Skip to content

  • Home
  • COVID-19 Guide
  • COVID-19 AV library
  • Client results
  • Expertise
  • News & Insights
  • People
  • Our DNA
  • Inclusion and Diversity
  • Join us
  • Contact Us
Home / NEWS & INSIGHTS / Insight / Emerging issues for the Australian resources and energy sector in 2018
Insight 24 May 2018

Emerging issues for the Australian resources and energy sector in 2018

WHO SHOULD READ THIS
  • All resource and energy companies and contractors operating or developing projects in Australia.
THINGS YOU NEED TO KNOW
  • This article highlights the legislative and policy developments over the past 12 months which will significantly affect the Australian resources and energy industry going forward, with a specific focus on the resource rich states in Australia.
WHAT YOU NEED TO DO
  • Start looking now at the impacts these emerging issues could have on current or proposed projects.

A range of legislative and policy reforms were introduced over the past 12 months which may significantly impact on Australia’s resources and energy sector during 2018. This publication identifies a number of emerging issues where we expect to see further policy development this year.

INDUSTRY TRENDS

Over the past two years the Australian resource and energy sectors have experienced growth and an increase in mergers and acquisitions (M&A) activity. This trend is generally attributed to increased commodity prices and changes in the long-term strategic direction of many companies that were traditionally heavily invested in the coal sector. Over the last year we have seen many of the large international mining houses including Rio Tinto and Wesfarmers engage in significant divestment of their Australian projects to further their investment and diversify into other industries and minerals. This trend has seen a substantial increase in M&A transactions in the resources industry and has created opportunities for companies which have historically had a smaller presence in the sector. Various offshore private equity funds continue to be very active in the M&A space.

This shift in industry players as well as other factors has resulted in an increase in single asset acquisitions and the use of alternative transaction structures. Different purchase price mechanisms are being used, such as royalty arrangements and vendor support for rehabilitation bond requirements. Infrastructure sharing arrangements have also been adopted to make use of latent capacity and to take advantage of increasing efficiencies in ways that have not previously been utilised. Factors influencing these structuring decisions include industrial relations concerns that have the potential to cause reputational damage, a desire to release capital that would previously have been tied up in infrastructure and taxation implications.

2017 also saw a significant increase in investment in the renewable energy sector, with numerous new projects both proposed and commenced. Although Queensland appears to be epicentre for this new investment, particularly in the large scale PV solar space, other states like South Australia have benefited from significant state assisted battery investment.

This wave of new investment has been predominantly led by international investors seeking to capitalise on Australia’s rapidly developing renewables sector and the Renewable Energy Target scheme which will be closed to new entrants from 2020.

WORK HEALTH & SAFETY AND INDUSTRIAL RELATIONS

Labour hire reforms in Queensland – Similar reforms in South Australia and Victoria

In 2017, the Queensland Government passed the Labour Hire Licensing Act 2017 (Qld) (Labour Hire Licensing Act) which was Australia’s first licensing system for the labour hire industry and which commenced on 16 April 2018. The Queensland labour licensing legislation has since been followed by the introduction of similar legislation in South Australia.

The Labour Hire Licensing Act provides that:

  • a person who wants to provide ‘labour hire services’ will need a licence to do so. This licence will need to be renewed annually
  • labour hire services’ is broadly defined to mean supplying to another person a worker to do work. Examples of labour hire services providers include contractors who supply workers to a farmer or fruit growers to pick produce. It could also capture an employer which seconds an employee to another business, and
  • a person will provide labour hire services regardless of:
    • whether or not the worker is an employee of the provider
    • whether or not a contract exists between the worker and provider
    • whether the worker is supplied to another person directly or indirectly, and
    • whether the work done is under the control of the provider.

Regulations prescribe classes of individuals who are not considered to be ‘workers’ for the purposes of the Act. Importantly, these are:

  • an employee:
    • whose annual rate of earnings exceeds the high income threshold under the Fair Work Act 2009 (Cth) (currently $142,000 base remuneration per annum), and
    • who is not covered by either a state award, a modern award or an enterprise agreement
  • an executive officer (usually a sole director) of a corporation who is the only employee supplied to perform work
  • an in-house employee of a provider who is supplied on a temporary basis on one or more occasions. An in-house employee is defined as an employee who is engaged on a regular and systematic basis with a reasonable expectation of continued employment, and where they primarily perform work for the provider other than as a labour hire worker, and
  • an individual who is provided to another person who is part of a group of entities that carry on a business collectively as one recognisable business (the group company exception).

This means that businesses which only engage individuals who fall within these exemptions will not be providers of labour hire services and therefore will not need to obtain a licence.

Prohibited conduct and offences

The following actions are prohibited under the Labour Hire Licensing Act and attract the following penalties:

  • providing labour hire services without a licence will attract a maximum penalty of $378,450 for a corporation
  • entering into an arrangement with a labour hire provider who does not have a licence is prohibited will attract a maximum penalty of $378,450 for a corporation, and
  • entering into an ‘avoidance arrangement’ will attract a maximum penalty of $378,450 for a corporation.

Applications, renewals and cancellations

Matters to consider when making an application for a licence or seeking renewal of a licence include:

  • the applicant must be a fit and proper person, which will include consideration of:
    • the person’s character, for example, the person’s honesty, integrity and professionalism
    • whether the person has a history of compliance with ‘relevant laws’ (those which impose obligations on the person in relation to workers, such as record keeping obligations) and is able to demonstrate an ability to comply with such laws
    • whether the person has previously held a licence that has been cancelled or suspended, or had conditions imposed
    • whether the person has been convicted of an offence against a relevant law or another law that affects their suitability to provide labour hire services
    • whether the individual has been insolvent or a corporation has been placed into administration, receivership or liquidation while the person was an executive officer of the corporation
    • whether the person has been disqualified from managing corporations under the Corporations Act 2001 (Cth) (Corporations Act), and
    • whether the person is under the control of, or substantially influenced by, another person considered not to be a fit and proper person to supply labour hire services.
  • if the licence applicant is a corporation, each individual concerned with the management of the corporation (this is broader than just directors) must be a ‘fit and proper person’ and the corporation must be financially viable
  • licences have a maximum one year term and can be granted subject to conditions
  • a licence may be suspended or cancelled. If a licence is proposed to be cancelled, the licensee must be issued with a show cause notice to allow a written response prior to cancellation in specified circumstances, and
  • if an individual has their licence cancelled, they may not apply for a licence for two years after the cancellation. If a corporation (or any of its related bodies corporate) has had its licence cancelled, it cannot apply for a licence unless, because of a genuine sale, the shareholding and control of the corporation has completely changed.

