Navajo Nation buys coal mine from BHP Billiton

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It will be managed by the first wholly-owned Diné natural-resources company

NAVAJO MINE OWNERSHIP

Demonstrators gather outside Navajo Tribal Council chambers in Window Rock, Ariz., to protest the purchase of the Navajo Mine by the nation. Photo by Kris Barney

The people of the Navajo Nation got a big lump of coal for Christmas – but that’s a good thing, according to officials. However, critics say the deal was a bad one after all.

During a special session Dec. 27, the Navajo Nation Council in Window Rock, Ariz., voted for legislation that cleared a final hurdle for the acquisition of the Navajo Mine from BHP Billiton by the Navajo Transitional Energy Company (NTEC), a newly formed enterprise, for $85 million.

In related developments, Arizona Public Service permanently shut three units at the Four Corners Power Plant, the sole buyer of coal from the nearby Navajo mine, and purchased the remaining two units from Southern California Edison, which had to divest itself of interests in the plant because California power companies can no longer have a coal-powered entity in their investment portfolios.

APS has said it will install additional emission controls on the two units to ameliorate pollution issues and bring the 43-year-old, 2,040-megawatt plant into compliance with federal clean-air standards.

By purchasing the remaining two units at a cost of $182 million. APS becomes majority owner of the power plant near Waterflow, N.M., which serves 300,000 households in New Mexico, Arizona and Texas.

In a telephone interview with the Free Press, Navajo Transitional Energy Company Chairman Steve Gunderson said, “This was the most complex transaction I have seen in the over 20 years I have been in the business,” referring to the simultaneous acquisitions of the two coal-related businesses – the Navajo Mine and Four Corners Power Plant – and the deal involving Arizona Public Service, BHP Billiton, The Navajo Nation and NTEC.

“No one single piece could be done without the other pieces,” he added.

The legislation passed by the council absolved BHP Billiton of “past, present and future” liabilities related to the mine and moved jurisdiction for any disputes off the Navajo Nation and into court systems in New Mexico and Arizona surrounding the reservation. Approval of the resolution, which waived sovereign immunity in the general-indemnity agreements with Zurich American Insurance Company and Arch Insurance Company, cleared the path for the mine’s acquisition.

The agreements were needed in order to issue the $220 million performance and reclamation bonds for the mine, as required by the U.S. Office of Surface Mining.

Another assurance guarantees that if the supply of coal from the Navajo Mine was interrupted for any reason, the power plant would be compensated for lack of performance by the mine.

“Due to the expertise of the mining company and the delivery system from the mine to the plant, there has never been an interruption in the coal production in the entire history of the mine operations,” Gunderson said.

“The reason we emphasize this reliable supply of coal is that it supports our vision for other activities. Take care of the reliability of the coal production and then the next steps will come.”

Wholly owned

The acquisition was made possible after the Navajo Nation created the Navajo Transitional Energy Corporation, LLC, in May 2013, the first natural-resource company wholly owned by the Navajo government. The company will manage and supply coal from the Navajo Mine to the Four Corners Power Plant through 2031.

The mine is projected to return about $4o million in revenues to the Navajo government each year, according to NTEC estimates.

Although the Navajo reservation is replete with coal and uranium, mining has always been done by outside companies in the past, resulting in mere royalty payments to the nation.

NTEC is also charged with creating economic opportunity, utilizing the nation’s renewable energy and coal resources and enhancing the ability of the Navajo Nation to manage its natural resources for the long-term benefit of its people and communities.

The Navajo Mine, which has been under threat of closure along with the Four Corners Power Plant, provides about 800 local jobs, 85 percent of which are held by Navajos. NTEC’s purchase of the mine and the APS purchase of the two remaining units at the power plant prevent the job loss that could have resulted from closure of the two facilities.

The continuing operation of the Navajo Mine will also maintain a critical income stream to the Navajo Nation.

New Mexico BHP Coal President Pat Risner stated in a press release, “BHP Billiton is pleased that the Four Corners Power Plant owners, the Navajo Nation and NTEC have agreed to move forward and worked with us to conclude this important transaction. This is great news for the employees, communities, and all stakeholders that derive benefits from Navajo Mine and the Four Corners Power Plant. This transaction represents an important economic development opportunity for the Navajo Nation and preserves critical jobs and revenue for the region until at least 2031.”

But opposition to the legislation led by grassroots organizations such as the environmental group Diné CARE brought the issue of sovereign immunity to the forefront during the past few months.

NAVAJO MINE PROTEST

A sign outside Navajo Tribal Council chambers in Window Rock, Ariz., shows opposition to the purchase of the Navajo Mine. Photo by Kris Barney

Shiprock (N.M.) Chapter President Duane “Chili” Yazzie said his community expressed concern about the BHP waiver of liability. “To give BHP a blanket waiver on anything done here 60 years ago and into the future just doesn’t sit well with us,” he said in a telephone interview with the Free Press. “We have great concern about the aquifer, and the ash that is in pits that may already be percolating in the underground springs. They should not be excused. And will the Navajo Nation be paying for the reclamation issues they leave behind?”

Consequently the chapter passed a resolution in November, prior to the council discussion on the legislation, opposing the waiver of responsibility. It was sent along with a letter calling on Interior Secretary Sally Jewell and Assistant Secretary of Indian Affairs Kevin Washburn to investigate and make a determination of the past, present and future liability and reclamation issues.

Although at press time Yazzie had not received a reply to the chapter letter and resolution, he said, “I don’t fault them for not responding quickly. They are doing the necessary reviews and diligence on the subject, because we are calling on them to recognize their treaty responsibility to us.”

