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.

ICAC recommends fundamental changes to exploration licence approval process

On 30 October 2013, the Independent Commission Against Corruption (ICAC) provided its report to Parliament titled ‘Reducing the opportunities and incentives for corruption in the State’s management of coal resources’.  The Commission’s report makes 26 recommendations to prevent and minimise the reoccurrence of corruption as identified in recent ICAC investigations into the granting of exploration licences (ELs) in NSW.

Key recommendations

The key recommendations made by ICAC include:

• the development of a set of predetermined factors to provide guidance in the release, allocation and development of NSW coal resources
• the establishment of a steering group chaired by the NSW Department of Planning and Infrastructure and made up of senior public servants from the Resources and Energy Division of the Department of Trade and Investment, Regional Infrastructure and Services, the Department of Planning and Infrastructure and the NSW Treasury to develop a protocol for the release and allocation of ELs
• the establishment of an assessment panel comprised of experts from the departments identified above to provide further technical information and analysis to the steering committee and to provide a triple bottom line assessment of the environment, social and economic factors of allocating an EL in a particular area
• the assessment panel should conduct technical analysis of preferred companies to determine if each company has the technical expertise to undertake the exploration activities and analysis of their financial position for their capacity to fund exploration work
• the  Government’s decisions on the release of mature areas for ELs and the auction of those ELs should be linked to the likelihood of approval to mine
• the auction method should be the preferred approach to allocating the State’s coal resources and this auction process should be overseen by the New South Wales Treasury.  Where direct allocation is appropriate, it should be the subject of oversight by an assessment panel comprised of practitioners with relevant expertise from the key departments
• the current renewal of ELs should be replaced by exponentially escalating lease rent, allowing commercial decisions to be made in an environment of certainty, removing the incentives to renew ELs repeatedly without progressing to mining, and
• the development of a transitional regime for moving all existing ELs to this rent based arrangement.

Implications for current tenement holders

The following significant implications arise as a result of these recommendations:

• the renewal of ELs in the future may be subject to exponentially increasing rent arrangement whereby the tenement holder is required to increase payments to the NSW Government each time the EL is renewed
• the existing practice of sitting on tenements for extended periods of time without meaningful steps being taken to develop the resource is unlikely to be possible under the proposed regime
• an auction process may be applied to grant the majority of ELs which means that the company with the highest cash bid or highest exploration work program will be awarded the EL
• if preliminary exploration in a particular area does not fall within the strategic assessment areas recommended by the NSW Department of Planning and Infrastructure, there is potential that future ELs will not be granted over the area, and
• there will be a more stringent analysis of the technical and financial capabilities of a preferred company to carry out and fund the exploration activities before an EL is granted.

Direct allocation

Importantly, ICAC recognises that in some situations direct allocations will continue to be necessary but there should be greater oversight of the direct allocation system.  Specifically, the ICAC recommends the assessment panel adopts a ‘triple bottom line’ approach when advising on direct allocations.  Potential arguments identified in the ICAC report for direct allocation applications include when the applicant mining company:

• is seeking an EL in close proximity to its existing operations
• is the only mining company interested in the resource, or
• can better serve the wider interests of the government by the innovative work programs they are proposing.

On this basis, mining companies may still be able to obtain ELs through direct allocation but any new regime for granting ELs is likely to place significant constraints on this allocation process.

Next stage

The recommendations will be provided to the relevant public authorities for consideration, with a response required within three months prior to any plan of action being implemented. 

Samantha Daly, Patrick Holland, Brendan Tobin, Kate Swain

New initiatives to assist junior explorers

Flow-through capital raising, the new JORC code and the first ever non-cash tender for coal exploration were the hot topics at the Mining 2013 Resources Convention held in Brisbane this month.

McCullough Robertson’s Resources Group attended the Convention from 23 to 25 October 2013.  It was an opportunity to review the state of the sector and discuss the challenges and opportunities ahead, particularly those facing junior explorers.  This post covers some of the key themes of the conference.