Reporting and inspections

Under the Labour Hire Licensing Act, the licensee must comply with extensive reporting requirements, including reporting on the arrangements between the licensee and workers, the locations and accommodation of workers, and any disciplinary action or enforcement action taken against the licensee by the regulatory body.

Inspectors will have broad powers to enter a labour hire provider’s workplace and will have a wide array of powers once at the premises, including searching the premises, taking equipment to the premises and removing things or documents from the premises.

What this means for the industry

The introduction of labour hire regulation in Queensland will create significant new regulatory hurdles and potential penalties for labour hire employers that operate in the State. Businesses which engage unlicensed providers will also be exposed to significant penalties. All operators must make an application for a licence by 15 June 2018.

Other jurisdictions

South Australia has enacted its own labour hire legislation and a bill is currently before the Victorian Parliament. The schemes are very similar in their scope and application to the Queensland legislation.

Fly-in-fly-out reforms

The Strong and Sustainable Resource Communities Act 2017 (Qld) (FIFO Act) was assented to on 31 August 2017. The FIFO Act includes:

  • prohibitions affecting Queensland resources projects that utilise 100 per cent fly-in, fly-out (FIFO) workers
  • anti-discrimination provisions aimed at protecting workers in regional communities, and
  • strong powers for the Coordinator-General to administer the Act and ensure compliance.

Importantly, there is now a requirement that recruitment of workers must occur from the hierarchy of priority areas, as provided for in the workforce management considerations section of the Social Impact Assessment (SIA). The hierarchy that appears in the FIFO Act requires recruitment of workers from local and regional communities, and then from workers who will live in regional communities. The FIFO Act applies to all current and future ‘large resource projects’ within 125 km of a nearby community.

Also under the FIFO Act, the Coordinator-General can require the owner of a large resources project to prepare an operational workforce management plan (OWMP) if satisfied that the owner has contravened the 100 per cent FIFO prohibition. The Coordinator-General can make a guideline for OWMPs, which is to be published on the Department’s website.

In practice, the 61 ‘large resource projects’ which are currently on foot in Queensland should be able to satisfy the “no 100% FIFO” rule. While the prohibition was applied unexpectedly to all existing ‘large resource projects’, the Coordinator-General is not expected to make inquiries of current projects, but the mining unions can be expected to ‘police’ these new requirements. The Construction, Forestry, Maritime, Mining and Energy Union can be expected to closely scrutinise the use of FIFO workforces at a number of Queensland mine sites. The mining unions can also be expected to support workers who claim that they were discriminated against if unsuccessful in securing a position at a mine.

Accordingly, industry operators affected by this change will need to consider the best approach for fatigue management for shift workers driving from regional communities, an issue which was the subject of Coronial Inquest findings handed down on 23 February 2011.

Steps for managing potential anti-discrimination claims will also need to be considered. Relevantly, a discrimination claim may be made against the owner or principal contractor for the project where a person alleges that they were not offered work because they were a resident of a nearby community, or that their employment was ended because they were, or became, a resident of a nearby regional community and chose to travel to the project other than as a FIFO worker. In such claims it will be presumed that the alleged discrimination occurred, unless the owner or principal contractor proves otherwise. Complaints that cannot be resolved by conciliation can be referred to the Queensland Industrial Relations Commission for determination.

Given the strong stance taken by unions supporting these changes, it can be expected that these provisions are likely to be tested. As such, putting in place processes to ensure that decisions made about these matters do not breach these new requirements, and are properly evidenced in case challenged, will be important.

Overhaul of working visa regime

The Department of Home Affairs was established in December 2017, and is responsible for the management of immigration to Australia. There have been changes to many Australian working visas over the last 12 months, most notably:

  • the Temporary Work (Skilled) visa (subclass 457) (457 visa) was abolished in March 2018, and is now closed to new applicants
  • the Temporary Skill Shortage visa (subclass 482) (TSS visa) came into effect in March 2018. Employers should note that:
    • Standard Business registration now lasts for 5 years (even for start-ups and overseas businesses)
    • occupations on the list of eligible skilled occupations are being updated every 6 months
    • occupations are either on the STSOL (TSS visa will be granted for 2 years) or the MTSSL (TSS visa will be granted for 4 years)
    • visa applicants are required to have worked in their nominated field or a related field for at least two years prior to applying for the visa
    • there are limitations on applying for a TSS visa in the STSOL stream from within Australia
    • costs have substantially increased – STSOL application charges start from AUD 1150 and MTSSL application charges start from AUD2400
    • legislation is currently before Parliament to introduce a mandatory levy payable by employers to the Skilling Australia Fund (which will replace Training Benchmarks), and
    • changes to Labour Market Testing requirements are also likely to be made in 2018.
  • there have been some changes to permanent residency visas, most notably:
    • reduction in age for all streams of the Employer Nomination Scheme (subclass 186) and Regional Skilled Migration Scheme (subclass 187), requiring all visa applicants to be under 45 years at time of application (unless one of the very limited exemptions apply)
    • residency period to transition from the 457 or TSS visas is now 3 years (formerly 2 years)
    • at least 3 years’ work experience is required, and
    • for the Direct Entry stream, generally a skills assessment will also be required.

TENEMENTS, ENVIRONMENT AND PLANNING

Proposed reforms to financial assurance and rehabilitation plans in Queensland

From 1 July 2018, major changes to the financial assurance (FA) regime and the requirement to carry out progressive rehabilitation will occur if the Mineral and Energy Resources (Financial Provisioning) Bill 2018 (Qld) (FA Bill) is passed by the Queensland Government. The changes will affect every resource project in Queensland. The proposal was well promoted, having been flagged initially through a series of discussion papers released in May 2017 and building on several attempts to reform FA over the past five or so years.

