3. South Africa’s current financial provision framework for mine closure and rehabilitation
3.7 Conclusion
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the most desirable type of financial instrument from the point of view of regulators and society because they force the mine to assume responsibility for funding its rehabilitation at closure.369
In order to improve the efficacy of a trust fund there is a need to ensure that the trustees who have been made responsible for the trusts funds become personally liable themselves if adequate provisions are not met. Improved and greater provision for liability of trustees needs to be aligned with section 34 of NEMA, section 43 of the MPRDA as well as section 77 of the Companies Act and section 9 of the Trust Property Control Act. In addition, trustees should become personally liable if the provisions of the trust deed are not complied with.
The size of the trust fund at closure will only be adequate if the closure cost estimation is correct. The accuracy of current closure cost estimates is questionable. This needs to be addressed by assessing the quantum for financial provision on a regular basis so that the size of the trust fund contributions increases as the rehabilitation costs of closure increase. The fund must be structured in such a way as to give the government "reasonable assurance" that sufficient funds will be available to meet expected reclamation costs.370
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requirement for post-closure provision for the treatment and pumping of polluted or extraneous water. The same will also apply for the existing provision because such provision must also be reviewed and re-assessed in order to ensure that it complies with the Regulations. Financial provision will also have to be re-assessed annually, and may therefore increase annually.
The NEMA Financial Regulations requires that a final rehabilitation, decommission and mine closure plan is developed which includes the determination of financial provision to guarantee the availability of sufficient funds to undertake rehabilitation and remediation of the adverse environmental impacts of mining. The new regulations are far more stringent in terms of the financial provisions required for rehabilitation and the financial vehicles allowed to provide for the rehabilitation liabilities. It is important to note that the financial provision now expressly extends to the ongoing post-decommissioning management of negative environmental impacts in addition to rehabilitation and closure.372 The fact that a mine’s date of closure is often only in a decade or longer means that correctly estimating costs now can be incredibly difficult, even with the most effective systems in place.
Thus, the adequacy of the financial provision at closure ultimately depends on the accuracy of the closure cost estimate, irrespective of how the provision has been made. It is therefore important that mines first correctly estimate the cost of closure. In light of the above background a concerted effort needs to be made to regularly assess whether the financial provision made is accurate. The first step in the process through which financial provision is made is the accurate estimation of the amount of money necessary to undertake the required environmental rehabilitation and mine closure. The manner in which the amount is determined is therefore critical to the overall success of the financial provisions system.
A key requirement of NEMA is for mining companies to make an accurate determination of the quantum required for the rehabilitation or management of impacts, and to make sufficient financial provision for these in event that they default on their obligations of repairing the environment. By requiring that mining companies make financial provisions for closure and rehabilitation of mines is effectively giving effect to section 24 of the constitution. At least there will be some guarantee that the environment will be protected for the future generations as well. The legislation requires sufficient funds to be provided to achieve closure and to provide for any latent impacts. The main challenges are therefore to determine the extent of
372 Section 24P (1) of NEMA (as amended by Act 25 of 2014).
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liability, predict the latent and residual impacts and calculate the amount required.373 In regards to the funding of residual and latent environmental effects, there is no prescription about how the Minister should calculate the amount of the financial provision to be kept in order to cover the future costs of latent or residual environmental impacts, apart from the environmental risk report submitted by the holder. While residual impacts can be planned for in the environmental risk report, latent impacts can clearly not be accurately forecast, and it is therefore unclear exactly how the Minister calculates how much of the financial provision to retain in order to make provision for this eventuality.374
One of the shortfalls of the NEMA financial provisions regulations is that they do not make reference to the Guidelines Document nor do they specify that the Guidelines Document should be reviewed and updated, and the first document released by the Department has also been the last. Therefore, the quantum calculations remain at 2005 levels, without provision being made for inflation, and although some of the major mines have built inflation into their calculations, many others have not.375 This creates the possibility that the government could have to bear the financial responsibility of rehabilitating mines where operations are closed and the companies are unable to raise enough capital to carry out the rehabilitation themselves.376 Van Zyl et al reported relatively high levels of variability with regard to the perceived adequacy of financial provisions.377 The authors note that uncertainty with regard to the adequacy of financial provisions appears to be highest in relation to providing for adequate post-closure water treatment.378 The costs associated with treatment can be particularly high and combined with uncertainty about what is strictly required can lead to mines effectively trying to downplay or even ignore unacceptable risks.379
The new regulations take a much broader view of the lifecycle of the mine, including annual rehabilitation, rehabilitation at closure at the end of life of mine, and rehabilitation of latent or residual impacts that may arise long after mining has ended. The regulations are more specific about the accurate calculation of financial provision, and importantly now require mines at any time to have funds available to pay for rehabilitation costs within a 10-year
373 Ibid.
374 K Swart ‘The Mining Legacy in South Africa – A Superfund Sized Problem or a Trust Fund Baby? A critical analysis of the market-based instruments applicable to mining, with specific focus on financial security mechanisms and suggestions for a new approach’. (Unpublished LLM Thesis, UCT, 2012) 45.
375 Van Zyl (see note 22 above) 23.
376 Hewitson (see note 318) 3.
377 Van Zyl (see note 22 above) 23.
378 Ibid.
379 Hewitson (see note 119 above).
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timeframe (mining companies traditionally hold far less funds in trust for rehabilitation). The regulations also require involvement of more independent specialists, regular review and audits, and publication of financial provision and audits on mining companies’ websites.
Financial provision must also be signed off by the Chief Executive Officer of the mining company to ensure accountability at the highest level. The use of an independent auditor is also appropriate as it gives assurance as to the adequacy and compliance of a particular financial provision. The review by an independent auditor could also serve as an opportunity for capacity building and learning since the DMR officials may learn from the auditor’s skills.380 This also helps in adjusting the financial provision to be in line with the escalating costs and inflation. In essence, ‘the system is now geared towards guaranteeing that adequate funds are available for planned or premature closure at all times and in all possible circumstances’.381
380 Ibid 27.
381 Van Zyl (see note 24 above) 19.
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4. Mine Closure Planning Provisions from other Jurisdictions