Financial Provision Regulations & NEMLA Bill

Proposed amendments as a result of the

public comment period

24 May 2018

Objectives of the meeting •Provide general progress • Identify principle issues for amendment

- Vehicles - Offenses - Definitions- Timeframes for review - Timeframes for retention of FP- Ceding and liability- Draw down/post closure- Audit/assurance- Ministers access to funds - Public Participation and notification - Calculation of sum

•Other• Way forward

- Technical issues - Drafting - Issues for consideration by principles

Progress •Proposed amendments to the FP regulations published for comment – 10 November 2017

•Comments period closed – 10 December 2018 - 26 separate responses were received – NGOs, various mines, Chamber of Mines, insurance industry, auditors, government departments, mining consultants

•Comments document was prepared •Meetings held DMR/Treasury/SARS/DEA – 1 March & 5 April •Meeting with Sibanye-Stillwater – 26 March 2018•Meeting held with DWS/DMR/ - 26 March 2018•Further extension for implementation date for the oil & gas industry gazetted – 20 April 2018

•Parliamentary hearings on the NEMLA Bill – 24 April 2018•Follow up meeting with Portfolio Committee – 4 May 2018•24 May 2018 – interdepartmental and stakeholder workshop

Amendments to NEMA

Definitions • The term “primary processing”, currently used in 24C (2A) to identify the ambient of the competence of the Minister of Mineral Resources and section 43 dealing with the ambient of the competence of the Minster of Mineral Resources for licensing waste activities will be retained - it was requested that we return to the terms used in the MPRDA - The term “primary processing” was introduced into NEMA and the EIA regulations in preference to using MPRDA terms as the definition of “mining” in the MPRD amendment of 2012 referred to a mining area, which includes “any non adjacent surface of land if it is connected to such area by means of any installed infrastructure” this could mean that if DMR was the CA for the mine as well as a structure linked to it.

• It is necessary to retain the word extraction in the 24C(2A) and 43, the deletion was an error

• The term is clarified in the listed activity in the EIA - Any activity including the operation of that activity which requires a mining right as contemplated in section 22 of the Mineral and Petroleum Resources Development Act, 2002 (Act No. 28 of 2002), including—

• associated infrastructure, structures and earthworks, directly related to the extraction of a mineral resource; or

• the primary processing of a mineral resource including winning, extraction, classifying, concentrating, crushing, screening or washing;

• but excluding the secondary processing of a mineral resource, including the smelting, beneficiation, reduction, refining, calcining or gasification of the mineral resource in which case activity 6 in this Notice applies.

Definitions •Definition of Financial Provision – to align to the scope of the FPRs

•The reference to the term “bank guarantee” in the definition of “financial provision”, proposed to be amended to “financial guarantee” – institutions are not limited to a bank

•Propose to retain “Latent” in the definition of ”financial provision” applying the dictionary definition – “existing but not yet developed or manifest”. Making provision for impacts that have not yet manifest is intended in the calculation of FP, what was not intended was that it would include acts of God. The discussion was held based on the incorrect consideration of the MPRD regulations definition which is as follows: Latent environmental impact means an environmental impact that may result from natural events or disasters after a closure certification has been issued- The removal of ”latent” from the definition also results in inconsistency as the word “latent” is used in 24P(5) and 25R(2)

•Propose to define “Mitigate”, “Remediate”, “Rehabilitate” and residual include the dictionary meaning, FP is intended to consider the reduction of risk over time and then to repair the remaining impact: • Mitigate - to alleviate or reduce • Remediate - to repair• Rehabilitate – to restore to its former condition• Residual – remaining

Definitions “financial provision” means the insurance, financial guarantee, rehabilitation company or (parent company) as contemplated in the Income Tax Act, 1962, trust fund or cash that must provide in terms of this Act, guaranteeing the availability of sufficient funds to ─•Mitigate and rehabilitate of the adverse environmental impacts of listed or specified activities;

•Mitigate and rehabilitate of the impacts of the prospecting, exploration, mining or production activities, including the pumping and treatment of extraneous water;

•remove building structures and other infrastructure; (this should relate to listed and specified activities)

•decommission and closure activities expected at the end of prospecting, exploration, mining or production operations; and (for mining activities)

•remediate and management of latent and residual environmental impacts which become known in the future including the pumping and treatment of polluted or extraneous water.

