AC 513 Case

DENR urged to study mining impact on agricultural areas An article by Louella D. Desiderio (The Philippine Star)

MANILA, Philippines - The Department of Agriculture (DA) will ask the Department of Environment and Natural Resources (DENR) to consider the impact on agricultural communities in deciding on whether to allow the operations of the Tampakan copper-gold project in Mindanao to proceed, a cabinet official said. Agriculture Secretary Proceso Alcala told reporters late last week that he would send a letter to Environment Secretary Ramon Paje regarding the Agriculture departments position on the Tampakan project. There should be no mining activities, especially in prime agriculture areas, Alcala said. He said that some farmers in areas near the Tampakan project have raised concerns over the project, citing that mining operations may affect the volume of water going to the irrigation systems. Our proposal in the agriculture sector is that if there is a prime agricultural area and the government has already invested there, we should not allow it (mining operations), he said. He said that while the mining firms have already invested in the Tampakan project, the government has likewise spent for the irrigation projects. Modesto Tolentino, Jr. regional manager for Region 12 or SOCCSKSARGEN of the National Irrigation Administration said in a telephone interview over the weekend that there are 11 communal irrigation systems covering 3,349 hectares, and two national irrigation systems serving 3,538 hectares in the area. Alcala said that if mining operations in Tampakan would be allowed to proceed while there are irrigation projects there, it would be difficult for government to attain sufficiency in production. For his part, John Arnaldo, communications manager of Sagittarius Mines, Inc. (SMI), which is pursuing the Tampakan project, said the firm would not be undertaking mining activities in prime agricultural lands. SMI confirms and guarantees that no mining activities are proposed to be undertaken in any prime agricultural lands, he said in an email. He said that if the project is approved, SMI would construct a freshwater storage dam which would help manage drought in the area and even lead to increases in rice production as it would allow for equitable distribution of irrigation water.

The fresh water dam will also mitigate downstream flooding and siltation impacts, he said further. The Tampakan project which has an estimated capital requirement of $5.9 billion is scheduled to start commercial operations in 2016. The project spans the provinces of South Cotabato, Sarangani, Sultan Kudarat and Davao del Sur. A ban on open-pit mining in South Cotabato has threatened the project with the Department of Environment and Natural Resources denying an environmental compliance certificate (ECC) for the SMI project in January. The ECC certifies that a project would not lead to unacceptable impacts to the environment. It is one of the requirements to secure a permit to operate the mine. The DENR had said earlier the ban would have to be resolved first before the ECC could be given for the project.

Questions for Discussion: 1. In the article, two options exist for the government to pursue: proceed with or cancel the mining operation. Are these two alternatives mutually exclusive or not? 2. As stated on the case, the government had already invested on irrigation projects in the area that will be affected by the mining operation. If you were the government and using your knowledge in capital budgeting, will the irrigation project be considered in your decision? Why or why not? 3. If the mining project would be pushed through, SMI would need to construct a freshwater storage dam. If you were SMI, what is the effect on your capital budgeting analysis based on this fact? If you were the government, how do you integrate the construction of the dam in your decision? 4. Mining operations should not lead to adverse effects in the environment, especially in prime agricultural areas. Comment on such regulation and discuss how it impacts on the capital budgeting decisions of both SMI and the government. 5. Based on the facts of the case and your own opinion, should the government continue with the project? Why or why not? (Analyse your answer using a finance perspective.)