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Changes to the offshore petroleum regime: Offshore Petroleum Act 2006 (Cwlth) Carbon Capture and Storage Bill before Senate Changes to the Mining Regulations 1981 (WA) regarding the purposes for which a Miscellaneous Licence can be granted Environmental impact assessment process review Carbon Pollution Reduction Scheme - A Queensland Perspective State government considering significant changes to Queensland mining legislation China’s renewable energy initiatives More opportunity for foreign investment in Chinese mineral exploration Sovereign risk affecting mining investment in Mongolia

On 24 July 2008 the Governor-General proclaimed the Offshore Petroleum Act 2006 (Cwlth) (OPA) and related legislation to come into effect on 1 July 2008. The commencement of the OPA was delayed in order to allow for the updating of mirror state and territory legislation, which was completed on 16 June 2008 with Tasmania the last state to make the necessary amendments.

The OPA replaces the Petroleum (Submerged Lands) Act 1967 (Cwlth) (PSLA) as the key legislation regulating petroleum operations in offshore waters. The OPA is intended to be a plain English re-write of the PSLA including only a modest number of minor policy changes dealing with anomalies and past drafting errors, and bringing out-dated provisions into line with current legislative drafting principles.

Key points to watch out for

Nevertheless, the OPA does contain a number of significant changes to various aspects of the offshore petroleum regime, making it important for industry participants to re-visit their rights and obligations under the new Act.

Key points include:

• Addition of an express right to recover petroleum on an appraisal basis under an exploration permit and a retention lease.

• The Joint Authority must now be satisfied that there are sufficient grounds, rather than special circumstances, for the grant or renewal of exploration permits, retention leases, production licences and pipeline licences in situations of prior non-compliance.

• Confirmation that the term of a retention lease, where a production licence has been applied for, will extend until that application is determined in all cases.

• The Joint Authority now has the express power to include a general condition in a production licence requiring the recovery of petroleum where it is commercial viable to do so.

• The Joint Authority is also now required to consider the previous investment in a project when determining what conditions to apply to the renewal of a production licence, and cannot set conditions on production licences requiring the licensee to drill a well, carry out a survey or spend a certain amount carrying out work in the licence area.

• Holders of production licences, infrastructure licences and pipeline licences now have a clear right to make submissions where the Joint Authority is considering terminating their licence for lack of operations over a 5 year period. Also, depletion of petroleum will no longer qualify as a circumstance beyond the licensee’s control for the purposes of defending the termination of a licence on this basis.

The end notes to the discussion of each OPA provision in the Explanatory Memorandum summarise any technical and policy changes that have been implemented by that provision. However, keeping in mind section 15AC of the Acts Interpretation Act 1901 (Cwlth), the OPA should not be interpreted as changing the law merely because different words have been used to express the same ideas as were expressed in the PSLA.

What regulations continue to apply?

No general regulations have yet been enacted under the OPA (the only regulations enacted so far are in respect of safety levies). The transitional provisions in Schedule 6 of the OPA provide that regulations (as well as certain other instruments including notices, determinations and directions) made under, or for the purposes of, a particular provision of the PSLA, will have effect as though they were “made or given under, or for the purposes of, the corresponding provision” of the OPA.

In coming to a conclusion as to whether and how a particular regulation continues to apply under the new Act, it will be necessary to work through the genesis of that regulation under the PSLA and to what extent the relevant PSLA provision has a “corresponding provision” in the OPA. To aid in this enquiry, the “equivalent” provisions in the PSLA for each OPA provision are also noted throughout the Explanatory Memorandum and a concordance table is annexed.

Authors
Alan Murray, Partner
Jessica Harris, Solicitor

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The Offshore Petroleum (Greenhouse Gas Storage) Amendment Bill (CCS Bill) will amend the Offshore Petroleum Act 2006 (Cwlth) to insert a regime for regulating carbon dioxide capture and storage (CCS) in deep sub-seabed geological formations within the Commonwealth offshore jurisdiction.

