Dodging clean up costs: six tricks coal mining companies play
A new report from Environmental Justice Australia’s Climate & Finance program looks at six methods that coal companies operating in Australia use to avoid, minimise or delay their rehabilitation obligations in New South Wales and Queensland.
The existing legal framework and, it seems, those overseeing it, allow public and private companies to game the system by avoiding their rehabilitation responsibilities. The result is unnecessary and in some cases burdens the taxpayer with the huge cost of proper rehabilitation.
#1 CARE AND MAINTENANCE
This is the term for putting a coal mine in mothballs. It’s on the spectrum somewhere between digging and closing down. When a mine is in “care and maintenance”, its operator waits for the saleable price of its product to increase so the mine can start producing again. When the company has cash the mine is not rehabilitated and costs stay off the balance sheet. It can prolong bankruptcy as cash reserves run dry.
#2 EXTRACT UNTIL CASH RESERVES RUN DRY
If a mine is running at a loss instead of ceasing operations, rehabilitating the site and paying out workers' entitlements, there is a financial advantage to keep operating the mine until the company’s cash reserves run out. Taxpayers face rehabilitation cost risks should the company go bankrupt.
#3 DON’T REHABILITATE
In 2015, the New South Wales state government conceded it would cost $2 billion to fill in a single void at Rio Tinto's Mount Thorley coal mine. Since the amount was so high, a spokesman said, ‘it would not be reasonable to impose a condition that requires Rio Tinto to completely or even partially backfill the final void’.
#4 SELL TO AN UNKNOWN MINNOW
Sales prices for coal mines are depressed but selling a mine cheaply means the former owner is no longer liable for rehabilitation costs. For example, Sumitomo Corporation bought 50% of the Isaac Plains mine in Queensland for $430 million back in 2011. In the middle of 2015, the mine was sold to Stanmore Coal for $1. Sumitomo is now rid of its rehabilitation liabilities.
If an existing mine expands instead of closing, companies can put off provisioning for rehabilitation costs in their financial statements. When expansion of Drayton mine in New South Wales was refused, Anglo American provisioned US$224 million in its financial accounts to pay for shutting down the mine. Not only does expanding a mine buy time to avoid rehabilitation and other closing costs crystallising on balance sheets, it also makes the mine a more attractive prospect for potential buyers.
#6 INAPPROPRIATE DISCOUNTS
A company can get a range discounts on the amount of financial assurance. In, Queensland, mining companies can receive discounts of up to 30%. Peabody, on the precipice of bankruptcy, is in line to receive $10 million in discounts on account of the company’s ‘financial stability’.
Read the full report: Dodging clean up costs: six tricks coal mining companies play