82. The sub-groups consider that the financing of restoration is the top priority for action.
83. There are three aspects to finance within opencast mining
i) that financial assurance is in place at the outset to ensure that the restoration and aftercare requirements of planning permission can be implemented,
ii) the operator pays for compliance, decommissioning, restoration and as the case may be mitigation and aftercare,
iii) that agreement is reached at the outset on the contribution and what form it will take that will go to the community involved in the disruption caused. While this has been done under Community Benefit clauses in current agreement it is a subject that warrants examination in its own right given the plethora of such benefits that now exist for opencast, wind etc. where the guidance has developed piecemeal, is consistent and can be done in a better way.
84. The 'who pays for what' in terms of planning and compliance will come out of the sections above. It is highlighted here that 'who pays' is not forgotten in all the other financial aspects around opencast as it is not without size or substance. In exercising its statutory planning function there must be no financial or resource cost or risk whatsoever to a planning authority.
85. In terms of Community Benefit there needs to be an examination of whether this can be improved to bring more consistency to it across Scotland and whether it would be better with a single fund for a community rather than the multitude that now exist. However this should be the focus of a separate piece of work so is highlighted here just to make that issue a live one (see Part 3 of this report and Recommendation 29).
86. Finally the Group looked at and discussed how the rewards that landowners, mineral rights holders (who can be different to the landowner) and operators receive while the mining is on-going can be linked to restoration. The operator would argue, understandably, that they are already paying the price for the assurance and compliance but currently the landowner or other party gaining reward pays nothing towards either. This is an area that the group considered. While it is considered that the opportunity should be taken to engage in a spirit of cooperation with Scottish Land and Estates on the matter, local authorities are clear that any future planning permission for opencast coal mining should carry with it no financial or human resource costs or risks whatsoever. Engagement with landowners could alert the sector to its obligations and the importance of a forward look on financial planning in relation to land holdings when surface coal mining is proposed on privately held land. It would be an important reminder to landowners of their obligations under the 1997 Act concerning land management obligations arising from the income from development.
87. However the group felt that those discussions should be carried out on the basis that if the landowners and others do not come up with their own way of holding back finance until full restoration then Scottish Government may take a view itself on whether part or all of any dividend taken from coaling should be held 'in trust' until such time as the site is fully restored. While the landowner will in many cases be the developer that is not always the case and also many land ownership exchanges on these sites assume that the land will revert to the original owner when restoration is complete at no or just a nominal cost.
FORMS OF RESTORATION GUARANTEES
2013 Consultation main finding
There was split opinion on the best way to deal with Financial Guarantees but support all round for the identification and implementation of the means of securing guarantees to protect the interests of Planning Authorities, the industry and the communities. There is a need for further discussion on this matter with all relevant stakeholders.
The section below set out the sub-groups view but in summary what we have currently, even if it worked correctly, is not fit for purpose as in the case of bonds which are the main assurance tool it takes no account of the financial viability of the developer and relies solely on an actuarial evaluation of the risk involved. A new way of providing better and more robust assurance that removes much of the due diligence burden from Local Authorities (who do not have the skills or resource to do it) is needed.
The view has been expressed that the cost of restoration and aftercare should come from the revenue generated on site, with restoration guarantees the backstop and not a separate activity.
All through the consultation and discussion process there has been a division on the best form of financial guarantee. The introduction of 'first tier' bank guarantees is of interest and planning authorities will wish to ensure or take advice on the standing of the provider financial institution. Industry access to bank guarantees is also subject to company diversity or exposure to for example the coal sector.
It has been commented that the use of combined securities has a place and the sub-group can provide good examples.
It has also been commented that each site is unique and in the circumstances may require 'traditional' guarantee options.
Further discussion by sub-group representatives in April 2015 identified scope to bring together HOPS and SOLAR to agree headings for a draft guidance note on bank guarantees. That would then be shared with the RBS representative's technical team for further consideration, report back and shaping into a final guidance note.
It has also been noted that financial guarantee milestones should be monitored routinely and are appearing in local authority reports. The Scottish Ministers will welcome periodic reports on such matters in site monitoring and compliance reports. (see Recommendation 19).
88. Prior to the financial crash of 2008 and the business collapse of the then key mining companies in the UK, insurance bonds had been the prime way of Local Authorities and communities gaining comfort that restoration was guaranteed. An escrow account has worked particularly well in West Lothian. However even then, some financial guarantees were not monitored by Local Authorities in a way that gave real cover or they were revised as the site developed. This is again primarily due to placing a level of responsibility on planning authorities owing in part to a lack of expertise in putting in place Insurance Bonds by Local Authorities and a belief that significant breach far less default would never happen.