The CCS Bill, as it was first introduced to parliament, adopted several approaches to aspects of the proposed carbon capture and storage regime which proved to be controversial. In particular, the CCS Bill was effectively silent on long-term liability for CCS operators, an issue which many stakeholders viewed as critical to the effective generation of a CCS regime and industry in Australia. Similarly, some stakeholders held concerns that the CCS Bill gave primacy to the rights of petroleum tenement holders in a way which may have inhibited the development of the Australian CCS industry.

An exposure draft of the CCS Bill was released on 16 May 2008 for public comment and was referred to the House of Representatives Standing Committee on Primary Industries and Resources, which issued a final report on the CCS Bill on 15 August 2008. That report recommended several amendments to the CSS Bill, most importantly in relation to the interaction of petroleum and CCS titles and long term liability for CCS operators. On 18 September 2008, the House of Representatives passed the CSS Bill with amendments adopting some of the Committee’s recommendations, but largely ignoring the recommendations in relation to these contentious issues.

The Bill is currently before the Senate where the Coalition opposition is seeking further amendments, particularly in relation to the same two issues. The Coalition is concerned that the CCS Bill effectively allows the petroleum industry to block applications for CCS titles and that the CCS industry will only be viable if the Government assumes long term liability.

Further amendment of the CCS Bill in these two key areas is likely because neither Labor or the Coalition have sufficient numbers to control the Senate.

Authors
James Fahey, Partner
Lachlan McMurtrie, Solicitor

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In Western Australia miscellaneous licences may be obtained under the Mining Act for the various prescribed purposes set out in regulation 42B of the Mining Regulations. Until recently, regulation 42B(n) provided that a miscellaneous licence may be granted for “any other purpose directly connected with mining operations approved by the Director General of Mines”.

Regulation 42B(n) has been relied on by the mining industry to obtain miscellaneous licences for a range of purposes, including railways, bores and storage and transmission facilities. Some 450 miscellaneous licences have been granted in Western Australia pursuant to such infrastructure purposes.

Regulation 42B(n) ultra vires?

In the September 2006 update we reported on the decision in BHP Billiton & Ors v Westover Holdings Pty Ltd [2006] WAMW 4 in which Warden Calder expressed the view that regulation 42B(n) was invalid and that the Governor had acted beyond the contemplation of the Mining Act by conferring the power to prescribe purposes on the Director General of Mines.

Legislative amendments

Following this decision there have been two significant amendments to the mining legislation:

• the Mining Legislation Amendment and Validation Act 2008 has been enacted. Part 3 of the Act validates all granted miscellaneous licences and all miscellaneous licence applications made but not yet determined pursuant to regulation 42B(n) as at 1 August 2008, and

• the Mining Regulations 1981 have been amended to remove regulation 42B(n) and extend the list of prescribed purposes for which a miscellaneous licence may be granted.

For what purposes can a Miscellaneous Licence be granted?

The Mining Amendment Regulations 2008, which came into operation on 2 August 2008, repealed regulation 42B(n) and inserted the following additional purposes as new sub-regulations 42B(n) - (y):

• a communications facility

• a drainage channel

• a pump station

• a minesite accommodation facility

• a bore

• a bore field

• a water management facility

• a power generation and transmission facility

• a storage or transportation facility for minerals and mineral concentrate

• a minesite administration facility

• a workshop and storage facility, and

• a jetty.

These are among the types of purposes that were previously the subject of miscellaneous licences granted pursuant to regulation 42B(n).

There is no longer the ability to apply for a miscellaneous licence “for any other purpose”. This limits the purposes for which miscellaneous licences may be applied for and granted in the future.

Authors
Ben Luscombe, Partner
Jennifer Johnson, Senior Associate

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The Western Australian resources boom has led to increased calls for better and more streamlined environmental impact assessment (EIA) and approval processes. An Environmental Protection Authority (EPA) review into these issues may soon deliver some important changes to the WA environmental assessment and approval regime.

