The proposed financial provisioning scheme for resources projects under Queensland's Mineral and Energy Resources (Financial Provisioning) Bill 2018 are now expected to commence late this year. In the meantime, the Queensland Government has released the Draft Mineral and Energy Resources (Financial Provision) Regulation 2018 and the Draft Scheme Manager Guidelines.
The Draft Regulation and Draft Guidelines shed light on the practical effect of the scheme and its financial implications for resource projects in Queensland.
Draft Mineral and Energy Resources (Financial Provision) Regulation 2018
The Draft Regulation gives effect to the Bill's financial provisioning scheme. Amongst other things, the Draft Regulation prescribes the percentages to be used in the formula for calculating the contribution to be paid to the scheme by an environmental authority holder.
The contribution amount will be calculated by multiplying the estimated rehabilitation cost (ERC) for the resources project by a prescribed percentage. The prescribed percentages under the Draft Regulation are:
- 0.5% for an authority allocated to the risk category of very low;
- 1.0% for an authority allocated to the risk category of low; or
- 2.75% for an authority allocated to the risk category of moderate.
The Draft Regulation also sets out the assessment fees payable for an allocation decision. For example, if an authority's ERC at the 'beginning of the day of the decision' is between $100,000 and $1,000,000, the assessment fee will be $250. Comparatively, if the ERC is more than $100,000,000, an assessment fee of $45,000 will apply.
Comments for the Draft Regulation closed on 9 July 2018.
Draft Scheme Manager Guidelines
Under the Bill, a scheme manager is appointed to manage the financial provisioning scheme. The functions of the scheme manager include, but are not limited to: allocating authorities to a risk category and establishing investment strategies and policies to further the scheme's objectives.
The scheme manager is given the power to make guidelines under the Bill. The scheme manager must consider the guidelines but can choose the extent to which the guidelines inform his or her decisions.
Several Draft Scheme Manager Guidelines have been released for consultation, including:
"Forms of Surety" Guideline
Under the Bill, the scheme manager may only approve a surety in the form of bank guarantee, insurance bond, or cash payment. This guideline provides guidance on the 'basic rules' for when sureties should be in the approved or standard form, as well as the circumstances when other terms and conditions may be approved. For example, for cash sureties of $100,000 and above, payment of the cash amount must be given on the terms in the cash surety deed. The guideline provides a template for this deed.
"Assigning an Authority to a Relevant Holder" Guideline
The scheme manager must allocate a risk category for each environmental authority with an ERC equal to or more than $100,000 and decide whether to allocate a risk category of very low, low, moderate or high. This allocation dictates whether the authority holder is required to pay a contribution to the scheme fund (and the amount of the contribution) or give a surety for the relevant ERC.
If there is more than one holder for an environmental authority, the scheme manager must choose one holder to assign the authority to. This holder will be considered the "relevant holder" for the purposes of calculating the total ERC. According to the guideline, the relevant holder may be anyone, provided:
- the scheme manager has assessed the financial soundness of the holder under the Bill; and
- that assessment has been taken into account in allocating a risk category.
In the draft guideline "Forming the Scheme Manager's Opinion" it is indicated that the holder for the purposes of the risk category allocation should hold at least a 20% interest in the resource tenure.
Risk Category Allocation Information Sheet
In allocating a risk category, the scheme manager must consider:
- the State's financial risk because of the authority holder's failure to prevent or minimise environmental harm, or rehabilitate or restore the environment;
- any relevant guidelines;
- the holder's submissions about the risk category allocation (if applicable); and
- any other matter the scheme manager considers relevant.
Submissions for all Draft Guidelines close on 23 July 2018.
Finalising the rehabilitation framework
A residual risk discussion paper is expected to be released for public consultation in the third quarter of 2018. According to previous discussion papers, it will outline "a policy framework requiring resource operators to make a payment when surrendering authorities to cover long-term monitoring or maintenance costs and rehabilitation risks".
The rehabilitation reforms (Progressive Rehabilitation and Closure Plan requirements) are still expected to commence in early 2019.