89. Before we come therefore to what financial instruments should be used in future there is a key question about who sets the terms of whatever is put in place and how those terms are varied over time.
90. It is clear from discussions with planners from local
authorities and indeed with
HOPS that the
role of overseeing the financial guarantee of an opencast site
should not automatically rest with a council. Only if, on a site
specific basis, such a mechanism is seen to be acceptable to a
council then expertise in setting the terms for insurance or other
financial bonding instruments is not one that is prevalent there so
there is a desire for assistance in the form of:
i) Standard terms for bonds and guarantees that can apply across all Local Authorities
ii) Some central or other expertise that can advise Local Authorities on specific issues as they arise
91. There is also a recognition of the resource that it takes to do much of this initial due diligence and on-going work and HOPS do not believe that Local Authorities have that resource locally to do that.
92. Scottish Government Finance Directorate already works with Local Authorities on complex or challenging financial issues and would appear to be the appropriate place to inform on what is outlined below. They could also draw in assistance from Scottish Futures Trust as required. The key message however is that due diligence on the type and quantum of the restoration guarantee needs to be undertaken. In the case of the insolvencies that gave rise to the abandonment of unrestored sites across Scotland it is self-evident that the due diligence was found wanting.
93. Planning authorities believe that this is a matter for the developer and the landowner, and that planning permission should not be granted until such time as an independent verification has been undertaken, confirming that those parties have in place the necessary security to restore a site if a breach of planning control relating to restoration and aftercare takes place. This requires significant further discussion between Scottish Government and local authorities. Amongst the range of financial instruments, the role of escrow accounts that give local authorities comfort insofar as finance is readily available for restoration (but only once coaling has begun) must not be overlooked. Failure to ensure that a local authority has immediate access to finance to procure the restoration of a site will be resisted at the planning application stage. National and international procurement regulations must not be overlooked in this regard.
94. There may be difficulties with identifying the "perfect" financial product for reinstatement - they all provide (at a cost) funds in the event of a risk crystallising and Scottish Government would not want to constrain landowners' or local authorities' ability to assess the best choice of an appropriate product at a competitive price. Local authority chief executives, finance directors and where in post, insurance managers (or as the case may be a service bought-in) are recommended to ensure that this is addressed and that any skills gap is plugged. Audit Scotland asked all local authorities with coal reserves for an update that the Controller of Audit would report in 2014/15. Local authority capacity in financial expertise is a concern and is reflected in their 2011 report into skills drift and early retirement in planning. Audit Scotland stands by and supports Local Authorities' impartial decision-making role so any advice on new financial guarantee options available to planning authorities will come with the message that the Scottish Government and COSLA can only offer support to ensure that affairs are conducted along best practice lines.
95. In terms of the assurance instruments themselves the group looked at what existed historically and what was available now. Part of that focussed on the amount of due diligence that needed to be done and how it could be done.
96. Historically as is stated above, insurance bonds were the main form of assurance although Parent Company Guarantees ( PCGs), and escrow accounts were also issued in some cases. While local authorities consider that greater emphasis is needed on the establishment of an escrow account and industry considers that PCGs remain an option there is in reality a place for a mix of options tailored to site-specific circumstances.
97. Insurance Bonds are actuarially-based bonds which are costed on the basis of what is the insured risk happening and the fee is fixed around that. There is therefore nothing in that calculation that examines the financial viability of the operator only in terms of their ability to pay the premium. However unlike other insurance policies all or part of some of the bonds were cross-guaranteed to the operator primarily to penalise the operator if the bonds were called if the operator did not perform their duties effectively. Since all the bonds have been called because the operator went out of business then the cross-guarantees were of little effect other than tying up part of the company's available credit.
98. The Group wrote to the key insurers in this sector and the majority have decided to withdraw from this sector and those that do still exist are only prepared to give bonds for short periods of time with no guarantee of renewal which does not really give much assurance to a Local Authority.
99. Therefore while short term insurance bonds might play a part in a menu of instruments that are available they do not appear to offer a viable way forward in isolation .
100. Also since company demise has been the main reason for opencast restoration default, Local Authorities are extremely reluctant about taking bonds on. However the view of the Group is that they should not be totally discounted as in certain circumstances they still offer good and safe insurance and again can form part of a menu of options for Local Authorities to use for example in the early phases of a site where an escrow account derived from a per-tonne levy has not built up sufficient cover. Primarily however councils consider that it is the role of the landowners and beneficiaries of the planning permission that have responsibility for guaranteeing against default.