In early 2008 the EPA commenced a review of critical aspects of the EIA and approvals process. The terms of reference of the review include looking into:

• the types of conditions which approvals should be subject to - there is an expressed preference to move towards setting environmental objectives and outcome-based conditions, rather than continuing the current approach of primarily requiring management plans that need to be approved in the future

• improving parallel project assessment/approvals processes under the Environmental Protection Act and other primary legislation

• using a risk-based approach to guide all relevant aspects of the assessment and approvals process

• the accreditation of processes/people/panels to assist in the environmental assessment process, and

• opportunities for establishing common user or private/public partnerships for spatial environmental data acquisition, management and systems.

The outcome of the review is expected to be a revised set of the (currently 2002) EPA Administrative Procedures, as well as new guidelines and procedures aimed at providing more guidance to proponents and putting more focus up-front on scoping documents. The review (along with an internal EPA legal review) is also expected to result in a significant change to the types of conditions to which approvals are subject.

Stakeholder forums were held in mid-2008 as part of the review. In addition to the issues already within the terms of reference, those forums raised the following issues:

• Should there be a formal screening process for documents before they enter the EIA process?

• Should there be administrative time limits for key stages of the assessment process and, if so, should there also be a “stop the clock” mechanism approach?

• How can conditions be made auditable so that proponents can show compliance?

• Should fees be imposed for proposals considered by the EPA and, if so, should fees go towards providing more resources to the EPA (rather than general revenue)?

A Reference Group comprising representatives of key stakeholder groups has been established to provide input and advice to the EPA Chairman. Representatives can be viewed here.

If you are interested in providing input into or finding out the progress of the review, contact your stakeholder representative. There is currently no set date for the completion of the review, but it is expected to be completed soon.

Authors
Lee McIntosh, Legal Consultant
Lisa Baetsen, Solicitor

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The release of the Green Paper outlining the Commonwealth’s Carbon Pollution Reduction Scheme (CPRS) has provided the energy and resources sector with the opportunity to influence the features of the proposed emissions trading scheme (ETS).

With Queensland’s high intensity emissions profile (one of the largest per capita in the world) and the strength of the energy and resources sector, the Queensland Government has sought to influence the design of the ETS by making a submission to the Commonwealth Government.

Of note, the Queensland Government made the following high level submissions with regard to the proposed ETS:

• It would support a “soft start” which allowed the market the opportunity to become familiar with the trading rules and for secondary markets to develop (either through a low carbon price in 2012 or by setting a cautious target).

• It supports the need to preserve the international competitiveness of emissions-intensive-trade-exposed industries (EITE) and avoid carbon leakage, but with a three year review of eligibility (rather than a single, upfront assessment as proposed by the Commonwealth).

• It supports the provision of one-off and up-front direct assistance in the form of free permits to coal fired power generators, for at least 50% of the loss in value over the economic life of energy assets (the Government will determine a quantum of direct assistance for the coal-fired electricity generation sector after the medium-term national target range has been established).

• It does not support the Commonwealth’s proposal that conditions be attached to direct assistance for coal-fired generators on economic grounds, but considers that, should the conditionality be pursued, it should be provided in a manner which does not create poor market incentives (including higher electricity prices).

• It would like further consideration to be given to compensation for generators to take account of commitments under existing contracts.

The Queensland Government has also indicated that it intends to send the Commonwealth a supplementary submission on the quantum of additional permits required for new investments in EITE sectors and other significant issues.

Whether the submissions put forward by the Queensland Government will influence the design of the proposed trading scheme should be known later this year with the anticipated release of the draft legislation.

Authors
Matthew Austin, Special Counsel
Kelli How, Solicitor

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The Queensland government is considering significant changes to the State’s mining regime in order to address the evolution that has occurred in the industry since the Mineral Resources Act (Qld) was introduced in 1989. The focus includes the suitability of the tenure regime, the introduction of mineral grouping, environmental protection and emerging industries such as the Coal Seam Gas industry.

A discussion paper titled “Review of Queensland mining legislation - Discussion Paper” was released by the Queensland Department of Mines and Energy (DME) in May 2007. Following a three month consultation process, submissions closed in August 2007, and a Government position paper is now in the final stages of preparation and will soon be considered by Cabinet.

