10 October 2017

Transparency International report on corruption risks in the mining approvals process

This article was written by Justin McDonnell, Jane Menzies, Connor Stagg and Prateek Choudhary.

Transparency International Australia (TI) has released a report into corruption risks in the mining approvals process in Australia, as part of its broader Mining for Sustainable Development Programme.   TI ultimately endorsed the government systems in Western Australia and Queensland as having high levels of transparency and accountability.  However, some key vulnerabilities to corruption were identified in the respective approval processes.

Background

TI has investigated the process for granting mining leases and licences before mining itself can start.  In Western Australia, the review focussed on exploration licences, mining leases, State Agreement Acts and Native Title mining agreements.  In Queensland, the focus was on mining leases and environmental approvals for large mines and infrastructure projects under State and Commonwealth law. 

TI considers the following to be high corruption risks common to both jurisdictions:

  • Inadequate due diligence into the character and integrity of an applicant, and its principal(s), for mining leases.
  • Industry influence on both the policy and the political agenda of government in the development of major resource projects.
  • Lack of transparency in agreements between mining companies and native title holders.
  • For Western Australia only, the lack of transparency in the negotiation of State Agreement.

Additionally, the following were identified as medium risks specific to Queensland:

  • Risk of external interference in the Coordinator-General’s recommendations, evaluations and imposition of conditions.
  • Limited independent review of modelling systems underpinning an environmental impact statement (EIS).

High Risks

Inadequate due diligence

The Department of Natural Resources and Mines (DNRM) investigates an applicant’s past resource authority in Queensland, but does not assess performance in other Australian states or outside of Australia.

Applicants are required to declare convictions for environmental offences and the cancellation or suspension of environmental authorities, licences or permits in Australia; however, legislation does not require self-reporting of environmental offences outside Australia.  TI argues that this creates a high risk of leases being granted to operators with a history of non-compliance, citing the example of Adani Mining, which received approval for its Carmichael Coal Mine despite a history of environmental contraventions in India.

Similarly, TI suggests that the Department of Mining & Petroleum (DMP) in Western Australia does not conduct adequate due diligence into the character and integrity of mining companies and their principals.  While mining in Western Australia was previously dominated by Australian, American and Japanese firms, this landscape has changed with the entry of companies based in countries with low scores on TI’s Corruption Perception Index.  The lack of due diligence by the DMP may create opportunities for companies with poor corruption and compliance records to enter the Australian market.

TI also argues that there is a lack of investigation into the beneficial ownership of applicants, which means that the ultimate ownership of companies operating mines in Australia is unknown, opening the possibility for corrupt players to be mining resources in Australia.

Industry influence

The report notes that both the frequent movement of staff between government and industry, and the inadequate regulation of political donations and lobbyists may enable inappropriate influence to be exerted in the project approval process.

TI considers the risk of policy influence by mining companies in Queensland to be high, especially considering the wide discretion granted to the Coordinator-General in relation to approving and facilitating large mining and infrastructure projects under the State Development and Public Works Organisation Act 1971 (Qld) (SDPWO).  In Western Australia, Ministerial discretion to grant mining leases and exploration licences under the Mining Act 1978 (WA) may be susceptible to industry influence, but this risk is mitigated by media scrutiny, the presence of integrity bodies, and public reporting requirements.  Industry Influence may however play a more prominent role in the context of State Agreements, which is discussed below.

Native Title

In negotiating agreements with mining companies, native title representatives appoint a negotiator who may fail to represent their interests.  Mining agreements with native title parties have limited transparency, and there is a risk that compensation negotiated with mining companies may not be distributed to the wider group in whose name the land use agreement was negotiated.  The implementation of the terms of a land use agreement are not publicly monitored.

State Agreements (Western Australia)

A State Agreement Act is a contract between the State and a developer that is ratified by Western Australian legislation.  Over 60 State Agreements have been ratified, usually to enable development in remote regions with limited infrastructure.  State Agreements may contain provisions regarding the nature and size of projects; tax incentives, and royalties; provision of infrastructure and obligations of the State and the miner.

TI is concerned about the lack of transparency in the negotiation of such agreements.  There is no public notification of the terms of negotiation and an agreement is only publicly available upon ratification.  There is no opportunity for public interest groups to have input into the terms of negotiations or challenge the final agreement in court.  TI argues that State Agreements enable direct and undisclosed negotiations between industry and politicians, which creates considerable risk of policy capture and corruption.

Medium Risks (Queensland only)

Interference in the Coordinator-General’s recommendations, evaluations and imposition of conditions

Successive Queensland governments have supported mining projects to promote economic development and growth.  While the Coordinator-General is tasked with being an independent statutory officer under the SPDWO, TI is concerned about the scope for external influence on the exercise of the Coordinator-General’s discretion to make evaluations and recommendations.

Limited independent review of EIS modelling

An EIS is a key information source and forms the basis of many governmental decisions about a proposed mining project.  Inadequate review of the modelling underpinning an EIS can undermine the approvals process.  Although this risk is mitigated by the ability to challenge an application for a mining lease and environmental authority in the Land Court on its merits, TI suggests that the current process is inefficient.  According to TI, incorporating independent verification as a mandatory step in the analysis of an EIS will minimise opportunities for mining companies to present data in a misleading fashion and improve the prospects of a project being approved expediently.

Overall

The results of the research demonstrated that the approvals processes and the systems in place for granting exploration licences and mining leases in Western Australia and Queensland have high levels of transparency and accountability.  However, some significant risks were identified, specifically the inadequate due diligence into an applicant’s integrity.  This is said to be a significant corruption risk for government departments administering mining approvals as it has the potential for future impacts, particularly given the changing nature of the ownership of mining in Australia.

Next Steps

In 2018, TI will enter phase two of this research working with stakeholders to develop strategies to address corruption risks.  TI’s stated aim is to improve due diligence and disclosure to ensure mining approvals are awarded to ‘fit and proper’ companies.  The key proposals endorsed by TI are a public register of beneficial ownership, the establishment of a national anti-corruption agency and robust whistleblower protection legislation.  For companies operating in this space, the roadmap to more transparent approvals that TI is promoting provides a watch area.  Research programs of this nature may exert pressure on State governments to reform aspects of the current approvals process.

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