Key elements of the proposal include:

  • pooled rehabilitation fund – a fund is established to cover the rehabilitation costs if eligible companies default on rehabilitation obligations
  • ERC Decision – the estimated rehabilitation cost (ERC) decision replaces the FA decision, and will apply for an ERC period nominated by the environmental authority (EA) holder of between 1-5 years. Discounts, which were previously up to 30 percent, are removed
  • Scheme Manager – the position of ‘Scheme Manager’ is established. The Scheme Manager is responsible for assessing a company’s risk rating, and managing the rehabilitation fund
  • risk rating – companies will be allocated a risk rating and this will determine fund eligibility and contribution rates. A merits review is not available for this decision
  • corporate groups – companies (including corporate groups) with more than $450 million of the State’s total rehabilitation liability will only be eligible to the participate in the fund up to that threshold
  • method of providing FA – some companies will not qualify for the rehabilitation fund, as their rehabilitation risk is considered too high. They must continue to provide a third party surety. Surety options will be expanded to include an insurance bond, freeing up cash for those that currently have cashed backed guarantees
  • tenement transfer or change in control – a registered dealing or change in control will trigger a review of the risk allocation by the Scheme Manager. Otherwise, it is subject to an annual review
  • plans of operations – mining companies will no longer be required to submit a plan of operations, but they are retained for holders of petroleum leases
  • PRC Plan and PRCP Schedule – existing mines will be required to ‘translate’ their existing EA rehabilitation conditions into binding progressive rehabilitation milestones. Every EA in Queensland will require amendment, and
  • residual voids and floodplains – areas that cannot support a post-mining land use will face particular scrutiny. For new mines, voids will not be approved in floodplains.

Key issues arising from the reforms

Established to fund rehabilitation if either a resource company fails to meet its rehabilitation obligations or if a tenement is disclaimed, the Financial Provisioning Scheme (Scheme) introduces major changes that will affect every resource company operating in Queensland. Key aspects of the Scheme include:

  • it will be managed by a new statutory officer dubbed the Scheme Manager who will report annually on the Scheme, including on the Scheme’s revenues and costs
  • KPMG has been engaged to design the risk assessment that will apply to resource projects under the Scheme. KPMG’s report, ‘Design of the Risk Assessment Process for the FA Scheme’ (Risk Report) recommends that the ‘risk’ of an EA holder should not be based solely on external credit ratings, instead the Scheme Manager should consider:
    • the financial strength of the EA holder and its parent company (including JV participants)
    • the resource characteristics, and
    • the extent of rehabilitation effort on site.
  • the Risk Report has been carried through to the FA Bill, however much of the detail of the Scheme Manager’s considerations have been deferred to the Scheme Manager Guidelines, and
  • the amount paid to the Pool will be calculated based on the ERC decision (which replaces an FA decision), and the risk allocation. As of yet, the Government has not made the contribution costs public however they may range from 0.5% to 2.5%. Without knowing the costs, it is difficult for companies to properly assess whether they are financially better off under the Scheme. Adding to this challenge, the previous FA scheme used a system of discounts to reduce the amount of FA payable by up to 30%. The Scheme removes this discount mechanism.

Form of surety

Currently, FA is either in cash or by way of a bank guarantee provided by a regulated banking entity. The Scheme adds a third option – insurance bonds – which must be irrevocable, allow on-demand and unconditional payment and be governed by Queensland law. We anticipate that insurance companies will enter the market to provide these once the Scheme is established. The Government has decided not to add escrow arrangements or non-cash collateral.

Transition to the new scheme

The target date to commence the transition to the new Scheme is 1 July 2018, and existing resource projects will be transitioned into the new Scheme over a three year period, although there may be company or project specific negotiations around transition. Risk assessments will be conducted annually and EA holders who move, say, from the Pool to the Surety Division will be given a 12 month notice period.

Other key provisions

Other key provisions of the FA Bill include:

  • certain tenement transfers or a change in control (defined by reference to the Corporations Act), will trigger a review of the risk allocation by the Scheme Manager. The FA Bill establishes a mechanism for an indicative risk categorisation – for example; where a company is considering purchasing an operation and it requires certainty of the cost of being part of the Pool
  • a company must notify the Scheme Manager if production ceases for more than 6 months, effectively acting as a notification of entering care and maintenance
  • the petroleum and gas sector will sit under the same Scheme as the mining sector, and
  • there will be no ‘opting out’ for those entities assigned to the Pool – despite some entities providing evidence they can achieve third party surety costs well below proposed Pool levies.

The impact of the Scheme on joint ventures and other complex corporate structures has been a concern to a number of industry participants. The FA consultation report states that ‘Government is working with legal and accounting advisors and industry members to ensure complexities such as JV arrangements are appropriately taken into account.’ Otherwise, these arrangements are not given any special consideration in the FA Bill. There may be an opportunity to nominate a holder for the purpose of Pool eligibility – which may help some companies overcome the $450 million threshold, and centralise joint venture risk rating considerations.

Better Mine Rehabilitation

‘Life of mine plans’ have been renamed the ‘Progressive Rehabilitation and Closure Plan’ (PRCP). The Government is proposing to develop detailed guidance material on the development of PRCPs and milestones with appropriate rehabilitation completion criteria, but for now we know that:

  • plans of operations – mining companies will no longer be required to submit a plan of operations, but the plans are still required for holders of petroleum leases
  • PRCP and PRCP Schedule – existing mines will be required to ‘translate’ their existing EA rehabilitation conditions into binding progressive rehabilitation milestones. This change will require that every mining EA in Queensland be amended. The FA Bill allows for this transition to occur gradually over 3 years, with companies being given 6 to 12 months to deliver the PRCP from the time they are provided with a notice. The PRCP will be required as part of the environmental assessment for major new projects, usually through the Environmental Impact Statement. Once approved, the PRCP Schedule is binding and it will be an offence not to comply with it. Amending a PRCP Schedule will follow a similar process as an EA amendment, including public notification requirements
  • non-use management areas – this concept has appeared in the FA Bill, and applies to areas that cannot be rehabilitated to a stable condition and suitable post-mining land use. The concept will particularly apply to mining voids, but could equally apply to other mining areas. Non-use management areas will require approval through the PRC Plan process, and
  • residual voids and floodplains – areas that cannot support a post-mining land use will face particular scrutiny. For new mines, voids will not be approved in floodplains.

Where to from here

Considerable detail has been deferred to supporting regulations and guidelines, making it difficult for industry to fully assess the overall impacts of the new Scheme and associated mine rehabilitation reforms.