Overhaul of tenure regime

The discussion paper canvassed some significant amendments, including an overhaul of the tenure regime in the State. The DME raised the possibility of removing Mineral Development Licenses (MDLs) as a form of tenure, with changes to the retention options available under Mining Leases and Exploration Permits to fill the void. Currently, an MDL allows the holder to retain the rights to the resource, whilst developing plans and obtaining finance in preparation to move to production. A motivating factor for the abolition of MDLs is the discouragement of “land banking” to ensure that the State’s land and mineral resources are utilised to the greatest extent possible.

Introduction of mineral groupings

In order to increase efficiency and competition in the recovery of resources, the State is considering the introduction of mineral groupings similar to that in place in New South Wales. Mineral grouping allows concurrent exploration over the same land for different groups of minerals and would facilitate the grant of overlapping tenures to a greater extent than currently possible. It is proposed that parties would reach commercial agreements between themselves relating to the use of land in overlapping areas.

Other proposed amendments

Other proposed amendments include:

• replacing the current area-based prospecting permit with a “skills-based” prospecting permit that allows prospecting for all minerals on all land in the State, other than protected and restricted lands or land already the subject of a mining tenure

• legislation to resolve conflicts between tenures for Underground Coal Gasification and Coal Seam Gas

• introduction of a requirement to prepare a development plan for all mine operators, and

• new streamlined processes for the efficient administration of the legislation.

The position paper is expected to be publicly available in November 2008.

Author
Robert Jackson, Partner

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Following the release of China’s National Climate Change Program (CNCCP) by the National Development and Reform Commission in June 2007, the Chinese government released a draft Energy Law for public comment in December 2007.

The proposed Energy Law, expected to be passed in early 2009, is designed to provide a comprehensive legal framework for China’s energy strategy. To safeguard China’s energy security, it places particular emphasis on the development and use of renewable energy (including solar energy, hydropower and wind energy).

The CNCCP is a comprehensive statement of policies and measures to be adopted by the Chinese government in order to address the issue of climate change and facilitate the fulfillment of China’s obligations under the United Nations Framework Convention on Climate Change and the Kyoto Protocol.

Together, the Energy Law and the CNCCP promote the use of renewable energy through further implementation of the Renewable Energy Law, which came into force in January 2006. The Renewable Energy Law is China’s first piece of legislation that regulates (and promotes) the use of renewable energy. The key goals of the legislation include:

• promoting the development and utilisation of renewable energy

• improving China’s energy structures and diversifying China’s energy supplies

• safeguarding energy security, and

• protecting the environment and facilitating the sustainable development of China’s economy and society.

The proposed Energy Law is currently under review by the State Council (China’s legislature). Once it is enacted, it will be supported by seven separate energy-related statutes, all of which have already been enacted (being the Renewable Energy Law, Coal Law, Energy Conservation Law, Energy Power Law, Energy Public Utility Law, Nuclear Power Law, and Petrol and Gas Law).

Author
Alan Murray, Partner

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On the 20 August 2008, the “Measures for the Administration of Foreign-Invested Mineral Exploration Enterprises” (Measures) that were passed by the Chinese Ministry of Commerce on 27 February 2008, came into effect.

The Measures aim to increase the opportunities for foreign investment in mineral exploration in China, subject to a number of restrictions, in accordance with China’s policy to encourage foreign investors with suitable experience and funding to invest in the sector.

What types of enterprises are affected?

Broadly, the Measures affect:

• enterprises established in China by foreign investors with their own capital and which are engaged in mining exploration in China, and

• domestic Chinese enterprises engaging in mineral exploration in China, which enter into joint venture arrangements with foreign enterprises.

How can a foreign-invested enterprise engage in mineral exploration in China?

Foreign investment in mineral exploration in China is governed by the “Catalogue of the Guidance of Foreign Investment Industries”. The Catalogue describes different classes of mineral exploration as in one of three categories: encouraged, restricted or prohibited.

