TENEMENTS, ENVIRONMENT AND PLANNING
Proposed reforms to financial assurance and rehabilitation plans in Queensland
From 1 July 2018, major changes to the financial assurance (FA) regime and the requirement to carry out progressive rehabilitation will occur if the Mineral and Energy Resources (Financial Provisioning) Bill 2018 (Qld) (FA Bill) is passed by the Queensland Government. The changes will affect every resource project in Queensland. The proposal was well promoted, having been flagged initially through a series of discussion papers released in May 2017 and building on several attempts to reform FA over the past five or so years.
Key elements of the proposal include:
- pooled rehabilitation fund – a fund is established to cover the rehabilitation costs if eligible companies default on rehabilitation obligations
- ERC Decision – the estimated rehabilitation cost (ERC) decision replaces the FA decision, and will apply for an ERC period nominated by the environmental authority (EA) holder of between 1-5 years. Discounts, which were previously up to 30 percent, are removed
- Scheme Manager – the position of 'Scheme Manager' is established. The Scheme Manager is responsible for assessing a company's risk rating, and managing the rehabilitation fund
- risk rating – companies will be allocated a risk rating and this will determine fund eligibility and contribution rates. A merits review is not available for this decision
- corporate groups – companies (including corporate groups) with more than $450 million of the State's total rehabilitation liability will only be eligible to the participate in the fund up to that threshold
- method of providing FA – some companies will not qualify for the rehabilitation fund, as their rehabilitation risk is considered too high. They must continue to provide a third party surety. Surety options will be expanded to include an insurance bond, freeing up cash for those that currently have cashed backed guarantees
- tenement transfer or change in control – a registered dealing or change in control will trigger a review of the risk allocation by the Scheme Manager. Otherwise, it is subject to an annual review
- plans of operations – mining companies will no longer be required to submit a plan of operations, but they are retained for holders of petroleum leases
- PRC Plan and PRCP Schedule – existing mines will be required to 'translate' their existing EA rehabilitation conditions into binding progressive rehabilitation milestones. Every EA in Queensland will require amendment, and
- residual voids and floodplains – areas that cannot support a post-mining land use will face particular scrutiny. For new mines, voids will not be approved in floodplains.
Key issues arising from the reforms
Established to fund rehabilitation if either a resource company fails to meet its rehabilitation obligations or if a tenement is disclaimed, the Financial Provisioning Scheme (Scheme) introduces major changes that will affect every resource company operating in Queensland. Key aspects of the Scheme include:
- it will be managed by a new statutory officer dubbed the Scheme Manager who will report annually on the Scheme, including on the Scheme's revenues and costs
- KPMG has been engaged to design the risk assessment that will apply to resource projects under the Scheme. KPMG's report, 'Design of the Risk Assessment Process for the FA Scheme' (Risk Report) recommends that the 'risk' of an EA holder should not be based solely on external credit ratings, instead the Scheme Manager should consider:
- the financial strength of the EA holder and its parent company (including JV participants)
- the resource characteristics, and
- the extent of rehabilitation effort on site.
- the Risk Report has been carried through to the FA Bill, however much of the detail of the Scheme Manager's considerations have been deferred to the Scheme Manager Guidelines, and
- the amount paid to the Pool will be calculated based on the ERC decision (which replaces an FA decision), and the risk allocation. As of yet, the Government has not made the contribution costs public however they may range from 0.5% to 2.5%. Without knowing the costs, it is difficult for companies to properly assess whether they are financially better off under the Scheme. Adding to this challenge, the previous FA scheme used a system of discounts to reduce the amount of FA payable by up to 30%. The Scheme removes this discount mechanism.
Form of surety
Currently, FA is either in cash or by way of a bank guarantee provided by a regulated banking entity. The Scheme adds a third option – insurance bonds – which must be irrevocable, allow on-demand and unconditional payment and be governed by Queensland law. We anticipate that insurance companies will enter the market to provide these once the Scheme is established. The Government has decided not to add escrow arrangements or non-cash collateral.
Transition to the new scheme
The target date to commence the transition to the new Scheme is 1 July 2018, and existing resource projects will be transitioned into the new Scheme over a three year period, although there may be company or project specific negotiations around transition. Risk assessments will be conducted annually and EA holders who move, say, from the Pool to the Surety Division will be given a 12 month notice period.