Tax credit scheme

The Federal Government has expressed its commitment to introduce an Exploration Development Incentive benefiting exploration companies.

It will introduce an incentive that will allow investors to deduct the expense of mining exploration against their taxable income, starting on 1 July 2014. 

The scheme is expected to target small exploration companies by limiting eligibility to companies with no taxable income and will be capped at $100 million over the forward estimates.

McCullough Robertson Commercial and Tax Partner Hayden Bentley shares his thoughts on this issue during Day 1 of the Convention. 

First ever non-cash tender for coal exploration

During the conference, the Queensland Minister for Natural Resources and Mines, Andrew Cripps announced the first ever non-cash tender for coal exploration.  The seven areas of land being made available for coal exploration by the Department of Natural Resources and Mines (DNRM) collectively cover more than 1,292 square kilometres in the northern Bowen Basin.

DNRM officers will assess applications for this land based on the competitiveness of the ‘work programs’ submitted by explorers, but there will be no requirement for cash bids to be made.  Interested parties have until 2.30pm on Wednesday 5 March 2014 to lodge their tender applications.

McCullough Robertson Corporate Special Counsel Warwick Walsh discusses this announcement as well as issues around accessing capital for exploration and international investment in the sector during Day 2 of the Convention. 

Corporate update - the new JORC Code

A key topic of the conference was the new JORC Code and ASX Listing Rules relating to the disclosure of reserves and resources by ASX-listed mining and oil and gas exploration and production companies that will come into effect on 1 December 2013.  More information about this issue, a well as flow-through capital raising and continuous disclosure obligations around analysts' briefings that has seen Newcrest Mining feature frequently in the news lately, is detailed in the Corporate Update presentation delivered at the conference by Corporate Partner Isaac West and Hayden Bentley.

Click here to launch our Mining 2013 Resources Convention presentation for more information.

Hayden Bentley, Isaac West, Warwick Walsh

Mining lease conditions slashed and application processing times reduced

On 17 October 2013, the NSW Resources and Energy Minister, Chris Hartcher announced significant amendments to the standard conditions for exploration licences and mining leases which will result in the removal of conditions that are already covered by obligations under the Mining Act and other mine safety legislation.

The amendments also involve the deletion of conditions relating to matters that are already regulated by other government departments, such as the Department of Planning as well as other outdated and redundant conditions.

The removal of the duplications will cut the number of conditions for future standard coal mining leases in NSW from 24 conditions to nine. The standard ‘Mining Lease Conditions (Coal) 2013’ now relate to the following limited matters:

• landholder notification following the grant or renewal of the lease
• satisfactory rehabilitation of disturbance following the completion of activities
• the preparation of approved Mining Operations Plans, an annual rehabilitation report and annual compliance report
• notification to the Department in the event of an environmental incident which breaches the mining lease, the Mining Act 1992 (NSW)or the Protection of the Environment Operations Act 1997 (NSW)
• the preparation of ‘eligible subsidence management plans’ which will dictate the level of subsidence that is permitted to be caused by underground mining operations
• optimisation of resource recovery of the minerals that are the subject of the mining lease
• the payment of a security deposit for the fulfillment of obligations under the mining lease, and
• making every reasonable attempt to enter into cooperation agreements with overlapping title holders.

The purpose of these amendments is to minimise the costs of doing business in NSW and boost investment certainty. Significant obligations which have now been deleted from the standard conditions relate to environmental harm, working requirements (i.e. minimum number of personnel), blasting, safety, prevention of soil erosion and pollution, roads and tracks, trees and vegetation and indemnities.

This means that if your mining lease is granted or renewed after 17 October 2013 you can expect significantly reduced obligations to be imposed under the new mining lease conditions. All mining leases granted or renewed prior to this date will continue to operate under the previous conditions that were issued.

