Clinton Pavlovic

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Primer: Financial provisions for environmental rehabilitation

2016-04-04

On 20 November 2015 the Financial Provisioning Regulations 2015 was published and became effective.

The regulations intend to regulate the financial provisions that holders of rights and permits must give in terms of the National Environmental Management Act (NEMA) for the cost associated with the management, rehabilitation and remediation of environmental impacts that result from prospecting, exploration, mining or production operations that are undertaken in South Africa (regulation 2 and 3).

The requirement to provide a financial provision

Before conducting any prospecting or mining for minerals, or exploration or production of petroleum resources, a person must be grant granted an environmental authorisation in terms of NEMA (section 5A(a) of the Mineral and Petroleum Resources Development Act (MPRDA).

One requirement of being granted the environmental authorisation is that the applicant must provide the prescribed financial provision (section 24P(1) of NEMA). This financial provision is intended to cater for the rehabilitation, closure and on-going post decommissioning management of negative environmental impacts that may arise from the operations.

No prospecting or mining for minerals, or exploration or production of petroleum resources can take place unless the financial provision is in place and an environmental authorisation has been granted.

Methods that can be used to provide the financial provision

There are three financial vehicles that can be used to give the necessary financial provision. These vehicles can be used individually or as a combination. They are (regulation 8(1)):

Quantum of the financial provision

The financial provision must be equal to the actual costs for implementing the following plans and reports for a period of at least 10 years (regulation 7):

These plans and reports are prescribed in the regulations (appendix 3, 4 and 5), so care must be taken to make sure that the plans and reports are compliant, and that they contain the prescribed minimum information (regulation 12(1), (2), and (3)).

The quantum must be determined by a specialist (regulation 9(1)), and in the determination the liability can't be deferred against any assets at mine closure, or mine infrastructure salvage value (regulation 9(2)).

If the Minister is not satisfied with the determination, the Minister may request that the determination or assessment be:

The holder of the right or permit is responsible for all costs related to the determination or assessment of the financial provision (regulation 14(3)).

Compulsory annual review and adjustment

An annual review of the adequacy of the financial provision must be done (regulation 11(2)), and must be submitted within 3 months of the end of the company's financial year (regulation 11(3)(c)(ii)). This period can be extended by a maximum of 3 months if an application for extension, with reasons, is submitted to the Minister (regulation 12(7) and (8)).

The results of the assessment must:

The independent auditor's declaration must reconcile the financial provision with the estimates of rehabilitation exposure and liabilities (regulation 12(5)), and must include any contingent liabilities and restricted cash that may be associated with the financial provision liability (regulation 12(6)).

If there is a shortfall in the quantum of the financial provision, the financial provision must be increased within 90 days from the signature of the auditor's report (regulation 11(4)(a)).

Any excess in the quantum of the financial provision can only be deferred against future assessments (regulation 11(4)(b)).

The public's right of access to information

The holder of a right or permit must make its environmental management programme available to the public (regulation 13(1)).

The environmental management programme must:

Placing operations under care and maintenance

A holder of a right or permit must lodge an application with the Minister if they want to place their operations under care and maintenance (regulation 16(1)). No operation may be placed under care and maintenance without the Ministers approval (regulation 16(6)).

The application to place operations under care and maintenance must include:

Permission to place an operation under care and maintenance can be granted for a maximum of 5 years, with or without conditions, and at the end of this period the approval will be reviewed by the Minister (regulation 16(4)).

The care and maintenance plan must be audited and updated annually (regulation 16(5)(b)).

The withdrawal of the financial guarantee by financial institutions

If a financial institution wants to withdraw the guarantee that it has provided for the financial provision:

If the holder of the right or permit can't provide an alternate arrangement within the 60 day period, the Minister must call on the financial guarantee. This money is then held by the Minister until an alternate arrangement can be provided for the financial provision (regulation 8(5)).

If the holder of the right or permit does provide an alternate arrangement then the Minister must release the first guarantee within 7 days of receiving the alternate financial provision.

Note: A similar note, with emphasis on pre-existing financial provisions and the transitional arrangements, can be found here.

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