Philippines eyes idle green mining assets to seed sovereign wealth fund

Rafael Consing Jr, president and chief executive of Maharlika Investment Corporation (MIC), the state-owned firm managing the fund, said that the goal is to resume and optimise the operations of dormant copper and gold mines before selling them off to the private sector.

The Philippines sits atop the world’s fourth-largest copper reserves of “very excellent quality” that have become “extremely key for the transition to renewable energy,” said Consing, who spoke to Eco-Business on the sidelines of the Milken Asia Summit in Singapore last month.

The mineral-rich country is also home to the world’s fifth-largest nickel deposits, which are crucial components in wind and solar technologies, battery storage systems and electric vehicles. Currently, only 5 per cent of the Philippines’ mineral reserves have been explored and just 3 per cent are covered by mining contracts.

While Consing did not reveal the return targets from privatisation of these mining assets, he expects “private-equity type returns” and for the multiple on invested capital (MOIC) – a financial metric used to evaluate the value of an investment relative to the initial capital invested – to be “very high”.

In private equity, a MOIC of at least two times – where a transaction has doubled the initial money invested – is generally considered a good benchmark for investors.

“What we can do is to catalyse the assets, grow them, fix the governance and privatise them… I think that the private sector can run these companies much better than the government can, because they have greater flexibility and more experience,” said Consing.

The revenues from its privatisation drive will go into seeding the remaining P375 billion (US$6.5 billion) of its authorised P500 billion (US$8.7 billion) capital stock, which Consing said will not come in the form of cash but government-owned assets – taking reference from Indonesia’s sovereign wealth fund, which was established in 2021 with an initial funding of IDR 75 trillion (US$5 billion) that has since doubled to IDR 147.6 trillion (US$9.5 billion) of assets under management.

MIC has already received P125 billion (US$2.2 billion) from the Land Bank of the Philippines (LBP), the Development Bank of the Philippines (DBP) and the national government. 

To date, MIC has not made any investments. But Consing shared that the firm has already started doing due diligence on two of the nine projects in its “very active pipeline”. Three of them are transmission-related, including the development of power lines for two off-grid islands, Mindoro and Palawan.

“At the moment, all our efforts are focused on the energy sector,” said Consing. He added that healthcare – specifically telehealth, enabled through the building of telecommunications infrastructure – is another priority, given that there is roughly just one doctor to 20,000 people in the rural parts of the Philippines.

The fund will begin looking at investable mining projects by next year, after making its initial investments in the energy and healthcare sectors, said Consing.

Leonardo Lanzona, an economics professor at the Ateneo De Manila University, raised concerns about the profitability of privatising state mining assets and MIC crowding out private investors through its financial ventures. 

“These mining sites have been closed and proven to be unsustainable for a number of reasons. While market failures, such as the absence of substantial funds, could be why they are now idle, there is still no justification for performing activities that the private sector is capable of engaging in,” Lanzona told Eco-Business.

“While a sovereign wealth fund could intervene to directly invest in these idle companies, doing so without addressing the underlying market failures could lead to inefficiencies or a misallocation of resources. Instead, the government can foster an environment where private investors are willing to re-engage, ensuring a more sustainable and market-driven recovery,” he said.

“The problem is that, with its huge amounts of funds, the MIC can crowd out private investment. This is especially true with its priority sectors, energy and healthcare, since these are low-risk projects or ventures that private investors would typically fund,” said Lanzona, who added that this leaves higher-risk ventures to the private sector, disincentivising their market participation.

Since its conception last July, the Philippine sovereign wealth fund has been marred with controversy. Economists were quick to warn that the state fund – which is neither built on natural resource windfalls or fiscal surpluses, like Norway’s oil fund or Singapore’s Temasek Holdings – could add to the country’s debt, which as of June stands at a record P15.48 trillion (US$270 billion).

They also questioned the independence of the fund’s manager, whose governing board is made up of several presidential appointees.

Seeking to allay concerns around MIC’s governance structure, Consing said that it has a “private sector-driven board”, where five out of nine board members are from the private sector. He added that all of them had gone through a public application process before being shortlisted by the Maharlika advisory body – made up of officials from the National Treasury, Department of Budget and Management and the National Economic Development Authority – and recommended to the president.

In July, the MIC became an associate member of the London-based International Forum of Sovereign Wealth Funds (IFSWF), which means it will work to apply the Santiago Principles, a set of voluntary guidelines to promote good governance, transparency and accountability for sovereign wealth funds.

“In three years, we’re going to be fully audited by the IFSWF, and only then will we be able to gain full membership,” said Consing. 

Philippines’ mining bounceback

This is not the first time the government has mooted selling off state-owned mines to raise extra revenues. In 2020, the Privatisation and Management Office (PMO), an agency under the finance department, put together a list of auctionable mining assets in a bid to revive the economy during the pandemic. Many of these assets were seized by authorities after they defaulted in the 1970s due to volatile commodity prices.

This announcement marked a u-turn from the government’s crackdown on the mining sector under former Philippine president Rodrigo Duterte, which led to a ban on open-pit mining in 2017 – a rule he subsequently lifted in 2021 – and a suspension of 26 mines for environmental violations.

From January to August, the government has collected P3.1 billion (US$53.9 million) from privatised assets, including P150.27 million (US$7.8 million) from its sale of Nonoc Mining – a nickel mining project that it put up for auction in 2020 – based on data released by the Bureau of the Treasury. The finance department aims to raise a total of P42 billion (US$731.8 million) from its privatisation efforts this year.

In July this year, the finance department also told a local business newspaper that it is exploring a joint venture (JV) with the MIC or the state-owned insurer Government Service Insurance System (GSIS) to help dispose of its mining assets to the private sector.

Eco-Business has reached out to PMO to get more details on its JV plans and the most updated list of mining assets it plans to sell off.

As the Philippines comes under pressure to meet growing demand for transition minerals from countries like  the United States, Japan, Canada, Australia and the European Union, civil society groups are pushing for higher taxes on mining firms than what was proposed in new bill last month so that local communities who bear the brunt of the effects of their operations can benefit.

This year alone has seen at least two major mining-related disasters. In February, a massive landslide that hit a gold-mining community in Davao de Oro left 93 dead. Barely three months later, the collapse of a mining tailings dam, which stores the leftover materials from ore processing, in Surigao del Norte forced the relocation of at least 55 families.

“Mining has got a very bad reputation because of its impact on the environment. But if we ever enter into this space, we will be adopting green mining practices,” said Consing. “In China, for example, they are already implementing green mining rules.” 

Under China’s draft mining law, companies are mandated to prepare ecological restoration plans to minimise damage to ecosystems and local communities. MIC will likely follow in its footsteps to completely ban mining tailings, which are highly toxic to animal and plant life, said Consing.