One of the newest coal firms to enter the Powder River Basin found itself in hot water again Tuesday, after the Navajo Nation president announced it would not financially back the tribal entity’s recent purchase of three coal mines in Wyoming and Montana.
Navajo Nation President Jonathan Nez said the government would terminate provisions in an indemnity agreement to block the Navajo Transitional Energy Company from using the Navajo Nation’s credit to secure surety bonds for its most recent coal acquisitions.
“The Navajo Nation’s financial portfolio as well as our resources would be placed in a state of uncertainty if we allowed NTEC to proceed with finalizing the bonds needed to operate these three mines using the Nation’s consent given in these indemnity agreements,” Nez said in a statement. “In addition, many experts question the viability of expanding our interests in a coal market that appears to be dwindling. We will not support initiatives that attempt to circumvent or undermine the laws and policies of our Nation.”
NTEC assumed ownership of Wyoming’s Antelope and Cordero Rojo mines and Montana’s Spring Creek mine from bankrupt coal company Cloud Peak Energy this summer. As the winning bidder, NTEC agreed to pay Cloud Peak Energy $15.7 million for the three mines, in addition to a $40 million second lien promissory note and royalties for coal produced over the next five years, according to the sales agreement. NTEC would also assume all reclamation liabilities.
But according to several Navajo Nation Council members, the company did not alert the tribal government to the plan to purchase the additional coal mines, nor did it sufficiently disclose its financial standing before undertaking the major sale. In an August interview with the Star-Tribune, NTEC said it was not required to seek approval from the Navajo Nation government.
“We respect the decision of the Navajo Nation,” Erny Zah, director of communications and media affairs at NTEC, said in a written statement Tuesday. “Regardless, Navajo Transitional Energy Company remains a profitable, viable and successful business entity of the Navajo Nation. As such, we will explore our options to best serve our interests as NTEC and the Navajo Nation.”
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The legal hiccup comes on the heels of the sudden closure of Spring Creek mine in Montana last month after conversations between Montana’s Department of Environmental Quality and the mine’s new owner came to a standstill over permit disagreements. According to environmental regulators, NTEC could potentially protect itself from future liabilities using its sovereign immunity. If NTEC violated mining laws, the company’s sovereign immunity could shield it from state or federal jurisdiction, the state agency reasoned.
The mine reopened after Montana’s Department of Environmental Quality entered into a 75-day short-term agreement with the company. As part of the temporary contract, the out-of-state coal firm agreed to partially waive its sovereign immunity.
Shortly before the sale closed, NTEC successfully obtained a license to mine and continued production at the two Wyoming mines as a contract miner, according to Wyoming’s Department of Environmental Quality. The mine permits have yet to be transferred from the former owner, but the state is in ongoing negotiations with the company, land quality administrator Kyle Wendtland told Wyoming lawmakers earlier this month.
Though Wyoming’s mines have pumped out coal during the ownership transition, critics of the sale warn the permit transfer process could stall indefinitely, and potentially throw a wrench in the entire deal.
“How this action plays out in the Powder River Basin remains to be seen, but it creates uncertainty as to NTEC’s ongoing viability and it serves as a warning on the increasing fragility of the Powder River Basin coal business and to the need for Montana and Wyoming to hasten preparations for economic transition,” said Karl Cates, a policy analyst at the Institute for Energy Economics and Financial Analysis, a think tank advocating a transition away from coal.
A coal company must demonstrate it has adequate financial backing for future reclamation, according to federal law. Operators often turn to surety companies for bonds. If a company abandons a mine, or can no longer afford to complete its cleanup obligations, a surety company steps in. But unlike other forms of insurance, a surety company does not plan to front the full costs and takes significant steps to shield itself from any loss.
The Navajo Nation extended partial sovereign immunity to NTEC when it assumed ownership of a coal mine and power plant on the Navajo Nation in 2013. The corresponding indemnity agreement placed the Navajo Nation government potentially on the hook for about $463 million in cleanup costs if NTEC failed to fulfill its reclamation obligations. Despite canceling provisions in the indemnity agreement Tuesday, the tribal government will remain on the hook for the bonds issued to the power plant and coal mine on the Navajo Nation.
“The Nez-Lizer Administration strongly supports Navajo businesses and enterprises, but business has to be conducted the right way with transparency and integrity,” Navajo Nation Vice President Myron Lizer said in a statement. “NTEC should focus more resources into transitioning their energy portfolio to acquire and develop renewable energy for the Navajo Nation.”