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Federal funds spark contract talks DOT funding to Alaska Railroad will change ownership of Seward coal facility, goal is to lower transportation costs for Usibelli coal exports to South Korea Patricia Jones PNA Contributing Writer
A $9.6 million federal appropriation to the Alaska Railroad will likely change the ownership structure of a coal loading facility in Seward, an effort that supporters hope will help resume exports of Healy-mined coal to South Korea. (See related story on page 1.)
Currently, the Alaska Industrial Development and Export Authority owns about 49 percent of the coal loading facility. The remainder is owned by Hyundai Merchant Marine, which operates the coal terminal and the ocean-going coal freight service that transports Alaska coal to South Korean customers.
The coal loading facility sits on Alaska Railroad land, immediately adjacent to the state-owned railroad’s passenger and freight docks at Seward.
Sen. Ted Stevens, R-Alaska, requested the $9.6 million through the Department of Transportation for the Alaska Railroad. The money appropriation was included in the recently approved federal spending bill for this year.
Melanie Alvord, Stevens’ press secretary, said the senator’s intent was that the railroad acquire the coal handling facility to ensure it remains in Seward.
“We want to continue to see coal coming out of Alaska,” she told Petroleum News Alaska March 18. “We do not want to see the Korean owners break it down and take it with them.”
Concern about the facility’s future arose last year, when Usibelli Coal Mine failed to sign a contract extension with its long-time, largest single customer — Korea Electric Power Co. Coal shipments concluded in October when the remainder of the 2001 contractual supply was shipped to Asia, according to Steve Denton, Usibelli’s vice president of development.
“We don’t know a whole lot about how that money will be utilized, but we understand it will help reduce the transportation costs for the coal,” Denton said.
That has helped in recent, renewed negotiations for a new coal contract with the South Korean buyers, he said. “We’re making good progress.” Future ownership structure uncertain Uncertainty remains among the other three players involved in the coal handling facility, regarding how the federal funds will change the existing ownership structure.
“There’s not any disagreement between the parties — we’re just trying to figure it out,” said Johne Binkley, board chairman of the Alaska Railroad.
At least two meetings have been held in recent weeks, including one this past week, among the different entities involved in the facility.
“We prefer to have someone else run it … we really don’t want to be operators of the facility,” Binkley said.
Yet it’s something the railroad could do, if it needed to in order to keep that export business going, he added.
“Not that we have a desire to own it, we desire to see it stay intact,” Binkley said. “Even if negotiations fall through, we do not want to see the facility dismantled and taken out, because it would make it more difficult to ever get it started again, should export of coal to other countries ever become valuable.”
Both Binkley and Ron Miller, executive director of AIDEA, said they have not heard of any specific plans to dismantle the coal handling facility.
“They’d have to check with us before dismantling it,” Miller said. “The focus is resuming that contract and shipping coal through the terminal.” Reducing debt Currently, Hyundai makes three payments for the coal handling facility — one to the railroad for its land lease, one to AIDEA as a loan repayment for its share of the facility and one for its own internal debt service, according to Patrick Flynn, railroad spokesman.
“All of that figures into transportation export costs,” he said. “The idea of the appropriation is to pay off the debt associated with the facility and to centralize ownership.”
AIDEA owns its piece of the facility due to similar circumstances. “In May 1995, the AIDEA Board approved the purchase of a 49 percent interest in the facility to assist in lowing the capital costs of the operation,” according to information provided by AIDEA’s website.
Back then, Suneel Alaska, a subsidiary of Hyundai Merchant Marine, owned 100 percent of the facility. Since AIDEA’s purchase of 49 percent of the facility, Suneel has made regular payments to repurchase AIDEA’s share, Miller said.
“We carry it as a note,” he said. “Our share reduces as it is paid back, and they are up to date on the payments.” Railroad plans for freight shipping While Denton, at Usibelli, hopes for coal contracts to be finalized before summer starts, the Alaska Railroad would prefer to start shipping coal after the busy tourism and gravel hauling season tapers off in October, Binkley said.
“When our gravel season slows down, we can utilize the same hopper cars for coal,” he said. “After our summer season, we can get better utilization out of our equipment and track space.”
In addition to the half-million tourists that travel by train each year, the Alaska Railroad stays busy in summer with construction-related freight work. In particular, gravel is moved by rail from Palmer to the Anchorage Bowl for area construction projects.
“We haul 3,654,000 tons of gravel just into Anchorage from Palmer,” Binkley said.
Regardless of when it happens, the railroad’s ultimate goal is to resume coal exports to Korea. In addition to Usibelli’s work force layoffs, railroad crews had less work last winter and this spring. No firm numbers for job losses could be attributed to the reduction in work related to coal shipments, but the freight reduction meant a $4 million loss in gross revenue to the Alaska Railroad, Flynn said.
“The consequences were widespread,” he said. “It was an organization-wide search for methods to reduce costs.”
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