Analysis of proposed change to financial provisioning laws
Financial provisioning laws require mining and petroleum companies to set aside an amount of money for the management, remediation and rehabilitation of environmental aspects arising from mining and petroleum operations. Financial provisioning is a legislative attempt to promote a greener and healthier environment by holding mining and petroleum companies responsible for the rehabilitation of the environment impacted by their operations. For example, when applying for a mining right, a mining company is required to indicate the manner in which they are going to rehabilitate their mining area after the mine is closed and set aside an amount of money for this rehabilitation, before the Department of Mineral Resources (DMR) will grant a mining right.
History of financial provisioning
Financial provisioning and rehabilitation was initially regulated under section 41 of the Mineral and Petroleum Resources Act, 2002 (MPRDA) which required an applicant for a right or permit to make prescribed financial provision for the rehabilitation or management of negative environmental impacts associated with the operation. The quantum of the financial provision was determined in accordance with Regulation 53 and 54 of the MPRDA Regulations, 2004 (“MPRDA Regulations“) and the guideline document provided by the DMR. These provisions have now been superseded by the Financial Provisioning Regulations published under Government Notice Regulation 1147 in Government Gazette 39425 on 20 November 2015 (“Financial Provisioning Regulations“), in terms of section 24P of the National Environmental Management Act, 1998 (NEMA).
The NEMA provisions and Financial Provisioning Regulations are in line with the move towards the ‘One Environmental System’ which looks to transfer environmental governance of the mining and petroleum industries from the MPRDA to the NEMA. The Financial Provisioning Regulations are more onerous than the previous financial provisions under the MPRDA. The Financial Provisioning Regulations came into effect on 20 November 2015, but the transitional provisions (as amended) indicate that existing holders of mining rights will only need to comply with the Financial Provisioning Regulations by 19 February 2019.
Under the MPRDA, financial provisioning was required to take the following into account: costs for the rehabilitation of the surface area of operations; costs for the decommissioning and final closure of the operation and post-closure management of residual and latent environmental impacts. These requirements provided for a broad description of the types of rehabilitation and remediation that were to take place. However, no detail was provided as to exactly what this would entail or what closure standards should be achieved. Under the Financial Provisioning Regulations, there is more certainty surrounding what should be considered as part of a mines financial provisioning. The Financial Provisioning Regulations now require the holder of a right / permit to ensure that an Annual Rehabilitation Plan, an Environmental Risk Assessment Report and a Final Rehabilitation, Decommissioning and Mine Closure Plan, as set out in the Financial Provisioning Regulations, (the Three Plans) are undertaken and submitted prior to the right being granted. The Three Plans require specific actions for annual and progressive concurrent rehabilitation to take place.
NEMA Bill, 2017 and financial provisioning
Similar to the provisions of the MPRDA, section 24P(3)(a) of NEMA requires the holder of a right / permit to perform an annual review of their environmental liabilities and increase their financial provisioning accordingly. The National Environmental Management Laws Amendment Bill, 2017 was published under Government Notice 245 in Government Gazette 40733 on 31 March 2017 (the NEMLA Bill) and was tabled in Parliament on 24 May 2017. The NEMLA Bill introduces a significant proposed change in relation to financial provisioning and the required annual assessments of same.
The NEMLA Bill looks to amend section 24P(3)(a) of NEMA to read that the holders must “..annually assess his or her environmental liability in a prescribed manner and must adjust his or her financial provision accordingly…” This change brings section 24P(3)(a) in line with Regulation 11(2) of the Financial Provisioning Regulations which already provides for an annual adjustment of financial provisioning as opposed to a forced increase, which has previously been required under the MPRDA and NEMA.
This change from “increase” to “adjust” is very significant for the mining and petroleum industries and may present a number of opportunities that allow for operations to decrease their financial provisioning over the life of the operation, instead of unnecessarily having to increase it for no reason other than avoiding contravening the financial provisioning legislation.
New opportunities for the mining industry
The Financial Provisioning Regulations are more onerous than previous financial provisioning requirements, because they stipulate a comprehensive minimum content for each of the Three Plans to inform the quantum of financial provisioning. This itemised and detailed approach to financial provisioning presents as an extra cost for the mining and petroleum industries, however, it also allows for adjustments to the mine’s financial provisioning to be made based on the mine’s actual operational requirements. Furthermore, it ensures that the on-going annual rehabilitation that is required to take place as per the Annual Rehabilitation Plan will be taken into account and the financial provisioning can be adjusted and decreased accordingly.
