Resources Policy 1994 20 (1) 59-69

Performance guarantee schemes in the minerals industry for sustainable development

The case of Thailand

Duangjai Intarapravich and Allen L. Clark

The authors are with the Program on Resources: Energy and Minerals, East-West Center, 1777 East-West Road, Honolulu, HI 96848, USA

Achieving sustainable development within Thailand and other developing nations requires a combination of appropriate minerals policies, environmental policies, legislation, administration, enforcement and organization in order to achieve a balance between mineral development and environmental concerns. Central to achieving these objectives is the design and implementation of an efficient and equitable mining reclamation procedure based on the principle of the polluter pays. It is proposed that a cornerstone of this procedure is a land reclamation bonding process which minimizes the disincentive to invest while maximizing the incentive to protect the environment. A reclamation bond allows the miner (or polluter) to receive a refund of their money for reclamation and thereby is an incentive for the miner to develop a proper plan of operations and reclamation in order to maximize their refundable money - often accomplished by the adoption and utilization of advanced technologies. Between implementing command and control regulations or establishing a bonding system, a bonding system is by far preferable for Thailand and other developing nations on the Asia-Pacific region.

Including environmental costs in a mining project is a necessity, even though it may increase production costs and may result in a less profitable investment, or in extreme cases, to an unprofitable investment which would not take place. Conversely, in many cases well planned mining projects can result in efficient environmental management at no additional expense to production costs. In other cases, technological development may provide an opportunity for reducing environmental and production costs at the same time. The mechanism adopted by a country to develop its minerals industry to the fullest possible extent while taking into consideration environmental costs should include the following basic principles: (1) minimize disincentives for investment in the mineral industry; (2) have the highest possibility of achieving the goal of environmental protection; (3) provide incentives to the mining industry to

optimize activities which protect the environment; (4) incur the lowest cost at each level of acceptable environmental protection; be flexible with respect to changes in economics (5) technology and other sector related factors; and (6) be practical, enforceable and applicable. There are several measures which can be adopted to protect the environment. Command-and-control approaches are easy to implement but have been found to be inadequate, ineffective and not the most inexpensive tools for environmental management. Command-and-control approaches such as pollution standards emission quotas or Best Available Technology (BAT), are often criticized because they (1) distort market mechanisms; (2) are inflexible to changes in economic situations; (3) require reclamation to a standard level even though the costs of and benefits from the reclamation are different for the individual mine; and (4) do not provide an incentive

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for the use of innovative technology. In addition, such approaches in cases where the mining enterprise goes bankrupt and cannot afford to pay for reclamation or simply goes out of business often result in the government having to bear the financial burden of reclamation. Alternatively, incentive systems such as emission charges, pollution taxes and/or deposit/refund systems are widely accepted as effective tools for environmental protection. These tools are based on the polluter pays principle, which dictates that the polluters are responsible for correcting problems that occur as a result of their activities. Regardless of the mechanism chosen, decisions with respect to the utilization of a nations mineral resource base must be made within a balance of economic efficiency, societal equity and environmental quality. This balance has not been achieved in Thailand nor throughout much of the Asia-Pacific region. In a nation such as Thailand, as in many other nations, the country is faced with rapid economic development, intensive use of natural resources minerals, energy, forestry, water and land - a rapidly expanding population and a large agrarian base which must feed the nation. Although a great number of issues arise from the above complex mix of development issues, a major issue within Thailand at the present is the linkage between mining, forests, land-water-industry and agriculture and its impacts on sustainable development. In its simplest form, Thailand is faced with rapidly diminishing forest lands (the site of most mineral development) an increased demand for industrial land (an additional site of mineral development) deterioration of soil quality and loss of biological diversity (partly resulting from a lack of adequate mine reclamation) and declining water quality and supply (often polluted by present and past mining activities) and an ever increasing demand for minerals. To ensure that Thai mining industry will be operated to meet the goals of sustainable development, it is essential that present and future mining activities and the results of past mining abuses, be mitigated and mining areas be: (1) reclaimed to prevent pollution of waterways and surrounding ecosystems; (2) returned to a condition that allows future use for agriculture, forestry or industry; and (3) reclaimed in a timely and cost-effective manner. This series of events is a critical link in the sustainable development of Thailand and the utilization and restoration of its renewable resources. To a great extent, achieving the sustainable development of the regions minerals industry overall, and in Thailand specifically, requires a delicate balance. If environmental regulations are too stringent, not enforceable, or not practical and applicable, they may either preclude development or allow it to proceed with adverse impacts. In neither case is sustainable development is promoted. Successful

environmental management requires a combination of appropriate policy, legislation, administration, enforcement and organization of all concerned. Both incentive and punitive recourses must be available. The remainder of this paper will provide an overview of policies adopted by selected nations to reduce and/or mitigate environmental impacts; apply the experiences from other countries to the mining industry of Thailand; and propose a generalized programme of performance guarantee schemes which are applicable to most Asia-Pacific nations.

