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

The Hazelwood Mine Fire Inquiry Report 2015/2016 Volume IV – Mine Rehabilitation (Inquiry report) included Recommendation 9 directed to the Minister for Resources regarding the sufficiency of the rehabilitation bonds for the three Latrobe Valley coal mines:

By 30 June 2016, request the Minister for Energy and Resources to consider the sufficiency of the existing rehabilitation bonds pursuant to section 80(4) of the Mineral Resources (Sustainable Development) Act 1990 (Vic) having regard to this report and any other relevant material.

  • If the Minister for Energy and Resources deems the existing rehabilitation bonds insufficient, the Minister should consider increasing the rehabilitation bonds on an interim basis to at least:
    • Yallourn mine: $34.25 million
    • Hazelwood mine: $36.7 million
    • Loy Yang mine: $56 million
  • The interim increases should be undertaken in accordance with section 80(4) of the Mineral Resources Act.
  • If the Minister deems the existing rehabilitation bonds sufficient, the Minister should publish a statement setting out the reasons for that conclusion on the website of the Department of Economic Development, Jobs, Transport and Resources.

The Government accepted this recommendation and the former Minister for Energy and Resources immediately commenced consultation with the Latrobe Valley coal mines and the Latrobe City Council regarding proposed further rehabilitation bonds.

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

  • The findings of the Inquiry report
  • The existing amounts of the rehabilitation bonds of the Latrobe Valley coal mines
  • The rehabilitation liabilities reported for the 2014-15 period by each of the Latrobe Valley coal mines
  • The rehabilitation liabilities estimated by AECOM for the Department of Economic Development, Jobs, Transport and Resources (DEDJTR)
  • The comments provided by each of the Latrobe Valley coal mines and the Latrobe City Council regarding the proposed further rehabilitation bonds.

The existing amounts of the rehabilitation bonds for the Hazelwood and Loy Yang coal mines are same as when the mines were privatised and licensed under the Mineral Resources (Sustainable Development) Act 1990 (MRSDA). The existing amount of the rehabilitation bond for the Yallourn coal mine was reduced in 2004 from the amount that was set when the mine was privatised and licensed under the Mineral Resources (Sustainable Development) Act 1990 (MRSDA).

Mine

Original bond

Current bond

Hazelwood

$15 million

$15 million

Yallourn

$15 million

$11.46 million

Loy Yang

$15 million

$15 million

Mining and rehabilitation activities that have occurred have continued to change the rehabilitation liabilities.

The rehabilitation liabilities estimated by the Latrobe Valley coal mines are significantly higher than the existing 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 DEDJTR are significantly higher than the existing 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 DEDJTR (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 DEDJTR are significantly higher than the existing rehabilitation bonds.

The Latrobe Valley coal mines advised the Minister that they are willing to provide the proposed further rehabilitation bonds recommended by the Inquiry report by 30 June 2016.

Considering the above, I have 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 as recommended in the Inquiry report:

Mine

Current bond

Further rehabilitation bond

Total rehabilitation bond

Hazelwood

$15 million

$21.7 million

$36.7 million

Yallourn

$11.46 million

$22.79 million

$34.25 million

Loy Yang

$15 million

$41 million

$56 million

The Government will continue to further review the rehabilitation bonds for the Latrobe Valley coal mines in 2016/17.