient through the involvement of local communities. At
present, some residents adjacent to the quarry areas have been vigilant in monitoring the
activities of the operators. For instance, they check the volume of aggregates taken out to
ensure that it does not exceed the allowable limit. They also ensure that the extraction
methods employed do not cause undue harm to the environment, particularly the riverbed
and the surrounding area. This type of participation should be promoted and
institutionalised by the LGUs for effective monitoring and enforcement at the ground
level.

Lastly, the negative effects of devaluation and economic crisis on the plight of
households in the mining and quarrying sector should be given particular attention by the
government. Rural upland households are among the poorest of the poor and the

unwelcome impacts of policies bear on them much more than in other sectors. The
intensifying resource extraction that poverty forces on households reinforces this
argument. The national government should plan and implement some effectively safety
nets and poverty alleviating projects to mitigate the negative impact of macroeconomic
policies on mining and quarrying households and in so doing reduce the pressure on the
environment.

References

Angeles, N. B. (1995). “Mining Operations: Economic Impacts, Laws and
Management,” Mines and Geosciences Bureau, Region XI, 6 p.

Austria, M. S. and E. M. Medalla (1996). “A Study of the Trade and Investment Policies
of Developing Countries: The Case of the Philippines,” Discussion Paper Series
No. 96-03, Philippine Institute for Development Studies, 165 p.

Bennagen, M. E. C. (1998). “Estimation of Environmental Damages from Mining
Pollution: The Marinduque Island Mining Accident,” Economy and
Environment Program for Southeast Asia Report, 45 p.

Benoit, G., J. M. Schwantes, G. S. Jacinto and M. R. Goud-Collins (1994). “Preliminary
Study of the Redistribution and Transformation of HgS from Cinnibar Mine
Tailings Deposited in Honda Bay, Palawan, Philippines.” In Marine Pollution
Bulletin, 12, 754-9.

Briones, N. D. (1987). “Mining Pollution: The Case of the Baguio Mining District, the
Philippines,” In Environmental Management, Volume 11, Number 3, pp. 335-44.

_________________ (n.d.). “Resource Use and Environmental Conflicts: The AGP
Open-Pit Mine, Itogon, Benguet,” Institute of Environmental Science and
Management, University of the Philippines at Los Banos, College, Laguna, 48 p.

Congress of the Philippines (1997-2000). “General Appropriations Act.”

De Vera, B. M. (1996). “Philippine Mining: Past, Present and Future Trends,” Mines
and Geosciences Bureau, Draft, 13 p.

Francisco, H. A. and A. S. Sajise (1992). “Micro Impacts of Macroeconomic Adjustment
Policies in the Natural Resources and Environment Sector,” Working Paper
Series No. 92-14, Philippine Institute for Development Studies, 106 p.

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