Tribe investigates buying coal company

By Alastair Lee Bitsoi
Navajo Times

WINDOW ROCK, Dec. 20, 2012

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After signing a non-binding memorandum of understanding with BHP New Mexico Coal on Tuesday, the Navajo Nation officially welcomed itself to the table as a possible coal miner.

The MOU, signed by President Ben Shelly, Speaker Johnny Naize and Deputy Attorney General Dana Bobroff with BHP, is the first step for the tribe to acquire BHP Navajo Coal Company.

Also on Tuesday, the Naa'bik'iyati' Committee received a report in executive session from attorneys and staff who worked on the MOU on behalf of the Nation. The committee accepted the report on a vote of 11-6.

The MOU comes after the Navajo Nation Council unanimously passed a $750,000 supplemental appropriation from the Undesignated Unreserved Fund during its fall session in October to explore the possibility of buying the coal company. Acquiring the company might head off the closure of Billiton's Navajo Mine, which would jeopardize the operation of the 2,100-megawatt Four Corners Power Plant. Billiton recently revealed its Navajo Coal Co. would not meet its investment portfolio needs after 2016.

Council delegate Lorenzo Bates, who sponsored the supplemental appropriation, said the MOU signals a start in keeping the natural resources on the Nation, as well as maintaining jobs both at the power plant and coal company.

"It's a start," he said. "If we don't do this, there are no winners. We all lose out if both companies go away - the state loses out on taxes, the county, non-Navajos, border towns because these folks employed will no longer be employed. It has a ripple effect on everybody."

The Four Corners Power Plant, which is operated by Phoenix-based Arizona Public Service, employs about 574 people - 70 percent are Native American, while BHP Navajo Coal Company employs 500 people, about 85 percent of whom are Native Americans.

According to Brian Lewis, lead attorney at Navajo Department of Justice, who drafted the MOU, the tribe currently receives about $100 million annually in taxes, royalty and other economic benefits from the mining operation. It goes toward the general fund and circulates throughout the Navajo economy.

The revenue generated from the coal reserves, he said, is 32 percent of the nation's general fund, and pays for services like Head Start, senior centers and other governmental services.

Once the opportunity to become a coal owner arose, the tribe used the $750,000 supplemental appropriation to proceed and set up a technical team of nationally recognized mining, energy, legal and economic experts to assist the tribe with the process. The team of expert firms includes Manatt, Phelps and Phillips; Pacific Economics Group and Rothstein/Kasstein; Navigant Consulting; The Brattle Group; Fredericks, Peebles and Morgan; and Behre Dolbear.


In an interview with the Navajo Times Tuesday evening, Bates, chair of the Council's Budget and Finance Committee, said many factors came into play before the Nation decided to take its seat at the table.

One major factor, he said, is both Arizona Public Service, plant manager at Four Corners Power Plant, and BHP Billiton, who supplies coal from Navajo Mine to the plant, didn't agree upon a fuel agreement.

Two other factors that also came into play were California's passage of a law in 2006 forcing its utilities to reduce their stake in coal-fired electric generations. As a result of the law, Southern California Edison, who currently has 48 percent ownership of units 4 and 5 at the Four Corners Power Plant, announced in April 2010 its intent to sell its share.

An agreement between Southern California Edison and APS to sell its shares of Units 4 and 5 to APS has yet to be finalized. The agreement would need the approval of the California Public Utilities Commission, Arizona Corporation Commission and Federal Energy Regulatory Commission to occur.

The other factor is the U.S. Environmental Protection Agency's pressure to reduce nitrogen oxide emissions by installing retrofit technology at power plants across the U.S., including Four Corners. The installation of retrofit technology at Units 4 and 5, if the transaction occurs between Edison and APS, would cost APS about $875 million and result in the shutdown of Units 1,2,3.

"In going forward, APS wants to ensure that whoever mines the coal, it's there every day, every hour that it's needed," Bates explained.

Under the terms of the agreement, BHP would sell 100 percent of its share of BHP Navajo Coal Company to the Navajo Nation by way of a stock sale agreement, effective mid-2013. The terms also spell out that BHP New Mexico Coal would continue to operate and manage the mine under a Mine Management Agreement for three years until the existing coal agreements expire in 2016.

Norman Benally, media contact for BHP, said in a press release Wednesday that if the sale of BHP NCC occurs, the company would sign a new coal supply agreement under new Navajo Nation ownership. Key terms of the new agreement have already been negotiated between the tribe and APS, he said.

"We believe the Navajo Nation is the natural owner of the Navajo Mine and that is tribal members and the local community stand to gain significant economic and social benefits should the change in ownership be agreed," said Pat Risner, asset president for BHP New Mexico Coal.

Phase II of the due diligence investigation of the acquisition, according to a privileged and confidential agreement drafted by Navajo Department of Justice, would be a concurrent in-depth critical analysis of Navajo Mine, creation of a business organization and negotiation of all agreements by July 1, 2013.

The tribe then would create a tribal limited liability company called NewCoal, similar to the creation and operation of Navajo Nation Oil and Gas Company.

In separate press releases issued Wednesday, President Ben Shelly and Speaker Johnny Naize both talked about the need to ensure revenue flows to the tribe and jobs are secured beyond 2016.

"The Navajo Nation is in a position to acquire a coal mine, which would be a feat for the Navajo Nation," Shelly said. "For generations, our leaders have constantly looked for opportunities that would strengthen our sovereignty, and fortify our independence as the Navajo Nation. We have begun the process of exploring the acquisition of Navajo Mine."

Added Naize, "It is our responsibility as leaders to ensure that we do everything we can to shield our people from the detrimental effects that a potential loss in revenue would have on the direct services and assistance our Nation provides to our people."

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