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Proposal regarding mining waste could prove a costly business for mining operators

January 2019 - Projects, Energy & Natural Resources. Legal Developments by Foyen Advokatfirma AB.

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On June 1, 2017 the Swedish Government decided to instruct an investigatory committee to analyze the potential actions or measures necessary to efficiently ensure that sufficient collateral security is in place in mining operations for remediation and other restorative measures. The investigation adopted the name the “The investigation into financing regarding mining waste” and was submitted to cabinet minister Karolina Skog in June 2018 (SOU 2018:59).

The Environmental Code contains general provisions regarding collateral security and guarantees concerning, for example, environmentally hazardous activities. The provisions also include remediation after mining operations wherein collateral security is provided to the State. To avoid that the State and, ultimately, taxpayers are forced to bear the cost of remediation in cases where a mining company, for example, goes bankrupt and the collateral security provided is insufficient to cover costs, the investigation has looked into alternative ways of providing collateral security that is more in line with the actual remediation (post-treatment) costs incurred by mining operations. In light of this, the investigation proposes that changes be made to the Environmental Code and the Minerals Act, and that a new law and associated regulations regarding financial collateral security for mining operations is introduced. The investigation has identified what it considered to be four key areas for reducing the State’s risk regarding remediation in mining operations.

The proposals made by the investigation committee can be summarized as follows:

Clarification of the purpose and objective of collateral security

According to the investigation committee the purpose of collateral security for remediation needs to be clarified. This recommendation has been made as, in the present preliminary work, it is stated that the purpose of collateral security is to minimize the risk of taxpayers bearing the cost of any potential remediation. The investigation also considers that the objective of providing collateral security is not sufficiently clear.

The committee therefore suggest that:

  • The amount of security shall be calculated to adequately cover any expected costs of remediation with a comfortable margin,
  • The requirements for remediation must be documented in a special post-treatment plan, wherein it is clearly stated what the post-treatment plan will achieve,
  • The post-treatment plan must be tried in conjunction with the process for a mining permit according to the Environmental Code and revised at least every five years,
  • The amount of collateral security should cover the cost of remediation in a situation wherein the operator is unable (for example due to bankruptcy) or unwilling to pay for post-treatment costs at a time until the next permit revision date. As it stands today, collateral security is usually set for the expected life time of the entire mining operation,
  • The amount of collateral security should be revised every five years, there after a new amount of collateral security should be determined for the next five-year period,

Mining operations should not be given permission to be carried out unless adequate collateral security has been provided. The investigation committee concluded that the current system regarding required collateral security is not sufficiently clear and therefore has proposed the revision of how the required amount of collateral security is calculated. The committee suggest that:

  • The operator must show that moraine of sufficient quality is available in the immediate area, if this is not the case the costs for soil improvement measures including transport must be considered and taken into account. According to the investigation this is due to the fact that it is assumed that high quality moraine is available in the immediate area when calculating the amount of collateral security needed,
  • The calculation should include an “uncertainty surcharge” - the amount of collateral security should, with 75 per cent probability, cover the cost of remediation. It is proposed that any costs surplus to this will be passed on to the State,
  • The calculation should take explicit account of future price and wage developments,

The requirement for separate collateral security under the Minerals Act should be removed for companies that provide collateral security for mining operations. Based on current regulations there are no restrictions regarding the type of collateral security that is considered acceptable. The investigation does not present any examples wherein the form of collateral security has posed a problem in connection with a claim. However the investigation still considers that the uncertainty that exists regarding the form of collateral security considered acceptable poses problems for both operators and the State. For this reason the committee proposes that only two types of collateral security be accepted:

  • Bank guarantees with standardized conditions as determined by the State,
  • Collateral security in the form of a cash deposit
  • Limitations on the amount and form of collateral security

In today's system, the collateral security is tried by the Land and Environmental Court and examined in conjunction with the application for a mining permit in accordance with the Environmental Code. The investigation committee is of the opinion that this implies an excessively fragmented governmental responsibility. The Land and Environmental Court makes decisions regarding both the amount and form of the collateral security, the State is often being represented in these cases by the Swedish Environmental Protection Agency or any of the relevant County Administrative Boards, which lack specialist competence in the field. This, according to the investigation committee, weakens the State’s ability to protect its interests.

The investigation committee therefore propose that:

  • The Land and Environmental Court is relieved of the task of deciding on the amount of the collateral security and that this task is transferred to the Swedish National Debt Office who will act as the supervisory authority regarding collateral security concerning mining waste remediation,
  • The review of post-treatment plans should be carried out by the Land and Environmental Court regarding renewing or amending permits for mining operations according to the Environmental Code and by the County Administrative Board regarding revisions.

We at Foyen see a number of major challenges with the proposals made by the investigation into financing regarding mining waste remediation. The first concern being the intention to limit the possibilities concerning the lodging of collateral security, even though the investigation committee has been unable to conclude that alternative forms of collateral security, in addition to those currently proposed, have caused problems. Furthermore, we have serious concerns regarding the proposal that collateral security should include a 75% uncertainty surcharge. This will amount to significantly higher costs for the mining operators. Additionally, the calculation of collateral security is based on the assumption that an external party will perform the remediation, which does not reflect reality in many cases. The proposals made by the investigation committee may even create complications in the judicial examination procedure carried out in the court system.

Overall, the investigation has exaggerated, at the expense of the operator, a remediation situation that, even in the worst-case scenario, is unrealistic.

It remains to be seen where the investigation committee’s proposals will lead after a proposal for new legislation is referred to the Legislative Council for consideration which may ultimately lead to a new government bill. Whatever the outcome we will be following the next steps with interest.

Do you have questions about mines or mining activities, for example questions regarding permits, agreements or land access?

Email: Pia Pehrson, Partner/Advokat, Foyen Advokatfirma pia.pehrson@foyen.se

Email: Björn Eriksson, Associate, Foyen Advokatfirma bjorn.eriksson@foyen.se