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Economic Cycles and Environmental Impacts


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


                                         Danilo C. Israel
                                        Adelwisa Sandalo
                                          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.

        One of the earlier efforts of the IMAPE was the conduct of an analysis of the
environmental impact of macroeconomic policies in Palawan (Israel et al. 1999). The
province was specifically looked into because it is a special zone for environmental
protection in the country. In addition, national and local government units 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

        As a continuation of the abovementioned study, the IMAPE is currently
undertaking efforts to further investigate the impact of macroeconomic policies on the
environment in Palawan. This time, the analysis is concentrated on mining and
quarrying. This sector is highlighted because of its great potential both as a source
economic growth and environmental degradation in the province. Furthermore, the
intense debate on whether or not mining and quarrying should be encouraged nationally
is an ongoing political 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 a draft report of the IMAPE study on the mining and quarrying
sector in Palawan. It is jointly prepared by some members of the staff of the Policy and
Development Foundation, Incorporated (PDFI) and the Palawan Council for Sustainable
Development (PCSD). It also benefited from the indispensable assistance provided by
various private and public sector individuals and institutions at the local, provincial and
national levels.

II.    Objectives and Activities

        The main objective of this study is 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 of the study is to provide a general overview
of mining and quarrying in the Philippines and Palawan that may prove useful for future
undertakings of the IMAPE as well as for other research activities dealing on the sector.

         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

d)     discussion 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 of these. Among others, it 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. This law aimed to further promote,
develop and protect small-scale mining operations so that more employment
opportunities can be created and an equitable sharing among the people 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 support to any
qualified person or entity, which has the financial and technical capability to undertake
large-scale mineral exploration in the country by giving financial or technical assistance.
For quarrying, RA 7942 specified that any qualified person may apply for a quarry permit
on privately or publicly owned lands for a maximum area of five hectares at any one

       In terms of the environment, there are national laws that govern the mining and
quarrying sector and other industrial activities.          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 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.

        In Palawan, the most important law that relates to its natural 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

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 the mining sub-sector of the country. This is the department mandated by law
to manage, conserve, protect and develop the natural resources of the country 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 exploration permits and
enter into mineral agreements with mining extraction applicants in behalf of the
government. He 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 Local Government Units (LGUs), Non-government Organizations
(NGOs) and other stakeholders in matters relating to mining management. In addition,
they are tasked to assist the MGB and EMB in carrying out their mining management

        The Director of the MGB is the one 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. In this regard, he may stop mining operations that directly harm and
endanger people, property, and the environment because of violation of any of the
provisions in the mining laws. 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

         The primary responsibility of the MGB Regional Director is to implement 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 also an important task of the Regional Directors. Part of these important
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

        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 at the community level. 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 area
of jurisdiction.

         To go into mining, specific permits are required. The Exploration Permit (EP) is
needed for exploration activities. The Mineral Agreement (MP) that is a Mineral
Production Sharing Agreement (MPSA), Co-Production Agreement, or a Joint-Venture
Agreement is required for extraction activities by local firms. The Financial or Technical
Assistance Agreement (FTAA) is needed for large-scale exploration, development and
utilization of mineral resources by foreign entities. The application for each of these
different mining permits undergoes a long bureaucratic process administered mainly by
the MGB and the DENR. The final granting of the permits is done either by the
Department Secretary or his designated representatives.

       4.2    Quarrying Sub-Sector

        The LGUs are mainly in charge of the management of quarrying activities in their
provinces and localities. 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). In the case of quarrying operations in Palawan, only
the Provincial Governor can issue the permits since Puerto Princesa is still a component,
not a chartered, city.

        In general, quarrying applicants have to get an ECC from the regional DENR
office before they can start operations. In this particular aspect the role of PCSD in
Palawan is crucial since quarrying applicants have to get its endorsement before the
regional DENR office 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. These local agencies also assist in 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

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

       Studies on mining in the Philippines were few and, so far, no work looked into the
quarrying sub-sector. Some of the studies on mining were mainly descriptive and
provided only a general overview of the industry. Other studies touched on the negative
environmental impacts of the sector.

