REHABILITATION BONDS AND YOU
Rehabilitation bonds on a reasonable sized quarry operation can place a significant financial liability on the business. ROGER BUCKLEY, CMPA Executive Director, explains how the system works and provides some practical guidance on how to reduce your liability.
BEFORE a Work Authority can be granted and stone extraction started, a rehabilitation plan must have been approved by the Department of Primary Industries (DPI) and a rehabilitation bond must have also been paid to DPI, normally in the form of a bank guarantee.
For private land, the Work Authority holder must consult with the landowner in preparing the rehabilitation plan. The bond is a financial security which is provided to ensure the rehabilitation can be undertaken by DPI should the operator be unwilling or unable to meet their rehabilitation obligations. The bond level is calculated to address the foreseeable liability based on the works detailed in the approved work plan.
Bonds are periodically reviewed by DPI to ensure the bond covers the potential liability of the site. Bonds will also be reviewed when a work plan variation or transfer is proposed. Bonds are reviewed on a regular basis, dependent on the perceived risk profile of the site.
Standard bonds of $3,500 (<5 ha disturbed and 2 m in depth) or $5,000 (<5 ha disturbed and 5 m in depth) can be applied to smaller, simpler quarries, subject to certain conditions. For smaller sites, this provides at least some certainty of the level of liability. For larger, multi stage operations, the level and review of bonds can present significant issues.
Almost $70 million worth of rehabilitation bonds on extractive industry sites are currently held by government. This is up from $58.8 million in June 2008, an 18% increase over 18 months. How can the industry sustain these kind of annual increases? The highest bond for a Work Authority in Victoria is $6.9 million for a limestone operation near Geelong.
The DPI uses the draft guidelines published in November 2007 on the establishment and management of rehabilitation bonds, commonly known as the Bond Calculator. The CMPA provided input into the development of these guidelines over a significant period of time in an effort to make them acceptable for industry.
Over 2 years later, the draft version is still being used. The Bond Calculator provides a standard template to calculate bonds, but that is not to say that it is still not open to interpretation.
KEY ISSUES
Several key issues about bonds include:
- Financial liability – For larger, more complex sites, the bonds oft en present a major problem in that the bond amount is not an expense as such, but a liability on the firm’s balance sheet, tying up working capital and escalating the borrowing burden being placed upon those businesses. With capital sterilised in the bond, it can leave the operator having to double the working capital required to carry out their ongoing rehabilitation program.
The option of alternative forms of bonds apart from bank guarantees should be considered by government. CMPA has suggested this to DPI several times, but DPI is yet to identify a financial instrument that provides the 100% surety it requires.
- The bonds take into account the projected liability of the site in advance of incurring that liability, so the bond would be more than what is required to rehabilitate the site if required. This is similar to over insuring your car.
- Active working quarry faces should not be taken into account in calculating the bond. They are the key stone resource asset of the business and should not be rehabilitated if the operation went broke and was bought by another business.
- The bond should be reduced on an annual basis by a standard percentage if the operator has completed appropriate rehabilitation works. This will further encourage progressive rehabilitation with a more immediate financial incentive than is current.
REDUCING YOUR BOND
Some simple steps may assist you in reducing the bond required for your operation.
- Stage the development of your operation. The bond is then calculated on the stage you are currently working on, not the final pit design.
- If the land owner agrees, it may not be necessary to return the site to a barren, clean site. Infrastructure such as workshops, roads, concrete footings and power to the site may be required in the future. If this is appropriate, the removal of such items should not be included in the rehabilitation plan, and hence not included in calculating the bond.
- Incorporate as much progressive rehabilitation as is operationally and financially feasible.
- Negotiate with your DPI inspector. The Bond Calculator is open to interpretation, so engage with the inspector at the time of setting the bond or during its review so they better understand your plans for the site.
The Bond Calculator is available from the DPI website at http://new.dpi.vic.gov.au/earth-resources/earth-resourcesindustries_new/extractive/guidelines
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