The new financial provision regulations, published on 20 November 2015 under the National Environmental Management Act 107 of 1998 (NEMA) for environmental rehabilitation and remediation, are not completely new but are more stringent, writes Stephan Herb, the MSA Group’s environmental project manager. 

Previous requirements for fi nancial provision and assessing the closure liability under the Mineral and Petroleum Resources Development Act, 2002 (MPRDA) were arguably vague and were informed by an outdated guideline document published in 2005 by the former Department of Minerals and Energy.

Historically unclear policies and laws have seen the state ‘foot the bill’ for the remediation cost of approximately 6 000 abandoned mines in South Africa. Residual and latent impacts such as acid mine drainage in the Witwatersrand Goldfields only became apparent long after mine closure and are now costing the state billions to clean up. The new requirements aim to prevent similar situations recurring in the future.

Environmental rehabilitation under NEMA is based on the ‘polluter pays’ principle which will legally force mining companies to approach closure and rehabilitation differently. The recent NEMA amendments go as far as holding the polluter (i.e. mining company) liable for any residual or latent environmental impacts that may arise even after a closure certificate has been granted, although the duration of this liability is uncertain.

Although these policy revisions are a positive step for the industry and the environment, the implications could cause frustration and a financial burden on the already embattled mining industry.

Some of the key changes include:

  • Three rehabilitation and closure reports need to be prepared by all operations, namely:
    1. An annual rehabilitation plan for ongoing concurrent rehabilitation;
    2. A final rehabilitation, decommissioning and mine closure plan for final closure at the end of the life of the operation; and
    3. An environmental risk assessment report on latent and residual impacts including the pumping or treatment of polluted or extraneous water.     The minimum content for each plan is prescribed in the regulations.
  • Three types of financial provisions also need to be determined and aligned with the above mentioned reports.

Each activity listed in the plans must now be determined by a specialist/s through detailed itemisation of all activities, based on the actual cost of implementing the rehabilitation measures. The ‘Department of Mineral Resources (DMR) standard rates’ no longer apply.

The inclusion of latent and residual impacts that specifically address the pumping and treatment of extraneous water after closure is a notable change and requires careful consideration. How specialists account for residual impacts 5, 10, 30, and/or 50 years after closure will be important as this will have a direct impact on the balance sheet of companies.

There is also room for error in the early stages of an operation, but within five years from expected closure, the accuracy of the cost estimate should be ±90%.

  • The financial provision, together with the three reports, must be annually reviewed and assessed by specialist/s and audited by an independent auditor on an annual basis.

Any excess must be deferred against subsequent assessments, and any shortfall must be adjusted by increasing the financial provision within 90 days of the date of signature of the auditor’s report. Sufficient funds need to be put in place to cover the implementation of the plans for a minimum of ten years.

  • A mining right or permit application or prospecting right application will now not be granted prior to the acceptance of the specified plans and the financial provisions by the DMR.

The plans must be included in the Environmental Management Programme (EMPr) which will be subject to stakeholder review during the environmental authorisation process.

  • Existing holders of a mineral right or permit granted in terms of the MPRDA have until 20 February 2017 to submit all the necessary documents and update the financial provision in line with the new requirements.

These include the reviewed financial provision, the specified report and plans, a copy of the independent auditor’s report, and proof of payment or the arrangement to provide the financial provision. These documents must be signed off by the CEO of the company or a person appointed in a similar position before submitting to the DMR.

  • The financial provisions can still be made through a financial guarantee (either provided by banks or registered insurers), a cash deposit into an account administered by the Minister of Mineral Resources, or a contribution to a trust fund, but with a few adjustments.

Notably, the provision to a trust fund – which, due to being tax deductible, was the most popular choice in the past – may now only be used for the fi nancial provision relating to remediation of latent or residual impacts. The requirements and the format of the fi nancial guarantee and the deed of trust (as provided in Appendix 1 and 2 of the regulations) need careful interpretation when choosing the best vehicle to fund rehabilitation and closure.

In my opinion

There are some welcome changes, but clearer guidance on certain requirements are needed. For instance, the relinquishment criteria for when a mining company can no longer be held accountable for any residual or latent impacts are open ended and not well defined. The financial provision for this purpose, in the form of a trust fund, may therefore be tied up indefinitely with the quantum needing to be reassessed annually long after the mine’s existence has ceased; it remains to be seen how this and certain other requirements will be interpreted by the DMR.

Since cash flow is a scarce and highly valued commodity in today’s mining environment, careful consideration is needed to ensure the best strategy for funding the financial provision for closure to avoid unnecessarily tying up large sums of capital.

Furthermore, the financial provisions determined in terms of the MPRDA will probably increase because they now need to be based on actual costs and not the outdated ‘DMR standard rates’, as well as the addition of latent and residual impacts. Mining companies will also need to, even before operation, to put sufficient funds in place to cover the implementation of the plans for a minimum of ten years.

A proactive, risk-based approach to closure and careful planning is required from the outset to reduce the long-term environmental liabilities in order to ensure that they do not become a financial burden in the future. MRA