Philippines 2017 Validation

The Philippines Validation commenced on 1 January 2017

On 5 October 2017, The Philippines was validated against the 2016 Standard. 

Validation is the EITI's quality assurance mechanism and measures the progress countries have made in meeting the requirements of the EITI Standard. For more information about the country, visit the country page on eiti.org.

The Board's decision

On 5 October 2017, the EITI Board came to the following decision on the Philippines' status: 

Following the conclusion of the Philippines’ Validation, the EITI Board concludes that the Philippines is the first country to have made satisfactory progress overall in implementing the EITI Standard.

The Board recognises the Philippines’ pioneering efforts in using EITI data to drive government reforms and generating a vibrant public debate over a sector that has historically proved divisive. Validation has confirmed that the Philippines has used the EITI to support reforms in oversight of the extractive industries and public financial management of extractives revenues. The multi-stakeholder group has provided an example to other countries in the balance of interests between equal partners, and in the dynamism of its dissemination, outreach and assessment of impact. The Philippines is the first country to achieve at least satisfactory progress on all of the EITI’s requirements. The Board also recognises the Philippines’ efforts to go beyond the requirements of the EITI Standard regarding oversight of the multi-stakeholder group (requirement 1.4), work plan (1.5), legal framework (2.1), policy on contract disclosure (2.4), revenue management and expenditures (5.1), social expenditures (6.1), public debate (7.1), follow-up on recommendations (7.3) and outcomes and impact of implementation (6.3). The Board has considered the Validator’s concerns about progress in meeting requirement 4.1 on comprehensiveness, but concludes that the requisite information was included in the 2014 EITI Report and that the broader objective of the requirement is met.

In making its decision, the Board takes special note of the Government of the Philippines’ efforts to ensure accessible, regular disclosure of information on the sector to its citizens, not least through the PH-EITI website.

Validation put the spotlight on longstanding efforts of Filipino stakeholders to ensure full participation in EITI reporting by all companies, particularly in the coal sector. A single company accounting for the majority of coal production has refused to report, despite sustained follow-up by all stakeholders including government. Nonetheless, the MSG has sourced and disclosed the relevant information on payments made by the company from government agencies and other public sources, ensuring that the broader objective of revenue transparency is met. While the Board concludes that Philippines has made satisfactory progress on all of the EITI requirements, the Board acknowledges that some local stakeholders are of a different view. The Board thus recognizes the need to strongly recommend that the Philippines sustain efforts at ensuring the coal sector’s participation in PH-EITI reporting. The Board encourages the Philippines to clearly highlight the materiality of any omissions from material companies in future PH-EITI reporting.

The Board welcomes ongoing efforts to mainstream implementation of requirements 2-6 on EITI reporting. The Board takes note of these developments and looks forward to working together with Filipino stakeholders on these issues.

The Philippines progress by requirement

The EITI Board agreed the following assessment card:

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Recommendations

The MSG is encouraged to consider the recommendations in the Validation Report and the International Secretariat’s initial assessment that could help the Philippines make even greater use of the EITI as an instrument to support reforms, and to document the MSG’s responses to these recommendations in the next annual progress report.  

Next Validation date

In accordance with requirement 8.3.d.i, the Philippines will be revalidated in three years, i.e. 5 October 2020.

Impact of the EITI in the Philippines

Based on the PH-EITI work plan’s five objectives, the Philippines’ EITI implementation has been particularly effective. led to significant impact. MSG meeting minutes reveal regular discussions of follow-up on recommendations, progress against the work plan and impact. The MSG has repeatedly discussed establishing a benchmark and tracking impact of EITI implementation based on factors ranging from public awareness to public finance management and other sector reforms. This focus on methodological rigour and ambition appears characteristic of PH-EITI.

Constructive engagement: The EITI has helped create opportunities for dialogue and constructive engagement on issues of extractive industries management, helping to start building trust and reduce conflict between the three constituencies. While trust-building remains by nature a moving target, particularly at a time of audits of the mining industry, members from all three constituencies highlight the scope for EITI to help build public trust in the mining sector in particular. All stakeholders consulted agree that, at its most fundamental, EITI implementation has gradually built trust between civil society, industry and government stakeholders. MSG members from all three constituencies described the evolution of relations from the early days of the Philippines’ EITI application. While members of the three stakeholder groups sat at different tables at their first meeting, they subsequently began to mingle, encouraged by the MSG Chair. Highlighting the importance of working through technical subjects together, company representatives have noted the improvement of relations between industry and civil society following publication of the first PH-EITI Report. While select industry and civil society representatives continue to express scepticism about each other’s intentions, levelling accusations of misrepresenting EITI data at each other, there was consensus that discussions on the MSG remained cordial even at the most challenging times.