101. The Group spent some time examining and taking evidence on
using bank guarantees and the group see these as a primary new and
potentially attractive instrument to use because:
a. They are used widely and successfully in other industries and are therefore a standard part of the commercial market
b. The bank who issues the guarantee on behalf of the company does the due diligence to ensure that the company can afford to pay it as it falls within its overall credit exposure calculation for the business.
c. It is the bank who pays, not the company if the company does fail.
d. It can be varied over time to take account of changes in restoration cost and again the bank would carry out the due diligence so the Local Authority would know in advance if the company could afford to cover the changes it was proposing if those increased the restoration cost.
102. While one local authority has classed bank guarantees as 'medium risk' (which would not rule them out), the finance sub-group has concluded that where Bank Guarantees are on offer in a site-specific situation they should be 'on the table' but that PCGs, escrow accounts, and short terms insurance bonds should remain part of the assurance menu in this area as it may be that a combination of these can be used in certain circumstances. Advice on when a financial product should not be used would be beneficial.
103. However it is recommended that Scottish Government Finance Directorate work with Local Authority Finance Directors, insurance managers, SFT and HOPS to put in place standard terms for opencast which ensures that the guarantees are paid out if needed and that Local Authorities be obliged to use them always recognising that there can be local variances. Scottish Government Finance cannot advise Local Authorities on which banks they could accept guarantees from.
104. The outcome though of going down this route is that it is likely that only large financially stable organisations will fall within the criteria where these instruments will be available to, so there may be some resistance from smaller operators but given where we are, the group feels that this is unavoidable as insurance bonds can no longer be seen as the lead or only instrument.
105. Finally in terms of financial assurance the issue of landowner share of the coal output was raised.
106. Currently the deal between the operator and the landowner is a private commercial transaction that exists outside of the agreements that the public sector is involved with. Therefore landowners can and have taken large rewards from the coal extracted from their land without having any obligation to put funds back into restoration if the operator failed. While a planning permission and the section 75 agreement always falls back onto the landowner if the operator fails, none have ever been pursued owing to cost and other legal issues. With agreements open to modification there are complexities.
107. The group feels that landowners should be brought more into the risk side of the equation; local authorities consider that their role as landowner is central to this. The group would wish so see if the planning or other legal rules surrounding this could be changed or varied and make it obligatory that the landowner set aside all or part of their coaling benefit funds until such time that restoration and aftercare is complete mindful that they are responsible through planning legislation for a breach of planning control on their land.
108. The downside of this approach is that landowners may not now allow mining to take place on their land but the group feels strongly that there needs to be more balance in this arrangement than currently appears to be the case.
The sub-groups recommend that Scottish Government should work with Local Authority Finance Directors, insurance managers, the Scottish Futures Trust, HOPS and industry to put in place elements to be included in agreements for surface coal mine restoration guarantees.
HOPS and SOLAR will agree headings for a draft guidance note on bank guarantees. That will then be shared with the RBS representative's technical team for further consideration, report back and shaping into a final guidance note.
2013 Consultation main finding
There was a 73% response rate but majority support for landowner contributions to restoration: highest amongst the local authorities and third (community) sector but stronger resistance from business (coal operators). It was also commented that local authorities benefit financially from development. It was commented that with royalties comes responsibility. In any event a close link was observed between liability and being party to enforcement.
The sub-groups have discussed the difficulties of joint and several responsibility for site operations and the complex and potentially insurmountable problems that could arise from the need for separate and additional bonding causing potential legal disputes about responsibility. In some senses the local authorities and operators agreed such complex situations may be able to be avoided as the resolution of litigation situations to reasonable conclusion could be very protracted and not cost effective to the public purse.
Landowners should be aware of their responsibilities under s.135 of the Town and Country Planning (Scotland) Act 1997 (which allows a planning authority to enter the land and take steps) and indemnify themselves in the event of a breach of a planning control takes place on their land.
The environmental NGO voice on the sub-group has suggested royalties could go into an escrow fund.
109. The sub-groups have taken legal advice on landowner liability.
110. The legal liability of the owner of land on which opencast mining has taken place for the post-mining restoration of that land has not been tested in the courts and there is therefore no judicial guidance on what, if any, such liability may be. Nevertheless, under section 127(1)(a) of the 1997 Act a council can serve an enforcement notice on the owner of the land and any other person who has a material interest affected by the notice.