The change proposed to be implemented by the NEMLA Bill presents an opportunity for mining and petroleum companies to decrease their rehabilitation liability by implementing effective and innovative mechanisms that promote rehabilitation and remediation throughout the life of operations and not only at the closure of the operation. This on-going remediation and rehabilitation will result in a reduced financial provision being required at the closure of the operation. Initiatives such as captive power and captive water should accordingly become more appealing to mining and petroleum operations.
A captive power plant is a power generation facility that allows for an industrial or commercial energy user to produce its own electricity. Captive power presents an opportunity to the mining and petroleum industries by putting them in a position to produce their own power. Electricity generally amounts to up to 40% of a mines annual budget. A captive power facility would alleviate the dependence on the grid and studies show that over time, the cost of captive power will be at parity with grid power. In addition to this commercial benefit, laying out the capital cost for such a plant during the operational phase of an operation will reduce the liability of the closure phase as the plant can continue to supply power to the operation well into the closure and post-closure stages. It is believed that by establishing a captive power plant, an operation could adjust and decrease its rehabilitation provisioning over time.
Captive water is a similar concept to captive power, in that it presents an opportunity to create a cost-effective, reliable and high quality supply of water to an operation. Captive water introduces the idea of an operation constructing an internal treatment facility. This entails dirty water produced during operations being recycled and treated on-site to be re-used by the operation. For operations which anticipate having to pump and treat water well into the closure phases of their life, a captive water solution will be particularly attracted to reduce the rehabilitation costs associated with this latent or residual environmental risk.
Both captive power and captive water solutions could be pursued on either an EPC or an Independent Power/Water Producer basis.
Initiatives such as captive power and captive water are not only beneficial for the environment, but they are also perfectly positioned to take advantage of the opportunity presented by the proposed amendment in the NEMLA Bill, which provides operations with the ability to decrease financial provisioning, as they assist in necessitating lower rehabilitation costs for a mine. This proposed amendment should be welcomed by the mining and petroleum industries as it presents an opportunity to implement numerous initiatives that may reduce their financial provisioning over time.
By Hillary Botha (Candidate Attorney), Tamzyn Cooper (Associate) and settled by Garyn Rapson (Partner) of Webber Wentzel
The formation of a special hub to drive multi-billion dollar infrastructure investment was announced at the World Economic Forum (WEF) on Africa meeting in Kigali, Rwanda, on Wednesday.
The Sustainable Development Investment Partnership (SDIP) announced the creation of a dedicated Africa hub which will play a role in ensuring that 16 African infrastructure projects with a combined worth of over $20-billion will come to life.
The SDIP is an initiative hosted by WEF and the Organisation for Economic Co-operation and Development (OECD) and started in September 2015 with an initial membership of 20 institutions, which had since grown to 30, and includes among others, the Development Bank of South Africa (DBSA), the Senegal Strategic Investment Fund (FONSIS), the Bill and Melinda Gates Foundation, US Agency for International Development (USAID), and the Industrial Development Corporation of South Africa (IDC).
The SDIP, said Terri Toyota, Head of the Foundations Community and Development Finance and member of the Executive Committee of WEF, aimed to mobilise funding for infrastructure projects on the African continent to support the United Nations’ Sustainable Development Goals “through blended finance, an innovative approach to development finance that combines funding from private investors and lenders, governments and philanthropic funds”.
Group Executive for Strategy at the Development Bank of Southern Africa (DBSA) Mohan Vivekanandan said that the DBSA believed that “the SDIP initiative and its goal of delivering $100 billion in infrastructure projects within the next five years, will make a meaningful contribution and also help build local capacity and solutions by bringing together African and global private- and public-sector organisations.” In addition to mobilising the 16 infrastructure projects, the hub would, said Toyota, “facilitate the exchange of best practices across its network of institutions”.
Worldwide, SDIP has reviewed projects representing $30-billion in value, over half of which were located in Africa. These African projects had a combined value of over $20 billion. Toyota said: “The SDIP Africa Hub is an important first step to accelerate the engagement of SDIP members on the continent. We envision the hub building local capacity to advance blended finance best practices for infrastructure investment and ensure a consistent pipeline of projects for the initiative from Africa.” WEF Africa is taking place in Kigali from May 11-13 and is expected to attract over 1 200 delegates.
Johannesburg – The Finance Ministry has approved an increase of wheat import duties by 34 percent to the highest on record to protect local farmers, but asked the trade commission to review the formula because it is concerned about the higher tariff’s effect on food prices.
The tariff on wheat imports was now R1 224.31 a ton, in line with the International Trade Administration Commission’s current formula, the ministry said on Friday.
The department has proposed to Trade and Industry Minister Rob Davies that he considers “an urgent and accelerated review” of the formula, and that this will also be followed by probes into the calculations for sugar and maize.
