Rewarding secrecy and ineptitude

There is some disturbing news in the world of mining. The Semirara Mining and Power Corp. (SMPC) is a finalist in the “Corporate Social Responsibility (CSR)” category of the 2015 Platts Global Energy Awards.
According to Platts Global Energy Awards’ Web site, the Corporate Social Responsibility Award will recognize the organization that best demonstrates leadership, commitment to action and real-world impacts from across its business. It goes on to say that the judges will seek a high-performing organization that has evidenced its positive influence on surrounding communities, promotes teamwork toward sustainable, long-term impacts and encourages active employee participation beyond financial contributions.

With these high standards, it is difficult to imagine how a company like SMPC be considered for the award. The core idea of corporate social responsibility is the commitment to go beyond the company bottom line and consider the positive impacts that a company can contribute to social change. Socially responsible companies exemplify genuine commitment to have positive real world impact.

SMPC prides itself in promoting Organisation for Economic Co-operation and Development Principles of Corporate Governance globally accepted by policy makers, investors, and other stakeholders. On its Web site, it says that “Our corporate governance framework aims to nurture a culture of ethical conduct, optimum performance, transparency and accountability across our organization and subsidiaries.” It goes on to say that “Our Company commits to a regime of open disclosure and transparency of material information regarding financial performance, ownership and business updates.”

On the ground, however, SMPC operates differently.

SMPC is responsible for more than 90% of coal production in the Philippines yet it has not demonstrated any commitment to transparency and accountability. SMPC is a significant industry player in coal production but it refused to participate in the Philippines’ implementation of Extractive Industry Transparency Initiative (EITI). EITI is the global standard on transparency and accountability in the extractive sector advocated by the Chamber of Mines of the Philippines, Petroleum Association of the Philippines and Bantay Kita-Publish What You Pay Philippines. The Philippines is applying to be a compliant country. The implementation of EITI is an official policy of the government under Executive Order Nos. 79 and 147 of President Benigno Aquino III. Its refusal to participate has a significant effect on transparency and accountability of the sector and leaves a huge hole in the Philippines’ report that most certainly will doom the application of the Philippines as an EITI compliant country.

SMPC gave the following reasons for not participating in EITI:

1. SMPC formerly Semirara Mining Corp., is a listed company in the Philippine Stock Exchange (PSE) and as such, all financial reports are readily available and accessible through the PSE, SEC and our Company Web site.

2. Should SMPC participate as the only company in the coal mining sector, the publication and dissemination of all its payments to the Philippine government will put the company at the forefront, posing a risk in terms of maintaining its cost and price competitiveness among its peers in the region, especially with the impending Association of Southeast Asian Nations (ASEAN) integration in 2015;

3. The incentives granted to coal operators under its Coal Operating Contract, by virtue of Presidential Decree (PD) No. 972, might be construed as a “subsidy” per definition of the World Trade Organization. A countervailing measure on subsidized imports by a country might be applied by a member country if they found that coal exported by Semirara Mining Corp. earned benefit from the “subsidy”;

4. The cost behavior of coal mining operations is highly dependent on stripping ratio, which we expect to be variable all throughout the life of the mine. Since tax payments to the government is a factor of revenue and cost, disclosure of tax payments from period to period may vary significantly, primarily because of the stripping ratio which may be high or low and yet generate the same quantity of coal produced;

5. Given coal price index to be constant, selling the same quantity of coal may and/or not give us the same level of revenue from period to period because coal price is also dictated by quality of the coal extracted from period to period;

6. Any discrepancy between the figures reported by the concerned government agency and the that reported by the participating entity entails, reconciliation, any unexplained variance published may draw negative connotations from the public at large which may lead to reputational risk;

7. The tax information and other payments to the government that maybe disseminated through the publication of country EITI report may draw different interpretation by different stakeholder groups which is already beyond our control and may have an impact on the share prices of the company.

To summarize, disclosing EITI data including taxes paid and incentives received from the government will hurt the company’s profitability and competitiveness. The incentives they are getting from the government might be construed as a subsidy. This is what SMPC does not want to tell us.

Under PD 972, coal companies can claim as much as 90% of their gross revenue as recoverable cost. Of the remaining 10%, 7% goes to the company as “basic fees” and “special allowance” for being a government contractor. The remaining 3% goes to the government as its share from the extraction of its national wealth. However, SMPC also includes the 3% government share as part of its operating expense. This is horrendous! If we are talking about unfair government share from the extraction of national wealth, this is it. All these benefits despite dirty coal and its contribution to climate change.

In its letter, the company is already anticipating some discrepancies in their payment to government that may not be explained despite reconciliation. What can be in SMPC’s financial books that even a top accounting firm like PricewaterhouseCoopers, which is doing the EITI reconciliation, will not be able to explain. This should already make us, especially the Department of Energy, suspicious.

However, despite the threat to the Philippines’ compliance to EITI, the Department of Energy has not lifted a finger to make SMPC comply with EITI. And this is what’s puzzling. EITI is a national policy. And SMPC is a contractor of the government.

How difficult is it to require a contractor of the government to publicly disclose its payments and fees to the public? How difficult can it be to disclose the amount of coal it extracted? Are transparency and accountability not a minimum requirement for government contractors? If not, then I am not surprised why there is so much corruption in this country.

There are other issues that should be examined with regard to SMPC’s performance as a corporation.

SMPC is under investigation by the Philippine Commission on Human Rights for possible human rights abuses related to displacement of residents.

SMPC has been involved in issues of displacement without consultation and explanation to residents. Several homes were bulldozed using the company’s heavy equipment despite protests. The current dairy farm project that is the basis for the nomination of SMPC to the Platts Global Energy Awards is currently a source of conflict in the community and is currently being investigated by the Commission on Human Rights. Semirara Mining and Power Corp. is a subject of a resolution in the House of Representatives for possible workplace health and safety violations. The company’s operation resulted in the death of 14 mine workers and disappearance of five more in a little over two years.

Filipinos stand by their own especially if there is international recognition for deserving enterprises.

Unfortunately, Semirara Mining and Power Corp.’s continued refusal to participate in the global initiatives of transparency and accountability, and its poor record of protecting human rights does not make worthy of the accolades it bestows upon itself, and by any reputable award giving body.

Giving the company the CSR award will be a mockery of what the Platts Global Energy Awards stand for. The judges of the Platts Global Energy Awards should be more critical in its assessment of the company and its CSR project. It should be able to look beyond promotional materials and company statements and see what kind of company Semirara Mining and Power Corp. really is.

Cielo Magno is the national coordinator of Bantay Kita-Publish What You Pay Philippines. She is a member of the multistakeholder group of Philippine EITI and the global council of Publish What You Pay. She is also a fellow of Action for Economic Reforms.

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