Guidelines on FTAA acceptance and evaluation

Policy and legal basis

The Order is issued to encourage foreign investors in the mining industry and to support the Government’s policy of harnessing the country’s mineral resources to accelerate economic recovery and development (Preamble).
The Government’s mineral-resource development direction is traced to Executive Order No. 279 of 25 July 1987 (Preamble).
The Order adopts, where consistent, the framework of DENR Administrative Order No. 57, as amended, and related issuances (Section 17).

Core definitions established

“Contract Area” means the area originally awarded under the FTAA without reference to region or province (Section 1(a)).
“Contractor” means any Filipino or foreign owned corporation to whom an FTAA is awarded (Section 1(b)).
“Date of Commencement of Commercial Production” means the first day of the calendar quarter following that quarter in which production equals 15% of the Project’s initial annual design capacity (Section 1(c)).
“Financial or Technical Assistance Agreement (FTAA)” means an agreement or contract in which the Government enters into an arrangement with a Filipino or foreign-owned corporation for financial or technical assistance for large scale exploration, development, and utilization of mineral resources (Section 1(d)).
“Foreign-Owned Corporation” means any corporation, partnership, association, or cooperative registered under Philippine law where more than 40% of capital is owned by non-Filipino citizens (Section 1(e)).
“Large Scale Mining” means exploration, development, and utilization involving a committed capital investment of at least US$ 50 million in a single mining unit project (Section 1(f)).
“Meridional Block” means an area of 1/2 minute of latitude by 1/2 minute of longitude (Section 1(g)).
“Mining Operations” includes mineral exploration, development, production, and all other activities necessary to discover, develop, and extract minerals (Section 1(h)).
“Mining Contract” refers to mineral production sharing agreement, co-production, joint venture, or other similar agreements (Section 1(i)).
“Pre-operating Expenses” includes all costs incurred by the FTAA holder and any related corporations on the contract area applied for under the FTAA up to the Date of Commencement of Commercial Production, including listed exploration, mine development, and construction costs, less (a) income received in payment for production until commercial production and (b) other credits offsetting the above costs (Section 1(j)).
“Project Area” means an area remaining after relinquishment not more than 5% of the contract area (Section 1(k)).
“Related Corporation” means a body corporate or other entity in which a shareholder in the FTAA Contractor owns an interest in excess of 40% (Section 1(l)).
“Single Mining Unit Project” means mining operations per project area (Section 1(m)).

Who may apply and covered areas

Any Filipino or foreign-owned corporation may enter into an FTAA if it has the financial or technical capability to undertake large scale mining as defined by the Order (Section 3).
Financial or technical assistance agreements may cover:
- Lands of the public domain and alienable and disposable lands not covered by valid and existing mining leases, permits, licenses, applications, and declarations of location (Section 5(a)).
- Lands covered by valid and subsisting prospecting permits, exploration permits, mining claims, mining leases, and similar agreements, provided holders consent in writing (Section 5(b)).
- Government reservations, provided the concerned agency gives clearance (Section 5(c)).
- Offshore areas, including the Exclusive Economic Zone (Section 5(d)).
- Private lands subject to P.D. 512 (Section 5(e)).
- Any combination of the above categories (Section 5(f)).
The maximum contract and project area limits apply to exploration, development, and utilization FTAA grants subject to relinquishment (Section 6), and may be reduced through conversion-related relinquishments and disposal rules (Sections 11–12).

