New financial provision regulations promulgated for mining in South Africa
Recent changes to the laws on the financial provision for closure and rehabilitation of mining operations represent a major step in enhancing the principle of sustainable development and giving effect to the duty to rehabilitate environmental degradation, but are they affordable in the current climate?
As is the case in most if not all mining jurisdictions, to operate within the extractives sector in South Africa companies have been required to make financial provision for the closure and rehabilitation of mining operations. Recent changes to the applicable law impose stricter requirements relating to the calculation of the financial provision. As a result, extractives companies will need to secure access to additional funds to discharge these new obligations. In the current economic climate, securing the additional funds required may be difficult especially where measures to reduce costs are being prioritised. However, the change is a welcome one, particularly in securing the sustainable utilisation of water resources, which are often inadequately managed post-closure of operations.
These changes have been brought about by the publication of the regulations on the financial provision for prospecting, exploration, mining or production operations (Regulations). The Regulations govern the method for determining and providing the financial provision required for the rehabilitation, closure and ongoing post closure management of negative environmental impacts caused by mining. They were promulgated on 20 November 2015 under the National Environmental Management Act, 1998 (NEMA). The Regulations replace the previous Mineral and Petroleum Resources Development Act, 2002 (MPRDA) regulations and introduce a far more onerous and detailed regulatory system in respect of financial provisions.
Under the Regulations, an applicant or holder of a right or permit is required to make financial provision for rehabilitation and remediation, decommissioning and closure activities at the end of the operations, and for remediation and management of latent or residual environmental impacts which may become known in the future, including the pumping and treatment of polluted or extraneous water.
Determining the financial provision requires the preparation of three separate documents:
- An annual rehabilitation plan describing measures and costs of annual rehabilitation;
- A final rehabilitation, decommissioning and mine closure plan describing measures and costs for final rehabilitation and closure; and
- An environmental risk assessment report describing measures and costs for the remediation of latent or residual environmental impacts.
The financial provision must be able to satisfy the costs of implementing all the measures specified in these documents.
The environmental impacts must be reviewed annually and the financial provision adjusted, if required. If the company is unable make the adjustment, the minster responsible for mineral resources may conclude a payment agreement to facilitate the company bringing its financial provision in line with the reviewed amount. We envision that the payment agreement will be a well utilised mechanism to avoid the immediate impacts of the Regulations, especially where current realities make securing additional financial provision difficult.
A welcome although temporary dispensation has been granted to holders of existing financial provisions approved under the MPRDA, as the Regulations specify that these must be regarded as having been approved under the Regulations. Therefore, there is no immediate obligation to increase current financial provisions. However, the financial provision must be reviewed and aligned to the Regulations within three months of the end of the company’s financial year-end, or by 20 February 2017 at the latest, and annually thereafter.
Although the changes brought about by the Regulations are significant, they were long anticipated because of historic practice in the extractives sector that frequently saw vastly inadequate environmental rehabilitation as a result of inadequate financial provisions being made. The Regulations, if implemented effectively, are an important legislative measure to ensure sustainable development within the extractives sector.