The document discusses issues around local autonomy and resource development in the Philippines. It outlines how local government units (LGUs) are constitutionally entitled to an equitable share of revenues from natural resources in their jurisdictions, but sometimes refuse consent for development projects over environmental and social concerns. The document also examines the specific revenue sharing arrangements between LGUs and the national government for different resources like mining, energy and renewable energy under relevant laws and regulations.

1. 1
Local
Autonomy
and
Resource
Development:
Issues
and
Uncertainties
The
Book
of
Genesis
narrates
the
first
recorded
acquisition
of
land
by
Abraham
who
wanted
to
own
freehold
land
in
Hebron.
Abraham
was
required
not
only
to
have
the
power
of
purchase
but
was
also
tasked
to
secure
the
public
and
formal
consent
of
the
community.
He
was
in
the
same
predicament
as
present
day
resource
developers.
Local
government
units
(“LGUs”)
outright
refusal
of
consents
to
resource
development
within
their
territorial
jurisdiction
ranging
from
declaration
of
mining
moratoriums,
ban
of
particular
technologies
like
open
pit
mining
and
submarine
tailings
disposal,
and
opposition
to
energy
projects
like
coal-­‐fired
and
hydro
power
plants,
wind
farms
and
geothermal
exploration
have
often
created
controversies
with
the
national
government
and
the
resources
industry.
Perhaps
the
opposition
to
resource
development
projects
particularly
mining
is
the
widespread concern that
the
sector
is
not
paying
its
fair
share
and
that
mineral
wealth
has
rarely
translated
into
the
alleviation
of
poverty.
For
LGUs
where
resource
development
have
been
part
of
their
revenue
generation,
they
are
more
concerned
with
the
assurance
that
communities
hosting
resources
development
would
get
their
timely
share
of
the
proceeds.
However,
more
than
fair
and
prompt
revenue
sharing,
public
advocacy
groups
believe
that
the
main
issue
is
the
autonomy
of
local
communities
to
accept
or
veto
development
projects
normally
approved
at
the
national
government
level.
Other
issues
raised
by
local
governments
include:
wastes,
emissions
and
pollution;
loss
of
agricultural
land
and
subsequent
livelihood;
threat
to
water
resources;
relocation
and
right
of
way;
and
health
and
safety
of
workers
and
communities.
Local
Government
Share
in
National
Wealth
Section
7,
Article
X
of
the
1987
Constitution
provides
that
LGUs
shall
be
entitled
to
an
equitable
share
in
the
proceeds
of
the
utilization
and
development
of
the
national
wealth
within
their
respective
areas,
in
the
manner
provided
by
law,
including
sharing
the
same
with
the
inhabitants
by
way
of
direct
benefits.
Section
289
of
Republic
Act
No.
7160
or
the
Local
Government
Code
of
1991
states
that
LGUs
shall
have
an
equitable
share
in
the
proceeds
derived
from
the
utilization
and
development
of
national
wealth
within
their
respective
areas.
Under
RA
7942
or
the
Philippine
Mining
Act
of
1995,
LGUs
would
receive
their
share
from
the
two
percent
excise
tax
from
the
gross
revenue
of
a
mining
company
operating
in
their
locality.
According
to
the
IMF
Report
“Philippines:
Reform
of
the
Fiscal
Regimes
for
Mining
and
Petroleum”
(IMF
Country
Report
No.
12/219,
2012), one
indication
of
the
low
contribution
of
the
mining
sector
to
government
revenue
is
that
payments
to
government
as
a
share
of
total
taxes
is
less
than
the
sector’s
share
of
GDP.
Its
low
contribution
to
government
revenue
is,
in
part,
due
to:
the
mining
sector
comprising
mostly
small-­‐scale
mines
(with
about
34
percent
of
total
value
mining
production),
which
do
not
pay
a
lot
of
tax;
older
mines
that
are
in
their
twilight
years;
and
a
few
new
mines
that
are

2. 2
enjoying
tax
holidays.
The
IMF
suggested
reforms
of
the
fiscal
regime
for
mining
by
proposing
measures
that
would
increase
government
revenue
through
an
increase
in
excise
taxes,
repeal
of
the
BOI
and
Mining
Act
tax
incentives,
and
provide
continuous
appropriation
for
the
distribution
of
the
LGUs
share.
In
the
energy
sector,
Section
5(i)
of
RA
7638
or
the
Department
of
Energy
Act
of
1992
mandates
the
Department
of
Energy
(“DOE”)
to
“devise
ways
and
means
of
giving
direct
benefits…and
equitable
and
preferential
benefit
to
the
region
that
hosts
the
energy
resource
and/or
the
energy-­‐generating
facility.”