Other key provisions
Other key provisions of the FA Bill include:
- certain tenement transfers or a change in control (defined by reference to the Corporations Act), will trigger a review of the risk allocation by the Scheme Manager. The FA Bill establishes a mechanism for an indicative risk categorisation – for example; where a company is considering purchasing an operation and it requires certainty of the cost of being part of the Pool
- a company must notify the Scheme Manager if production ceases for more than 6 months, effectively acting as a notification of entering care and maintenance
- the petroleum and gas sector will sit under the same Scheme as the mining sector, and
- there will be no 'opting out' for those entities assigned to the Pool – despite some entities providing evidence they can achieve third party surety costs well below proposed Pool levies.
The impact of the Scheme on joint ventures and other complex corporate structures has been a concern to a number of industry participants. The FA consultation report states that 'Government is working with legal and accounting advisors and industry members to ensure complexities such as JV arrangements are appropriately taken into account.' Otherwise, these arrangements are not given any special consideration in the FA Bill. There may be an opportunity to nominate a holder for the purpose of Pool eligibility – which may help some companies overcome the $450 million threshold, and centralise joint venture risk rating considerations.
Better Mine Rehabilitation
'Life of mine plans' have been renamed the 'Progressive Rehabilitation and Closure Plan' (PRCP). The Government is proposing to develop detailed guidance material on the development of PRCPs and milestones with appropriate rehabilitation completion criteria, but for now we know that:
- plans of operations – mining companies will no longer be required to submit a plan of operations, but the plans are still required for holders of petroleum leases
- PRCP and PRCP Schedule – existing mines will be required to 'translate' their existing EA rehabilitation conditions into binding progressive rehabilitation milestones. This change will require that every mining EA in Queensland be amended. The FA Bill allows for this transition to occur gradually over 3 years, with companies being given 6 to 12 months to deliver the PRCP from the time they are provided with a notice. The PRCP will be required as part of the environmental assessment for major new projects, usually through the Environmental Impact Statement. Once approved, the PRCP Schedule is binding and it will be an offence not to comply with it. Amending a PRCP Schedule will follow a similar process as an EA amendment, including public notification requirements
- non-use management areas – this concept has appeared in the FA Bill, and applies to areas that cannot be rehabilitated to a stable condition and suitable post-mining land use. The concept will particularly apply to mining voids, but could equally apply to other mining areas. Non-use management areas will require approval through the PRC Plan process, and
- residual voids and floodplains – areas that cannot support a post-mining land use will face particular scrutiny. For new mines, voids will not be approved in floodplains.
Where to from here
Considerable detail has been deferred to supporting regulations and guidelines, making it difficult for industry to fully assess the overall impacts of the new Scheme and associated mine rehabilitation reforms.
The streamlining of the tailored solution into two divisions,
the Pool and Surety Division, makes sense, as does the ability of
larger entities to sit in the Pool, up to a limit. Those entities
that believe they can achieve surety costs below proposed Pool
levies will not be able to opt out. So, if you are assigned to the
Pool, then all that remains in play is your risk assessment.
The Pool should unlock cash and potentially borrowing capacity for companies with large amounts of cash tied up to back their guarantees.
While industry participants will understandably be focused on the financial impacts (positive or negative), there are also the 'social licence' benefits to be considered of moving beyond the long-running debate about whether the State carries sufficient FA to protect taxpayers. The target date to begin the transition to the new Scheme is 1 July 2018.
Linc Energy Ltd's ongoing prosecution for environmental harm in Queensland
Over the past five years Linc Energy Ltd (in liquidation) (Linc) has been the subject of an ongoing investigation into soil and groundwater contamination from its Queensland underground coal gasification pilot project. Having pleaded not guilty to five charges of wilfully causing serious environmental harm, following a nine week trial a jury has ultimately decided Linc is guilty on all five charges. It should be noted though that the liquidators did not offer any defence during the trial. Sentencing is set down for 11 May 2018, however as the company is in liquidation the State will be unable to claim any fines.
At the same time, Linc's former CEO Peter Bond is facing the prospect of having to personally provide a $5.5 million rehabilitation bond and commence rehabilitation of the site. This personal liability has come about through the State's first and only use of the Chain of Responsibility amendments to the Environmental Protection Act 1994 (Qld) (EP Act). These amendments occurred in 2016 and enable the State, in limited circumstances, to pursue related persons of high risk companies to make those people bring a facility into compliance.
Mr Bond, along with four other executive officers who had responsibility for the project, is also set to face a criminal trial in mid-2018. This follows a major investigation by the State's environmental regulator which involved executing search warrants and seizing documents and computer backup material from Linc's offices in 2013. In total, twelve individuals were formally placed under investigation with the regulator deciding that five should be prosecuted.
