Australia: Overhaul of financial assurance and rehabilitation framework for Queensland resources sector

The Mineral and Energy Resources (Financial Provisioning) Act 2018 (FP Act) was passed by the Queensland Parliament on 14 November 2018 after much scrutiny since its first reading in bill form earlier in the year. The FP Act will commence on a day to be fixed by proclamation and will entail a significant overhaul of the financial assurance and rehabilitation framework for Queensland’s resources sector. Major reforms include replacement of the financial assurance regime under the Environmental Protection Act 1994 (EPA), changes to how the estimated rehabilitation cost of a project is calculated, and the introduction of new progressive rehabilitation and closure plans for mines (PRC plans).

Background to the reforms

The FP Act was introduced to allay concerns about the future financial risks to Queensland if resource tenure holders failed to comply with their environmental rehabilitation obligations under the EPA. An independent review conducted in 2016 revealed an increasing proportion of mining land was not being rehabilitated and that companies were financially unable to meet their obligations. The result was a perceived over-reliance on the existing financial assurance framework to make up for the environmental impact of such companies.

Discussion papers proposing reforms to the financial assurance framework were released by the Queensland Government throughout 2017. These papers formed the basis of the Bill that was reintroduced (after lapsing in late 2017 due to the Queensland election) to Parliament on 15 February 2018, and that subsequently became the FP Act.

Overhaul of the financial assurance regime

The FP Act will implement a financial provisioning scheme that provides the government with access to pooled funds to rehabilitate sites in circumstances where a holder of an environmental authority (EA) does not comply with its obligations. Contributions to this fund are to be determined by the risk category allocated to a specific project and are based on the cost estimated by the Department of Environment and Science (DES) of rehabilitating the land in question. This cost will be determined by DES using the estimated rehabilitation cost (ERC) calculator, which is still being finalised.

The Queensland Government has released the Draft Mineral and Energy Resources (Financial Provisioning) Regulation 2018 (Draft Regulation) and the Draft Scheme Manager Guidelines (Draft Guidelines) to assist with the implementation of the FP Act and to allow resource sector companies to determine what risk allocation their activities might be ascribed.

Risk allocation

Under the Draft Regulation, payments to the pooled fund required by EA holders will be calculated as a prescribed percentage of the ERC and are to be made annually based on the relevant risk allocation. The risk categories and proposed percentages for each are:

  • very low risk: 0.5%
  • low risk: 1.0%
  • moderate risk: 2.75%.

EA holders deemed to be of high risk will be obliged to provide surety, in the form of a bank guarantee, insurance bond issued by a prescribed insurer, or by payment of a cash amount. Under the Draft Guidelines the manager of the pooled fund will also have a discretion to require surety instead of a fund contribution from EA holders in other risk categories.

Risk allocation assessments and the other financial provisioning aspects will begin from commencement of the FP Act and existing operations will be transitioned over a three-year period. During this transitional period, any financial assurance held for an existing EA holder will be treated as surety.

Progressive rehabilitation and closure plans for mines

The FP Act amends the EPA by requiring all mining projects carried out on a mining lease that make a site-specific EA application to submit a PRC plan. This plan must demonstrate how the land in question will be rehabilitated effectively. If the application is approved by the administering authority, the applicant will receive a Progressive Rehabilitation and Closure Plan schedule (PRCP schedule) along with the EA. The PRCP schedule will set out milestones for achieving gradual rehabilitation of the mine site and identify the post-mining use for the land.

Transitional arrangements for the application of PRC plans to existing mines will commence at a date set by regulation and guidelines are currently being prepared to assist EA applicants to develop a PRC plan.

Concerns that PRCP schedules could make retrospective amendments to the conditions of existing EAs, identified during the consultation process for the Bill, have been addressed. Changes to the Bill clarified that an existing EA holder is exempt from complying with some rehabilitation requirements, where an outcome for the land has already been identified under a ‘land outcome document’. Accordingly, authorisations to leave a void or pit under an existing EA cannot retrospectively be changed by the FP Act’s new regime.

Implications for the resource sector

The commencement of the FP Act will require significant adjustment from Queensland’s resources sector over the following three years. The final structure of the regulations, guidelines and ERC calculator remain to be seen, with potential for further reforms of these instruments to take place.

Resource companies and existing EA holders should be prepared for the upcoming transitional provisions and need to familarise themselves with the new obligations that will arise from the commencement of the FP Act.

© Cooper Grace Ward Lawyers

Cooper Grace Ward is a leading Australian law firm based in Brisbane.

This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.

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