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Statement of Reasons to require further rehabilitation bonds from the Latrobe Valley coal mines 

The Hazelwood Mine Fire Inquiry Report: Victorian Government Implementation Plan, June 2016 (Government Plan) sets out a three-staged process to assess and review the rehabilitation bonds for the three Latrobe Valley coal mines, as follows:

Mine

(Stage 1)

Total bond by

30 June 2016

(Stage 2)

Total bond by

31 December 2016

(Stage 3)

Total bond by 

mid-2017

Yallourn

$34.25 million

$68.5 million

Based on liability assessments to be prepared by an independent expert

Hazelwood

$36.7 million

$73.4 million

Loy Yang

$56 million

$112 million

The three Latrobe Valley coal mines submitted further bonds in July 2016 and the Government now holds guarantees that total the Stage 1 rehabilitation bond amounts.

As part of the assessment and review of the proposed Stage 2 further rehabilitation bonds, the Minister for Resources consulted the Latrobe Valley coal mines and the Latrobe City Council.

The Minister for Resources' consideration of the sufficiency of the rehabilitation bond for each Latrobe Valley coal mine included:

  • The current amounts of the rehabilitation bonds of the Latrobe Valley coal mines
  • The rehabilitation liabilities reported for the 2014-15 period and the 2015-16 period by each of the Latrobe Valley coal mines
  • The findings of the Hazelwood Mine Fire Inquiry Report 2015/2016 Volume IV – Mine Rehabilitation (Inquiry report)
  • The rehabilitation liabilities estimated by AECOM for the Department of Economic Development, Jobs, Transport and Resources (the department)
  • The comments provided by each of the Latrobe Valley coal mines regarding the Stage 2 proposed further rehabilitation bonds.

The rehabilitation liabilities estimated by the Latrobe Valley coal mines are significantly higher than the current rehabilitation bonds. The Inquiry report found that these estimates do not include potential costs that may be incurred (page 127), and are likely to be at best the minimum rehabilitation costs (page 143).

Mine

Self-assessed rehabilitation liability

Hazelwood

$73.4 million

Yallourn

$46 million to $91 million*

Loy Yang

$112 million

* dependent on amount of stability work required

The rehabilitation liabilities estimated by AECOM for the department are significantly higher than the current rehabilitation bonds. The Inquiry report found that while these estimates included some significant costs that should not be included (page 129), AECOM used an appropriate methodology for estimating liability given the uncertainties of calculating future prices for rehabilitation (page 127).

Mine

Rehabilitation liability estimated for the department (incl. risk costs)

P80*

Hazelwood

$305 million

Yallourn

$199 million

Loy Yang

$270 million

* P80 is the level where there is an 80% chance that the costs will be this amount or lower

The estimates reported by the Latrobe Valley coal mines and the estimates calculated by AECOM for the department are significantly higher than the current rehabilitation bonds.

The Latrobe Valley coal mines provided the following comments to the Minister for Resources:

  • The risk of defaulting on their rehabilitation obligations is negligible
  • The risk is not imminent due to the operators' financial capabilities
  • The costs associated with the proposed Stage 2 further bond are not justified
  • The proposed further bonds should be reduced reflecting the lowered rehabilitation liability due to the amount of rehabilitation work carried out
  • The requirement for the further bond should wait until Stage 3 where the rehabilitation liabilities are assessed independently

The risk at any time of any mining licensee defaulting on its rehabilitation liabilities is addressed by a rehabilitation bond held by Government that covers the cost of rehabilitating the site should the mining licensee fail to do so. The rehabilitation liability assessments show that the rehabilitation liabilities are significantly higher than the rehabilitation bonds currently held. The costs associated with establishing and maintaining the Stage 2 further rehabilitation bonds are a corporate responsibility arising from the right to carry out mining activities. The amounts of the rehabilitation bonds will be further reviewed following an independent assessment of the rehabilitation liabilities taking into account the rehabilitation work already completed.

Considering all of the above information, the Minister for Resources determined that each of the rehabilitation bonds of the Latrobe Valley coal mines is insufficient and further rehabilitation bonds from each of the Latrobe Valley coal mines are required (aligned with Stage 2 in the Government Plan):

Mine

Current bond

Further rehabilitation bond

Total rehabilitation bond

Hazelwood

$36.7 million

$36.7 million

$73.4 million

Yallourn

$34.25 million

$34.25 million

$68.5 million

Loy Yang

$56 million

$56 million

$112 million

The Government will continue to further review the rehabilitation bonds, under Stage 3, for the Latrobe Valley coal mines in 2017.