The competitive allocation of coal

The introduction of competitive allocation is part of implementing the NSW Government’s Strategic Statement on Coal Exploration and Mining in NSW (PDF, 8.15 MB). 

The competitive allocation pathway has been developed to create a faster process (relative to the Strategic Release Framework) for allocating coal exploration licences by public tender in specific circumstances only, i.e. sites adjacent to an existing coal mining or exploration project where multiple parties are interested in the resource or where a licence is cancelled or relinquished. In these circumstances, greater information is already available to help the government evaluate the risks and opportunities associated with allowing exploration to occur there, so generally an extensive review and assessment is not required. This allows for a more streamlined process.

Ending or reducing NSW thermal coal exports while there is still long-term global demand would likely have little or no impact on global carbon emissions. Most coal consumers would be likely to source their coal from elsewhere, and much of this coal would be lower quality compared to NSW coal. Reducing demand for thermal coal by progressively replacing coal-fired electricity with cleaner energy sources, as has been seen in Europe, will be more effective in reducing global emissions than artificially constraining NSW coal supplies.

For these reasons, coal mining for export will continue to have an important role in NSW over the next two decades or more. The Strategic Statement on Coal Exploration and Mining in NSW (PDF, 8.15 MB) sets out the government’s balanced approach that allows NSW to continue to benefit from global demand for thermal coal in the medium term, while recognising that in the longer term the world is transitioning to a low carbon future. 

The NSW Government may use competitive allocation to allocate coal resources in certain circumstances where the Strategic Release Framework and Operational Allocation pathways are not suitable. Specifically, the Competitive Allocation pathway is available when:

1. an Operational Allocation application is refused on the grounds there is sufficient interest to justify a competitive selection under section 13C(3)(b) of the Mining Act 1992
2. a titleholder relinquishes their coal exploration licence or assessment lease, or
3. a titleholder has their coal exploration licence or assessment lease cancelled.

In the case of (1), the ABSR, which oversees the Competitive Allocation pathway, will automatically consider the coal resource. The Department of Regional NSW will provide a public notice that the competitive allocation pathway has been triggered and an area is under consideration.

In the case of (2) and (3), the ABSR will provide advice to the Minister with responsibility for the Mining Act 1992 as to whether or not the licence area should be considered under this pathway. Pathway (2) does not apply where a prospecting title has been relinquished due to a government buy-back of the title or where the government has relinquished a government-held prospecting title.

The Mining Act 1992 places controls on the release of areas in NSW for coal exploration. Coal prospecting titles can only be allocated to industry through one of three release pathways:

1. Operational Allocation – an existing coal titleholder applies to access coal resources adjacent to, above or beneath their existing title for a designated operational allocation purpose, subject to meeting certain size requirements. An application may be refused under section 13C(3)(b) of the Mining Act 1992 if there is sufficient market interest to justify a competitive selection process. 
2. The Strategic Release Framework – the NSW Government identifies an area for potential release and carries out a Resource Assessment and Preliminary Regional Issues Assessment to determine if an area should be released for public tender under Schedule 1A of the Mining Act 1992. The Strategic Release Framework is principally aimed at areas with coal resources that would be economically viable as new stand-alone mining operations.
3. Competitive allocation – the NSW Government may allocate a coal resource in certain circumstances where the other two pathways are not appropriate. This process involves a resource assessment and an initial suitability assessment before going to public tender under Schedule 1A of the Mining Act 1992. It is a faster process than the Strategic Release Framework.

The ABSR oversees both the Operational Allocation and competitive allocation pathways, however it is not a decision-making body.

The ABSR is comprised of six members including the independent chair. Ordinary members include one representative from each of the following: the NSW agency responsible for administering the Environmental Planning and Assessment Act 1979; NSW Department of Premier and Cabinet; NSW Treasury; the NSW agency responsible for administering the Mining Act 1992; and the NSW agency responsible for regional economic development.  

More information on the ABSR is available in the terms of reference (PDF, 86.39 KB).

Decision-making under the competitive allocation pathway must meet high probity and accountability standards to ensure fairness and openness of the process. The ABSR recommendations on whether to release a resource for public auction are subject to Ministerial and Cabinet oversight.