Fees and required bonds

Upon filing of the FTAA proposal, the proponent must pay the Mines and Geo-Sciences Bureau (MGB) US $500 payable in Philippine currency at the exchange rate prevailing at the time of application for filing fee, processing fee, and for P.D. 1856, as amended (Section 2(a)).
Upon approval of the FTAA, the Contractor must pay to the MGB:
- Occupation Fee:
  - P10.00 per hectare/year for non-reservation area
  - P100 per hectare/year for reservation area (Section 2(b)).
- Regulatory Fee for Exploration:
  - Onshore: P10.00 per hectare/year for the first year of exploration plus P5.00 yearly increment for succeeding years
  - Offshore: P50.00 per hectare/year (Section 2(b)).
- Registration Fee:
  - P100.00 / FTAA for P.D. 1856, as amended
  - P10.00 (Section 2(b)).
Before signing an FTAA, the Contractor must post a performance guaranty in favor of the Government, negotiable in any foreign currency with the Central Bank of the Philippines for foreign contractors (Section 10(a)).
Unless otherwise specified by the Secretary, the initial performance guaranty amount equals the Contractor’s first year financial commitment, and the annual amount may be increased or decreased based on the Contractor’s financial and work performance (Section 10(a)).
To ensure compliance with expenditures and obligations during the exploration period, the FTAA applicant must post a financial guaranty bond equivalent to the expenditure obligations for any year (Section 3(a)), and must commit at least US $50,000,000 (or its Philippine peso equivalent for Filipino applicants) to be invested in the contract area (Section 3(a)).
Before construction and development, the Contractor must submit documentary evidence from an internationally recognized offshore financial institution confirming sufficient and accessible funds for development for a capital investment in a single mining unit of US$50 million less all exploration costs (Section 3(a)).

Proposal filing, acceptance, and evaluation

FTAA proposals must be filed with and accepted by the Central Office Technical Secretariat (MGB) after payment of the requisite fees to the MGB, with a copy furnished to the concerned Regional Office within 72 hours (Section 8(a)).
The Regional Office must verify the area, declare availability for FTAA, and submit recommendations within 30 days from receipt (Section 8(a)).
If two or more applicants apply for the same area, priority is given to the applicant who first filed the application (Section 8(a)).
The Undersecretaries for Planning, Policy and Natural Resources Management; Legal Services, Legislative, Liaison and Management of FASPO; and Field Operations and Environment and Research (or their equivalent) must be given 10 days from receipt of the proposal to submit comments/recommendations (Section 8(a)).
In preparing its recommendations, the Regional Office must consider the applicant’s financial and technical capabilities in addition to the proposed Government share (Section 8(a)).
Within 5 working days from receipt of the Regional Office recommendations, the Technical Secretariat must consolidate all comments/recommendations and forward them to the members of the FTAA Negotiating Panel for evaluation at least within 30 working days (Section 8(a)).

Documents and feasibility submissions

On filing, the FTAA applicant must submit:
- A Letter of Intent (LOI) to enter into an FTAA (Section 4(a.1)).
- Corporate and juridical personality documents, including Articles of Incorporation, By-Laws, and SEC registration papers (Section 4(a.2)).
- All information data and documents referred to or reasonably connected with Sections 3, 3.a, and 3.b to facilitate meaningful appreciation and evaluation (Section 4(a.3)).
- Certified copies (if any) of mining exploration contracts, operating contracts, assignments, permits, or similar agreements entered into with local or foreign juridical and natural persons (Section 4(a.4)).
- The financial statement of the mother company (Section 4(a.5)).
Upon approval, the applicant must submit the financial guarantee bond defined in Section 3(a) (Section 4(b)).
After completion of the feasibility study, the applicant must submit:
- A technical description of the proposed project area and its status as known to the applicant (Section 4(c.1)).
- The mining operations to be undertaken and the technology to be used and developed (Section 4(c.2)).
- Contributions to the economic and general welfare of the country feasibly generated by the proposed venture (Section 4(c.3)).
Proof of technical competence must include track record in mineral exploration, development and utilization, technology to be introduced, and names and curriculum vitae of technical men who will undertake operations (Section 3(b)).

