Four coal-producing Utah counties are preparing to throw a $20 million lifeline to the bankrupt proponents of a deep-water export terminal in Oakland, Calif., a project that has been mired in controversy and litigation for years with no resolution in sight.

That’s according to letters and affidavits signed by the Utah counties’ elected leaders and submitted to a Kentucky bankruptcy court in support of the terminal developer’s reorganization plan.

The counties intend to tap for the first time a $53 million fund the Utah Legislature established in 2016 to support the development of “throughput infrastructure” out of state. The fund, whose contents originated from federal mineral royalties that were given to the Beehive State for a different purpose, is intended to help connect Utah-extracted commodities with overseas markets.

The proposed terminal is of “vital importance” to the Utah economy and its energy sector, argue court documents submitted by Carbon, Emery, Sevier and Sanpete counties, whose leaders are looking to revive Utah’s flagging coal business.

“This project will not only save high-paying jobs but will promote economic growth in rural Utah and create new and lasting jobs for the state and region,” one document states. “The four counties look forward to a successful closing of the funds and the opportunity to be part of a world-class export facility.”

The money in play doesn’t belong to those counties but to the people of Utah, and the counties’ request to tap the fund must clear a vetting process they have yet to initiate. The documents indicate the counties will submit an application with the Utah Community Impact Fund Board, or CIB, in the “near future” and have the money to bail out the developer by October. Six weeks after signing the pledges of support, however, the counties have yet to file the necessary application, according to Keith Heaton, the CIB’s lead staffer.

Interviewed Thursday, Heaton said he was unaware that the counties were planning to seek a loan or grant from the controversial fund.

“The best case is getting it before the board in August, but before that, we would have to do due diligence. We would have to have it reviewed by a financial consultant,” Heaton said. “As you know, we don’t do deep-water ports in Utah every day. The important thing is it is public funding and we take our responsibility very seriously, especially when we are talking about millions of dollars in an area we don’t have much experience with.”

Under federal law, the CIB’s revenue it is to be used to mitigate the impacts of mineral extraction on rural communities. The board meets monthly to award local governments grants and loans to support projects that match those goals. Traditionally, the money is used to fix up sewer and water systems, upgrade roads, buy fire engines, and put up government buildings and recreational facilities.

The diversion of CIB funds toward the Oakland project has upset government watchdogs in Utah, saying the move is an irresponsible misuse of public dollars.

“Politicians have taken money that was originally meant to mitigate the effects of the fossil fuel industry, then laundered it through the greasy wheels of the Legislature, and are now using it to prop up a failed cog in the very industry the money was meant to mitigate in the first place,” said Chase Thomas, executive director for the Alliance for a Better Utah. “Rural Utahns could see vast community improvements with this $20 million, and they deserve better than this.”

Court showdown

Insight Terminal Solutions, which holds the sublease to operate the proposed export terminal at the former Oakland Army Base, is using the counties’ pledges of political and financial support to ward off a takeover bid from its main creditor. Los Angeles hedge fund executive Vikas Tandon had provided a $6.8 million bridge loan, which Insight and its CEO, John Siegel, defaulted on last year before seeking bankruptcy protection in alleged violation of its contract with Tandon’s firm, Autumn Wind Lending.

The chief investment officer for JMB Capital Partners, Tandon is pushing a competing reorganization plan that would put his team in charge of the long-stalled project, formally known as the Oakland Bulk and Oversized Terminal, or OBOT. Reached Wednesday, Tandon declined to comment, citing the pending proceedings before the bankruptcy court.

The terminal is part of the larger West Gateway project underway at the site of the old military installation, now owned by the city at the foot of the Bay Bridge. It abuts both deep water and rail yards, making it an ideal place for loading bulk freight from trains onto large oceangoing vessels.

Siegel is a former executive with Utah’s largest coal producer and the chairman of Insight Terminal Solutions. Insight’s landlord is the West Gateway developer, Phil Tagami, who has contracted with Insight to operate OBOT. In exchange for the Utah counties’ $53 million investment in Insight, OBOT would handle up to 10 million tons of their coal a year. This coal would be mined by Siegel’s former employer, Wolverine Fuels, which now controls most of Utah’s coal industry.

Wolverine hopes to offset the drop in U.S. consumption of coal, the fossil fuel that carries much of the blame for climate change, by shipping its product to Japan as that nation replaces its nuclear power fleet with coal-burning plants, its executives have told the Utah Legislature.

But getting to Japan and other Asian markets requires loading ships in California, whose communities, particularly those on the San Francisco Bay, would prefer to see coal left in the ground and certainly not shipped through their neighborhoods.

Utah counties still all-in

Coal’s involvement in OBOT is what soured relations between Oakland and Tagami, a native son and politically connected developer. City leaders, upset when they learned through news reports that the project’s only investors were Utah coal-producing counties, then enacted a coal ban.

Rather than drop coal from the project, Tagami took Oakland to court and won after a judge determined that the city could not ban coal from the project. Yet to this day, Tagami and Oakland remain locked in litigation, each accusing the other of violating the development agreement for the Army base.

In their bankruptcy filings, Insight executives say they are negotiating for additional financial backing from a Japanese investment bank and are securing deals with that nation’s largest electrical utility to buy Utah coal, known for packing a lot of energy and low percentages of ash and sulfur.

Siegel’s filings have also maintained that a settlement between Oakland and Tagami is imminent, a development that would eliminate a key barrier to the project.

But such a resolution does not appear likely. Oakland has canceled its contract with Tagami and just last month sued him for allegedly breaching it.

Removing coal from the equation could help resolve these disputes, but that would likely put an end to the Utah counties’ financial participation. They remain all-in, according to May 18 letters each county sent to Siegel, which his lawyers submitted to the bankruptcy court.

The counties each sent a letter pledging to collectively begin drawing down Utah’s infrastructure fund to bail out Insight’s debts and help get the terminal project on track.

“Carbon County is, and continues to be in full support of the project and the $53,000,0000 stands ready in cash, as authorized by the [Utah] Legislature, to contribute to any aspect of project funding,” states the letter signed by Commissioner Casey Hopes. “We are preparing to submit to the CIB, our application to draw down the $53 million, but also do so in manner that would allow us to advance a portion of those funds sufficient for [Insight] to emerge from Bankruptcy, on the sole condition that the Court accept [Insight’s] Plan of Reorganization.”

A phone message left with Hopes was not returned.

Nearly identical language, including the misplaced punctuation and capital letters, appears in the letters the other three counties sent to Siegel, signed by Sevier County Commissioner Garth “Tooter” Ogden, Emery County Commissioner Lynn Sitterud and Sanpete County Commissioner Scott Bartholomew. Tandon’s lawyers picked up on the similarities to allege that the letters were not penned by commissioners, but by Insight’s lawyers.

In his filings, Tandon rejects the notion that the Utah counties’ can rescue Insight. For starters, they have yet to apply to tap the state fund the Legislature set aside in 2016 to support “throughput infrastructure.” Assuming Insight’s proposal for an export terminal can even pass Utah’s approval process, the money would not be available until 2021 at the earliest, Tandon’s lawyers wrote.

“[Insight’s] plan is not feasible,” they wrote, “and... is based on the hopes and dreams of equity holders.”

For Utah’s coal country, however, the Oakland project is seen as not only feasible but also essential for keeping its mines running into the future. Without export markets, Utah coal may soon have nowhere to go.