        De Vera (1996) explained the importance of the mining industry and its crucial
role in 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 the already congested areas. De Vera, however, also 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.

       Tujan and Guzman (1998) also reviewed the mining sector but, in contrast to De
Vera, 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 environmental effects of mining in specific areas
(Bennagen 1998, UBC and UP 1996, Briones 1987; Briones n.d). These studies
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. A couple of other studies 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 (1998) further argued that if mining is done in a sustainable and
environment friendly manner, it can actually enhance instead of            degrade the

VI.    Theoretical Framework for Evaluating Their Environmental Impacts

        The framework for evaluating the environmental impact of macroeconomic
policies in Palawan is presented in 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 is 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. It also affects the world environment
mainly due the trans-border implications of the environment and the national economy
where the environment plays a great role 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 will 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 there
eventually affect them by way of three transmission mechanisms: changes in the relative
prices, changes in the incomes and the changes in their purchasing power.

         In the case of mining and quarrying, in particular, the behaviors and decision-
making of the firms, including those relating to the environment will certainly be affected
by changes in the relative prices they face, the incomes they generate and in their
purchasing power. For instance, on one hand, an increase in the incomes and purchasing
power of the firms as a result of macroeconomic policy could increase their willingness
to pay for activities for environmental improvement in their mining sites. On the other
hand, it could encourage the same firms to significantly increase their mining activities
and raise the level of mineral depletion and environmental degradation. Like the firms,
the activities of households relating to the environment are affected as well by changes in
the relative prices, incomes and purchasing power. An increase in the incomes and
purchasing power of the households, for instance, could raise their willingness to pay for
activities for environmental improvement. It could also increase their rates of
consumption, and, thus, their capacity to potentially contribute to overall environmental

        While the interactions between macroeconomic policies, mining and quarrying
firms and households and the environment appear handy to theoretically analyze, they are
difficult to empirically estimate. There are important reasons for this. First, secondary
data on the different economic and environmental variables to be considered for such an
analysis are generally sketchy or downright non-existent. Second, primary data
gathering, through a survey for instance, is very costly and time-consuming to conduct
where respondents representing firms and households, such as those in the mining and
quarrying sector, have very limited knowledge and understanding of macroeconomic
policies and their impacts.     A third reason is that even if data and information can

actually be had, a quantitative model that can accurately measure all the different
relationships that need to be looked into has yet to be developed.

        A more practical way of empirically studying the interactions between policies,
mining and quarrying firms and households and the natural environment, therefore, is
needed for this study. A method that will be tried to simply use Rapid Rural Appraisal
(RRA) techniques and case studies to evaluate the direct and easily observable effects of
macroeconomic policies on the decision-making of mining and quarrying firms and
households and then ascertain the impacts of these on the environment. To conduct this
kind of analysis, tracing the potential interactions between particular macroeconomic
policies, the firms and households, and the natural environment will first be done. Again,
only the direct relationships are considered because they can easily be ascertained and
validated with the mining and quarrying firms and households in the field. There are five
macroeconomic policies that can have important bearings on the environment and Intal
(2000) made a thorough discussion of the direct and indirect impacts of a few 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). In brief, the 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 should encourage the firms in the mining and quarrying sector to invest
more, resulting to the expansion of the sector. Environmentally, more production per se
in the sector will lead to more intense mineral extraction and environmental degradation.

        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. For the mining and quarrying sector, the potential positive and direct effects
of these are the inflow of foreign capital and increased participation of firms in the export
market that promote growth. A potential negative effect is that the devaluation could
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, the growth that the inflow of capital and increased exportation
brings will expand mineral extraction and promote degradation. Also, made poorer by
devaluation will be less willing to pay for environmental improvement and this increases
environmental degradation and dependence on natural resources. A positive effect is that
if a non-tradable mining and quarrying sector contracts, mineral extraction and
environmental degradation 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.

