Introducing new financial provisioning requirements for remediation of environmental damage: What are the impacts generally? Part I
NEMLAA marks a significant shift
In December 2014, the environmental regulatory framework experienced a significant shift with the implementation of the One Environmental System (“OES”), which sought to streamline an otherwise fragmented licensing process for mining, water use and environmental authorisations.
The newly published National Environmental Management Amendment Act 2 of 2022 (“the Act”), which is set to come into effect once it has been signed by the President, will once again introduce a variety of changes to the regulatory landscape in hopes to remedy some issues following the implementation of the OES.
One such change relates to the manner in which the financial provisioning requirements for the remediation of environmental damage will apply, both generally and within the mining industry more specifically. We will discuss these changes over two briefs, highlighting the developments to financial provisioning more generally in Part I, while Part II will focus specifically on the mining industry.
What’s new?
Historically, any applicant or holder of an environmental authorisation would need to ensure financial provision is made for the rehabilitation, closure and ongoing decommissioning management of negative environmental impacts for any prospecting, exploration, mining or production right. This has not changed. However, with the amendments introduced by the Act, we may see the application of financial provisioning extended to other high-impact industries, as the Minister of Forestry, Fisheries and the Environment (“the Minister”) will be empowered to prescribe further “instances” of financial provisioning.
The Act has also introduced a list of financial provisioning vehicles, including:
Cash deposited into an account administered by the Minister of Resources and Energy;
Insurance products;
Financial guarantees;
A trust fund established for the sole purposes of ensuring progressive rehabilitation, mitigation, decommissioning, closure and post-closure activities; and
Any other conditional vehicle as identified and gazetted by the Ministers of Finance and Mineral Resources and Energy respectively, including a closure rehabilitation company, a parent company guarantee and an affiliate company guarantee.
Another notable addition is that the Minister of Water and Sanitation and the Minister of Resources and Energy, respectively, are permitted to use all or part of the financial provision to undertake such remediation which it may deem necessary, if the holder fails to undertake such remediation as prescribed. This would be permitted, in terms of the Act, upon written notice to such holder (“the call on mechanism”).
The Act further emphasises that use of the financial provision will only be permitted for the purposes of undertaking mitigation, remediation and rehabilitation of adverse environmental impacts. Using the funds for any other purpose will be a criminal offence.
What does this mean in practice?
Empowering the Minister to extend the financial provisioning requirements to other industries will have widespread effects on the economy’s heavy hitters, including energy and agriculture. While important from an environmental perspective, it may have a significant financial impact on these sectors.
In addition, it is unclear what the full practical implication of the call on mechanism may be, but it may allow the Minister to call on a Guarantee, for example, on such written notice, subject of course to the terms of the Guarantee.
Lastly, while some vehicles may already be effective in practice, the introduction of defined financial provisioning vehicles, particularly within the insurance industry, is a useful addition. It also leaves provision for further vehicles to be gazetted, which may prove beneficial when the financial provisioning requirements are extended to other industries.
Contact Michelle Toxopeus at michelle@KernAttorneys.co.za for more information.