There appears to be consensus that the EITI has established a systematic framework for dialogue. Stakeholders have highlighted that the engagement of the right stakeholders on the MSG has been key to building trust while discussing often contentious issues. While civil society representatives remain ever-vigilant to preserve their critical outlook vis-à-vis other constituencies, establishing elaborate constituency governance, relations between stakeholders have largely remained cordial and constructive. The lack of any instances where the MSG took a decision without consensus, albeit at time following lengthy discussions, reflects this emerging trust. Stakeholders not directly represented on the MSG have also described gradual improvements in trust, such as LGUs’ discussions with industry and civil society during LGU roadshows. Local civil society in Cebu was increasingly analysing PH-EITI information and using the PH-EITI Reports as a platform for discussions, according to one activist. While public criticism between stakeholders has continued, the MSG has provided a forum for tripartite discussion away from the glare of public attention. Key civil society organisations have actively used this channel to air grievances, although the other two constituencies (including LGUs) have also done so to some extent. In particular, roadshows have provided a channel for LGUs to discuss various topics of concern with relevant government and industry representatives, including delays in transfers of their shares of national wealth, monitoring of SDMPs and boundary disputes between LGUs hosting mines. While civil society is by no means monolithic in the Philippines, with certain anti-mining groups viewing EITI as a form of co-option to industry interests, outreach in regions hosting extractives activities have proved a potent mechanism for channelling popular grievances through the EITI. There is clearly scope for even more such subnational outreach.

Economic contributions: There is also consensus amongst stakeholders from the three constituencies that the EITI has started to help clarify the direct and indirect contributions of the extractive industries – particularly mining – to the economy. However, opinions clearly differ as to the starting point as well as about the future directions of the PH-EITI work on this issue. Industry representatives have noted the importance of the EITI in highlighting that mining companies contributed far more than the mere 2% excise tax, contrary to popular belief. Companies have also noted that PH-EITI produced useful data to calm the debate on increasing taxes on mining companies over the past several years and that this did not seem to be a government priority anymore. A senior government official considered that the mining companies had not done a good job at explaining what they had achieved in the past. Technical-level government representatives highlighted the importance of the EITI in showing extractive companies’ various contributions, including to special funds. This information, including employment data, has increasingly been used by Congress for its deliberations. While maintaining their ambitions for more information, civil society representatives agree that PH-EITI has stimulated a better understanding of the contributions of the industry. There is however a widespread perception amongst stakeholders consulted that the two-year delay in publishing PH-EITI Information hindered its usefulness and that more timely reporting could be achieved, as planned for 2017 when the 2015-2016 PH-EITI Reports are planned.

Improvements in the availability of key data on the mining sector has improved in line with the implementation of EITI recommendations, starting in 2015. In terms of direct contributions, the BIR has begun to publish disaggregated tax revenue information through PH-EITI Reports, but has also streamlined its tracking of extractives companies’ tax payments by centralising tax filings by these companies directly to BIR’s head office. The MGB has begun improving its mining database. The DOF’s BLGF, the DILG and DBM have begun disaggregating transfers of LGUs’ shares of national wealth by revenue stream since 2016, which has started to enhance LGUs’ ability to track the revenue they receive. PH-EITI has also helped clarify the indirect contributions of the mining sector to the economy by providing information on annual disbursements and beneficiaries under SDMPs, companies’ voluntary corporate social responsibility spending, environmental rehabilitation provisioning and transfers of royalties to IPs. Civil society expresses cautious satisfaction at gaining more information through PH-EITI, which allows them to start evaluating the comprehensive contribution of mining companies to the economy, but still continues the picture painted by PH-EITI to be incomplete.

Public understanding: With information disclosed through PH-EITI widely recognised as credible and robust, there is evidence that public understanding of the management of natural resources had gradually improved. Both civil society and industry highlight that CSOs have gained a better understanding of the mining industry through their participation in MSG discussions. Starting to bridge gaps in the availability of information on extractives at the local level, PH-EITI roadshows have proven an effective means of informing local communities of some aspects of the contribution of the extractives sector to their community. However, as consistently highlighted by CSOs, there is significant pent-up demand for information on areas not yet directly covered by the PH-EITI Reports including artisanal and small-scale mining and large-scale non-metallic mining. This has been echoed in independent research on PH-EITI, which has highlighted the need to sufficiently disaggregate PH-EITI data to ensure it is meaningful for stakeholders at the local level, who must have the interest and capacity to use the information to inform their negotiations with extractives companies and local development plans (Brockmyer, 2016).