        The decreased production of firms due to intense competition from import
substitutes should also help reduce mineral extraction and environmental degradation.
Furthermore, if higher investment in imported equipment includes those for
environmental protection and management, the level of environmental degradation is
lowered. However, if increased exportation results from trade liberalization, then
worsening 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 then promote further resource extraction and environmental degradation in
the sector. However, if investment into environmental protection and management
accompanies overall investment, then some mitigation of the environmental problems

        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
expenditures per se will make government less effective in the discharge of its functions.
If increased taxation is imposed on mining and quarrying firms, this will raise their cost
of operations and dampen growth.

        Reduced government expenditures for environmental protection and management,
particularly on monitoring and enforcement, will allow firms and households to
circumvent the rules and regulations and these worsens mineral extraction and
environmental degradation. Higher taxation can also significantly reduce the willingness
and ability of the firms and households to spend on environmental protection and

       From the above, it can be seen that the environmental impact of specific
macroeconomic policies in the mining and quarrying sector can be mixed and these alone
are already difficult to estimate.     Studying the net effects of the individual

macroeconomic policies and their combined effects are beyond the intentions of the

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) annually, on average, 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 is 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 3.1 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. From 1985 to 1997,
14.21 thousand metric tons of metal were produced (Table 5). 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

        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 the annual contribution of the mining and quarrying sector to the
overall economy has been relatively small over the years, 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, appear 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” of the country. 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, however, its economic prospects have improved as its rich
natural resources got advertised and both local and foreign entrepreneurs started to come

              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 24 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 in general were
located in the rural areas, the sector therefore has a great 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). Of 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. Of 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 in the province 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 is an indication 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 comprised of 46 percent nickel mining, 3
percent quarrying and 51 percent oil. No computations were available from the agency
for later years. In percentage terms, then, the share of nickel mining has increased while
those of quarrying and oil have fallen.

              While currently nickel is the only 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 is
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 is expected to substantial long-term revenue of 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 is the case of the Palawan Quicksilver Mining Inc. (PQMI) that operated from
1953 to 1976 in the province. This firm deposited mercury laden mining wastes into
Honda Bay which is 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) contradicted the earlier finding and argued that
the concentrations were not as high and dangerous as reported. Whichever it is, the
incident shows that mining has potentially significant impacts on the environment in the

               It is largely due to the great concern for preserving 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 ECAN map of Palawan (Figure 5, 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 and where proper
environmental management is a must. The main intend of this zoning is to attain a more
sustainable form of development where economic progress is made more compatible with
environmental protection and management in the province.

IX.    Case Studies of the Mining and Quarrying Sector

       Case studies were undertaken to assess the environmental impact of
macroeconomic policies on the mining and quarrying sector in Palawan. For mining,
nickel mining was obviously chosen since it was the only major mining activity in the
province. For quarrying, sand and gravel quarrying was selected since they were the
most important quarrying product products.

        There is only one firm into nickel mining in Palawan, the Rio Tuba Nickel
Mining Corporation (RTNMC) located in Barangay Rio Tuba in the town of Bataraza.
This firm and the households it affected are covered in the mining case study. The
quarrying firms and their affected households in Puerto Princesa and Aborlan were
covered in the quarrying case study since quarrying activities in said municipalities are
the most intense in the entire province.

       9.1     Methods

               RRA techniques were used because they were generally suited to gather
data and information about rural life in a short span of time. The techniques were also
applicable in a multidisciplinary fashion that fits the nature of the study team and the
study at hand. In particular, the techniques applied were 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 the
institutional sources. Then, the mining households were interviewed to generate various
data and information. The households were selected at random and the number covered
was limited to the available time and resources at hand. Effort was made to make sure
only households affected by mining were covered. There were 33 households all in all,
of which 21 were located close to the rivers affected by mining, 5 resided beside the main
road used by the firm for transport and 2 lived in the coastal area where the mouth of the
affected rivers are 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 covered 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 are located were the Bacungan
river, Tanabag river, Maoyon river and Iratag river in Puerto Princesa and the Iraan river
and Aborlan river in Aborlan.