Environmental management in relation to mining activities: a global perspective

In most countries, mining operations require the investor to obtain a mining licence. The general requirements for applying for a mining licence include submitting a plan of operations which addresses details of the manner and method of mining, and a reclamation plan which, basically, presents details on what the licence holder plans to do with the mining area after the operation is over. Some countries require the submission of only an informal reclamation plan for review but may demand a formal environmental report if the operation is judged to have potential significant environmental impacts. Other countries require by law that all miners prepare a formal environmental impact assessment (EIA) or environmental impact statement (EIS) report for approval before commencement of activities. The reclamation plan or EIA/EIS report provides the basis for governments decisions on whether mining in a prospective area is environmentally acceptable. In the USA, mining activities from exploration through land reclamation are under the control or direct influence of either federal or state governments which are responsible for ensuring that public health and welfare will not be harmed by the mining activity. Several broad environmental acts have been legislated at the national level including the National Environmental Policy Act (1969), the Clean Air Act (1970), the Clean Water Act (1972), the Resource Conservation and Recovery Act (1976)) and the Comprehensive Environmental Response, Compensation and Liability Act (1980) -better known as the Superfund. Regarding mining activities specifically, the federal government has enacted the Surface Mining Control and Reclamation Act (1977) to control environmental damages from and reclamation of coal mines. Additionally, the federal government oversees all mining activities on public lands (where mining activities are allowed). Other mining activities, besides the ones mentioned above, are under the responsibility of the state government. Not every US state has mining and reclamation laws, and the laws, if they exist,

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Minerals in Thailand: D. Intarapravich and A. L. Clark Table 1 Elements of reclamation legislation Mining plan and EIA required before lease

Country state or province Canada British Columbia Manitoba New Brunswick Northwest Territories Nova Scotia Ontario Quebec Saskatchewan Yukon Territory United States Alaska Arizona California Montana Nevada New Mexico Utah Washington Wyoming Australia New South Wales Northern Territory Queensland South Australia Victoria Western Australia South-east Asia Fiji Indonesia Malaysia Papua New Guinea Philippines Thailand Vanuatu Vietnam Sources: Fortin

Specific provisions for reclamation

Bonding procedurees

Provision for abandonment

Provision for Noncompliance

X X X X X _ X

_
X

X X X X _

_
X

X X X X X X X X X X -

_
X

X _ X -

X X _ _ _

er al (1992); Gallaher

and Lynn

(1989).

vary from state to state. Therefore, environmental regulations, administration, organization and implementation of environmental programmes can and do differ widely among different jurisdictions of the country. This situation is similar in Australia and Canada (with an exception of the Northwest Territories and the Yukon Territory) where each of the state (provincial) governments has its own mining and reclamation laws to control mining activities and related environmental problems within its jurisdiction (Barnes et al, 1991). Mining laws and regulations exist in most developing countries, though in many cases, they are incomplete and do not encompass all aspects of mining activities. Environmental standards in developing countries are normally generic for all types of activities instead of specific for the minerals industry. Within Asia, excluding Australia, Malaysia has the
For a review of the environmental the USA, see Jessup (1990). programme in each state in

most complete environmental laws and regulations for mining, imposing standards for air, water and dust qualities to which mining must conform, and has established an environmental fund for mining activities. Although conditions for land reclamation vary among countries, reclamation of mined out areas is required in most countries (Table 1): see Fortin (1992) and Gallaher and Lynn (1989). In some countries, the requirement is not mandated by a specific reclamation law but rather allows for case by case consideration. In general, land reclamation refers to the activities of backfilling, regrading, topsoiling, drainage, toxic waste control and revegetation. The reclamation standard, ie to what extent lands should be reclaimed, is, however, unclear and refers to such qualitative standards as returning land to a usable condition, to a stable condition, to the greatest degree or equal to the level of highest previous use. Existing reclamation schemes for mining activities

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are either in the form of a reclamation bond or a reclamation fund. The difference between these two forms is that a bond is primarily used for land reclamation, not for other environmental problems and is specific to a given mine or mining area, whereas a fund can be used for wider purposes, ie to solve other types of pollution problems (eg sediment control) or for reclamation of former unreclaimed mine areas with no responsible owner. In cases where a forfeited bond is not enough to reclaim the area, the money from the fund may be used to subsidize additional reclamation costs. In the USA there are four types of bonds and/or funds for mining activities:

(1) Reclamation

bonds for public areas under the responsibility of the Federal government. The amount of the bond depends on the estimated reclamation costs. (2) Reclamation bonds and reclamation funds for coal mines under the Surface Mining Control and Reclamation Act (SMCRA, 1977). bonds and reclamation funds (3) Reclamation according to state laws (Jessup, 1990).3 These bonds and funds normally include operating activities; however, in addition some states may require a mine closure bond and/or a bond which covers hazardous wastes, chemical waste, or water purification. Environ(4) Superfund under the Comprehensive mental Response, Compensation and Liability Act (CERCLA, 1980) is for use in the case of uncontrolled spills, accidental release, or disasters.4 Other performance guarantee schemes similar to those of the USA have been adopted in Australia, Canada, Malaysia and the Philippines although they are not as complicated as those in the USA. Mining in all states in Australia requires a performance guarantee scheme, either in the form of cash payments or financial guarantees. The requirements for bonding in Canada are not as strict as in Australia, and vary from province to province. Quebec and Saskatchewan do not require any bond and in Saskatchewan, however, the provincial government allocates a portion of annual revenues into the Heritage Fund (IGWG, 1988, p. 55) to reclaim abandoned mines.
The Act requires coal miners to post a performance bond (not less than $10 000 per permitted area) and to pay a reclamation fee into the Abandoned Mine Reclamation Fund (at rate of $0.35 per ton for coal from surface mining and $0.15 per ton for coal from underground mining). 3For details on mining laws and reclamation regulations of the western states of the USA see Gallaher and Lynn (1989). 4For this fund, the US government levies a tax on chemical and petroleum feedstocks, a waste-end tax (tax paid on amount of hazards posed by hazardous waste), and general national tax revenues. For details on Superfund, see Office of Technology Assessment.

Bond charges, or fees paid to the fund, may be determined in several ways including: (1) at a fixed rate per area; (2) at a fixed rate per quantity of minerals extracted; (3) on estimated reclamation costs (on a case by case basis); or (4) may be a standard rate for each individual type of mining activity or commodity. Where the bond is charged per area, it usually refers to the areas covered by the permit, and not just operating areas. The charge amounts vary among countries, and among states or provinces of a country. The amounts of bond charged in the USA range between $750 per acre (in Alaska) to $13 000 per acre (in North Dakota: see Jessup (1990)); in the New Brunswick Province of Canada the amount of bond required for mining on public lands is approximately $600 per acre and on private lands is around $1200 per acre (IGWG, 1988, p. 39), whereas British Columbia determines the maximum amount of bond to be $1000 per acre deter(IGWG, 1988, p. 33) and the Philippines mines the amount of bond as little as $16 per acre (UN, 1992, p. 56). Most countries implement different measures depending on the size of the mine. Malaysia has different funds and fund management for large-scale and small-scale mines. The former is called the Mine Rehabilitation Fund and the latter is called the Common Rehabilitation Fund (Otto, 1991). Small miners in most countries usually receive some kinds of privilege. For example, small miners are often not required to post bonds or to prepare EIA/EIS reports before commencing of operations. However, exemption for small miners does not imply that they are exempt from reclamation of their mine sites. Small miners are still bound to an agreement in writing to fulfil the reclamation requirement and be responsible for all pollution caused from their activities. To deal with the assertion that requiring a bond will discourage mining investment and place a financial hardship upon small- to medium-scale mines, some US states have adopted a system of bond pooling. Qualified miners are required to pay cash up front into the bond pool at some predetermined percentage of total estimated bond amount and pay an annual fee. The initial deposit is refundable upon completion of reclamation. The annual fee is nonrefundable and will be the basis for paying any reclamation costs necessarily undertaken by the state.6 Most countries have areas designated as nonmining zones. In Australia about 23% of total country area is precluded from mineral development
5The definitions of small miners vary. Usually, the classification of a small miner is based on number of employees, mining method, gross profits, amounts of required reclamation costs, or number of claims held. For detail on bond pooling, see the Public Resource Associates (1989), pp. 54-56.

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(Cox et al, forthcoming). These areas include parks and nature preserves, and areas protected for social and cultural reasons ie aboriginal and pastoral lands. In the USA, public lands which are designated, for example, as national parks, military reservations and wilderness and wildlife protection areas are, in general, prohibited from mining. These areas account for about 30% of total public lands in the USA (WRI, 1992, p. 553). In general, the proportion of land allocated for mining activities has declined as more lands are preserved for forestry and nature protection. This is a common situation occurring both in developed and developing countries, including Thailand.

allowed to use public waterways in mining operations, even if the waterways are located in the operating areas, except with a permit licence from the provincial DMR; and the mine operator shall not discharge water containing more than 6 g per litre of slime into public waterways. The first environmental Act in Thailand was the National Environmental Quality Act, BE 2518 (1975; amended in 1978, 1981, and 1982). It was subsequently replaced by the Improvement and Conservation of National Environmental Quality Act, BE 2535 (1992). The National Environmental Quality Act covers four issues relating to mining:

(1) Mining

Environmental Thailand

laws and regulations in

Thailand is one of the few countries in Asia that has a moderately well developed set of environmental laws and regulations. Policy guidelines to facilitate the development of mineral resources were formulated in the early 1960s under the First National Economic and Social Development Plan (1962-66) which established the mining legislation which governs the issuance, administration and cancellation of mining rights and charts a proper course for mining activities. However, unsurprisingly, long-term effects from environmental problems were given less attention. Currently, there are three types of Acts involving the management of mining activities and environmental protection: the Mineral Act, the Environmental Act and the Forestry Act. These Acts are implemented, respectively, by the following main government bodies: the Department of Mineral Resources (DMR) under the Ministry of Industry; the Office of Environmental Planning and Policy (OEPP) under the Ministry of Science, Technology and Environment; and the Royal Forestry Department (RFD) which is part of the Ministry of Agriculture and Cooperatives. Mineral resources in Thailand are public property and no one is allowed to mine without first obtaining permission from the government. The Mineral Act, BE 2510 (1967; amended in 1973, 1979, 1983, and 1985) is the central Act controlling all mining activities. The Act also requires that miners be responsible for forestalling any negative environmental impacts that may result from their activities and specifically that miners must reclaim the land after mining for future use. The Mineral Act, however, does not stipulate how or under what conditions this will be done. The Mineral Act sets several regulations for the protection of the environment and for occupational safety and health. For example, mining is allowed only at a distance of more than 50 meters from public water sources; the mine operator is not

