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Senate Estimates: Foreign Affairs, Defence and Trade Legislation Committee: Department of Foreign Affairs and Trade: Trade Portfolio (Trade Programs)

Thursday, 20 October 2016

Senator RHIANNON: I would like to ask questions about the Boikarabelo coalmine and railway in Limpopo province, South Africa, that I understand Efic is considering funding. Is the environmental and social impact assessment of the project of a standard that would be acceptable in Australia?

Mr Hunter: Yes, it is. I will get my environmental colleague to provide you with more specifics. Mr Parsons: When we look at an overseas project like Boikarabelo, we have two benchmarks we look at. Firstly, we make sure it has got host country approvals, and Boikarabelo obtained those in 2012 or 2011. Then we use an international benchmark, the IFC performance standards. In this case, we are using the current version of those, which is the 2012 version, and we will benchmark the project against those as part of our due diligence.

Senator RHIANNON: Could you describe the total of the 2012 one—what is it called again, please?

Mr Parsons: Sorry, I could not hear the question?

Senator RHIANNON: The last one that you mentioned—the 2012 one—you said it was an IFC?

Mr Parsons: Yes, the International Finance Corporation performance standards. They are an internationally recognised environmental social benchmark.

Senator RHIANNON: The 2011 ESIA devotes only four pages to site rehabilitation and closure, suggesting that there was not a detailed plan, and it states that it is recommended that Resgen formulate a rehabilitation and closure plan during the pre-construction phase and that this rehabilitation plan must be updated on an annual basis and submitted to the DMR. That is when I came to the conclusion that the site rehabilitation and closure issue has not been dealt with.

Mr Parsons: That would be part of the due diligence we are undertaking. One of the requirements of the performance standards for a project such as this is to have a closure plan.

Senator RHIANNON: But it does not have one in the ESIA, so that is not satisfactory.

Mr Parsons: As I said, we use two benchmarks: we use the host country approval process, and the mine has that, and then we use another standard, the IFC performance standards. That is part of our due diligence processes, which we are undergoing now. We are benchmarking the project against those. The IFC performance standards do require a closure plan to be in place.

Senator RHIANNON: Can you explain that a bit more. You have said the IFC requires it, but the ESIA clearly does not have it. It actually says 'formulate'. It is recommended that they formulate—not that it is actually examining it. They are just saying 'do it in the future'.

Mr Parsons: I am not up to speed with the South African requirements, which the approval has been granted under, but the IFC performance standards, which we are using as a benchmark, do require a closure plan. As part of our due diligence, we will make sure there is a closure plan prepared for the project.

Senator RHIANNON: What you are saying is that Efic would not approve a loan until the rehabilitation and closure plan was in black and white?

Mr Parsons: In black and white, or in a satisfactory stage of preparation that we can be confident it will be in place, yes.

Senator RHIANNON: What is a satisfactory stage of preparation? It is starting to sound like wriggle room.

Mr Parsons: Part of the processes under the performance standards and international standards is you can have something called an environmental social action plan. That covers things which are required to satisfy our benchmarks, but which may not be in place at the time of financial close of a project, and it is a common thing for project financing to have that in place. Hypothetically speaking, if a closure plan were not available or complete at the time of financial close and we were comfortable that a satisfactory closure plan would be in place, we could put that in an environmental and social action plan. That is hypothetically speaking for this case.

Senator RHIANNON: What I noticed on page 365 was that rehabilitation of the open pit area is currently forecast to only be initiated in year 9 of operation. Again, it has really been pushed out. This suggests that in 2011 at least there was no detailed rehabilitation and closure plan, you would have to say—certainly not one that would be acceptable in Queensland and New South Wales.

Mr Parsons: As I say, we are currently going through our own processes with due diligence on the project.

Mr Hunter: If I could just elaborate, we have received an application for finance on Boikarabelo, but we have not completed our due diligence. At this stage, we simply have not done the level of due diligence to answer some of the questions you are asking. We have not completed our evaluation. We disclosed on our website on 12 September that this project is a category A project, meaning that it did have potential for significant environmental and social impact. Applications closed on 12 October and now we are considering those applications. So we are still in the process of due diligence, we have not completed our process and we have not reached any conclusions.

Senator RHIANNON: Could you just define what 'due diligence' means in this circumstance? Does it mean that we have to have the rehabilitation and closure plan set out or does it just mean that you believe that it will happen?

Mr Hunter: I think my colleague answered that question.

Senator RHIANNON: I just want to clarify it.

Mr Hunter: Do you want to clarify that one again, Mr Parsons?

Senator RHIANNON: Which one is it: that you see it or that you believe it will happen?

Mr Parsons: It is not a matter of believing that it will happen; it is a matter that we are confident that one will be in place. An environmental and social action plan will be covenanted under the legal agreement for the project financing. So it will be a requirement of the project financing for one to be in place if, hypothetically speaking, one was not in place when the financing was completed.