There is also consensus amongst stakeholders that PH-EITI information provides a baseline of evidence agreed by both industry and civil society, upon which debate can be structured. While there remain misgivings on the part of some stakeholders about the potential “misuse” of information, stakeholders agree that one of the greatest immediate impacts of EITI implementation has been to provide information that could not be questioned by any of the three constituencies. This is in sharp contrast to the past, according to CSOs consulted, when their calculations could be questioned by companies based on allegations of poor-quality information. Several development partners have also noted the growing participation of CSOs that never used to engage on issues of natural resource governance as a consequence of EITI implementation and its tangible impacts. Stakeholders including CSOs, LGUs and development partners consider that the PH-EITI has provided a voice for local stakeholders at the national level as well as a means of monitoring adherence to the rules. While government has tended to highlight the impact of the EITI on ensuring local stakeholders were aware of their rights, civil society emphasises the need for capacity building to ensure the opportunity offered by PH-EITI yields tangible improvements in such accountability. Government stakeholders also highlight the use of PH-EITI Reports to inform individual government agencies about the work of their counterparts in other departments and provide a more comprehensive view of the government’s management of the extractive industries. They also point to the importance of PH-EITI transparency in securing the public’s trust in government systems.

Strengthening government systems: PH-EITI Reports have served as a diagnostic tool for government systems related to oversight of the mining, oil and gas sectors as well as broader public finance management. The quality of recommendations agreed by the MSG for each successive PH-EITI Report reflects their focus on re-assessing government systems and suggesting reforms to improve oversight. From the publication of the first PH-EITI Report in December 2014, the MSG has actively followed up with individual government agencies and through the MICC to implement reforms. While the pace of progress in following up on recommendations may have been less evident in 2016, given the political transition and the lack of MICC meetings, there is evidence that reforms have continued to be implemented at the level of individual government agencies. While a rigorous analysis of improvements in government systems as a result of the EITI has yet to be undertaken, some academic research has already highlighted improvements in internal tracking and reporting systems at the level of government agencies, even if broader improvements in government accountability were considered to have not yet been achieved (Brockmyer, 2016).

The most significant area of reforms spurred by EITI is at the level of local government finance. LGU officials have long been critical of delays in disbursing their 40% shares of national wealth, while being unable to track the source of revenues transferred in lump sums. However, as highlighted by several government officials, the frequent turnover in LGU officials (other than local Treasurers appointed by the DOF) often every three months has hindered their ability to successfully advocate for change. There is consensus amongst all stakeholders consulted that the EITI has provided a framework for identifying bottlenecks in subnational transfers, proposing reforms and following up on their execution. The first PH-EITI Report identified discrepancies between what DBM reported having transferred to LGUs and what LGUs reported having received, likely due to delays in disbursements. Within six months of the PH-EITI Report launch, the DBM issued a joint circular streamlining the transfer process. Each extractives revenue collecting agency (BIR, MGB and DOE) continues to calculate each LGU’s share and transfer revenues to the Treasury, but under the revised system the funds are not then transferred through DBM’s local offices to LGUs as lump sums. Rather, effective from the 2016 budget, LGU shares were transferred directly by the Treasury with approval from DBM, effectively cutting one layer of the process. The transfers were also disaggregated by revenue stream, although not yet by company, allowing LGUs to track revenues per stream. The impact of this reform was swift, with the average time for transferring shares cut from up to two years to roughly six months, with all LGU shares budgeted for 2016 effectively transferred in 2016. The DOF’s BLGF and the DILG also recently developed a reporting tool for LGUs (the Environment and Natural Resources Data Management Tool – ENRDMT) to integrate PH-EITI reporting requirements into LGUs’ regular reporting to central government through the quarterly Statement of Receipts and Expenditures (PH-EITI, 2016). The system was piloted in 2016 for LGUs’ reporting on 2014 and 2015 shares of national wealth, with a roughly 50% success rate. It will further be expanded to enable oversight of LGU spending of extractive revenues earmarked for specific purposes. More recently, the publication of each collecting agency’s calculations of specific LGUs’ shares should strengthen LGUs’ oversight of their receivables linked to extractives revenues.

