All in together: Queensland's new financial provisioning scheme for resource projects

The Mineral and Energy Resources (Financial Provisioning) Act 2018 commenced on 1 April 2019, introducing a new financial assurance scheme to address the environmental impacts of mining projects. The new scheme is intended to reduce the risk to the State where resource projects do not comply with their environmental performance obligations and to provide a source of funds for rehabilitation activities, remediation activities and research.

These are significant reforms for all holders of an environmental authority for mining or petroleum activities, who will not only have to transition to the new scheme, but also now create Progressive Rehabilitation and Closure Plans.

Financial provisioning fund, surety and scheme manager

The new scheme establishes a scheme manager who will have responsibility to manage the new arrangements for financial assurance for resource projects.

At the heart of these new arrangements is a pooled financial provisioning fund (scheme fund). The scheme fund will operate on a pooled approach, as opposed to previous arrangements where financial assurance was provided for each resource project under the environmental authority (EA) which could only be applied as assurance for activities undertaken under that EA. It may be accessed by the Queensland Government:

• if an EA holder does not comply with the environmental or rehabilitation obligations; or
• for rehabilitating abandoned mines or remediating abandoned operating plants; or
• for researching rehabilitation techniques.

There is also a new system of determining the financial surety or cash contributions that a resource project must provide, which involves:

• allocation of a risk category for the resource activity;
• determining the estimated rehabilitation cost (ERC) for the activity;
• payment of a contribution to the scheme fund based on a prescribed percentage of the ERC or provision of a required surety.

Allocation of a risk category to each resource project

Each resource project with an ERC equal to or more than the amount prescribed by regulation or, if no amount is prescribed, $100,000, will be allocated a risk category by the scheme manager through the application of a risk assessment framework.

The applicable risk categories are very low, low, moderate or high, determined by a scheme manager and based on the financial soundness of EA holder and criteria set out in the scheme manager's guidelines. For an initial risk category allocation, the scheme manager must consider the scheme manager's opinion as to the probability of the State incurring costs because an EA holder has not prevented or minimised environmental harm, submissions made by the EA holder, the scheme manager's guideline, and any other matter considered relevant to the decision.

This risk allocation will be reviewed annually for those projects where the ERC amount is more than the prescribed amount.

The scheme manager has three years to transition the existing resource projects to this new system, triggered by the issue of a transition notice.

Determination of an estimated rehabilitation cost for the project

The Department of Environment and Science (DES) will approve the ERC for rehabilitating the land on which a resource activity is conducted and preventing or minimising environmental harm, or rehabilitating or restoring the environment required as a result of the resource project. The ERC will be determined for a period specified as 1-5 years and will be based on an updated calculator. This ERC will replace the estimated rehabilitation cost for the maximum disturbance under a Plan of Operations. There will be no more discounts available for environmental performance.

Where there is a change of the activity that results in an increase in the rehabilitation cost or a change in the amount of disturbance, the EA holder must apply for a new ERC. The time frame to make such an application is very short, i.e. within 10 business days of becoming aware of the increase or change. EA holders will need to ensure that business processes adequately factor in planning for ERC changes as part of the ongoing development plans.

For existing resource projects which have a condition under their EA requiring financial assurance, the existing financial assurance amount will be deemed to be the ERC for the EA for the initial ERC period.

Payment to the scheme fund or surety

Whether participation in the scheme fund is available to an EA holder, or whether a surety is required, will depend on the risk category allocated to the EA.  

Participation in the scheme fund is only for holders of EAs which are allocated a risk category of very low, low or moderate. The amount an EA holder must contribute to the scheme fund is calculated as a percentage of the ERC, which is tied to the risk category allocated to the EA by the scheme manager:

• very low risk category—0.5%
• low risk category—1.0%
• moderate risk category—2.75%

A surety will be required instead of (or as well as) a contribution to the scheme fund in certain circumstances. A surety will be also required for any amount by which the ERC for activities under the EA exceeds the scheme fund threshold. As with the amount contributed to the scheme fund, sureties are calculated by reference to the ERC for the activities permitted under the EA.

Acceptable sureties have been extended to include a bank guarantee, insurance bond, or a cash payment.

Plans of Operations to be replaced by Progressive Rehabilitation and Closure Plans

Significant rehabilitation reforms are also included in this new law for mining. The reforms include the introduction of Progressive Rehabilitation and Closure Plans (PRCPs) which will replace the previous Plans of Operations and will apply for all mining leases for the life of the mine. PRCPs seek to incorporate rehabilitation of mined land on a progressive basis, rather than at the end of a mine’s life.

PRCPs are separate to EAs with discrete processes for approval (including conditions), amendment, amalgamation/de-amalgamation and surrender. PRCPs will be comprised of two parts:

• rehabilitation planning; and
• a PRCP schedule, which will be enforceable and will outline the milestones and rehabilitation outcomes for land that can be progressively rehabilitated to a stable condition for surrender, and land that cannot (described as a "non-use management area"). The schedule must be approved – with or without conditions – by the chief executive of the Department of Environment and Science.

A PRCP will not be approved if it cannot sustain a post-mining land use, unless the EA holder can demonstrate the proposed treatment of the land meets current best practice management and:

• rehabilitation would cause a greater risk of harm than not carrying out rehabilitation; or
• both the risk of environmental harm is confined to the area of the tenure and failing to rehabilitate the land to a stable condition is justified, having regard to cost of rehabilitation and public interest.

Requirements for PRCPs have not yet been finalised but are scheduled to commence after 1 November 2019. Once the PRCP requirements commence, DES will have three years to give each EA holder a notice requiring it transition from a Plan of Operations to a PRCP. For a mining lease, the Plan of Operations will remain in force until the Plan of Operations expires or the day the PRCP schedule is approved, whichever occurs earlier.

Look out for our future Insights on a detailed analysis of PRCP requirements.

Useful resources for the new financial provisioning scheme

Guidelines, information sheets and templates supporting the new scheme were finalised by the acting scheme manager on 5 April 2019 and are now available:

• Scheme Manager Guideline 1 – Forming the Scheme Manager's Opinion
• Scheme Manager Guideline 2 – Assigning an Authority to a Relevant Holder
• Scheme Manager Guideline 3 – Requiring Surety to Preserve the Financial Viability of the Scheme Fund
• Scheme Manager Guideline 4 – Forms of Surety
• Scheme Manager Information Sheet 1 – Risk category allocation
• Template – Financial Institution's Undertaking (non-cash surety)