              To augment primary from the mining and quarrying firms and households,
interviews with key government and private sector informants were also conducted. The
specific 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 widely 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 open-ended to generate as much data and information as
possible in an indirect manner. Some of the questions raised were not answered either
because individual respondents had no answers for them or were hesitant to provide
answers. The actual interviews were conducted by the PDFI and PCSD during the period
October-November 2000.

       9.2     Case Study on Mining

               Profile of The Rio Tuba Nickel Mining Corporation

              The RTNMC 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 is one of the most
densely populated barangays of the municipality (Figure 7). It has an estimated
population of 6,000 individuals, of which more than 700 are employees of the mining

                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 have been 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 73 percent of the
annual national production (Table 15). This made the province and the RTNMC the
most important nickel producer of the entire country.

              Profile of Households Affected by Mining

              Of the household respondents, most were fathers but a good number were
mothers (Table 16). Some were community officials but most were ordinary citizens. A
few of the respondents work in the mining company but most did not. Most of the
respondents were educated below the high school and college levels but all had at least an
elementary education.

               Most of the households originated from outside Palawan. The average
annual household income level among the households was lower than the average
household income in Palawan, Southern Tagalog and the Philippines even for 1994 (see
Israel et al. 1999). Furthermore, more of the households belonged to the lower income
brackets than the higher income brackets.

               Since mining households heads in general had at least some level of
education, albeit low, it was expected that they 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 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 mine claim covered mainly controlled use zones and restricted use zones
while the current operated area included primarily controlled use zones. Thus, part of the
mining operation was located in a highly environmentally fragile location where either
only non-consumptive activities or controlled forest extraction, not necessarily mining,
are allowed by the SEP.

                Aside from the above, there were other environmentally important issues
relating to the operation of the RTNMC. One is air pollution. As in other mining areas,
the main road used by the firm for ore transport was unpaved. Because of this, passing
vehicles produced significant dust, particularly during the summer months. Inside the
mine site, substantial dust and air pollution were produced as well when the ore dug from
the ground is crushed to smaller sizes. Health-wise, the inhabitants of Rio Tuba could be
at some form of risk, including those people who were working inside the mining area.

                As in the case of other mining areas also, the pollution, siltation and
sedimentation of downstream water bodies and areas were a natural consequence 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
particularly, during the rainy season, remains. These runoffs add to the natural silt and
sediments carried down from upstream area. The net effect is the reduced viability of the
nearby rivers and the coast for fisheries as well as for other activities economically and
recreationally important to the inhabitants living in the downstream areas and the coast.

                Soil erosion and deforestation were other environmental problems also
common in mine sites like the RTNMC. The mine was an open-pit operation and
substantial scraping of the land cover already occurred. Over time, this may have led to
the mentioned problems and the destruction of the topography and aesthetic value of the
mining area. The scope of these problems could be significant enough to cause problems
to inhabitants.

               In order to validate the extent of the environmental problems caused by
the RTNMC, the study team visited the mining site and key firm personnel were
interviewed. They accepted that dust have been significant in the main road used by the
mine. This was also validated by personal observation of 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. 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 the other problems like pollution, siltation, sedimentation and
soil erosion, the interviewed firm personnel mentioned that various activities were
conducted. These included slope stabilization, slope engineering, boulder toe dressing,
and the construction of silt collector sump, proper drainage, dikes and siltation ponds.
The interviewed personnel also asserted that the firm was aggressively addressing the
problem of deforestation through reforestation. In particular, of the total current mining
area of 353 hectares, 114 hectares were rehabilitated and extensively planted with various
types of trees. The tour showed that extensive reforestation was indeed done by the
RTNMC in the mining area and the other activities and equipment mentioned for the
control of siltation, sedimentation, soil erosion and related problems were in place.

