Financial assurance – edging closer to reform

Jun 2018 | Energy & Resources

We are edging ever closer to the implementation of Queensland’s new financial assurance regime with the release of the draft regulation and associated guidelines.

The Queensland Government is reforming Queensland’s mine rehabilitation framework. As part of these reforms, on 15 February 2018 the Queensland Parliament introduced the Mineral and Energy Resources (Financial Provisioning) Bill 2018 (Qld) (Bill). The Bill is designed to improve environmental outcomes and reduce the financial risk to Queensland if an environmental authority holder does not meet their rehabilitation requirements. Carter Newell previously discussed the reforms to Queensland’s financial assurance regime and mine rehabilitation framework here.

The much awaited Mineral and Energy Resources (Financial Provisioning) Regulation 2018 (Qld) (FA Regulation) has been released. The government has also released various guidelines and information sheets that are intended to assist in interpreting the Bill.  

The FA Regulation

The FA Regulation supports the operation of the financial provisioning scheme by:

  1. Setting a prescribed percentage as part of the formula to calculate the contribution to be paid to the scheme fund by resources proponents.

The prescribed percentages under the draft FA Regulation are:

  1. Defining a ‘prescribed insurer’ for issuing of insurance bonds as an approved form of surety. 

A prescribed insurer must be approved under s 36 of the Financial and Performance Management Standard 2009 (QLD) made under the Financial Accountability Act 2009 (QLD). The definition excludes ‘sole parent captives’.

  1. Setting an assessment fee for an allocation decision to be made. Fees are attributed to the authority holder on the basis of the value of its estimated rehabilitation cost (ERC). The fees range between $250 (ERC less than $1,000,000) to $45,000 (ERC of at least $100,000,000).

Submissions in respect of the draft FA Regulation close on 9 July 2018.

Guidelines

Various guidelines and information sheets have been released for comment. 

Arguably, the most anticipated guideline is the Forming the Scheme Manager’s Option Guideline, which is intended to assist Queensland proponents to understand how the Scheme Manager will make an allocation decision.

Scheme Manager Guideline: Forming the Scheme Manager’s Opinion.

The Scheme Manager is required to make a risk allocation decision and, in doing so, must take into account his or her own opinion 'of the probability of the State incurring costs and expenses because the holder of the authority has not prevented or minimised environmental harm, or rehabilitated or restored the environment'. 

This guideline will provide guidance to the Scheme Manager in relation to forming such an opinion. While the Scheme Manager may have regard to this guideline when forming such an opinion, it is not obliged to do so.  

The guideline provides ‘basic rules’ for certain matters that have been raised by industry as key concerns in the application of the Scheme Manager’s opinion.  Where a basic rule does not apply, a secondary rule is also given.

Some of the rules are set out in the table below:

It is clear that the Scheme Manager’s decision to determine the risk allocation on the basis of one holder of a jointly held tenure could materially affect some projects. The difference in the prescribed percentage between a very low risk project proponent and a moderate risk project proponent will have a significant impact on the value of the annual financial assurance contribution that a jointly held project will be required to make. 

Project proponents may nominate a holder to be assessed, but it is not clear what regard the Scheme Manager is required to have to such a nomination.

Other guidelines

Other guidelines released for comment include:

  1. 'Assigning an Authority to a Relevant Holder', to provide guidance to the Scheme Manager on assigning the authority to one holder where there are multiple holders. The guideline requires that the Scheme Manager can pick any holder, provided that the Scheme Manager has assessed the financial soundness of that holder and that assessment has been taken into account.

  2. 'Requiring Surety to Preserve the Financial Viability of the Scheme Fund', to provide guidance as to when the Scheme Manager should require a surety instead of a payment into the scheme fund to preserve the viability of the scheme.

  3. 'Forms of Surety', which describes the approved terms for the provision of bank guarantees, insurance bonds and cash.

An information sheet is also available which generally summarises the role and authority of the Scheme Manager with respect to risk category allocation under the Bill, Regulation and guidelines.

Submissions in respect of the draft guidelines close on 23 July 2018.

How will the FA Regulation and guidelines affect your project?

There is still a great deal of uncertainty as to the application of the new financial assurance regime.

There is no current guidance as to what credit rating (or similar) will lead to the designation of very low, low, moderate or high risk category. In addition, the treatment of jointly held tenure, and particularly tenure with an operator that does not hold at least 20% of a project, is uncertain at best.

Care should be taken when considering how these rules may apply to your project and its proponents. There are a number of exceptions and additional considerations in respect of each of the rules, and as noted above, the Scheme Manager is not required by the Bill to apply the guidelines. 

As Queensland awaits further debate of this Bill in parliament, further amendments are being considered as part of the wider package of reforms to financial assurance and mine rehabilitation. We will review the next wave of proposed changes and consider how they could affect your business.

If you would like more information regarding the new financial assurance regime and how it might affect your Queensland mining or petroleum project, contact our Energy & Resources team.

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