Contract size, duration, and relinquishment

The FTAA maximum contract area is subject to relinquishment of 95% of the contract area after 5 years of exploration, with a minimum relinquishment per year of 10% of the contract area (Section 6(a)).
The maximum retained area may be approximately:
- 62 meridional blocks or 5,000 hectares for onshore; and
- 800 meridional blocks or 65,000 hectares for offshore (Section 6(a)).
The maximum contract area is:
- 1,235 meridional blocks or 100,000 hectares onshore (Section 6(a)).
- 16,000 meridional blocks or 1,296,000 hectares offshore, reckoned from 100 meters from shore waterlines at mean low tide extending seaward (Section 6(b)).
A combination of onshore and offshore contract areas must not exceed the maximum limits for each (Section 6(c)).
The FTAA duration is for a maximum of 25 years, renewable for another period not exceeding 25 years (Section 7).
The phases of mining operations must be completed within:
- Exploration & Feasibility Study: 5 years from the date of approval of the FTAA (Section 7).
- Construction & Development and Production/Utilization: the remaining years of the FTAA contract (Section 7).

Negotiating panel approval and evaluation factors

FTAA approval requires the approval of the President upon recommendation of the FTAA Negotiating Panel created by Presidential Administrative Order No. 68, Series of 1988 (Section 9(a)).
The Negotiating Panel includes:
- Secretary of Environment and Natural Resources (or representative) as Chairman (Section 9(a)).
- Secretary of Socio-Economic Planning and Director-General, National Economic and Development Authority (or representative) as Vice Chairman (Section 9(a)).
- Secretary of Finance (or representative) as Member (Section 9(a)).
- Secretary of Trade and Industry (or representative) as Member (Section 9(a)).
- Governor, Central Bank of the Philippines (or representative) as Member (Section 9(a)).
- Chairman, Board of Investments (or representative) as Member (Section 9(a)).
- Director, Mines and Geo-Sciences Bureau as Member (Section 9(a)).
In evaluating an FTAA, the Panel must consider real contributions to economic growth and general welfare, and development of local scientific and technical resources (Section 9(b)).
If the Panel is satisfied and the Contractor complies with all requirements, the Panel must recommend approval to the President (Section 9(c)).
If the Panel finds terms or conditions unacceptable, it must calendar the proposed FTAA for negotiation and notify the proponent (Section 9(c)).
After negotiation, if terms acceptable to the Panel are incorporated, the Panel must forthwith recommend approval to the President (Section 9(c)).

Contractor obligations during the FTAA

The Contractor must post the performance guaranty prior to signing the FTAA, using foreign-currency negotiable terms with the Central Bank for foreign contractors (Section 10(a)).
After the exploration period, the Contractor must relinquish to the Government any portion of the Project Area not necessary for mining operations and not covered by any Declaration of Mining Feasibility (Section 10(b)).
The Contractor must perform activities within agreement periods, and plans and work programs except as excused by force majeure (Section 10(c)).
The Contractor must give preference to products and services produced and offered in the Philippines of comparative quality, including:
- preference to Filipino construction enterprises,
- use of buildings that can be constructed using materials and skill available in the Philippines,
- employment of Filipino sub-contractors for road construction and transportation,
- purchase of Philippine household equipment, furniture and food (Section 10(d)).
The Contractor must maximize, to the extent feasible and acceptable based on available rates and conditions, the use of Filipino vessels and other transport means available in the Philippines (Section 10(e)).
The Contractor must keep accurate technical records and financial and marketing accounts and make them available to Government representatives authorized by the Secretary to assess performance and compliance; other authorized agencies may access accounts in accordance with existing laws, rules, and regulations (Section 10(f)).
The Contractor must pay taxes or obligations according to existing laws, rules, and regulations (Section 10(g)).
The Contractor must comply with laws and regulations on labor, safety, demarcation of the Project Area, and non-interference with other mining operators (Section 10(h)).
The Contractor must recognize and respect the rights, customs, and traditions of indigenous tribal communities over their ancestral lands (Section 10(i)).
The Contractor must contribute to national development by developing host and neighboring communities of the Project Area, local geo-sciences and mining technology, and mitigating environmental effects (Section 10(j)).
The Contractor must undertake restoration and/or protection of the environment in compliance with Environmental Compliance Certificate requirements (Section 10(k)).
The Contractor must provide a consultation and arbitration provision for interpretation and implementation of the agreement (Section 10(l)).

