The Victorian government’s failure to raise the three mines’ rehabilitation bonds would expose taxpayers to a ‘significant proportion of the cost’ in case of default

This article is more than 4 years old

This article is more than 4 years old

The fourth and final report into Victoria’s Hazelwood coalmine fire in 2014 has highlighted a looming national problem: the huge cost of rehabilitating mines when they close.



The mine fire inquiry found rehabilitation bonds paid by the three open-cut coalmines in the Latrobe valley, east of Melbourne, were much lower than the real cost of cleaning up the sites if mining operators defaulted on their obligation to do so.

It urged an immediately increase in the bonds of tens of millions of dollars until a review into the system was complete.

The current rehabilitation bond level – set 20 years ago for two of the mines – “exposes the state to the risk that it will bear a significant proportion of the cost of rehabilitation in the event of default by one or more of the mine operators”, the report found.

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Bonds are meant to cover 100% of the cleanup if a company collapses or defaults. The report noted that Victoria’s mining regulator stated last year that the risk of an operator refusing to pay an increased bond or defaulting on its cleanup obligations was “50/50” – a suggestion the companies disputed.

“The failure of the state to increase bond levels has meant that any financial incentive the mines may have had to accelerate progressive rehabilitation has been removed,” it said.

The Hazelwood and Loy Yang mines provide a $15m rehabilitation bond to the government, with the Yallourn mine’s bond set at about $11.5m. The plan is to turn all three sites into lakes when mining is finished, with surrounding land to be used for agriculture and other purposes.

Yet, by the companies’ own estimates, the bonds are inadequate. Hazelwood estimates the cost of cleanup to be about $73m, Yallourn between $46 and $91m, and Loy Yang $112m. Other estimates are considerably higher.

The report recommended an interim rise to 50% of the estimated cost of rehabilitation until a review was completed. That would mean Yallourn would pay $34.25m, Hazelwood $36.7m and Loy Yang $56m.

There are growing fears that taxpayers could be left with hefty bills for mine rehabilitation. The Queensland government recently introduced laws to ensure collapsing companies don’t escape environmental liabilities – in part to protect taxpayers from a $50m to $60m bill if Clive Palmer’s nickel refinery is wound up.

The companies that operate the Latrobe valley mines – EnergyAustralia, GDF Suez and AGL Loy Yang – escaped serious criticism in the inquiry’s report, which saved its most damning findings for the government and the state’s mining regulators.

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The state had “consistently [failed] to implement its own policy” on bonds, it said. There was “no transparency” in the way the bond levels were reviewed and it was “inconceivable” that the liability levels had not increased over time. The current scheme encouraged a “minimal compliance” approach.

The report also expressed concern about the plan to flood the mines at the end of their lives to create artificial lakes.

“Prolonged years of drought combined with water restrictions, extreme weather events and a greater awareness of climate change have dramatically influenced society’s views and expectations on current and future water usage,” it said. It was “not at all clear that sufficient water will be available to any of the mines for the purpose of rehabilitation”.

It recommended a review of the plans and the appointment of a commissioner for Latrobe valley mine rehabilitation.

The inquiry was called after the Hazelwood mine fire near the town of Morwell raged for 45 days in early 2014. Previous reports have looked at the adequacy of the response to the fire, whether it increased deaths in the valley and the long-term health effects on the people, who are some of the most disadvantaged in Australia. The Latrobe valley mines provide 95% of Victoria’s baseload energy needs.

The government has been waiting for the final report before it responds to all the inquiry’s recommendations. That response is expected in this month’s state budget.

The president of Voices of the Valley, Wendy Farmer, urged the government to implement all recommendations.

“The physical and mental health of the community has suffered greatly since the coalmine fire,” she said.