6 December, 2018
On 14 November 2018, the Queensland Parliament passed the Mineral and Energy Resources (Financial Provisioning) Act 2018 (Act). The Act will commence on a date yet to be determined. The date is unspecified as the estimated rehabilitation cost (ERC) calculator which is replacing the previous financial assurance calculator is still being completed.
The Act will replace the current financial assurance requirements under the Environmental Protections Act 1994 (EPA) with the new Financial Provisioning Scheme (Scheme) which, it is hoped, will provide better protection of the State's financial interests.[i] The Act also amends the EPA to require resource companies to develop a Progressive Rehabilitation and Closer Plan (PRC) to improve the rehabilitation performance of those companies when rehabilitating mines located within the State. Other reforms include amendments to the EPA to introduce new requirements for rehabilitation and closure of mined land.
Background
The Queensland Government has, for some time, had concerns regarding the quantity and quality of rehabilitation activities undertaken by companies involved in resources project within the State.
Under previous legislation, quality rehabilitation of land disturbed by mining activities was a legal obligation of a holder of an environmental authority (EA) for a resource activity. The holder of an EA or small scale mining tenure was required to provide financial assurance in order to protect the community circumstances where the holder did not meet its rehabilitation or environmental management obligations. The amount of financial assurance provided by the holder was based on a subjective assessment of the likely cost for third parties to undertake the rehabilitation and environmental management of existing and planned areas of disturbance.
Recent cases such as Linc Energy Ltd (in Liq); Longley & Ors v Chief Executive, Department of Environment and Heritage Protection[i] displayed circumstances where particular resources companies sought to disclaim liability from their environmental obligations. Some resources companies were also financially unable to complete their rehabilitation activities. As a result, a significant financial burden was left to be carried by the State.
In 2016, to specifically seek to deal with these issues, the Review of Queensland's Financial Assurance Framework (Review) was conducted. The Review recommended a package of reforms including:
- reforming the current resource sector financial assurance framework;
- improving mining rehabilitation standards in Queensland;
- expanding the range of surety providers available for the provision of financial assurance;
- improved management of sites in care and maintenance;
- expansion of the abandoned mines program to improve management of legacy issues;
- review of existing approval conditions on the sale of resource assets;
- improved data analysis, information systems and governance framework; and
- residual risk policy development.[ii]
The Review found that the resource sector financial assurance arrangements in place could be improved.
In 2017, the Queensland Treasury Corporation released the Better Mine Rehabilitation for Queensland Discussion Paper, Financial Assurance Framework Reform Discussion Paper and Financial Assurance Review – Providing Surety Discussion Paper (Papers). These Papers proposed reforms regarding the rehabilitation and financial assurance frameworks in Queensland for resource activities. The Act forms the basis of the Queensland Government's response to the Papers and the extensive stakeholder consultation process conducted.
On 15 February 2018, the Mineral and Energy (Financial Provisioning) Bill 2018 was introduced into the Queensland Parliament.
Reforms
Financial Provisioning Scheme
The Scheme is designed to protect the State’s financial interest. It will also provide the Queensland Government with access to funds in particular circumstances where a holder of an authority does not comply with its obligations under the EPA. Funds will be distributed to other resource related activities such as funding legacy-abandoned mines, abandoned operating sites and research into rehabilitation techniques.
The Scheme will replace the previous financial assurance requirements for environmental authorities for resource activities and small-scale mining tenures (SSMT) under the EPA.
‘Risk management’ principles are incorporated into the Scheme. This will help ensure that the contribution or surety from holders of EAs reflects the risk of the Government making a financial outlay to undertake environmental management or rehabilitation works where there has been non-compliance with environmental obligations. The Act includes a risk category allocation framework for EAs which essentially allocates an EA with a risk category of very low, low, moderate or high. This framework will determine whether the holder will be required to provide a contribution to the Scheme fund or give a surety.
A scheme manager (Manager) will manage the new Scheme, fund contributions and the sureties on behalf of the State. Financial assurance is provided by paying a contribution to a financial provisioning fund or by giving surety to the Manager. For the Manager to make a decision on the Scheme contribution or the amount of surety, the Queensland Department of Environmental and Science will provide the Manager with its determination of the ERC. This determination will be issued under the EPA. The Manager will then apply the risk assessment framework to make their final decision; an assessment of very low, low or moderate will result in a contribution and an assessment of high will result in a surety.
