ICSID Tribunal declines jurisdiction due to claimants’ failure to obtain environmental impact assessment in breach of local law

In a recent investment arbitration Award, in Cortec Mining v Kenya, an ICSID tribunal has declined jurisdiction over a claim brought by a trio of mining companies on the basis that the mining licences at issue had not been obtained lawfully due to the Claimants’ failure to obtain the required environmental impact assessments.

In its award of 22 October 2018, the tribunal held that the withdrawal of the Claimants’ mining licence by the Kenyan Government could not be challenged under the 1999 UK-Kenya bilateral investment treaty (“BIT“), as the relevant mining licence had not been obtained lawfully. Despite the fact that the BIT contained no express requirement of compliance with local law, the tribunal nevertheless held that the BIT and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1966 (the “ICSID Convention“) protect only lawful investments. The tribunal affirmed that a principle of proportionality should apply when assessing the impact of unlawful conduct on the right to bring a BIT claim, with minor omissions or inadvertent misstatements not precluding the BIT from applying. However, in this case, environmental considerations were of fundamental importance and non-compliance with the protective regulatory framework was a “serious matter” justifying the tribunal in declining jurisdiction.

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Productivity Commission announces inquiry into mineral and energy resource exploration

The Productivity Commission (Commission) has announced a 12 month inquiry into the non financial barriers to mineral and energy resource exploration. The inquiry was established on the recommendation of the Policy Transition Group, which noted that ‘a range of approvals are required before exploration can begin, including land access, native title, indigenous and non-indigenous heritage, environmental, conservation estate and planning and infrastructure approvals.’
The review will investigate areas of duplication across different levels of government and examine exploration approvals and processes to assess their effectiveness and efficiency. The Commission will determine if there is evidence of unnecessary regulatory burden, examine complexity and time frames of government approvals and examine costs of non-financial barriers (including regulatory and related costs).
The review excludes taxation and fiscal policy across all levels of government, the government’s response to the review of the Environment Protection and Biodiversity Conservation Act 1999 (Cth), and indigenous land rights regimes.
Initial submissions are due by the end of March 2013, with a final report to government by the end of September 2013. 

State approves Western Australia’s first uranium mine

Western Australian Environment Minister Bill Marmion has granted approval for Toro Energy to proceed with the State’s first uranium mine to be developed, four years after the Liberal government lifted a ban imposed by Labor. The project is based at the Centipede and Lake Way deposits near Wiluna in the State’s Mid-West, processing approximately 820 tonnes of uranium oxide concentrate per year. The capital cost expected to be about $280 million.
In May, the Environmental Protection Authority recommended the Minister approve the project, subject to strict conditions. Mr Marmion said the environment will be sufficiently monitored in the event that the project obtains Commonwealth approval, with stringent dust management and rehabilitation measures in place to protect stygofauna and groundwater-dependent vegetation.
Environmental groups have criticised the decision, claiming that the uranium industry is fading and the announcement was only made to fast track the Barnett Government’s political agenda.
The Commonwealth is expected to make its decision by the end of 2012. The company hopes to have the mine operating by 2014, with the first uranium sales in 2014-2015.
The decision will likely assist other similar uranium mine projects being developed in W.A.
Herbert Smith Freehills assists the development of many of Western Australia’s significant mining projects and will continue to monitor the development of the uranium industry in WA.

NSW inquiry plugs CSG

Last week the NSW Upper House tabled its inquiry into the environmental, economic and social impacts of mining coal seam gas (CSG), highlighting that this pipeline of regulation for CSG will be a prevalent issue.

As with any future regulation law makers must consider the trade off between clearing the fog of uncertainty vis-à-vis stifling future energy supply.

The expansion of CSG is filtering down the east coast, as energy sources are no longer limited to desolate rural land.

While making 35 recommendations, the report resinates a level of uncertainty surrounding the potential impacts of the CSG industry.

The main recommendations include:

  • a moratorium on production licences but not on exploration as more data needs to be gathered to assess potential impacts;
  • a tightening of the Draft Code of Practice for CSG Exploration so that the suggested measures around water testing and monitoring are compulsory rather than optional;
  • a ban on open storage of produced water; 
  • continuation of the current ban on fraccing until more is known about the side effects of the controversial process;
  • development of a model to ensure that CSG companies are held responsible for covering the full costs of remediating any environmental impacts;
  • review of the Petroleum (Onshore) Act 1991 to rectify any imbalance between landholders and mining companies over land access;
  • amendments to  the Petroleum (Onshore) Act 1991 to require a licence holder to enter into an access agreement with a landholder for CSG production; and 
  • establishment of a position for a Petroleum Ombudsman.

It is not just gas supply that is at risk, the delay connected to any moratorium is in the fore front of CSG investors. Following the release of the report share prices of companies with NSW CSG exposure closed down.