The streamlining of the tailored solution into two divisions, the Pool and Surety Division, makes sense, as does the ability of larger entities to sit in the Pool, up to a limit. Those entities that believe they can achieve surety costs below proposed Pool levies will not be able to opt out. So, if you are assigned to the Pool, then all that remains in play is your risk assessment.
The Pool should unlock cash and potentially borrowing capacity for companies with large amounts of cash tied up to back their guarantees.

While industry participants will understandably be focused on the financial impacts (positive or negative), there are also the ‘social licence’ benefits to be considered of moving beyond the long-running debate about whether the State carries sufficient FA to protect taxpayers. The target date to begin the transition to the new Scheme is 1 July 2018.

Linc Energy Ltd’s ongoing prosecution for environmental harm in Queensland

Over the past five years Linc Energy Ltd (in liquidation) (Linc) has been the subject of an ongoing investigation into soil and groundwater contamination from its Queensland underground coal gasification pilot project. Having pleaded not guilty to five charges of wilfully causing serious environmental harm, following a nine week trial a jury has ultimately decided Linc is guilty on all five charges. It should be noted though that the liquidators did not offer any defence during the trial. Sentencing is set down for 11 May 2018, however as the company is in liquidation the State will be unable to claim any fines.

At the same time, Linc’s former CEO Peter Bond is facing the prospect of having to personally provide a $5.5 million rehabilitation bond and commence rehabilitation of the site. This personal liability has come about through the State’s first and only use of the Chain of Responsibility amendments to the Environmental Protection Act 1994 (Qld) (EP Act). These amendments occurred in 2016 and enable the State, in limited circumstances, to pursue related persons of high risk companies to make those people bring a facility into compliance.

Mr Bond, along with four other executive officers who had responsibility for the project, is also set to face a criminal trial in mid-2018. This follows a major investigation by the State’s environmental regulator which involved executing search warrants and seizing documents and computer backup material from Linc’s offices in 2013. In total, twelve individuals were formally placed under investigation with the regulator deciding that five should be prosecuted.

At the same time, Linc’s liquidator has so far successfully sought to disclaim the resource tenure, environmental licence and any responsibility for cleaning up the site. The State has challenged the validity of the disclaimer, and the Queensland Supreme Court initially found in its favour in April 2017 – a decision that was at odds with the common understanding that liquidators did not have a responsibility to meet clean-up costs for the environment following a disclaimer under the Corporations Act. This original decision was overturned on appeal in March 2018, however on 9 April 2018 the State sought leave to appeal the appeal decision to the High Court.

Regardless of the outcome of each of the Linc cases, they serve as a timely reminder that the EP Act creates broad powers for the State to pursue companies and individuals in the event that a company fails to comply with their responsibilities and the rehabilitation bond is insufficient to fund the clean-up costs. It also demonstrates a willingness, in some circumstances, to seek criminal reprimand of both the company and the individuals responsible.

Planning reforms in NSW – changes for some future modifications applications

Significant amendments to the planning legislation in NSW were passed by the NSW Parliament in November 2017. Some of the resulting changes to the Environmental Planning and Assessment Act 1979 (NSW) (EP&A Act) commenced on 1 March 2018, with the remaining changes to be rolled out over the next couple of years after additional public consultation has occurred.

Most importantly, between 2006 and 2011 many resources and energy projects were granted project approval pursuant to Part 3A of the EP&A Act. Part 3A of the EP&A Act was specifically designed to streamline the approval process for major projects. When Part 3A was repealed from the EP&A Act in 2011, transitional arrangements were put in place to enable those projects which had been previously been approved pursuant to Part 3A of the Act to continue under this regime.

On 1 March 2018, the arrangements for ‘transitional Part 3A projects’ were removed and all of these projects are now regulated by the current regime in place under the EP&A Act for State Significant Development (SSD) or State Significant Infrastructure.

If a project that was previously approved under Part 3A of the EP&A Act needs to be modified in the future, then the proposed modification project must be substantially the same as the development that was authorised by the project approval (as last modified) prior to 1 March 2018. If the modification does not meet this requirement, then a new standalone development application would need to be lodged that complies with the new SSD requirements pursuant to Division 4.7 of the EP&A Act.

Biodiversity reforms in NSW

A major overhaul of biodiversity protection legislation in NSW occurred in August 2017 with the commencement of the Biodiversity Conservation Reform Package, which include the Biodiversity Conservation Act 2016 (NSW) (BC Act) and the Local Land Services Amendment Act 2016 (NSW) (LLS Amendment Act), together with the other various pieces of legislation and supporting policies. The Biodiversity Conservation Reform Package introduces a biodiversity offset scheme for developments that need to offset their impact on the environment.

The Biodiversity Offset Scheme applies to:

  • development that is not considered to be SSD, if the development is:
    • likely to significantly affect threatened species as determined by the biodiversity scheme offsets threshold (in Regulations) or the assessment of significance (s7.3 of BC Act), or
    • carried out in area of outstanding biodiversity value, and
  • major projects (being SSD or State Significant Infrastructure), unless the Office of Environment and Heritage and the Department of Planning and Environment determine that the development is not likely to have any significant impact on biodiversity values.

If the proposed development impacts biodiversity above a certain threshold (BOS Threshold), the proponent will need to engage an accredited assessor to prepare a Biodiversity Development Assessment Report (BDAR). The BDAR will determine the impact of the proposed development on biodiversity values and the biodiversity conservation measures (including the retirement of credits) needed to avoid or minimize that impact. When determining whether development consent should be granted for a project, the consent authority will consider and impose conditions of consent requiring offset measures to be put in place.

The following are options to offset environmental impacts:

  • find and buy suitable biodiversity credits
  • pay an amount directly into the Biodiversity Conservation Fund
  • undertake other biodiversity actions that qualify as biodiversity conservation measures including mine site rehabilitation, and
  • any combination of the above.

The offset scheme establishes an open market between developers impacting biodiversity values and others seeking to protect biodiversity values.

Under the BC Act three types of private land conservation agreements are provided for to ensure conservation of land in NSW, which are:

  • biodiversity stewardship agreement – permanent agreements that generate biodiversity credits that may be sold to provide a potential upfront financial return and annual payments to cover the costs of management actions
  • conservation agreements – permanent or time-bound agreements that will be eligible for stewardship payments, and
  • wildlife refuge agreements – entry level agreements that provide a less restrictive option and can be terminated at any time or converted into higher forms of agreements.