Assessment timeframes reduced

The Government has also committed to reducing the times for assessing coal exploration licences and mining leases will be cut from 150 days to 95 days, while times for processing renewal applications will be reduced from 100 days to 55. These changes came into effect on 1 July 2013.

Samantha Daly, Patrick Holland, Brendan Tobin, Kate Swain

The gateway process commences for the assessment of mining and petroleum development

On 4 October 2013, the gateway assessment process for mining and petroleum development on strategic agricultural lands came into effect through amendments to the State Environment Planning Policy (Mining, Petroleum Production and Extractive Industries) Amendment 2013 (NSW) (Mining SEPP Amendment) and the Environmental Planning and Assessment Amendment (Gateway Process for Strategic Agricultural Land) Regulation 2013 (NSW) (Gateway Regulation).

The gateway assessment is an independent, upfront scientific assessment of the impact of new state significant mining and petroleum development on strategic agricultural land and its associated water resources.  The gateway assessment process must be undertaken before certain mining and petroleum development can proceed to full environmental assessment.

Updated strategic agricultural land maps have been included in the Mining SEPP Amendment identifying areas of biophysical strategic agricultural land and critical industry cluster land (such as viticulture in the Hunter Valley).  At this stage the gateway process applies to two million hectares of strategic agricultural land which was mapped in the Upper Hunter and New England North West regions of the state. Mapping of the remaining areas of the state is currently underway.

The Mining and Petroleum Gateway Panel (Gateway Panel), comprising independent scientific experts, has now been established to review proposed mining or petroleum development and issue gateway certificates.

This means that if you propose to lodge an application for a mining or petroleum development on specified strategic agricultural land at any point in the future, your application must be accompanied by a gateway certificate in respect of the proposed development, or a site verification certificate that certifies that the land on which the proposed development is to be carried out is not biophysical strategic agricultural land.

Site verification certificates

A site verification process has been introduced by the Government to enable proponents of mining and petroleum development, and in some circumstances landowners, to verify if land is classified as biophysical strategic agricultural land.

A proponent or landowner can apply to the Director-General of the Department of Planning and Infrastructure for a site verification certificate confirming that specified land within the area of a development is or is not biophysical strategic agricultural land.

When determining an application for a site verification certificate, the Director-General must have regard to the criteria set out in the Interim Protocol for Site Verification and Mapping of Biophysical Strategic Agricultural Land published in the NSW Government Gazette on 12 April 2013.

In addition, if a proponent identifies that the proposed project site contains land identified as strategic agricultural land in the relevant maps, the proponent can choose to challenge this status by applying to the Director-General for a site verification certificate.  The fee for the site verification certificate is $3,900.

If the Proponent is not the landowner, prior to requesting a site verification certificate, written notice must be provided to the owner of land or an advertisement must be published in a newspaper circulating in the area in which the development is to be carried out within specified time periods.

The Gateway Regulation now requires site verification certificates to be included in s149 planning certificates issued by local councils.

Gateway certificates

A gateway certificate can be issued by the Gateway Panel and is issued as an ‘unconditional certificate’ (if the proposed development meets the relevant criteria) or as a ‘conditional certificate’ (if the proposed development does not meet the relevant criteria).  A gateway certificate is valid for five years.

A conditional certificate will include recommendations of the Gateway Panel to address the proposed development’s failure to meet relevant criteria and the certificate may also recommend that further studies be undertaken.

If a gateway certificate application relates to development on land that has been identified as biophysical strategic agricultural land, the Gateway Panel must refer the application to the Independent Expert Scientific Committee on Coal Seam Gas and Large Coal Mining Development (IES Committee) established under the Environmental Protection and Biodiversity Conservation Act 1999 (Cth) for advice regarding the impact of the proposed development on water sources.

Changes to the environmental assessment process

Development applications for mining and petroleum projects will now have added complexity, as the gateway process introduces additional formal steps prior to (and in some circumstances during) the environmental assessment process.

