The Navajo Nation will not financially back bonds a tribal energy company needs for a trio of newly acquired coal mines off the reservation, the tribal president said Tuesday, explaining that it’s too risky and his administration wants the company to move away from coal.

The Navajo Transitional Energy Co. recently bought Montana’s largest coal mine and two mines in Wyoming at auction after Cloud Peak Energy declared bankruptcy.

The mines can keep operating for now because more than $370 million in reclamation bonds posted by Cloud Peak remain in place, state officials said.

Tribal President Jonathan Nez said he canceled agreements the energy company might have relied on to seek the Navajo Nation’s financial backing for the bonds. He said the company wasn’t forthcoming about information related to acquiring and operating the mines, and he wants to protect the tribe’s finances as revenues decline from the loss of a coal plant and mine on the reservation. Tribal lawmakers had been considering legislation to do the same thing.

“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 (Navajo) Nation’s consent ...” Nez wrote in a statement.

That NTEC will have to secure reclamation bonding on its own may be a better outcome for Wyoming and the Powder River Basin in the long run, said Shannon Anderson, a lawyer and spokeswoman for the Powder River Basin Resource Council, a Sheridan-based energy watchdog group.

She said her organization really doesn’t have much of a reaction to the announcement from the tribe, other than it’s watching the situation carefully.

“We’re going to let the Navajo Nation speak for itself on why it did this,” Anderson said. “But ultimately, it’s good news for the Navajo Nation and Wyoming, because it means, clearly, NTEC has to stand on its own.”

How the development could impact NTEC’s ability to secure bonding on its own “is kind of the $370 million question right now,” said Rob Godby, a University of Wyoming economist and energy industry analyst.

Because NTEC remains solely owned by the Navajo Nation means it’s difficult to separate the tribe from the company in its deal to buy and operate the Powder River Basin mines, he said.

“This is kind of uncharted territory (with a native corporation) and it’s hard for me or anyone else to know,” Godby said. “Given that this is a private company, we don’t see the disclosures of the surety arrangements.

“Effectively, the Navajo Nation appears to have been a cosigner on a loan. You’re going to make the payments and are good for it, and they’re there just in case you can’t. Without the wealth of the Navajo Nation indemnifying the contracts, the question is what NTEC will require or whether they can put a package together.”

More uncertainty

The development marks the latest turmoil to hit the Powder River Basin of Montana and Wyoming, the nation’s largest coal-producing region, where bankruptcies and declining demand have put a pall over a once-vibrant industry. Hundreds of people in the region were put out of work for months after another bankrupt company, Blackjewel, drastically scaled back operations at two of the biggest coal mines in the U.S.

The tribal energy company was created in 2013 to buy a coal mine in New Mexico on the reservation. It also owns a 7% stake in the nearby Four Corners Power Plant. While it was organized under the tribal government, it operates somewhat independently.

Nez said the legal documents creating the company gave the tribe’s executive branch unilateral authority to administer what are known as general indemnity agreements. He said the bonds in place for the Navajo Mine and the Four Corners power plant won’t be affected by his decision.

The energy company has said terminating the indemnity agreements could have serious impacts on the company’s operations and increase the costs to secure reclamation and other bonds. It urged tribal lawmakers last week to seek other solutions to support bonds for the Cloud Peak purchases.

“NTEC has always considered these acquisitions to be highly advantageous and profitable,” company spokesman Erny Zah wrote Tuesday in response to questions from The Associated Press. “While we understand the president’s decision with regard to the indemnity agreements, we continue to see very successful operations and prospects ahead.”

The Cloud Peak deal made the Navajo company the third-largest coal producer in the U.S. The deal covers Wyoming’s Antelope and Cordero Rojo mines and Montana’s Spring Creek mine. About 1,200 people are employed at the mines, which combined produced almost 50 million tons of coal last year.

Antelope is the third-largest coal mine in the U.S., while Spring Creek ranks eighth and Cordero Rojo is 11th.

Lining up bonds on its own could be a challenge for the tribal energy company, given the state of the coal industry, said Joe Aldina, a coal industry analyst at the research firm S&P Global Platts.

A succession of coal company bankruptcies already put state regulators on “high alert” to make sure companies have the financial wherewithal to conduct cleanups, he said. Also, a decade-long wave of coal-fired power plant retirements has decreased demand for the inexpensive but heavily polluting fuel, which could make financial firms hesitant to get involved with reclamation bonds.

“Bonding companies are going to be more skeptical,” Aldina said. “They are going to require more collateral or higher interest rates or they’re just not going to extend these surety guarantees.”

State regulators are unlikely to release the Cloud Peak bonds until the mines’ new operator can come up with bonds on its own. That means taxpayers in Montana and Wyoming won’t be left on the hook for future reclamation or cleanup costs.

“They can operate like this as long as they like, because Cloud Peak has the permit,” said Keith Guille with the Wyoming Department of Environmental Quality. “We cannot review the permit until they show they have bonds in place.”

Looking forward, however, this also is another sign of how the coal industry has changed over the past decade, Godby said.

“From the state’s perspective, it just emphasizes how we have to be really careful,” he said. “In the past, it seems the state deferred to concerns the coal industry had, but now it’s a new era where the state’s interests and those of (industry branch off.”

At Spring Creek, NTEC has indicated it will cover for now the fees needed to maintain the existing $109 million reclamation bond that was in place when it bought Cloud Peak’s assets, said Montana Department of Environmental Quality spokeswoman Rebecca Harbage.

Those fees amount to about 1% of the bond total, or about $1 million annually, Harbage said. She did not know if any payments have been made to date.

Not being backed financially by the Navajo Nation isn’t likely to kill the deal for NTEC to own and operate the Antelope, Cordero Rojo and Spring Creek mines, if the company can come to agreements with Wyoming and Montana over the native corporation’s sovereign immunity, Godby said.

“I don’t think this is going to hold things up,” he said. “But it does show there are risks in the coal market we didn’t have a decade ago.”

Copyright 2019 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

(1) comment

Odislish

I am glad someone is watching the reclamation bonds to be sure they are there if and when needed.. However I am concerned about ESM as I read that Contura had 135 mines back east added to the Wyoming Bonding after ESM signed papers and which a lot are ready to start reclamation and that has Belle Ayr and Eagle Butte mines as they posted a 238 million like Contura had but Contura added 135 mines back East under that bond as well. If that is true and they start reclamation back east first there will be no money left in the funds for Wyoming. Can that be checked out. Just a curious concerned taxpayer

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