Cook Islands Seabed Minerals Authority
Runanga Takere Moana
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Priorities

Development & growth


 
 
 

regulatory framework

In order for the Cook Islands to benefit from its rich seabed mineral resources, it will need to attract investment in the exploration for and exploitation of those resources. To attract the desired investment, it must first establish an enabling environment for investors which is based upon international best practices and modern regulatory arrangements.

The economic and social impact of large-scale mining operations in the Cook Islands is likely to be significant and far-reaching. Therefore the Cook Islands must act with prudence and caution in seeking to encourage seabed mineral activity. Necessary measures must be undertaken to ensure that the country is prepared for the commencement of seabed mineral activity and that such activity is properly regulated and conducted responsibly.

Regulatory Bodies Under the Seabed Minerals Act 2009, the Minister for Minerals and Natural Resources has responsibility for the overall management of the seabed minerals sector. The day-to-day regulation of seabed minerals activity is the responsibility of the Seabed Minerals Authority, headed by the Seabed Minerals Commissioner. In addition, the Act establishes a Seabed Minerals Advisory Board - a body created to operate as the formal avenue for the representation of the interests of the Government and society in decision-making concerning the management of aspects of the seabed minerals sector.

Licensing System The main regulatory tool for the management of the seabed minerals sector is a standardised licensing system under which private sector participants (seabed mining companies) will apply for licences to be authorised to carry out seabed prospecting, exploration and exploitation operations in return for the performance of explicit and enforceable obligations. The objective of the licensing system is to ensure that mineral rights are allocated only to mining companies that possess the requisite finance, expertise, experience and reputation to support the conduct of seabed mineral exploration and exploitation in the Cook Islands.

A standardised licensing system enables mineral operations to be conducted on a stable, predictable basis and ensures equal treatment of investors. It also enhances the capacity of Government authorities to administer the system efficiently and transparently. This, in turn, forms the basis for accountability to the people of the Cook Islands.

There are four types of seabed mineral permits or licences available to suit the various phases of seabed mineral activity. These are: prospecting, exploration, retention, and exploitation licences. A seabed mineral licence holder is guaranteed security of rights, including the right to proceed from exploration to minerals exploitation once the commercial feasibility of mining has been established, in return for the satisfactory performance of the required specific and enforceable commitments by licence holders, as set by the Seabed Minerals Authority and recorded as terms and conditions of the licence..

The Authority undertook an international tender bidding process for the issue of exploration licences in 2013, based on best international practices. The Commonwealth Secretariat assisted with this process. No applications were received at the closing of the tender.

RESERVE AREAS The additional option for the Cook Islands is to reserve parts of the seabed minerals nodule zones for national strategic purposes. This can permit the undertaking of special arrangements which are of superior national benefit to the Cook Islands, over and above the standard Tender Licencing process in the area reserved for Tender Applications. All Applications will be required to fulfill the standard Application requirements under the Act.

 
 

 
 

Environmental management

The Government’s objective with regard to environmental management of seabed minerals activity is to achieve a socially acceptable balance between seabed minerals activity and the physical, ecological and human environment and to ensure that internationally accepted standards of health, mining safety, and environmental protection are observed by all participants in the seabed minerals sector.

It is acknowledged that all human developmental activities have some impact on the world we live in. For example, we live in homes on land that was cleared from its natural state. We also all now benefit from the use of smart hi-tech devices, which depend on the continual global extraction and use of minerals and rare earth metals. The issue then is how to minimise and take precautions to limit the impacts of our development activities on our precious environment, while also benefiting from our mineral resources.

The Act has been harmonised with the provisions of existing environmental legislation, particularly the provisions of the Environment Act and the Marine Pollution Act. The Authority is actively working with the National Environment Service to ensure that established international standards, principles and practices of environmental protection and management are applied to the seabed minerals sector. Seabed Mineral Environmental Regulations are currently being developed, with the DSM Project assisting in this process.

The environmental management of seabed minerals activity will follow best international practices, for guidance has been given through UNCLOS. Three particularly important obligations to adhere to are:

  • Precautionary Approach
  • Best Environmental Practices
  • Environment Impact Assessment

Precautionary Approach Since there is still much to learn about the vast ocean environments and how they may be affected by seabed mineral exploration and exploitation activities, the ‘precautionary approach’ must be applied when considering whether or not to pursue seabed mineral activities. The precautionary principle was first expressed in the 1992 Rio Declaration on Environment and Development, Principle 15:

“In order to protect the environment, the precautionary principle shall be widely applied by States according to their capabilities, where there are threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a reason for postponing cost-effective measures to prevent environmental degradation.”

The precautionary approach provides States with guidance on the process for avoiding serious or irreversible harm when the risks of a proposed activity are uncertain. The precautionary approach is triggered when, for a given action, there is a) potential for harm and b) uncertainty about causality and magnitude of impacts.

For a useful summary of the Precautionary Approach, see the DSM Project Information Brochure: Application of the Precautionary Principle for Deep Sea Minerals.

Best Environmental Practices Best environmental practices (BEP) appears to be a much broader concept than best available technology. Whereas the latter appears to be limited by what is technologically achievable, a survey of the former in a variety of international instruments shows that it requires the application of the most appropriate combination of environmental control measures and strategies. This applies regardless of whether a State is developed or developing. BEP has recently been adopted into the International Seabed Authority's (ISA) regulations, which signals a raise in the standards from "best technology available" when it relates deep sea mining.

