07 Nov 2013

ICAC recommends significant changes to NSW's management of coal resources

by Nick Thomas, Graham Taylor, Samy Mansour

ICAC recommends transparent and fully informed decision-making when it comes to allocating coal exploration licences.

In the wake of damning findings about the grant of two coal mining exploration licences during the term of the former NSW Government, the NSW Independent Commission Against Corruption has issued a report recommending significant changes to the way in which exploration licences are allocated, granted and renewed in NSW.

The report's implications could also affect the way in which planning approvals are granted for mining projects.

The ICAC report, Reducing the Opportunities and Incentives for Corruption in the State’s Management of Coal Resources, was released on 30 October. Although the report focuses on the coal sector, and is particularly relevant to that sector, many of the report's recommendations could apply similarly to other resource sectors as well.

If the report's recommendations are adopted, this will build on the State Government's recent regulatory changes affecting the resources industry, including the clarity with respect to the controls and processes affecting mining project applications and changes to NSW water laws, in addition to the State's broader legislative and policy reforms in 2012.

Background to the report

In July and August 2013, ICAC released reports on its investigations into the grant of two coal exploration licences by a former Government's Minister for Resources. The second of these investigations was referred to ICAC by the NSW Parliament. Parliament also directed ICAC "to enquire, if deemed necessary, into any related matters with respect to licences or leases under the Mining Act 1992 (Mining Act) and make recommendations for action".

ICAC "identified a number of corruption risks that exist" in the current system for the assessment, grant and renewal of exploration licences in NSW. Its report includes 26 recommendations to address those risks.

According to ICAC:

"The report outlines the characteristics of a preferred future framework for managing the state's coal resources which will provide greater certainty to both the community and the coal mining industry. This framework aims to remove the incentives and opportunities for corruption and is based on best practice identified in other jurisdictions along with extensive consultation."

ICAC also emphasised that "as much as possible, [ICAC] has avoided recommending onerous governance requirements" to deal with its findings.

ICAC's key recommendations

We have outlined below ICAC's key recommendations which could affect the policy and regulatory landscape for mining projects.

  • Clear direction for the NSW coal mining industry

ICAC recommends that the NSW Government develop a clear policy statement which conveys how coal mining fits within the broader policy objectives of the State.

From that policy statement, a set of factors should be developed for consideration before a decision to allocate, grant or renew an exploration licences is made. The intention is to promote consistency and transparency in decision-making.

  • Transparent and fully informed decision-making

Currently, decisions about the allocation of coal exploration licences (either privately or by tender process), their grant and their renewal are made by a group within the Department of Trade and Investment's Division of Resources and Energy (DRE), known as the Coal Allocation Committee.

ICAC recommends that the Committee be replaced with a steering group comprising members with a broader skill set, to consider the range of issues arising from the application of the new State policy objectives and factors, and to link the exploration licences process to the potential for approval of mining operations in the future.

The steering group would comprise senior officials from the DRE, the Department of Planning and Infrastructure (DP&I) and the NSW Treasury. DP&I would host and convene the group, and would be supported by a multi-departmental assessment panel.

The steering group would make recommendations to a newly-established Cabinet Standing Committee on Resources and Land Use for final approval.

  • Project environmental assessment at exploration licence stage?

ICAC states that information put to the steering committee when making its decisions "should include a preliminary assessment undertaken by [DP&I]".

ICAC then explains that it is not suggesting a duplication of environmental assessment at the EL and mining production phases, "but rather that those elements of the development approval assessment that can be moved to a point earlier in the process are carried out prior to a decision to release an area for an [exploration licence]".

According to the report, DP&I considers this may be helpful.

ICAC indicates that its suggestion reflects the view that the grant of an exploration licence is a precursor to the grant of production approval (including a mining lease), especially in mature resource areas. However, it raises significant questions about the efficacy and efficiency of environmental impact assessment. Many of the issues which are being worked through with the Government's new gateway process would arise at the exploration licence stage.

  • Exploration licence auctions as the preferred method

ICAC recommends that the auctions method should be the preferred approach for the allocation and grant of exploration licences , instead of direct allocation, and that the NSW Treasury oversee the design of the auction process. Currently, exploration licences are allocated directly in some situations, such as for exploration of a resource area adjacent to an existing mine.

According to ICAC, direct allocation of exploration licences should be used rarely, and then only in accordance with specified criteria and with the assessment panel overseeing the allocation.

ICAC also recommends that, irrespective of the means of allocation, an exploration licence should not be granted unless and until the State Government has undertaken due diligence on the applicant and is satisfied that the applicant has the technical expertise and the capacity to fund a satisfactory level of exploration activity. Although these tests currently apply, ICAC's report emphasises the importance of careful consideration of these tests.

  • Greater incentives to use exploration licences

In what may be the most controversial recommendation, ICAC says the current renewal processes for exploration licences should be replaced by an exponentially escalating lease rent. The intention is to give commercial and financial impetus to the "use it or lose it" concept in exploration licence renewals.

The ICAC report also suggests that assignees of an exploration licences would have to accept it with the rent escalation level which applies to the assigned exploration licence at the time of assignment.

  • Conduct of Ministers and Parliamentary members

ICAC also makes a series of recommendations with a view to enhancing accountability and scrutiny of members of the NSW Parliament and ministers.

What's next?

NSW Government authorities and their responsible ministers must inform ICAC within three months (or such longer period as ICAC may agree) whether they propose to implement any plan of action in response to the recommendations affecting them and, if so, what the plan of action is.

If a public authority prepares a plan of action, the authority must provide a report to ICAC of its progress in implementing the plan after the first 12 months and, if necessary the subsequent 12 months.

ICAC will publish the responses to its recommendations, any plans of action and progress reports on their implementation on its website.


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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.