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Rep. Holden calls for investigation into closed-door government meeting with coal-to-liquid fuel subcontractor


by Ben Wolfgang | Staff Writer
January 24, 2010

With $100 million in federal funding for a planned coal-to-liquid fuel plant now off the table, U.S. Rep. Tim Holden wants answers from the Department of Energy.

Last month, Holden, D-17, called for an internal investigation into the department and its actions during the last year of the Bush administration - actions Holden believes were "wrong and not in the best interest of the country."

Holden wants the department's inspector general to find out what was discussed during a closed-door March 2008 meeting between energy department officials and representatives from Sasol Inc., which had been a partner in John W. Rich Jr.'s long-awaited $1 billion liquid fuels project.

"The people who did this need to be exposed," Holden said in a telephone interview last week.

Rich, president of Waste Management & Processors Inc., Gilberton, has been developing the project for more than 15 years. South Africa-based Sasol was one of several subcontractors brought on board to provide technology.

For years, Rich had been counting on $100 million from the energy department to help fund the project, which would convert waste coal to usable diesel fuel.

Following Sasol's meeting with top energy department officials, the $100 million was reprogrammed to other projects at the end of 2008, despite the federal government's direct involvement with the project dating back to the early years of the Clinton administration.

Energy department officials did not return calls last week seeking comment.

Rich laid the blame solely at the feet of the energy department, claiming they intentionally delayed the project and were actively seeking its demise.

"I think there were people at the top who said, 'Why should we breathe life into competition for big oil?' " Rich said last week. "We have resources, we're credible. And we get treated like this? When you're working with the federal government, you don't start with a high level of suspicion."

In Holden's letter, he alleges Sasol was looking for a way out of the project "to pursue opportunities in China and India."

However, Sasol couldn't simply walk away. The company had signed a memorandum of understanding with WMPI years earlier - an agreement Sasol says it has now terminated.

In a letter to the Republican-Herald, Sasol claims WMPI did not live up to its obligations and, as such, Sasol walked away from the project. Sasol says the memorandum was terminated in July 2009, and because confidentiality agreements remain in place, it would not explain the alleged violations.

Rich and Holden want one question answered: What was discussed in the March 2008 meeting?

"What reason would they ever have for meeting with a subcontractor?" Rich said of the energy department.

"There is no reason in the world to meet with a subcontractor" without the prime contractor also there, Holden said. "Somebody did something wrong here. I don't want to speculate, but I want the department (of energy) to find out what happened."

In its written statement, Sasol, citing the confidentiality portion of its memorandum, did not address what was discussed in the meeting. It did say, however, that its dispute with WMPI was settled in the London Court for International Arbitration in the summer of 2008.

The LCIA is an international group that settles commercial disputes.

Rich says he initiated the arbitration after Sasol's meeting with the energy department, but later withdrew it after the $100 million was off the table.

Sasol claims it initiated the arbitration, but that could not be confirmed because the LCIA arbitration disputes remain confidential.

While still unsure of what was said during the 2008 meeting, Rich said the energy department's actions in its aftermath offer clues.

First, energy officials requested he perform a "techno-economic" study of the project, which Rich said was merely a stalling move. He said environmental impact and other studies had already been done, and water and other permits had already been issued for the site.

"They were playing run out the clock," Rich said.

Secondly, during the last two months of the Bush administration, the $100 million was redirected with little explanation, Rich said.

Holden, too, said the Bush administration showed little interest in alternative energy plans.

"I felt they (Department of Energy under Bush) were more interested in big oil," Holden said. "We had so much difficulty with the Department of Energy."

Initially, Rich said WMPI "tolerated" the delays, hoping eventually the project could break ground.

"They (the federal government) thought we would throw the towel in," he said.

It is not uncommon, however, for partners - whether they be private businesses or government entities - to be wary of investing in a first-of-its-kind type project, according to Jonathan Matthews, assistant professor of energy and mineral engineering at Penn State University.

"I don't believe anything until the ribbon-cutting ceremony," Matthews said in a telephone interview last week. "We never know what we've got until we've got it, regardless of the promises."

While the coal-to-liquid-fuels technology is already being used in other parts of the world, Rich's would be the first such plant in the United States.

Because of that, Matthews said, there is natural skepticism on the part of all partners, regardless of the project's promise and potential profitability.

As for Sasol's aspirations, Matthews said it would not be surprising if they were looking for opportunities in a number of countries.

"Sasol is an international company that is active around the world," he said. "They are the biggest players with coal to liquids."

As for the future of his project, Rich said he simply isn't sure. He said he'll wait for the results of the energy investigation before making his next move, and also said he believes Sasol would be willing to come back on board if the $100 million in federal funding is restored.

"If they have any sense of fairness, they (the federal government) will reinstate the money," he said.

Coal-to-liquid fuels timeline

1990s: John W. Rich Jr. conceives the idea and meets with Clinton administration officials to discuss it.

September 1998: Rich accompanies a legislative delegation to South Africa to meet with Sasol Inc., a leading coal gasification/liquefaction company.

January 2001: Bush administration comes into power; Rich says he subsequently has discussions with high-ranking officials, including the president himself, about the project.

November 2001: A federal government contribution of $100 million is raised in Senate legislation.

October 2002: Rich submits official plans to Department of Energy; cost estimated at $612 million.

January 2003: Department of Energy approves $100 million in federal funding.

February 2003: Carl Michael Smith, former assistant secretary for fossil energy, visits Rich's proposed site near Gilberton.

March 2005: The project receives air permit approval from state.

April 2005: Rich reaches technology agreement with Sasol.

November 2005: Department of Energy released its environmental impact study on project; cost projections eventually reach $1 billion.

March 2008: Amid financial hang-ups, Sasol allegedly meets with Department of Energy officials behind closed doors and without Rich present.

Summer 2008: Dispute between Rich and Sasol reaches London Court for International Arbitration.

July 2009: Sasol says it terminates agreement with Rich, but confidentiality agreements remain binding.

September 2009: U.S. Rep. Tim Holden's staff meets with Rich.

Dec. 30, 2009: Holden formally requests an internal investigation into Sasol's meeting with energy department.

Sources: The Republican-Herald, Sasol Inc., ultracleanfuels.com, John W. Rich Jr.