Australia: A tailored solution to financial assurance and mine rehabilitation - all stakeholders to (be)spoken for

The consultation paper proposes that FA obligations will be determined according to the estimated rehabilitation cost and risk profile of the authority holder.

The Queensland Government's reform of the State's current financial assurance and rehabilitation framework for resource activities has been introduced with the release of two discussion papers as part of the Financial Assurance Framework Package.

A new framework ahead

The release of discussion papers for the proposed Financial Assurance Framework Reform Package on 4 May 2016 follows the review undertaken in November 2016 into Queensland's existing financial assurance (FA) framework for resource activities.

Prepared by the Queensland Treasury Corporation (QTC), the QTC Report expressed concerns with Queensland's "one size fits all" FA framework and the impacts it has for the Government, the resources industry, taxpayers and most significantly, the environment.

The QTC Report sets out a number of recommendations, including the introduction of a proposed "tailored solution" for calculation and lodgement of FA. The "tailored solution", which has been approved in principle by the State Government, determines FA liability according to an operator's estimated rehabilitation outlays and risk profile.

In response to the QTC Report recommendations, the Queensland Government released two consultation papers as part of the Reform series on 4 May 2017:

With submissions closing on 15 June 2017, it is important that all stakeholders consider the impacts and effects of the proposed new framework.

The tailored solution - a new FA framework

The "Financial Assurance Framework Reform" discussion paper sets out the proposed reforms to implement the "tailored solution".

The consultation paper proposes that FA obligations will be determined according to the estimated rehabilitation cost and risk profile of the authority holder.

Under the new framework, four financial assurance arrangement categories have been established:

These arrangements are fluid, as are the resource "entity" categorisations. In the event that financial liability changes, the financial assurance arrangements may also change with them.

The calculation of rehabilitation liability will likely be by way of the revised Government-commissioned financial assurance calculator, with industry calculators to no longer be available.

The "tailored solution" establishes an alternative approach for Plans of Operations, where it will be submitted for a maximum period to be determined, with additional information able to be added when required. This differs from the current approach, which requires submission for no more than five years.

There are a number of other relevant reforms being considered, including:

  • a review of the existing approval process for the sale of resource assets for share sales, including whether there is adequate provision for rehabilitation;
  • improved data analysis, information systems and governance framework for better management of FA between different government departments, but also between the Government and resource companies; and
  • residual risk policy to minimise the future rehabilitation or residual risks for the Queensland Government (and taxpayers).

These reforms are expected to be implemented in 2018, with additional consultation papers to follow.

Improving mine rehabilitation

The second discussion paper that has been released is the "Better Mine Rehabilitation for Queensland" which proposes a new policy for mining rehabilitation (which is the key component of the Integrated Mined Land Management framework).

The policy introduces the following delivery elements for the policy:

  • life-of-mine plans for site-specific mines;
  • strict requirements for regular monitoring, assessment and reporting;
  • enforceable requirements for progressive rehabilitation;
  • completion and sign-off requirements;
  • performance based incentives; and
  • good quality data for policy and regulatory implementation.

While the discussion paper focuses on site-specific mines, it will be extended in the future to petroleum activities and resource activities with an Environmental Authority issued by a standard application process.

Relevant reforms include the introduction of:

  • life-of-mine plans (LOM Plan) for all site-specific mines (new and existing). The objective is to align with other Australian jurisdictions and ensure ongoing accountability and rehabilitation effectiveness. For new projects, the LOM Plan would be required through the environmental authority application. For existing projects, implementation will follow one year after commencement for high risk existing mines, and two years for all remaining mines.
  • regular monitoring, assessment and reporting against rehabilitation objectives in accordance with the LOM Plan to ensure the progressive rehabilitation performance of the site is appropriate;
  • enforceable requirements for progressive rehabilitation in accordance with the LOM Plan and ensuring strict compliance;
  • setting clear completion and sign-off requirements using standard guidelines that provide criteria for measuring and assessing rehabilitation outcomes; and
  • performance based incentives through a wide range of measures.

What next?

Written submissions for each of the consultation reports can be made up until 5:00pm on Thursday 15 June 2017.

With the finalisation of the FA framework expected to be in place by mid-2018, a package of further discussion papers is proposed to be release for consultation over throughout 2017:

  • Mid to late 2017:
    • Expanded range of surety providers - discussion paper release;
  • Late 2017:
    • Expansion of the Abandoned Mines Land Program - discussion paper release; and
    • Improved management of sites in care and maintenance - discussion paper release.

We will continue to track the progress of these reforms.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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