Los Angeles officials are preparing to pull out of a 10-year-old partnership in a coal export terminal, which would mean writing off a $19-million investment by the city and forfeiting nearly $94 million in projected revenue from the venture.
The Port of Los Angeles, a city agency, could face much steeper losses if the Los Angeles Export Terminal Inc. declares bankruptcy, as officials say will probably occur without a new agreement.
But the plan to terminate the city's investment and transfer some of its harbor area property to one of the partners has sparked a battle at City Hall.
City Councilwoman Janice Hahn, who represents the harbor area, prefers that the city seek bidders who could put the 117 acres in question to other, more environmentally friendly uses than transferring coal and petroleum coke.
"This was a bad deal from the beginning," Hahn said. "It was a loser every single year. We ought to take our losses, write it off and look for a better opportunity."
A City Council committee has voted 3 to 2 to endorse the deal, which heads to the full council for action Tuesday.
The Harbor Department invested in the terminal facility in 1993, seeking a way to help private investors establish a major export business on surplus city land at Pier 300 on Terminal Island.
In exchange for providing the 117 acres and $19 million in capital, the city agency received a 13% interest in the Los Angeles Export Terminal, whose 29 partners are foreign and U.S. corporations involved in the coal and export business.
The terminal was completed in 1997 to transfer coal from rail cars to ships for export.
It is capable of handling 3 million tons of coal and 2 million tons of petroleum coke annually.
However, Harbor Department General Manager Larry Keller said a slump in the coal export market has prevented the terminal from ever generating cash above operating expenses.
The facility has been hurt by the emergence of China as a major coal exporter, a strong U.S. coal demand, disruptions in U.S. coal supplies and a decline in export prices for coal in the Pacific Rim from $40 per metric ton to $30, with some spot prices as low as $23, Keller said.
The terminal "has determined that it cannot compete economically at these prices and sees no demand for the U.S. to export coal in the foreseeable future," Keller said in a report to the City Council.
Because of the slump, the terminal has stopped handling coal and owes the Harbor Department more than $11 million in back rent for the land.
Under the proposed deal, Los Angeles Export Terminal Inc. would be replaced by a partner, Oxbow Carbon and Mineral Inc., and the city would give up its $19 million in equity in the terminal. Other partners would walk away from $230 million they have spent on the facility, according to Brad Goldstein, a spokesman for Oxbow.
The proposal calls for 81 acres devoted to coal storage to be deleted from terminal holdings and to revert to city use after Oxbow contributes $500,000 of the $1.5 million it will cost the city to clean up the site.
Oxbow would maintain use of 36 acres for 12 1/2 years to operate a petroleum coke export facility, and would clean up the site before transferring it back to the city.
Oxbow also would pay the city the $11 million owed in back rent, but the minimum annual payment to the city in future years would be cut from $11 million to about $3 million, for a loss of $93.6 million in future revenue during the next 12 years.
Councilwoman Hahn says much of the money could be recovered by renting the land to other tenants, but Harbor Department officials said they are uncertain how soon that could be done and what it would yield.
Hahn said the city would be better off seeking open bids from firms to shut down all coal and coke operations in five years and converting the property into a cleaner operation.
"I know my residents in Wilmington would like to see that facility go away," she said. "It's an ugly facility."
The dispute over the best way for the city to get out of a sour investment has divided Los Angeles political leaders, resulted in multiple charges of conflict of interest and put an army of lobbyists to work attempting to influence the outcome.
"Every lobbyist I have ever heard of is in this chamber," Councilwoman Ruth Galanter said during a recent hearing on the proposal.
"I would like to know where, if [the terminal] is on the verge of bankruptcy, they got the money to hire all these lobbyists," Galanter said.
The lobbyists, who include former harbor-area City Councilman Rudy Svorinich Jr., have been hired by other private corporations that have or want to have a financial stake in the terminal.
The debate is complicated further by the fact that even though the terminal is facing severe financial problems and is partly owned by the city, records show it has made 25 political contributions totaling more than $10,000 to city officials and candidates including Mayor James K. Hahn and his sister, Councilwoman Hahn.
Councilwoman Hahn agreed there was a problem with the city investing in a tenant of the port.
"I think the whole thing is inappropriate," she said. "I think it was a conflict of interest from the beginning. I don't think the port and the city should be an investor in a tenant on port property. Is there any other tenant allowed to default on their rent for a year?"
Councilmen Bernard Parks and Nick Pacheco have joined Hahn in opposing the proposed deal with Oxbow, which has been recommended by the terminal board.
Council members Galanter, Hal Bernson and Ed Reyes voted for the deal in committee, arguing the city could lose much more if the terminal goes into bankruptcy.
Killing the deal, Bernson said, would mean the city would not get the back rent and cleanup funds promised by Oxbow, and the land could be tied up in Bankruptcy Court and unusable for years to come.
Oxbow officials see other motives behind the opposition to the deal.
John Fairbanks, who is Councilwoman Hahn's political pollster, and Svorinich, a Hahn political supporter, have been hired by Metropolitan Stevedore Co., which would like to take over the terminal under a Hahn plan that would phase out its operation in five years.
Oxbow spokesman Goldstein said Metropolitan's real goal is to shut down the Los Angeles terminal so it no longer is competition for a terminal Metropolitan operates in Long Beach.
"There is a conflict here. Hahn is not acting in the interest of her constituents or the taxpayers of L.A," Goldstein said. "She is doing a favor for her political consultant, Fairbanks, which will cost the taxpayers millions."