This article reports a re examination of the public liability implications of U.S. federal policy allowing “self bonded” financial closure for coal miners. The issues raised are obviously also relevant for metallic mining under regulatory requirements for financial assurance for closure which also allow “self bonding”
Accoridng to this Business Insurance article:
“The country’s four largest coal companies — Peabody Energy, Alpha Natural Resources, Arch Coal and Cloud Peak Energy — together have about $2.7 billion in clean-up costs covered by self bonding, according to securities filings and regulators.”
(This is not for clean up after a failure this is for closure at conclusion on mining operations at a given site underpermit should the miner abandon or otherwise become unable to perform the closure and associated “clean up” )
Closure bond requirements for the Pebble mine would have been close to $1Billion.
Responding to the federal re examination of its “self bonding” policy, Fitch Ratings Inc. estimates that if tighter and better financial assurance for closure were required, as presently being considered by federal law makers, it could actually bankrupt or seriously impair miners and also have a de stabilizing influence on the industry possibly precipitating a wave of failures.
“Last week, Fitch Ratings Inc. warned that tougher rules for self-bonding could push leading coal companies closer to bankruptcy. ‘Tighter self-bonding requirements for distressed coal entities would reduce liquidity and could hasten restructuring,” Fitch Ratings wrote.'”
The details of the “tighter requirements” aren’t included in the Business Insurance article but presumably deal with how the “self bonding” is treated “on the books” and/ or how the funding works ( trust account, segregated audited account, other methods which encumber the “self bonded” in the same way that a formal corporate self insured retention would, or which create a legally binding site specific encumbrance of the bonded amounts surviving bankruptcy..
In other words Fitch is saying that the “self bonded” companies are not actually strong enough financially to back the $2.7 billion already under approved “self fundied”bonds.
Federal lawmakers are rightly concerned that this already incurred $2.7 billion in “self bonded ” financial assurance for closure costs may be in large part an existing unfunded unfundable public liability.
The issue when liabilities reach a level of being un fundable for something as basic and essential as having financial assurance for a stable and safe mine closure, is not a funding problem it is a problem with the way mines are vetted in the fist place, who applications are accepted from and how financial feasibility of mine and financial viability of operator are monitored life of mine by independent experts in mine economics and mine finance.
The Federal government is looking down the same black hole on how much of this $2.7 billion is actually there as Bowker Chambers 2015 point to (1). How will this $2.7 billion be re-financed if the industry itself is not capable of funding/financing its liabilities with greater accountability to availability of the funds should they be required for closure?
Were these companes actually financial capable of guaranteeing the availability of these funds in the event of a bankruptcy or abandonment prior to closure at the time the applications were under review? Every mine statute we have looked at requires a determination of the “financial and technical capacity of the applicant” but none we have seen actually have a rigorous or even reasoned set of standards for vetting that. The real issue is that the miner and the financial capacity of their mines may not have existed when the mine permits were issued and there was nothing built into the regulatory framework to make that determination.
Although a performance bond is a fundamentally different instrument from insurance ( in that it comes into play only when the company cannot or will not perform) there is nothing inherently wrong with self bonding just as there is nothing wrong with a formally created self insured retention program. But there is something inherently wrong with a system that approves self bonding for companies that are actually not capable of making good on that should the bonds have to called on. The whole nature of a “performance bond” is to guarantee performance when the company fails to perform for any reason. That requires a very different structure and legal mechanism to guarantee availability of the funds outside of bankruptcy or financial impacts on the company as a whole should the bonds be called.
All of this argues for independent expert panels in mine economics and mine finance to create financial capacity, financial assurance standards in the first place ; vet applicants and the mineralized assets pre-application, and monitor state of both mine feasibility and miner financial capacity life of mine.
To do otherwise essentially makes the local community the ultimate underwriter .
The answer as Bowker Associates has long argued is better standrds on the financial capacity of the appliants pre mining and better vetting on the catual economic feasibility of the endeavor INCLUSIVE OF CLOSURE COSTS AND OF ALL OTHER ESSENTIAL ENVIRONMENTAL MEASURES/TECHNOLOGIES LIFE OF MINE.
Lindsay Newland Bowker, CPCU, ARM Environmental Risk Manager
Science & Research In The Public Interest
15 Cove Meadow Rd.
Stonington, Maine 04681
ADDITIONAL LINKS & DEVELOPMENTS
Landowners Group demands that Wyoming DEQ rescind self bonding status of Peabody to insure public claim on closure funds is protected as Peabody heads to bankruptcy court http://www.wyofile.com/blog/landowner-group-claims-peabodys-790m-self-bond-invalid/