U.S. environmental groups question Arch Coal's bankruptcy exit plan

CHICAGO (Reuters) - A coalition of U.S. environmental groups said Arch Coal’s plan to emerge from bankruptcy fails to describe how the coal producer would finance its mine clean-up obligations, according to a court filing.

Coal companies are required to provide bonds on future clean-up costs but during decades of strength in the coal sector many were allowed to self-bond, a federal program that accepted companies’ own balance sheets as collateral.

That has become a concern since Chapter 11 bankruptcy filings by some of the biggest coal companies in the United States. The self-bond program is now under federal review.

“Given the strong possibility of (self-bonding) privileges being curtailed, it is highly likely that (Arch Coal) will be required to incur substantial expense” in finding a substitute for self-bonds, an environmental collective said in a limited objection filed with the U.S Bankruptcy Court in St. Louis late on Thursday.

Arch declined to comment.

In states where regulators do not allow self-bonding, mining companies have to pay for a form of insurance known as a surety or collateral bond.

Arch Coal, the second largest U.S. coal miner, has self-bonded for $485.5 million in estimated clean-up costs, but has said in court filings that it expects its final clean-up costs to be significantly less than that amount.

In their filing, the groups also requested clearer language regarding environmental liabilities on mining operations in Arch’s disclosure statement, which describes the bankruptcy plan.

The plan should not “relieve the responsibility” of a future owner or operator from complying with federal laws on cleaning waters or restoring mined land, the coalition formed by Sierra Club, Ohio Valley Environmental Coalition and West Virginia Highlands Conservancy said.

A hearing to approve Arch’s disclosure statement is scheduled for June 9 in St. Louis. The company filed for bankruptcy protection in January with $6 billion of debt.

Reporting by Tracy Rucinski; Editing by Tom Hals