Expanded CSG exclusion zones to protect critical industries in the Upper Hunter

NSW CSG exclusion zones

The NSW Government announced this week further exclusion zones for coal seam gas (CSG) development across NSW.  The exclusion zones will now apply to an additional 2.7 million hectares of land across NSW in order to protect current and future residential areas as well as critical industry clusters in the Upper Hunter.

CSG exclusion zones are already in place for existing residential areas throughout NSW.  These exclusion zones apply a two kilometre buffer around the residential areas to prohibit any new CSG activities.

The latest announcement will see a prohibition of CSG activities in an additional seven rural villages as well as future residential growth areas.  The rural villages that have been identified include:

• parts of Broke and Bulga, and all of Camberwell and Jerrys Plains, in the Singleton Local Government Area
• all of Sutton Forrest in the Wingecarribee Local Government Area
• part of Goonengerry in the Byron Local Government Area, and
• all of Modanville in the Lismore Local Government Area.

This means that approximately 95 per cent of dwellings in NSW that are covered by current petroleum licences will be protected from any further CSG exploration and development.  The exclusion zones around these rural villages will not impact on State Significant mining developments which will still go through the gateway process before proceeding to the environmental assessment stage.

The future growth residential areas where CSG activities will also be prohibited are in the Gosford and Great Lakes council areas.

These exclusion zones will not prohibit CSG activities which already have development consent.

Upper Hunter Critical Industry Clusters

The wine and equine industries will also be protected from new CSG activities with the addition of 288,000 hectares of critical industry cluster (CIC) land being added to existing CSG exclusion zones. This means that any new CSG exploration or development will be prohibited in the mapped CIC areas.

In addition, development applications for State significant mining in the mapped CIC areas will be subjected to the Gateway process. Finalisation of the CIC mapping will have the greatest impact on mining operations around Muswellbrook with approximately 200,000 hectares being declared as equine clusters.

Petroleum extraction rights under mining leases

These CSG exclusion zones do not apply to those miners that have petroleum extraction rights under existing mining titles.  The CSG exclusion zones only apply to CSG development for the purpose of petroleum exploration or production pursuant to a petroleum title granted under the Petroleum (Onshore) Act 1991. The recovery, obtaining or removal of CSG in the course of mining is not covered by the exclusion zones.

Samantha Daly, Patrick Holland, Brendan Tobin, Kate Swain

Foreign investment decisions lack consistency

Two controversial decisions were made regarding foreign investment in the lead up to the holidays – one was highly publicised by Treasurer Joe Hockey, including through a televised press conference. The other was announced quietly via an emailed media release to a selected audience.

You may have missed the announcement on 11 December that China’s state-owned Yanzhou Coal Mining Company doesn’t need to cut its stake in local unit Yancoal Australia Ltd to below 70% and instead can move to 100% ownership.

By contrast the decision that “Australia’s national interest” will be protected by rejecting Archer Daniels Midland Company’s (ADM) proposed acquisition of GrainCorp Limited was highly publicised.

It could be assumed that public perception rather than issues of competition was the significant factor in the Treasurer’s decision. The Graincorp acquisition had already obtained ACCC approval (indicating competition concerns were not determining factors), while the Yanzhou decision basically overturns restrictions on ownership and conditions set by the Foreign Investment Review Board (FIRB) four years ago.

The Government has continued to express its encouragement of foreign investment, but the GrainCorp decision is hard to understand in that context. Interestingly, the issue of food security was not mentioned as a factor, while it was one of the main focuses of the recent Senate enquiry into foreign investment in the agribusiness sector.

In explaining his decision, the Treasurer referred to concerns expressed by grain growers in eastern Australia that the proposed acquisition by ADM could reduce competition, while acknowledging that a “more competitive network” is currently emerging. The Government’s significant consideration was the “high level of concern from stakeholders and the broader community.” It is unclear who these other stakeholders are but Hockey went on to say: “I therefore judged that allowing it to proceed could risk undermining public support for the foreign investment regime and ongoing foreign investment more generally. This would not be in our national interest.”

The Yanzhou decision raised a difficult problem for the Government. In allowing this acquisition, there is a risk that the Government is seen as weak by not enforcing its own conditions. The perception that foreign investors are dictating terms to the government could also undermine public support for the foreign investment regime and ongoing foreign investment more generally. However, as the Treasurer points out, since the original conditions were imposed on Yanzhou, significant challenges have emerged for the Australian coal industry – changing the nature of play completely.

Changing circumstances require revision and flexible decision making. In the case of the Yancoal takeover, it is now not so clear that allowing 100% holding is contrary to the national interest.

It will be interesting to observe the Government’s position evolve in 2014.

Media release: Foreign investment application: Archer Daniels Midland Company’s proposed acquisition of GrainCorp Limited
Media release: Foreign investment decision

Duncan Bedford
Duncan is a Partner at McCullough Robertson and an expert in business and transaction structuring and taxation.