Senator RHIANNON: It sounds like what I can conclude from that is that you are prepared to finance a mine with no rehabilitation or closure plan.

Mr Parsons: No, that is not correct.

Mr Hunter: No, that is not right. I do not think that is what he is saying.

Senator RHIANNON: So you actually have to have the plan before you can finance it?

Mr Hunter: No, what we are saying is that there needs to be a commitment in the financing documents for such a plan to be put in place at a point during the project.

Senator RHIANNON: That is a commitment to a plan; it is not a plan in place. The English language can be wishy-washy, but right now there are two options.

Mr Hunter: I think we are being clear, Senator Rhiannon, that our requirement will be—

Senator RHIANNON: To see the plan?

Mr Hunter: That a plan will be put in place and a commitment made under the project finance documents during the course of the project financing.

Senator RHIANNON: We are still talking about a commitment to a plan and not a plan.

Mr Hunter: I believe I have answered your question, Senator Rhiannon.

Senator RHIANNON: What is the project as far as Efic is concerned? Does it relate only to a coalmine or to an integrated coalmine and power station project?

Mr Hunter: Again, at this stage, we have not completed our due diligence and we have not been provided with all of the information. Our understanding at this stage is that the financing that we are required to provide or have been requested to provide is for a coal wash facility at a coalmine.

Senator RHIANNON: You would be aware that Resgen has said in one of their media reports:

“Feasibility studies for a 600 MW power station have begun and ResGen has also started engaging with potential power plant contractors and funders. 'This project component will happen, it is part of our plans and the necessary work to deliver on this is well underway.'”

From what I have been reading, it sounds like the coalmine goes hand-in-hand with the coal fired power station.

Mr Hunter: I cannot comment on that, Senator. We have not finished our due diligence. At this stage, the request that has been put to us is for us to provide finance for the development of a coal wash facility at a coalmine. This project has only been brought to us recently. As I said before, we did publish this project on our website and invite commentary because we defined it as a category A project. Those submissions were only received close to the deadline of 12 October and we are still conducting our due diligence. At this stage, we do not have the information to answer your question.

Senator RHIANNON: By the way, when do you finish your due diligence?

Mr Hunter: It is a function of when we get the information. So if we are not provided with information we cannot complete our due diligence. That is not something we can control.

Senator RHIANNON: Does a point come where you say, 'Well, we've waited long enough so this project is off the books', or is it always alive?

Mr Hunter: That is a hypothetical question, so—

Senator RHIANNON: No, it is absolutely not hypothetical. It is just a process question about how Efic works; that is all it is. It is just asking you, 'Do you keep it alive on your books, just waiting for some time in a month or a year when the information comes in, or is there a point where you cross it off your books?'

Mr Hunter: If we receive an application, it is possible that that project will go into hibernation and we will do no further work on it. But then the party could come back to us two or three years later and say, 'We would like to reopen the opportunity,' and then we will start a process again.

Senator RHIANNON: That was all I was after. I am going back to this issue, because so much of it, when you read about it, is coalmines and coal-fired power stations going together. You would obviously be aware of the OECD's export credit working group and that there is agreement that export-credited agencies will no longer support the construction of new coal-fired power stations. Are you aware of that?

Mr Hunter: I am aware of that.

Senator RHIANNON: Considering that around the world coalmines go with coal-fired power stations—and there is much publicity that reports that this is what is happening in this case—are you considering your responsibility under the OECD's export credit working group guidelines?

Mr Hunter: I think you are asking me a hypothetical question, so I cannot answer it.

Senator RHIANNON: No, it is not hypothetical. You have responsibilities under the OECD. You have said you understand what the responsibilities are. I am asking how you carry those out, considering this coalmine is very much associated with a coal-fired power station, to the point that it probably would not be built if it did not have a coal-fired power station to send its coal to.

Mr Hunter: That is speculative. And, again, we have not done our due diligence, so it is not possible for me to answer that question.

Senator RHIANNON: This is from Resgen: The Boikarabelo tenement is enormous—it has a 200+ year lifespan with a 7.4 Bt resource. Realistically, the current JORCcompliant, 760 Mt resource offers an initial 35 year lifespan though. It is really sounding huge. Does Efic think there are any implications for climate change in financing such large coal reserves?

Mr Hunter: Are you talking about this particular project?

Senator RHIANNON: Yes; that is why I read out those figures, because it is just so enormous.

Mr Hunter: Again, we have not completed our due diligence, so it is not possible for me to answer that question.

Senator RHIANNON: I was interested in how this shapes up for the Australian coal market. What are the implications for Australian coal exports to markets such as India or for the development of these projects? For example, is this going to undercut the coal industry in Australia because it is so large and there is an export component as well? Is it going to make it tougher for our coal industry at a time when the price of coal is a bit shaky?

Mr Hunter: Again, we do not have sufficient information on the project; nor have we completed our due diligence to enable us to make that assessment.

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