projects of any size must submit an EIA report to the OEPP for approval before commencement of their respective activity. quality standards are predeter(2) Environmental mined which all economic activities, including mining, must follow. These are, for example, the standards for surface water quality, underground water quality, and ambient air quality. (3) The OEPP has authority to designate any natural area as an environmentally protected area in order to control its use. the (4) In a manner similar to the US Superfund, Act establishes the Environmental Fund derived from taxes on gasoline and from taxes on all types of petroleum products for the Thai economy to clean up environmental hazards. Mining in forest areas is regulated under the Forestry Act, BE 2484 (1941) and mining in reserved forest areas, if available, must conform with the National Forest Reserve Act, BE 2507 (1964). In any case, the operators must obtain permission to use the land from the RFD in addition to acquiring a mining licence from the DMR. Forestry legislation as it pertains to mining operations involves only designation of forest areas as either open or prohibited for mining and does not deal with mine reclamation. Within the above mentioned legislation to control mining activities, the government has adopted the plan of operation and the EIA report. The plan of operation must present a detailed work plan including the geologic characteristics of the deposits, mining method and types of equipment to be used. The EIA is required to fully address any aspect relevant to the surrounding environment and possible future implications arising from the plan of operation, and must state clearly a reclamation plan for the mining area. In addition, the report must be prepared by a competent company which has been previously registered with the OEPP. Although environmental regulations and laws exist, reclamation of mined-out areas within Thailand is not common. This is the result of several flaws, including poorly prepared EIAs which render them useless when put into practice, a lack of law enforce-

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ment, and the leniency of regulatory officials. Postmining land reclamation and reforestation projects that have been undertaken are mostly conducted by the government to reclaim previously abandoned tin mines. Notable exceptions are the reclamation projects carried out by the state run Electricity Generating Authority of Thailand (EGAT), and by some private companies which have dealt effectively with environmental problems associated with lignite mines. Elsewhere, the mining community has paid less attention to environmental problems and a large number of mining areas have been abandoned. As an example, old hydraulic mining areas are deeply eroded and turbidity and sediment deposition in waterways are common in these intensively mined areas, especially in the southern part of Thailand. Between 1972 and 1987, many mining licences expired and some portions of the expired mine areas under these expired licences (approximately 100 785 acres) were set aside for other uses by the Thai government. Most of these areas are public property; the rest are divided between private and nontitled properties. Therefore, by the end of 1987, approximately 50 560 acres of area under expired licences were left to be reclaimed. Based on the reclamation costs of the Bangrin project in Ranong Province ($2857 per acre in 1988), which is considered to be indicative of minimum rehabilitation costs in Thailand (Intarapravich et al, 1990, p. 48), the reclamation of presently unreclaimed mineral areas will cost the Thai government approximately US$145 million. Although the Thai government currently pays much greater attention to mineral resource development and overall has more concern for environmental protection than it has in the past, an even greater effort will be required if the accumulated problems are to be solved and future problems prevented.

majority of mining activities in Thailand are open-pit surface mines which involve large areas of surface disruption requiring reclamation if the areas are to be amenable to alternative uses. Second, as land damage is the most visible and often the greatest environmental problem, reclamation is an absolute necessity within the context of sustainable development. Third, reclamation is a major expense which occurs primarily at or near the completion of mining. As a result, to ensure that these expenditures will be made after mining is completed, a performance guarantee, usually in the form of a bond, is required. It should be emphasized that in most cases, unlike land reclamation which requires a bond, air and water pollution can and should be mitigated by following preventive measures outlined in the mining plan. If the reclamation is not accomplished, these impacts will be additive to those of the lack of reclamation of the land itself. As stated previously, the norm in Thailand has been to not reclaim mining areas. The result has been the ensuing conflicts regarding deforestation, abandonment of mine sites, and the cumulative downstream effects of such practices. All of these problems have created land-use conflicts between mining and other economic activities and make it more difficult to obtain permission for mining operation in forest areas, even though such areas are not in the category of forest reserves where mining is prohibited. This situation strongly affects the present mineral industry, and will have an even greater impact as the Thai government implements its policy to increase national forest areas to 40% of the countrys total area.

