Since our 2011 report there have been many important changes to broad-scale policy settings, technical and systems improvements and more focused risk-based approaches to monitoring and inspection. These changes include actions to address the recommendations in our 2011 report. While the changes have not all been fully implemented, in each case the next steps are clear, and agencies expect that outstanding issues will be resolved in the near future.

One issue that has not advanced since 2011 is the place of State Agreements. DMP and DSD are progressing a formal protocol that will make their individual responsibilities more clear. However, miners operating under State Agreements are not required to participate in the Mining Rehabilitation Fund. Obtaining their involvement would increase the State’s capacity to deal with abandoned mines and enhance its information about mining, but needs to be managed to ensure that risk to the State is not increased.

While the State’s risk of liability in regard to State Agreement mines has not changed since our 2011 audit, financial security and information about mining would be better if these operations, which include some of the largest operations in Western Australia, were part of the mainstream regulatory framework.

The Mining Rehabilitation Fund has reduced State liability

The Fund addresses the weaknesses in the old system

In 2011 we found that the State was exposed to significant financial risk from inadequate rehabilitation of mine sites after their closure, and recommended that this approach should be revised. At that time, individual bonds totalling $1.2 billion were held against particular tenements, and could not be used except to rehabilitate those particular sites. The bonds covered less than 25 per cent of the predicted cost of rehabilitating any particular site.

After a broad review, including industry and public consultation, the bond system was replaced by the Mining Rehabilitation Fund Act 2012 (the Act) and Regulations. The Mining Rehabilitation Fund (the Fund) acts like an industry-funded insurance scheme, transferring the risk of poor outcomes predominantly to the industry. Operators are required to rehabilitate sites and also pay a small non-returnable annual levy based on whatever disturbance they have not rehabilitated. This approach both frees up operating capital for industry, and gives the State more freedom to fund the most necessary rehabilitation needs. The Fund has been designed so that in any year it should be able to cover the cost of rehabilitating the mine with the largest liability in the scheme.

The Fund works in a number of ways to reduce State liability. First, it levies miners annually against the rehabilitation costs of their mine sites. Second, it builds an ongoing special purpose account that can be used to rehabilitate any mine site if operators fail to do so, though the State would also seek to recover costs from the operator. Finally, it allows interest earned from levies to be used to rehabilitate ‘abandoned’ mines, including many thousands of historical sites across the State. This addresses the main weakness of the old bond system, where bonds could only be used on the particular tenements they were held against.

Annual levies are collected according to the net annual environmental disturbance on each mining tenement. Regulations issued under the Act established five categories of environmental disturbance activity, each with a set rate for the cost of remediation per hectare (see Table 1).

 

The annual levy on each tenement is one per cent of the total liability, unless the total assessed cost is less than $50 000 (see Table 2). These operators are still required to submit their disturbance data.

Operators must register to participate in the Fund through the DMP online system, and then submit a self-assessment of liability through the same system. The system allows operators to select their own levy dates each year, and these do not have to match other environmental reporting dates. This means that a company can minimise its levy payment in any period. However, this poses no extra risk to the State because the operator either rehabilitates the site or pays the levy.

 

The work to establish the Fund has been based on a Treasurer’s Advance of $4.5 million. This provided for the continuing administration of the fund as well as the building of the online Fund system, which is a component of the Department’s online mine management system, called EARS2. DMP expects to begin repaying the advance in four to five years.

Industry has signed up, although revenue is lower than expected

The vast majority of miners have signed up to the Fund

At end of September 2014, over 99 per cent of owners of the State’s 22 000 mining tenements were in the Fund. The system went live in July 2013, and was voluntary for the first year, becoming compulsory on 1 July 2014. Numerous operators signed up during the voluntary period, providing $6.7 million to the Fund. Because participation was voluntary, no fines or penalties were imposed during this period.

Out of the 22 000 tenements, 1 184 tenements or five per cent had not been registered as required by 1 July 2014. The owners were all issued infringement notices for lateness, with a penalty of $4 000 each. The $4 000 penalty was established by Regulation but is considerably less than the possible $20 000 penalty available under the Act.

