Financial Assurance Reform in Queensland

Mining Updates

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Findings and recommendations by the Queensland Treasury Corporation in its Review of Queensland's Financial Assurance Framework report (April 2017) (QTC Paper) have manifested in substantial proposed reforms to Queensland's financial assurance and rehabilitation framework. The proposed reforms are set out in the Financial Assurance Framework Reform and the Better Mine Rehabilitation for Queensland Discussion Papers. Further discussion papers related to other areas of reform are to be released later this year.

A redesigned Financial Assurance Framework - 'The Tailored Solution'

A key area of the proposed reforms is the current financial assurance framework. The QTC Paper identified that the current framework of utilising bank guarantees was both costly to the Queensland Government and to the resource company. It also recognised that the provision of financial assurances by way of bank guarantee prevented the Queensland Government from creating a revenue stream from these amounts, with fees instead being paid to the financial institutions providing the guarantees. 

In response, the Queensland Government has proposed what it is calling "The tailored solution" to replace the current framework. Under this proposal, resource companies will be assessed individually based on their financial risk profile. Resource companies are then allocated to one of four categories which determines the form of financial assurance that they will provide to the Queensland Government to secure their rehabilitation obligations. A resource company's allocation is not static, and will be monitored to detect changes in financial risk. 

Category of entity

Threshold of entity

Financial assurance arrangement

Financial assurance amount payable

Small operators

Companies that have a rehabilitated cost estimate across all environmental authorities of less than $50,000 (i.e. explorers, prospectors etc.)

Small Operator Arrangement

Surety based on a revised schedule of rates

Significant resource entities

Companies that have a credit rating of A- or above and are considered a very low risk of financial failure. These companies represent 5% or more of the total rehabilitation liability in Queensland

For these companies, the Queensland Government is willing to take on the risk of rehabilitation.

Significant resource entities with a higher risk profile will be allocated to the Third Party Surety arrangement (below)

Selected Partner Arrangement

Annual contribution based on rehabilitation cost × rate reflective of financial risk

The contribution rate provided by Significant Resource Entities is to be used to fund other resource-related initiatives such as the Abandoned Mine Lands Program

Representative resource entities

Companies that represent an acceptable credit risk for the pooled Rehabilitation Fund and have a total rehabilitation liability of less than $500 million.

The majority of resource companies are expected to fall in this category.

Rehabilitation Fund

Annual contribution based on rehabilitation cost × rate reflective of financial risk

Interest earned on the balance of the Fund is to be used for other resource-related initiatives by the Queensland Government

Other resource entities

Companies that pose a higher risk of default or whose rehabilitation liability cannot be effective managed under the Rehabilitation Fund or Select Partner Arrangement.

Significant Resource Entities under the Select Partner Arrangement will be closely monitored and moved to this category if their risk profile deteriorates.

Third Party Surety

Total rehabilitation cost as surety from an expanded range of providers (see below)


While the Financial Assurance Framework Reform Discussion Paper does not make any direct reference to the Chain of Responsibility legislation (Environmental Protection (Chain of Responsibility) Amendment Act 2016 (Qld)), it does provide that only after considering all other options, the Queensland Government will claim the financial assurance from the bank, institution or Rehabilitation Fund as a last resort.  This suggests increased and more frequent reliance on the powers afforded to the Department of Environment and Heritage Protection (DEHP) under the Chain of Responsibility legislation.

Key questions

While the reforms are awaiting stakeholder feedback in order to be further developed, key questions remain around their introduction and operation, including:

  • How will the Queensland Government manage the establishment of the Rehabilitation Fund initially, and what are the implications for those resource companies who transition to it (i.e. at what point can their existing financial assurance be released)?
  • How will the contribution rates for the Rehabilitation Fund be calculated and will the rates actually be comparable to the current rates paid by resource companies for bank guarantees?  It would be expected that resource companies will only be willing to pay a rate which reflects their own financial risk and is comparable to the rate currently paid to the financial institution providing their existing bank guarantee.
  • Will greater reliance be placed on the powers provided to DEHP under Chain of Responsibility legislation? Are those powers the cornerstone of this reform? 
  • How will the Queensland Government ensure that Significant Resource Entities with deteriorating risk profiles are moved to the Third Party Surety category at a time when they remain financially capable of doing so?
  • Will those participants in the Rehabilitation Fund be expected to underwrite (directly or indirectly) the risk posed by Significant Resource Entities (notwithstanding the Queensland's Government's position that it will bear the risk)?
  • How will parties to unincorporated joint ventures be dealt with if their respective profiles see them allocated to different categories for the same project?

Better Mine Rehabilitation

The QTC Paper also identified the widening gap between the amount of land disturbed by mining and the amount of land rehabilitated.  According to the QTC Paper, only 9% of disturbed land has been rehabilitated.