               There are no technical records shown by the interviewed firm personnel
that can ascertain the extent of air pollution caused by the RTNMC although their tests
showed that the pollution levels meet the standards. For water pollution, the firm
submitted 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 available. 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 concentration of
chromium due to the RTNMC operations met the allowable limit in most sampling

                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 milligram 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 firm personnel and other informants explained that the
RTNMC has been setting 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). These monies were intended for environmental
monitoring, rehabilitation and similar purposes. In addition, the firm was recently
mandated to set up the Environmental Trust Fund (ETF) that serves as guarantee for use
in case of a mine accident.

               To further validate the environmental issues at hand, the affected
households were asked questions about the problems caused by the RTNMC (Table 23).
It was found that the average distance of the household residence from the mining site is
5 kilometers which is considered close by rural standards. Furthermore, although only a
minority of the households lived close to the main road used for mining activities, many

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 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 that this has caused
the siltation of ricelands. Some households also cited that because of mining, coastal
waters are polluted and this 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 and
that this was mitigated by the construction of diversion canals. Some mentioned that
deforestation was a problem in their area and that the mining company addressed this
problem through reforestation.

               In summary, it was apparent that although the RTNMC has been
conducting various activities for environmental improvement in the vicinity of the mine,
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 on 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

               A key firm official in Makati City was interviewed related to 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.
Therefore, the increased availability of credit and the lower borrowing interest resulting
from the policy of financial liberalization may have an insignificant effect on their
operations. He also believed that the prevailing interest rates have been stable in recent
years, except during the economic crisis. But then again, he said 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 resulting
from foreign exchange liberalization 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, then 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 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
specification of this 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 that the policy of foreign exchange liberalization has effected.
Moreover, the firm made 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, the key official mentioned that the reduction
in tariffs and import restrictions that resulted from the macroeconomic policy of trade
liberalization 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 area 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 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 Mining Act of 1995, 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
requirements set by the government for environmental protection and management, such
as the setting up by the firm of specific funds for the purpose like the ETF.

                The key official mentioned that the RTNMC realized that because of
tightening resources partly due to tight fiscal policy, the national and local governments
were not in the position to 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 needs and 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 management. 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 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. Based on these
data and information, it can be argued that the policy of financial liberalization may have
a minimal direct impact on households as they have a low level of use of the formal
financial system.

                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. Thus, the policy of financial liberalization impacted households by making their
lives worse although this did not lead to their increased use of natural resources for

                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, will be responsible enough and 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. This may be taken a positive economic impact of the policy of trade
liberalization on the households. Key household informants, however, mentioned that
this has no impact on their willingness to pay for environmental protection and control as
the households were already very poor in the first place.

              All households had no investment made as result of financial incentives by
the government implying that the policy of investment promotion expectedly did not
work with the households, many of which cannot afford to make any form of 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. In general, then, the macroeconomic policies of the
government did not result to the improvement of the lives of households. This increasing
poverty over the years may have made households less and less willing and able to
participate in environmental protection and management.

       9.3     Case Study on Quarrying

               Profile of Quarrying in Palawan

               The rivers in the mainland of Palawan 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.
The available data indicated that 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 was 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 comprises only a very insignificant .13
percent of the average annual national production (Table 26). The production data,
however, reflects an increasing production over the years. Key informants said that an
important reason for this was that sand and gravel and concrete materials became
substitutes to lumber when the log ban was implemented. Another is that the
construction of roads, bridges, buildings and other structures intensified in the province in
recent years.