RA
9136
or
the
Electric
Power
Industry
Reform
Act
(“EPIRA”)
further
affirms
“the
obligations
of
generation
companies
and
energy
resource
developers
to
communities
hosting
energy
generating
facilities
and/or
energy
resource
developers…shall
continue.”
Energy
Regulations
No.
1-­‐94
or
the
Rules
and
regulations
Implementing
Section
5
(i)
of
Department
of
Energy
Act
of
1992
(“ER
1-­‐94”)
prescribed
the
provisions
of
direct
benefits
to
LGUs
hosting
energy
resource
development
projects
and/or
energy
generating
facilities
within
their
territorial
jurisdiction.
With
respect
to
LGUs’
share
in
renewable
energy
projects,
RA
9513
or
the
Renewable
Energy
Act
of
2008
has
basically
amended
EPIRA
and
the
provisions
of
ER
1-­‐94,
and
its
Attendant
Rules
and
Procedures.
Comparison
of
Benefits
for
Energy
Projects
ER
1-­‐94
Royalty
Tax
(or
National
Wealth
Tax)
Government
Share
Legal
Basis
Sec.
5(i)
of
DOE
Act;
Rule
29
(a)
EPIRA
IRR,
Sec.
66
EPIRA
Law
Sec.
289-­‐294
of
the
Local
Government
Code;
Rule
29
(b)
EPIRA
IRR,
Section
66
EPIRA
Sec.
20
Rule
7
RE
Law
IRR;
Rule
29
(b)
EPIRA
IRR,
Sec.
13
Chapter
V
RE
Law
Nature
of
Benefits
P0.01/kWh
of
the
total
electricity
sales
1%
of
Gross
Receipts
or
40%
of
the
NWT,
royalty
fees
or
charges
derived
by
the
government
agency
of
the
preceding
calendar
year
whichever
is
beneficial
to
the
LGUs
1%
of
Gross
Income
of
RE
developers
except
for
geothermal
energy
developers
which
is
1.5%
of
Gross
Income
Except
for
hosting
GOCC
projects:
Nat.
Gov’t:
60%
LGUs:
40%.
Beneficiaries
Resettlement
area,
barangay,
municipality/city,
province
and
region
Barangay,
municipality/city
and
province
Barangay,
component
city/municipality
and
province

3. 3
Nature
of
Fund
Utilization
Electrification,
development
&
livelihood,
and
reforestation,
watershed
management,
health,
and/or
environment
enhancement
projects
80%
be
applied
to
lower
the
cost
of
electricity;
20%
for
dev’t
and
livelihood
projects
80%
be
applied
to
RE
projects
and
activities
to
subsidize
end
users
of
RE
whose
consumption
does
not
exceed
100kWh;
20%
for
dev’t
and
livelihood
projects
Fund
Availment
Directly
remitted
to
LGU/RDC/DU/EC
based
on
approved
projects
Directly
remitted
to
the
host
LGU
for
GOCC;
Remitted
to
DOE
thru
DBM
for
LGUs
hosting
IPP
with
Service
Contract
Remitted
to
DOE
thru
DBM
for
IPP
with
Service
Contract
Electric
Power
Industry
Management
Bureau,
Department
of
Energy
EO
79
-­‐
Source
of
Friction
Between
the
National
Government
and
LGUs
Executive
Order
No.
79
(“EO
79”)
issued
by
President
Aquino
on
06
July
2012
directed
LGUs
that
host
mining
operations
to
“conform
to
the
regulations,
decisions
and
policies…promulgated
and
taken
by
the
National
Government."
It
basically
reminded
LGUs
that
they
are
inferior
to
the
national
government
and
ordinances
passed
by
local
government
officials
believed
to
conflict
with
national
law
or
policy
may
be
“corrected”
by
the
President.
EO
79
purports
to
address
the
industry
concern
on
LGUs
passing
ordinances
banning
open-­‐pit
mining
as
in
the
case
of
South
Cotabato.
The
Catholic
bishops,
in
a
national
forum
on
mining
organized
by
the
Social
Action
–
Justice
and
Peace
of
the
Catholic
Bishops’
Conference
of
the
Philippines,
rejected
EO
79
warning
that
it
threatens
local
autonomy
and
may
give
rise
to
violence
in
mining
areas.
Atty.
Dante
Gatmaytan
(Bantay
Kita
Policy
Paper
No.
