Financial assurance reform for Queensland: Mineral and Energy Resources (Financial Provisioning) Bill 2018

This article was featured in and extracted from the Lexis Nexis Australian Energy and Resources Law Bulletin. 

The Mineral and Energy Resources (Financial Provisioning) Bill 2018 (Qld) contains significant reforms to the way the costs and liabilities associated with environmental rehabilitation for resources activities in Queensland are treated. The Bill replaces the current financial assurance requirements under the Environmental Protection Act 1994 (Qld) (EP Act) with a financial provisioning scheme, where most resources environmental authority (EA) holders will make contributions to the Financial Provisioning Fund. This will provide a source of funds that can be used by the state for environmental rehabilitation costs and expenses. The Bill also introduces new progressive rehabilitation requirements for mining leases, through progressive rehabilitation and closure plans (PRC plans).

The Bill was introduced to Queensland Parliament on 15 February 2018, with only minimal changes to the 2017 Bill that lapsed with last year’s election. Although the new regime was originally intended to start with the new financial year on 1 July 2018, the passage of the Bill has been delayed. It was listed in the Notice Paper for the next sittings of Queensland Parliament on 21 August 2018 and is now intended to commence in late 2018.

Background

In recent years, there have been concerns about the way to best manage the risks posed to the State of Queensland (and ultimately the taxpayer) if the holder of an EA does not comply with their environmental rehabilitation obligations. This is particularly relevant in an economic climate where mining projects are no longer profitable and companies have gone into administration without completing their required mine site rehabilitation, at times leaving projects in a state that poses a risk of serious environmental harm.¹

Under the current regime, holders of EAs are required to lodge financial assurance as a condition of their EA. This is as security for compliance with the EA and for the likely costs and expenses needed to prevent or minimise environmental harm, or rehabilitate or restore the environment as a result of activities for which the financial assurance was given.² Financial assurance is currently in the form of a bank guarantee, lodged with the Department of Environment and Science (DES). Concerns have been raised about the effectiveness of this system. A 2014 report of the Queensland Audit Office found that the amount of financial assurance held by the state has historically been insufficient to cover the estimated rehabilitation costs.³ The Review of Queensland’s Financial Assurance Framework prepared by the Queensland Treasury Corporation in April 2017 found that the current financial assurance system does not protect the state’s financial interests, is expensive for industry and does not promote good environmental outcomes.⁴ The Bill sets out to reform the system in light of these concerns.

The new scheme: contributions to the Financial Provisioning Fund

The Bill sets up the new financial provisioning scheme by establishing a Financial Provisioning Fund and setting out the role of the scheme manager. The scheme manger administers the scheme and may authorise payment of costs and expenses from the scheme fund if this is required for rehabilitation under the EP Act, the Mineral Resources Act 1989 (Qld) or the Petroleum and Gas (Production and Safety) Act 2004 (Qld). Under the new scheme, resources EA holders with an estimated rehabilitation cost (ERC) for their EA of more than the prescribed ERC amount (currently $100,000 but may be otherwise prescribed by regulation) will be allocated by the scheme manager into risk categories of “very low”, “low”, “moderate” or “high”. EA holders in the “very low”, “low” and “moderate” categories will be eligible, at the discretion of the scheme manager, to pay an annual contribution to the Financial Provisioning Fund, instead of needing to provide a bank guarantee or other security for their total rehabilitation costs. The contribution payable is calculated based on a prescribed percentage of the ERC.5 The ERC is the cost estimated by the DES of rehabilitating the land on which the resource activity is carried out and preventing or minimising environmental harm, or rehabilitating or restoring the environment in relation to the resource activity.⁶

However, if the ERC for a particular EA holder is more than the fund threshold of $450 million,⁷ then the contribution payable is calculated by reference to the prescribed percentage of the fund threshold and the EA holder must also give a surety for the gap amount between the fund threshold and their ERC.⁸

The prescribed percentage depends on the risk allocation category. Under the consultation draft of the Mineral and Energy Resources (Financial Provision) Regulation 2018 (Qld) (Draft Regulation), the prescribed percentage is 0.5% for the “very low” risk category, 1% for the “low” risk category and 2.75% for the “moderate” risk category.⁹ Resources EA holders in the “high” risk category and holders of small-scale mining tenures will be required to provide the state with a surety. This can be in the form of a bank guarantee, insurance bond or cash amount.¹⁰ An exception is made if an EA holder is assigned to the “high” risk category, but in each of the 4 years immediately preceding this decision was instead assigned in a “very low”, “low” or “moderate” category and the scheme manager is satisfied that the EA holder is not reasonably able to give a surety within 12 months after the decision was made.¹¹ In this instance, the EA holder will be able to make a contribution to the fund, calculated using the “moderate” risk rate.