111. The Town and Country Planning (Scotland) Act 1997 regulates the use of land. In a subsidiary sense and from first principles, the owner of land can do what the owner likes with that land but only subject to planning control and subject to anything done on the land not causing foreseeable loss to any third party - there are for instance numerous cases on the right of the owner of lower ground to prevent mineworkings on higher ground if the mineworkings would increase or decrease the flow of water from the higher ground to the lower ground.
112. In respect of land drainage the general principle taken from the 1985 decision of the House of Lords, as the senior court in the UK, in RHM Bakeries Limited v Strathclyde Regional Council is that the owner of lower land affected by water coming from higher land can only obtain damages from the owner of the higher land for any loss or damage caused by the water to the lower land if fault on the part of the owner of the higher land for the loss or damage caused by the water is established.
113. Opencast mining sites can be remote but can cause nuisance or loss of amenity, loss or damage to neighbouring proprietors and the environment generally and therefore neighbouring proprietors will have grounds on which to require restoration of the mined land.
114. The first principles mentioned above are, however, qualified by the planning legislation, and in particular by the Town and Country Planning (Scotland) Act 1997 ("the 1997 Act"), noting that in terms of section 124 of that Act no enforcement action can be taken under that Act in respect of any planning breach more than 10 years after the breach (and the time period is reduced to four years from the date on which operations were substantially complete or where mining operations have been carried out without planning permission).
115. In effect the 1997 Act empowers the relevant planning authority to serve a notice on the owner of land requiring that owner and any other person with a material interest in the land, to comply with any restoration condition in any planning permission granted in respect of that land and, if the owner does not comply with the enforcement notice, to carry out the restoration work and to recover the cost of the restoration work from the owner.
116. The owner of land which has been mined, whether or not it was the owner of the land who mined the land or a third party whom the owner allowed, for example by a lease or licencing agreement, to mine the land can therefore be required through the enforcement of the planning permission granted for the mining operations to restore the land in accordance with any restoration or aftercare condition in that planning permission. However, enforcement of a restoration or aftercare condition would require the restoration obligation to be sufficiently well defined. That should make it clear what restoration work needs to be carried out and would assume that the owner of the land has sufficient financial resources to meet the cost of the restoration work. Further, if the owner failed to comply with the enforcement notice, the planning authority may itself carry out and pay for the restoration work before the planning authority could seek to recover the cost of the restoration work from the owner.
117. The owner of the land may, as a requirement of getting planning permission for mining operations on the land, have entered into an agreement under Section 75 of the 1997 Act with the planning authority requiring restoration or other work on the land as required by that agreement, and such an agreement, if recorded in the Sasine Register or registered in the Land Register is enforceable against subsequent owners, as well as the original owner, of the land. Nevertheless that does not guarantee that the necessary work will be done unless the landowner has in place the necessary financial guarantee.
118. Any legal agreements that have been countersigned by landowners are not explicit or specific in terms of the responsibility that agreement places on the landowner in the event of a default by the operator on site restoration. The consequence is that landowners are neither protected through insurance against the risk nor specifically aware of their liability.
119. The land needing to be restored may be part of an estate, or the landowner may have other property, of significant value, but whether the landowner can pay for restoration out of ready cash or would have to sell assets or borrow to fund the restoration is likely to be a significant factor in the landowner's willingness, or otherwise, to spend on the restoration. The means of financing the restoration of the land is a matter for a landowner but a local authority would wish to be assured that the work will be carried out by the landowner before granting planning permission.
120. The annual "running cost" of unrestored land in comparison to the restoration cost may be a factor - the running cost could for example include the maintenance of and compliance with environmental responsibility, dealing with health and safety and insuring against public liability.
121. What value the landowner places (and value may be financial or aesthetic) on the land as unrestored and on the land as restored - is in simplistic terms - 'will the cost of restoration be covered by the restoration enhancing what the landowner perceives to be the value of the land'? This however is not a planning matter. The landowner is responsible for a breach of planning control and must be able to remedy that breach when required by the planning authority even if the post-restoration use, or possible post-restoration use, of the land does not justify the restoration spend. Quite simply, a site cannot remain unrestored because of the commercial reasons of the landowner who was party to a joint venture with the developer. Whilst some landowners may look at restoration on an altruistic basis - that restoration is an end in itself - most landowners will take a commercial approach and focus on what financial return/savings the cost of restoration will achieve.
