Approach to bonds assessment and requirements of operators

1.0 Introduction

Fife Council requires financial bonds for mineral extraction and renewable energy developments. These bonds ensure that site restoration can be completed in line with an approved restoration plan or planning consent condition. This applies if the developer or operator fails to carry out the restoration works.

This short paper explains how Fife Council intends to meet this requirement. It includes the appointment of an independent consultant to carry out the assessment. It also covers agreement of the Bond Philosophy and the assessment approach. In addition, it sets out the information and input required from site operators and the basis of the financial assessment.

2.0 Assessment of bond quantum

The Council has appointed an independent external consultant on a Framework Agreement to assess the quantum of the bond on their behalf.

The consultant will calculate the quantum of the bond from first principles, based on information provided by the developer or site operator. The developer or operator will be given the opportunity to review and discuss the proposed bond quantum. The decision as to the final bond quantum required rests with the independent consultant and Fife Council, following reasonable review with the site operator.

3.0 Bond "philosophy" and overview

The following sets out the general philosophy and approach to the bond assessment. The key principles include:

• restoration to approved plan - bonds must cover the cost of site restoration in line with the most recent restoration strategy or detailed restoration scheme agreed by Fife Council
  
• 5-yearly bond reviews - bond quantum will be reassessed on a rolling 5-year basis or more frequently if triggered by significant changes on site, operation phasing or restoration progress
• the bond value must represent a realistic worst-case scenario, on the basis that Fife Council will be required to procure and manage all restoration works via external contractors and consultants. In other words, the restoration will not be by the operator or bond holder
  

4.0 Information required from the developer or site operator for minerals sites

To enable a robust and transparent bond calculation, the site operator must provide:

• topographic survey - an up to date topographic survey of the entire site, provided in 3D CAD format with identifiable site boundaries and contours
  
• agreed restoration plan - the current restoration plan as approved or otherwise agreed by the Council, including any phasing, landscaping, and aftercare elements, also in 3D CAD format
  
• marked up operational plan - a drawing (based on the current topographic survey) clearly indicating:
  • areas of current and future extraction
    
  • locations of overburden stockpiles and stored soils - with volumes as known
    
  • locations of aggregate stockpiles - with volumes as known
    
  • phased restoration progress and completed areas
    
  • site access and internal road networks
    
  • any site infrastructure which will require to be removed at the end of operations.
    

5.0 Information required from the developer or site operator for energy development sites

To enable a robust and transparent bond calculation, the site operator must provide:

• topographic survey - an up to date topographic survey of the entire site, provided in 3D CAD format with identifiable site boundaries and contours
  
• detailed plan of the entire site showing the energy installation, as approved or otherwise agreed by Fife Council
  
• detailed construction schedule
  
• restoration strategy or details restoration plan, as approved or otherwise agreed by Fife Council Council which identifies:
  
  • buildings, plant and infrastructure to be removed at the end of the life of the facility
    
  • the extent of ground works and landscaping required
    
  • any footpaths or other links to be provided or reinstated
    

6.0 Bond quantum calculation and assumptions

To maintain consistency and accountability in bond values, the following assumptions will be applied when calculating the restoration bond:

6.1 Externalised delivery costs

• all works are assumed to be carried out by an external contractor, procured through competitive tender by Fife Council
  
• rates will include contractor preliminaries, supervision, welfare, health & safety compliance, and site reinstatement measures
  

6.2 Rates and pricing

• use appropriate, benchmarked industry rates, for example from SPON's or industry standard external cost databases
  
• preliminaries will be added to all restoration schemes at either 15% for standard projects or 20% where the works are small and limited in extent
  
• a clear schedule of rates applied to each discrete item of work, for example soil spreading, seeding, contouring and drainage works
  

6.3 Inflationary uplifts

• annual cost uplift assumptions will be applied using standard construction inflation indices
  
• for bonds set over multiple years, year on year price escalation will be factored in based on a 3.0% annual inflation scheme
  

6.4 Optimism bias (OB) or contingency

An optimism bias allowance or contingency will be added to account for the inherent risks of public sector led delivery. These will typically be:

• an upper bound OB of 40% where the extent of the works or current site status is not well defined. Examples would be where there is no agreed restoration scheme, or only outline restoration proposals exist, or where details, requirements, quantities are not clearly defined or understood
  
• a contingency of 20% where the works are well defined. For example, detailed restoration proposal, current site status well defined, phased restoration requirements and quantities are well understood
  

6.5 Value of onsite assets

For the purpose of assessing the bond quantum, a mil value will be applied to all potential onsite assets (mineral stockpiles, plants and equipment) that may have a value at the time of the bond calculation. This is on the basis that by the time Fife Council needs to call on the bond, all assets of value will have been removed by the operator or administrator on behalf of creditors.

A cost will be included for the demolition or dismantling and offsite disposal of items that are required to be removed in order to complete the restoration works such as buildings/structures, redundant buildings, scrap and waste.

6.6 End-of-life site management

For the purposes of assessing the bond quantum, provision will be made for:

• costs for immediate or ongoing health and safety actions. For example, pumping to keep water levels low prior to restoration, maintenance and upkeep of fencing and signage
  
• costs of removal of infrastructure, reinstatement of access tracks and final site clean up
  
• aftercare, including site inspections and remedial works for a period defined in the restoration scheme