Option to convert to MPSA

The Contractor may convert the FTAA into an MPSA at any stage of exploration when the economic viability of ores in the contract area is inadequate to justify large scale mining operations (Section 11(a)).
The Contractor must notify the Government in writing within 30 days of its intention to convert (Section 11(a)).
Revisions to the FTAA required by conversion must be submitted within 60 days from filing the intention to convert (Section 11(a)).
The Contractor must satisfy the equity requirement of 60% Filipino capital for the MPSA within 1 year, subject to an extension of another 1 year approved by the Secretary considering economic factors (Section 11(a)).
Failure to convert within the prescribed period causes automatic forfeiture of the Contractor’s right to conversion, and the area subject to the FTAA is disposed of under Section 12 (Section 11(a).

Area relinquishment and mineral-right reversion

Where the Contractor derived rights to the contract area from claimowners or mineral rights owners, the Project Area relinquished under Sections 6 and 11 reverts to claimowners or mineral rights owners (Section 12(a)).
Claimowners or mineral rights owners receive preferential rights over the reversion area (Section 12(a)).
Claimowners or mineral rights owners must, within 30 days from notification of relinquishment by the FTAA Contractor, signify intention to enter into a mining contract with the Government (Section 12(a)).
Once intention is signified, all documents necessary for application for the specific mining contract must be submitted within 60 days from receipt of such intention (Section 12(a)).

Revenue sharing and cost recovery

Net revenue must be shared between the Government and the Contractor on a 60-40 basis: 60% as Government take and 40% for the Contractor (Section 13(a)).
Government collection of its share begins after the Contractor fully recovers its pre-operating expenses (Section 13(a)).
Net revenue means gross revenue from operations less allowable deductions attributed to exploration, development, and actual commercial production (Section 13(a)).
Commercial production includes mining, utilization/processing, marketing expenses, and depreciation of properties directly used in the operations (Section 13(a)).
In each year, the Contractor may recover from gross proceeds from sale of minerals produced an amount equal to all operating expenses (Section 13(b).

Divestment requirements

After 10 years from the Contractor’s recovery of pre-operating expenses, the Contractor must be given a period of 1 year to divest equity to at least 60% Filipino equity, subject to an extension of another 1 year approved by the Secretary considering economic factors (Section 14(a)).
Failure to meet the 60-40 equity requirement within the prescribed period results in automatic cancellation of the FTAA, and the area is disposed of under Section 12 (Section 14(a)).

Termination, revocation, and bond release

The FTAA may be terminated for:
- falsehood or omission of facts made in support of the proposal (Section 15(a.1)),
- default or substantial breach by the Contractor of the agreement’s terms and conditions (Section 15(a.2)),
- mutual consent of the parties (Section 15(a.3)),
- written notice to the Government by the Contractor if the mining project is no longer economically feasible after reasonable diligence to remedy causes (Section 15(a.4)).
Upon revocation/termination and liquidation of the Contractor’s obligations and liabilities, the financial guaranty/performance guaranty bond is released (Section 15(b)).

Disposal of installations and ownership

Materials, equipment, plants, and other installations erected or placed on the project area by the Contractor remain the Contractor’s property (Section 16(a)).
Upon termination, the Contractor may remove and export such materials, equipment, plant, and installations except buildings, bridges, warehouses, and other social infrastructures, subject to existing rules and regulations (Section 16(a)).
All materials, equipment, plant, and other installations not removed within 12 months from termination belong to the Government (Section 16(a).

Adoption of DENR rules and inconsistency control

The provisions of DENR Administrative Order No. 57, as amended, and all administrative orders, rules, and regulations related thereto that are inconsistent with the FTAA guidelines are adopted (Section 17).

Effectivity rule

The Order takes effect after 15 days from publication in at least two (2) newspapers of general circulation (Section 18).