Following a four year review into the current regime of environmental securities in respect of mining tenements in Western Australia, on 15 August 2012, the Government has introduced into Parliament the long awaited Mining Rehabilitation Fund Bill 2012 (WA) (MRF Bill) and Mining Rehabilitation Fund Amendment Bill 2012 (WA) (MRF Amendment Bill).
It is proposed that a new levy be imposed on holders of ‘mining authorisations’ issued in Western Australia. These authorisations will include mining tenements and rights of occupancy. The levy, which will replace the existing unconditional performance bond regime currently in place, is to be paid by the holders of the mining authorisations to a newly established Government administrated mining rehabilitation fund (the MRF). The funds paid into the MRF will be available for rehabilitating land affected by mining operations on abandoned mines.1
Mines and Petroleum Minister Norman Moore has said that the State Government recognised the current bond system is in urgent need of an overhaul to ensure that adequate funding was available for mine site rehabilitation when operators failed to meet their environmental obligations. The MRF Bill is also aimed at providing a way for the State to raise revenue from industry to minimise the Government’s liabilities for mine site rehabilitation where there is a shortfall between securities currently held and the actual costs of rehabilitating affected land.
Minister Moore said the mining rehabilitation fund established by the MRF Bill is a part of the department’s Reforming Environmental Regulation program and will help deliver greater certainty, confidence and clarity surrounding the environmental regulatory and enforcement system.
The MRF Bill does not prescribe in detail how the MRF will operate or be administered. Much of the detailed operation of the new system will be prescribed in the regulations which are yet to be drafted. A number of consequential amendments may also be required to the Mining Act 1978 (WA) (Mining Act) to replace the existing bond system and provide for transitional arrangements. However no amendments have yet been proposed.
An overview of the MRF, together with some key issues arising from the MRF Bill, is set out below.
What will it mean to the mining industry?
If the MRF Bill and the MRF Amendment Bill are passed, following the introduction of the MRF, the holders of Mining Act tenements will contribute a yearly levy into the MRF rather than be under an obligation to lodge an unconditional performance bond to sure the holders’ rehabilitation obligations. However it is expected that bond system will still continue and be imposed on certain mining tenements.
There is some uncertainty as to whether the holders of mining tenements granted under Government agreements will be liable to contribute to the MRF – it is likely that this will only be known once the supporting regulations are released. It is left for the regulations to prescribe which mining tenements or mineral leases under Government agreements will be transitioned to the new system.
While the MRF Bill provides a broad overview of the operation and imposition of the levy, key details of the levy will be contained in the regulations as well as the amendments to the Mining Act.
The key issue for industry is how will the levy be calculated but the MRF Bill does not provide any explanation. In the Second Reading Speech for the MRF Bill, it was stated that the initial proposal is that the levy will be calculated at 1% of the total mine closure cost per annum for each tenement. The Government anticipates that at such a rate, the levy would represent a lower annual cost than the costs associated with supporting the existing bank guaranteed unconditional performance bonds.
However, there is no certainty that the levy will be imposed at 1% and the rate could easily be increased in the future by amendments to the regulations.
The real impacts of the MRF on the industry are still unknown. The lack of any ministerial guidelines or Departmental policies as to how the administrative discretions will be exercised and the MRF administrated leaves the industry guessing as to its true effect.
The current bond system was first established in Western Australia in the late 1980s to provide financial protection to the State of Western Australia if an operator failed to comply with its mine rehabilitation and closure obligations.
The intent of the bond system was to ensure that the State held sufficient funds to cover the full cost of rehabilitating and closing a mine site if the operator failed to do so.
However, the bond rates imposed by the Department have not kept pace with the rising costs of rehabilitation, resulting in a situation where the bond levels are below the real cost of rehabilitation and mine closure. The State has estimated that it holds bonds covering less than 25% of the total rehabilitation and closure costs. In addition, those bonds were specific for each tenement, so even though the bonds held by the State are estimated to represent around $860 million, those funds can only be used on the individual tenement relating to the bond.
The State considered that this system exposed the State to an unacceptable level of risk, as if an operator failed to properly rehabilitate a mine site, the State would need to meet the shortfall itself.
In light of this, in 2008, the Department of Industry and Resources (as it was then called) conducted a review into the State’s mining bond system, ultimately recommending the retention of a bond system, with rates scheduled to increase to 40% of full closure costs on 1 January 2013, to 50% from 1 January 2014 and eventually moving to full cost bonds. However, with the onset of the global financial crisis in late 2008, this change was put on hold, with the DMP placing a two year moratorium on the increase of bond rates.
Bond policy change of 2009
The State recognised that increasing bond rates to a full cost level would be detrimental to industry, and so it commenced a major review into the future operation of the State’s mining securities system, and reviewed alternative systems which would provide better security to the State, and a lower cost to industry.
In commencing its review of the mining securities system, the DMP established an industry liaison committee, conducted investigations and sought inputs from key stakeholders, including financial institutions, other government agencies and non-government organisations.
Preliminary Paper 2010
In December 2010, the DMP published the Preliminary Discussion Paper on Policy Options for Mining Securities in Western Australia for public comment. The paper outlined three options for a mining securities system, which included a full cost environmental bond system, a government administered fidelity fund and an insurance based system.
Following the receipt of submissions from stakeholders and further consideration of the various options, the DMP decided to narrow the focus of the review to the development of a fidelity fund model to a stage where it could be considered as a suitable alternative to the environmental bonds system.
Preferred option paper
In March 2011, DMP released the Preferred Option Paper, in which it advised industry of its conclusion that a fidelity fund approach would offer the best option for the State’s future mining securities system.