2012-­‐3)
argues
that
the
President
does
not
have
the
power
of
control
over
local
government
officials,
only
the
power
of
supervision
as
the
President’s
authority
is
only
limited
to
seeing
to
it
that
rules
are
followed
and
laws
are
faithfully
executed.
He
cited
Province
of
Negros
Occidental
v.
Commissioners
(G.R.
No.
182574,
28
September
2010)
where
the
Supreme
Court
held
that
“the
President
may
only
point
out
that
rules
have
not
been
followed
but
the
President
cannot
lay
down
the
rules,
neither
does
he
have
the
discretion
to
modify
or
replace
the
rules.”
On
the
other
hand
Dean
Antonio
La
Viña
of
the
Ateneo
School
of
Government
believes
that
the
1987
Constitution
and
Philippine
Mining
Act,
which
under
our
hierarchy
of
laws
are
generally
supreme
to
local
ordinances,
do
not
mention
any
prohibition
on
open-­‐pit
mining,
which
belief
is
also
shared
by
Atty.
Gatmaytan.

4. 4
On
18
September
2012,
the
Department
of
Justice
(“DOJ”)
came
out
with
Opinion
No.
87,
series
of
2012
in
response
to
the
questions
of
the
Department
of
Interior
and
Local
Government
(“DILG”)
about
local
government
ordinances
that
ban
open-­‐pit
mining
activities.
The
DILG
also
sought
from
the
DOJ
the
legalities
of
the
following:
judicial
remedies
through
declaratory
relief
or
through
the
declaration
of
nullity
of
the
ordinances;
administrative
remedies
through
a
Memorandum
of
Agreement
between
the
DILG
and
the
Office
of
the
Ombudsman
to
address
abuses
of
power
of
local
officials
invoking
local
autonomy;
and
the
filing
of
administrative
cases
on
grounds
of
grave
abuse
of
authority
or
grave
misconduct.
In
the
seven-­‐page
legal
opinion
the
DOJ
raised
the
general
rule
that
ordinances
are
valid
only
if
they
are
consistent
with
the
Constitution
and
existing
laws
and
that
the
national
legislature
is
still
the
principal
of
the
LGUs.
The
DOJ
also
affirmed
that
administrative
charges
proposed
by
the
DILG
against
the
local
officials
and
found
no
constitutional,
statutory
or
legal
infirmities
in
the
proposals.
Aside
from
imposing
administrative
sanctions,
the
DOJ
agreed
with
the
DILG
that
a
filing
of
a
petition
before
the
court
to
seek
nullification
of
the
said
ordinances
is
also
an
option.
While
the
DOJ
agreed
with
the
administrative
remedies
proposed
by
the
DILG,
it
added
that
an
action
for
declaratory
relief
would
be
proper
only
if
adequate
relief
was
not
available
through
other
existing
forms
of
actions
or
proceedings.
On
08
November
2012,
the
DILG
issued
Memorandum
Circular
No.
2012-­‐181,
which
directed
provincial,
city,
and
municipal
elective
officials
to
confine
themselves
only
to
the
imposition
of
reasonable
limitations
on
mining
activities
conducted
within
their
respective
territorial
jurisdictions
that
are
consistent
with
national
laws
and
regulations
in
accordance
with
Section
12
of
EO
79.
The
DILG
Memorandum
Circular
explained
that
local
governments
are
inferior
to
the
national
government
and
the
power
of
legislation
of
LGUs
is
merely
a
delegated
power
coming
from
Congress.
Municipal
governments
are
only
agents
of
the
national
government
and
cannot
act
as
superior
to
the
principal
or
exercise
powers
higher
than
those
of
the
national
government.
The
DILG,
citing
Lina
v.
Paño
(G.R.
No.
129093,
30
August
2001),
stressed
that
the
principle
of
local
autonomy
under
the
1987
Constitution
simply
means
“decentralization”;
it
does
not
make
local
governments
sovereign
within
the
state.”
Governors
and
mayors
were
then
directed
to
“take
appropriate
measures
for
the
amendment
of
the
provisions
of
existing
relevant
ordinances
and
guidelines…”
Atty.
Gatmaytan
(Bantay
Kita
Policy
Note
2012-­‐004)
argued
that
the
DOJ
Opinion
in
question
failed
to
examine
the
legal
issues
involved
and
determine
whether
the
ordinance
in
question
contradicted
the
Constitution
or
the
Mining
Act
of
1995
citing
Social
Justice
Society
v.
Atienza
(G.R.
No.
