Officials concerned about self-bonding as coal bankruptcies mount

May 19, 2016

The growing number of bankruptcies in the coal sector, including those of industry giants like Peabody Energy, Alpha Natural Resources and Arch Coal, has raised concerns about how clean up and reclamation projects will be funded in the future.

Joe Pizarchik, director of the U.S. Office of Surface Mining Reclamation and Enforcement (OSMRE) told reporters that his office has grave concerns and that the United States is considering whether to reign in a subsidy on coal mine cleanup costs and in so doing shield taxpayers from those liabilities, Reuters reported.

The self-bonding program has allowed some of the country's largest coal companies to avoid putting aside cash, bonds or other securities that are typically required to cover future mine cleanup costs. Self-bonding allows a company to use its balance sheet as collateral, which leads to the concerns if and when that company goes bankrupt.

According to securities filings, the rash of bankruptcies in the industry in the last 10 months has left behind roughly $3.6 billion in self-bond liabilities.

Environmentalists have warned officials that coal-producing states in the west left the self-bonding program open to abuse and the OSMRE said that it would investigate those concerns.

“I’d recommend that states decide not to accept any new self-bonds given the current situation in the coal industry,” OSMRE director Joe Pizarchik told reporters on a conference call.

Self-bonding may save a coal company money in bankruptcy but also day-to-day since every dollar that the government insures is a dollar that does not require private financing.

Pizarchik said the regulator would open a 30-day comment period to hear public concerns about self-bonding.

“People are concerned whether disturbed coal mines will be reclaimed by the bankrupt companies, whether the bankrupt companies will use bankruptcy court proceedings to abandon their legal obligations to restore the land and water, whether the cost to restore the land and water will be shifted to taxpayers, and whether the existing regulations are adequate to protect people, society and the environment from the adverse effects of coal mining, as was envisioned by Congress when it enacted (the Surface Mining and Reclamation Act) nearly 40 years ago,” Pizarchik said.

Coal-producing states have discretion in accepting self-bonds and any change to the law, which dates to 1977, would have to be approved by Congress, a process that could take years.

Alpha Natural Resources, Arch and Peabody have all continued to operate as they attempt to restructure their debts. Reclamation, they say, has continued at each of their properties.

Under federal law, states have the primary authority for administering reclamation programs, but ultimate oversight authority rests with OSMRE.


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