“The Ministry of Finance is particularly concerned about the impact of the higher import duty on wheat on the price of bread and other staple food, but also mindful of the need to ensure policy certainty, food security and the financial health of the farming industry,” it said.
While South Africa is the sub-Saharan region’s biggest producer of wheat after Ethiopia, it is still a net importer of the grain. The driest conditions since 1992 have damaged crops and livestock and sent local wheat prices to the highest on record, driving up food prices.
Despite the lower-for-much-longer oil price outlook, integrated chemicals and energy company Sasol is remaining focused on executing growth projects in Southern Africa and North America as part of a dual regional strategy. In presenting 63%-lower earnings attributable to shareholders in the six months to December 31, outgoing Sasol CEO David Constable gave details of Sasol’s expansion in neighbouring Mozambique, where it had obtained Council of Ministers’ approval for a field development plan that would monetise more hydrocarbon resources in support of Southern Africa’s growth objectives. (Also watch attached Creamer Media video). “The Mozambican gas industry is playing an increasingly important role in the regional energy landscape,” Constable said at the company’s latest presentation of financial results, attended by Creamer Media’s Engineering News Online. The production agreement’s $1.4-billion first phase involved an integrated oil, liquefied petroleum gas and gas project next to the company’s existing production agreement area.
Against that background, R2.7-billion was being invested in the Loop Line 2 natural gas pipeline project to increase the capacity of the Mozambique-to-South Africa gas pipeline to 191-billion cubic feet a year from the second half of this year. In South Africa, beneficial operation was expected at the Shondoni coal project in Mpumalanga in the first half of this year and at the R13.6-billion second-phase Sasolburg wax expansion in the first half of 2017. In the United States, $3.7-billion had been invested to date in the ethane cracker and downstream derivatives complex at Lake Charles, where detailed engineering was advanced and underground civil work was nearing completion. To support the company’s response plan to the lower oil price, the decision had been taken to pace the execution of the cracker project, with the proposed schedule extension expected to optimise field efficiency still further and limit the spend rate. A phased commissioning of the cracker was expected in 2018 and full beneficial operation of the smaller derivatives units in 2019. “By optimising cash flows, we’re managing our gearing and credit rating, ensuring continued balance sheet strength, protecting our dividend policy and driving resilient earnings,” said Constable – who will be succeeded by joint CEOs Bongani Nqwababa and Stephen Cornell on July 1. The dual strategy was designed to augment Sasol’s other business activities in Eurasia, Middle East and the rest of Africa. Overall, the company was going all out to ensure that its balance sheet and earnings remained resilient at an oil price of $30/bl.
Private and public South African entities doing business in renewable energy, finance and management consulting stepped up business travel in 2015, while other sectors saw a marked decline in business travel, according to a report in BizNisAfrica.
Changes in 2015 business travel reflected changes in the economy, according to Raylene Pienaar, a general manager at business travel agency Corporate Traveller, based in Randburg near Johannesburg.
Some industrial and commercial sectors including those involved in mining and construction sent their executives on fewer business trips, while others significantly increased travel, Pienaar told BizNisAfrica.
“There has been strong business travel growth this year in the energy sector, and especially in companies and entities whose business is in sustainable and so-called ‘green’ energy,” Pienaar said. “Renewable energy businesses, especially, are showing great growth, booking more flights both locally and abroad than ever before.”
Financial institutions and management consulting companies also showed growth in business travel, especially in Africa. This could mean that these skills in South Africa are in demand on a continent that’s been identified as a global economic growth region, Pienaar told BizNisAfrica.
However, there was a significant decline in business travel across some sectors of the economy, Pienaar said, indicating that these industries may bear the brunt of weakened economic conditions.
Those sectors include mining and industries that support mining — construction, engineering, and environmental consulting.
Construction companies are under pressure globally — not just in Africa — and business travel decreased markedly in 2015, Pienaar said.
There was a decline in property management travel in 2015, Pienaar said. Consultants stay at company headquarters and managed properties remotely.
Digital technology allows people to work off site and offers an alternative to booking an airline ticket and paying a personal visit to a client or partner.
“Some of our clients tell us they need to spend cautiously, and are cutting back until macro and industry-specific conditions improve,” Pienaar told BizNisAfrica.
In industries that are doing well, business travelers want to meet with associates in person, Pienaar said. “They see the value in investing in travel for business: to close the deal, offer a personal handshake and develop those critical personal relationships.”
The climate summit in Paris has shown that global big business is now also on board with the transition to a low-carbon economy.
However, the most promising instruments in finance for promoting green investing, particularly green bonds, have been around for almost a decade now, starting with the European Investment Bank (EIB) Climate Awareness Bond in 2007.