               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 the value of 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 had the most number (Table 27). This rising number 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 one was operating,
various 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

                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 of the
quarrying applications with commercial and industrial permits is presented in Figure 13.
Aborlan was another municipality in Palawan that had a large number of quarrying
activities. The maps of this town showing the barangays and their populations are
presented in Figures 14 and 15. The ECAN map that also shows the location of the
actual quarrying operations with commercial and industrial permits is presented Figure
16. The ECAN maps indicate that the endorsed sand and gravel quarrying operations
were located in multiple use zones and other areas where they are generally allowed
under the SEP. Also, actual quarrying operations with permits numbered less than those
granted permits (see Table 27) as 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 strictly the case. According to key informants,
quarrying operations in the province were actually 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 violate 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 into sites not allowed by the SEP. Key informants mentioned that from
time to time, illegal operators were caught and their equipment impounded. However,
the penalty for their transgression was low. Illegal operators who were caught were in
general 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).

                Briefly, a quarrying operation is 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 either sold by the operator through its own outlets, used in its owned
construction activities such as the building of structures and roads, or used in the
construction activities of other companies. 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. Currently, a large amount of sand and gravel has

been used in the construction and concreting of the national highway going to the
northern portion of Palawan from Puerto Princesa.

               Profile of Quarrying Firms and Households

               Of the 19 quarrying firms, 4 were owned by operating permittees, 11 by
non-permittee operators and 4 by buyers (Table 30). All of the quarrying operations were
Filipino-owned and all except one were sole-proprietorships. The average number of
years of operations was from 2 to 4 years. Most of quarries covered a hectare 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 are paid better than the
average worker in their fields. This is because quarrying operators paid 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 productions.

               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 some continuously operated the whole year
round. The average annual income of the operations was lower in Aborlan than in Puerto
Princesa. The generated levels of income generated in the interviews were probably
undervalued because of the fear of the firm respondents that their answers will be utilized
for tax purposes. Key informants mentioned that the average net income of quarrying
operations actually was around P200,000.00 a year. In general, the operations were
small-scale given 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 husbands or wives (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 and it was hoped that this will
make talk more openly about the quarrying operations. Most of the respondents were
educated below the college level. The households came from different ethnic
backgrounds indicating more diversity compared to mining affected households. The
average annual household income was even lower than those for mining households and
most of the quarrying households belonged to the lower income brackets than higher
income brackets.

               Quarrying and the Environment

              Most of the quarrying operations 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 the air
pollution 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 operated. A significant
number of respondents mentioned that they mitigated any environmental problem 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 soil
erosion and asserted that any erosion caused 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. The few who constructed
roads did these on open and agricultural areas and therefore did not cause any additional
deforestation in said areas.

                To validate the information coming from the quarrying firms,
environment-related data and information were gathered from the household. 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 road 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. 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. Some household respondents reported that due to
dust, they experienced sickness that was mainly in the form of respiratory problems in

                Most of the household respondents reported that the quarrying operations
caused pollution, siltation and sedimentation while a few cited that they also caused
chemical spills in the rivers. They said that because of these, the water in the river could
not be used for everyday activities and sometimes even flooding occurs. 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 also reported that
because of quarrying, coastal waters are polluted and silted. Most respondents reported
that the quarrying firms did nothing to alleviate the pollution, siltation and sedimentation
of the rivers their operations have affected. Some cited that quarrying also caused the
soil erosion in riverbanks. A few mentioned that some operations did something by
constructing siltation ponds and diversion canals.

               Hence, as in the case of mining, there is again 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 suggest
that firms should do more to address the environmental hazards which have been them
significant health and economic problems. The ocular inspection reveals that indeed, the
extent of the problems caused by quarrying, particularly pollution, siltation and
sedimentation, in some quarrying areas was great.

                At 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 supported the observation of the study team and the contention of either the firms or
households. Data generated by this activity 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.

               Macroeconomic Policies, Quarrying Firms and Households and the

               Secondary data were collected and 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 minority 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. Therefore, for
most firms, the increased availability of credit due to the policy of financial liberalization
did not necessarily lead to increased overall investment as well as spending particularly
on environment-related activities. On the contrary, the perceived high interest rate may
have prevented them from doing these.