In early 2018, the Office of Environment and Heritage released a draft discussion paper ‘Ancillary rules: use of mine site ecological rehabilitation as an offset’ (Draft Paper) for consultation. The Biodiversity Conservation Regulation 2017 (Biodiversity Regulations) provide offset rules which govern the biodiversity conservation measures that proponents can use to meet a credit requirement imposed by an approval authority to offset the impacts of a development. For major mining projects, the offset rules allow proponents to propose like-for-like ecological rehabilitation of the impacted site to contribute to meeting a credit requirement. These ancillary rules will be an important development for the mining industry.

Proposed improvements to mine site rehabilitation in NSW

In November 2017, the NSW Department of Planning and Environment released a discussion paper seeking public feedback on ways to improve how mine rehabilitation is currently regulated, as well as improvements on rehabilitation outcomes for State significant mining developments such as coal, mineral sands and large metalliferous mines. The Department have noted that this feedback will then be used to develop new state-wide policy and actions that provide certainty to industry and the community by clearly setting out Government expectations regarding rehabilitation and closure requirements for all major mining projects in NSW.

The discussion paper sets out a number of proposed reforms across the assessment, operational and closure stages of the mine life cycle. These include:

  • adoption of policy principles which set mandatory, best practice standards for all major mining development. These principles would cover progressive rehabilitation, making rehabilitation information publically available, and ensuring rehabilitation can sustain the post mining land use. The principles set additional standards for new mining projects, including the requirement that rehabilitation minimises the sterilisation of land and is compatible with surrounding land forms and land uses
  • development of a policy framework to assess final mining voids, where voids will not be considered in new major projects unless the void minimises environmental, community and visual impacts and cannot be feasibly removed
  • requirements for new major projects to consult with the community and provide information on mine design, rehabilitation and closure options early in the planning process
  • requirements for new major projects to include standard landform and land use rehabilitation objectives in the development application
  • requirements for rehabilitation conditions imposed on development consents and mining leases to be clear, measurable and enforceable
  • requirement for regulatory processes that occur once a mine has been approved are transparent and consistent with the approved rehabilitation proposal, post-mining landform and land use, and
  • improved regulator coordination across the assessment, operations and post-closure stages of mine life cycle.

These proposed reforms will only apply to existing and new major mining projects, known as State Significant Development. The proposal is not intended to apply to small mining development, exploration activities under the Mining Act 1992 (NSW) or petroleum exploration or production.

NATIVE TITLE

McGlade fix and further reforms

In June 2017, the Federal government passed the Native Title Amendment (Indigenous Land Use Agreements) Act 2017 (Amendment Act). The Amendment Act primarily responded to the Full Federal Court’s decision in McGlade v Native Title Registrar & Ors [2017] FCAFC 10, and its related impact on the validity of Indigenous Land Use Agreements (ILUAs) which were not executed by each person comprising the native title applicant.

The Amendment Act restored the status quo in respect of the execution and registration of ILUAs, including by confirming that ILUAs may be executed by a majority of people comprising the native title applicant.

Further amendments to the NT Act have been foreshadowed by the Federal Government, in line with the recommendations in the 2015 Australian Law Reform Commission ‘Connection to Country’ report on the NT Act. In November 2017, an options paper was released seeking stakeholder views on a range of proposed reforms, which include:

  • changing the role and scope of authority of the native title applicant, including in executing other types of native title agreements
  • the creation of an alternative agreement making mechanism for native title agreements
  • allowing ‘low impact’ future acts on land the subject of a determination of native title
  • allowing minor technical amendments to ILUAs without requiring re-registration, and
  • streamlining the native title claims process.

Feedback from stakeholders will inform the development of an exposure draft native title amendment bill, which will be released for further public comment later this year.

MINERALS INVESTMENT

Junior mineral exploration incentive

Applications to participate in the new Junior Minerals Exploration Incentive (JMEI) are now open. The federal government introduced the JMEI to encourage investment in small minerals exploration companies that carry out greenfields mineral exploration in Australia. The program allows eligible companies to give up a portion of their losses from greenfields mineral exploration expenditure to investors in the form of a refundable tax offset attaching to newly issued shares. Tax credits can only be generated for shares issued in that income year.

In order to participate in the JMEI, a greenfields minerals explorer must have incurred expenditure on exploration or prospecting for minerals for the income year and must not have carried on any mining operations for the relevant period (this criterion is extended to apply to any entity that is affiliated or connected to the explorer). Eligibility is determined each year a company applies to participate in the JMEI. Exploration credits are capped and the Australian Taxation Office will allocate each eligible entity an exploration credit allocation on a first come first serve basis. Applications for the 2017-2018 income year close on 15 May 2018.

RENEWABLES, ENERGY AND CLIMATE POLICY REGULATION

Penetration of renewable energy

The continued debate around renewable development policy in Australia has seen the Federal Government and the various states and territories move at different speeds into a full embrace of renewable and low emission energy technology.

The Finkel Blueprint

The final report of the independent review into the future security of the National Electricity Market (NEM) led by Dr Alan Finkel AO – the Blueprint for the Future – was released on 9 June 2017. The Council of Australian Governments (COAG) Energy Council comprising Commonwealth, State and Territory Energy Ministers met on 14 July 2017 and agreed a series of actions in response to the Finkel Blueprint. Ministers reaffirmed their priority for secure, reliable and affordable energy for all Australians while reducing emissions. All Finkel Blueprint recommendations were supported by State and Federal governments except for the recommendation for a Clean Energy Target (CET) to replace the Renewable Energy Target (RET) from 2020.

Establishment of the Energy Security Board

Energy Ministers agreed to establish an Energy Security Board (ESB), a new body comprising an independent Chair, Deputy Chair and the heads of the Australian Energy Market Commission (AEMC), Australian Energy Market Operator (AEMO) and the Australian Energy Regulator. The ESB will provide whole‑of‑system oversight for energy security and reliability of the NEM and will be integral to improving long-term planning. It will report to the Energy Council on a regular basis, including an annual ‘Health of the NEM’ report, in addition to advising the Energy Council on strategic priorities.