In the Preferred Option Paper, the State proposed that the fidelity fund would be established within three years. The MRF Bill, nor the statements by Minister Moore on its release, does not include an indicative timeframe in which the MRF will be introduced. Further, it is unclear whether, in the meantime, the scheduled increase in the bond rates will be implemented.
What will the MRF do?
The main purpose of the MRF Bill is to provide a source of funding for the rehabilitation of abandoned mine sites and other land affected by mining operations.
The language used suggests that there are other purposes of the MRF. We expect that industry will wish to query the government as to what those other purposes are.
The Preferred Option Paper states that for the fund’s establishment, the target balance will be based on ensuring there is sufficient money available to government to cover the cost to fully rehabilitate the Mining Act project with the largest rehabilitation liability, which was estimated at approximately $300 million.
Establishment, maintenance and management of the MRF
Responsible Government department
The MRF, which will be an agency special purpose account for the purposes of the Financial Management Act 2006 (WA), will be maintained and administered by the ‘department’, which is defined in the MRF Bill as ‘the department of the Public Service principally assisting in the administration of this Act’. The broad definition of ‘department’ offers no certainty as to which Government department will administer and maintain the MRF. From the industry’s perspective, it is a concern that the responsible Government department could be the Department of Environment or Conservation and not the DMP. This lack of certainty may be of concern to industry.
Payments to the MRF
Under the MRF Bill, the ‘mining rehabilitation levy’ (Levy) is payable in respect of a ‘mining authorisation. A ‘Mining authorisation’ includes:
- mining tenements granted under the Mining Act; and
- the following if prescribed or of a class prescribed:
- mineral leases;
- mining tenements existing under Government agreements; and
- rights of occupancy first granted under the repealed Mining Act 1904 (WA) or Government agreements that were in force on the commencement date of the Mining Act.
Accordingly, the MRF Bill does not apply to mining tenements granted, or held, pursuant to a Government agreement, unless prescribed by the regulations. It is unclear as to the criteria for determining how mining tenements under Government agreements will become ‘prescribed’, but it is likely that some companies operating under Government agreements may be required to pay the Levy. This reflects the current position under the Mining Act, whereby historic Government agreement projects are often not subject to the existing environmental bond system, although a number of more recent Government agreement projects are subject to the environmental bond system.
The person who holds the mining authorisation on the day prescribed in that year is liable to pay the Levy in respect of that mining authorisation.
The MRF Bill provides that the amount of Levy payable is the amount specified in, or calculated in accordance with, the regulations. The method of calculation and other details about the Levy are as yet still unknown.
Any Levy amount paid or recovered will be credited to the MRF, together with any penalty amount paid or recovered and any investment income.
Operation of the levy
Assessment of levy
Each year, the holder of a mining authorisation must give to the CEO the assessment information, which is, again, information of a ‘prescribed’ kind required for the purpose of making an assessment. As the regulations have not been published, the nature of this information is currently unknown.
The CEO will assess the Levy amount payable based on the assessment information and other information provided or obtained under the MRF Bill or Mining Act, and notify the liable person of the Levy amount and date for payment.
The CEO can re-assess the Levy amount if it is incorrect or it is otherwise appropriate to do so.
A person may, within 28 days, object to an assessment notice or a reassessment notice if they consider they are not liable to pay the levy, there has been an error in the assessment of the levy amount, or on a prescribed ground.
The CEO must consider and determine the objection within 28 days after the date of the objection. If there are amendments to the levy amount, the CEO must give the objector specifying the amount owing (if the levy is increased) or the amount to be refunded (if the levy is decreased).
Under the MRF Bill, if a person is dissatisfied with the CEO’s decision, they may apply to the State Administrative Tribunal for a review of the decision. It is notable that the State Administrative Tribunal has no involvement in hearing appeals from administrative decisions made under the Mining Act or the Mining Regulations. The proposed system excludes the Mining Warden from any role in the review process, even though the Mining Wardens have knowledge of mining operations and are independent of the Department.
Payment of levy
The levy must be paid on the due date and failure to do so will attract significant penalties.
Application of MRF
Payments from the MRF
The MRF establishes a regime under which the money credited to the MRF is to be used primarily to fund the rehabilitation of abandoned mine sites that are, or have been, the subject of mining authorisations in respect of which the levy is, or has been, payable. Only interest earned on the principal amount of the MRF can be used to fund the rehabilitation of historic abandoned mine sites. The rationale behind this regime is to ensure that the bulk of the money contributed to the MRF is used to rehabilitate mining operations that contributed to the MRF. The rehabilitation of historic mines and workings, traditionally the responsibility of the State, can only be funded from the interest earned by the MRF.
What is an abandoned mine site?
One of the threshold issues will be what sites constitute an ‘abandoned site’ and accordingly can be rehabilitated using the funds of the MRF. Under the MRF Bill, an ‘abandoned mine site’ is simply land declared by the CEO to be an abandoned mine site. This will occur when the mining operations have been carried out in, on or under the land and those mining operations have ceased.
The CEO accordingly has a broad discretion in the ability to declare a site as an ‘abandoned mine’ which is to then be rehabilitated using the funds in the MRF.
The announcement by Mr Moore to establish a new mining rehabilitation fund has been welcomed by industry – and is clearly a better outcome for industry compared to the alternative of moving to full cost bonds. However the current bond system under the Mining Act will not be repealed and bonds will continue to be applied. The MRF Bill does not contain adequate detail as to the operation of the fund, nor have any regulations or policies been released to explain the details of the fund. Industry will closely examine the proposed regulations as to the operation of the MRF. It will have an opportunity to do so when the Ministerial Advisory Panel on reforming environmental regulation convenes.