SCL Act restricts land use for mineral resource investment

Chinese direct investment into Australia, and particularly in the state of Queensland, has been and continues to be a key contributor to economic development, especially in the mining and agricultural sectors.

The recent rapid growth in demand for coal and coal seam gas has led to the expansion of resource exploration and development activities impacting on other industries. A primary example of this has been the increasing conflict between the resources industry and agricultural production.

To address this, Queensland’s government enacted the Strategic Cropping Land Act 2011 (Qld). The objective of the act is to regulate the interaction between resource development and existing or potential agricultural development. The desired outcome is that Queensland’s best agricultural land, referred to as strategic cropping land (SCL), is preserved as far as possible while also permitting resource extraction.

What is SCL?

The Queensland government recognises parts of the state as being highly suitable for cropping, farming and cultivation – land referred to as SCL. A preliminary analysis of vast areas of Queensland has identified where SCL potentially exists.

The areas have been divided into management areas and protection areas. SCL in protection areas is afforded greater protection by the SCL Act than management areas, because it represents better agricultural land.

Development on SCL

The act prohibits development on SCL or potential SCL unless it has been approved by the state government in accordance with the requirements of the act. Development includes any activity for which a development approval or resource authority (such as a mining lease or petroleum lease, and including an associated environmental authority) is required to lawfully carry out the activity. Development is deemed to have either a permanent impact or a temporary impact.

A development will have a permanent impact if: (i) the carrying out of the development will impede (including any legal or physical impediment) the land from being cropped for at least 50 years; (ii) the land cannot be restored to its pre-development condition because of the proposed development; or (iii) the development involves open cut mining or the storage of hazardous mine wastes.

All other developments are deemed to have a temporary impact. A resource developer who wishes to construct a new mine or gas field that may impact on SCL will need to comply with the requirements of the act. This means identifying all of the land within its project area and ascertaining if any of the land is potential SCL. Where SCL is identified within the project area, the developer must determine if it is in a management area or protection area and whether the planned development will have either a permanent or temporary impact.

Development in protection areas

Where a development is proposed within a protection area the developer will need to avoid, to the maximum extent possible, any temporary or permanent impact on SCL, for example by changing mining plans. If an impact on the land cannot be avoided: (i) temporary impact developments may proceed if the SCL can be restored to its pre-development condition; or (ii) permanent impact developments may only proceed in exceptional circumstances.

The development of coal or coal seam gas projects is unlikely to be considered sufficient to justify the government permitting such a development in protection areas. This is a key risk for new projects.

Avoidance and minimisation obligations will also apply to proponents working on SCL in management areas. Where this is not possible, the developer will need to mitigate any permanent impact.

Implications for investors

Resource investors will need to assess potential implications posed by the SCL Act on a project-by-project basis. However, in general, the act will increase:

• Regulatory requirements and costs for resource proponents to obtain new tenements; and
• Project delivery timeframes.

New and existing investors will have to factor in the existence or potential existence of SCL in their project areas, and any associated risks and costs associated with compliance with the SCL Act in their financial modelling and project budgets. This risk is especially heightened for projects in protection areas, as evidenced by the Queensland government’s recent decision to refuse to grant a mining lease to the New Hope Corporation for its proposed New Acland mine.

Implications for agriculture

While the SCL Act may cause additional issues and investment hurdles for resource projects, it arguably gives greater certainty to agricultural assets located within SCL areas. The obligations under the SCL Act should see competing interests avoid or mitigate any long-term impact on Queensland’s best agricultural land, thereby preserving its long-term productive capacity.

This is a positive development, given China’s interest in Queensland agricultural assets, as evidenced by Chinese companies’ investments totalling more than A$500 million (US$521 million) in agricultural ventures in Australia such as dairy farming, ultra-fine wool productio, animal husbandry and frozen vegetables.

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Michael Sheng is a partner at Blake Dawson in Shanghai, and Richard Brockett is a senior associate at Ashurst in Brisbane. McCarthy Libby, a lawyer at Ashurst in Brisbane, also contributed to this article