Environmental Impact Assessment (EIA) The ISA has begun guidelines with regards to EIAs, and will be useful to enable the Cook Islands to align its current EIA process for the purposes of seabed mineral activity. Firstly, it suggests that EIAs should be applied at all stages of seabed mining. Secondly, environmental baselines must be established. The objective is to establish the initial state of the marine environment before potential harmful activities take place, and use that as the baseline in order to measure impacts. Environmental baselines will help remove the uncertainty element of the environmental effects of seabed mining. The more information that is gathered and known, the more informed people are to make better decisions.

 
 

 
 

social impact

In preparation of future revenue from seabed mineral activities, the Cook Islands have begun the process of developing a mining tax regime, and has received assistance from the Commonwealth Secretariat and PFTAC in this regard.

A seabed minerals fiscal is aimed to be established which will provide the Cook Islands a fair and equitable share of the economic value generated from seabed minerals activity while enabling investing mining companies to obtain a return commensurate with industry norms and the risk undertaken.

In designing a mining tax regime there are a number of principles to consider, in addition to the usual efficiency, fairness, and ensuring fiscal sustainability. These principles include:

  • ensuring the state as resource owner receives an appropriate share of the economic rent generated from the natural resources;
  • in obtaining that share, the government needs to balance its desire to maximize revenue against any deterrent this may have on investment;
  • the government’s share should be adjustable so that it gets a larger share of the most profitable projects (that is, it can easily adjust to variations in circumstances such as price fluctuations);
  • the tax rules should be simple and clear, and preferably be set out clearly in the tax law (to ensure transparency and equity, and facilitate administration and compliance);
    • and the tax arrangements should be stable to provide certainty for long-term investors.

The Commonwealth Secretariat Economic and Legal Section (ELS) undertook a Seabed Minerals Fiscal Regime Analysis for the Cook Islands in 2012. ELS provided recommendations for Government to consider in the development of its mining fiscal regime to ensure it is consistent with international practice and Government-investor expectations.

The fiscal regime has been passed in Parliament and is to be administered by the Ministry of Financial Economic Management (MFEM).

 
 

 
 

fiscal regime

In preparation of future revenue from seabed mineral activities, the Cook Islands have begun the process of developing a mining tax regime, and has received assistance from the Commonwealth Secretariat and PFTAC in this regard.

A seabed minerals fiscal is aimed to be established which will provide the Cook Islands a fair and equitable share of the economic value generated from seabed minerals activity while enabling investing mining companies to obtain a return commensurate with industry norms and the risk undertaken.

In designing a mining tax regime there are a number of principles to consider, in addition to the usual efficiency, fairness, and ensuring fiscal sustainability. These principles include:

  • ensuring the state as resource owner receives an appropriate share of the economic rent generated from the natural resources;
  • in obtaining that share, the government needs to balance its desire to maximize revenue against any deterrent this may have on investment;
  • the government’s share should be adjustable so that it gets a larger share of the most profitable projects (that is, it can easily adjust to variations in circumstances such as price fluctuations);
  • the tax rules should be simple and clear, and preferably be set out clearly in the tax law (to ensure transparency and equity, and facilitate administration and compliance);
    • and the tax arrangements should be stable to provide certainty for long-term investors.

The Commonwealth Secretariat Economic and Legal Section (ELS) undertook a Seabed Minerals Fiscal Regime Analysis for the Cook Islands in 2012. ELS provided recommendations for Government to consider in the development of its mining fiscal regime to ensure it is consistent with international practice and Government-investor expectations.

The fiscal regime has been passed in Parliament and is to be administered by the Ministry of Financial Economic Management (MFEM).

 
 

 
 

revenue management

As required by the Seabed Minerals Act 2009, a new national Sovereign Wealth Fund (SWF) is being established, to capture the revenues associated with seabed mining activities for present and future generations of Cook Islanders.

The draft SWF Regulations have been consulted on by MFEM and the final SWF Regulations will require Cabinet approval and an Order of the Queen's Representative.

MFEM, in conjunction with the Seabed Minerals Authority, have sought expert financial advice from the International Monetary Fund (IMF), and various other sources, on important design features and requirements for the new national Sovereign Wealth Fund (SWF).

The IMF Report presented detailed findings and made several recommendations which were submitted by MFEM to Cabinet and were approved.

Recommendations for establishing Sovereign Wealth Fund for the Cook Islands are: That legislation should be structured in the most rigorous manner possible to protect the long-term stability for the fund and to avoid short- term diversion of fund resources That clear and consistent principles be established for allocating revenues to the fund and for spending from the fund, all government revenues resulting from seabed mineral mining should be deposited in the fund. Spending from the fund be adjusted depending upon the size of the fund. Initially annual appropriations of a fixed amount, could be appropriated for investment expenditures. Once the fund balances begin to grow to a more significant size, appropriations should be limited to the return on investment, or some portion of the return on investment. The Fund’s principal should be invested in international financial assets to avoid distorting the local economy, in a diversified portfolio of financial instruments that protects the fund principal over the long term with minimal risk. The Minister of Finance and Economic Management should be responsible for the overall management of the fund on behalf of the people of the Cook Islands, supported by an oversight board. All transactions of the fund and the fund’s financial performance should be transparent, including: fund operations, asset holdings, and decision-making. Revenues and spending of the fund should be controlled through the budget. The fund should be subject to annual review be the National Audit Office and subject to periodic independent audit. Finally, the Parliament should provide oversight through review of reporting, operation and performance of the fund.

 

Last updated: 17 May 2019