              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 effects of devaluation discouraged them from expanding operations and
spending on environment-related activities. All of the firms also did not have dollar
accounts for their operations. These imply that that the devaluation caused by the policy
of foreign exchange liberalization may have a dampening effect on quarrying.
Environmentally, this may have helped control the depletion of mineral resources but
also increased the rate of environmental degradation by reducing the willingness to pay
for environmental improvement among firms. Because they have no dollar accounts, the
firms also may not have benefited directly from the abolition of controls related to
foreign exchange transactions.

               All the firm respondents mentioned that they did not export any of their
products and did not import its equipment. Therefore, trade liberalization had no direct
effect in their decision to produce or spend on environment-related activities. Key
informants 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. Thus, 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 less on environmental protection and management than what they ought to

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

               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 (Table 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, some of the
respondents may not want to admit that they expanded operations for their fear that the
information provided 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. Thus, as in the
case of mining households, the quarrying households may not have been directly affected
by financial liberalization because they were not involved in the formal financial market.

               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. Hence, the devaluation caused by foreign exchange liberalization made
quarrying households poorer, increased their dependence of natural resources and
exacerbated environmental degradation. Also, it may have made them much less willing
and able to spend for environmental protection and management.

                 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. This is a positive effect of trade liberalization. Key
informants 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 indicating that the policy of investment promotion did not
affect them. A majority mentioned that the government was actively involved in the
environmental management in their areas but as in the case of mining. 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.

                Overall, 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 management. The increasing poverty among
quarrying households could have significantly contributed to their low willingness to pay
for environmental improvement.

X.     Conclusions

       In retrospect, the following conclusions were generated by the study about the
environmental impact of macroeconomic policies in the mining and quarrying sector of
Palawan. First, there was a divergence of opinion between mining and quarrying firms
on one side and the 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 they have been doing significant efforts to address them. In
contrast, the households asserted that the problems were daunting and that more have to
be done by the firms to address them.

       The ocular inspection done by the study team showed that the environmental
problems caused by mining and quarrying remain significant. In mining, there was some
technical evidence that shows that the pollution levels caused by the firm involved met

government standards. For quarrying, no technical studies on the environmental
problems were conducted and evidence was therefore wanting.

        The direct impact of specific macroeconomic policies on the mining and
quarrying sector were mixed. Financial liberalization may have a minimal direct
economic impact as most of the firms and households did not use the banking system to
source their investment and operational financial needs. Foreign exchange liberalization
had a positive economic impact on the mining firm as devaluation improved its foreign
exchange earnings. However, it also negatively affected mining and quarrying firms by
raising their cost of production and the households by increasing their cost of living. On
one hand, the trade impact of foreign exchange liberalization on quarrying was
insignificant since all the firms cater only to the domestic market. On the other hand,
trade liberalization positively impacted the mining firm by lowering the cost of some of
its production inputs. Investment promotion benefited the mining firm through the
availed tax-based incentives and could have helped motivate the firm investors to think of
getting into nickel processing. However, it may have no significant impact on quarrying
firms and households, in general, as they did not receive any form of financial investment
from the government. The tight fiscal policy may have a negative direct impact in
quarrying as illegal firms proliferated in the face of weak monitoring and enforcement.
Overall, the macroeconomic policies may have brought little respite to the mining and
quarrying firms as most reported declining or stagnant operations and to the households
whose economic plight has worsened much in recent years.

