The bankrupt proponents of an export terminal, intended to ship Utah coal overseas through Oakland, Calif., need a $20 million bailout, and fast.
Relief could come as soon as Aug. 20 when the Utah Legislature votes on whether to advance state money to pay off the project’s creditors, according to lawyers for Insight Terminal Solutions, the beleaguered company now at the center of the Oakland controversy.
At least that’s what lawyer Andrew Stosberg told a Kentucky bankruptcy judge Friday in asking to delay Tuesday’s hearing on Insight’s contested reorganization plan. Insight is completely dependent on a $53 million investment from four Utah coal-producing counties to move forward on the rail-to-ship terminal that would help deliver up to 11 million tons of coal a year to Japanese utilities.
Utah officials are far from ready to release the money, so making a legislative end run around a bureaucratic process for vetting such funding requests may be Insight’s best hope for salvaging the project.
The Legislature has yet to post an agenda for the upcoming special session, its fifth of the year, and it is unclear how Stosberg could know in advance what will be addressed. He did not return a phone message Monday.
The bankruptcy judge agreed to postpone the hearing on the Insight reorganization until after Utah's special session.
Expanding export markets is vital to the future of Utah’s storied coal industry, battered by declining domestic demand. The terminal proposed at the old Oakland Army Base on the Bay Area city’s waterfront, however, has been mired for years in controversy and litigation precisely because it would process coal, a fossil fuel that many believe must be phased out to fix the global climate crisis.
Insight has listed the same Louisville, Ky., address as Utah’s largest coal producer, Wolverine Fuels, formerly known as Bowie Resource Partners, which has since set up a new headquarters in Utah. Insight is also managed by former Bowie executive John Siegel. In 2018, Insight took on a sublease to develop and operate the terminal from Phil Tagami, who holds contracts with the city of Oakland to develop the Oakland Bulk and Oversized Terminal, or OBOT, at the decommissioned military installation, now called West Gateway.
But saddled with mounting debts, Insight filed for bankruptcy protection a year later, setting the stage for the latest round of controversies in the Oakland coal port saga.
Numerous entities are lining up to shoot down Insight's reorganization plan, including its main creditor, California hedge fund executive Vikas Tandon, whose firm Autumn Wind Lending is seeking to take over the project to recoup a $6.8 million loan that Insight defaulted on.
Utah’s money for the terminal originated with federal mineral royalties that are by law to be spent on the communities affected by mineral extraction. To circumvent these restrictions in 2016, Utah lawmakers parked $53 million in a special “throughput infrastructure fund” to seed major projects that would get Utah products to out-of-state markets. But after four years, the four coal counties — Carbon, Emery, Sevier and Sanpete — have yet to initiate the process of tapping the fund, which is administered by the Utah Permanent Community Impact Fund Board, or CIB.
In June, leaders from those counties filed declarations with the court saying that they were about to submit a $20 million application that would be heard at the CIB’s Aug. 6 meeting and the money would be released by October to satisfy Insight’s creditors.
The application was not filed as promised and the CIB met last week without addressing what would have been the most contentious funding request to come before it.
But Insight needs to pay off its creditors soon or risk losing its one asset, the sublease to develop and operate the Oakland terminal.
In depositions taken by Autumn Wind’s lawyers, Insight executives and others acknowledged it will take a least nine months for the CIB to properly vet the Utah counties’ funding request, far outside any reasonable time frame for Insight to meet its financial obligations.
Now the CIB's approval may no longer be needed because, according to the Insight lawyer's representations to the bankruptcy court, the Utah Legislature will step in to make a decision on releasing the money next week. Stosberg's filing does not divulge how Insight officials know Utah lawmakers are going to take up the issue at the special session.
"Based on recent and continuing developing information, undersigned counsel believes that the Utah State legislature is going to conduct a special legislative session on or about August 20, at which time the Utah State Legislature will consider and vote on proposed statutory legislation that will authorize and direct the release of the Throughput Infrastructure Funds directly to the Four Counties for the funding of [Insight's reorganization] Plan," Stosberg wrote in the Aug. 3 filing.
That’s news to one Utah lawmaker who represents coal country. Rep. Christine Watkins, R-Price, said she has seen hundreds of bill requests for the upcoming special session, but has heard nothing about releasing funds for the Oakland project. Nor does she recall it coming up at a Republican Caucus meeting two weeks ago.
“If we call ourselves into special session it has to be for a special issue, not things that can come in the General Session, said Watkins, who has supported the state’s efforts to connect Utah coal with overseas markets.
Should the Legislature weigh in next week, it would mark the third time lawmakers have circumvented CIB oversight in favor of diverting money toward the controversial export terminal sought by coal producers.
Oakland officials had welcomed the proposed marine terminal on their waterfront, but soured on the project when word leaked that it was being financed by Utah for the sake of shipping its coal to Asia.
The City Council passed an ordinance banning the handling of coal, but a federal judge later ruled it could not be applied to the export terminal without violating the contract project developer Phil Tagami holds with the city.
In recent weeks the city of Oakland and the Sierra Club have waded into the bankruptcy case, both filing objections to Insight's reorganization plan, citing different reasons.
Oakland officials contend Insight’s sublease on the project is not valid because the city canceled its contracts with Tagami. The matter is under active litigation with Tagami and his Oakland Bulk and Oversized Terminal, who allege the city has no legal basis for terminating the contract.
"If the City prevails in its state court litigation, [Insight] will have no right to develop the West Gateway terminal: the Ground Lease pursuant to which the Sub-Ground Lease was entered will be terminated and [Insight] will not be able to proceed with its redevelopment plans at the terminal," lawyers for the city wrote in an Aug. 4 court filing.
The Sierra Club contends the plan is premised on an illegal use of federal mineral revenue, one that props up a fading industry at the expense of taxpayers and the environment.
"Utah law prohibits the use of public funds for private use," said Earthjustice attorney Heidi McIntosh, who represents the Sierra Club. "The $20 million isn't even going to the project. It is going straight to [Insight's] creditors. Who knows if it has anything to do with the project? They are bailing out [Insight] in hopes that it will be able to build the terminal someday."
That possibility appears increasingly unlikely, even with Utah's financial participation, court filings suggest.
And if Insight fails to deliver, Utah’s $20 million could disappear with nothing to show for it.
Correction: 8/12/20 10:35 a.m. Insight Terminal Solutions has listed the same Louisville, Ky., address as Utah’s largest coal producer, Wolverine Fuels, formerly known as Bowie Resource Partners, which has since set up a new headquarters in Sandy, Utah.