The Audit Office has talked with stakeholders about the scope of an audit amid rising concerns NSW taxpayers could be left with open-ended rehabilitation responsibilities as coal prices flatline.

A spokesman confirmed the Audit Office was “actively considering” the security deposit audit, noting “We try and find the areas that will be of most benefit to parliament and the public”.

The NSW Government holds about $2 billion in security deposits or bank guarantees, but serious questions have been raised about whether deposits cover actual rehabilitation costs, and whether mines commit only a fraction of the stated security deposit amount.

Concerns have been heightened by recent sales including Rio Tinto’s attempt to sell a Queensland mine to a small miner for $1, along with an $80 million rehabilitation bond payment.

Former Rio Tinto executive Rick Humphries, now working with Lock the Gate, urged the Queensland government to block the sale, saying rehabilitation costs were more than double the $80 million figure.

The NSW Government needed to put real risk into its rehabilitation financial assurance system or taxpayers could be left with the bill, Mr Humphries warned.

“Mining companies work on a simple model of maximising cash flow in order to manage debt, and problems like rehabilitation and planning for mine closures are seen as long term irrelevant issues that detract from the main game,” he said.

Government regulation is weak and cash deposits, rather than financial assurances or bank guarantees were needed, Mr Humphries said.

There was a disconnect between what the community expected of rehabilitation, and what mining companies and the government planned, he said.

“An Australia Institute poll showed 77 per cent of people expect mine sites to return to their previous condition, but that’s not what mining companies are required to do. There’s a total misunderstanding between what the government and industry want and what the community expects,” he said.

The true cost of rehabilitation could only be estimated.

“All these companies are doing the least possible rehabilitation by leaving voids and large waste dumps,” Mr Humphries said. 

Muswellbrook Mayor Martin Rush said his council was concerned mines would be abandoned or disposed of to opportunistic buyers and rehabilitation obligations would not be fulfilled.

There was “certainly noise” from government agencies concerned that forcing mines to undertake rehabilitation in line with development approvals would cause some mines to become uneconomic, he said.

“It is council's firm position - a position expressed to the Auditor General's Office - that that is an irrelevant consideration, and indeed, if it is discovered that agencies are declining to regulate based upon that irrelevant consideration, it may come close to perverting the course of justice.”

The council wrote to the Auditor General’s Office in January about the need for an audit of security bonds relating to rehabilitation.

During a discussion in June between council representatives, including Mr Rush, and the Auditor General’s Office the council argued the need for a comparison between securities held against a mine’s liability calculations for closure; the need to compare the NSW system against other states and overseas, including Canada; and said the risk of a site was often inversely proportional to the ability to secure an adequate security bond.

The council also questioned who would manage rehabilitation and closure in the event a large mine site was abandoned or abruptly closed because of mine company failure or bankruptcy.

A NSW Mining spokesman said it would not be commenting on the potential audit.