Why haven’t green bonds entered the mainstream of finance, and what is holding them back?
To be clear, the rise of green bonds has been dramatic: whereas issuances amounted to only US$4 billion in 2010, they were nearly ten times that amount by 2014, representing US$37 billion in new issuance volume. However, green bonds haven’t yet achieved a critical mass because their growth stems from a small base, given that global fixed income constitutes US$80 trillion in outstanding value.
An important factor constraining the wider proliferation of green bonds is the fact that their issuance is still relegated to a few large players. The largest emitters of green bonds remain the large multilateral development institutions which collectively accounted for almost half (44%) of new issuances in 2014, while the corporate sector accounted for another one-third of the total.
The World Bank alone has conducted 100 green bond transactions in 18 different currencies that cumulatively represent more than US$8.5 billion.
Having such a concentrated base of issuers is insufficient for a wider introduction of green financial instruments, and new institutional players, particularly private sector entrants, are required to enlarge the green bond market.
Looking back, an overarching reason for limited private sector participation in green bonds was that “green credentials” were less important in past corporate cultures. However, with the cultural shift taking place as seen at COP21, more entities are expected to “green-up” their business models.
It is important to note that, because green bonds are properly certified as climate-friendly financial instruments, they only represent a portion of a larger, more loosely defined “climate-aligned” bond market.
The green bond market also suffers from a lack of project diversity. For the broader “climate-aligned bond market” that includes green bonds, the two largest segments are transport (nearly 70%) and energy (another 20%), but transport is almost entirely rail networks backed by state entities. Only 10% of the “climate-aligned” market covers the remaining construction, agriculture, waste management, and water categories.
It is heartening to see that developing countries have taken the lead in issuing “climate-aligned” securities (not necessarily certified as green bonds), with China alone accounting for 33% (US$164 billion) of the climate-aligned issuances. India (US$15 billion), Brazil (US$3 billion), and South Africa (US$1 billion) are also among the emerging markets engaging in the climate-aligned capital raising process.
In Australia, the scope for green bond issuances is extremely promising, but in the context of the overall Australian A$1.5 trillion bond market, green bonds still reflect a minute portion of the issuances, and the country has generally lagged behind in its adoption. This is partly due to regulatory uncertainty and political hostility. However, there’s actually a strong interest in green bonds in Australia, as the 2015 green bond issuance of A$600 million by ANZ bank and this South Australian A$200 million wind farm project evidently show.
In fact, most of the major Australian banks, including NAB, Westpac, andANZ are dipping their toes in the space. To facilitate stronger growth in Australia, however, non-bank financial institutions will also need to be part of the equation, which is why it is encouraging that sectors such as the property market are turning to green bond vehicles for raising capital.
The outlook on market volume growth for green bonds is overwhelmingly positive. Some forecasts are suggesting the green bond market will treble again this year as it did in 2014, touching US$100 billion. Given the growth and engagement on the “greening” of finance, green finance could soon become mainstream.
Cape Town – Transnet chief financial officer (CFO) Anoj Singh has been seconded to Eskom in the same role for six months, according to the state utility on Thursday.
Singh’s secondment is effective from 1 August 2015 and he will attend both the Eskom board of directors and the executive committee meetings, Eskom said in a statement.
“He will be responsible for driving all aspects of the company’s finance strategy, including the R250bn funding plan.”
On June 25, former Eskom finance director Tsholofelo Molefe resigned, after being suspended along with three other senior executives, including former CEO Tshediso Matona. He also resigned, along with executive for group capital Dan Marokane.
All the executives were on Wednesday cleared of any wrong doing, the Eskom board announced, after an inquiry into company was concluded. Eskom said the inquiry report was being finalised and would be shared with government in due course.
READ: Suspended Eskom execs cleared of wrongdoing
Singh will be primarily tasked with transforming the company’s finance function, aligning it with key strategic priorities of generation, funding and build programme, while enhancing the approach to tariff applications, Eskom said.
According to Eskom, Singh is a chartered accountant who has been Transnet’s CFO for the past six years. He led Transnet’s treasury operations, which saw the company raising billions in both domestic and international markets, Eskom said.
Singh has extensive experience in financial strategy development and execution, capital projects assurance, treasury, corporate finance, investor relations, tax and funding for regulated businesses, Eskom said.
It added that he has won several accolades in recognition of his outstanding performance and leadership. These include: Public CFO of the year award for two consecutive years in 2014 and 2015 respectively, Strategy Execution Award and Compliance and Governance Award, among others.
Before joining Transnet, he worked as an accountant at a listed company and as an auditor.