Options for performance guarantees

There are several options available for the establishment and administration of a bonding activity for mining and each option has its pros and cons. Additionally, political and social factors play important roles when making policy decisions and, therefore, an option with major economic impacts might not always be the one selected by the government. On the basis of analysis of other countries experiences and the problems faced by the Thai mineral industry, the following is recommended as an appropriate performance guarantee scheme specifically for the Thai mineral industry and for minerals industries in other developing countries in general. Characteristics of bond A bond should be required for mining on both private and public lands. In general, the miners (who mine on private land and can make use of the land after mining operations cease) are willing to reclaim the land if the reclaimed land can generate income to the miners equal to or above the costs incurred for reclamation. However, environmental degradation

Need for performance guarantees for the mineral industry in Thailand

The effects of mining activities on the environment include land degradation, air pollution, water pollution, affected biological and ecological resources, and human health and safety. The impact on land, however, is by far the most noticeable and most often is the most serious. In Thailand, the problem of unreclaimed land is currently a primary priority concern which requires attention from the Thai government, not only in terms of existing problems but more importantly in terms of preventing future problems. Therefore, the cornerstone of environmental policy for future mining operation in Thailand and elsewhere in the region should be the implementation of a land reclamation bonding procedure. The establishment of a bond reclamation procedure, as a priority, can be easily justified. First, the

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is a substantial social cost which can often be more than private costs. Even in cases where benefits are not enough to encourage reclamation, miners should still be bound by their reclamation plan and by government regulations to reclaim the mine sites and, thus, should be required to post a reclamation bond. In the event of bond forfeiture, the social benefit of the money from the bond might best be maximized by the government by its use in reclaiming other abandoned public lands and thereby creating lands which would be of more benefit to the general public.
Forms of bonds

Sizes of bond

Bonds can be in various forms:

(1) a

cash payment which is refundable with interest; c-4financial guarantees such as certificates of deposit, government bonds, irrevocable letters of credit, or other liquid assets; or (3) a guarantee by an institution such as a bank, another financial institution, or an insurance company that in the event that the mining company fails to satisfy reclamation requirements, the institution will take full responsibility for the damages. Options 1 and 2 are an actual deposit, the amount of which shall not be less than the estimated reclamation costs. For option 3, the mining company pays the institution a specified amount per year as a fee charge for its guarantee. The amount of guaranteed money can be reduced over time proportionally to the amount of reclamation of the mine site. Two preferable options are to allow for a more flexible form of bonding by leaving the form of the bond to the miners option or that the bond be determined on a case by case basis by the government. Therefore, a small miner operating within a small concession area and having minimal estimated reclamation costs would prefer a more flexible option, particularly in the case of a cash payment, where the small miner might borrow money at an interest rate which would be less than the bond fee. Conversely, a large-scale company, dealing with a large reclamation bond, may have no alternative other than to choose a guarantee by a financial institution. From the governments perspective, allowing for a guarantee by a financial institution involves the risk that the financial institution may go bankrupt and/or could not afford to reclaim the guaranteed mine. On the other hand, the financial guarantee substantially reduces the risk of the government collecting a bond for less than the actual reclamation cost. Finally, this option is especially useful for the case where unexpected damages to the environment are likely to occur.
Resources Policy 1994 Volume 20 Number I

One difficulty in implementing a bonding system is to determine the appropriate amount of the bond. The higher the bond amount, the less likely a company is to walk away without reclamation. On the other hand bonds should not be so high or so prohibitive as to substantially discourage investment in the mining industry. Additionally, the differential between reclamation costs and the bond amount (cost to bond amount ratio) must be kept small as a large differential of costs over bond amount may also result in bond forfeiture by company abandonment. Reclamation expenditures will differ among mines due to factors such as type and scope of mining operations, type of minerals extracted, location of mine sites, duration of mining, and use after reclamation . As a result, the collection of a bond as a fixed amount per mining area or per ton of mineral extracted is administratively efficient, but very often the accrued bond may not cover the final cost of reclamation. Often, the collected bond will be less than the actual reclamation expenses, in which case the government could be held responsible for the excess cost or leave the mine area unreclaimed. Therefore, the amount of bond should be adjusted in terms of the reclamation costs of different mines in order to fulfil the objective of the bonding programme. It should also be emphasized that the expected costs of reclamation are likely to vary over the life of the mine due to the increasing availability of information on the geologic and environmental characteristics of the area, changes in mine design, and the extent of progressive rehabilitation carried out. For this reason, the size of bond should be reviewed at regular intervals (ie every three to five years) and adjusted to meet the changes of reclamation costs.
Sizes of mine

Bonds should be requested for any activities that will result in ground disturbance, even if the area involved is small and the bond amount is minimal. Most US states allow an exemption for small miners and therefore, in the USA as elsewhere, the definition of a small mine is critical. This exemption can be made in the country where civil penalties exist and can be effectively adopted as a tool to enforce reclamation compliance. The situation differs in the case of developing countries, including Thailand, where civil penalties do not appear and reclamation compliance from small miners is rarely expected. It
71t is estimatedthat the reclamation costs of a coal mine, to satisfy the SMCRA (1977) reclamation standard, in the eastern states of the USA was $10.33 per tonne while those in the midcontinent and the westernstates were $3.87 per tonne and $0.81 per tonne (at constant 1978 prices) respectively: see National Research Council (1981), p. 200.

