Planned coal-export terminal promises jobs, taxes.

Some 5,900 jobs, $22 million in taxes to be generated

The Port of Los Angeles has some lofty projections for its proposed $180 million coal-export terminal.

By the year 2004, the fully operational terminal is expected to generate close to 5,900 direct and indirect new jobs and generate some $22 million in tax revenues for the five-county Southern California area. The terminal is also expected to lower the country's trade deficit by $1 billion.

"We're adding a whole new slug of export volume to the port," said Vern Hall, project manager for the as-yet-unbuilt coal terminal, which is formally called the Los Angeles Export Terminal, or LAXT. "It won't turn the L.A. economy around but there will be a net increase of jobs and it helps the balance of trade."

He also called the terminal a "model" for public-private partnerships.

The terminal is being funded through a consortium of 36 members who will share the risks and benefits of the project.

Fifty-one percent of the consortium is comprised of U.S. coal producers, Union Pacific Railroad Co., the terminal operator and the Port of L.A. The other 49 percent is comprised of Japanese entities, such as utilities, shipping lines, trading firms and banks.

As a 15 percent stakeholder ($18 million) in the proposed terminal and with an estimated rate of return between 12 and 14 percent, the Port of L.A. expects to be making $15 million a year in profit by the year 2005.

The corporation will be capitalized at $120 million, which will be used to design, purchase equipment and construct the terminal. This is in addition to the $60 million the Port of L.A. contributed for developing the terminal site.

Under the port's grand plans, the state-of-the-art coal terminal will be the collecting site for steam and thermal coal that has been mined in Utah and Colorado and then transported by rail to the Port of L.A.

Owners of L.A.'s proposed coal facility
                                          Equity Stake
Port of Los Angeles                              15%
Coal producers                                   21%
Coastal Coal Sales Inc.                         8.5%
Cyprus Western Coal Co.                           5%
ARCO Coal Co.                                     5%
Andalex Resources Inc.                          2.5%
Union Pacific Railroad                            5%
Terminal manager/operator(*)                     10%
Total U.S. equity stake                          51%
Japan Coal Development Corp.                     10%
Japanese trading companies                     14.1%
Hiuka Sangyo Co. Ltd.
ITOCHU International Inc.
Kanematsu Corp.
Marubeni Corp.
Mitsubishi Corp.
Mitsui & Co. Ltd.
Nichimen Corp.
Nissho Iwai Corp.
Sumitomo Corp.
Tokyo Boeki Ltd.
Tomen Corp.
Japanese shipping lines                           5%
Daiichi Chuo Kisen Kaisha
Iino Kaiun Kaisha Ltd.
Kawasaki Kisen Kaisha Ltd.
Mitsui O.S.K. Lines Ltd.
Navix Line Ltd.
Nippon Steel Shipping Co. Ltd.
NYK Line
Shinwa Kaiun Kaisha Ltd.
Showa Line Ltd.
Japanese oil companies                          5.4%
Idemitsu Kosan Co. Ltd.
Mitsubishi Oil Co. Ltd.
Nikko Kyodo Co. Ltd.
Nippon Oil Co. Ltd.
Showa Shell Sekiyu K.K.
Export-Import Bank of Japan                      10%
Long-Term Credit Bank of Japan                    4%
Mitsubishi Materials Corp.                      0.5%
Total Japanese equity stake                      49%
* Manager/operator had not been selected as of press time
Source: Port of Los Angeles

From there, the coal will be loaded onto ships and ferried to Japan, Korea and Taiwan, where it will be used as a heating source.

The terminal is expected to initially handle between 7 million and 8 million tons of coal per year, but it is designed for a capacity of a little more than 20 million tons per year.

The Los Angeles City Council unanimously approved the project July 27, granting a 35-year port lease to the terminal operation.

If the project receives its air- and water-quality permits and its progress through the approval pipeline proceeds on schedule, the three-year construction project will break ground next year on a 120-acre site at Pier 300 on Terminal Island.

While the project now seems to be sailing through toward construction, it has attracted some criticism.

Most sources familiar with the project agreed that, although the terminal will create jobs and taxes throughout Southern California, the terminal will have a negligible impact on L.A. County because the product (coal) is sourced from other states and the automated terminal won't generate many direct jobs.

The City of Long Beach filed a lawsuit July 14, alleging that the Port of L.A.'s environmental impact report doesn't adequately address the negative environmental impact of coal dust that will be spewed from the massive uncovered storage pile of coal and petroleum coke.

The Port of L.A. already has about a 40-acre pile of uncovered coal and coke, which would be expanded to about 100 acres when the terminal project is fully built.

Before the terminal can be built, the consortium needs to obtain air-quality permits from the South Coast Air Quality Management District and water-quality permits from the Water Resources Control Board.

Hall said the port plans to contain all the "fugitive" dust with a state-of-the-art system of wind-sensing machines and computer monitors. The massive storage pile, which will be surrounded by railroad tracks, will be sprayed with water to keep down the dust. And that water will be collected and recycled. Hall said the plan has been accepted in concept by the AQMD.

"We know what we have to do to get permits," he said. "We either satisfy the experts, or we don't build the project. It's as simple as that."

Perhaps the biggest question remaining for the project is whether or not enough demand for coal exists to make the project profitable.

While Port of L.A. officials contended the break-even point for the terminal would be reached if it handled between 7 million and 8 million tons a year, others said break-even is between 10 million and 15 million tons.

Steve Dillenbeck, executive director at the Port of Long Beach, said he doesn't believe American coal can be competitive with coal from other countries because the transportation costs make U.S. coal too expensive.

"I doubt they will make any money because the demand is just not there," he said.

But Long Beach officials are hardly detached, objective observers. Not only is the Port of Long Beach a longtime rival of the Port of L.A., but Long Beach also has its own covered coal and petroleum coke facility.

The Port of Long Beach is also spending $23 million to modernize its coal and coke terminal and expand production from its present 6 million-to-8 million annual capacity to 9 million to 10 million tons.

Proponents of the Port of L.A.'s new coal terminal, however, predicted a tremendous growth in demand for thermal coal and said American coal can be very competitive.

Tay Yoshitani, deputy executive director of maritime affairs at the Port of Los Angeles, said "it just makes sense" that Japan, Taiwan and Korea would want to diversify their energy sources.

He said those countries currently receive about 70 percent of their coal from Australia, which makes them too dependent on one source.

He said the L.A. coal terminal is expected to provide 10 to 15 percent of the Asian countries' coal needs.

"If you look at their (Japan, Korea, Taiwan) strategy for diversification, 10 to 15 percent is not unreasonable at all," he said.

Bob Stanlake, president of Westshore Terminals Ltd., which operates a massive coal export facility near Vancouver, Canada, called the L.A. terminal a "great growth venture."

Stanlake is not exactly objective either, since his company is a member of the partnership that has contracted to operate the L.A. coal terminal. But he expressed confidence that there will be a huge demand for American thermal coal.

Between 1992 and 2000, the combined demand of Japan, Korea and Taiwan for thermal coal should increase by more than 70 million tons per year, he said.

"There's a demand there; there's no doubt about it," he said. "The question is whether the American suppliers can be competitive enough to provide a piece of that demand. I believe they can with this new terminal."

He said the natural resources at the coal mines in Utah and Colorado are excellent, the mining conditions are good and the productivity is high.

The reason more American coal is not moving, he said, is because there is not a large enough storage capacity.

He said Canada cannot compete in this fast-growing thermal coal market because Canadian mines primarily produce metallurgical coal, which is used in steel making.