The Chairperson and ABSR members are required to:

• declare actual or perceived conflicts of interest
• notify the Chair immediately of any known or potential integrity risks
• ensure confidentiality of ABSR discussions. 

No, a company cannot apply for a mining lease under competitive allocation. Applicants may only apply for a standard coal exploration licence.

An initial suitability assessment (ISA) will inform the decision to release and competitively allocate an area under the pathway.

The ISA is a summary of risks and opportunities for coal exploration and mining in an area. It aims to identify any significant barriers to mining in the area that mean all or part of the area should not proceed for exploration. It is a high-level, desktop assessment that identifies issues by using relevant information contained in existing datasets or accessible from other information sources, and by consulting with state and local government stakeholders.

The ISA is not a substitute for the detailed assessment of a specific mining proposal under the planning framework.

The ISA will be made public when interested parties are invited to apply at the public tender stage of the process.

Based on the resource assessment and the Initial Suitability Assessment (ISA), the ABSR may recommend to the Minister responsible for the Mining Act 1992 that the coal resource is suitable to proceed to the public tender stage under the competitive allocation pathway.

After considering the recommendations, the Minister would make the decision on whether to release the coal resource and issue a public statement of reasons for the decision to release/not release. While the Minister has legal authority to decide, the Minister will seek Cabinet’s endorsement of this decision.

Based on the resource assessment and the Initial Suitability Assessment (ISA), the ABSR may recommend to the Minister that:

• the coal resource should not be released for exploration as the area is unsuitable for release
• the coal resource is unsuitable to proceed to public tender under Competitive Allocation but should be considered for Strategic Release under the Strategic Release Framework, which allows the collection of additional information.

After obtaining Cabinet’s endorsement, the Minister will decide whether or not to adopt the relevant recommendation and issue a public statement of reasons for the decision.

There is a mechanism for existing coal operators to directly obtain additional exploration licences over adjacent areas in limited circumstances (Operational Allocation), provided application requirements are met. In all other cases, coal resources are allocated competitively using an open and fair public tender process to achieve value for money and a beneficial return to the people of NSW.

If the NSW Government decides to allocate a coal exploration licence for an area under Competitive Allocation, the Minister would publish a notice inviting interested parties to submit an application. Applicants that pay the participation charge and other fees, and meet the qualification requirements are eligible to participate in the public tender, which can comprise up to two rounds.

The reserve price will not be disclosed in the first-round tender. If a second tender round is held the reserve price will be disclosed. If the reserve price is met, the ABSR will recommend that the Minister grant the exploration licence to the highest bidder.

If the reserve price is not met initially and there is only a single bidder, the Minister may choose to seek Cabinet approval to enter into direct negotiations with the bidder instead of proceeding to tender. If the reserve price is not met after two rounds, the Minister may refuse the application for an exploration licence and publicly commit the area will not be released in the future. Alternatively, the Minister may choose to enter into an ascending auction where the applicants' bids are disclosed or seek Cabinet approval to enter into direct negotiation with the highest bidder.

Interested parties will have two months from the date the invitation is published to lodge a standard coal exploration licence application. Applications will need to demonstrate:

• technical capability that meets the minimum standards to hold a coal exploration licence
• financial capability that meets the minimum standards to hold a coal exploration licence
• a credible work program that meets the minimum standards for a coal exploration licence
• a satisfactory corporate compliance history – individual’s and company’s compliance history
• a satisfactory environmental performance record – compliance and environmental performance history
• an undertaking to pay consideration – they will pay their bid amount if they’re the successful bidder for the coal exploration licence.

Interested parties must pay a mandatory and non-refundable participation charge of $50,000 to participate in the public tender process.

Applicants will also need to pay the usual application fee for a coal exploration licence under Schedule 9 of the Mining Regulation. This is separate to the mandatory participation charge. Application fees payable as part of the public tender are non-refundable.

Applicants must apply for a licence term of six years (excluding any renewals).

Applicants that meet the qualification requirements will be notified they are eligible to participate in the public tender for a coal exploration licence.

Interested parties must pay a mandatory and non-refundable participation charge of $50,000 to participate in the public tender process. The purpose of the participation charge is cost recovery and to ensure that genuine expressions of interest for a coal exploration licence are lodged.