At the same time, Linc's liquidator has so far successfully sought to disclaim the resource tenure, environmental licence and any responsibility for cleaning up the site. The State has challenged the validity of the disclaimer, and the Queensland Supreme Court initially found in its favour in April 2017 – a decision that was at odds with the common understanding that liquidators did not have a responsibility to meet clean-up costs for the environment following a disclaimer under the Corporations Act. This original decision was overturned on appeal in March 2018, however on 9 April 2018 the State sought leave to appeal the appeal decision to the High Court.
Regardless of the outcome of each of the Linc cases, they serve as a timely reminder that the EP Act creates broad powers for the State to pursue companies and individuals in the event that a company fails to comply with their responsibilities and the rehabilitation bond is insufficient to fund the clean-up costs. It also demonstrates a willingness, in some circumstances, to seek criminal reprimand of both the company and the individuals responsible.
Planning reforms in NSW – changes for some future modifications applications
Significant amendments to the planning legislation in NSW were passed by the NSW Parliament in November 2017. Some of the resulting changes to the Environmental Planning and Assessment Act 1979 (NSW) (EP&A Act) commenced on 1 March 2018, with the remaining changes to be rolled out over the next couple of years after additional public consultation has occurred.
Most importantly, between 2006 and 2011 many resources and energy projects were granted project approval pursuant to Part 3A of the EP&A Act. Part 3A of the EP&A Act was specifically designed to streamline the approval process for major projects. When Part 3A was repealed from the EP&A Act in 2011, transitional arrangements were put in place to enable those projects which had been previously been approved pursuant to Part 3A of the Act to continue under this regime.
On 1 March 2018, the arrangements for 'transitional Part 3A projects' were removed and all of these projects are now regulated by the current regime in place under the EP&A Act for State Significant Development (SSD) or State Significant Infrastructure.
If a project that was previously approved under Part 3A of the EP&A Act needs to be modified in the future, then the proposed modification project must be substantially the same as the development that was authorised by the project approval (as last modified) prior to 1 March 2018. If the modification does not meet this requirement, then a new standalone development application would need to be lodged that complies with the new SSD requirements pursuant to Division 4.7 of the EP&A Act.
Biodiversity reforms in NSW
A major overhaul of biodiversity protection legislation in NSW occurred in August 2017 with the commencement of the Biodiversity Conservation Reform Package, which include the Biodiversity Conservation Act 2016 (NSW) (BC Act) and the Local Land Services Amendment Act 2016 (NSW) (LLS Amendment Act), together with the other various pieces of legislation and supporting policies. The Biodiversity Conservation Reform Package introduces a biodiversity offset scheme for developments that need to offset their impact on the environment.
The Biodiversity Offset Scheme applies to:
- development that is not considered to be SSD, if the development is:
- likely to significantly affect threatened species as determined by the biodiversity scheme offsets threshold (in Regulations) or the assessment of significance (s7.3 of BC Act), or
- carried out in area of outstanding biodiversity value, and
- major projects (being SSD or State Significant Infrastructure), unless the Office of Environment and Heritage and the Department of Planning and Environment determine that the development is not likely to have any significant impact on biodiversity values.
If the proposed development impacts biodiversity above a certain threshold (BOS Threshold), the proponent will need to engage an accredited assessor to prepare a Biodiversity Development Assessment Report (BDAR). The BDAR will determine the impact of the proposed development on biodiversity values and the biodiversity conservation measures (including the retirement of credits) needed to avoid or minimize that impact. When determining whether development consent should be granted for a project, the consent authority will consider and impose conditions of consent requiring offset measures to be put in place.
The following are options to offset environmental impacts:
- find and buy suitable biodiversity credits
- pay an amount directly into the Biodiversity Conservation Fund
- undertake other biodiversity actions that qualify as biodiversity conservation measures including mine site rehabilitation, and
- any combination of the above.
The offset scheme establishes an open market between developers impacting biodiversity values and others seeking to protect biodiversity values.
Under the BC Act three types of private land conservation agreements are provided for to ensure conservation of land in NSW, which are:
- biodiversity stewardship agreement – permanent agreements that generate biodiversity credits that may be sold to provide a potential upfront financial return and annual payments to cover the costs of management actions
- conservation agreements – permanent or time-bound agreements that will be eligible for stewardship payments, and
- wildlife refuge agreements – entry level agreements that provide a less restrictive option and can be terminated at any time or converted into higher forms of agreements.
