The Department of Resources & Energy's (DRE) Interim Guidelines for the Allocation of Coal Resources February 2014 (Interim Guidelines) have been released in response to the 30 October 2013 Independent Commission Against Corruption (ICAC) report, Reducing the Opportunities and Incentives for Corruption in the State's Management of Coal Resources.

The Interim Guidelines are in response to one of the principal recommendations of ICAC, that "the auction method should be the preferred approach to allocating the State's coal resources". Future allocations will be considered by a steering committee comprising of representatives from Trade & Investment, NSW Treasury and the Department of Planning & Infrastructure (Steering Committee). Further recommendations will be directed to the NSW Government Cabinet Standing Committee on Resources and Land Use, for consideration and final approval by the Standing Committee.

While the government is developing a final process to implement ICAC's recommendations, the interim process for the allocation of coal resources will apply.

How this will affect you

The high level implications of the Interim Guidelines include:

  • the time frames for implementation of a proposed development involving unallocated coal (i.e. coal not within an existing exploration or mining authority) will be affected. Early engagement with DRE is encouraged to clarify the categorisation of any new coal proposal and for an indication of the time frames involved
  • miners will be able to confirm whether all relevant interests have been notified on DRE's register of requests for Ministerial consent
  • the Interim Guidelines may be changed when converted to final, and
  • the timing of payment (discussed below).

A high level overview of the Interim Guidelines

Categories of coal allocation areas

The coal allocation areas are categorised into four groups. This is consistent with the Ministerial Guideline Allocation of Future Coal Exploration Areas (version 3).

Coal allocation categories suitable for an allocation by competitive auction

Categories which must be referred to by the Steering Committee are:

  • major stand-alone areas
  • substantial additions to existing mines
  • large areas which have limited or no exploration but have the potential to contain large and significant coal resources, and
  • small areas unrelated to existing mines, which if released, are likely to be of interest to a number of companies.

Coal allocation categories suitable for direct allocation

Small areas likely to contain limited coal resources may be considered for direct allocation as a minor addition to existing mines.
The process for direct allocation is outlined, including assessment by an Interim Resources Allocation Committee (IRAC). If a request for a direct allocation is suitable, IRAC's recommendation to the Minister is provided after consideration by the Standing Committee.

Where a number of companies have registered an interest for an allocation for the same area, a competitive allocation process will be required in order for Ministerial consent to apply. Where there are no registered competing interests, a direct allocation may be made after applying the public exposure test.

Financial Contributions

Minor allocations to existing mines will be subject to negotiated financial contributions and minimum contributions are stated.

Unless allocated by auction or negotiation, financial contributions will be payable in instalments with 20% on the grant of planning approval and the balance payable in five equal payments on the anniversary of the grant. Although the Interim Guidelines stipulate that this only applies to payments being made where the area is NOT awarded by competitive process, we expect that this principle will also be applied to awards made following competition.

This is laudable because, apart from the obvious benefit to the developer, it will help to counter the community impression that an entity awarded an area in return for a large financial contribution should (commercially) expect the planning and other environmental approvals to necessarily follow.

A refund of the cost of government exploration must be paid. This may include exploration outside the allocation area and tender assessment costs, if applicable.

Change in effective control of corporate entities that are allocated areas

Prior Ministerial consent will be required for any changes in effective control of the corporate entity or entities holding the licence

Requirement to develop resources

Where the conditions of the allocation are not met, or the allocated resources are not developed within any specified time frame, the coal title may be cancelled by the Minister without compensation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.