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To prospect or mine for minerals, or to explore for or produce petroleum resources, a person must have have a licence granted in terms of the Mineral and Petroleum Resources Development Act (MPRDA) (the principle act governing mining and production rights) and an environmental authorisation granted in terms of National Environmental Management Act (NEMA) (the principle act governing environmental management). To get these a guarantee, termed a
financial provision, must be given to cover the possible cost associated with the management, rehabilitation and remediation of environmental impacts that result from the operations. The financial provision ensures that there is enough funds available to rehabilitate the environmental impacts that the operations may have had once the operations end.
The financial provisions were regulated by the MPRDA, but in the last few years the laws have been amended to bring the regulation of financial provisions under the ambit of NEMA. The new 2015 Financial Provision Regulations published under NEMA came into effect on 20 November 2015.
Some companies are now in a position where they have given the required financial provision, but under the old MPRDA regulations that are not applicable any more. The question is, what steps must now be taken to comply with the new regulations?
The short answer is that the current financial provision is regarded as being issued and approved in terms of the regulations (regulation 17(4)), but steps must be taken in the very near future to review the financial provision and align it with the new requirements (regulation 17(4)).
The three vehicles that were used under the MPRDA to give the financial provision are all still available under the 2015 Financial Provision Regulations (GN R1147 in GG 39425 of 20 November 2015) (the regulation). These are:
Even though the available vehicles haven't changed, the format of the financial guarantee and trust deed are now prescribed in the regulations (see appendix 1 and 2), and the permissible uses of trusts has been changed by the new regulations. A full discussion of these falls outside the scope of this note.
A holder of a right that was issued before 20 November 2015 (a holder) must conduct a review, assessment and adjustment of its financial provision to ensure that it complies with the new regulations (regulation 17(5)):
The time frame must be regarded as either/or, so for the first review the holder can choose the most suitable time frame that fits its purposes. The financial provision must then be reviewed annually after the first review (regulation 17(5)(b)).
The review, assessment and adjustment of a financial provisions approved under the MPRDA is largely the same as the procedure that is applicable to new financial provisions approved in terms of the regulations (in terms of regulation 17(5) regulation 11 must be applied).
The procedure can be broken down into the following steps.
Step 1: Preparation of the prescribed reports and plans. The holder must prepare the following reports and plans:
The minimum contents of these plans and reports are prescribed in the regulations (see appendix 3, 4, and 5), so a holder must ensure that the plans and reports are compliant, and that they contain the prescribed minimum information (regulation 12(1), (2), and (3)).
Step 2: Assessment of the adequacy of the current financial provisions. The holder must do an assessment of adequacy in light of the reports and plans, and identify any necessary adjustments that must be made to the financial provisions (regulation 11(2)).
Step 3: Independent audit. The reports, plans and assessment of adequacy must be audited by an independent auditor (regulation 11(3)(a)).
Step 4: Inclusion of the assessment into the environmental audit report. The assessment of adequacy must be included in the environmental audit report that is required in terms of the Environmental Impact Assessment Regulations 2014 (regulation 11(3)(b)).
Step 5: Submission. A holder must submit the following to the Minister:
After receiving the updated financial provision, the Minister has 30 days to:
If the Minister refuses to approve the updated financial provision he must provide reasons for the refusal, and he may appoint an independent assessor to review the assessment at the cost of the holder (regulation 17(15)(b) and (c)).
If the Minister refuses to approve the updated financial provision the holder is regarded as being non-compliant with section 24P of NEMA (regulation 17(15)(a)).
If the review and assessment procedure shows that there is a shortfall in the financial provision, the holder must:
The transitional arrangements provide relief to holders if they are unable to increase their financial provision to cover a shortfall. If a holder is not able to increase its financial provision the holder and the Minister may enter into a payment agreement where the holder agrees to increase the financial provision over a period of 5 years or less (regulation 17(7)). The payment agreement must be reviewed annually by the Minister (regulation 17(7)).
If the review and assessment procedure shows that the financial provision has an excess of funds, the holder can't reduce the financial provision, but must defer that excess against future assessments (regulation 17(16)(b)).
The regulations that apply to the withdrawal of new financial guarantees approved in terms of the new regulations apply equally to the withdrawal of financial guarantees previously approved under the MPRDA (regulation 17(17)).
If a financial institution wants to withdraw a guarantee:
If the holder can't provide an alternate arrangement within the 60 day period, then 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 does provide an alternate arrangement, then the Minister must release the first guarantee within 7 days of receiving the alternate financial provision (regulation 8(6)).
The holder must make any approved amendment to its environmental management programme available to the public (regulation 17(19)). This may must be:
Note: A more general note on the regulation of financial provisions can be found here.
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