Energy Security Obligations

The introduction of energy security requirements for Transmission Network Service Providers (TNSPs) and generators, and updated standards to ensure generators are sufficiently resilient, will make the system better able to withstand disruptions like generator outages or interconnector failures.

The AEMC will ensure that transmission companies have a minimum level of inertia to ensure the system is better equipped to manage rapid electrical changes in the system.

New generators will have to provide fast frequency response, which will correct electrical changes in the system and is said to be a step towards the establishment of a market for these types of services.

Generator Reliability Obligation

New obligations on generators will bring more dispatchable capacity to the market and minimise the system reliability challenges flowing from an increasing share of intermittent renewable energy generation. Requiring generators to guarantee a level of dispatchable capacity before they enter the market will help ensure enough generation capacity is available to meet demand.

National Energy Guarantee

In late 2017, the Federal Government announced that it would not support the CET and instead proposed a National Energy Guarantee (NEG) which was recommended by the ESB. The NEG is made up of two parts; a reliability guarantee and an emissions guarantee.

The reliability guarantee will require electricity retailers to source part of their energy mix from ‘dispatchable energy’ such as coal, gas, pumped hydro and battery technology in order to meet any gaps identified in peak demand forecasts by the energy regulators. It is referred to as ‘dispatchable’ because it is not subject to environmental intermittency risk, such as solar and wind. This will be regionalised.

The emissions guarantee is said to contribute to Australia being able to comply with its international obligations and has been further developed with the release of the Draft Design Consultation Paper (Consultation Paper) by the ESB. The Consultation Paper proposes that responsibility for meeting the NEG obligations will fall on energy retailers and large scale energy users (customers) who must evidence their average emissions intensity per MWh through direct, generation source specific, contracts or otherwise by providing sufficient evidence to substantiate the emissions claimed. The suggestion is that emissions from electricity generation will have to contribute proportionately to Australia’s 26% Paris emission reduction target to be reached by 2030.

While the details of the NEG policy are still to be finalised, what we do know is that the driving force behind this move away from the Federal Government’s preference for renewable energy to fuel neutrality is the need for consistent and reliable energy to keep the lights on. Post the close of the RET, there will be no apparent Federal subsidies or other tax concessions for any type of energy generation, including renewables.

The prominent place of pumped hydro and battery technology within the listed forms of ‘dispatchable energy’ suggest that such renewable forms of energy or low emission technology are still favoured by the Federal Government. There was no explicit mention in the policy of new coal-fired powered stations as being part of the energy supply future.

As part of a compromise with the States, the NEG emissions guarantee (designed to achieve the 26% emissions reduction by 2030) is expected to operate in tandem with individual state renewable energy targets.

Australian Capital Territory (ACT)
The ACT has a legislated renewable energy target of 100% by 2020. The most successful initiative to meet this target has been a series of reverse auctions for the allocation of feed-in tariffs which has attracted new, large-scale wind and solar projects. Expanded investment in wind power infrastructure is expected to generate enough electricity to power all Canberra residences by 2020 and the ACT Government is also supporting the roll-out of energy storage to more than 5,000 ACT residences and businesses between 2016 and 2020.

New South Wales (NSW)
Australia’s three largest solar plants are located in NSW at Nyngan, Moree and Broken Hill. The State also hosts the Snowy Mountains Hydropower Scheme, Australia’s largest ever engineering project, which is currently the subject of a proposed major expansion, as announced by the Federal Government in March 2017.

In recent years the NSW Government has successfully sold transmission company TransGrid for $10.3 billion (2015), a 50.4% stake in Sydney power distributor AusGrid for $16.19 billion (2016), and a 50.4% interest in electricity infrastructure company Endeavour Energy for $7.6 billion (2017) to consortiums of investors, with Endeavour Energy subsequently committing to building NSW’s largest grid-connected battery to date. Although the NSW Government base their policies towards meeting the national RET, it released a draft paper late in 2016 outlining a goal of net zero carbon emissions by 2050, assisted by considerable spending to stimulate the transition towards renewable energy.

Northern Territory (NT)
The NT is isolated from both of Australia’s largest energy markets, the NEM and the Wholesale Electricity Market. However, there are 5,242 domestic solar photovoltaic (PV) systems in NT, generating 25MW of capacity. The Territory Labor Party has announced a renewable energy target of 50% by 2030 releasing its ‘Roadmap to Renewables Report’ before Parliament in November 2017.

Queensland
In June 2017, the Queensland Government announced the $1.16 billion Powering Queensland Plan (Plan) outlining the Government’s strategy to deliver long-term electricity supply and transition to a clean energy economy.

The Plan outlined a number of initiatives, including reaffirming Queensland’s commitment to a 50% renewable energy target by 2030 and facilitating a reverse auction for up to 400MW of renewable capacity which commenced in late 2017. In addition to the above initiatives, the Queensland Government has, in conjunction with the Australian Renewable Energy Agency (ARENA), committed to support up to 150MW of large-scale solar power generation under the Solar 150 investment program, providing added incentive for renewable energy investment. The State-owned electricity retailer Ergon Energy also received more than 2,000MW worth of applications under its recent tender for 150MW of renewable energy capacity. Further, Queensland has seen a strong uptake of small-scale, rooftop solar PV, with over 1,500MW installed (the highest in Australia). This is expected to continue to grow towards providing one-third of the NEM’s total generation capacity by 2035-36.

In March 2017, the Queensland Government issued $750 million in certified and independently verified green bonds to investors to help fund clean energy projects such as renewable energy generation.

South Australia (SA)
Following a change of government in March 2018, SA’s energy policy is in a state of flux. The new Liberal Government has proposed to abandoned the renewable energy target of 50% by 2025 and instead focus on supporting a national approach such as the NEG. According to the Australian Energy Market Operator (AEMO), 48% of SA’s power came from renewable energy in 2016.

Over 25% of households have installed solar PV capacity, with the installation rate in some suburbs as high as 65%. Wind generation is also particularly strong, representing 34% of the State’s electricity requirements in 2015. The former SA Government’s Low Carbon Investment Plan set a net zero emissions target for 2050, seeking to make Adelaide the world’s first carbon neutral city by 2025.

The former SA Government announced on 14 March 2017 that it would implement a $550 million energy plan, which would include the establishment of a $150 million Renewable Technology Fund to store renewable energy and add stability to supply. The first project funded was the grid-connected Tesla battery, providing the State with 100MW of storage.

