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Exploring the liability of Financial Institutions in the light of NEMWA Chapter 4 Part 8: Who will remediate mining pollution? Reece C Alberts Centre for Environmental Management Internal Box 150 North-West University Potchefstroom Campus Private Bag X6001 POTCHEFSTROOM 2520 Tel: +27 (0) 18 299-1448 Fax: +27 (0) 18 299-4266 E-Mail: [email protected] Web Address: http://cem.puk.ac.za CEM-0 Course Revision 2007-00 1 NEMWA Ch4 Part 8 & Financial Institutions Background Revision 2006-0 National Environmental Management: Waste Act 59 of 2008 Chapter 4: Part 8 – Contaminated Land Places duty on : Owner of Land Person who undertakes contaminating activity Report Contamination - Sec 36(5) May not transfer land without disclosing – Sec 40 Conduct Site Assessment –Sec 37(1)(b) Directed to Remediate – Sec 38 (2) Directed to Monitor and Manage – Sec 38 (3) National Contaminated Land Register – Sec 41 © CEM 2 NEMWA Ch4 Part 8 & Financial Institutions Question? Revision 2006-0 What are the risks to Financial Institutions lending money to finance mining operations? Specifically worried about NEMWA Ch4: Part 8 © CEM 3 Mining & Waste CEM-0 Course Revision 2007-00 4 NEMWA Ch4 Part 8 & Financial Institutions Mining Waste Revision 2006-0 NEMWA Includes Mining Waste in the Definition of Waste in Sec 1 Sec 4 however excludes Residue Deposits and Residue Stockpiles Residue Deposits defined as: any debris, discard, tailings, shines, screening, slurry, waste rock, foundry sand, beneficiation plant waste, ash or any other product derived from or incidental to a mining operation and which is stockpiled, stored or accumulated for potential re-use, or which is disposed of, by the holder of a mining right, mining permit or production right © CEM 5 NEMWA Ch4 Part 8 & Financial Institutions Mining Waste Revision 2006-0 Residue Stockpile defined as: any residue stockpile remaining at the termination, cancellation or expiry of a prospecting right, mining right, mining permit, exploration right or production right Deposits and Stockpiles alone account for +/- 80 % of “Waste” Generated in SA 510 000 000 tons in 2007 (Purnell, 2009:4) Result in significant environmental degradation and pollution Hazardous Chemicals/Substances pH – AMD + and others Heavy Metals – Chr 6 © CEM 6 NEMWA Ch4 Part 8 & Financial Institutions Mining Waste Revision 2006-0 Deposits and Stockpiles also severely effect water resources Ground Water pollution Surface water pollution © CEM 7 Other Legislation CEM-0 Course Revision 2007-00 8 NEMWA Ch4 Part 8 & Financial Institutions National Water Act & National Environmental Management Act Revision 2006-0 National Water Act 36 of 1998 & National Environmental Management Act 107 of 1998 Sec 19 of NWA and 28 of NEMA places a duty on: Owner of the land Person in control of land Person who occupies or uses the land Take all reasonable measures to prevent the pollution of a water resource or environment from occurring, continuing or recurring. © CEM 9 NEMWA Ch4 Part 8 & Financial Institutions National Water Act & National Environmental Management Act Revision 2006-0 May be directed if reasonable measures are not taken. Government may intervene and recover costs from: Person responsible, or who directly or indirectly contributed Lending of funds? Owner of the land, or successor in title Repossession? © CEM 10 NEMWA Ch4 Part 8 & Financial Institutions National Water Act & National Environmental Management Act Revision 2006-0 Person in Control of land or who has right to use the land Repossession? Persons who negligently failed to prevent Ask the right questions before lending? © CEM 11 NEMWA Ch4 Part 8 & Financial Institutions National Water Act & National Environmental Management Act Revision 2006-0 Important to note that pollution resultant from residue deposits and residue stockpiles is subject to the above provisions © CEM 12 What are the Risks? CEM-0 Course Revision 2007-00 13 NEMWA Ch4 Part 8 & Financial Institutions NEMWA Revision 2006-0 Financial institutions lending money to mines may be exposed to the following risks with regard to the pollution emanating from those mines NEMWA: Scenario 1 If the borrower defaults for any reason, and the financial institution forecloses and in so doing becomes the owner of the property the following may result: © CEM 14 NEMWA Ch4 Part 8 & Financial Institutions NEMWA Revision 2006-0 If the property is recorded as contaminated in terms of NEMWA: The financial institution is exposed to financial loss which may manifest itself as either (i) Clean up cost (ii) A reduction in market value of the property © CEM 15 NEMWA Ch4 Part 8 & Financial Institutions NEMWA Revision 2006-0 If the property is subsequently recorded after the financial institution becomes the holder in title the following costs can be incurred Ancillary investigation costs (i) above (ii) above © CEM 16 NEMWA Ch4 Part 8 & Financial Institutions NEMWA Revision 2006-0 Scenario 2 (Most likely) If the borrower is ordered to remediate the following financial liabilities may accrue to a bank If the value of the running concern is less than the rehabilitation/clean up cost then the borrower may default Financial institution forecloses: See scenario 1 above. © CEM 17 NEMWA Ch4 Part 8 & Financial Institutions NEMWA Revision 2006-0 NB to remember that the contamination caused by Residue Deposits and Residue Stockpiles cannot be considered in the light of NEMWA Sec 4 Exclusion © CEM 18 NEMWA Ch4 Part 8 & Financial Institutions NWA & NEMA Revision 2006-0 NEMA and NWA Scenario 1 If the borrower defaults and the financial institution becomes the owner/ holder in title (???) The financial institution may be directed to clean up or to remediate which results in direct costs being incurred. The market value of the property may be compromised and the financial institution will incur a loss upon selling © CEM 19 NEMWA Ch4 Part 8 & Financial Institutions NWA & NEMA Revision 2006-0 Scenario 2 If the borrower is directed to clean up, and he fails to comply Government may intervene and claim costs from the financial institution Directly or indirectly responsible? Negligently failed to prevent? The market value of the property may be compromised and the financial institution will incur a loss upon selling © CEM 20 Concluding Remarks CEM-0 Course Revision 2007-00 21 NEMWA Ch4 Part 8 & Financial Institutions Conclusion Revision 2006-0 Risks posed to Financial institutions with regard to the financing of mining operations is greater in terms of NEMA and NWA than NEMWA Largely due to exclusion of Residue deposits and Residue stockpiles NEMA and NEMWA provides for a wider ambit in terms of “who” is liable. Not property specific Above scenarios also pose reputational risks to the financial institutions © CEM 22 NEMWA Ch4 Part 8 & Financial Institutions Conclusion Revision 2006-0 It must be noted that given the absence of case law regarding the liabilities accrued by financial institutions with regard to the funding of pollution or damage causing activities and the extent of their liability in such instances, the above scenarios remain untested in a court of law and no precedent exists. © CEM 23 NEMWA Ch4 Part 8 & Financial Institutions Questions????? Revision 2006-0 © CEM 24