Mine Rehabilitation Reforms
The Act amends the EPA to require all holders of site specific EAs for a mining lease to submit a PRC. The administering authority conducts the approval of a PRC. If it is approved, a PRC schedule is given to the applicant with the necessary EA. Further, key elements of the Queensland Government's Mined Land Rehabilitation Policy[iii] are enshrined in the mining rehabilitation reforms contained within the Act (reforms).
These reforms aim to seek improvement in the rehabilitation performance of resource companies during the life of a mine. The reforms also limit the amount of funds that would be required if the Government determined that it is necessary to undertake environmental management or rehabilitation works.
The PRC must provide a plan with comprehensive proposals on how the land will be rehabilitated effectively.
The amendments to the EPA provide a process for deciding the ERC for an EA. The calculation occurs under provisions of the EPA. These calculations will be provided to the Manager by the administering authority under the Act. For small scale mining tenures, the ERC amounts will continue to be prescribed in the Environmental Protection Regulation 2008. A PRC guideline is currently being drafted to assist applicants in developing a PRC plan.
Draft Regulations and guidelines
To assist in the implementation of the Act, the Queensland Government has released the Draft Mineral and Energy Resources (Financial Provision) Regulation 2018 (Draft Regulation) and the Draft Scheme Manager Guidelines (Draft Guidelines).
Draft Mineral and Energy Resources (Financial Provision) Regulation
The Draft Regulation will give effect to the Scheme by setting a prescribed percentage as part of the formula to calculate the contribution to be paid by an EA holder to the Scheme fund. Under the Draft Regulation the contribution amount is calculated by multiplying the ERC for the resources by a prescribed percentage. A 'prescribed insurer' is defined in the Draft Regulation for issuing of insurance bonds as an approval form of surety and set an assessment fee. The assessment fees payable for an allocation of a risk category are also set out in the Draft Regulation.
The proposed percentages to calculate the contribution to be paid by an EA holder in the Draft Regulation are:
- 0.5% for an EA allocated to the risk category of very low;
- 1.0% for an EA allocated to the risk category of low; and
- 2.75% for an EA allocated to the risk category of moderate.
The Draft Regulation was released for consultation and submissions closed on 9 July 2018.
Draft Scheme Manager Guidelines
The Draft Guidelines will support the effective operation of the Scheme. The Manager is appointed to and has a role to manage and also make guidelines about the operation of the Scheme. Further to this, the Manager for an EA that has an ERC equal to or less than $100,000 can make an allocation decision. This decision allocates the EA to one of four risk categories mentioned above. It also determines whether the authority holder is to pay a contribution to the Scheme fund or give a surety. A holder of an EA with an ERC of less than $100,000 is obligated to give surety equal to the ERC for the EA.
The Draft Guidelines were released for consultation with submissions closing on 23 July 2018. The following matters were specifically identified for comment in the consultation process:
- forming the Scheme Manager's Opinion (based on the report Design of the Risk Assessment Process for the Financial Assurance Scheme);
- assigning an EA to a relevant holder;
- requiring surety to preserve the financial viability of the Scheme fund; and
- forms of surety.
What's next?
In late 2018, the Managing Residual Risks in Queensland Discussion Paper (MRR Paper) was released to the public for consultation.[iv] The MRR Paper discusses the proposals that will support implementing the residual risk framework in the Queensland. These proposals include principles that will be used to develop a standardised risk assessment methodology; a calculation tool and an expert panel to assist with the estimation of post-surrender costs; clarification of payment requirements; prioritising recording post-surrender management activities such as ways to communicate these to land owners; and identifying key roles in the post-surrender management of land and funds. Submissions close on the MRR Paper on 1 February 2019.
The Act has provided major breakthroughs for rehabilitation obligations in Queensland by implementing the Scheme which adds extra protections for the State's financial assets as well as hopefully improving the quality of rehabilitation works undertaken on mined land. Further reviews are still being conducted with more reforms expected to take place; we will keep you updated as and when these reforms are implemented.
Michael Brady, Hogan Lovells
michael.brady@hoganlovells.com
[i] [2017] QSC 53.
[ii] Extracted from: https://www.treasury.qld.gov.au/growing-queensland/improving-rehabilitation-financial-assurance-outcomes-resources-sector/ and https://environment.des.qld.gov.au/management/env-policy-legislation/mining-rehabilitation-reforms.html.
[iii] https://environment.des.qld.gov.au/management/pdf/mined-land-rehabilitation-policy.pdf.
[iv] 'Residual risks' are those risks remaining at a rehabilitated resource site once surrender of an EA occurs.
