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|
SPONSOR: |
Altamirano |
DATE TYPED: |
02/04/02 |
HB |
|
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SHORT TITLE: |
Amend
NM Mining Act |
SB |
386 |
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|
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ANALYST: |
Trujillo |
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APPROPRIATION
|
Appropriation
Contained |
Estimated
Additional Impact |
Recurring or Non-Rec |
Fund Affected |
||
|
FY02 |
FY03 |
FY02 |
FY03 |
|
|
|
|
$10.0 |
|
|
Non-Recurring |
General Fund |
(Parenthesis
( ) Indicate Expenditure Decreases)
Relates
to Appropriation in The General Appropriation Act
LFC Files
Responses Received
Energy, Minerals and Natural Resources
Department (EMNRD)
Environment Department (ED)
SUMMARY
Synopsis
of Bill
Senate Bill 386
appropriates $10.0 from the general fund to EMNRD to provide for financial
review of guarantees or insurance proposed to satisfy the financial assurance
requirements of the New Mexico Mining Act.
The Mining Act
currently prohibits permit holders from providing a self-guarantee to meet a permittee’s
financial assurance requirements under the Act. This bill would amend 69-36-7Q of the Mining Act to enable a
guarantee provided by a third person who holds an interest in the permittee
(such as stock), to not be considered a form of self-guarantee. The third party guarantor must also meet
financial soundness tests adopted by the Mining Commission (Commission) through
regulations.
Significant
Issues
EMNRD reports 69-36-7Q
of the Mining Act states the Commission must adopt regulations that require
financial assurance be posted with the Director of EMNRD prior to issuance of a
permit. Financial assurance provides
funds for a reclamation of the mine site in accordance with the permit if the
permittee does not perform the reclamation.
Section 7.Q. prohibits any type or variety of self-guarantee or
self-insurance. The Commission adopted
regulations in 1994 approving various forms of financial assurance, including
third party guarantees. The regulations
outline various financial soundness tests a third party guarantor must
meet. The regulations do not address
the relationship between the permittee and a guarantor providing a third party
guarantee.
The Director
has approved third party guarantees provided by three companies. In some cases the guarantor is a parent
company. In all cases the guarantor met
the financial soundness tests in the regulations and further demonstrated an
acceptable degree of separation from the permittee to qualify as a third party
guarantor. In all cases the guarantor
owned stock or another form of interest in the permittee. Thus, all decisions to date regarding third
party guarantors are in accordance with the provisions of this bill.
FISCAL IMPLICATIONS
The appropriation of
$10.0 contained in this bill is a non-recurring expense to the general fund.
Any unexpended or unencumbered balance remaining at the end of fiscal year 2003
shall revert to the general fund.
TECHNICAL ISSUES
EMNRD reports
this bill modifies a section of the Mining Act that requires the Commission to
“require by regulation that…” It is not
known whether the intention is for this bill to require the Commission to adopt
additional regulations to address this provision.
OTHER SUBSTANTIVE ISSUES
According to ED, the purpose of financial assurance is to ensure sufficient
funds for closure of a facility in the event the facility operations shut down
or are suspended due to market conditions, or other devastating circumstances
(e.g., bankruptcy). Financial assurance
is intended to provide closure funding regardless of the financial standing of
the responsible party. Types of
financial assurance instruments include surety bonds, irrevocable letters of
credit, trust funds, certificates of deposit, cash, insurance, corporate
guarantees, etc.
Third party guarantees are a type of corporate guarantee. Third parties can include companies engaged
in activities that are substantially similar to the regulated entity or
companies that are engaged in a different type of business than the regulated
entity.
In a June 21, 2000 review of various financial assurance
mechanisms prepared by the United States Office of Surface Mining (Final
Report on the Feasibility of Using Various Mechanisms to Demonstrate Financial
Assurance for the Long-Term Treatment of Acid Mine Drainage), Corporate Guarantees
were deemed to not have the following attributes:
< Is reliable to ensure the availability of funds.
< Provides incentives to operators to maintain compliance.
< Requires low levels of monitoring to ensure compliance.
Corporate
guarantees were deemed to have the following attributes:
< Is readily available to the regulated community.
< Is inexpensive to use.
Third
party guarantees are often a less expensive financial assurance alternative
than surety bonds and other financial assurance instruments in that there is no
annual premium or the premium is low.
Therefore, third party guarantees are favored by industry. However, if the guarantor is engaged in
substantially the same industry as the regulated entity, the guarantee does
little or nothing to ensure funds in the event of a market downturn or other
devastating impact to the industry.
ED suggests as an alternative, to require the financial soundness
tests adopted by the Mining and Minerals Division to include a demonstration
that third party guarantor is engaged in a substantially different industry
than the regulated entity, or is substantially diversified so that it can
sustain a market downturn affecting the regulated entity.
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