understanding and managing the philippines political and security risk environment

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Pacific Strategies and Assessments Inc Understanding and Managing the Philippines Political and Security Risk Environment Presented by: Pete Troilo Business Intelligence Director Pacific Strategies & Assessments (PSA)

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Understanding and Managing the Philippines Political and Security Risk EnvironmentPresented by: Pete Troilo Business Intelligence Director Pacific Strategies & Assessments (PSA)

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Page 1: Understanding and Managing the Philippines Political and Security Risk Environment

Pacific Strategies and Assessments Inc

Understanding and Managing the

Philippines Political and Security

Risk Environment

Presented by:

Pete Troilo

Business Intelligence Director

Pacific Strategies & Assessments (PSA)

Page 2: Understanding and Managing the Philippines Political and Security Risk Environment

Pacific Strategies and Assessments Inc

Brief History

1930s-50s Large-scale mining begins with about 30 mostly American firms Sector is devastated by World War II

1972-1986 President Ferdinand Marcos nationalizes the mining sector Between 1971-1981 , 45 mines open By 1980, minerals represent over 20% of total exports

Post -Marcos Era Numerous mining mishaps Steady decline in global value of minerals 220 mines close By 1990, minerals represent less than 2% of total exports

1990’s Philippine Mining Act of 1995 Co-authored by Senator Gloria Arroyo Enacted into law in March 1995 by President Fidel Ramos Provides for 40% foreign ownership

Page 3: Understanding and Managing the Philippines Political and Security Risk Environment

Pacific Strategies and Assessments Inc

1995 Mining Act

Deregulated the mining sector and liberalized foreign ownership of

large mining projects

Regarded as a “first-class” and “very liberal” code

The 1996 Marcopper accident ignites nationwide environmental

consciousness and a review of the Act

The Indigenous Peoples Rights Act (IPRA) of 1997 exacerbates

resistance to mining

Debate drags on 8 long years in the Supreme Court – collapses

foreign mining efforts in the Philippines

January 2004, Executive Order (EO) No. 270 or the National Mining

Revitalization Order issued to attract foreign investment

December 2004, the Philippines Supreme Court legalizes 100%

foreign ownership of mining operations

Page 4: Understanding and Managing the Philippines Political and Security Risk Environment

Pacific Strategies and Assessments Inc

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05 06 07 08 09 10

Investment (in Billion US$)

Global Mineral Prices

Period

Trends: Global Mineral Prices & Philippine Mining Investments

Investment

Silver / oz

Copper / lb

Nickel / lb

Assessing the historic correlation between global

mineral prices and Philippine mining investments

Page 5: Understanding and Managing the Philippines Political and Security Risk Environment

Pacific Strategies and Assessments Inc

Socio-Political Challenges

Little genuine political capital spent on supporting foreign mining at the bureaucratic

and grass roots levels

Government processes riddled with corruption and proclivities to push foreign mining

operations into joint venture agreements with questionable local partners

Dominant feudal families control politics/business in every province and often obstruct

foreign mining initiatives

Radical segments of the Catholic Church, environmentalists, NGO’s with global

connections, and communist and Islamic insurgencies are major obstacles to progress

Manipulation of indigenous peoples’ (IP) groups to oppose foreign mining

Cumbersome bureaucratic processes designed to extort foreign companies under the

guise of smuggling prevention and other seemingly beneficial programs

Provincial governors can and have declared their domains no mining

zones in contravention of the Philippines constitution and superseding

national law

Malleable judges can issue Temporary Restraining Orders (TROs)

against foreign mines from any legal jurisdiction in the Philippines

Page 6: Understanding and Managing the Philippines Political and Security Risk Environment

Pacific Strategies and Assessments Inc

Aquino’s First Foreign Investment Test

A newly passed environmental code in Mindanao’s South

Cotabato Province that bans open pit mining

The Writ of Kalikasan that authorizes special

environmental courts to issue protection orders against

entities engaged in natural resources investment

Page 7: Understanding and Managing the Philippines Political and Security Risk Environment

Pacific Strategies and Assessments Inc

Characterizing the NPA Threat

PSA data shows that of the total

recorded NPA attacks in 2008 and 2009,

only about 20% targeted or involved

private businesses. Of this total, only

9% targeted foreign firms and a few of

their subcontractors.

PSA has recorded an average of

approximately 20 NPA attacks against

mining firms in 2008 and 2009 and that

appears to be on pace for 2010.

Failed NPA extortion bids, not strict

communist ideology, were the primary

motivation for attacks in all these cases.

BICOL

SOUTHERN MINDANAO

CARAGA

Page 8: Understanding and Managing the Philippines Political and Security Risk Environment

Pacific Strategies and Assessments Inc

Characterizing the NPA Threat

Causes:

Failed extortion or “revolutionary tax” collection bids

Fronts for community opposition

Ways and Means:

Pose as soldiers to gain entry

Community members provide intelligence to launch attacks

Brute force (NPA attacking force strength can range from 1 to 100

members)

Impacts:

Clashes with responding security forces

Burning of property and mining equipment

Theft off firearms, ammunition, and communication equipment

Kidnapping and murder (less common)

Page 9: Understanding and Managing the Philippines Political and Security Risk Environment

Pacific Strategies and Assessments Inc

Analyzing NPA Attacks and Ambushes

One common and predictable NPA tactic is to attack lightly guarded government outposts or remote businesses that have rejected extortion demands to lure responding military and police units to the scene; and then ambush them along the only tertiary road that leads to the original attack site.

The tactic forces the military and police units to respond cautiously or not at all and rarely results in any negative consequences for the NPA.

Philippine Army

58th Infantry Battalion

NPA raid and subsequent ambush on responding

government forces.

NPA attack on private vehicle and subsequent ambush on rescue unit.

National Highway

(paved)

Secondary Road (paved)

Page 10: Understanding and Managing the Philippines Political and Security Risk Environment

Pacific Strategies and Assessments Inc

Securing Operations

Political and security risk due diligence – should we be there or not?

Corporate due diligence on all JV partners and their leading officers/shareholders

Focused security and socio-political assessment of areas of operations down to the municipality level including detailed stakeholder mapping – identification of both immediate and potential risks

Consistent threat intelligence collection, vetting, and monitoring

Crisis management and contingency planning – scenario-based and in detail

Design comprehensive security systems “inside the fence” and robust community relations “outside the fence”

Sustained outreach, constructive relationship building, and consistent contact with community leaders

Page 11: Understanding and Managing the Philippines Political and Security Risk Environment

Pacific Strategies and Assessments Inc

Voluntary Principles on Security and

Human Rights

Main Categories:

Risk Assessment

Interactions: Companies + Public Security

Interactions: Companies + Private Security

Justifications:

Only human rights guidelines designed specifically for oil, gas,

and mining companies

Non-binding and non-prescriptive

Tool to collaborate and synchronize with other key stakeholders

Tool to facilitate and confirm compliance with global standards

Page 12: Understanding and Managing the Philippines Political and Security Risk Environment

Pacific Strategies and Assessments Inc

Thank You

Questions?

Pacific Strategies & Assessments Group Hong Kong Manila Bangkok Beijing

Shanghai Sydney

(632) 843-6853 [email protected]

www.psagroup.com