Allocation of risk category

The scheme manager is responsible for allocating EAs to a risk category and reviewing the allocated risk category.¹² To deal with the transitional issues associated with the move to the new regime, cl 27 of the Bill provides for an “initial risk category allocation”. Where resources EA holders have existing financial assurance held with the DES, this will initially be treated as a surety under the new amendments.¹³ Within 3 years of the commencement of these amendments, the scheme manager must give a transition notice to the EA holder, advising that they will make an “initial allocation decision” to decide the initial risk category allocation of the holder.¹⁴ The EA holder will be notified of their indicative risk category allocation and will have the opportunity to make submissions.¹⁵ Risk category allocation is then reviewed on an annual basis based on the anniversary day for the EA and if there is a changed holder for the EA. Clause 42 of the Bill requires a change of holder notice to be given if there is a transfer of a resource authority or of share in a resource authority to another holder, or if an entity starts or stops controlling the holder under s 50AA of the Corporations Act 2001 (Cth), or the holder starts or stops being a subsidiary of a corporation under s 46 of the Corporations Act.

Before deciding an annual review allocation or a changed holder review allocation, the scheme manager must notify the EA holder of their indicative decision and invite submissions or acceptance from the EA holder.¹⁶ Clauses 27, 32 and 38 require that when making a risk allocation decision, the scheme manager must consider:

• the probability of the state incurring costs and expenses because the holder of the EA has not prevented or minimised environmental harm, or rehabilitated or restored the environment, in relation to a resource activity carried out under, or to ensure compliance with, the EA. In forming an opinion on this matter, the scheme manager must consider the financial soundness of the holder and the scheme manager guidelines. The scheme manager may consider the characteristics of the resource project to which the authority relates and any other matter the scheme manager considers relevant. If there is more than one holder, the scheme manager may consider the financial soundness of any or all of the holders, but must assign the EA to only one holder
• any submissions which have been made by the EA holder on the notice of indicative decision
• the scheme manager guidelines and
• any other matter the scheme manager considers relevant

Clause 70 of the Bill allows the scheme manager to make guidelines about particular matters affecting the operation of the scheme. Draft guidelines have been released for consultation, including a guideline of how the scheme manager forms its opinion on the probability of the state incurring costs and expenses. While guidelines establish basic rules for decisions of the scheme manager, they do not give any indication or thresholds for the particular risk categories.

In addition to making a contribution to the fund or paying the required surety, EA holders are also required to pay an assessment fee every time there is an allocation decision for an EA. Under Sch 1 of the Draft Regulation, the fees are charged on a sliding scale based on the ERC for the EA. The decision fee ranges from $250 if the ERC is between $100,000 and $1 million, to $45,000 where the ERC is at least $100 million.

Care and maintenance

In order to address concerns about rehabilitation, cl 43 of the Bill also introduces new requirements to notify if a project is in “care and maintenance”. An EA holder must give a notice to the scheme manager if they cease production under a mining lease, mining development licence, authority to prospect, petroleum lease or geothermal production lease, or if production has not been carried out under that authority for 6 months.

Sureties

Although the intention is that most EA holders will make contributions to the Financial Provisioning Fund, the scheme manager has discretion to require the holder of an EA in the “very low”, “low” or “moderate” category to give a surety, rather than pay contribution if this is required to preserve the financial viability of the fund.¹⁷ In doing so, the scheme manager may consider whether the total ERC for the holder, including its parent and subsidiary companies, is likely to be more than the fund threshold. The scheme manager may also require an increased surety, if a surety has been given and the ERC for the EA increases within 12 months after the allocation decision.¹⁸ The scheme manager must release any surety if the holder is instead required to pay a contribution to the scheme fund, or if the scheme manager is satisfied that they will not be asked to make a claim on the surety.¹⁹

Appeal rights

There is no appeal process for decisions made by the scheme manager. A dissatisfied person can seek judicial review of an initial risk category allocation decision, changed holder review allocation decision or annual review allocation decision, but the decision can only be challenged or appealed against to the extent that it is affected by jurisdictional error.²⁰ These decisions cannot be stayed.²¹ EA holders are able to seek internal review of the ERC decision and then appeal the review decision to the Land Court. As part of the mining rehabilitation reform process, the Queensland Government is also creating a new ERC guideline and reviewing the calculator used by DES to calculate this.

