- The regulator may want to conduct ongoing health checks of the financial institution.
- The performance agreement associated with any guarantee should contain a clause requiring the operator to renew it prior to the expiry. Failure to comply would constitute a default and would result in the existing guarantee being drawn upon if the operator fails to agree an alternative financial provision with the regulator.
- A renewable guarantee may require a fixed sum to be paid from day one, or it may be incremental, building up or decreasing year by year as the liability on the site increases or decreases. In either case, the sum should be subject to an annual inflationary adjustment as specified in the relevant clause in the performance agreement. The regulator should require written confirmation from the financial institution that the guarantee value has been amended. The guarantee will follow a profile agreed at the outset and will normally be documented within a schedule to the performance agreement. It will still be necessary for the regulator to review the rate of input into the site and confirm that the estimated liability is adequately covered by the value of the guarantee at that point in time.
A Practical Guidance on Financial Provision for Environmental Liabilities