Definitions •Consider defining ”audit”, to clarify the audit requirement which is not a financial audit•peer review of engineering and scientific acceptability of environmental requirements and rehabilitation costs

Terms – principles • The requirements related to financial provision must apply

to old order right holder, the term needs to be included in the section - It has been determined that there are several old order rights holders still in existence. In order to ensure that these right holders are brought under the financial provision requirements of NEMA they must be identified in this section

• It was requested to delete the term as progressive rehabilitation is funded from the operation budget - The objective of the act is to ensure environmental protection, progressive rehabilitation is part of environmental protection and is a desired principle of the Act. risk reduction. Progressive rehabilitation is an important concept. It is proposed that the term and principle will not be deleted

Terms – principles • Proposal that the words “possible to be undertaken” could

alternatively be replaced by the words “required to be undertaken in terms of the annual rehabilitation plan, the final rehabilitation and closure plan and the environmental management programme contemplated in section 24N” – The wording can be re-considered to see if it would add value. The principle however, must be clear, namely that rehabilitation that can be done should not be delayed but should be undertaken.

• Proposal to link the existing s24P (2) the failure to rehabilitate or manage any impact should more explicitly be linked to the environmental management programme contemplated in s24N and the annual rehabilitation plan – there seems to be a desire to limit the rehabilitation to the plans, it is proposed that this be considered as well as the possible implications.

Timeframes for review, auditing and reporting

•For review and auditing of the financial provision is proposed to be amended to three years

•Submitting an audit report to be amended to five years – corresponding amendment in the FP regulations which will cater for both scenarios

•Wording to be standardized – remove assessment • determine of financial provision • review of the adequacy

•The Minister responsible for MR will be empowered to independently review any calculation

Timeframes for retention of the FP

•Principle – the provision calculated for the remediate and management of latent and residual environmental impacts which become known in the future including the pumping and treatment of polluted or extraneous water will be held in perpetuity – the risks associated with latent impacts have been calculated and are expected therefore no funds can be returned

Ceding and liability •Ceding, draw-down of funds and liability are integrated – proposed that oil and off shore gas industry will be excluded from ceding and draw-down should parent company vehicle be incorporated

•Principle – the provision calculated for the remediate and management of latent and residual environmental impacts which become known in the future including the pumping and treatment of polluted or extraneous water must be ceded to the Minister of Mineral Resources and will be held in perpetuity and interest accrued will accrue to DMR

•24P(5)(c)/(d) - The financial provisioning set aside in respect of latent or residual environmental impacts, including the pumping and treatment of polluted or extraneous water, and as contemplated in subsection (c), must be  ceded to the Minister responsible for mineral resources upon the issuing of a closure certificate.’’

•Costs of rehabilitation will increase over time therefore interest will accrue to DMR

•Changes proposed to the Income Tax Act (“ITA”) to allow for ceding to DMR (if DMR were to set up a trust for the funds could be accommodated)

•May need to use a different word to “cede” as a mining permit cannot be ceded - This is to ensure that the funds set aside for latent defects for permits can also be transferred to DMR on the closure certificate being issued

Ceding and liability •Was noted that the concept of “cession” cannot operate in regard to a guarantee or a trust, nor is it justified in that the guarantee or trust should simply, in respect of the determined portion of the financial provision secured thereby, remain in place – Input by insurance sector

•Principal - the holder remains responsible for environmental liabilities notwithstanding the issuing of a closure certificate – polluter pays principle

Draw down of funds•Principle – a provision will be included to allow for draw down of funds based a 5 year approved decommissioning plan

•Provisions will be included to manage the draw down•Principle for draw down – prove to DMR, Treasury, DWS that the rehabilitation identified for the year (according to the five year plan) has been undertaken and audited by an independent team, will allow for retrospective draw down of the proven amount

•Approval to withdraw the final year will be based on the issuing of a closure certificate and confirmation of transfer of provisions for ceding

Audit/Assurance•The audit is not intended to be a financial audit – it’s a review of engineering and scientific acceptability of environmental requirements and costs associated with the rehabilitation expectation

•Consider using an alternative word to audit • Including the ‘environmental’ audit report required in terms of NEMA is causing confusion – wanted to ensure that the audit of financial provision is inserted into the usual EA environmental audit requirements every 5 years – don’t have different documents and then the audit is seen by the public at least every five years.