In early 2018, the Office of Environment and Heritage released a draft discussion paper 'Ancillary rules: use of mine site ecological rehabilitation as an offset' (Draft Paper) for consultation. The Biodiversity Conservation Regulation 2017 (Biodiversity Regulations) provide offset rules which govern the biodiversity conservation measures that proponents can use to meet a credit requirement imposed by an approval authority to offset the impacts of a development. For major mining projects, the offset rules allow proponents to propose like-for-like ecological rehabilitation of the impacted site to contribute to meeting a credit requirement. These ancillary rules will be an important development for the mining industry.
Proposed improvements to mine site rehabilitation in NSW
In November 2017, the NSW Department of Planning and Environment released a discussion paper seeking public feedback on ways to improve how mine rehabilitation is currently regulated, as well as improvements on rehabilitation outcomes for State significant mining developments such as coal, mineral sands and large metalliferous mines. The Department have noted that this feedback will then be used to develop new state-wide policy and actions that provide certainty to industry and the community by clearly setting out Government expectations regarding rehabilitation and closure requirements for all major mining projects in NSW.
The discussion paper sets out a number of proposed reforms across the assessment, operational and closure stages of the mine life cycle. These include:
- adoption of policy principles which set mandatory, best practice standards for all major mining development. These principles would cover progressive rehabilitation, making rehabilitation information publically available, and ensuring rehabilitation can sustain the post mining land use. The principles set additional standards for new mining projects, including the requirement that rehabilitation minimises the sterilisation of land and is compatible with surrounding land forms and land uses
- development of a policy framework to assess final mining voids, where voids will not be considered in new major projects unless the void minimises environmental, community and visual impacts and cannot be feasibly removed
- requirements for new major projects to consult with the community and provide information on mine design, rehabilitation and closure options early in the planning process
- requirements for new major projects to include standard landform and land use rehabilitation objectives in the development application
- requirements for rehabilitation conditions imposed on development consents and mining leases to be clear, measurable and enforceable
- requirement for regulatory processes that occur once a mine has been approved are transparent and consistent with the approved rehabilitation proposal, post-mining landform and land use, and
- improved regulator coordination across the assessment, operations and post-closure stages of mine life cycle.
These proposed reforms will only apply to existing and new major mining projects, known as State Significant Development. The proposal is not intended to apply to small mining development, exploration activities under the Mining Act 1992 (NSW) or petroleum exploration or production.
McGlade fix and further reforms
In June 2017, the Federal government passed the Native Title Amendment (Indigenous Land Use Agreements) Act 2017 (Amendment Act). The Amendment Act primarily responded to the Full Federal Court's decision in McGlade v Native Title Registrar & Ors  FCAFC 10, and its related impact on the validity of Indigenous Land Use Agreements (ILUAs) which were not executed by each person comprising the native title applicant.
The Amendment Act restored the status quo in respect of the execution and registration of ILUAs, including by confirming that ILUAs may be executed by a majority of people comprising the native title applicant.
Further amendments to the NT Act have been foreshadowed by the Federal Government, in line with the recommendations in the 2015 Australian Law Reform Commission 'Connection to Country' report on the NT Act. In November 2017, an options paper was released seeking stakeholder views on a range of proposed reforms, which include:
- changing the role and scope of authority of the native title applicant, including in executing other types of native title agreements
- the creation of an alternative agreement making mechanism for native title agreements
- allowing 'low impact' future acts on land the subject of a determination of native title
- allowing minor technical amendments to ILUAs without requiring re-registration, and
- streamlining the native title claims process.
Feedback from stakeholders will inform the development of an exposure draft native title amendment bill, which will be released for further public comment later this year.
Junior mineral exploration incentive
Applications to participate in the new Junior Minerals Exploration Incentive (JMEI) are now open. The federal government introduced the JMEI to encourage investment in small minerals exploration companies that carry out greenfields mineral exploration in Australia. The program allows eligible companies to give up a portion of their losses from greenfields mineral exploration expenditure to investors in the form of a refundable tax offset attaching to newly issued shares. Tax credits can only be generated for shares issued in that income year.
In order to participate in the JMEI, a greenfields minerals explorer must have incurred expenditure on exploration or prospecting for minerals for the income year and must not have carried on any mining operations for the relevant period (this criterion is extended to apply to any entity that is affiliated or connected to the explorer). Eligibility is determined each year a company applies to participate in the JMEI. Exploration credits are capped and the Australian Taxation Office will allocate each eligible entity an exploration credit allocation on a first come first serve basis. Applications for the 2017-2018 income year close on 15 May 2018.
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