         The environmental impacts of macroeconomic policies on the mining and
quarrying sector in Palawan also appear mixed. Since liberalization did not influence the
investment and production of firms, it also did not influence the rate of mineral extraction
and investment into environment related activities. Foreign exchange liberalization may
have a direct positive effect on the environment by causing some contraction in the
activities of quarrying firms and a negative effect by forcing quarrying households to
depend more on wood for their fuel needs. It may also have made both quarrying firms
and households less willing to spend more for environmental protection and management.
Trade liberalization may have little significant impact on the environment since the
willingness to spend for environmental improvement among the firms and households are
unaffected by it. For their part, investment promotion may have an important
environmental role to play if it helps lead to an environmentally safe nickel processing
facility in the future. Because of poor monitoring and enforcement, tight fiscal policy
may have negatively affected the environment by promoting the proliferation of illegal
quarrying activities and violation of environmental rules and regulations by quarrying

        It is pointed out that the abovementioned conclusions should not be taken as
evidence of the ineffectiveness of macroeconomic policies in promoting economic
growth in the mining and quarrying sector. The mining and quarrying sector in
Palawan may not be representative of other areas where firms and households are more
affected by the economic changes that policies bring about. The country has also
experienced various economic and political crises in recent years and these caused

economic downtown in general and among the mining and quarrying firms and
households, regardless of the soundness of its macroeconomic policies. Thirdly, because
of time and resource limitation, this study only attempts to look into the individual direct
effects of policies and disregard the other various indirect effects and overall effects. A
more detailed and comprehensive study could have led to conclusions different from
what is herein generated.

X.     Recommendations

        Based on the above conclusions and interviews with key informants, several
recommendations are put forward for the more environmental friendly development of
the mining and quarrying industry in Palawan. For the mining and quarrying sector in
general, much remains to be done to improve the environmental conditions in the mining
and quarrying sites. On the part of the national and local governments, improved efforts
on monitoring and enforcement are necessary to make the firms and households do their
obligatory part for environmental protection and management. In recent years, the
budgets of national agencies doing the work on monitoring and enforcement have
decreased. 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). In contrast, as
evident in this study, the environmental challenges are mounting and need urgent
attention. The increased provision of government funds and their judicious use for
environmental monitoring and enforcement is much welcome to attain better protection
and management in the mining and quarrying sector of Palawan.

        In order to effectively monitor the environmental conditions in the mining and
quarry sites, pertinent government agencies have to do the following: a) establish a data
base of the reserves in all river beds and mining claims including the condition of the
adjacent forest area and watershed; b) produce a control map of concession areas using
GIS; and c) periodically update the data on each concession area, e.g., volume allowed
and actual extraction, period of operation, water quality of the river, condition of the river
bank and watershed, activities in the surrounding area that may affect the river and other
parameters. The mining and quarrying firms may do part of these activities in
collaboration with the agencies. At present, these activities are hardly being done
particularly in the quarrying sub-sector so at the least, the PCSD should start very soon its
planned efforts for water quality monitoring in a few o the intensely quarried rivers.

        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

         The government should also ensure that the environmental problems created by
mining and quarrying in Palawan be fully addressed to the satisfaction of the residents in
the area. Part of the profits of mining and quarrying firms comes from the
institutionalized gross under-payment of the mineral resources they exploit and the health
and property damages they impose on the population. The government should find a way
to raise the extraction fees in mining and quarrying and ensure that any damages they
cause to people and property be paid to the fullest extent. The lack of this type of
compensatory mechanism is especially lacking in quarrying.

        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 provide employment and incomes to the population
without significantly harming the natural environment are not unnecessarily sacrificed.

         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 of local communities in monitoring
and enforcement should be promoted institutionalised by the LGUs for effective
monitoring and enforcement at the ground level.

        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 who can be significant gainers or losers in the event of a
change. One thing is certain and that is that illegal quarrying has to be contained if the
environment is to be protected. An obvious approach to curtail the practice 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. Key
informants mentioned that 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, key informants mentioned that 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, then quarrying proponents may be encouraged to apply for a permit. Reducing
the incidence of corruption, which is endemic in society in general, is clearly better said
than done. For a start, key informants proposed that the government, together with the
business sector and civil society, 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


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