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0
Figure 1

6 Operating year

12

Bond allocation by stage of mine life.

is often argued that requesting bonds from small miners may discourage mining activity and place an undue hardship upon small miners. On the other hand, in many countries, particularly Thailand, most cases of environmental damages are the result of small mining operations. Therefore, the only justifications for exempting small miners from bond payment are for political and social reasons. In these cases, the government must be prepared to bear the reclamation cost. Additionally, the government should consider establishing a bond pool (previously discussed) to help small miners who are unable to post the required bond. Taxing bond payments Overall a miner is responsible, either by (1) a lump sum up front payment or (2) scheduled payments through the life of the mine, for payment of the total estimated costs of reclamation. As such, the reclamation bond payment by whichever means, represents a real cost to the mining enterprise. Therefore, it is appropriate that the miner be allowed to deduct the bond cost along with other mining costs from income for purposes of tax computation and payment. In the case of life of the mine payments, the reclamation bond costs should be deducted as they occur; however, in the case of lump sum up front payment, the bond payment amount should be deducted on a prorated annual basis over some predetermined period of time. Prorated deductions over time will ensure that the miner receives full credit for the capital outlay while reducing the impact on taxes or other resource rents for the government. In order to reduce initial capital re-

quirements, a significant proportion of which may be from commercial loans, most mining companies may prefer a life of the mine type of a bond rather than the lump sum bond. For large-scale mining ventures, where the environmental impact occurs over the life of the mine (usually 20-25 years), the life of the mine approach is normally preferred and most reasonable from a nation perspective. For small- to medium-scale mining ventures where a major proportion of the environmental impact occurs early in the mine life (usually 2-10 years), a lump sum approach is normally the preferred option for government. Another alternative, which would be at government discretion, would be to not allow any deduction for either the lump sum or life of the mine expenditure in which case the bond would be regarded as a sunk cost and not part of the financial analysis of the mine. Term of payments The terms of payment can be set in several ways eg a miner may pay some amount of bond (perhaps 50% of the total bond) before receiving the mining licence and then pay the rest as a fixed percentage (perhaps 10% of total bond) each year. Each payment should also include interest on the unpaid portion of bond. Optionally, payments can be arranged to be proportional to the total bond with each payment depending on the amount of environmental costs estimated to occur within a particular period. Environmental impacts vary throughout the life of the mine and may be divided into four stages (Figure 1).

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Minerals in Thailand: D. Intarapravich and A. L. Clark Table 2 step 1 2 Major steps for estimating Task Determine maximum reclamation requirements Estimate direct reclamation costs, including: Structure removal and demolition Earthmoving Revegetation Other reclamation costs Estimate indirect reclamation costs, including: Mobilization and demobilization Contingencies Redesign costs Profit and overhead Contract management fee Calculate total bond amount Mining Reclamation and Enforcement. bond amount

Source: Office of Surface

Assuming a 12 year project, the first stage (ie first three years) would involve minimal land disturbance because the activities during this period involve primarily facility construction, machine installation and mine development rather than actual mining activity. The impact on land disturbance will increase substantially during the second stage (ie four to six years of operation) when the operation involves extensive stripping, mineral extraction, and stockpiling. In the third stage (ie seven to nine years of operation), the operation may be expanded and correspondingly the impact on land would increase. However, the rate of marginal damage may be less, or in some cases, the total damages can be significantly lowered if portions of the land are reclaimed. After the ninth year through to the end of the project, expansion of the mine will still occur, but in most cases more extensive land reclamation should be in process and total impacts overall should be smaller. The reasonable proportion of land damage for each phase and thus the proportion of bond payment required is 10:40:30:20% respectively, for every three-year period. That means a miner has to pay 10% of total bond before commencement of operation, 40% of total bond in the third year of operation, and 30% and 20% of total bond in the sixth and ninth years of operation respectively. Interest on the unpaid portion of bond should be included with each payment. A procedure for estimating bond amounts, patterned after the SMCRA (1977) of the USA, may be applicable for Thailand and other developing countries. The procedure is divided into four major steps (Table 2) and the sum of all costs (the direct and indirect costs) is the total bond amount. According to this procedure, bonds can be posted to cover either an increment or a phase of a permit. Under increment bonding, the reclamation steps will be applied to each individual activity specified in the permit as it takes place. Phase bonding (a phase being defined as the stage of completed reclamation work eligible for the release of the bond) consists of