Where these initiatives stand following the change of government remains unclear, however the new SA Government has proposed a $100 million home battery storage subsidy scheme alongside an additional $50 million for development of new grid scale storage technologies.

Tasmania
Tasmania generates more renewable energy than any other State. Tasmania successfully generated more than 90% of its energy from renewable sources in 2017. ARENA is leading a feasibility study into the upgrade and expansion of the Tasmanian hydro network, including the possibility of up to 2,500MW of pumped hydro storage.

Victoria
The Victorian Government has legislated a minimum renewable energy generation target of 25% by 2020 and 40% by 2025. These targets are supported by a competitive reverse auction scheme, which aims to bring on 1,500MW of new renewable energy generation by 2020 and up to 5,400MW by 2025. The first reverse auction scheme was conducted in 2017, requesting bids for up to 550MW of large scale, technology neutral renewable energy, and up to 100MW of large scale solar-specific renewable energy. Between February and March 2016, the Victorian Government tendered for at least 100MW of renewable energy projects, looking to invest approximately $200 million. New legislation also allows solar companies to install solar power systems in rental properties, providing cheaper power for tenants at no cost to landlords. These proposals have addressed some of the shortcomings in Victoria’s renewable energy policy, which had previously lagged behind other States despite excellent wind and solar resources. To assist with this, in mid-2016, the Victorian Government issued approximately $300 million in green bonds to help fund environmentally friendly projects.

Western Australia (WA)
Australia’s first large-scale solar PV project was established near Geraldton, in 2012, by Verve Energy with a 10MW capacity.

The Government-owned retailer Synergy has also tendered for approximately 500,000MWh of Large-Scale Generation Certificates to help it meet its obligations under the RET. WA does not have its own State based target and is currently committed to the national RET. However, the current WA Labor Government has reconfirmed its commitment to developing renewable energy initiatives. This includes a promise to provide $30 million in funding to support the establishment of a solar farm in Collie and a $19.5 million pledge for a wave power project in the Albany region.

GAS EXPLORATION AND DEVELOPMENT

Victoria’s Alternative Gas Plan

At the COAG meeting on 14 July 2017 the Victorian Government made it clear that its bans and moratoria on gas exploration and development will remain in place. The Victorian Government instead released its alternative proposals for gas market “reform”. The Resources Legislation Amendment (Fracking Ban) Bill 2016 which passed through the Victorian Parliament in 2017:

  • permanently bans all onshore unconventional gas exploration and development, including hydraulic fracturing (‘fracking’) and coal seam gas, and
  • extends the moratorium on conventional onshore gas exploration and development to 30 June 2020.

The extension to the moratorium will supposedly allow the Government to carry out a comprehensive program of geo-scientific research to look closer at Victoria’s prospectivity, and the potential risks, benefits and impacts of onshore conventional gas and development.

Having declined to be part of the solution for improving East Coast gas supply, on 14 July 2017 the Victorian Government then unveiled its plans to explore the development of an LNG import terminal in Victoria. Victoria won’t be producing on-shore gas in the state in the foreseeable future, but it seems happy for others to develop their gas resources and for Victoria to then import that gas.

The Victorian government also proposed an alternative to the Australian Domestic Gas Security Mechanism, involving a cap on the total allowable gas that major companies can export in order to protect domestic needs. Under the Victorian model, all gas exporters would be captured, not just those which are not net contributors to domestic gas supply.

NT Government to decide future of unconventional gas industry

The final report of the independent Scientific Inquiry into Hydraulic Fracturing of onshore unconventional reservoirs in the NT, released on 27 March 2018 (Final Report), provided 135 recommendations and specified timing for implementation to mitigate the identified risks associated with any onshore shale gas development in the NT to acceptable levels.

With the release of the Final Report, Justice Pepper who chaired the Inquiry, stated that the NT Government needed to implement all of the 135 recommendations presented in the Final Report and if this is not done, there can be no certainty that the risks associated with any onshore shale gas development in the Territory can be mitigated to acceptable levels.

The Final Report did not recommend whether or not the NT Government should lift the moratorium as this was outside the scope of the Inquiry. The recommendations are grouped into those needing to be implemented prior to further exploration approvals being granted and the others needing to be implemented before production approvals are granted.

On 17 April 2018, he NT Chief Minister announced that the NT Government has accepted all 135 recommendations and that unconventional gas exploration could resume once strict new regulation of the industry is put in place during 2018. Work on a detailed implementation plan for the 135 recommendations is now underway and will be published by July 2018.

Release of acreage in Queensland for domestic gas supply

The Queensland Government has continued to roll out a program of releasing gas acreage for competitive (non-cash) tendering where gas produced from that acreage must be supplied into the Australian gas market. These tenders have been a result of concerns by regulators and large gas users of a shortage of gas supply for domestic use in the East Coast gas market.

Senex Energy was the successful bidder in the first tender in 2018. The company has now been granted a petroleum lease for the production of gas and expects to be supplying gas into the domestic gas market by 2019.

Since Senex won its tender, two other Australian producers, Central Petroleum and Armour Energy, have won a further tender to explore for gas exclusively for the Australian market. The two local producers will explore a total of almost 400 ha just north of the townships of Miles and Surat in south-west Queensland.

Tenders have also recently been called for three further areas of potential conventional gas supply into the domestic market.

Commonwealth’s Gas Acceleration Program

The Commonwealth Government has announced the winning bids for funding of $6 million per project under the Commonwealth’s Gas Acceleration Program (GAP), first announced in May 2017. The GAP is designed to deliver new gas to the east coast gas market within three years. The GAP was designed to complement State Government efforts to facilitate gas supply development for the domestic market.

The four winning tenders were judged as those most likely to be able to deliver gas into the domestic market by 2020. Three of the winning tenders (Armour Energy, Westside Corporation and Tri-star Petroleum) were for accelerated drilling programs in Queensland’s Surat and Bowen Basins and a fourth project put forward by Beach Energy for a new gas processing facility. The Commonwealth’s grants totalling $24 million will leverage a further $45 million in company investment.

Federal Government’s proposed LNG export restrictions and Australia’s liability under international trade law

Foreign investors can be subject to the risk of government action such as legislative and other regulatory changes that diminish the value of an investment. Existing foreign investors may have recourse to certain bilateral investment treaties (BIT) or free trade agreements (FTA) if this situation arises. For potential foreign investors, these risks can be protected against by intelligent structuring of an investment so as to gain the protection of a BIT or FTA.