122. Against those variables, a landowner faced with a planning authority seeking to enforce a planning consent may:
- proceed to restore "at best", complying both with the letter and the spirit of the restoration condition in the planning permission;
- proceed to do as little restoration as possible in the hope that if something is done the planning authority will "take no action";
- do something between 1 and 2 above, again in the hope that if something is done the planning authority will "take no action";
- do nothing - leaving the planning authority to carry out the restoration work and then seek to recover the restoration cost from the landowner - in the hope and expectation that the planning authority, when push comes to shove, may not have the funding or resources to carry out the restoration work and may therefore not proceed with the enforcement action;
- if the site is toxic - i.e. the post-restoration value of the land will be less than the restoration cost - sell the land for a nominal consideration - say £1 - to a shell company with no assets, so that the planning authority is faced with a landowner with no resources to restore the land and with no resources to reimburse the planning authority for the restoration cost if the planning authority restores the land.
- None of these matters is acceptable to planning authorities and there would be no basis for granting planning permission for opencast mining against that background.
123. In the Scottish Government's consultation on land reform  , one of the aims is to address barriers to sustainable development and begin to diversify patterns of land ownership: by providing powers for Scottish Ministers, or other public bodies, to intervene in situations where the scale or pattern of land ownership in an area, and the conduct of a landowner, is acting as a barrier to sustainable development.  The vast majority of land in Scotland is owned by the private sector. Landowners are instrumental in promoting sustainable local development and supporting communities.
124. Looking to the future, the control of restoration requires significantly more detailed discussion on the role of the landowner; a local authority will not underwrite a landowner's risks and obligations under the Planning Act covering:
- restoration strategy
- Secure funding
- Active policing
- Scope for flexibility
125. As to the question of why no landowner has ever have been pursued, the short answer is because it is not cost-effective for the planning authority to pursue a defaulting landowner, because either:
- the landowner does not have the wherewithal to carry out the restoration (which is why the planning authorities are not seeking to enforce restoration by Mines Restoration Limited  ); or
- the planning authority does not have the wherewithal to carry out the restoration (if the planning authority has to carry out the restoration and after paying for the restoration to seek to recover the restoration cost from the landowner, the chances are that the landowner does not have the resources to reimburse the planning authority for the restoration cost); or
- there are extenuating circumstances
The need for no financial risk to a planning authority is paramount. This may require the structure of any legal agreement to which the landowner is a party to be reappraised.
126. The sub-groups have discussed briefly the complex situations that may arise but the above sets out in more detail the legal challenges concerning those complexities. Further discussion and awareness-raising with landowners is a theme running through this report. This should be on the basis that it is important to foster better understanding of the challenges big engineering operations at surface coal mines present to land management, risk and liability and the obligations of landowners under planning legislation.
The sub-groups recommend that engagement with Scottish Land and Estates should be conducted to ensure that the future of surface coal mining and landowner accountability or liability run hand-in-hand.
The sub-groups recommend that while there should remain a menu of options that can be used to provide assurance, Bank Guarantees may be appropriate and the best approaches to put in place will be pursued as a basis for the guarantee including the due diligence measures that require to be conducted. It is proposed that the Scottish Government will approach stakeholders to explore this matter further. Moreover, it is proposed that quarterly reports on the status of site financial guarantees should be supplied by planning authorities to Scottish Ministers in this area of acknowledged 'strategic risk' to provide oversight on performance without supplanting local authority responsibility.
LEGAL AGREEMENTS - Finance
2013 Consultation main finding
The consultation responses focussed on the fact that support for a central resource was based on the assumption that it would form part of the function of an independent unit.
127. While there is a good case for standardising the wording of legal agreements for the sector in planning terms, there is no consensus that this should be or needs to be outsourced. SOLAR and HOPS are working with Scottish Government on the case for a planning condition rather than an a planning agreement as the wrapper for the financial guarantee: the basis of the debate being that a guarantee is not a payment and a condition may be less complex - giving more straightforward access to the guarantee fund. Moreover, the debate suggests that either a condition or a legal agreement simply provide the framework for access to the funds which are held independently; in place for access by the planning authority and the guarantor should they be required to be drawn down.
128. There is a legislative requirement for a mandatory financial guarantee in respect of the accumulation of extractive waste in site waste facilities. In some cases this obligation may have been omitted from planning consents and requires to be regularised. Findings, views and recommendations on legal agreements are covered at paragraphs 54-55.
For clarification, the legislation concerning a mandatory financial guarantee as set out in Management of Extractive Waste (Scotland) Regulations 2010  shall be notified to all planning authorities by Scottish Government during 2015.
The sub-groups recommend a template approach on the required content of legal agreements for surface coal mines to provide consistency, with a specific section devoted to the wrapper for the financial guarantee. Should it be concluded that a condition is adequate cover for the financial guarantee, guidance will still be required and produced.
Email: Graham Marchbank