156052,
13
February
2008),
which
held
that
when
national
laws
are
ambiguous
and
are
pitted
against
“the
unequivocal
power
of
the
LGU
to
enact
police
power
and
zoning
ordinances
for
the
general
welfare
of
its
constituents,”
the
Court
will
tend
to
favor
the
LGU.
Atty.
Gatmaytan
justified
the
LGUs’
ordinance
banning
certain
forms
of
mining
as
not
inconsistent
with
law
and
an
exercise
of
police-­‐power
measures
that
promote
the
constitutional
right
of
a
balanced
and
healthful
ecology
and
such

5. 5
measures
can
be
enacted
by
LGUs
to
protect
the
health
and
welfare
of
their
constituents.
He
further
stated
that
under
the
Local
Government
Code,
LGU
approval
is
required
for
national
government
projects
and
it
is
the
courts
that
should
declare
the
invalidity
of
these
ordinances.
Clipping
LGU
Powers
over
Small-­‐scale
Mining
LGUs
regulate
the
small-­‐scale
mining
industry
and
quarrying
by
issuing
permits
and
ordinances.
However,
EO
79
imposed
limitations
on
the
powers
of
LGUs
over
small-­‐scale
mining
by
requiring
strict
compliance
with
RA
7076
or
the
People’s
Small
Scale
Mining
Act
and
its
Implementing
Rules
and
Regulations,
(DENR
Administrative
Order
34
Series
of
1992)
and
Presidential
Decree
No.
1586
(Environmental
Impact
Statement
System).
Small-­‐scale
mining
can
now
only
be
allowed
in
areas
identified
by
the
national
government
called
“Minahang
Bayan”
and
upon
procuring
an
Environmental
Compliance
Certificate
from
the
DENR.
Another
issue
is
the
proliferation
of
black
sand
mining
purportedly
covered
by
“dredging
permits”
issued
by
LGUs,
which
the
national
government
claims
do
not
fall
under
the
ambit
of
EO
79
on
small-­‐scale
mining.
Some
LGUs
have
issued
“local
mining
permits”
for
black
sand
mining
even
if
EO
79
and
RA
7076
prohibit
them
from
doing
so.
Dredging
permits
were
also
issued
by
LGUs
as
a
disguise
for
a
“mining
permit,”
so
that
the
extraction
of
black
sand
from
the
seashore
will
not
fall
under
the
ambit
of
EO
79
or
RA
7076
and
at
the
same
time
dodging
the
payment
of
taxes.
According
to
the
MGB,
the
Mining
Industry
Coordinating
Council,
created
under
EO
79,
has
submitted
a
proposal
to
President
Aquino
to
stop
all
black
sand
mining
in
the
country
pending
the
establishment
of
a
regulatory
mechanism.
All
applications
for
black
sand
mining
permits
have
been
denied
until
the
implementing
rules
and
regulations
of
RA
7076
have
been
revised
to
allow
black
sand
mining
beyond
a
200-­‐meter
limit
zone
from
the
shoreline.
Local
Government
Taxation
In
addition
to
shared
revenues
from
the
national
wealth,
LGUs
levy
local
business
taxes,
real
estate
taxes,
and
various
fees
and
charges,
which
to
some
resource
developers
have
become
prone
to
the
abusive
exercise
of
regulatory
authority
by
some
LGU
officials.
Under
the
Local
Government
Code,
LGUs
have
the
power
to
enact
ordinances
that
will
regulate
the
operation
of
businesses
within
their
territorial
jurisdictions
by
imposing
fees
and
charges
for
revenue
and
regulatory
purposes.
Some
LGUs
imposed
excessively
large
amount
of
“regulatory
fees”
on
resource
companies
under
revenue
ordinances,
which
exceeds
the
cost
of
the
inspections
and
other
government
services
being
rendered
as
a
result
of
the
companies’
operations.
In
essence,
LGUs
has
“mislabelled”
the
exaction
as
mayor’s
permit,
when
by
its
very
character
it
is
undeniably
a
tax.
LGUs
must
perform
acts
of
regulation,
inspection,
and
surveillance
in
connection
with
the
business
in
order
to
justify
the
imposition
of
regulatory
fees
or
charges
but
the
regulatory
fees
must
be
based
on
flat
rates
and
not
on
the
type
of
products
or
goods.

6. 6
Also,
LGUs
have
no
authority
to
impose
taxes
on
the
business
of
mining
especially
if
the
company
is
registered
with
the
Board
of
Investments
under
the
Omnibus
Code
of
1987
through
Executive
Order
No.
226.
The
Local
Government
Code
has
enumerated
with
crystal
clear
precision
the
limitations
on
the
taxing
power
of
the
local
government
units.
