Oakland poised to cancel Bay Area port project that would ship Utah coal

City leaders in Oakland, Calif., are poised to yank the plug on a marine port project that Utah’s coal country hoped would connect its mining output with Asian markets.

In a correspondence exchange last month, the city notified project developer Phil Tagami it was in the process of terminating his firm’s lease for failure to meet construction milestones specified in the contract. Tagami responded with a 51-page notice of claim threatening to sue the city for allegedly sabotaging the project.

The proposed Oakland Bulk and Oversized Terminal, or OBOT, was to be the linchpin of a major redevelopment project for the decommissioned Oakland Army Base on the San Francisco Bay. It became mired in controversy three years ago, when Oakland officials got wind of the developer’s deal with coal-producing Utah counties.

Carbon, Emery, Sevier and Sanpete counties sought to borrow $53 million from the Utah Community Impact Board (CIB) to invest in the $250 million terminal in exchange for at least half the terminal’s 10 million-ton “throughput capacity.”

The deal outraged many Oakland residents, who believed the politically connected developer concealed coal’s central role in the state-of-the-art, rail-to-ship terminal and misleadingly billed it as a standard setter in environmental stewardship.

Heat-trapping carbon emissions from burning coal for electricity are considered a leading contributor to climate change. And East Bay residents were unhappy with the prospect of hundreds of coal-filled rail cars rattling through their densely populated cities.

But Oakland’s move to cancel its agreements with Tagami had little to do with coal, according to City Attorney Barbara Parker.

“This is about the developer’s failure to meet its obligations and perform the work it agreed to do. OBOT had years to move this project forward and has used every excuse in the book to justify its failure to perform,” she said in a written statement. “This terminal is a critical project that will be an economic engine for West Oakland, our entire city and the region. The city must move this project forward with partners who are able to get the job done.”

The city’s pending action effectively quashes the rural Utah counties’ hopes of exporting coal through Oakland.

Outgoing Carbon County Commissioner Jae Potter, an early proponent of the counties’ involvement in the project, did not return a phone message seeking comment.

Some activists in Utah applauded Oakland’s move.

“[Utah] County commissioners and state lawmakers acted recklessly in pursuing an investment in the proposed terminal, especially considering the potentially illegal use of funds and the declining global coal market,” said Chase Thomas, executive director of the left-leaning Alliance for a Better Utah. “Utah’s coal country continues to suffer. We encourage leaders to reinvest that $53 million into helping these rural communities transition to a more stable and certain future."

Tagami’s threatened lawsuit, however, could keep the project alive if he wins the relief outlined in his notice of claim sent to the city Oct. 19.

“For the better part of 10 years, claimants (or their predecessors) competently and diligently worked to complete construction of the facilities, investing more than $26 million in the process,” Tagami’s lawyers wrote in the notice. “They did so with respect for the city’s goals, and, equally important, for the needs of the surrounding community and its citizens.”

Tagami had entered a contract with the city in 2015 authorizing his firm to build OBOT on 34 acres of city-owned property at the foot of the Bay Bridge. The project, which took advantage of the former Army base’s proximity to deep water and major rail lines, envisioned a bulk-handling terminal that would transfer commodities from rail cars to ships inside an enclosed structure.

The contract with the city did not rule out any particular commodity. But city officials, reacting to objections raised by activists, began undermining the project’s viability by trying to block coal, the lawyers wrote.

The success of the terminal was “wholly contingent” on partnering with a commodity producer with long-term export needs, a commitment of millions of dollars and decades.

Tagami had secured such a commitment from Bowie Resource Partners, Utah’s largest coal producer, eager to reach oversees markets for a product that had lost favor for U.S. electrical generation.

The oversees trade in coal exceeds 1 billion tons a year and is growing, developers said in their correspondence with the city. In the wake of the Fukushima nuclear disaster, for example, Japan is building a fleet of coal-fired electrical-generating stations that would be well-suited to burn Utah’s bituminous product.

Citing concerns about coal dust coming off rail cars and transloading equipment, the Oakland City Council enacted a ban on coal-handling in 2016. Though a federal judge overturned that prohibition earlier this year, Tagami’s lawyers allege the ban, as well as the city’s appeal of the court order, threw a cloud of uncertainty over the project. That ban is a key reason why the project stalled, the developer alleges.

Highlighting the importance of coal to the project, Bowie funded Tagami’s suit to overturn the coal ban.

Since then, Bowie changed its name to Wolverine Fuels, moved its headquarters to Sandy and shuffled its executive leadership. Former Bowie executive John Siegel is now chairman of a new firm called Insight Terminal Solutions, which recently took over the contract to operate the export terminal.

According to the Utah Office of Energy Development, meanwhile, Utah coal exports climbed to 4.5 million tons this year, a 20-year high and quadruple the 1.1 million exported in 2016. Wolverine shipped much of this coal, representing about a third of the state’s total production, from other Northern California ports at Richmond and Stockton.

These shallow-draft ports, however, cannot handle the large freight vessels that producers say they need to export coal profitably.

Correction, Nov. 20, 2 p.m. • Oakland has begun the process of terminating developer Phil Tagami’s lease for a marine port. A previous version of the story misstated the status of the lease.