If a gateway certificate has been issued for a proposed development, the Gateway Regulation requires the Director-General to address any recommendations of the Gateway Panel set out in the gateway certificate.  The Director-General must also consult with the Gateway Panel when preparing environmental assessment requirements for the proposed development, and have regard to the need for the requirements to assess any key issues raised by the Gateway Panel during the consultation process.

The Gateway Regulation also requires the Director-General to have regard to any gateway certificate recommendations of the Gateway Panel, even if the certificate is issued after a proponent has been notified of environmental assessment requirements.  The Gateway Regulation includes a provision which enables the Director-General to modify those environmental assessment requirements if it is considered necessary.

The Gateway Regulation now also require a consent authority to refer an application for development consent for a mining or petroleum development that is accompanied by a gateway certificate, to the Minister for Primary Industries for advice regarding the impact of the proposed development on water resources.  The Minister for Primary Industries when considering the impacts of a proposed development on water resources must have regard to the Aquifer Interference Policy, and particularly the minimal impact provisions.

Coal seam gas development exclusion zones

The Mining SEPP Amendment also introduces additional coal seam gas development exclusion zones and buffer zones (land within two kilometres of an exclusion zone), which prohibits coal seam gas development on or under certain land.

Samantha Daly, Patrick Holland, Brendan Tobin, Kate Swain

Proposed changes to Environment Protection Licences

In September 2013, the NSW Environment Protection Authority (EPA) released details of the proposed changes to the environmental licensing framework under the Protection of the Environment Operations (General) Regulation 2009 (NSW) (Regulation).  A new risk based licensing scheme (Scheme) is intended to come into effect from 1 January 2015.  Submissions to the EPA on the proposed introduction of the Scheme close on 1 November 2013.

Purpose of the Scheme

The Scheme is designed to provide an incentive for environmental protection licence (EPL) holders to comply with the environmental protection standards set by the EPA.  Under the Scheme, licensees assessed as having a poor environmental performance record will incur higher licence fees because they require a greater level of regulatory intervention, e.g., more intensive monitoring.  This allows for a risk assessment process that is proportionate to the level of environmental risk that the EPL holder generates which does not shift the burden of costs of such activities to the community.

The risk assessment process

The EPA will conduct a risk assessment for each EPL holder in consultation with the holder in order to determine:

• the appropriate environmental management category (A, B, C, D or E in descending order of performance), and
• the appropriate environmental risk level (1, 2, or 3 in ascending order of risk) for their activities.

The category will determine the risk of the EPL holder so that the EPA is able to ascertain the regulatory intervention required for that particular licensee.

To make this determination, the EPA will have regard to three factors:

• the day-to-day operations at the site
• the risk of pollution incidents occurring at the site, and
• the environmental management performance of the licensee.

Furthermore, the EPA will take into account the EPL holders history, including past compliance and non compliance and ways in which the EPL is trying to control or mitigate environmental risks.

Review of risk assessments

Following the initial risk assessment, the process will be repeated after a period of five years, unless:

• an environmental incident or report of non-compliance triggers a review ; or
• an EPL holder requests that the EPA review their environmental performance before that time.

Calculation of the licence administrative fee

The licence administrative fee for each EPL holder will be calculated based on their environmental management category and environmental risk level in accordance with the method set out in Schedule 1 of the Regulation.

Public availability of information

The environmental risk level for each EPL holder will be published on the EPA’s Public Register in order to provide the public with increased access to information on the environmental performance of industrial operators and facilitate greater transparency in regard to environmental assessment processes.

Implications of the proposed amendments

The proposed new scheme for assessing a licence holder’s risk will mean that licensees that rate higher on the risk assessment scale will be more heavily regulated by the EPA in addition to having increased administrative fees.  This includes increased pollutant fee units and increased fees payable for clean up notices, prevention notices and noise control notices.  This means that if your operations have a poor environmental performance record as a result of past conduct, you are likely to be impacted most significantly by these changes.

Samantha Daly, Patrick Holland, Brendan Tobin, Kate Swain