Under
Section
133
(g),
“business
enterprises
certified
to
by
the
Board
of
Investments
as
pioneer
or
non-­‐pioneer
for
a
period
of
six
(6)
and
four
(4)
years”
may
not
be
taxed
by
LGUs.
What
was
originally
conceived
as
a
means
by
which
LGUs
can
independently
raise
funds
to
sustain
their
activities
has
become
an
opportunity
to
exact
more
money
from
resource
developers.
In
the
name
of
local
autonomy,
local
government
officials
impose
additional
conditions
on
contracts
issued
by
the
national
government.
This
is
in
addition
to
the
use
of
political
patronage
where
favored
contractors
and
workers
are
imposed
on
companies
to
guarantee
harmonious
relationship
with
local
leaders.
Local
Economic
Development
and
Poverty
According
to
the
Mining
and
Local
Economic
Development
Report
prepared
by
the
Oil,
Gas
and
Mining
Unit
of
the
World
Bank,
appropriate
local
economic
development
(“LED”)
instruments
will
help
address
the
perceived
lack
of
automatic
spillover
effects
of
resources
projects
on
host
communities.
LED
program
involves
voluntary
participation
of
resources
companies
and
local
government
among
others
to
work
together
to
ensure
that
the
local
population,
including
the
poorest
segments,
can
benefit
from
investments
in
resource
development.
The
persistence
of
poverty
in
communities
highly
dependent
on
resource
extraction
for
local
economic
wellbeing
has
made
poverty
reduction
an
increasingly
important
driver
of
LED
not
only
as
an
objective
but
also
as
a
strategy
in
itself.
An
important
component
of
an
LED
program
is
the
development
of
micro,
small
and
medium
sized
enterprises
as
suppliers
to,
or
downstream
producers
or
as
entrepreneurs/businesses
independent
from
the
resource
project
that
strengthen
the
overall
competitiveness
and
economic
development
of
the
host
community.
In
the
National
Government-­‐Local
Government
Joint
Energy
Forum
held
on
September
2013,
the
DILG
reported
that
it
has
embarked
on
an
initiative
called
the
Philippines
Poverty
Environment
Initiative
(“PPEI”)
to
promote
the
poverty-­‐
environment
linkage
in
national
and
local
governance
through
rational
utilization
of
natural
resources,
environmental
protection,
social
equity
measures,
and
poverty
alleviation
actions
towards
an
inclusive
green
growth.
PPEI’s
Development
Agenda
aims
to
improve
the
benefits
of
the
extractive
industries
and
limiting
its
environmental
impacts
thru
the
timely
release
of
LGU’s
share
from
revenues
in
the
utilization
of
the
national
wealth
and
the
utilization
of
these
revenues
for
sustainable
development
programs
and
projects
that
address
the
environmental
degradation.

7. 7
Conclusion
The
government
must
embark
on
a
realistic
assessment
to
achieve
inclusive
and
sustained
economic
growth
in
the
resources
industry.
The
legal
issue
of
local
autonomy
in
relation
to
the
exploration,
development
and
utilization
of
natural
resources
vis
a
vis
the
power
of
control
by
the
executive
over
LGUs
will
only
be
settled
by
judicial
interpretation
and
until
then
lingering
uncertainties
will
prevent
developers
to
put
more
money
into
the
ground.
In
the
meantime,
the
Philippine
government
is
using
the
“carrot
and
stick”
approach
in
order
for
LGUs
to
toe
the
line.
By
increasing
the
revenue
from
mining
and
fast
tracking
the
distribution
of
LGU
shares,
the
national
government
hopes
to
make
mining
an
acceptable
development
option
for
LGUs.
At
the
same
time,
the
national
government
hopes
to
crack
the
whip
against
recalcitrant
LGU
officials
through
the
enforcement
of
available
administrative
remedies
and
sanctions.
LGUs
must
be
encourage
to
integrate
natural
resources
planning
in
their
local
development
plans,
programs,
budget
systems
and
governance
regimen.
It
is
important
that
there
is
transparency
and
accountability
in
the
collection,
distribution
and
utilization
of
revenues
from
the
resources
industry.
Unless
these
are
addressed,
revenues
from
resource
projects
will
be
perceived
as
lining
the
pockets
of
corrupt
politicians
rather
than
benefiting
the
host
community.
Fernando
“Ronnie”
Penarroyo
is
the
Managing
Partner
of
Puno
and
Penarroyo
Law
(fspenarroyo@punopenalaw.com).
He
specializes
in
Energy,
Resources
and
Environmental
Law,
Business
Development
and
Project
Finance.