The Measures makes changes to the way in which foreign-invested enterprises are approved by the Chinese Ministry of Commerce, or a provincial counterpart, in order to undertake mineral exploration in China.

Once approved (and having obtained an “Approval Certificate for Foreign-Invested Enterprise”) a foreign-invested enterprise is required to apply for an exploration licence from the Chinese Ministry of Land and Resources in accordance with the relevant Chinese laws.

Subject to what restrictions?

Whilst facilitating increased foreign investment in the Chinese mineral exploration industry, the Measures also place various restrictions on foreign-invested enterprises engaging in the industry, including:

• foreign-invested enterprises can only engage in geological exploration activities after having obtained a geological exploration certificate

• foreign-invested enterprises can only engage in exploration and business activities in places prescribed by the State as open to foreigners

• foreign-invested enterprises must report to the authorities once a year about the process of their exploration operations, tax payments, environmental protection activities, land use and participation in monitoring programs

• where a foreign-invested enterprise lists its investment in Chinese mineral exploration outside China, it must submit documents describing the listing to the Ministries for Commerce and Land and Resources, and

• in order to explore for particular types of mineral resources that are subject to additional restrictions, a foreign-invested enterprise is required to obtain a suitable exploration licence, apply for an alteration to its business scope and an apply for alteration of its registration particulars.

If you are considering investing in the Chinese minerals exploration industry, you should seek appropriate advice as to how these changes might enhance your investment opportunities.

Authors
Stuart Valentine, Partner
Joe Wang, Associate

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Mining and exploration companies investing in the Mongolian resources industry face significant sovereign risk issues, as highlighted by recent events affecting the Tavan Tolgoi coal deposit and the Oyu Tolgoi gold-copper deposit. Both deposits are considered to be the largest undeveloped deposits of their kind in the world.

Tavan Tolgoi coal deposit - 96% State ownership

The expropriation of the Tavan Tolgoi coal deposit by the Mongolian Government in March 2008 highlights a shift in the Government’s position in relation to State ownership of mineral deposits which are of “strategic importance” to the social and economic development of Mongolia.

In 2006 the Mongolian Government passed the Minerals Law, which allows the State to acquire up to 50% of the shares in a mining project where the mineral deposit is of strategic importance to the country. A mineral deposit will have “strategic importance” if it is considered to have “potential impact on national security, economic and social development of the country at a national and regional level” or where it “is producing or has a potential of producing more than 5% of total GDP in a given year.”

Following the passing of the Minerals Law, Energy Resources (the licence holder for the Tavan Tolgoi deposit) negotiated an investment agreement with the Government in which the State would own 50% of the project, Energy Resources would own 14% and 36% would be offered to international investors.

However, as a result of strong public opposition to the agreement, Prime Minister Bayar withdrew the agreement from parliament and instead proposed that the State acquire 100% of the project. On 23 March 2008, the parties entered into an agreement for Energy Resources to transfer 96% of ownership in the project to the State.

In March and April 2008 there were reports that the Mongolian Government was considering amending the Minerals Law to increase the proposed State interest in deposits of strategic importance to 51%. This is still reported as being on the agenda for the new coalition government.

Oyu Tolgoi coal deposit - political instability

Following the election in June 2008 in which the main opposition party alleged election fraud and staged a walk out of parliament, Mongolia imposed a four-day state of emergency as violent protests erupted. As a result of the political chaos, the ratification of the investment agreement for the Oyu Tolgoi deposit between Ivanhoe Mines and Rio Tinto (as joint venture partners) and the Mongolian Government has been further delayed.

The investment agreement was presented to parliament for ratification in July 2007 and will give the State a 34% stake in Oyu Tolgoi, if ratified. With the resumption of parliament on 29 August 2008 and a new coalition government, mining companies will be watching closely as to whether the investment agreement will finally be ratified.

Authors
Stuart Valentine, Partner
Jo Thanyakittikul, Registered Foreign Lawyer

© Mallesons Stephen Jaques