Gazette opinion: Will lower price generate bid for state coal?

2010-02-22T00:00:00Z Gazette opinion: Will lower price generate bid for state coal? The Billings Gazette
February 22, 2010 12:00 am

Round two in the auction of 570 million tons of state-owned coal reserves is under way.

The State Land Board got no takers on its original offer that required a minimum bonus bid of 25 cents per ton for its Otter Creek reserves.

Last week, the board voted 3-2 to try again with a lower minimum bonus bid, 15 cents per ton, which would amount to $85 million that would have to be paid in cash this year to the state of Montana. The state could surely use a cash infusion now, but even if the state coal is leased, mining wouldn’t begin for several years. The leaseholder would have to get a mining permit and develop a transportation route to get coal from the rural southeastern Montana to market.

Nothing is certain about Otter Creek coal, except that it ignites passionate debate between the Montanans who want the jobs and tax base a coal strip mine would generate and the Montanans who are concerned about the environmental damage that would result from mining, building a mine railroad and burning the coal.

 

Passionate debate

 

“If we are able to lease these lands, and that is not a given, we will only give a company the right to propose a mining plan,” said Secretary of State Linda McCulloch, who made the motion to reduce the bonus bid.

Attorney General Steve Bullock voted no, as did Superintendent of Public Instruction Denise Juneau, who cast the lone no vote on the first bid offer. State Auditor Monica Lindeen joined McCulloch and Gov. Brian Schweitzer in voting to solicit bids at 15 cents a ton.

Montanans had long been told that the “patchwork” pattern of land ownership at Otter Creek would require the state and Great Northern Properties to move forward in unison to develop their adjacent coal reserves. Then last year, Great Northern announced that it had leased its reserves to Arch Coal for a 10-cent-per-ton bonus bid payable over five years. Arch representatives said mining could commence with or without the state coal.

 

Fiduciary responsibility

 

That’s a key point for Schweitzer. The Land Board isn’t deciding whether mining will happen at Otter Creek, he told The Billings Gazette last week.

“That horse has left the barn,” he said. “I have a fiduciary responsibility to maximize the state’s assets.”

Schweitzer noted that the bonus payment to Great Northern is effectively less than 10 cents because it will be paid over five years. And he said that the appraiser the state hired recommended a bonus bid of 4 to 6 cents a ton. That was before the Great Northern-Arch deal was announced.

This column previously encouraged the Land Board to find out if there is a market for the state’s coal and to cautiously consider a bid solicitation for less than 25 cents bonus. If there’s a taker at 15 cents a ton, the state will have a short-term cash gain and, potentially, a long-term source of royalties, severance tax, increased property tax base and well-paying jobs. Montana would also assume a long-term obligation to regulate the largest coal mine in the state.

The development of Otter Creek will depend on new technology and on policy set by the federal government and energy-importing states. With the growing demand for curbing carbon emissions, a huge new mine is unlikely to come on line until carbon sequestration does.

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