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Trump infrastructure plan could raise cost of shipping coal, building materials

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Coal barges frozen on the Ohio River in downtown Pittsburgh. The Trump administration's proposals regarding infrastructure and proposed budget for the U.S. Army Corps of Engineers could increase the cost of waterway transportation for the coal industry.

Source: Associated Press

The Trump administration's legislative outline for infrastructure development could raise transportation costs along inland waterways for the coal industry, stakeholders say.

Mike Toohey, president and CEO of the Waterways Council Inc., told S&P Global Market Intelligence that there is a "real disconnect in philosophy" between President Donald Trump's desire to promote exports and the use of coal, and the infrastructure plan — which he said would add to the export cost of coal shipped by inland waterways.

While the organization was encouraged when Trump lamented the "massively underfunded" system of locks and dams during a speech on the banks of the Ohio River in June 2017, Toohey said the infrastructure outline appears to mean "commercial operators and shippers are the only ones who will be expected to pay, and significantly more" for maintaining the system.

"The proposal creates a disincentive rather than an incentive for coal to grow its market share," he said, and higher shipping costs would make it harder for coal to compete with natural gas, which is usually moved by pipeline.

Waterways are hugely important for the coal industry. A single lock on the Ohio River moves 14 million tons of coal, lignite or coal coke per year on average and some Northern Appalachia producers have been shipping more tons down to the Gulf Coast due to tightness in Baltimore export terminals.

The main problem with the plan, Toohey said, is that it would allow private entities to take over construction of river infrastructure projects from the U.S. Army Corps of Engineers and install tolls.

That would mean higher costs for barges shipping coal, which might have to pay at multiple locks over the course of their transit, and could ironically hurt future infrastructure development by driving up the costs for building materials, often shipped by river.

It could also mean that other beneficiaries of the locks and dams would not have to pay, such as recreational boaters who take advantage of the deep pools of water created just upstream from the dams but often never pass through the locks themselves.

"We kind of hope this is not the final version — it's just a proposal," said Scott Turer, CFO of Three Rivers Marine and Rail Terminals LLC, an intermodel transportation hub near Pittsburgh. He said the current public-private system, which uses taxes paid on boat fuel to help with waterway infrastructure, works because stakeholders share costs and benefits.

Tolls "would create a system with winners and losers," he said, adding that companies decided where to locate river terminals based on distance and fees. "If you change the rules at the 11th hour, there's going to be a lot of pain with that."

However, Turer supports the infrastructure outline's plan to streamline the bureaucracy involved in getting new projects off the ground: "We want to spend more of the money on construction."

William Stahlman, director of engineering and construction at America's Central Port in Illinois near St. Louis and a member of the American Society of Civil Engineers' Committee on America's Infrastructure, criticized the possibility of a toll system for similar reasons as Toohey.

However, like Turer, he favors some of the suggested streamlining to get waterways projects moving more quickly, and said the Trump administration's outline "is definitely an interesting approach."

"Whether it's coal or whether it's agriculture — all the users of the inland river system — I think we're all kind of sitting on the edge of our chair right now trying to figure out how we're going to address the next 50 years of this system," he said, adding that under the current system, operations and maintenance often get sidelined and deferred in favor of larger projects.

Stahlman also believes the infrastructure outline's plan to allow other entities, whether states, local governments or private companies, to get involved might get more projects moving.

Toohey said the infrastructure outline's funding mechanisms, which would offer a 20% grant for eligible projects that receive 80% funding from a state, local or private entity, would likely not result in many state or local investments in eastern coal country since many of the states and communities are short on cash.

Carol Labashosky, Louisville District public affairs officer for the Army Corps, said that she was not sure tolls would be added to lock and dam systems, and that she could not speculate on what the infrastructure plan would look like under the administration.

Coal country lock upgrades on hold

Toohey also criticized the administration's fiscal year 2019 budget proposal for the Army Corps, which includes a proposal to spend $35 million on inland waterway modernization, a massive drop from the $402 million Congress appropriated last year.

The $35 million appropriation proposed would go entirely to the Olmsted Locks and Dam project — a long-delayed, over-budget replacement for two sets of locks and dams on a major coal shipping route on the Ohio River.

The proposal offers no funds for three other waterway projects underway, including two to modernize lock systems in coal country: the Monongahela River Locks and Dams 2, 3 and 4 in Pennsylvania, and the Kentucky Navigation Lock.

"It will mean that coal and other commodities will be impacted by continued delays and inefficiencies of locks that continue to age without any modernization to speak of," said Debra Calhoun, senior vice president of the Waterways Council Inc., while Turer worries that the Army Corps may have to abandon these projects.

Gary Broadbent, a spokesperson for Murray Energy Corp., said the coal producer believes U.S. infrastructure, and primarily waterway locks, dams, and other water transportation facilities, requires substantial improvement.

"The Ohio, Monongahela, and Mississippi rivers are in the greatest need for repairs and upgrades," he said.