Application of the $4 000 penalty was immediately enforced. To encourage participation and help miners adjust to the new system, DMP sent repeat reminders to these operators rather than immediately require payment of the penalty. By early September about 60 operators had still not registered 182 tenements. DMP will hand over the infringement process for any unresolved cases to the Department of Attorney General’s Fines and Enforcement Registry in December 2014.

Revenue into the Fund is less than forecast due to lower actual costs

Although nearly all miners have registered for the Fund, revenue from the levy is now expected to be lower than forecast in the 2014-15 State Budget. The 2014-15 Budget Papers forecast that the Fund would receive $45.4 million ($42.2 million levies plus $3.2 million in interest) in 2014-15. DMP now expects to receive $27 million in total. If this rate continued, by 2017 the Fund would hold between $90 million and $94 million, with between $4.3 million and $6.9 million in interest, depending on settings. This compares with $155 million and $16 million in interest using Budget Paper figures.

The lower than forecast revenue relates to an initial over estimation of the cost of rehabilitating the categories of environmental disturbance per hectare. This in turn led to an overstatement of the total estimated revenue, based on an unchanged estimate of the amount of disturbance involved.

In setting up the Fund, DMP initially estimated the costs per hectare for the five categories of rehabilitation at:

• $100 000 per hectare for Category A

• $60 000 per hectare Category B

• $30 000 per hectare Category C

• $18 000 per hectare Category D

• $2 000 per hectare Category E.

In April 2013 DMP received a commissioned analysis of actual rehabilitation costs as part of its process to finalise the regulated rates. The review, which assessed information from 500 miners on activity on 39 000 hectares, found that the actual rehabilitation costs were lower than estimated.

The lower revenue will impact the amount of interest earned by the Fund, and therefore the amount of money available to rehabilitate abandoned mines. This should not have long term impacts, especially if the cost of rehabilitating abandoned mines is similar to the cost for current activity, and if DMP keeps down the costs of administering the Fund. However, it will impact how quickly DMP can act, but the effect should diminish over time as interest compounds. The amount of work DMP does in this area will always have to be adjusted to match its income.

Any significant reduced revenue might require rethinking activity rates and/or the one per cent levy rate. A review of rates is already planned for 2017. We also note that the Fund is the first opportunity to accurately understand activity and rehabilitation need across the State. Whatever the final outcome, these actual figures should be reflected in Budget Estimates.

Bonds are being released appropriately

In almost all cases the Fund should replace the bond system. When DMP receives the annual levy for payment into the Fund, it begins the process for releasing the bonds on each tenement. This releases often substantial amounts of capital to operators.

Payment of the annual levy does not alone trigger release of the bond. DMP has a number of criteria which must be met if the bond is to be released. These include:

• Australian Security Investments Commission checks to ensure that the operator’s controlling business is not under administration, in liquidation or have a winding-up order or similar. Such a condition would indicate a need to retain the bond as security against the risk of inadequate remediation of the operator’s site.

• Checks to establish if the operator has failed to lodge production reports or pay royalties on time and in full or has been issued fines or directions or orders to modify or stop work in the last two If the operator does have such history, then they must write to DMP outlining why its bond should be retired.

At 21 August 2014, DMP had retired 1 634 bonds worth $329.8 million. The Department still held 3 647 bonds worth $889.6 million. Of these, 81 bonds valued at $13.7 million had been retained after the operator signed up to the Fund.

We reviewed a well-publicised case where an operator went into voluntary receivership soon after signing up to the Fund and having its bond of $3 million retired. This could have left the State with a liability of $16.7 million. We found that in this case DMP had conducted the appropriate checks and found no indication that the company was unstable. Since then another company has taken on the tenements, and therefore taken on the rehabilitation liability. As the system matures and more bonds are retired, there will be very few opportunities for such occurrences.

In July 2014 a revised version of the bond system was introduced to run alongside the Fund. The revised bond policy is aimed at giving the State more protection against the risk of liability where DMP has assessed that a tenement holder is a high risk of not completing their rehabilitation obligations. Under the revised bond arrangement, a bond can be set at 100 per cent of the assessed rehabilitation liability rather than the 25 per cent rate used in the past.