Offenses •A provision will be added that financial provision can only be used for rehabilitation and not for other purposes

•A provision will be added to ensure that it is an offense to use the funds for any other purpose than rehabilitation - This is to protect the State and provide clarity to the industry on the sole purpose of the financial provision.

Ministers access to FP •There is discussion on the the Minister of DWS’s ability to access the financial provision directly - Depending on the decision between DWS and DMR regarding the Minister of Water and Sanitation being able to access the financial provision directly, there may be a need for the Minister of Water and Sanitation to be identified in NEMA - Currently only the Minister of Mineral Resources may access the trust fund

Public Participation and Notification

•There was a request that all the processes being followed for a particular development or related activity be identified – already in many application forms so propose that this be considered

• It was requested that 24P(4) must make provision for interested and affected parties to initiate inquiries into the accuracy of an assessment or review - I&APs are consulted in the EIA process as to the determination of the financial provision and are able to consider the review in the EMPRs whenever they are updated. It is not intended that I&APs would be able to see the review before being approved by the Minister of Mineral Resources. If there was a protected process of approval the mine could be in non-compliance with the Financial Provisioning Regulations and the sum set aside could be inadequate while the discussions are underway as the amount would not be updated until the amount is agreed.

Proposed amendments to the FP regulations

Definitions – regulations •Applicant – will be change to go back to focus on mining right as well as EA and will include/retain where amendments are made in relation to 11 and 102 of MRPD – impacts on having FP in place when transferring or amending the scope of the mine

Scope the FP •To include old order right holder•To include a business rescue practitioner and a liquidator – they take over the requirement to implement rehabilitation – will also include a definition

Availability of FP •Proposed to retain CPI + 2% – necessary to ensure funds are sufficient

•Proposed to retain the inclusion of VAT will retain as DMR will be charged VAT – currently VAT neutral

•Not intended that over the three years the CPI + 2 or VAT is compounded - this will be amended

•Proposed to retain the availability of the FP for decommissioning and closure for 3 years

•Availability of FP for latent and residual must be calculated for three years in advance but then provided for as per the risks identified

General •Making the financial provision determination available in the public domain undermines a tender process of the mining right or permit holder / confidential and preferential contractor rates could be published • The FP is for work of 3 years calculated on a base year and its for final rehabilitation so different to a specific piece of work that a permit or right holder would want done in a year

• Aggregate data is not useful to an I&AP who would want to check the adequacy of the calculations

• Would work on general going rates not preferential rates as this is for DMR to use if they need to and DMR would not get the same preferential rates

•Concern that publishing the determination and assessment would divulge commercial information which may be uncompetitive – discuss this

• Is the name of the provider of the guarantee or insurance company identified –DMR and Treasury have vetted the companies

•Clarify to whom the auditors report should be provided – suggest client who must then pass it along to the DMR as per their annual re-assessment requirements

•Will include an ’anniversary date’ to 12(5) also check (4) and (6) – when to do the assessment of adequacy

•Will amend 13(3) to ensure that it is clear that the ‘audit report’ must be signed off by the auditor – currently speaks to financial aspects

General •Currently no provision for payment arrangement other than for current permit holders who has assessed and cannot pay. Should consider payment arrangements also for instances of transfers or ceding MPRD 102

•An amendment to the mine works programme will require a review of the FP. EIA regulations to be amended to clarify that a change of mine works programme will constitute a part 2 amendment – assessment and consultation and also requires a review of the FP

•Will make it clear that when an insurance product is used it may not be short term insurance but must be in place for the life of the mine

•The restriction on guarantees for the remediation of latent and residual impacts will remain as the funds must be cede to another trust fund to do the long term management, a guarantee would then need to be in the name of a non-right or permit holder which is not the topic of the regulations. Guarantees fall away on closure so may not be appropriate – need discussion on this

•14(4) – need to make it clear that the Minister can use all or part of the FP as necessary to do the rehabilitation – currently there is no mention of only using a part