25.0°

The Kenai Peninsula Borough Assembly agreed Tuesday to waive a provision in its Ladd Landing lease option with PacRim Coal LLP that required the company to notify the borough 90 days prior to expiration of its lease-option contract.

The current contract is up in April. Under its terms, PacRim would have to announce its intentions by Jan. 9, likely leaving too little time to negotiate a new and highly complex lease-option contract.

PacRim is the company exploring a future strip mine coal operation called the Chuitna Coal Project in the Beluga Coal Fields on the west side of upper Cook Inlet. The company holds a state lease on 20,571 acres northwest of Tyonek thought to contain an estimated 1 billion tons of ultra-low sulfur, sub-bituminous coal. PacRim hopes to mine that deposit over the course of several decades, starting with a 5,000-acre section that could produce 12 million metric tons a year for 25 years.

Most of the coal would likely be shipped overseas from a dock facility to be built at Ladd Landing.

The borough first entered a lease-option contract in 1987 with Tidewater Services Corp., which merged with Midgard Energy Co. in 1994. That year, Midgard assigned the option to investors Richard Bass, William Herbert Hunt and William Herbert Hunt Trust Estate. Over the years since, the borough and the investors have updated their option to lease four times, most recently on April 9, 2008. A couple of months earlier, Bass et al had assigned the option to PacRim Coal.

The borough and PacRim are currently negotiating terms for a new lease-option contract that borough Land Management Officer Marcus Mueller said would be consistent with current borough standards, address modern management and regulatory issues, and would best serve the interests of the borough and its residents.

But that work is unlikely to be finished by Jan. 9 when the 90-day requirement would force PacRim to notify the borough of its intent to exercise the option by April. Borough and PacRim officials say compelling the two sides to reach an agreement on a new and highly complex lease-option contract in just weeks would serve neither party well.

When first introduced, Ordinance 2008-31 proposed eliminating the 90-day requirement altogether. Under such a provision, if further extensions were necessary, the contract would no longer include any reference to a 90-day notice period.

There has been some discomfort with total elimination of the 90-day notice expressed by members the public who have concerns that eliminating the requirement was tantamount to eliminating a period of public testimony. Mayor Dave Carey said that by 8 a.m. Tuesday morning he'd received 43 e-mail comments from borough residents, and that a majority perceived the assembly as getting ready to cut them out of a public process. That, he said, was a misperception.

"I cannot imagine this assembly would ever have before them (anything) taking away the right of the people to comment," he said. "I hope that those listening (on the radio) understand that this ordinance is not in any way about taking away the right the right of the people to provide input."

He noted that the ongoing process of negotiating new terms would result in an updated new lease that would be subject to a specific public comment period, adding that in fact, "It will give people an opportunity to comment, which they have not had since 1987."

Assemblyman Ron Long, of Seward, who sought the one-time waiver rather than complete elimination of the 90-day notice imposed on PacRim by the existing contract, also tried to allay concerns that the assembly was looking to block public comment on a lease contract. Waiving the 90-day notice, he said, was not waiving public participation, but preventing PacRim and the borough from being "backed into a corner" by being suddenly compelled to accept terms written more than 20 years ago.

"I don't think anybody gains by forcing them to exercise their lease right now when we are hopefully making progress toward a lease with better terms and conditions," Long said.

The one-time waiver simply gives the two sides another 90 days to try and reach an agreement by April, he said.

"There is no guarantee we will complete the negotiation between the two parties by April. That's a fairly compressed timeline after the holidays, etcetera," Long said. "We may well be asking to extend the option at that point for another six months, nine months, a year ... the objective of both parties is to renegotiate the terms and conditions of the lease. Whether they are able to accomplish that satisfactorily by April remains to be seen."

If a further extension were required in April, the 90-day notice requirement would again be in effect, Long said.

By passing Ordinance 2008-31, Long added, the borough was neither expressing approval of PacRim's coal project plans, nor in some fashion permitting the project. Permitting is strictly the purview of state and the feds, he said.

Bob Shavelson, director of Cook Inletkeeper, the environmental group that advocates for the Cook Inlet Watershed and which has expressed serious reservations about PacRim's plans, supported keeping the 90-day notice period in the existing contract and opposed the waiver.

Shavelson said the borough was considering a revision to "a very complex, long-term lease," and said the simple solution would be to extend the existing lease-option and avoid the 90-day requirement kicking in.

Absent that, the borough would be forced to act to revise the lease option before the April expiration date.

"This is a phonebook-thick lease, and (a revision) would lock the borough in for the next 20 or 25 years," he warned. "The implications are very serious."

Shavelson also said the departure of former borough Mayor John Williams, his Chief of Staff Tim Navarre, and assistant Bruce Richards, eliminated decades of "institutional memory" at the borough about Ladd Landing and coal project issues. Then there was the recent end of the long relationship with PacRim of Bob Stiles, owner of DRven Corp., which was under contract to PacRim promoting the coal project. That, said Shavelson, amounted to another loss of 20 years of institutional memory.

All that, Shavelson said, would make an anxious race to complete a new contract in time to meet an arbitrary deadline problematic. Reacting to the decision of the assembly to waive the 90-day notice one time, Shavelson said: "To me, it was really no different from the original ordinance as it was proposed because they are renegotiating the lease now. Why rush this thing with an artificial April deadline? It can be extended as the assembly has done five times before and give time to do it right."

Another question is how prepared is the borough to negotiate a very complicated land contract with very experienced and wealthy Texas entrepreneurs?

Carey said Wednesday afternoon that he had been in meetings with his staff much of the day about that very issue. He said he expected to submit to the assembly soon a request for a one-year extension of the current lease, and, presuming it passes, that during that year he would assess the borough's capabilities with regard to negotiating a new lease.

Carey said he would come back to the assembly sometime within that year with an analysis and if needed, a recommendation about hiring outside negotiating help.

"This is a very significant issue," he said.

Assembly President Milli Martin said late Wednesday that she sincerely hoped a year's extension would be forthcoming.

"Speaking for myself, I think we had a wake-up call as to public sentiment," she said, noting efforts by the assembly and the mayor to dissuade the public from the misperception that their ability to comment was being curtailed.

She went on to say she wants to be sure the borough pays attention to the details and that the public is afforded time to review and comment on a future lease-option agreement.

Though she talked with Carey after Tuesday's meeting about the Ladd Landing matter, she said she did not specifically discuss with the mayor whether borough bureaucrats were qualified to conduct detailed negotiations with powerbrokers like Bass and Hunt. She said she was glad to hear the administration was thinking along those lines and willing to assess those qualifications.

Hal Spence can be reached at hspence@ptialaska.net.