This article was written by Matthew Austin.
The Queensland Government has released draft regulations and guidelines for the Financial Provisioning Scheme (FP Scheme) set to be introduced in the Mineral and Energy Resources (Financial Provisioning) Bill 2018 (Qld) (MERFP Bill). The draft MERFP Regulation and guidelines set out the factors the Scheme Manager will consider when assessing whether an Environmental Authority (EA) holder is required to provide a surety or contribute to the FP Scheme fund. Our previous alerts consider the proposed FP Scheme and the Queensland Government’s ongoing mine rehabilitation and assurance reform initiative.
Financial Provisioning Regulations
Section 47 of the MERFP Bill provides that EA holders allocated a risk category of very low, low or moderate will be required to make a contribution to the FP Scheme fund. The contribution value is a prescribed percentage of the estimated rehabilitation cost (ERC) for the resources project. The draft MERFP Regulation introduces these prescribed percentages as:
- Very Low Risk - 0.5% of ERC;
- Low Risk – 1.0% of ERC;
- Moderate Risk – 2.75% of ERC.
Allocation of a high risk category will require the EA holder to provide the Scheme Manager with a surety rather than an annual contribution to the FP Scheme fund. The draft Regulation further sets an assessment fee for a risk category allocation decision. This fee scales with the ERC assigned to the resources project.
Financial Provisioning Guidelines
Risk Category Allocation Factors
Various factors are to be considered by the Scheme Manager when determining the risk category to be allocated. Section 27 of the MERFP Bill requires the Scheme Manager to consider the financial soundness of an EA holder (and any parent corporations) and characteristics of the resource project when determining a risk category allocation. The Forming the Scheme Manager’s Opinion guideline sets out the factors considered by the Scheme Manager for each of these considerations.
The financial soundness of entities with a long term public credit rating or private credit rating given in the last 12 months from a credit rating agency approved by the Queensland Treasury are assessed on that credit rating. If no credit rating is held, the Scheme Manager will instead consider the past three years of audited financial statements and any other factors ordinarily considered by a credit rating agency. The Scheme Manager is entitled to draw an adverse inference if the relevant financial statements are not provided by the entity being assessed.
Resource Project Characteristics
The Scheme Manager will also consider any characteristics the Scheme Manager considers may affect the likely sale of the resource project in the event the EA holder fails to comply with rehabilitation obligations. This includes:
- Project Strength – The remaining economic life of the resources project, current rate of production and any off-take agreements.
- Rehabilitation Status – The outstanding rehabilitation and site management obligations for the project and the certainty of success for any rehabilitation proposed activities.
- Compliance – Any material compliance issues relevant to the authority or resource tenure(s).
Surety for Very Low, Low or Moderate Risk Categories
Section 53 of the MERFP Bill provides that the Scheme Manager can decide that an EA holder assigned a risk category of very low, low or moderate should provide a surety, rather than pay a contribution, where the supply of a surety is necessary to preserve the financial viability of the scheme fund. The Requiring Surety to Preserve the Financial Viability of the Scheme Fund guideline clarifies that the Scheme Manager should require a surety be provided when the sum total ERC of each resource authority held by the relevant entities exceeds, or is likely to exceed, the fund threshold of $450 million. The relevant entities include:
- The EA holder;
- Any parent corporation of the EA holder;
- Any subsidiary corporation a parent corporation; and
- A corporation controlled by a parent corporation.
Approved Forms for Surety
Section 56 of the MERFP Bill provides that the Scheme Manager may only approve a surety if the surety is provided in the approved form. The Forms of Surety guideline sets out the approved form for bank guarantees, insurance bonds and cash payments as:
- Bank Guarantee & Insurance Bonds – An unconditional undertaking from a financial institution or insurer to pay the Scheme Manager a maximum aggregate sum on written demand. Payment occurs independent of any relationship or dispute between the EA holder, financial institution and Scheme Manager.
- Cash Payment – Payments above $100,000 must be given on the terms set out in the cash surety deed contained in the guideline. Payments below $100,000 are only required to be given on the terms in the cash surety deed if the total value of sureties will exceed $100,000.
It is anticipated that the MERFP Bill will pass through Parliament in late August, with the FP Scheme commencing in late 2018. The Queensland Government is accepting submissions on the draft MERFP Regulations until 9 July 2018 and submissions for the draft guidelines until 23 July 2018 in preparation for a final release coinciding with MERFP Bill passage.
Should you have any questions regarding the FP Scheme, Scheme Manager assessments and the relevant transition processes, please do not hesitate to contact us.