On Dec. 23, the Navajo Nation called a special session to vote on the waiver of immunity as included in the general indemnity agreements with the insurance bonds.

Yazzie sat in the visitors’ gallery with other leaders opposed to the waiver. At one point he stood up and yelled, “Out of order. This council is out of order,” saying it had not considered the people’s opinions. He refused to sit down and insisted on being heard. Although security responded, Yazzie remained standing, continuing to repeat the accusation. In response to the interruption, the council voted to table the legislation and called another special session to be held the Friday after Christmas.

Viral popularity

During the following three days, a video of Yazzie’s outburst in chambers went viral on the internet. Yazzie’s popularity with grassroots supporters grew during the week. He was presented as the “Man of the Hour” on web posters produced by the Facebook group “Grade Your Council Delegate,” as he called for opposition to show up in Window Rock at the next session. As a result, about 70 Diné in opposition to the waiver of sovereign immunity gathered in council chambers to hear the discussion and witness the vote.

“We showed our objection to the Council’s decision on the selling-out of our Sovereignty,” Yazzie later wrote and posted on the internet, but there were as many workers in support of the acquisition bused in, or, he claimed, “who had their gas paid for by BHP and APS. One thing I am certain of is that there were probably more police officers in the immediate area than either of our groups.”

A good number of the officers were dressed in full riot gear, Yazzie said, and “on the ready for anything. This is the typical response of the tribal government whenever a threat is perceived. If we asked, we would be told they were there to maintain law and order. Maybe so, but we were the targeted threat. The police officers would have been told we were the troublemakers, the bad guys.

“Overall they were respectful and professional; they were just doing their jobs as they are ordered to. I shook their hands, even the ones that just glared at me.”

The chamber visitors’ gallery filled that day with supporters of the waiver as well as the opposition. Late in the day, the vote was called on the bill, sponsored by Lorenzo Bates. It passed 17-5.

‘Transformational’

Gunderson called the acquisition “transformational.”

“A change on this scale in how we do business is historic,” he said. “Now the Navajo can hope to be an energy partner, not an energy colony. But like our name, the acquisition represents a transition from the old era of outside investors and old technology to the real benefit of sustainability – of being an investor, being the owner.”

Gunderson said there is possibly enough coal at the mine site to supply a power plant for 100 years.

In the coal industry, the Navajo Mine product is graded as “moderate heat content,” of lower quality than Black Mesa coal, also on the Navajo reservation. The power plant is specifically designed to optimize the energy it can produce from Navajo Mine coal.

“We cannot change that,” Gunderson said. “We do not own the power plant. We own the coal mine. We have no say in that, but what we see happening is that cleancoal technologies are becoming more viable, more economically feasible on a utility scale.”

Gundersen added, “By acquiring the mine, the nation will be able to exert greater control over the management of its natural resources as both owner and landlord. It is the nation’s vision to become part of the solution to create a cleaner, more sustainable world. In support of this vision, NTEC is prepared to assist the Navajo Nation to transition its economy from one based on current coal-fired power-generation technologies to one based on clean-coal technologies as well as renewable energy.”

Energy in the future

The acquisition project was structured and negotiated over 18 months, resulting in the new Navajo business model, one that can be used for other energy-related, Navajo-owned projects. The new enterprise is business-based, not a political entity – a model for how tribes can conduct business.

“The difference in this project structure is that the Navajo Nation was willing to fund pre-development activities, including negotiations and feasibility studies, which they haven’t been able to do in the past. This step actually puts the Navajo in the driver’s seat,” said Gunderson.

Management of NTEC was established in May 2013. Board members, whose terms last one year and will expire this May, are charged with the authority for management of the business affairs, operations and functions of NTEC, and the additional responsibility of directing the 10 percent of annual net profits that will be put into a set-aside fund used to develop newer energy technology, said Gunderson.

He was asked about the five energy-transmission lines crossing the reservation and the possibility that a new line might be developed by NTEC. Space on the existing lines was available five years ago when the Gray Mountain Wind Farm was in its predevelopment stage. That project, and, Big Bo, another potential Navajo wind-farm project, have not materialized. Today, that window of transmission opportunity has vanished. The transmission lines are filled up with new energy projects, all located outside the Navajo Nation and none owned by the Navajo government.

Gunderson said that, as an example, the Navajo Transmission Project was put in place to transport the high-voltage connection from Desert Rock. In its planning stage it was intended to begin in the Four Corners region, near Burnham, N.M., on the reservation, and cross northwest into the area around Page, Ariz., then travel down the western side of the reservation toward Cameron, where five transmission lines already cross the tiny Navajo hamlet. Even though Desert Rock Power Plant was stopped, the transmission line is still on the boards. It could be resurrected again as a viable project, according to Gunderson. The licenses have expired but can be reapplied for and put back in place; they can be renewed.

BHP’s Risner explained that NTEC is borrowing the purchase money from BHP Billiton for the acquisition from the future profit generated by the mine. “NTEC will repay the loan from the profit generated from the mining operation.”

After the acquisition loans are retired, Gunderson said, “then we can begin the 10 percent investment in other technologies such as clean coal that will develop the Navajo Nation’s energy resources while maintaining respect for the Navajo Nation’s land, air, water, natural and economic resources.

“Our immediate objective is to remain a reliable supplier of coal to the Four Corners Power Plant. After assuring that primary objective is achieved, we will look to fulfilling our broader vision by exploring and investing in cleaner coal technologies for the betterment of our environment and to ensure long-term development of the coal and other energy resources of the Navajo Nation.”

The previous owner of the Navajo Mine, a subsidiary of BHP Billiton, will continue to manage, operate and maintain the coal mine until its contract ends in 2016.

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From January 2014.