The Department of Mines and Petroleum needs to finalise how it designates and decides to act on abandoned mines

DMP is developing its policy and criteria for addressing abandoned mines and expects to release the policy for public consultation in December 2014. When finalised, this will determine how it prioritises abandoned sites for rehabilitation, and how it funds this activity from the interest earned by the Fund. This is vital to the Fund achieving its goals, and should be finalised as quickly as can be managed.

The Fund is the State’s first effort to systematically provide for the management of abandoned sites. While these sites have long been recognised as a significant issue to the State, both financially and in terms of public safety, there has been no agreed way to define them or allocate funds to deal with them. For instance, a Ministerial working group in 2012 believed that there could be about 200 000 abandoned mine features in WA, while DMP has estimated there are 17 000 full mine sites.

Under the Mining Rehabilitation Fund Act the Department has created a five member Mining Rehabilitation Advisory Panel to provide independent advice to the Director General. As part of its role, the panel has recommended four pilot sites for rehabilitation of abandoned sites. DMP informed us that these offer a range of technical, size, and safety issues. The Department believes they will also allow it to measure the actual cost of rehabilitation, which will feed into any review of the levies and rates. This will be important given the lower than expected revenue coming into the Fund and hence lower interest being earned. If revenue remained current for four years, and there was no expenditure from the Fund, about $8 million would be available from interest to act on abandoned sites. While not insignificant, this level of funding will be well short of what is needed to address the issues at all abandoned sites.

The Department of Mines and Petroleum’s inspection regime is now well designed and provides strong coverage

DMP has made significant changes and improvements to its inspection regime since 2011. The current approach gives good coverage of mine sites, based on a comprehensive risk assessment process. It also includes clear guidelines for inspectors, good record management, and the ability to analyse outcomes as a basis for future inspections. Having a sound inspection and follow-up regime is vital to ensuring the regulatory system works to its best effect. This is more important given that self-reporting by operators is DMP’s main method of gathering information.

In 2011 we noted that DMP was introducing a risk-based inspection system, but that it needed improvement. In particular we recommended that they:

• determine the base level of inspection effort that would give reasonable assurance that conditions were being met

• finalise the risk-assessment process

• improve controls and guidelines over inspection processes to ensure consistency, including setting mandatory inspection criteria

• better monitor and analyse non-compliance found through inspections, and feed this back into the planning process and condition-setting framework.

DMP has acted on each of these areas since 2011, and the current process is sound. It will, however, take some time for the Department to assess its overall effectiveness.

The inspection regime has been set to give reasonable coverage across the board, based on clear risk guidelines. Importantly, DMP has set expectations for the amount of inspection needed to give confidence in the broad regulatory framework. This is an improvement since 2011, when there was no base level of inspection. DMP has decided that all ‘high’ risk sites should be inspected, along with 20 per cent of other sites. The number of high risk sites is not pre-determined but is calculated on case-by-case risk assessments.

Each mine site is annually assessed via a formal risk process. This includes previous performance, technical complexity, the nature of the material mined, time since last inspection and proximity to towns. These factors are brought together and an annual inspection plan is created. In 2014-15 DMP will conduct 181 inspections (about 26 per cent of all mines) and 130 desk-top reviews. In total they will reach 45 per cent of mines.

Inspections are based on a clear framework and guidelines. This improves the degree of consistency in a number of ways. First, there are minimum inspection criteria for all inspections, increasing the consistency across different inspectors and different types of mine. Second, standardised reporting of inspections is required. Third, senior officers are required to approve all inspection reports.

The online EARS2 system lets the Department of Mines and Petroleum track and analyse mine performance or non-compliance

Since 2011 DMP has expanded its online mining information and management system so that it now provides comprehensive coverage across a mine’s life. Known as EARS2, the system tracks sites from application through to closure including tracking Annual Environmental Reports, Fund applications, and site inspections and compliance activity. This makes it easier to assess performance and issues across different sites. The system also has good controls and requires inspection reports to be approved by senior officers.

In 2011 we found that DMP could not easily assess performance by miners. It could not report on what non-compliances had been found, what actions had been taken to resolve them, and whether there were any common characteristics of non-complying operators.

