Revised draft regulations pertaining to financial provisioning for reconnaissance, prospecting, exploration, mining or production operations were released for public comment in terms of the National Environmental Management Act 107 of 1998 (“NEMA”) by Minister Barbara Creecy on 11 July 2022. The period for public comment will remain open until 25 August 2022.
This revised draft follows numerous stakeholder engagements and comments on various previous drafts, with the most recent prior iteration of the regulations having been released for comment on 27 August 2021. The Department of Forestry, Fisheries and the Environment has indicted that this is anticipated to be the final window for comments. The draft regulations, which will be known as the Financial Provisioning Regulations, 2022, are intended to repeal and replace the current Financial Provisioning Regulations, 2015, which sent shockwaves through the mining industry when they were introduced in November 2015. The introduction of this final draft for comment follows the recent publication of the National Environmental Management Laws Amendment Act, 2 of 2022, which was Gazetted on 24 June 2022, but is yet to come into effect, and which also substantially changes the current position under NEMA relating to financial provisioning relating to environmental rehabilitation.
A few notable aspects of the draft Financial Provisioning Regulations, 2022 include the following:
- There is an emphasis on rehabilitation being carried out in a progressive manner, rather than being left until the end of the operation, and the methodology for calculation of the requisite financial provision will change substantially from the current methodology. Separate methodology will be provided for determination of the financial provision for lower risk operations (such as reconnaissance and certain prospecting and exploration operations, as well as mining for commodities identified as low risk), and the determination methodology applicable to all other regulated operations, which will require more detailed plans and methodology. It is expected that this change in methodology may substantially decrease the financial provision which certain applicants and holders will need to make.
- The current vehicles which may be used to make financial provision, being trusts, cash deposits and financial guarantees, will remain in place, but trusts will once again be able to be used for the necessary financial provision during the life of the operations (rather than only for post-closure provisions). The use of parent or affiliate company guarantees has been introduced for use exclusively in applications for exploration and production rights in the oil and gas industry. A new allowance for withdrawal of funds from the financial provision to facilitate decommissioning and final closure activities in the 10 years prior to the scheduled final closure of operations is also introduced.
- Criminal offenses have been substantially broadened under the draft regulations in relation to entities required to make financial provision, and potential criminal liability has been introduced for financial institutions, parent or affiliate companies who issue guarantees, liquidators and business rescue practitioners, as well as trustees and directors of closure rehabilitation companies and trusts. With fines of up to R10 million or 10 years’ imprisonment, or both such fine and imprisonment, the introduction of this broadened criminal liability may give individuals pause for thought before agreeing to act in the above mentioned capacities.
- The template for trust deeds has been removed, and a new template has been introduced for financial guarantees. The care and maintenance provisions have now been removed in their entirety.
- The transitional provisions have changed substantially, depending on the type of right or permit which is held, and in certain circumstances financial provision which was made prior to the coming into effect of the Financial Provisioning Regulations, 2015 will subsist until the lapse of such permit or right.