Progressive rehabilitation for mining leases

The other major reform proposed by the Bill relates to progressive rehabilitation for mining leases. The Bill introduces amendments to the EP Act, which require a PRC plan for land the subject of a mining lease. A PRC plan is a progressive rehabilitation and closure plan for the land that consists of rehabilitation planning and a “PRCP schedule” for the plan. The PRCP schedule must identify proposed post-mining land use for the land and identify the rehabilitation milestones required to achieve a stable condition for the land. It must also provide the timing of these rehabilitation milestones, which must be as soon as practicable after the land becomes available for rehabilitation. The PRCP schedule may also identify “non-use management areas” which cannot be rehabilitated to a stable condition after all relevant activities for the PRC plan carried out on the land have ended. For these areas, the PRCP schedule must identify management milestones and when these are to be achieved. Land may be identified as a non-use management area in the PRCP schedule only if:²²

• carrying out rehabilitation of the land would cause a greater risk of environmental harm than not carrying out the rehabilitation or
• the risk of environmental harm as a result of not carrying out rehabilitation of the land is confined to the area of the relevant resource tenure and failing to rehabilitate the land to a stable condition is justified, having regard to the costs of rehabilitation and the public interest in the resource activity being carried out.

The PRC plan process is integrated into the existing EA processes, and will replace the requirement for plans of operations for mining leases. Going forward, a site-specific application for an EA relating to a mining lease will be required to be accompanied by a PRC plan. Interested parties can make submissions on a PRC plan, and a submitter can then ask that its submission be taken to be an objection, leading to a new ground of objection in the Land Court. If objections are raised to both the EA and the PRC plan, then the Land Court will need to make a recommendation on both — whether the EA application should be approved and whether the proposed draft PRCP schedule should be approved.

In making a final decision on an application for an EA, DES as the administering authority must not approve a draft PRCP schedule unless satisfied that:

• the schedule provides for all land the subject of the PRC plan to be either rehabilitated to a stable condition for a post-mining land use, or main​tained as a non-use management area in a way that complies with best practice standards for the management of non-use management areas and minimises risks to the environment and
• each proposed non-use management area has been properly identified as a non-use management area.

If DES refuses to approve a draft PRCP schedule for a proposed PRC plan accompanying an EA application, DES must also refuse the application for the EA.²³ Under the transitional provisions, DES has 3 years from the “PRCP start date” (to be prescribed by regulation) to give notice to existing holders of a site-specific EA for a mining lease, requiring them to submit a proposed PRC plan to comply with the new requirements.²⁴

1. ^{As the Explanatory Notes to the Environmental Protection (Chain of Responsibility) Amendment Bill 2016 (Qld) state, in the 12 months to March 2016, the Department of Environment and Heritage Protection (as it then was) had confronted increasing difficulties in ensuring that sites operated by companies in financial difficulty continue to comply with their environmental obligations. This has included sites such as the Yabulu Nickel Refinery, Texas Silver Mine, Collingwood Tin Mine and Mount Chalmers Gold Mine. The state government ended up assuming responsibility for the Texas Silver Mine, Collingwood Tin Mine and Mount Chalmers Gold Mine when the operators of these mines were placed into liquidation.}
2. ^{Environmental Protection Act 1994 (Qld), s 292.}
3. ^{Queensland Audit Office Environmental regulation of the resources and waste industries Report 14 (2013–14) 4.}
4. ^{Queensland Treasury Corporation Review of Queensland’s Financial Assurance Framework Final Report: Version for Public Consultation (April 2017)} 
5. ^{Mineral and Energy Resources (Financial Provisioning) Bill 2018 (Qld), cl 47(2).}
6. ^{Above n 5, cl 8.}
7. ^{Under cl 11 of the Bill, the fund threshold is $450 million or other amount prescribed by regulation. No other amount has been prescribed.}
8. ^{Above n 5, cl 49.}
9. ^{Draft Mineral and Energy Resources (Financial Provision) Regulation 2018 (Qld), reg 5.}
10. ^{Above n 5, cl 56.}
11. ^{Above n 5, cl 46(b).}
12. ^{Above n 5, cl 21(1).}
13. ^{Above n 5, cll 89, 90(1).}
14. ^{Above n 5, cl 91.}
15. ^{Above n 5, cl 28.}
16. ^{See above n 5, cl 34 for changed holder review allocation and cl 39 for indicative annual review notification.}
17. ^{Above n 5, cl 53(c).}
18. ^{Above n 5, cl 57.}
19. ^{Above n 5, cl 58.}
20. ^{Above n 5, cll 74, 75.}
21. ^{Above n 5, cl 76.}
22. ^{Above n 5, cl 104, with new s 126D(2) to the Environmental Protection Act 1994 (Qld) (EP Act).}
23. ^{Above n 5, cl 122, with new s 194A(3) to the EP Act.}
24. ^{Above n 5, cl 203, with new s 754 to the EP Act.}