a group of activities, eg phase 1 includes backfilling, regrading, structure demolition, drainage control and may include topsoil replacement; phase 2 includes pond removal, topsoil replacement (unless in phase l), revegetation and associated activities, and phase 3 would be the reestablishment of vegetation and a stable reclamation environment in the event of failure in phase 2. A phase of a permit bond can be calculated according to two options, depending upon the choice of the government administration. Option 1 is to calculate the total bond for the area and set the amount of payment in phase 1 equal to 60% of the total bond. Option 2 is to calculate the cost for each activity specified in each phase. Indirect costs (which include mobilization and demobilization, contingencies, redesign costs, profit, overhead and contract management fees) are added proportionately to each activity.8 The first option of a phase bonding obviously requires a major portion of the bond to be paid at the beginning of the operation period. This results in a small risk for the government because if the project ceases, the miner will have sufficient monies to reclaim the land, or in the event of forfeiture the government will have sufficient forfeited money to reclaim the land. This option, however, increases current costs to the miner during the start up period. The second option of a phase bonding in which the amount of bond payments is prorated benefits the miners because they are required to only pay a small portion of the bond during the start up period and pay more during the later stages of operation. In addition, such a prorated approach may benefit the government because the government can review the reclamation plan periodically and adjust the bond amount to be closer to actual reclamation costs, which can be significantly different from the reclamation cost estimated at the time of submitting the mining licence. However, the government incurs a higher risk in having to subsidize reclamation costs for the mine should the owners declare bankruptcy at some intermediate phase and not be able to afford the required reclamation costs and the bond also not be adequate for the reclamation. Bond refund A miner should not have to wait until the cessation of mining activity before receiving back a portion of the bond. A mining company can always choose to reclaim a portion of a currently active mine as that portion is phased out of production and in return request that a portion of the bond be refunded. For example, when the operator has completed the backfilling, regrading and drainage control of a portion or all of a bonded area, the release of up to
sBond calculation procedure of the Interior (1987). is described in detail in Department

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60% of the bond for the applicable permit area can

be made, in accordance with the approved reclamation plan. Some portion (approximately l&25% of total bond) should be kept for some period of time after reclamation is completed (perhaps in 5-10 years) and should be returned only after the area is in a stable condition.
Auditing system

Reviewing the completed reclamation project prior to the release of bonds is necessary to ensure satisfactory reclamation. It is often advisable to employ the outside services of an environmental auditor to determine and certify that land reclamation and forest protection mandates within the reclamation plans have been met. Decisions can, and often are, disputed after the completed reclamation is reviewed but before the bonds are returned. In the case of a contested decision, a public hearing can be called by a hearing board consisting of representatives of small mines, large corporations, environmental advocates, and experts in mining regulations. The decision of such a board is final. It should be stressed that complete reclamation of the land to its original condition is not always possible or optimal. Theoretically, the optimum level of mine reclamation should be determined by comparing reclamation costs and benefits (where benefits and costs must include externalities and environmental costs of both the natural and cultural environments). In theory, if the marginal cost of undertaking an additional amount of reclamation exceeds the benefits obtained from that additional activity, then no additional reclamation work is desirable. In reality, however, it is difficult to say what is the marginal level of reclamation activity that will result in reclamation costs exceeding reclamation benefits. Therefore, in most cases and in normal practices, reclaiming the land to a state closest to its original condition or to an adequate state for its subsequent beneficial use has become the acceptable norm. In either case, however, it should be in accordance with conditions as specified in the operation plan or as agreed upon by the miners and the government.
Responsible organization

The bonding activity should, whenever possible, be operated as a semi-autonomous, private/public sector institution with representation from all concerned government bodies, NGOs and private sectors. The duties of the representatives include determining the size of bond, collecting the bond payments and investing the bond funds to earn interest on behalf of the miners, site monitoring, review of completed reclamation and release of the bonds.
Additional reclamation fund

and mining areas in Thailand, the government should, in addition to the reclamation bonds for individual mines, consider the establishment of a national mineral reclamation fund. The money for such a fund could be drawn from several sources.9 As an example, it can come through forfeited bonds posted to guarantee reclamation on private land (where the miners own the land). The forfeiture of bond, however, does not mean that the government will reclaim that land for the miner. Instead, the forfeited money should be put into the reclamation fund and used to reclaim lands with a higher reclamation priority such as an abandoned mine on public land which can benefit the public. Another possible source of funds would be the collection of fees for offshore mining activities. The primary reason for the collection of such fees from offshore mining is to satisfy the purpose of sharing equity among all miners; where the subsidiary advantage is that of another source of money for the reclamation fund since normally offshore mining areas are not reclaimed. The fee from offshore miners would not be normally returned, therefore the fee charges should be lower than the amount of bond payment levied against on shore miners. In Thailand, two additional sources of money for a reclamation fund are possible - a special fee and a surface rental fee. A special fee, according to the Mineral Act BE 2510, is the fee that tin miners can be required, by the DMR, to pay to the government at the rate equivalent to 5% of the tin royalty. Formerly, the government collected this special fee and awarded 50% of the fee to the provinces where mining was located, setting aside 25% for the suppression of mineral smuggling and allocating the remaining 25% for a rehabilitation programme aimed at alleviating the effects of erosion caused by mining. The collection of the special fee was suspended in late 1985 due to the collapse of the international tin market and the economic depression of the local tin mining industry. In order to direct money into the fund, the special fee could be reinstated and applied to all types of minerals. In addition, Mineral Act BE 2510 specifies a requirement for all miners to pay an annual surface rental fee for the use of the granted mined area at an amount not exceeding 10% of the royalty payment of mineral production from that area. The fee is collected by the provincial office of the DMR and transferred to the provincial government budget. The objective of collecting the fee is for the reclamation of abandoned mine areas or for local development of the area where the mining activity is located. Though such fees can be considered as a critical link
Sources of reclamation funds may also include fees to cover the costs for regulatory activities (filling, processing, and approval of licences); fees for construction and operating permits; reclamation surcharges; other types of securities paid by miners; and forfeiture of bonds.