What is the Australian Domestic Gas Security Mechanism (ADGSM)?

On 27 June 2017, the federal government introduced a framework for export restrictions on gas companies that draw more LNG from the domestic market than they put in to ensure sufficient supply domestically. The regulations giving effect to the ADGSM came into effect on 1 July 2017.

The government created the ADGSM by amending the Customs (Prohibited Exports) Regulations 1958 (Cth), which are made pursuant to the Customs Act 1901 (Cth). A new division was inserted to enable the Resources Minister to mandate LNG export restrictions in his or her discretion.

Key characteristics of the ADGSM include:

  • It will only operate for five years. The government sees the ADGSM as a temporary measure to put downward pressure on gas retail prices in Australia and restore certainty to the market, particularly for gas fired electricity production.
  • Export controls can only be triggered where the Resources Minister formally determines, on the basis of his or her reasonable belief, that there would not be sufficient supply of natural gas available for the Australian domestic gas market over a forthcoming calendar year.
  • In addition, the Resources Minister must provide at least 30 days’ notice to the public before making such a decision.
  • When export controls are invoked, an LNG exporter must seek permission to export from the Resources Minister. Such permission will be made on a condition mandating the annual upper limit on the volume of LNG that can be exported.
What international obligations may Australia breach?

Australia owes a myriad of trade-related obligations under multilateral and bilateral treaties. These may be enforced by other nations or, in circumstances where investment treaties provide for investor-state dispute settlement (ISDS), by foreign investors themselves.

Australia may expose itself to international legal claims if the ADGSM is unjustifiably prejudicial to the interests of Australia’s trade partners or to foreign investors. Broadly speaking, it is unlikely that Australia will breach its obligations as the ADGSM seeks to strike a balance between achieving supply security while, in the government’s words, abiding by the ‘requirements of a globally integrated and highly competitive export industry’. The ADGSM therefore seeks to ensure it is appropriately tailored to solving domestic supply shortfalls by:

(a) existing temporarily, and

(b) mandating that export controls can only be triggered where the Resources Minister formally determines that he or she has reasonable grounds for believing that there would not be sufficient supply of gas available for the domestic market over a forthcoming calendar year.

While (b) may be a “mouthful”, it is carefully worded by the government so as to provide a minimum assurance to industry that export restrictions will not be mandated whimsically, while simultaneously protecting the Resources Minister with a comfortable level of legal discretion.

How would Australian companies go about challenging decisions by the Resources Minister?

Obligations owed by Australia under bilateral and regional trade treaties are only owed to foreign countries and applicable foreign investors. Australian companies adversely affected by a future decision of the Resources Minister under the ADGSM might, however, have recourse to administrative law remedies. Administrative law is the body of domestic law regulating government decision making.

The ADGSM does not provide for merits review of the Resources Minister’s decisions. Decisions would, however, be judicially reviewable. In other words, the court cannot “stand in the shoes” of the Resources Minister and decide whether his or her decision under the ADGSM was the “correct or preferable” decision made. The court will be limited to assessing the legality of the decision i.e. whether it was made in accordance with the ADGSM.

Short-term implications

At this stage it seems that the purpose and proposed design of the ADGSM make it unlikely that Australia will breach any of its international trade obligations either under GATT or under the numerous BITs and FTAs to which Australia is a party. Much may depend on how the Resources Minister implements the ADGSM on a case by case basis. The government should tread carefully in ensuring the ADGSM secures a legitimate public aim without unduly inflicting prejudice on foreign investors. Foreign investors adversely affected by the introduction of the ADGSM should consider what BITs and FTAs are currently in place between the investor’s nation of origin and Australia, and seek advice regarding applicable protections, including those canvassed above, which might be available to them. Foreign investors looking to invest in Australia, particularly in the resources sector, should consider how their investment is to be structured to obtain the benefit of protections afforded by BITs and FTAs.

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

About the authors

  • Damien Clarke

    Partner
  • Louise Horrocks

    Partner
  • Dominic McGann

    Partner
  • Cameron Dean

    Partner
  • Michael Roche

    Strategic Adviser
  • Patrick Holland

    Partner
  • Kate Swain

    Partner

In other news

New Industrial Relations Laws – What it means for you

22 December 2020Insight

Payment Times Reporting Scheme

21 December 2020Insight

Australian Government proposes new broadcaster’s licence and forced investment quotas in Media Reform Green Paper

14 December 2020Insight

Verification of identity – does it always need to be in person?

6 December 2020Insight

VIEW ALL NEWS & INSIGHTS

BRISBANE

Level 11, 66 Eagle Street
Brisbane QLD 4000
GPO Box 1855
Brisbane QLD 4001
Tel +61 7 3233 8888
Fax +61 7 3229 9949

 

GET IN TOUCH

    Contact form

    We handle your personal information in accordance with our privacy policy.

    sydney

    Level 32, MLC Centre
    19 Martin Place
    Sydney NSW 2000
    GPO Box 462
    Sydney NSW 2001

    Tel +61 2 8241 5600
    Fax +61 2 8241 5699

     

    GET IN TOUCH

      Contact form


      We handle your personal information in accordance with our privacy policy.

      melbourne

      Level 27, 101 Collins Street
      Melbourne VIC 3000
      GPO Box 2924
      Melbourne VIC 3001

      Tel +61 3 9067 3100
      Fax +61 3 9067 3199

       

      GET IN TOUCH

        Contact form

        We handle your personal information in accordance with our privacy policy.

        follow us

        CLIENT LOGIN

        newcastle

        Level 2, 16 Telford Street
        Newcastle NSW 2300
        PO Box 394
        Newcastle NSW 2300

        Tel +61 2 4914 6900
        Fax +61 2 4914 6999

         

        GET IN TOUCH

          Contact form


          We handle your personal information in accordance with our privacy policy.

          canberra

          Level 9, 2 Phillip Law Street
          Canberra ACT 2601

          Tel +61 2 6243 3699
          Fax +61 2 8241 5699

           

          GET IN TOUCH

            Contact form


            We handle your personal information in accordance with our privacy policy.

            © 2017 McCullough Robertson. Site map Disclaimer Privacy Policy Credit Reporting Policy

            X