The Better Mine Rehabilitation for Queensland Discussion Paper seeks to introduce an 'integrated mined land management framework' in order to reduce the widening gap. The framework is made up of six elements built around a 'Life of Mine' plan:

Introducing Life of Mine plans for site-specific mines

Life of Mine plans will, among other things:

  • state the future land use, taking into account regional and local plans, the surrounding environment and community views;
  • encompass all stages of the mine life, such as development, operation, care and maintenance, decommissioning, closure and post-closure monitoring; 
  • state the final rehabilitation outcome for each area, including any built infrastructure that will remain; 
  • include time-based milestones and details of how these will be achieved; 
  • include objectives and measurable completion criteria for each area; 
  • detail post-closure management and rehabilitation actions; 
  • identify stakeholders who have been engaged and who will continue to be consulted on changes and performance reporting, and how their feedback will be incorporated into the Life of Mine plan.

Community consultation is expected to be required as part of the approval of a new or amended Life of Mine plan.

Regular monitoring, assessment and reporting

Resource companies will be required to regularly report their rehabilitation progress as against the Life of Mine Plan in their Annual Report. This information will be made publicly available.

In addition to self-assessments, independent audits will be conducted every three to five years in addition to regular audits by the regulator.

Enforceable requirements for progressive rehabilitation

As the Life of Mine plan will include time based milestones for progressive rehabilitation, powers will be given to the regulator if the resource company has failed to meet the time based milestones.

Clear completion and signoff requirements

Guidelines are to be produced that outline standard rehabilitation completion criteria and the evidence required to support surrender applications.

Incentives for good performance

Resource companies with good rehabilitation performance are to be rewarded. Proposed rewards currently include:

  • a reduction in the frequency of independent audits;
  • a reduction in the annual fee for environmental authorities. 

Good quality data for policy and regulatory implementation

There are proposals to increase the frequency of reporting on rehabilitation activities in line with a standard reporting data set.

Reporting is to happen electronically, with the results to be made publicly available.


Future reform areas 

The Queensland Government is also seeking to reform other areas relating to environmental rehabilitation and management in Queensland, including:

Consistency of rehabilitation liability estimates

 

The government financial assurance calculator is proposed to be redesigned, implementing a consistent approach across the resource industry. This means that the current system of discounts will no longer be used and the estimated rehabilitation liability will be the amount used for financial assurance.

Industry calculators will no longer be used.

Review of existing approval processes for sale of resource assets

 

The Financial Assurance Framework Reform Discussion Paper also flags the possible introduction of an approval process for the sale of resource assets conducted by way of share sale, for which no approval regime currently exists.

Any reform in this area is expected to be implemented in 2018.

A key question is how this particular approval process will operate and what degree of a 'change in control' of a resource company, or its shareholders, will necessitate the need for approval. Clearly, there are potential issues for resource companies, and their shareholders, with liquid share registries.

Expanded range of surety providers

 

Concerns around the increasing cost and unavailability of bank guarantees from APRA approved Australian registered banks has led to a proposal to expand the surety market to other banks and insurance companies.

A discussion paper regarding the expanded range of surety providers is expected to be released in mid to late 2017.

Expansion of the Abandoned Mine Lands Program

The modified funding arrangements under the tailored solution framework will be directed towards initiatives such as the Abandoned Mine Lands Program. Currently, the requirements for abandoned mine sites vary significantly. The increase of sustainable funding will enable the further mitigation of legacy impacts of abandoned mine sites. Other incentive options are under review.

A discussion paper is expected in late 2017.

Improved management of sites in care and maintenance

 

Care and maintenance is often seen as a mechanism for operators to defer rehabilitation costs indefinitely. It is also practically a precursor for administrators to disclaim an operation limiting outstanding liability exposure. These sites can deteriorate slowly and cause environmental harm and Queensland Government risk. Additional oversight and supervisory measures are being proposed, including providing a formal legislative definition for 'care and maintenance'. The Queensland Government also intends to clarify the obligations of resource operators when their sites are in care and maintenance.

The Better Mine Rehabilitation for Queensland Discussion Paper proposes that land will be available for rehabilitation unless it is being mined or used for operating mining infrastructure or unless it overlays a mineral reserve assessed as economically viable for extraction within 10 years. This definition has clear implications for sites on, or proposing to go to, care and maintenance.

A discussion paper is expected in late 2017.


Consultation 

Submissions to the Queensland Government on the financial assurance and improved mine rehabilitation reforms close on 5:00pm Thursday 15 June 2017. If the reforms are successful, elements of the package (including the tailored solutions) will be rolled out as soon as July 2018. 

Submissions can be made by email: [email protected] or post: Financial Assurance Review, Queensland Treasury, PO Box 15216, City East QLD 4002