In an announcement this summer that shocked the industry and the Navajo Nation, coal firm Navajo Transitional Energy Company claimed the winning bid for bankrupt Cloud Peak Energy’s three Powder River Basin mines.
But the purchase also came saddled with some $400 million in reclamation liabilities, not to mention royalties and other outstanding debts. Federal law requires a coal operator to line up sufficient bonds to account for future clean-up costs.
So NTEC turned to the Navajo Nation, which created the tribal entity, for help.
But the Navajo Nation announced Tuesday it would not financially support the acquisition of three coal mines in Wyoming and Montana initiated by the coal company.
Citing the steep financial risk of the purchases, Navajo Nation President Jonathan Nez terminated specific provisions in a 2013 indemnity agreement between the tribal government and NTEC.
Despite having used the Navajo Nation as a financial backstop in the past for other coal facilities, NTEC will no longer be able to lean on the Navajo Nation’s credit to secure bonds necessary to finalize its recent coal acquisitions.
When the Navajo Nation launched NTEC, a tribal entity, to acquire and own the Navajo Mine, the tribal government entered into an indemnity agreement, effectively pledging to cover NTEC’s $463 million in clean-up costs if the company failed to do so.
In other words, if NTEC abandoned the mine, or foundered on its cleanup obligations, a surety company would likely step 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. It could turn to the Navajo Nation for payment under the indemnity agreement. The Navajo Nation also partially waived its sovereign immunity when signing the agreement.
The Navajo Mine and power plant, owned by NTEC, have undoubtedly delivered substantial financial returns for the Navajo Nation. According to Steve Grey, NTEC’s director of government affairs, the company has paid tens of millions of dollars to the Navajo Nation annually in the form of royalties. It also provides hundreds of jobs. But there still could be steep consequences for the Navajo Nation ahead.
Though the Navajo Nation canceled provisions in the indemnity agreement last week, the government will remain on the hook for the bonds issued to NTEC’s power plant and coal mine on the Navajo Nation.
So, what happens now?
NTEC told the Star-Tribune on Wednesday it was “proceeding as planned” and exploring “other options,” but did not provide more specifics. For now, the mines continue to extract, ship and sell coal from the three Powder River Basin mines.
“Everything is continuing as usual,” Grey emphasized. “There is no problem there.”
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In the third quarter, Wyoming’s Cordero Rojo and Antelope mines produced approximately 10 million tons of coal, according to the U.S. Mining Safety and Health Administration. Production at Antelope mine increased nearly 18 percent, in comparison to the same quarter last year; output from Cordero Rojo mine decreased about 4 percent.
“The acquisition is a done deal,” Grey added.
Though the company has yet to finalize a bond package and permit transfer, it technically has become a “contract miner” for Wyoming’s Antelope and Cordero Rojo mines and Montana’s Spring Creek. That’s because the company obtained a license to mine in both Wyoming and Montana, albeit with some bumps along the way.
But the company’s status as a contract miner could now extend indefinitely as NTEC searches for a willing surety company to back it.
The mine permits have yet to be transferred from the former owner, too. Wyoming Department of Environmental Quality is in ongoing negotiations with the company, land quality administrator Kyle Wendtland told lawmakers on Nov. 5.
“We’ve been in constant communication with Montana and Wyoming,” Grey, of NTEC, confirmed Wednesday. “We want to get everything in order.”
It’s been a bumpy road
This isn’t the first hurdle NTEC has had to confront since placing the bid on the coal mines.
When NTEC closed the deal in October, it also closed the gates of the Spring Creek mine in Montana.
Negotiations between Montana 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.
But by cancelling the indemnity agreement Tuesday, the Navajo Nation defended itself against the possibility of future lawsuits brought against NTEC down the road.
“(President Nez) is protecting the Navajo Nation,” said Percy Deal, a member of the Navajo Nation and a board member of To Nizhoni Ani, a Navajo environmental group. “(Our) sovereignty is precious, we use it to protect ourselves and it leads to protecting the asset of the Navajo Nation.”
To Deal, the news that the president canceled parts of the indemnity agreement with NTEC was a relief.
“We are very happy that the president did what he did,” he said. “… We are glad that the president that is respecting and honoring mother earth and the health of the people, and the laws and constitution of (Montana and Wyoming).”