Follow-up on PH-EITI recommendations had also led to reforms in other government agencies, including NCIP, BIR, MGB. The first PH-EITI Report identified significant gaps in NCIP’s oversight of company royalty payments to IPs on ancestral lands, given that IPs only report their royalty receipts to NCIP on a voluntary basis. Following a forum on IPs held by PH-EITI in 2015, the NCIP agreed to develop a monitoring tool for better tracking of IP royalties, due to be launched in March 2017. The BIR implemented internal reforms to its information management systems. From 2016, the BIR revised its categorisation of “large taxpayers” to include all producing extractives companies, thereby centralising tax collection from all mining, coal, oil and gas companies at the central government level rather than through BIR regional offices. This simplified tax reporting for companies. BIR also began publishing tax information disaggregated by revenue stream. The MGB focused on improvements to its internal database and its mining cadastre, with an online cadastre, the Online Mineral Rights Management System (OMRMS), due to be launched in mid-2017.

Contribution to sustainable development: While the EITI’s impact on strengthening the extractive sector’s contribution to sustainable development is more tenuous, there is evidence that the EITI has provided a channel for discussions of the economic contribution of the mining sector in particular. Civil society activists highlight the use of PH-EITI in empowering stakeholders to question the contribution of the mining sector to sustainable development and poverty reduction.

Auditing procedures in the Philippines have not been impacted by EITI implementation, given strict adherence to both public and private sector auditing requirements. However, there is some evidence that EITI implementation under the Aquino administration was viewed as one of the proxies for broader tax administration reforms by investment and credit ratings analysts (EITI, 2015).

Recognition: More broadly, there is also evidence of additional impacts beyond those planned as part of the PH-EITI work plan’s objectives. The PH-EITI achievements have been highlighted on the international stage, both within the EITI community for instance through the EITI Chair’s Award for impactful implementation at the 7th EITI Global Conference and beyond. In addition, the Philippine experience implementing the EITI were highlighted (“starred”) as a model OGP commitment given its significant potential impact and substantial implementation (PH-EITI, 2016). Implementation of the EITI has also generated significant public interest in expanding its scope to other sectors, including large-scale non-metallic mining, artisanal and small-scale mining as well as on government expenditure, particularly at the subnational level.

Sustainability

Funding: The PH-EITI has faced repeated funding shortfalls due to delays in disbursement of donor support. Following the closure of the MDTF in January 2016, the PH-EITI Secretariat faced significant delays in securing World Bank funding due to delays in processing and counter-party signing of a new grant under the EGPS. Disbursement of USD 1.5m in World Bank EGPS funding (for 2016-2018) was still pending as of February 2017 despite the DOF’s counter-signing of the grant agreement in October 2016. The government disbursed its budgeted share of PH-EITI funding in the first quarter of 2016, but this was depleted at the end of June 2016 (PH-EITI, 2016). Funding was secured from other donors, such as USAID for the 2016 LGU roadshows and 2016 National Conference, but this was insufficient to cover all work plan activities planned for the rest of 2016. In 2015, the PH-EITI Secretariat faced a similar funding gap early in the year, when government funding covered PH-EITI expenses for the first quarter, pending disbursements of the MDTF (PH-EITI, 2015). The 2017-2018 EGPS grant agreement foresees a higher level of government funding than under MDTF, although the DOF exceeded the planned PHP 27m PH-EITI budget for 2017 by an additional PHP 10m (PH-EITI, 2016) (PH-EITI, 2016). While funding for PH-EITI implementation is secured until end-2018, financial support for PH-EITI thereafter will depend on normal government budgeting.

Legal backing: The MSG has frequently discussed the drafting of legislation institutionalising the EITI in the Philippines. By the MSG’s meeting on 1 July 2016, a Technical Working Group had been established to work on a draft and the secretariat had started liaising with various Congressmen as possible sponsors (PH-EITI, 2016). Bills institutionalising the EITI were submitted to the House of Representatives and the Senate in October and September 2016 respectively (House of Representatives , 2016) (Senate, 2016). Beyond provisions waiving the tax code’s confidentiality provisions for EITI reporting purposes, EITI-specific legislation would institutionalise government funding for PH-EITI and include it in the normal budgeting process. The two bills were being considered at committee-level in each of the two houses as of February 2017, pending their first of three hearings. Representatives from the lower house of Congress reported that EITI legislation had been identified as one of the 17th Congressional term priorities.