Not only is CSG coming under increased scrutiny in NSW, in Victoria another shire has sought to ban the controversial practise.

Ultimately the recommendations are a step in the right direction, unfortunately the risk of closing the pipe on CSG remains.

For a full copy of the tabled inquiry click here.

Carbon price passed: Now what?

After many years, 2 Prime Ministers and 3 opposition leaders to name a few, the Federal Parliament passed carbon price legislation yesterday. The price will apply from 1 July 2012 at $23/t Carbon Dioxide equivalent in the first year.

Many will be unhappy about this, but our focus must now turn to what do we do about it. We can’t ‘wait and see’ anymore.

The Opposition has committed to ‘roll back’ the carbon price if it wins government in the future. However, a roll back would be very difficult and appears unlikely, or at least not for some time (meaning we must still prepare for the carbon price).

So there are 2 key questions:

  1. What does it mean for the mining industry?
  2. What should the mining industry do about it?

What does it mean for the mining industry?

A carbon price will increase the cost of activities that directly or indirectly (ie through their inputs) emit greenhouse gas emissions. For mining the key carbon costs will attach to gas, coal, diesel and electricity use. Coal mines will also face direct costs for their direct methane emissions.

Whether carbon costs are directly paid to government by the mining company or its suppliers will depend on where the emissions arise and who has operational control of them.

Notably, the default position for liquid fuels is they will not be subject to the carbon price regime (with an obligation to obtain and surrender permits). Instead some liquid fuels, including off-road mining and power generation fuel, will face an equivalent carbon price through the fuel tax/rebate system. Mining diesel use will have a reduced diesel fuel rebate, initially at 6.21c/L in 2012/2013. Large fuel users will have the opportunity to ‘opt in’ to the carbon price regime and then need to obtain and surrender permits instead of paying through the fuel tax system. The ‘opt in’ regime is yet to be finalised, but this opportunity is expected to be available for users of fuel that produce more than 25,000t CO2e pa (about 9.1mL of diesel).

This generally means mining companies will pay for their fuel use, any power generation they undertake and coal methane emissions. Suppliers will most likely have any other direct liability. Those suppliers will in turn look to pass their costs through to the mining company.

The end result is the mining company will pay for their carbon footprints, directly or indirectly. Therefore the mining company’s commercial exposure is best calculated on the basis of its total emissions profile. 

Some compensation is being made available for ‘emissions-intensive, trade-exposed’ industries. However, it appears to be of limited availability for the mining industry. It will give some compensation to some minerals refining. Gassy coal miners will be able to access separate compensation.

What should the mining industry do about it?

Key steps include:

  1. Review and design contracts: It is important to review and design your contractual arrangements to best manage carbon costs. This is generally achieved where all parties accept appropriate pass through. You should always consider where emissions (and therefore costs and risks) are likely to arise and how they can be best managed.
  2. Offsets: Carbon offsets may be one key way to manage carbon costs. The ‘Carbon Farming Initiative’ voluntary scheme will present positive emissions reduction opportunities.
  3. Disclosure: Be careful what statements you are making publicly and in your financial documents.
  4. Approvals: If you are going through an approval process, any carbon offset proposals or negotiations should be revisited.
  5. Compensation: Review what compensation may be available.
  6. Opt in?: Large fuel users should consider whether to opt in to the carbon price regime or not. Main reasons to do so are to more effectively manage the carbon price exposure, including through the use of offsets.

Unconventional moves: changes to WA onshore gas regulation

WA has proven it is alive to the fact that there is an increasing importance of unconventional gas resources, with the WA Department of Mines and Petroleum (DMP) releasing on Monday its response to Dr Tina Hunter’s report on the regulation of shale, coal seam and tight gas activities in onshore WA.

Stakeholders should take a keen interest this response as it proposes amendments to provide for public disclosure of the chemicals used in fraccing operations, and of approved environmental management plans – information which is usually commercially sensitive. 

Dr Hunter’s report was commissioned by the DMP to provide an independent assessment of the existing regulatory framework for unconventional gas resources. Their response indicates that changes are afoot for the regulatory regime for onshore gas activities in WA, particularly on key issues associated with development of unconventional gas resources – with the reform package seeking to propose:

  1. legislative amendments to mandate full disclosure of chemicals used in fraccing operations and publication of approved environmental management plans on the DMP website
  2. new Resource Management Regulations to regulate onshore petroleum activities and which will:
    • specifically address field sterilisation
    • incorporate requirements for field abandonment; and
    • address onshore decommissioning
  3. new Environment Management Regulations to regulate onshore petroleum activities including gas from unconventional sources and which will:
    • clarify guidelines for management of produced water from fraccing processes; and
    • include management guidelines for produced water from abandoned wells.

The Resource Management Regulations and the Environment Management Regulations are expected to be released for stakeholder input by mid 2012 and end 2011 respectively.