The new system now allows for reporting on all non-compliance, and whether or not matters have been resolved. This function of EARS2 came online in July 2014, and at the time of audit was being used on an as-needs basis rather than in a way to focus inspections and other activities. If this was done routinely it would improve their processes.

In the three months to September 2014 inspections identified 27 cases requiring corrective action by operators. Of these, 13 had been finalised and the appropriate action taken. In the other 14 cases action had not been finalised. They ranged from a direction to store poly pipe, to the need to report on an incursion over a tenement boundary, to the need to finalise rehabilitation by the middle of 2015. None were deemed major non-compliance.

By comparison, in 2013-14 DMP reported major non-compliance on six sites, following 169 site inspections. In 2011 DMP found it almost impossible to determine the levels of non-compliance, and its reporting was poor. The new reporting through EARS2 is an improvement, but it is too soon to assess whether compliance performance has changed since its introduction.

DMP released the disturbance information gathered through the MRF system to the public in September 2014. This data includes tenement numbers, type of disturbance, area disturbed, and area rehabilitated for 2013-14. It has data on 22 000 individual tenements with disturbance covering 144 740 hectares, of which 31 796 hectares had been rehabilitated during the year. Public availability of this information increases transparency and accountability, and also provides an ongoing avenue for public and academic research.

The Department of Mines and Petroleum and the Department of State Development are improving coordination, but State Agreements are not required to participate in the Mining Rehabilitation Fund

In 2011 we found that responsibility for mining was dispersed across many agencies with a particular risk existing where mining took place under State Agreement Acts. Our concern related to a lack of active monitoring and enforcement of mining conditions arising from unclear responsibilities between DMP and DSD, which facilitates and administers State Agreements. We reported that:

There is a risk that non-compliance with environmental requirements will not be identified or addressed on all 26 State Agreement mines because DSD and DMP have clear but differing views of their roles. DSD does not conduct active monitoring and enforcement, and expects that DMP will do so. DMP considers that it does not have the legislative powers to fulfil a monitoring and enforcement role on State Agreement projects where the Mining Act is not specifically applied.

As a result, we recommended that the two agencies should establish comprehensive and agreed responsibilities for State Agreement projects. The agencies are close to completing this process. DMP and DSD have an existing high level Memorandum of Understanding, but are finalising a protocol of cooperative working arrangements for State Agreements. This better describes responsibilities, adds timelines and includes KPI reporting for the first time. The protocol is in draft for signing by the two Directors General. The protocol covers matters such as how long it should take to provide advice on environmental reports from mines on State Agreements and providing reports on inspections of State Agreement sites.

In 2011 we could not be certain that mining on State Agreement sites was included in DMP’s inspection regime. This time, we found that State Agreement sites were included, and that 16 were set for inspection in 2014-15.

The Minister for State Development approves proposals for development under State Agreements following an environmental assessment of the project. For most State Agreement proposals, DMP provides advice to the Minister for consideration. Any conditions attached to the approval are imposed by the Minister under the Environmental Protection Act 1986 rather than by DMP under the Mining Act. Most State Agreement projects require Annual Environment Reports and some require Triennial Environmental Reports. DMP is required under existing practice, and within timelines under the draft protocol, to assess these reports. In certain circumstances, DMP can impose penalties or require further action be taken in relation to tenure conditions.

Mines operating under State Agreements are not required to participate in the Fund, although the legislation allows them to sign up. None of the operations under the 29 State Agreement operations clearly involved in mining have so far joined up.

As was the case before the Fund was introduced, there are a number of protections in place over State Agreements, but there is no single financial protection against poor rehabilitation. Operators of these mines are required to rehabilitate their sites and State Agreements generally require them to meet best practice, but are not specific on how that should happen. Also, bonds are generally held by the Minister against poor performance. The risk to the State from this situation has not changed since our audit in 2011.

We note that State Agreement Acts can only be amended with the agreement of the companies involved, and that any move to bring miners under State Agreements into the Fund will require careful planning on a case-by-case basis. However, given that State Agreement sites contain many large scale mines, their absence considerably lessens the amount that could be paid into the Fund and the interest that could be earned to act on abandoned sites. Also, State Agreement site disturbance information is not included in EARS2, and therefore the State loses information and knowledge about large mines.