Because of the large number of unreclaimed

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mines

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in sustainable development, in practice the fee has not normally been used for this purpose and the objective has not been met. To remedy the problem of alternative uses of surface rental fee, it is proposed that such a fee would become part of a reclamation fund which would be administered for the purpose of optimizing social benefits within the framework of sustainable development.

Conclusion
A deposit/refund system such as reclamation bonding is a useful tool to ensure mine reclamation. Reclamation bonding minimizes the disincentive to invest in the mineral industry while maximizing the incentive to protect the environment. In particular, by planning to reduce the need for reclamation at the beginning of the mining activity, a reclamation bond allows for the miners to reclaim their money and thereby is both an incentive for them to develop a proper plan of operation and reclamation and to minimize environmental damage and maximize their refunded money. This measure also creates an incentive for technological development to protect the environment. Reclamation bonding is also flexible, ie it is easy to adjust the amount collected and the reclamation standard over time. Between implementing command and control regulations and establishing a bonding system, the latter system provides more incentives to reduce pollution at the margin: primarily in terms of secondary usage and/or in the development of a capital asset for sale for other uses. In Thailand, a reclamation bond policy should be implemented. The benefits of using a reclamation bond policy are that it would be an incentive for proper planning; innovative reclamation technologies will be developed and used; mined-out areas will be reclaimed and thereby appropriate for other end uses; mining will be conducted efficiently by taking into account real production costs including environmental costs; and land-use conflicts between mining and other economic activities will be reduced. Although imposing any additional cost, such as having the reclamation bond, will act as a disincentive to invest in the mineral industry, when considered in terms of societal welfare and the efficient uses of the countrys resources for sustainable development, such a performance guarantee scheme is necessary for the Thai mineral industry. The environmental impacts from mining activities can be precluded or mitigated and mining and environmental protection can definitely be compatible. It must be realized, however, that a mining activity is a temporary use of the land and proper reclamation after mining can benefit other resource values. As mineral extraction is completed, the land

must be reclaimed for other beneficial uses in harmony with the surrounding area. An incentive to do so is important. In the next decade, the environment will be the main problem facing the minerals industry, not only for Thailand, but also for other mineral producing countries. To achieve the goal of sustainable development for a country, the minerals industry as part of the economy must emphasize the concept of environmental protection. Unless the minerals industry is willing to change and accept the idea of environmental protection, the development of the minerals industry in the future will be more difficult. It is already time for governments to decide between having a domestic mining industry that operates with environmentally sound practices, or having no mining in the economy and depending totally on imports. Between these two choices is the decision as to which can contribute more to the economy in order to achieve the goal of sustainable development.

References
Barnes, P., Cox, A. and Roarty, M. (1991) Economic issues in the rehabilitation of mine sites, Paper presented at National Agricultural and Resources Outlook Conference Cox, A., Barnes, P. and Roarty, M. (forthcoming) Economic and Policv Issues in the Rehabilitation of Mine Sites, Canberra: Australian Bureau of Agricultural and Resource Economics Department of the Interior (1987) Handbook for Calculation of Reclamation Bond Amounts, Washington, DC: Office of Surface Mining Reclamation and Enforcement Fortin. P.. Barrister and Solicitor (1992) Recent trends in mineral development laws, in Minerah Industry Taxation Policies for Asia and the Pacific, New York: United Nations Development Programme Gallaher, W.J. and Lynn, S. (1989) A Review of Hardrock Mine Reclamation Practices as Background for Proposed Nevada Legislation, Nevada: Public Resource Associates Intarapravich, D., Leepowpanth, Q., Panayotou, T. and Rachadawone. S. (19901 Mineral Resource Development: Making the Best ofa LimitedResource, Bangkok: Thailand Development Research Institute (TDRI), p. 48 Intergovernmental Working Group on the Mineral Industry (IGWG) (1988) Report on The Economic and Policy Aspects of Acid Discharge by the FederaNProvinciallIndustry SubCommittee on Mine Waste, Canada, p. 5.5 Jessup, D. (1990) Guide to State Environmental Programs, 2nd edn, Washington, DC: Bureau of National Affairs National Research Council (1981) Surface Mining: Soil, Coal, and Society, The Committee on Soil as a Resource in Relation to Surface Mining for Coal. Washington, DC: National Academv Press, p. 200 Office of Technology Assesssment, Superfund Strategy Otto, 5.(1991) Model State Mining Legislation, Malaysia: United Nations Public Resource Associates (1989) Bringing Back the Land: Mining Reclamation in the Arid West, Reno, NV, pp. 54-56 United Nations (1992) Compilation of Environmental Laws and Regulations Pertinent to the Philippine Mining Industry, Manila: Department of Economic and Social Development, p. 56 World Resources Insitute (1992) Environmental Almanac. Boston, MA: Houghton Mifflin, p. 553

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